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 June 30, 2003
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 [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
The number of shares outstanding of the Registrant's common stock, par value
$.01 per share, at July 31, 2003 was 56,305,931 shares.
TOWER AUTOMOTIVE, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 2003
(unaudited) and December 31, 2002
Condensed Consolidated Statements of Operations (unaudited)
for the Three Months Ended June 30, 2003 and 2002
Condensed Consolidated Statements of Operations (unaudited)
for the Six Months Ended June 30, 2003 and 2002
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Six Months Ended June 30, 2003 and 2002
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
Item 4. Disclosure Controls and Procedures
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
- 2 -
ITEM 1 - FINANCIAL INFORMATION
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
June 30, December 31,
2003 2002
----------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 205,283 $ 13,699
Accounts receivable 371,930 249,341
Inventories 113,193 133,074
Deferred income taxes, net 16,163 20,634
Prepaid tooling and other 152,650 100,433
----------- ------------
Total current assets 859,219 517,181
----------- ------------
Property, plant and equipment, net 1,057,073 1,073,619
Investments in joint ventures 260,840 260,898
Deferred income taxes, net 117,477 105,699
Goodwill 486,611 472,967
Other assets, net 159,805 127,521
----------- ------------
$ 2,941,025 $ 2,557,885
=========== ============
Liabilities and Stockholders' Investment
Current liabilities:
Current maturities of long-term debt and capital lease
obligations $ 95,420 $ 120,470
Accounts payable 572,041 417,727
Accrued liabilities 273,543 284,450
----------- ------------
Total current liabilities 941,004 822,647
----------- ------------
Long-term debt, net of current maturities 757,883 535,220
Obligations under capital leases, net of current maturities 32,747 29,731
Convertible subordinated notes 199,984 199,984
Other noncurrent liabilities 226,984 199,477
----------- ------------
Total noncurrent liabilities 1,217,598 964,412
----------- ------------
Mandatorily redeemable trust convertible preferred securities 258,750 258,750
Stockholders' investment:
Preferred stock -- --
Common stock 660 659
Additional paid-in capital 684,919 683,072
Retained deficit (48,025) (57,174)
Deferred compensation plans (9,618) (10,746)
Accumulated other comprehensive loss (44,403) (43,875)
Treasury stock (59,860) (59,860)
----------- ------------
Total stockholders' investment 523,673 512,076
----------- ------------
$ 2,941,025 $ 2,557,885
=========== ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
Three Months Ended June 30,
---------------------------
2003 2002
--------- ---------
Revenues $ 743,179 $ 750,872
Cost of sales 664,731 658,178
--------- ---------
Gross profit 78,448 92,694
Selling, general and administrative expenses 39,135 37,367
Restructuring and asset impairment charge 23,066 --
--------- ---------
Operating income 16,247 55,327
Interest expense, net 18,083 17,176
Other expense -- 2,939
--------- ---------
Income (loss) before provision for income taxes,
equity in earnings of joint ventures and minority
interest (1,836) 35,212
Provision (benefit) for income taxes (625) 12,324
--------- ---------
Income (loss) before equity in earnings of joint
ventures and minority interest (1,211) 22,888
Equity in earnings of joint ventures, net of tax 3,144 4,277
Minority interest, net of tax (4,356) (4,274)
--------- ---------
Net income (loss) $ (2,423) $ 22,891
========= =========
Basic earnings (loss) per common share $ (0.04) $ 0.40
========= =========
Weighted average number of basic shares outstanding 56,556 57,841
========= =========
Diluted earnings (loss) per common share $ (0.04) $ 0.37
========= =========
Weighted average number of diluted shares outstanding 56,556 74,130
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
Six Months Ended June 30,
----------------------------
2003 2002
----------- -----------
Revenues $ 1,475,757 $ 1,418,979
Cost of sales 1,322,785 1,257,276
----------- -----------
Gross profit 152,972 161,703
Selling, general and administrative expenses 73,811 70,362
Restructuring and asset impairment charge 23,066 75,407
----------- -----------
Operating income 56,095 15,934
Interest expense, net 34,852 35,207
Other income -- (900)
----------- -----------
Income (loss) before provision for income taxes, equity
in earnings of joint ventures, minority interest and
cumulative effect of accounting change 21,243 (18,373)
Provision (benefit) for income taxes 7,222 (6,432)
----------- -----------
Income (loss) before equity in earnings of joint ventures,
minority interest and cumulative effect of accounting change 14,021 (11,941)
Equity in earnings of joint ventures, net of tax 3,788 8,662
Minority interest, net of tax (8,660) (8,347)
----------- -----------
Income (loss) before cumulative effect of accounting change 9,149 (11,626)
Cumulative effect of change in accounting principle, net of tax -- (112,786)
----------- -----------
Net income (loss) $ 9,149 $ (124,412)
=========== ===========
Basic earnings (loss) per common share:
Income (loss) before cumulative effect of change in
accounting principle $ 0.16 $ (0.22)
Cumulative effect of change in accounting principle -- (2.13)
----------- -----------
Net income (loss) $ 0.16 $ (2.35)
=========== ===========
Weighted average number of basic shares outstanding 56,375 53,047
=========== ===========
Diluted earnings (loss) per common share:
Income (loss) before cumulative effect of change in
accounting principle $ 0.16 $ (0.22)
Cumulative effect of change in accounting principle -- (2.13)
----------- -----------
Net income (loss) $ 0.16 $ (2.35)
=========== ===========
Weighted average number of diluted shares outstanding 56,632 53,047
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
- 5 -
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
Six Months Ended June 30,
----------------------------
2003 2002
----------- -----------
OPERATING ACTIVITIES:
Net income (loss) $ 9,149 $ (124,412)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities -
Cumulative effect of change in accounting principle -- 112,786
Restructuring and asset impairment charge 23,066 75,407
Customer recovery related to program cancellation 15,600 --
Depreciation 79,106 65,373
Deferred income tax benefit (1,808) (15,090)
Gain on sale of plant -- (3,839)
Equity in earnings of joint ventures, net (3,788) (8,662)
Change in working capital and other operating items (8,249) (82,255)
----------- -----------
Net cash provided by operating activities 113,076 19,308
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures, net (98,726) (69,042)
Acquisitions, including joint ventures interests, earnout
payments and dividends 3,506 (38,039)
Proceeds from sale of fixed assets -- 50,313
----------- -----------
Net cash used in investing activities (95,220) (56,768)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,487,428 986,256
Repayment of debt (1,314,182) (1,166,819)
Net proceeds from issuance of stock 482 224,903
----------- -----------
Net cash provided by financing activities 173,728 44,340
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 191,584 6,880
CASH AND CASH EQUIVALENTS:
Beginning of period 13,699 21,767
----------- -----------
End of period $ 205,283 $ 28,647
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 33,363 $ 33,978
=========== ===========
Income taxes paid (refunded) $ (415) $ 553
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
- 6 -
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
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, 2002.
Revenues and operating results for the six months ended June 30, 2003 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
Inventories are valued at the lower of first-in-first-out ("FIFO") cost or
market, and consisted of the following (in thousands):
JUNE 30, DECEMBER 31,
2003 2002
-------- ------------
Raw materials $ 52,691 $ 64,777
Work in process 22,347 20,630
Finished goods 38,155 47,667
-------- ------------
$113,193 $ 133,074
======== ============
3. STOCKHOLDERS' INVESTMENT
STOCK REPURCHASE:
During 2002, the Company repurchased approximately 9.8 million shares at a
total cost of $59.9 million to complete the total original board-approved
amount of $100 million. These shares are classified as treasury stock in
the Company's condensed consolidated balance sheets and may be subsequently
reissued for general corporate purposes.
- 7 -
EARNINGS PER SHARE:
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 June 30,
2002 were determined on the assumptions that the Edgewood notes, the
Convertible Subordinated Notes and the Preferred Securities were converted
at the beginning of the period. Diluted earnings per share for the six
months ended June 30, 2003 were determined on the assumption that the
Edgewood notes were converted at the beginning of the period. The
Convertible Subordinated Notes and Preferred Securities, totaling
approximately 16.2 million shares, were not included in the computation of
earnings per share for the six months ended June 30, 2003, due to their
anti-dilutive effect. None of the common stock equivalents totaling
approximately 16.7 million shares and 16.3 million shares were included in
the computation of earnings per share for the three months ended June 30,
2003 and the six months ended June 30, 2002, respectively due to their
anti-dilutive effect (in thousands, except for per share data):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- -----------------------
2003 2002 2003 2002
------- --------- --------- ---------
Net income (loss) $(2,423) $ 22,891 $ 9,149 $(124,412)
Interest expense on Convertible
Subordinated notes, net of tax -- 1,762 -- --
Dividends on Preferred Securities, net of tax -- 2,838 -- --
------- --------- --------- ---------
Net income (loss) applicable to common
stockholders -- diluted $(2,423) $ 27,491 $ 9,149 $(124,412)
======= ========= ========= =========
Weighted average number of common shares
outstanding 56,556 57,841 56,375 53,047
Dilutive effect of outstanding stock options
and warrants after application of the
treasury stock method -- 119 246 --
Dilutive effect of Edgewood notes, assuming
conversion -- 16 11 --
Dilutive effect of Convertible Subordinated
Notes, assuming conversion -- 7,730 -- --
Dilutive effect of Preferred Securities,
assuming conversion -- 8,424 -- --
------- --------- --------- ---------
Weighted average number of diluted shares
outstanding 56,556 74,130 56,632 53,047
======= ========= ========= =========
Basic earnings (loss) per share $ (0.04) $ 0.40 $ 0.16 $ (2.35)
======= ========= ========= =========
Diluted earnings (loss) per share $ (0.04) $ 0.37 $ 0.16 $ (2.35)
======= ========= ========= =========
STOCK-BASED COMPENSATION:
The Company accounts for stock options under the provisions of Accounting
Principles Board Opinion ("APB") No. 25, under which no compensation
expense is recognized when the stock options are granted to colleagues and
directors at fair market value as of the grant date. The Company may also
grant stock options to outside consultants. The fair value of these option
grants are expensed over the period services are rendered based on the
Black-Scholes valuation model.
The Company has three stock option plans: the 1994 Stock Option Plan, the
Long Term Incentive Plan, and the Independent Director Stock Option Plan
and three stock purchase plans: the Employee Stock Purchase Plan, the Key
Leadership Deferred Income Stock Purchase Plan and the Director Deferred
Income Stock Purchase Plan. Had compensation cost for these plans been
determined as required under SFAS No. 123, "Accounting for Stock-Based
Compensation," amended by SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure," the Company's pro forma net
income (loss) and pro forma earnings (loss) per share would have been as
follows (in thousands, except per share data):
- 8 -
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ---------------------
2003 2002 2003 2002
------- ------- ------ ---------
Net income (loss)
As Reported $(2,423) $22,891 $9,149 $(124,412)
Pro Forma $(3,650) $21,955 $6,458 $(126,373)
Basic earnings (loss) per share
As Reported $ (0.04) $ 0.40 $ 0.16 $ (2.35)
Pro Forma $ (0.06) $ 0.38 $ 0.11 $ (2.38)
Diluted earnings (loss) per share
As Reported $ (0.04) $ 0.37 $ 0.16 $ (2.35)
Pro Forma $ (0.06) $ 0.36 $ 0.11 $ (2.38)
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted
average assumptions: risk free interest rates of 2.91 percent in 2003 and
5.02 percent in 2002; expected life of seven years for 2003 and 2002;
expected volatility of 58 percent for 2003 and 2002; and expected dividends
of zero for 2003 and 2002.
4. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
JUNE 30, DECEMBER 31,
2003 2002
--------- ------------
Revolving credit facility $ 25,808 $ 177,303
Term credit facility 240,000 125,000
Senior Euro notes 172,050 157,440
Senior notes (net of discount of $7,179) 250,821 --
Industrial development revenue bonds 43,765 43,765
Edgewood notes -- 50
Other foreign subsidiary indebtedness 113,166 123,518
Other 76 18,422
--------- ------------
845,686 645,498
Less-current maturities (87,803) (110,278)
--------- ------------
Total long-term debt $ 757,883 $ 535,220
========= ============
In June 2003, R. J. Tower Corporation (the "Issuer"), a wholly-owned
subsidiary of the Company, completed a senior note offering with a face
amount of $258 million and a 12 percent interest rate. The notes were
discounted upon issuance to yield 12.5 percent payable semi-annually. The
notes rank equally with all of the Company's other senior unsecured and
unsubordinated debt and mature on June 1, 2013.
In June 2003, the Company completed an amendment to its senior credit
facility (the "Credit Agreement") to reduce the borrowing capacity of the
facility and provide for amended financial covenants in order to enhance
overall liquidity. The amendment reduced the former $725 million facility
to a $600 million facility. The term portion of the facility increased from
$125 million to $240 million, and the revolver portion decreased from $600
million to $360 million. The Company had previously amended, in June 2002,
its prior credit agreement which voluntarily reduced its borrowing facility
from $1.15 billion to $725 million. The amount available to borrow under
the revolver portion of the credit facility is restricted by $44 million of
permanent letters of credit, and until October 31, 2003, is also restricted
by $200 million to provide flexibility for the Company to redeem its $200
million convertible subordinated notes (due August 1, 2004), in the event
it elects to do so without refinancing the convertible notes in another
manner. The Credit Agreement also includes a multi-currency borrowing
feature that allows the Company to borrow up to $316 million in certain
freely tradable offshore currencies, and letters of credit sublimits of
$250 million. As of June 30, 2003, approximately $25.8 million of the
outstanding revolver borrowings are denominated in Euro. Interest on the
Credit Agreement is at the financial institutions' reference rate, LIBOR,
or the Eurodollar rate plus a margin ranging from 100 to 325 basis points
depending on the ratio of the consolidated funded debt for restricted
subsidiaries of the Company to its total
- 9 -
EBITDA. The weighted average interest rate for such borrowings was 5.8
percent for the six months ended June 30, 2003 (including the effect of the
interest rate swap contract discussed below). The Credit Agreement has a
final maturity of 2006.
As a result of the permanent reductions of borrowing capacity under the
June 2003 and June 2002 amendments, the Company recorded $0.4 million and
$2.0 million non-cash charges during the second quarters of 2003 and 2002,
respectively for the write-off of deferred financing costs associated with
the credit facilities.
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 limits the Company's ability to pay
dividends. As of June 30, 2003, the Company was in compliance with all debt
covenants and anticipates achieving covenant compliance for the remainder
of 2003.
In July 2000, R. J. Tower Corporation (the "Issuer"), a wholly-owned
subsidiary of the Company, issued Euro-denominated senior unsecured notes
in the amount of (euro)150 million ($172.1 million at June 30, 2003) 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 senior unsecured and
unsubordinated debt and 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 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.
The Company has designated the swap as a cash flow hedge. Accordingly,
gains and losses are recorded in accumulated other comprehensive income
(loss), net of income taxes. As of June 30, 2003, there is $12.0 million
(net of tax) recorded in accumulated other comprehensive loss related to
the cash flow hedge. Derivative liabilities relating to the interest rate
swap agreement totaling $19.2 million have been recorded in accrued
liabilities in the condensed consolidated balance sheet as of June 30,
2003. 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. ACCOUNTS RECEIVABLE SECURITIZATION
At June 30, 2003, the Company had sold $112.0 million of net accounts
receivable pursuant to its accounts receivable securitization program in
exchange for $28.4 million of cash and retained a subordinated interest in
the receivables sold of $83.6 million. The receivables sold represented
amounts owed to the Company from customers as of May 31, 2003. The majority
of such receivables were collected in June 2003 and as a result, the
Company's retained interest in accounts receivable is not significant as of
June 30, 2003 and is not presented separately from accounts receivable. As
of June 30, 2003, the Company recorded a liability to the funding agent of
$28.4 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 an annual rate of approximately 2.57 percent, occurs
during the month subsequent to the sale of the receivables.
6. ACQUISITIONS
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 certain existing 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 vehicles, which is typically three to ten years.
Accordingly, the Company
- 10 -
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 and for provisions for acquired loss contracts. A rollforward of
these reserves is as follows (in millions):
FACILITY
SHUTDOWN LOSS
COSTS CONTRACTS
-------- ---------
Balance at December 31, 2002 $ 4.5 $ 6.1
Utilization (0.2) (1.6)
-------- ---------
Balance at June 30, 2003 $ 4.3 $ 4.5
======== =========
As of June 30, 2003, all of the identified 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. The Company's
acquisition 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 June 30, 2003.
7. INVESTMENTS IN JOINT VENTURES
On September 21, 2000, the Company acquired a 17 percent equity interest in
Yorozu Corporation ("Yorozu"), a supplier of suspension modules and
structural parts to the Asian and North American automotive markets, from
Nissan Motor Co. Ltd. ("Nissan"). On February 20, 2001, the Company
exercised its option to increase its holdings in Yorozu by 13.8 percent
through the purchase of additional Yorozu shares. Yorozu is based in Japan
and is publicly traded on the first tier of the Tokyo Stock Exchange. Its
principal customers include Nissan, Auto Alliance, General Motors, Ford,
and Honda. The Company paid Nissan approximately $68 million over two and
one half years for its 30.8 percent interest. As of June 30, 2003, the
traded market value of shares held in Yorozu was $42.5 million and the
Company's investment in Yorozu was $61.8 million, as compared with a traded
market value of $22.4 million and investment in Yorozu of $60.4 million at
the original dates of the investment. The Company has determined that the
investment in Yorozu has not suffered an other than temporary decline in
market value. This determination is based on the long-term strategic nature
of the investment, which supported the Company's original investment
decision, and the fact that the Company believes that there is a
significant value premium associated with owning a large block of voting
equity in a Japanese public company.
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 addition, the
parties have entered into a technology sharing arrangement that enables
both companies to utilize the latest available product and process
technology. Metalsa is headquartered in Monterrey, Mexico and has
manufacturing facilities in Monterrey and San Luis Potosi, Mexico and
Roanoke, Virginia. Metalsa's customers include DaimlerChrysler, General
Motors, Ford, and Nissan. 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 for the years 1998, 1999
and 2000. Based upon Metalsa's 1998 and 1999 net earnings, the Company paid
Proeza $9.0 million and $7.9 million of additional consideration during
1999 and 2000, respectively. Based upon Metalsa's 2000 net earnings, the
Company paid $9.7 million of additional consideration during 2002.
8. DIVESTITURE
On February 1, 2002, the Company sold its Iwahri, Korea plant to a Hyundai
affiliate for net proceeds of $4.0 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 that was classified as other income. 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. The Company
continues to manufacture body structure components in Korea, including
those components used in the Kia Sportage module.
- 11 -
9. SEGMENT INFORMATION
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 suspension and powertrain modules 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 JUNE 30, 2003:
Revenues $ 531,502 $ 211,677 $ 743,179
Operating income (loss) (4,535) 20,782 16,247
Restructuring and asset impairment charge 23,066 -- 23,066
Total assets 2,102,583 838,442 2,941,025
THREE MONTHS ENDED JUNE 30, 2002:
Revenues $ 581,593 $ 169,279 $ 750,872
Operating income 40,728 14,599 55,327
Total assets 1,699,956 800,202 2,500,158
SIX MONTHS ENDED JUNE 30, 2003:
Revenues $ 1,063,564 $ 412,193 $ 1,475,757
Operating income 17,304 38,791 56,095
Restructuring and asset impairment charge 23,066 -- 23,066
Total assets 2,102,583 838,442 2,941,025
SIX MONTHS ENDED JUNE 30, 2002:
Revenues $ 1,097,989 $ 320,990 $ 1,418,979
Operating income (loss) (1,972) 17,906 15,934
Restructuring and asset impairment charge 71,738 3,669 75,407
Cumulative effect of change in accounting
principle -- 112,786 112,786
Total assets 1,699,956 800,202 2,500,158
The change in the carrying amount of goodwill for the six months ended June
30, 2003, by operating segment, is as follows (in thousands):
UNITED STATES/
CANADA INTERNATIONAL TOTAL
-------------- ------------- ------------
Balance at December 31, 2002 $ 336,653 $ 136,314 $ 472,967
Currency translation adjustment 1,525 12,119 13,644
-------------- ------------- ------------
Balance at June 30, 2003 $ 338,178 $ 148,433 $ 486,611
============== ============= ============
10. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
MILWAUKEE RANGER (2003 PLAN):
On May 27, 2003, the Company announced that it would transfer the
production of high-volume frame assemblies for the Ford Ranger from its
Milwaukee facility to its Bellevue I facility in Bellevue, Ohio. The
relocation of the Milwaukee Ranger production line is expected to be
completed by June 2004 and the Company expects to realize annual cash
savings, related primarily to reduced labor costs, of approximately $10
million following the full completion of the move. As a result of the 2003
Plan, the Company recorded a $23.1 million pre-tax restructuring and asset
impairment charge during the second quarter of 2003. This charge reflects
estimated qualifying "exit costs" comprising cash charges of $2.8 million,
pension and other
- 12 -
post-retirement benefit plan curtailment costs of $7.7 million and non-cash
asset impairment charges of $12.6 million. In connection with this
activity, the Company expects to incur total restructuring charges of
approximately $40 million as the costs are incurred in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." The expected
additional charges of approximately $17 million beyond the $23.1 million
recorded in the second quarter of 2003 are predominately related to
additional severance costs to be recognized in future periods as the
affected colleagues reach the end of their respective employment periods.
The cost incurred to date as well as the cost expected to be incurred
relating to the 2003 Plan are within the United States/Canada reportable
segment. The 2003 Plan will result in a reduction of approximately 250
colleagues with the eliminations commencing in the fourth quarter of 2003.
The estimated restructuring charge does not cover certain aspects of the
2003 Plan, including movement of equipment and colleague relocation and
training. These costs will be recognized in future periods as incurred.
The accrual for the 2003 Plan is included in accrued liabilities in the
accompanying condensed consolidated balance sheet as of June 30, 2003. The
table below summarizes the accrued operational realignment and other
charges related to the 2003 Plan through June 30, 2003 (in millions):
ASSET SEVERANCE AND
IMPAIRMENT OUTPLACEMENT OTHER EXIT
COSTS COSTS COSTS TOTAL
---------- ------------- ---------- --------
Provision $ 12.6 $ 2.8 $ 7.7 $ 23.1
Cash usage -- (1.1) -- (1.1)
Non-cash charges (12.6) -- (7.7) (20.3)
---------- ------------- ---------- --------
Balance at June 30, 2003 $ -- $ 1.7 $ - $ 1.7
========== ============= ========== ========
During the second quarter 2003, the Company charged $7.7 million of other
exit costs from the 2003 Plan restructuring reserves for expected
curtailment cost against the pension liability accrual.
MILWAUKEE PRESS OPERATIONS (2002 PLAN):
On January 31, 2002, the Company announced that it would discontinue the
remaining stamping and ancillary processes performed at its Milwaukee Press
Operations and relocate the remaining work to other Tower locations or Tier
II suppliers. The Company substantially completed the transfer process in
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 during
the 12 months subsequent to the establishment of the 2002 Plan. During the
fourth quarter of 2002, due to a favorable settlement of anticipated other
exit costs and an assessment of remaining costs, the Company subsequently
reduced the estimates associated with the 2002 and 2001 Plans by $14.3
million, resulting in a net restructuring charge of $61.1 million for 2002.
The 2002 Plan charge includes costs associated with asset impairments,
severance and outplacement costs related to colleague terminations and
certain other exit costs. These activities resulted in a reduction of
approximately 500 colleagues.
The accrual for the 2002 Plan is included in accrued liabilities in the
accompanying condensed consolidated balance sheet as of June 30, 2003. The
table below summarizes the accrued operational realignment and other
charges related to the 2002 Plan through June 30, 2003 (in millions):
SEVERANCE AND
OUTPLACEMENT OTHER EXIT
COSTS COSTS TOTAL
------------- ---------- --------
Balance at December 31, 2002 $ 3.5 $ 1.0 $ 4.5
Cash usage (1.7) (1.0) (2.7)
------------- ---------- --------
Balance at June 30, 2003 $ 1.8 $ -- $ 1.8
============= ========== ========
The Company anticipates utilizing the remaining 2002 Plan restructuring
reserves as originally intended, with the ultimate disposition occurring
during the year ending December 31, 2003.
SEBEWAING AND MILWAUKEE PRESS OPERATIONS (2001 PLAN):
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 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
- 13 -
incurred during the 12 months subsequent to the establishment of the 2001
Plan. This total reflected a provision of $184.0 million, net of certain
revisions in the estimate of the 2000 Plan of $5.9 million, which were
reversed in 2001.
The 2001 Plan charge includes costs associated with asset impairments,
severance and outplacement costs related to colleague terminations and
certain other exit costs. These activities resulted 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.
The accrual for the 2001 Plan is included in accrued liabilities in the
accompanying condensed consolidated balance sheet as of June 30, 2003. The
table below summarizes the accrued operational realignment and other
charges related to the 2001 Plan through June 30, 2003 (in millions):
SEVERANCE AND
OUTPLACEMENT OTHER EXIT
COSTS COSTS TOTAL
------------- ---------- --------
Balance at December 31, 2002 $ 1.0 $ 8.3 $ 9.3
Cash usage (1.0) (3.2) (4.2)
------------- ---------- --------
Balance at June 30, 2003 $ -- $ 5.1 $ 5.1
============= ========== ========
The remaining other exit costs relate primarily to the present value of
operating lease payments that the Company is obligated to pay through 2010.
11. COMPREHENSIVE INCOME (LOSS)
The following table presents comprehensive income (loss) for the three
months and the six months ended June 30, 2003 and 2002, respectively (in
thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net income (loss) $ (2,423) $ 22,891 $ 9,149 $(124,412)
Change in cumulative
translation adjustment 7,772 19,153 10,145 18,584
Unrealized gain (loss) on
qualifying cash flow hedges 301 (2,608) 812 (1,180)
Minimum pension liability (11,485) -- (11,485) --
--------- --------- --------- ---------
Comprehensive income (loss) $ (5,835) $ 39,436 $ 8,621 $(107,008)
========= ========= ========= =========
12. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." Among other provisions, this Statement eliminates the
requirement that gains and losses from extinguishment of debt be classified
as extraordinary items. SFAS No. 145 became effective for the Company on
January 1, 2003. Upon adoption of SFAS No. 145, the Company now
reclassifies losses on extinguishments of debt that were classified as
extraordinary items in prior periods when such prior periods are presented.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement requires that
a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred, rather than when a company
commits to an exit plan as was previously required. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December
31, 2002. The new standard resulted in the Company recognizing liabilities
related to certain restructuring activities at the time the liability is
incurred rather than the past method of recognizing the liability upon the
announcement of the plan and communication to colleagues.
- 14 -
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure." SFAS No. 148 amends SFAS No.
123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about
the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. SFAS 148 is effective for
financial statements for fiscal years ending after December 15, 2002. The
Company has included the additional disclosures about its method of
stock-based compensation in Note 3.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and
for hedging activities under SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No 149 is generally effective for
contracts entered into or modified after June 30, 2003. The Company does
not believe that the adoption of SFAS No. 149 will have a material impact
on its results of operations or financial condition.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
This Statement requires that certain financial instruments previously
accounted for as equity under previous guidance be classified as
liabilities in statements of financial position. Such financial instruments
include (i) mandatorily redeemable shares that the issuer is obligated to
buy back in exchange for cash or other assets, (ii) instruments, including
put options and forward purchase contracts, that require the issuer to buy
back some of its shares in exchange for cash or other assets and (iii)
obligations that can be settled with shares, the monetary value of which is
fixed, tied solely or predominantly to a variable such as a market index,
or varies inversely with the value of the issuer's shares. SFAS No. 150
will become effective for all financial instruments entered into or
modified after May 31, 2003 and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. The Company does
not believe the adoption of SFAS No. 150 will have a material impact on its
results of operations or financial condition.
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates
on the disclosures to be made by a guarantor about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the guarantee. The
recognition and measurement provisions of FIN 45 are effective for all
guarantees issued or modified after December 31, 2002. The Company
currently does not have any guarantees requiring disclosure under FIN 45.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51." FIN 46 addresses
consolidation by business enterprises of certain variable interest entities
that are currently not consolidated. FIN 46 is effective for variable
interests created after January 31, 2003 and to variable interest entities
in which an enterprise obtains an interest after that date. For variable
interest entities in which the Company holds a variable interest that it
acquired before February 1, 2003, the Interpretation applies on July 1,
2003. The Company has determined that, under FIN 46, the trust which issued
its mandatorily redeemable convertible preferred securities will no longer
be consolidated by the Company. As a result, the Company will modify its
presentation of the securities by recording an amount due to the trust of
$258.8 million as debt, and recording interest expense on the related
obligation (previously recorded as minority interest, net of tax). The
Company also has a synthetic lease contract relating to its Lansing,
Michigan facility and is currently analyzing the impact of FIN 46 on this
lease.
13. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
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 Euro notes issued by R. J. Tower Corporation
in 2000 and the 12 percent senior unsecured notes issued by R.J. Tower
Corporation in 2003, on a joint and several basis. Tower Automotive, Inc.
(the parent company) has also fully and unconditionally guaranteed the
notes and is reflected as the Parent Guarantor in the consolidating
financial information. The Non-Guarantor Restricted Companies are the
Company's foreign subsidiaries except for Seojin Industrial Company
Limited, which is reflected as the Non-Guarantor Unrestricted Company in
the consolidating financial information. Separate financial statements and
other disclosures concerning the Guarantors have not been presented because
management believes that such information is not material to investors.
- 15 -
TOWER AUTOMOTIVE INC.
CONSOLIDATING BALANCE SHEETS AT JUNE 30, 2003
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-GUARANTOR
R. J. TOWER PARENT GUARANTOR RESTRICTED
CORPORATION GUARANTOR COMPANIES COMPANIES
----------- --------- ----------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ -- $ -- $ 174,445 $ 28,650
Accounts receivable -- -- 254,972 100,192
Inventories -- -- 59,720 40,096
Deferred income taxes, net -- -- 12,255 3,908
Prepaid tooling and other -- -- 106,585 35,374
----------- --------- ----------- -------------
Total current assets -- -- 607,977 208,220
----------- --------- ----------- -------------
Property, plant and equipment, net -- -- 703,176 231,770
Investments in joint ventures 260,496 -- -- 344
Investment in subsidiaries 688,336 523,673 -- --
Deferred income taxes, net -- 21,716 83,169 3,873
Goodwill -- -- 328,431 158,180
Other assets, net 14,967 7,752 74,886 32,027
----------- --------- ----------- -------------
$ 963,799 $ 553,141 $ 1,797,639 $ 634,414
=========== ========= =========== =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term
debt and capital lease obligations $ -- $ -- $ 539 $ 19,860
Accounts payable -- -- 418,394 109,853
Accrued liabilities 8,868 4,166 165,350 86,345
----------- --------- ----------- -------------
Total current liabilities 8,868 4,166 584,283 216,058
----------- --------- ----------- -------------
Long-term debt, net of current maturities 662,897 -- 43,765 45,680
Obligations under capital
leases, net of current maturities -- -- 115 19,568
Convertible subordinated notes -- 199,984 -- --
Due to/(from) affiliates (281,050) (440,591) 685,463 20,407
Other noncurrent liabilities -- 7,159 170,536 39,554
----------- --------- ----------- -------------
Total noncurrent liabilities 381,847 (233,448) 899,879 125,209
----------- --------- ----------- -------------
Manditorily redeemable trust
convertible preferred securities -- 258,750 -- --
Stockholders' investment 573,084 523,673 313,477 293,147
----------- --------- ----------- -------------
$ 963,799 $ 553,141 $ 1,797,639 $ 634,414
=========== ========= =========== =============
NON-GUARANTOR
UNRESTRICTED
COMPANIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,188 $ -- $ 205,283
Accounts receivable 16,766 -- 371,930
Inventories 13,377 -- 113,193
Deferred income taxes, net -- -- 16,163
Prepaid tooling and other 10,691 -- 152,650
------------- ------------ ------------
Total current assets 43,022 -- 859,219
------------- ------------ ------------
Property, plant and equipment, net 122,127 -- 1,057,073
Investments in joint ventures -- -- 260,840
Investment in subsidiaries -- (1,212,009) --
Deferred income taxes, net 8,719 -- 117,477
Goodwill -- -- 486,611
Other assets, net 30,173 -- 159,805
------------- ------------ ------------
$ 204,041 $ (1,212,009) $ 2,941,025
============= ============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term
debt and capital lease obligations $ 75,021 $ -- $ 95,420
Accounts payable 43,794 -- 572,041
Accrued liabilities 8,814 -- 273,543
------------- ------------ ------------
Total current liabilities 127,629 -- 941,004
------------- ------------ ------------
Long-term debt, net of current maturities 5,541 -- 757,883
Obligations under capital
leases, net of current maturities 13,064 -- 32,747
Convertible subordinated notes -- -- 199,984
Due to/(from) affiliates 15,771 -- --
Other noncurrent liabilities 9,735 -- 226,984
------------- ------------ ------------
Total noncurrent liabilities 44,111 -- 1,217,598
------------- ------------ ------------
Manditorily redeemable trust
convertible preferred securities -- -- 258,750
Stockholders' investment 32,301 (1,212,009) 523,673
------------- ------------ ------------
$ 204,041 $ (1,212,009) $ 2,941,025
============= ============ ============
- 16 -
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-GUARANTOR
R. J. TOWER PARENT GUARANTOR RESTRICTED
CORPORATION GUARANTOR COMPANIES COMPANIES
----------- --------- ----------- -------------
Revenues $ -- $ -- $ 491,019 $ 173,271
Cost of sales -- -- 446,051 146,695
----------- --------- ----------- -------------
Gross profit -- -- 44,968 26,576
Selling, general and administrative expenses -- -- 28,286 9,305
Restructuring and asset impairment charge -- -- 22,832 234
----------- --------- ----------- -------------
Operating income (loss) -- -- (6,150) 17,037
Interest expense, net 11,299 6,866 (3,098) 1,097
----------- --------- ----------- -------------
Income (loss) before provision
for income taxes, equity in
earnings of joint ventures and
minority interest (11,299) (6,866) (3,052) 15,940
Provision (benefit) for income taxes (3,844) (2,334) (1,038) 5,421
----------- --------- ----------- -------------
Income (loss) before equity in
earnings of joint ventures and
minority interest (7,455) (4,532) (2,014) 10,519
Equity earnings in joint ventures
and subsidiaries, net 12,446 4,991 -- --
Minority interest, net -- (2,882) -- (1,474)
----------- --------- ----------- -------------
Net income (loss) $ 4,991 $ (2,423) $ (2,014) $ 9,045
=========== ========= =========== =============
NON-GUARANTOR
UNRESTRICTED
COMPANIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------
Revenues $ 78,889 $ -- $ 743,179
Cost of sales 71,985 -- 664,731
------------- ------------ ------------
Gross profit 6,904 -- 78,448
Selling, general and administrative expenses 1,544 -- 39,135
Restructuring and asset impairment charge -- -- 23,066
------------- ------------ ------------
Operating income (loss) 5,360 -- 16,247
Interest expense, net 1,919 -- 18,083
------------- ------------ ------------
Income (loss) before provision
for income taxes, equity in
earnings of joint ventures and
minority interest 3,441 -- (1,836)
Provision (benefit) for income taxes 1,170 -- (625)
------------- ------------ ------------
Income (loss) before equity in
earnings of joint ventures and
minority interest 2,271 -- (1,211)
Equity earnings in joint ventures
and subsidiaries, net -- (14,293) 3,144
Minority interest, net -- -- (4,356)
------------- ------------ ------------
Net income (loss) $ 2,271 $ (14,293) $ (2,423)
============= ============ ============
- 17 -
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-GUARANTOR
R. J. TOWER PARENT GUARANTOR RESTRICTED
CORPORATION GUARANTOR COMPANIES COMPANIES
----------- --------- ----------- -------------
Revenues $ -- $ -- $ 991,782 $ 328,096
Cost of sales -- -- 903,030 277,749
----------- --------- ----------- -------------
Gross profit -- -- 88,752 50,347
Selling, general and administrative expenses -- -- 52,531 18,197
Restructuring and asset impairment charge -- -- 22,832 234
----------- --------- ----------- -------------
Operating income -- -- 13,389 31,916
Interest expense, net 23,325 13,732 (8,499) 2,518
----------- --------- ----------- -------------
Income (loss) before provision
for income taxes, equity in
earnings of joint ventures and
minority interest (23,325) (13,732) 21,888 29,398
Provision (benefit) for income taxes (7,932) (4,669) 7,442 9,996
----------- --------- ----------- -------------
Income (loss) before equity in
earnings of joint ventures and
minority interest (15,393) (9,063) 14,446 19,402
Equity earnings in joint ventures and
subsidiaries, net 39,369 23,976 -- --
Minority interest, net -- (5,764) -- (2,896)
----------- --------- ----------- -------------
Net income $ 23,976 $ 9,149 $ 14,446 $ 16,506
=========== ========= =========== =============
NON-GUARANTOR
UNRESTRICTED
COMPANIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------
Revenues $ 155,879 $ -- $ 1,475,757
Cost of sales 142,006 -- 1,322,785
------------- ------------ ------------
Gross profit 13,873 -- 152,972
Selling, general and administrative expenses 3,083 -- 73,811
Restructuring and asset impairment charge -- -- 23,066
------------- ------------ ------------
Operating income 10,790 -- 56,095
Interest expense, net 3,776 -- 34,852
------------- ------------ ------------
Income (loss) before provision
for income taxes, equity in
earnings of joint ventures and
minority interest 7,014 -- 21,243
Provision (benefit) for income taxes 2,385 -- 7,222
------------- ------------ ------------
Income (loss) before equity in
earnings of joint ventures and
minority interest 4,629 -- 14,021
Equity earnings in joint ventures and
subsidiaries, net -- (59,557) 3,788
Minority interest, net -- -- (8,660)
------------- ------------ ------------
Net income $ 4,629 $ (59,557) $ 9,149
============= ============ ============
- 18 -
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2003
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-GUARANTOR
R. J. TOWER PARENT GUARANTOR RESTRICTED
CORPORATION GUARANTOR COMPANIES COMPANIES
----------- --------- ----------- -------------
OPERATING ACTIVITIES:
Net income $ 23,976 $ 9,149 $ 14,446 $ 16,506
Adjustments required to reconcile net
income to net cash provided by (used
in) operating activities
Restructuring and asset
impairment charge -- -- 22,832 234
Customer recovery related to
program cancellation -- -- 15,600 --
Depreciation -- -- 52,299 22,821
Deferred income tax provision
(benefit) -- -- 2,394 (4,581)
Equity in earnings of joint
ventures, net (3,788) -- -- --
Changes in working capital and
other operating items (31,323) (2,970) (15,895) 19,407
----------- --------- ----------- -------------
Net cash provided by (used in)
operating activities (11,135) 6,179 91,676 54,387
----------- --------- ----------- -------------
INVESTING ACTIVITIES:
Capital expenditures, net -- -- (76,435) (13,791)
Acquisitions and other, net (192,252) (6,661) 163,205 --
----------- --------- ----------- -------------
Net cash provided by (used in)
investing activities (192,252) (6,661) 86,770 (13,791)
----------- --------- ----------- -------------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,451,296 -- 896 34,377
Repayment of debt (1,247,909) -- (4,897) (55,514)
Net proceeds from issuance of stock -- 482 -- --
----------- --------- ----------- -------------
Net cash provided by (used for)
financing activities 203,387 482 (4,001) (21,137)
----------- --------- ----------- -------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS -- -- 174,445 19,459
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD -- -- -- 9,191
----------- --------- ----------- -------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ -- $ -- $ 174,445 $ 28,650
=========== ========= =========== =============
NON-GUARANTOR
UNRESTRICTED
COMPANIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------
OPERATING ACTIVITIES:
Net income $ 4,629 $ (59,557) $ 9,149
Adjustments required to reconcile net
income to net cash provided by (used
in) operating activities
Restructuring and asset
impairment charge -- -- 23,066
Customer recovery related to
program cancellation -- -- 15,600
Depreciation 3,986 -- 79,106
Deferred income tax provision
(benefit) 379 -- (1,808)
Equity in earnings of joint
ventures, net -- -- (3,788)
Changes in working capital and
other operating items 2,189 20,343 (8,249)
------------- ------------ ------------
Net cash provided by (used in)
operating activities 11,183 (39,214) 113,076
------------- ------------ ------------
INVESTING ACTIVITIES:
Capital expenditures, net (8,500) -- (98,726)
Acquisitions and other, net -- 39,214 3,506
------------- ------------ ------------
Net cash provided by (used in)
investing activities (8,500) 39,214 (95,220)
------------- ------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings 859 -- 1,487,428
Repayment of debt (5,862) -- (1,314,182)
Net proceeds from issuance of stock -- -- 482
------------- ------------ ------------
Net cash provided by (used for)
financing activities (5,003) -- 173,728
------------- ------------ ------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS (2,320) -- 191,584
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,508 -- 13,699
------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 2,188 $ -- $ 205,283
============= ============ ============
- 19 -
TOWER AUTOMOTIVE INC.
CONSOLIDATING BALANCE SHEETS AT DECEMBER 31, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-GUARANTOR
R. J. TOWER PARENT GUARANTOR RESTRICTED
CORPORATION GUARANTOR COMPANIES COMPANIES
----------- --------- ---------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ - $ - $ - $ 9,191
Accounts receivable - - 151,774 84,224
Inventories - - 82,765 40,051
Deferred income taxes, net - - 12,255 8,379
Prepaid tooling and other - - 55,453 41,699
----------- --------- ---------- -------------
Total current assets - - 302,247 183,544
----------- --------- ---------- -------------
Property, plant and equipment, net - - 709,127 217,503
Investments in joint ventures 260,898 - - -
Investment in subsidiaries 404,864 512,076 - -
Deferred income taxes, net - - 99,313 (2,712)
Goodwill - - 328,308 144,659
Other assets, net 1,501 27,144 60,839 27,690
----------- --------- ---------- -------------
$ 667,263 $ 539,220 $1,499,834 $ 570,684
=========== ========= ========== =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term
debt and capital lease
obligations $ 8,352 $ - $ 4,274 $ 18,932
Accounts payable - - 285,585 91,803
Accrued liabilities 6,963 5,889 183,876 80,703
----------- --------- ---------- -------------
Total current liabilities 15,315 5,889 473,735 191,438
----------- --------- ---------- -------------
Long-term debt, net of current
maturities 428,651 - 43,765 51,398
Obligations under capital leases, net of
current maturities - - 370 21,050
Convertible subordinated notes - 199,984 - -
Due to/(from) affiliates (337,294) (443,582) 757,808 21,905
Other noncurrent liabilities - 6,103 157,230 21,993
----------- --------- ---------- -------------
Total noncurrent liabilities 91,357 (237,495) 959,173 116,346
----------- --------- ---------- -------------
Manditorily redeemable trust
convertible preferred securities - 258,750 - -
Stockholders' investment 560,591 512,076 66,926 262,900
----------- --------- ---------- -------------
$ 667,263 $ 539,220 $1,499,834 $ 570,684
=========== ========= ========== =============
NON-GUARANTOR
UNRESTRICTED
COMPANIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,508 $ - $ 13,699
Accounts receivable 13,343 - 249,341
Inventories 10,258 - 133,074
Deferred income taxes, net - - 20,634
Prepaid tooling and other 3,281 - 100,433
---------- --------- ------------
Total current assets 31,390 - 517,181
---------- --------- ------------
Property, plant and equipment, net 146,989 - 1,073,619
Investments in joint ventures - - 260,898
Investment in subsidiaries - (916,940) -
Deferred income taxes, net 9,098 - 105,699
Goodwill - - 472,967
Other assets, net 10,347 - 127,521
---------- --------- ------------
$197,824 $(916,940) $ 2,557,885
========== ========= ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term
debt and capital lease
obligations $ 88,912 $ - $ 120,470
Accounts payable 40,339 - 417,727
Accrued liabilities 7,019 - 284,450
---------- --------- ------------
Total current liabilities 136,270 - 822,647
---------- --------- ------------
Long-term debt, net of current
maturities 11,406 - 535,220
Obligations under capital leases, net of
current maturities 8,311 - 29,731
Convertible subordinated notes - - 199,984
Due to/(from) affiliates 1,163 - -
Other noncurrent liabilities 14,151 - 199,477
---------- --------- ------------
Total noncurrent liabilities 35,031 - 964,412
---------- --------- ------------
Manditorily redeemable trust
convertible preferred securities - - 258,750
Stockholders' investment 26,523 (916,940) 512,076
---------- --------- ------------
$197,824 $(916,940) $ 2,557,885
========== ========= ============
- 20 -
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-GUARANTOR
R. J. TOWER PARENT GUARANTOR RESTRICTED
CORPORATION GUARANTOR COMPANIES COMPANIES
Revenues $ - $ - $ 536,617 $ 150,051
Cost of sales - - 473,481 128,189
------------ ------- ---------- ----------
Gross profit - - 63,136 21,862
Selling, general and administrative
expenses - - 27,652 8,054
------------ ------- ---------- ----------
Operating income - - 35,484 13,808
Interest expense, net 13,562 2,823 (1,838) 1,024
Other expense 1,993 - 946 -
------------ ------- ---------- ----------
Income (loss) before provision
for income taxes, equity in
earnings of joint ventures and
minority interest (15,555) (2,823) 36,376 12,784
Provision (benefit) for income taxes (5,444) (988) 12,735 4,720
------------ ------- ---------- ----------
Income (loss) before equity in
earnings of joint ventures and
minority interest (10,111) (1,835) 23,641 8,064
Equity earnings in joint ventures
and subsidiaries, net 37,676 27,565 - -
Minority interest, net - (2,839) - (733)
------------ ------- ---------- ----------
Net income (loss) $ 27,565 $22,891 $ 23,641 $ 7,331
============ ======= ========== ==========
NON-GUARANTOR
UNRESTRICTED
COMPANIES ELIMINATIONS CONSOLIDATED
Revenues $ 64,204 $ - $ 750,872
Cost of sales 56,508 - 658,178
---------- -------- -----------
Gross profit 7,696 - 92,694
Selling, general and administrative
expenses 1,661 - 37,367
---------- -------- -----------
Operating income 6,035 - 55,327
Interest expense, net 1,605 - 17,176
Other expense - - 2,939
---------- -------- -----------
Income (loss) before provision
for income taxes, equity in
earnings of joint ventures and
minority interest 4,430 - 35,212
Provision (benefit) for income taxes 1,301 - 12,324
---------- -------- -----------
Income (loss) before equity in
earnings of joint ventures and
minority interest 3,129 - 22,888
Equity earnings in joint ventures
and subsidiaries, net - (60,964) 4,277
Minority interest, net (702) - (4,274)
---------- -------- -----------
Net income (loss) $ 2,427 $(60,964) $ 22,891
========== ======== ===========
- 21 -
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-GUARANTOR
R. J. TOWER PARENT GUARANTOR RESTRICTED
CORPORATION GUARANTOR COMPANIES COMPANIES
----------- --------- ---------- -------------
Revenues $ - $ - $ 1,015,821 $ 277,836
Cost of sales - - 908,167 234,787
------------ ---------- ----------- -------------
Gross profit - - 107,654 43,049
Selling, general and administrative
expenses - - 49,113 14,830
Restructuring and asset impairment
charge - - 71,757 3,650
------------ ---------- ----------- -------------
Operating income (loss) - - (13,216) 24,569
Interest expense, net 25,474 5,644 (1,418) 1,835
Other income 1,993 - 946 -
Gain on sale of plant - - - -
------------ ---------- ----------- -------------
Income (loss) before provision
for income taxes, equity in
earnings of joint ventures and
minority interest (27,467) (5,644) (12,744) 22,734
Provision (benefit) for income taxes (9,613) (1,975) (4,459) 7,954
------------ ---------- ----------- -------------
Income (loss) before equity in
earnings of joint ventures and
minority interest (17,854) (3,669) (8,285) 14,780
Equity earnings in joint ventures
and subsidiaries, net (97,212) (115,066) - -
Minority interest, net - (5,677) - (1,968)
------------ ---------- ----------- -------------
Income (loss) before cumulative
effect of change in accounting
principle (115,066) (124,412) (8,285) 12,812
Cumulative effect of change in
accounting principle, net - - - (83,108)
------------ ---------- ----------- -------------
Net income (loss) $ (115,066) $ (124,412) $ (8,285) $ (70,296)
============ ========== =========== =============
NON-GUARANTOR
UNRESTRICTED
COMPANIES ELIMINATIONS CONSOLIDATED
------------- ------------ ------------
Revenues $ 125,322 $ - $ 1,418,979
Cost of sales 114,322 - 1,257,276
---------- ---------- -------------
Gross profit 11,000 - 161,703
Selling, general and administrative
expenses 6,419 - 70,362
Restructuring and asset impairment
charge - - 75,407
---------- ---------- ------------
Operating income (loss) 4,581 - 15,934
Interest expense, net 3,672 - 35,207
Other income (3,839) - (900)
---------- ---------- ------------
Income (loss) before provision
for income taxes, equity in
earnings of joint ventures and
minority interest 4,748 - (18,373)
Provision (benefit) for income taxes 1,661 - (6,432)
---------- ---------- ------------
Income (loss) before equity in
earnings of joint ventures and
minority interest 3,087 - (11,941)
Equity earnings in joint ventures
and subsidiaries, net - 220,940 8,662
Minority interest, net (702) - (8,347)
---------- ---------- ------------
Income (loss) before cumulative
effect of change in accounting
principle 2,385 220,940 (11,626)
Cumulative effect of change in
accounting principle, net (29,678) - (112,786)
---------- ---------- ------------
Net income (loss) $ (27,293) $ 220,940 $ (124,412)
========== ========== ============
- 22 -
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-GUARANTOR
R. J. TOWER PARENT GUARANTOR RESTRICTED
CORPORATION GUARANTOR COMPANIES COMPANIES
------------ --------- --------- -------------
OPERATING ACTIVITIES:
Net income (loss) $ (115,066) $ (124,412) $ (8,285) $ (70,296)
Adjustments required to reconcile net
income (loss) to net cash provided by (used
in) operating activities
Cumulative effect of change
in accounting principle - - - 83,108
Restructuring and asset
impairment charge - - 71,757 3,650
Depreciation - - 49,173 16,200
Deferred income tax provision
(benefit) - - (16,434) 1,344
Gain on sale of plant - - - -
Equity in earnings of joint
ventures, net (8,662) - - -
Changes in working capital and
other operating items 266,917 5,011 (275,694) 20,219
------------ ----------- --------- ---------
Net cash provided by (used
in) operating activities 143,189 (119,401) (179,483) 54,225
------------ ----------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net - - (15,281) (34,385)
Acquisitions and other, net 36,305 (105,502) 147,577 -
Proceeds from sale of fixed assets - - 50,313 -
------------ ----------- --------- ---------
Net cash provided by (used
in) investing activities 36,305 (105,502) 182,609 (34,385)
------------ ----------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings 899,858 - 90 72,476
Repayment of debt (1,081,745) - (2,395) (82,679)
Net proceeds from issuance of stock - 224,903 - -
------------ ----------- --------- ---------
Net cash provided by (used
for) financing activities (181,887) 224,903 (2,305) (10,203)
------------ ----------- --------- ---------
NET CHANGE IN CASH AND CASH
EQUIVALENTS (2,393) - 821 9,637
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 2,393 - 51 15,146
------------ ----------- --------- ---------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ - $ - $ 872 $ 24,783
============ =========== ========= =========
NON-GUARANTOR
UNRESTRICTED
COMPANIES ELIMINATIONS CONSOLIDATED
------------- ------------ -----------
OPERATING ACTIVITIES:
Net income $ (27,293) $ 220,940 $ (124,412)
Adjustments required to reconcile net
income to net cash provided by (used
in) operating activities
Cumulative effect of change
in accounting principle 29,678 - 112,786
Restructuring and asset
impairment charge - - 75,407
Depreciation - - 65,373
Deferred income tax provision
(benefit) - - (15,090)
Gain on sale of plant (3,839) - (3,839)
Equity in earnings of joint
ventures, net - - (8,662)
Changes in working capital and
other operating items 1,809 (100,517) (82,255)
------------- --------- -----------
Net cash provided by (used
in) operating activities 355 120,423 19,308
------------- --------- -----------
INVESTING ACTIVITIES:
Capital expenditures, net (19,376) - (69,042)
Acquisitions and other, net 4,004 (120,423) (38,039)
Proceeds from sale of fixed assets - - 50,313
------------- --------- -----------
Net cash provided by (used
in) investing activities (15,372) (120,423) (56,768)
------------- --------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings 13,832 - 986,256
Repayment of debt - - (1,166,819)
Net proceeds from issuance of stock - - 224,903
------------- --------- -----------
Net cash provided by (used
for) financing activities 13,832 - 44,340
------------- --------- -----------
NET CHANGE IN CASH AND CASH
EQUIVALENTS (1,185) - 6,880
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,177 - 21,767
------------- --------- -----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 2,992 $ - $ 28,647
============= ========= ===========
- 23 -
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2003 TO THE THREE MONTHS ENDED
JUNE 30, 2002
Revenues. Revenues for the three months ended June 30, 2003 were $743.2 million,
a 1.0 percent decrease, compared to $750.9 million for the three months ended
June 30, 2002. The decrease of $7.7 million was composed of net volume declines
of $28.2 million, primarily in the following platforms: Dodge Dakota/Durango
series and Ford Explorer and Taurus, offset by volume increases primarily in the
Dodge Ram, Ford F-Series, Lincoln SUV, Cadillac CTS and various Volkswagen and
Hyundai/Kia platforms. The net volume decline of $28.2 million comprises a $29.0
million decrease in the Company's value-added revenue platforms and a
non-value-added module assembly revenue increase of $0.8 million. In addition,
the foreign exchange rate effect in Europe and Asia increased revenues by $21.7
million in the second quarter of 2003, offset by a decline in revenues of $1.2
million attributable to pricing and economic conditions.
Cost of Sales. Cost of sales as a percent of revenues for the three months ended
June 30, 2003 was 89.4 percent compared to 87.7 percent for the three months
ended June 30, 2002. Gross profit decreased $14.3 million from $92.7 million in
the 2002 period to $78.4 million in the 2003 period and is attributable to the
combined effects of: (i) $7.0 million decline in gross profit on value-added
revenue decreases of $29.0 million, (ii) $4.9 million in negative profit effect
of pricing and cost economics, (iii) $3.8 million of launch costs related
primarily to new programs launched for Volvo, Ford and Nissan, (iv) other costs
of $4.8 million (primarily additional lease expenses in the 2003 period), offset
by (v) $2.9 million in positive foreign exchange rate effect on gross profit and
(vi) $3.3 million in operational performance improvements in the 2003 period. As
stated above, the Company's module assembly revenues increased by $0.8 million
in the 2003 period over the 2002 period which do not contribute significantly to
an increase in gross profits.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $39.1 million, or 5.3 percent of revenues,
for the three months ended June 30, 2003 compared to $37.4 million, or 5.0
percent of revenues, for the three months ended June 30, 2002. The $1.7 million
increase in expense is due primarily to increased compensation expenses and
program management costs related to engineering and support activities.
Interest Expense, net. Interest expense (net of interest income) for the three
months ended June 30, 2003 was $18.1 million compared to $17.2 million for the
three months ended June 30, 2002. The $0.9 million increase in net interest
expense is attributable to $1.6 million of interest related to the $258 million
senior notes and an increase of $0.4 million due to higher short term rates,
offset by lower interest expense of $0.7 million on decreased revolver
borrowings and increased capitalized interest on construction projects in the
2003 period of $0.4 million.
Income Taxes. The effective income tax rate was 34.0 percent and 35.0 percent
for the second quarters of 2003 and 2002, 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 $3.1 million and $4.3 million for the three months ended June
30, 2003 and 2002, respectively. These amounts represent the Company's share of
the earnings from its joint venture interests in Metalsa, Yorozu, and DTA
Development. The Company's share of Metalsa's joint venture earnings has
decreased quarter over quarter by $2.6 million, Yorozu's joint venture earnings
has increased quarter over quarter by $1.3 million, and DTA Development's joint
venture earnings has increased quarter over quarter by $0.1 million.
Minority Interest, net. Minority interest, net of tax, was $4.4 million and $4.3
million for the three months ended June 30, 2003 and 2002, respectively, and
represents dividends, net of income tax benefits, on the 6 3/4% Trust Preferred
Securities and the minority interest held by the 40 percent joint venture
partners in Tower Golden Ring.
- 24 -
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2003 TO THE SIX MONTHS ENDED JUNE
30, 2002
Revenues. Revenues for the six months ended June 30, 2003 were $1,475.8 million,
a 4.0 percent increase, compared to $1,419.0 million for the prior period. The
increase of $56.8 comprises net volume increases of $28.5 million, primarily in
the following platforms: Dodge Ram, Cadillac CTS, Ford Expedition and F-Series,
Lincoln SUV and various Volkswagen and Hyundai/Kia platforms offset by volume
declines primarily in the Dodge Dakota/Durango series and the Ford Explorer and
Taurus platforms. The net volume increase of $28.5 million comprises a $16.3
million increase in the Company's value-added revenue platforms and a
non-value-added module assembly revenue increase of $12.2 million. In addition,
the foreign exchange rate effect in Europe and Asia increased revenues by $41.8
million in the first six months of 2003, offset by a decline in revenues of
$12.3 million attributable to the sale of Iwahri, Korea plant which occurred
during the first quarter of 2002 and $1.2 million attributable to pricing and
economic conditions.
Cost of Sales. Cost of sales as a percent of revenues for the six months ended
June 30, 2003 was 89.6 percent compared to 88.6 percent for the prior period.
Gross profit decreased $8.7 million from $161.7 million in the 2002 period to
$153.0 million in the 2003 period and is attributable to the combined effects
of: (i) $9.9 million in negative profit effect of pricing and cost economics,
(ii) $3.8 million of launch costs related primarily to new programs launched for
Volvo, Ford and Nissan, (iii) other costs of $4.7 million (primarily additional
lease expenses in the 2003 period), offset by (iv) $2.1 million in gross profit
conversion on value-added revenue increases of $16.3 million, (v) $4.3 million
in positive foreign exchange rate effect on gross profit and (vi) $3.3 million
in operational performance improvements in the 2003 period. As stated above, the
Company's module assembly revenues increased by $12.2 million in the 2003 period
over the 2002 period which do not contribute significantly to an increase in
gross profits.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $73.8 million, or 5.0 percent of revenues, for the
six months ended June 30, 2003 compared to $70.4 million, or 5.0 percent of
revenues, for the prior period. The $3.4 million increase in expense is due
primarily to increased compensation expenses and program management costs
related to engineering and support activities.
Interest Expense, net. Interest expense (net of interest income) for the six
months ended June 30, 2003 was $34.9 million compared to $35.2 million for the
prior period. The $0.3 million reduction in net interest expense is attributable
to (i) decreased interest costs due to decreased revolver borrowings during the
first six months of 2003 compared to the first six months of 2002 of $1.3
million, and (ii) increased capitalized interest on construction projects in
the 2003 period of $0.7 million, offset by (iii) increased interest of $1.6
million related to the $258 million senior notes and (iv) increased interest
rates and increased spreads associated with the Credit Agreement of $0.1
million.
Income Taxes. The effective income tax rate was 34.0 percent and 35.0 percent
for the six months ended June 30, 2003 and 2002, 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 $3.8 million and $8.7 million for the six months ended June 30,
2003 and 2002, respectively. These amounts represent the Company's share of the
earnings from its joint venture interests in Metalsa, Yorozu, and DTA
Development. The Company's share of joint venture earnings in Metalsa has
decreased $5.1 million and the Company's share of joint venture earnings in DTA
Development has increased by $0.2 million each.
Minority Interest, net. Minority interest, net of tax, was $8.7 million and $8.3
million for the six months ended June 30, 2003 and 2002, respectively, and
represents dividends, net of income tax benefits, on the Preferred Securities
and the minority interest held by the 40 percent joint venture partners in Tower
Golden Ring.
Cumulative Effect of a Change in Accounting Principle, net. The Company adopted
SFAS No. 142 relating to the accounting for goodwill and other intangible assets
as of January 1, 2002. Under SFAS No. 142, the Company designated four reporting
units: 1) United States/Canada, 2) Europe, 3) Asia and 4) South America/Mexico.
As a result of the Company completing its formal valuation procedures under SFAS
No. 142, utilizing a combination of valuation techniques including the
discounted cash flow approach and the
- 25 -
market multiple approach, the Company recorded a transitional impairment loss of
$112.8 million as a cumulative effect of a change in accounting principle in the
first quarter of 2002, representing the write-off of all of the Company's
existing goodwill in the reporting units of Asia ($29.7 million) and South
America/Mexico ($83.1 million). There was no tax impact upon adoption of SFAS
No. 142 since the Company recorded a $24.2 million tax valuation allowance for
the deductible portion of the goodwill written off in the reporting unit of
South America/Mexico given the uncertainty of realization and the lack of income
in the reporting unit. The Asia goodwill was not deductible for tax purposes.
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. During the second half of 2000, the Company focused its
efforts on reducing the capacity of the enterprise and improving the efficiency
of its continuing operations. Beginning in the fourth quarter of 2000, the
Company: (i) divested 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, (iv) reorganized the
management of its U.S. and Canada region, (v) discontinued remaining stamping
and ancillary processes performed at its Milwaukee Press Operations and
relocated remaining work to other locations or Tier II suppliers, and (vi)
transferred production of high-volume frame assemblies for the Ford Ranger from
its Milwaukee facility to its Bellevue I facility in Bellevue, Ohio. These
actions were accomplished through four restructurings. The first restructuring
was initiated in October 2000 (the "2000 Plan"), the second restructuring was
initiated in October 2001 (the "2001 Plan"), the third restructuring was
initiated in January 2002 (the "2002 Plan"), and the fourth restructuring was
initiated in May 2003 (the "2003 Plan"). There are cash costs remaining to be
paid in connection with the 2001 Plan, 2002 Plan, and 2003 Plan; these plans are
described in further detail below.
Under the 2003 Plan, the Company expects to realize annual cash savings of
approximately $10 million beginning in 2004. Under the 2002 Plan, the Company
has realized cash savings of approximately $10 million during the first six
months of 2003 and expects to realize an additional $6 million of cash savings
through the remainder of 2003. Under the 2001 Plan, the Company has realized
cash savings of approximately $12 million during the first six months of 2003
and expects to realize an additional $12 million of cash savings through the
remainder of 2003. These cash savings from permanent payroll reductions are
expected to be realized annually.
MILWAUKEE RANGER (2003 PLAN):
On May 27, 2003, the Company announced that it would transfer the production of
high-volume frame assemblies for the Ford Ranger from its Milwaukee facility to
its Bellevue I facility in Bellevue, Ohio. The relocation of the Milwaukee
Ranger production line is expected to be completed by June 2004 and the Company
expects to realize annual cash savings, related primarily to reduced labor
costs, of approximately $10 million following the full completion of the move.
As a result of the 2003 Plan, the Company recorded a $23.1 million pre-tax
restructuring and asset impairment charge during the second quarter of 2003.
This charge reflects estimated qualifying "exit costs" comprising cash charges
of $2.8 million, pension and other post-retirement benefit plan curtailment
costs of $7.7 million and non-cash asset impairment charges of $12.6 million. In
connection with this activity, the Company expects to incur total restructuring
charges of approximately $40 million as the costs are incurred in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities." The expected additional
charges of approximately $17 million beyond the $23.1 million recorded in the
second quarter of 2003 are predominately related to additional severance costs
to be recognized in future periods as the affected colleagues reach the end of
their respective employment periods. The cost incurred to date as well as the
cost expected to be incurred relating to the 2003 Plan are within the United
States/Canada reportable segment. The 2003 Plan will result in a reduction of
approximately 250 colleagues, with the eliminations commencing in the fourth
quarter of 2003. The estimated restructuring charge does not cover certain
aspects of the 2003 Plan, including movement of equipment and colleague
relocation and training. These costs will be recognized in future periods as
incurred.
- 26 -
The accrual for the 2003 Plan is included in accrued liabilities in the
accompanying condensed consolidated balance sheet as of June 30, 2003. The table
below summarizes the accrued operational realignment and other charges related
to the 2003 Plan through June 30, 2003 (in millions):
ASSET SEVERANCE AND
IMPAIRMENT OUTPLACEMENT OTHER EXIT
COSTS COSTS COSTS TOTAL
---------- ------------- ---------- --------
Provision $ 12.6 $ 2.8 $ 7.7 $ 23.1
Cash usage -- (1.1) -- (1.1)
Non-cash charges (12.6) -- (7.7) (20.3)
---------- ------------- ---------- --------
Balance at June 30, 2003 $ -- $ 1.7 $ -- $ 1.7
========== ============= ========== ========
During the second quarter 2003, the Company charged $7.7 million of other exit
costs from the 2003 Plan restructuring reserves for expected curtailment cost
against the pension liability accrual.
MILWAUKEE PRESS OPERATIONS (2002 PLAN):
On January 31, 2002, the Company announced that it would discontinue the
remaining stamping and ancillary processes performed at its Milwaukee Press
Operations and relocate the remaining work to other Tower locations or Tier II
suppliers. The Company substantially completed the transfer process in 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 during the 12
months subsequent to the establishment of the 2002 Plan. During the fourth
quarter of 2002, due to a favorable settlement of anticipated other exit costs
and an assessment of remaining costs, the Company subsequently reduced the
estimates associated with the 2002 and 2001 Plans by $14.3 million, resulting in
a net restructuring charge of $61.1 million for 2002.
The 2002 Plan charge includes costs associated with asset impairments, severance
and outplacement costs related to colleague terminations and certain other exit
costs. These activities resulted in a reduction of approximately 500 colleagues.
The accrual for the 2002 Plan is included in accrued liabilities in the
accompanying condensed consolidated balance sheet as of June 30, 2003. The table
below summarizes the accrued operational realignment and other charges related
to the 2002 Plan through June 30, 2003 (in millions):
SEVERANCE AND
OUTPLACEMENT OTHER EXIT
COSTS COSTS TOTAL
------------- ---------- -----
Balance at December 31, 2002 $ 3.5 $ 1.0 $ 4.5
Cash usage (1.7) (1.0) (2.7)
------------- ---------- -----
Balance at June 30, 2003 $ 1.8 $ -- $ 1.8
============ ========== =====
The Company anticipates utilizing the remaining 2002 Plan restructuring reserves
as originally intended, with the ultimate disposition occurring during the year
ending December 31, 2003.
SEBEWAING AND MILWAUKEE PRESS OPERATIONS (2001 PLAN):
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 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 during the 12 months subsequent
to the establishment of the 2001 Plan. This total reflected a provision of
$184.0 million, net of certain revisions in the estimate of the 2000 Plan of
$5.9 million, which were reversed in 2001.
- 27 -
The 2001 Plan charge includes costs associated with asset impairments, severance
and outplacement costs related to colleague terminations and certain other exit
costs. These activities resulted 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.
The accrual for the 2001 Plan is included in accrued liabilities in the
accompanying condensed consolidated balance sheet as of June 30, 2003. The table
below summarizes the accrued operational realignment and other charges related
to the 2001 Plan through June 30, 2003 (in millions):
SEVERANCE AND
OUTPLACEMENT OTHER EXIT
COSTS COSTS TOTAL
------------- ---------- -----
Balance at December 31, 2002 $ 1.0 $ 8.3 $ 9.3
Cash usage (1.0) (3.2) $ (4.2)
-------- ------- --------
Balance at June 30, 2003 $ -- $ 5.1 $ 5.1
======== ======= ========
The remaining other exit costs relate primarily to the present value of
operating lease payments that the Company is obligated to pay through 2010.
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 six months
ended June 30, 2003, the Company generated $113.1 million of cash from
operations. This compares with $19.3 million generated during the same period in
2002. Net income before depreciation, deferred income taxes, gain on sale of
plant, equity in joint venture earnings, restructuring and asset impairment
charges, and cumulative effect of change in accounting principle was $105.7
million and $101.6 million for the 2003 and 2002 periods, respectively. In the
2003 period, operating cash flow was increased by $15.6 million by a customer
recovery related to program cancellation. Operating cash flow was reduced by
$8.0 million in 2003 and $20.3 million in 2002 for cash restructuring payments,
and was increased by net tax refunds of $0.4 million and decreased by net tax
payments of $0.6 million in the 2003 and 2002 periods, respectively. Operating
cash flow was also reduced in the 2003 and 2002 periods by $10.9 million and
$6.9 million, respectively, for required pension contributions. Expected pension
contribution funding requirements of the Company for the remainder of 2003 are
approximately $16 million. In total, working capital and other operating items
decreased operating cash flow by $8.2 million and $82.3 million during 2003 and
2002, respectively.
In April 2002, the Company entered into a sale-leaseback transaction involving
seven of its manufacturing facilities contributing $50.3 million to the cash
flow of the 2002 period. Under the terms of the sale-leaseback agreement with
investment banking firm W.P. Carey and Company, LLC, the facilities will be
leased to the Company under an 18-year term. The lease requires quarterly
payments of approximately $1.6 million through 2020 and is accounted for as an
operating lease.
The issuance of common stock under the underwritten primary offering of 17.25
million shares completed in May 2002 contributed $222.9 million to the cash flow
of the 2002 period. The issuance of stock from the Company's colleague stock
purchase plan and option plans contributed an additional $0.5 million and $2.0
million to cash flow for the 2003 and 2002 periods, respectively.
In June 2003, R.J. Tower Corporation (the "Issuer"), a wholly-owned subsidiary
of the Company, completed a senior note offering with a face amount of $258
million and a 12 percent interest rate. The notes were
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discounted upon issuance to yield 12.5 percent, payable semi-annually. The
notes are recorded in the Company's condensed consolidated balance sheet net of
discount of $7.2 million as of June 30, 2003. The notes rank equally with all
of the Company's other senior unsecured and unsubordinated debt and mature on
June 1, 2013.
In June 2003, the Company completed an amendment to its senior credit facility
(the "Credit Agreement") to reduce the borrowing capacity of the facility and
provide for amended financial covenants in order to enhance overall liquidity.
The amendment reduced the former $725 million facility to a $600 million
facility. The term portion of the facility increased from $125 million to $240
million, and the revolver portion decreased from $600 million to $360 million.
The amount available to borrow under the revolver portion of the credit facility
is restricted by $44 million of permanent letters of credit, and until October
31, 2003, is also restricted by $200 million to provide flexibility for the
Company to redeem its $200 million convertible subordinated notes (due August 1,
2004), in the event it elects to do so without refinancing the convertible notes
in another manner. The Credit Agreement also includes a multi-currency borrowing
feature that allows the Company to borrow up to $316 million in certain freely
tradable offshore currencies, and letters of credit sublimits of $250 million.
As of June 30, 2003, approximately $25.8 million of the outstanding revolver
borrowings are denominated in Euro. Interest on the Credit Agreement is at the
financial institutions' reference rate, LIBOR, or the Eurodollar rate plus a
margin ranging from 100 to 325 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 5.8 percent
for the six months ended June 30, 2003 (including the effect of the interest
rate swap contract discussed below). The Credit Agreement has a final maturity
of 2006.
At June 30, 2003, the Company had borrowed $25.8 million under its revolving
credit facility of $360 million. In order to borrow under the revolving
facility, the Company must meet certain covenant ratio requirements, including
but not limited to a minimum interest coverage and maximum leverage ratio. Under
the most restrictive covenants, the amount of unused availability under the
revolving facility was $48.5 million at June 30, 2003, compared to unused
availability of $288.3 million at June 30, 2002. However, due to the
restrictions discussed above, availability due to revolver capacity limits is
reduced to $27.2 million. The revolver availability combined with the Company's
cash balances of $205.3 million and $28.6 million as of June 30, 2003 and 2002,
respectively, produced total available liquidity of $232.5 million and $316.9
million for those same periods. The $84.4 million decrease in available
liquidity between the periods resulted from the increase in indebtedness (as
defined in the credit agreement) and reduced revolver capacity under the amended
credit agreement, offset by an increase in trailing four quarter EBITDA (as
defined in the credit agreement) and an increase in cash between the periods.
The covenant conditions contained in the credit agreement also limit the
Company's ability to pay dividends. As of June 30, 2003, the Company was in
compliance with all debt covenants and anticipates achieving covenant compliance
for the remainder of 2003.
In July 2000, R. J. Tower Corporation (the "Issuer"), a wholly-owned subsidiary
of the Company, issued Euro-denominated senior unsecured notes in the amount of
(euro)150 million ($172.1 million at June 30, 2003) 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 senior unsecured and unsubordinated debt and 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 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 expires in September 2005.
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 $95.2 million during the six months ended June 30, 2003, as
compared to $56.8 million in the prior period. Dividends received from
investments in joint ventures increased investing cash flows by $3.5 million in
the 2003 period. Earnout payments offset by net proceeds received from the sale
of a plant, reduced investing cash flows by $38.0 million in the 2002 period.
During the balance of 2003, the Company will be reviewing the merits of
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acquiring, from its joint venture partner, the remaining 34 percent interest in
Seojin. Seojin is currently owed a note receivable of approximately $8 million
from this minority interest partner, which became due in March 2003. The
minority interest partner's shares in Seojin are pledged as collateral for the
note receivable. In order to enforce the collateral agreement, the Company must
purchase the remaining shares from its joint venture partner, the terms of which
are being negotiated. The Company believes that Seojin has adequate financing
resources under its local revolving debt facilities, which are not covered under
the Company's Credit Agreement, or can secure new local financing, if necessary,
in order to fund any additional purchase of shares. If the Company were to
acquire these remaining shares, the Company would own 100 percent of Seojin.
Net capital expenditures were $98.7 million and $69.0 million during the six
months ended June 30, 2003 and 2002, respectively. Capital expenditures in 2003
include significant investments to support major product launches. The Company
estimates its 2003 capital expenditures will be approximately $200 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. The Company leases certain equipment utilized in its operations
under operating lease agreements. The Company intends to continue to utilize
operating lease financing on occasion when the effective interest rate equals or
is lower than the Company's financing costs and the lease terms match the
expected life of the respective program. Annual operating lease payments under
the Company's lease agreements range from $51 million to $62 million for the
next five years.
Net cash provided by financing activities totaled $173.7 million and $44.3
million for the six months ended June 30, 2003 and 2002, respectively. Net
increased borrowings were $173.2 million for the 2003 period, and net
repayments of debt were $180.6 million for the comparable 2002 period.
WORKING CAPITAL
The Company maintained significant negative levels of working capital of $81.8
million and $305.5 million as of June 30, 2003 and December 31, 2002,
respectively, as a result of a focus on minimizing the cash flow cycle. The
$223.7 million net increase in working capital in 2003 was due to the combined
effects of a $191.6 million increase in cash primarily attributable to net
proceeds of approximately $244 million related to the senior note offering
completed in June 2003, a $122.6 million increase in accounts receivable
attributable to the sales increase for the six months ended June 30, 2003 and to
increased tooling receivables at June 30, 2003, a $52.2 million timing-related
increase in tooling in progress, and a $20.6 million net increase in other
working capital items, offset by a $19.9 million decrease in inventory and a
$143.4 million net increase in accounts payable and accrued liabilities
resulting from the increase in production volumes and an increase in tooling
payables at June 30, 2003. The Company's management of its accounts receivable
includes participation in specific receivable programs with key customers that
allow for accelerated collection of receivables, subject to interest charges
ranging from 5.0 percent to 6.0 percent at an annualized rate.
The Company expects to continue its focus on maintaining a large negative
working capital position through 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. 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 change the effective 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 June 30, 2003, Tower Automotive had total debt and obligations under capital
leases of $1.1 billion. The debt is composed of fixed rate debt of $782.8
million and floating rate debt of $303.2 million. The pre-tax earnings and cash
flow impact for the next year resulting from a one percentage point increase in
interest rates on variable rate debt would be approximately $3.0 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, also involve hedging programs intended to reduce the Company's exposure
to currency fluctuations. Management believes the effect of a 100 basis point
movement in foreign currency rates versus the dollar would not have materially
affected the Company's financial position or results of operations for the
periods presented.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
Among other provisions, this Statement eliminates the requirement that gains and
losses from extinguishment of debt be classified as extraordinary items. SFAS
No. 145 became effective for the Company on January 1, 2003. Upon adoption of
SFAS No. 145, the Company now reclassifies losses on extinguishments of debt
that were classified as extraordinary items in prior periods when such prior
periods are presented.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred, rather than when a company commits to an exit plan as was
previously required. SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The new standard resulted in the
Company recognizing liabilities related to certain
- 31 -
restructuring activities at the time the liability is incurred rather than the
past method of recognizing the liability upon the announcement of the plan and
communication to colleagues.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS 148 is effective for financial statements for fiscal years ending
after December 15, 2002. The Company has included the additional disclosures
about its method of stock-based compensation in Note 3.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No 149 is generally effective for contracts
entered into or modified after June 30, 2003. The Company does not believe that
the adoption of SFAS No. 149 will have a material impact on its results of
operations or financial condition.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This Statement
requires that certain financial instruments previously accounted for as equity
under previous guidance be classified as liabilities in statements of financial
position. Such financial instruments include (i) mandatorily redeemable shares
that the issuer is obligated to buy back in exchange for cash or other assets,
(ii) instruments, including put options and forward purchase contracts, that
require the issuer to buy back some of its shares in exchange for cash or other
assets and (iii) obligations that can be settled with shares, the monetary value
of which is fixed, tied solely or predominantly to a variable such as a market
index, or varies inversely with the value of the issuer's shares. SFAS No. 150
will become effective for all financial instruments entered into or modified
after May 31, 2003 and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The Company does not believe the
adoption of SFAS No. 150 will have a material impact on its results of
operations or financial condition.
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on the
disclosures to be made by a guarantor about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The recognition and
measurement provisions of FIN 45 are effective for all guarantees issued or
modified after December 31, 2002. The Company currently does not have any
guarantees requiring disclosure under FIN 45.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51." FIN 46 addresses consolidation by
business enterprises of certain variable interest entities that are currently
not consolidated. FIN 46 is effective for variable interests created after
January 31, 2003 and to variable interest entities in which an enterprise
obtains an interest after that date. For variable interest entities in which the
Company holds a variable interest that it acquired before February 1, 2003, the
Interpretation applies on July 1, 2003. The Company has determined that, under
FIN 46, the trust which issued its mandatorily redeemable convertible preferred
securities will no longer be consolidated by the Company. As a result, the
Company will modify its presentation of the securities by recording an amount
due to the trust of $258.8 million as debt, and recording interest expense on
the related obligation (previously recorded as minority interest, net of tax).
The Company also has a synthetic lease contract relating to its Lansing,
Michigan facility and is currently analyzing the impact of FIN 46 on this lease.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this Form
10-Q or incorporated by reference herein, 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,"
- 32 -
"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.
ITEM 4: DISCLOSURE CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
With the participation of management, the Company's chief executive officer and
chief financial officer, after evaluating the effectiveness of the Company's
disclosure controls and procedures (as defined in Exchange Act Rules 13a --
15(e) and 15d -- 15(e)) have concluded that as of June 30, 2003 the Company's
disclosure controls and procedures were adequate and effective to ensure that
material information relating to the Company and its consolidated subsidiaries
would be made known to them by others within those entities in connection with
the Company's filing of its Quarterly Report on Form 10-Q for the six months
ended June 30, 2003.
CHANGES IN INTERNAL CONTROLS
During the period covered by this report, there were no changes in the Company's
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
- 33 -
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:
The registrant held its Annual Meeting of Stockholders on May 21, 2003.
All director nominees (S. A. Johnson, Dugald K. Campbell, Anthony G.
Fernandes, Jurgen M. Geissinger, Ali Jenab, F. J. Loughrey, James R.
Lozelle, Georgia R. Nelson, and Enrique Zambrano) were elected. Each of
the individuals nominated for election as a director received at least
37,684,239 votes representing 78.971% of the shares voted in the
election.
Item 5. Other Information:
None.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 31.1 - Certification of the Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 - Certification of the Chief Financial Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 - Certification of the Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 - Certification of the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(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 April 22, 2003,
under Item 9 (Commission File No. 1-12733).
2. The Company's Current Report on Form 8-K dated May 28, 2003,
under Item 5 (Commission File No. 1-12733).
3. The Company's Current Report on Form 8-K dated June 18, 2003,
under Item 5 (Commission File No. 1-12733).
4. The Company's Current Report on Form 8-K dated June 20, 2003,
under Item 9 (Commission File No. 1-12733).
- 34 -
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: August 12, 2003 By /s/ Ernest T. Thomas
------------------------
Ernest T. Thomas
Chief Financial Officer and Treasurer
(principal accounting and financial officer)
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