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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: Commission file number:
DECEMBER 31, 2001 1-12733
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TOWER AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 41-1746238
(State of Incorporation) (I.R.S. Employer Identification
No.)
5211 CASCADE ROAD SE - SUITE 300 49546
GRAND RAPIDS, MICHIGAN (Zip Code)
(Address of Principal Executive
Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(616) 802-1600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 15, 2002, 48,222,012 shares of Common Stock of the Registrant
were outstanding and the aggregate market value of the Common Stock of the
Registrant (based upon the last reported sale price of the Common Stock at that
date by the New York Stock Exchange), excluding shares owned beneficially by
affiliates, was approximately $612,495,000.
Information required by Items 10, 11, 12 and 13 of Part III of this Annual
Report on Form 10-K incorporates by reference information (to the extent
specific sections are referred to herein) from the Registrant's Proxy Statement
for its annual meeting to be held May 15, 2002 (the "2002 Proxy Statement").
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TOWER AUTOMOTIVE, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 16
Additional Item. Executive Officers.......................................... 16
PART II
Item 5. Market for Registrant's Common Equity and Related 18
Stockholder Matters.........................................
Item 6. Selected Financial Data..................................... 19
Item 7. Management's Discussion and Analysis of Results of 20
Operations and Financial Condition..........................
Item 7A Quantitative and Qualitative Disclosure about Market Risk... 36
Item 8. Financial Statements and Supplementary Data................. 36
Item 9. Changes in and Disagreements with Accountants on Accounting 81
and Financial Disclosure....................................
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 81
Item 11. Executive Compensation...................................... 81
Item 12. Security Ownership of Certain Beneficial Owners and 81
Management..................................................
Item 13. Certain Relationships and Related Transactions.............. 81
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 81
8-K.........................................................
i
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
BACKGROUND OF COMPANY
Tower Automotive, Inc. and its subsidiaries (collectively referred to as
the "Company" or "Tower Automotive") is a leading global designer and producer
of structural components and assemblies used by every major automotive original
equipment manufacturer ("OEM"), including Ford, DaimlerChrysler, General Motors
("GM"), Honda, Toyota, Renault/Nissan, Fiat, Hyundai/Kia, BMW, Volkswagen Group,
and Isuzu. The Company's current products include automotive body structural
stampings and assemblies including exposed sheet metal ("Class A") components,
lower vehicle structural stampings and assemblies, suspension components,
modules and systems. The Company believes it is the largest independent global
supplier of structural components and assemblies to the automotive market (based
on net revenues).
The Company has over 60 manufacturing, product development, and
administrative facilities located in the U.S., Canada, Mexico, Brazil, India,
Germany, Hungary, Poland, Slovakia, Italy, France, Spain, Japan, China and
Korea. The Company continues to broaden its geographic coverage and strengthen
its ability to supply products on a global basis as a result of its acquisition
strategy, targeted organic growth and disciplined manufacturing efficiency and
productivity initiatives.
Since its inception in April 1993, when the Company was formed to acquire
R. J. Tower Corporation, the Company's revenues have grown rapidly through a
focused strategy of internal growth and a highly disciplined acquisition
program. Since 1993, the Company has successfully completed 14 acquisitions and
established six joint ventures in China, Mexico, Korea, Japan and the United
States. As a result of these acquisitions and internal growth, the Company's
revenues have increased from approximately $86 million in 1993 to approximately
$2.5 billion in 2001. The Company's North American average content per vehicle
has increased from $6.23 in 1993 to $114.67 in 2001.
The Company operates in the large and highly fragmented structural segment
of the automotive supply industry, which has continued to undergo significant
consolidation. In order to lower costs and improve quality, OEMs are reducing
their supplier base by awarding sole-source contracts to full-service suppliers
who are able to supply larger portions of a vehicle on a global basis. OEMs'
criteria for supplier selection include not only cost, quality and
responsiveness, but also full-service design, engineering and program management
capabilities. OEMs are increasingly seeking suppliers capable of providing
complete systems or modules rather than suppliers who only provide separate
component parts. In addition, OEMs are increasingly requiring their suppliers to
have the capability to design and manufacture their products in multiple
geographic markets. As a full-service supplier with strong OEM relationships,
the Company expects to continue to benefit from these trends within the
structural segment of the automotive supply industry.
Approximately 72 percent of the Company's 2001 revenues were generated from
sales in North America. The Company supplies products for many of the most
popular car, light truck and sport utility models, including the Honda Accord
and Civic, Toyota Camry, Ford Taurus, Focus, Explorer, Ranger and F-Series
pickups, Chevrolet Silverado and GMC Sierra pickups, and Dodge Ram pickup.
Approximately 11 percent of the Company's 2001 revenues were generated from
sales in Europe and 15 percent in Asia. The remaining 2 percent of revenue was
generated from sales in South America.
The Company's acquisition and joint venture activity is summarized below:
Carron Prototype Center. In January 2001, the Company invested
approximately $2 million in the formation of a prototyping joint venture with
Carron Industries. The joint venture, Carron Prototype Center, located in
Inkster, Michigan, provides the Company with detail stamping and tooling
capabilities and has capacity for full frame prototypes and vehicle builds.
1
Presskam. In November 2000, the Company completed the acquisition of
Strojarne Malacky, a.s. ("Presskam"), a manufacturer of upper body structural
assemblies for Volkswagen, Porsche and Skoda, located near Bratislava, Slovakia.
The Company paid total consideration of approximately $10 million for Presskam
and intends to use the investment to further support Volkswagen's Bratislava
assembly operation.
Yorozu. In September 2000, the Company acquired a 17 percent equity
interest in Yorozu Corporation ("Yorozu"), a supplier of suspension modules and
structural parts to the Asian and North American automotive markets, from Nissan
Motor Co. Ltd. ("Nissan"). Yorozu is based in Japan and is publicly traded on
the first tier of the Tokyo Stock Exchange. Its principal customers include
Nissan, Auto Alliance, General Motors, Ford, and Honda. The Company will pay
Nissan approximately $38 million over two and one half years for the 17 percent
interest. In conjunction with the original investment, the Company had an option
to increase its holdings in Yorozu by 13.8 percent through the purchase of
additional Yorozu shares. In February 2001, the Company exercised the right to
purchase the additional equity interest and will pay Nissan approximately $30
million over two and one half years for the additional 13.8 percent interest.
The remaining obligation to Nissan, as of December 31, 2001, was $29.5 million,
and is recorded as indebtedness on the Company's balance sheet.
Caterina. In July 2000, the Company acquired the remaining 60 percent
equity interest in Metalurgica Caterina S.A. ("Caterina") for approximately $42
million. The initial 40 percent interest was acquired in March 1998 for
approximately $48 million. Caterina is a supplier of structural stampings and
assemblies to the Brazilian automotive market. This investment provided the
Company with a substantial manufacturing presence in one of the fastest growing
automotive markets in the world and added Volkswagen and Mercedes-Benz as new
customers in Brazil.
Algoods. In May 2000, the Company acquired all of the outstanding common
stock of Algoods, Inc. ("Algoods") for total consideration of approximately $33
million. Algoods manufactures aluminum heat shields and impact discs for the
North American automotive industry from aluminum mini-mill and manufacturing
operations located in Toronto, Canada. Its primary customer is DaimlerChrysler.
The acquisition of Algoods represents a significant investment in processing
technology for lightweight materials which complements the Company's existing
heat shield capabilities and provides opportunities for application in other
lightweight vehicle structural products.
DTA Development. In March 2000, the Company invested $2.1 million in the
formation of a product technology and development joint venture with Defiance
Testing & Engineering Services, Inc., a subsidiary of GenTek Inc. The joint
venture, DTA Development, located in Westland, Michigan, provides the Company
with product-testing services. Traditionally, the Company utilizes both internal
and external product testing extensively to validate complex systems during the
development stage of a program. This joint venture allows the Company to have
access to a broader and more cost efficient range of testing capabilities. DTA
Development blends the benefits of chassis product technology and development
activities with leading edge commercial testing services.
Dr. Meleghy. In January 2000, the Company acquired all of the outstanding
shares of Dr. Meleghy GmbH & Co. KG Werkzeugbau und Presswerk, Bergisch Gladbach
("Dr. Meleghy") for approximately $86 million. Dr. Meleghy designs and produces
structural stampings, exposed surface panels and modules for the European
automotive industry. Dr. Meleghy also designs and manufactures tools and dies
for use in its production and for the external market. Dr. Meleghy operates
three facilities in Germany and one facility in each of Hungary and Poland. Dr.
Meleghy's principal customers include DaimlerChrysler, Audi, Volkswagen, Ford,
Opel and BMW. Products offered by Dr. Meleghy include body side panels, floor
pan assemblies, and miscellaneous structural stampings. Under the original
purchase agreement, the Company has paid an additional $29.6 million for this
acquisition based on Dr. Meleghy achieving certain operating targets in 2000.
Seojin. In October 1999, the Company invested $21 million for new shares
representing a 49 percent equity interest in Seojin Industrial Company Limited
("Seojin"). Seojin is a supplier of frames, modules and structural components to
the Korean automotive industry. In addition, the Company advanced $19 million to
Seojin in exchange for variable rate convertible bonds (the "Bonds") due October
30, 2009. The
2
Bonds are unsecured and rank equally with all other present and future
obligations of Seojin. Interest on the Bonds is payable annually beginning
October 30, 2000 and each October 30 thereafter until maturity. Under the joint
venture investment agreement, the Company had the right to convert the Bonds
into common stock of Seojin any time on or after October 30, 2000. The
conversion rate was based upon a predetermined formula that increases the
Company's equity interest to approximately 66 percent. On October 31, 2000, the
Company exercised its right to convert the bonds into 17 percent of the common
stock of Seojin. Based upon the formula for conversion of the Seojin variable
rate bonds, the Company paid $1.2 million for the additional equity interest.
Active. In July 1999, the Company acquired all of the outstanding stock of
Active Tool Corporation and Active Products Corporation (collectively, "Active")
for total approximate consideration of $315 million. Active, which has five
facilities, designs and produces a variety of large unexposed structural
stampings, exposed surface panels, and modules to the North American automotive
industry. Active's main customers include DaimlerChrysler, Ford, General Motors,
and Saturn. Products offered by Active include body sides, pick-up box sides,
fenders, floor pan assemblies, door panels, pillars, and heat shields. The
acquisition of Active enhanced the Company's ability to manufacture large and
complex structures, as well as exposed surface panels.
IMAR and OSLAMT. In July 1998, the Company acquired IMAR s.r.l. ("IMAR")
and OSLAMT S.p.A. ("OSLAMT"). IMAR designs and manufactures structural parts and
assemblies from two facilities in Italy, primarily for Fiat. OSLAMT designs and
manufactures tools and assemblies for the automotive market from its facility in
Turin, Italy. The purchase price consisted of approximately $32 million cash
plus the assumption of approximately $17 million of indebtedness. Under the
acquisition agreement, the Company also paid an additional amount of $15
million, based on the achievement of certain operating targets.
Metalsa. In October 1997, the Company acquired a 40 percent equity
interest in Metalsa S. de R.L. ("Metalsa"). In addition, the Company has entered
into a technology sharing arrangement which will allow it to utilize the latest
available product and process technology. Metalsa is the largest supplier of
vehicle frames and structures in Mexico. The Company paid approximately $120
million for its equity interest with an additional amount of up to $45 million
payable based upon Metalsa's net earnings through December 31, 2000. The Company
paid approximately $26 million under the earnout provisions of the joint venture
investment agreement.
SIMES. In May 1997, the Company acquired Societa Industria Meccanica e
Stampaggio S.p.A. ("SIMES"), an Italian automotive parts manufacturer, for
approximately $51 million in cash, plus an additional $3 million based on
achievement by SIMES of certain operating targets following the acquisition. The
acquisition of SIMES (i) significantly expanded the Company's global
capabilities by providing the Company with a manufacturing presence in Europe,
(ii) added Fiat as a new customer and (iii) enhanced the Company's design and
engineering capabilities.
APC. In April 1997, the Company acquired Automotive Products Company
("APC") from A.O. Smith Corporation for approximately $700 million in cash. APC
is a leading designer and producer of structural and suspension components for
the automotive, light truck and heavy truck markets. The Company believes that
the acquisition of APC provided it with several strategic benefits, including:
(i) expanded product offerings and modular product opportunities; (ii) increased
customer penetration within each of the three major North American OEMs and
within certain foreign OEMs with manufacturing operations in North America
("Transplants"); (iii) increased penetration in the light truck segment and
other key models; (iv) complementary new technology; (v) opportunities to reduce
costs and improve operational efficiency; and (vi) an expanded presence in
China, Japan and South America, which complemented the Company's current
European initiatives to provide expanded global production capabilities for both
North American and international OEMs.
MSTI. In May 1996, the Company acquired MascoTech Stamping Technologies,
Inc. ("MSTI") from MascoTech, Inc. ("MascoTech") for approximately $79 million,
plus an additional $30 million in earnout payments as certain operating targets
were achieved by the MSTI facilities in the first three years
3
following the acquisition. The MSTI acquisition: (i) expanded the Company's
product capabilities into chassis and suspension components; (ii) provided
chassis and suspension technology as well as value-added processing technologies
including assembling, painting and welding; and (iii) increased the Company's
content per vehicle on key light truck and sport utility vehicles such as the
Ford F-Series, Explorer and Windstar and the Dodge Ram and Dakota as well as on
high volume passenger cars such as the Ford Taurus/Sable.
Trylon. In January 1996, the Company acquired Trylon Corporation
("Trylon") from MascoTech for approximately $25 million in cash. The acquisition
of Trylon: (i) broadened the Company's product offerings to include small,
precision metal stampings and assemblies, which were previously outsourced to
third parties; (ii) established a relationship between the Company and General
Motors; and (iii) increased content on Ford models, primarily the Villager.
Kalamazoo. In June 1994, the Company acquired Kalamazoo Stamping and Die
Company ("Kalamazoo"), a supplier of structural stampings and assemblies, for
approximately $12 million in cash. The acquisition of Kalamazoo added additional
structural components to the Company's product offerings and increased model
penetration with Ford.
Edgewood. In May 1994, the Company acquired Edgewood Tool and
Manufacturing Company and its affiliate, Ann Arbor Assembly Corporation
(collectively, "Edgewood") for approximately $30 million in aggregate
consideration. Edgewood is a leading supplier of hood and deck lid hinges as
well as structural stampings and assemblies. The acquisition of Edgewood: (i)
added engineered mechanical stampings, primarily hood and deck lid hinges, and
additional structural components to the Company's product offerings; (ii)
increased model penetration with the Company's existing customers; and (iii)
provided the Company with a significant presence with Mazda.
J.L. French. In October 1999, the Company loaned $30 million to J.L.
French Automotive Castings, Inc., ("J.L. French") in exchange for a convertible
subordinated promissory note due October 14, 2009. The note bears interest at
7.5 percent annually with interest payable on the last day of each calendar
quarter beginning December 31, 1999. The Company can convert, at its option, any
portion of the outstanding principal of the note into Class A Common Stock of
J.L. French at a preset agreed upon conversion price. In November 2000, the
Company exercised its option to convert the note into 7,124 shares of Class A
"1" Common Stock of J.L. French, which has a 7.5 percent pay-in-kind dividend
right. Additionally, in November 2000, the Company invested $2.9 million in J.L.
French through the purchase of Class P Common Stock, which has an 8 percent
pay-in-kind dividend right. In May 2000, the Company invested $11.0 million in
J.L. French through the purchase of Class A Common Stock. At December 31, 2001,
the Company had an ownership interest of approximately 16 percent in J.L.
French. During the fourth quarter of 2001, the Company evaluated its investment
in J.L. French and determined it was impaired and therefore recorded a charge of
$46.3 million to write off the entire investment in J.L. French.
Roanoke Heavy Truck Business. In December 2000, the Company sold its
Roanoke, Virginia heavy truck rail manufacturing business (the "Roanoke Heavy
Truck Business") to its joint venture partner, Metalsa, for net proceeds of
approximately $55 million, which approximated the book value of the net assets
sold, plus an earnout of up to $30 million based on achieving certain profit
levels over the next three years. The net proceeds were used to repay
outstanding indebtedness under the revolving credit facility.
Hinge Business. In August 1998, the Company sold its hinge business to
Dura Automotive Systems, Inc. for net proceeds of approximately $37 million
which approximated the book value of the net assets sold. The net proceeds were
used to repay outstanding indebtedness under the revolving credit facility.
The Company's principal executive offices are located at 5211 Cascade Road
SE, Suite 300, Grand Rapids, Michigan 49546, and its telephone number is (616)
802-1600.
BUSINESS STRATEGY
The Company's strategy is to capitalize upon its position as the largest
independent global supplier of automotive structural components and assemblies
in order to take advantage of the opportunities arising
4
from the consolidation, globalization and modular sourcing trends in the
automotive supply industry. The ultimate goal of this strategy is to maximize
return on invested capital and create long-term value for shareholders. Key
elements of the Company's operating and growth strategies are outlined below:
Operating Strategy:
Offer Full-Service Technical Design, Engineering and Program Management
Capabilities. The Company continues to build its competitive advantage through
investment in product development, advanced engineering and program management.
As a result of this investment, and of consolidation among suppliers of
automotive structural components and assemblies, the Company believes that it is
one of only a select group of suppliers able to provide automotive OEMs with
full service technical design, engineering and program management capabilities
with respect to the entire body structure of a vehicle on a global basis. The
Company works with OEMs throughout the product development process from concept
vehicle and prototype development through the design and implementation of
manufacturing processes to provide full-service capabilities to its customers.
In some cases, the Company places design engineers at customer facilities to
coordinate its product design efforts with those of its OEM customers.
Further Enhance Global Presence. The Company offers manufacturing and
support services to its customers on a global basis through a combination of
international wholly owned subsidiaries and by entering into joint ventures and
partnerships with foreign suppliers. Outside of North America, the Company has
technical/customer service centers in Yokohama, Japan; Turin, Italy; Hyderabad,
India; Bergisch-Gladbach, Germany; and Sao Paulo, Brazil. The Company also has
relocated certain technical personnel to locations where OEMs are developing
"world cars" which can be designed in one vehicle center to a single global
standard but produced and sold in different geographic markets. The Company
believes that these global, technical, and manufacturing capabilities have led
to the award of several, major new programs to the Company.
Continue to Optimize Manufacturing Efficiency and Quality. In response to
OEMs' increasingly stringent production specifications, the Company has
implemented manufacturing practices designed to maximize product quality and
timeliness of delivery to reduce waste and enhance efficiency. The Company has
continued to upgrade its manufacturing equipment and processes through selective
investment in new equipment, maintenance of existing equipment and efficient
utilization of manufacturing engineering personnel. In order to maximize return
on invested capital, the Company increasingly employs flexible manufacturing
processes that allow it to maximize equipment utilization in meeting customer
expectations for product quality and timely delivery. Consistent with this
strategy, the Company, where appropriate, outsources the production of select
commodity components to Tier II manufacturers, as well as seeks to provide
administrative services to these manufacturers to maximize supply chain
efficiency and return on invested capital. The Company monitors existing
manufacturing capacity relative to expected capacity, which is determined
primarily by current and expected business backlog and by opportunities to
outsource commodity operations to Tier II manufacturers. As a result, beginning
in the second half of 2000, the Company began restructuring its operations to
reduce excess manufacturing capacity and improve the efficiency of its
operations.
Maintain Decentralized, Participative, Incentive-Based Culture. The
Company's decentralized approach to managing its manufacturing facilities
encourages decision making and colleague participation in areas such as
manufacturing processes and customer service. The Company's leadership team
meets frequently at various Company locations in order to maintain a unified
Company culture. To increase colleague productivity, the Company utilizes
incentive programs for all salaried and hourly colleagues that provide
incentives for colleagues who take advantage of continuous improvement programs
and who provide cost savings ideas.
Growth Strategy:
The Company's growth strategy comprises two fundamental elements; increased
organic growth and the pursuit of strategic acquisitions, alliances and
partnerships.
5
Increase Organic Growth. The Company actively pursues increased organic
growth from both new and replacement vehicle programs. Specifically, it is the
Company's belief that the following competitive strengths have played, and will
continue to play, an important role in achieving its organic growth objectives:
- Scale position as the largest independent supplier of automotive
structural components and assemblies;
- Full-service technical design, engineering and program management
capabilities;
- Global engineering and manufacturing presence;
- Modular product capabilities;
- Strong customer relationships with key domestic and foreign automotive
OEMs;
- Strong financial position relative to most competitors.
As a result of these competitive strengths, and the efforts to increase
organic growth, the Company was awarded programs in 2001 that, based on
independent estimates of expected program volumes and current expectations of
program pricing, represent more than $760 million in annual revenues. These
programs are scheduled to launch over the next three years and be in full
production by 2005. These programs will help to further the diversification of
the Company's customer base. The proportion of revenues from Ford and
DaimlerChrysler, the Company's two largest customers, has decreased from 68
percent in 2000 to 60 percent in 2001. Of the $760 million in annual revenues
represented by the new program awards described above, 43 percent is expected to
be derived from Ford and DaimlerChrysler and 57 percent is expected to be
derived from other customers including Nissan, GM, and BMW.
In order to better target acceptable returns on new business, the Company,
beginning in 2000, adopted a return on invested capital-based approach to
evaluating the attractiveness of potential new programs. Specifically, the
objective is to take on only those programs that are expected to provide an
acceptable return on invested capital after taking into account such factors as
expected unit volume and pricing, ability to utilize existing manufacturing
capacity for that program, requirements for investment in new capital equipment
and the flexibility to use such new capital equipment for other programs.
Pursue Strategic Acquisitions, Alliances and Partnerships. Strategic
acquisitions, alliances and partnerships have contributed significantly to the
Company's growth. The Company continues to believe that consolidation in the
automotive supply industry will provide further attractive opportunities to
either acquire, or purchase a majority or minority ownership interest in
companies that complement its existing business. The Company seeks to make
acquisitions that:
- Provide additional product, manufacturing and technical capabilities;
- Broaden the Company's geographic coverage domestically and strengthen its
ability to supply products on a global basis;
- Increase both the number of models for which the Company supplies
products and the content supplied for existing models;
- Add new customers;
- Facilitate outsourcing opportunities from the in-house operations of new
and existing customers;
- Facilitate capacity rationalization and restructuring opportunities; and
- Provide at least a minimum targeted return on invested capital.
In 2001, over 70 percent of total worldwide passenger vehicle production
occurred outside North America. As a result, a particular focus for the Company
has been and will continue to be to pursue acquisitions or develop strategic
partnerships and alliances that strengthen the Company's ability to supply its
products on a global basis. Consistent with this strategy, the Company has
formed, or is in the process
6
of forming, strategic alliances with other suppliers throughout the world,
including those located in Europe, Asia and South America. For example, the
Company has majority-owned operations in Asia through its 66 percent interest in
Seojin in Korea and its 60 percent interest in Tower Golden Ring, which
manufactures structural components in China. The Company also has equity
interests in Mexico through its 40 percent interest in Metalsa and in Japan
through its 30.8 percent interest in Yorozu. Increased international sales are
intended to mitigate the effects of cyclical downturns in a given geographic
region and further diversify the Company's OEM customer base.
INDUSTRY TRENDS
The Company's performance and growth is directly related to certain trends
within the automotive market, including the consolidation of the component
supply industry, the increase in global sourcing and the growth of
system/modular sourcing. It is also directly related to automotive production,
which is cyclical and depends on general economic conditions and consumer
confidence.
Continuation of Supplier Consolidation. In order to lower costs and
improve quality, OEMs have continued to reduce their supply base by awarding
sole-source contracts to full-service suppliers who are able to supply larger
segments of a vehicle. OEMs' criteria for supplier selection include not only
cost, quality and responsiveness, but also full-service design, engineering and
program management capabilities. As a result, over the past decade, the
automotive supply industry has been undergoing significant consolidation.
Furthermore, in 2001 a number of suppliers experienced financial difficulties,
which is likely to result in further consolidation activity as the operations of
these suppliers are acquired and rationalized by larger, more capable suppliers.
For full-service suppliers such as the Company, this environment provides an
opportunity to grow both organically, by obtaining business previously provided
by other non-full service suppliers, and through acquisition, by acquiring
suppliers that further enhance product, manufacturing and service capabilities.
OEMs rigorously evaluate suppliers on the basis of product quality, cost
control, reliability of delivery, product design capability, financial strength,
new technology implementation, quality and condition of facilities and overall
management. Suppliers that obtain superior ratings are considered for sourcing
new business. Although these new OEM policies have already resulted in
significant consolidation of component suppliers in certain segments, the
Company believes that consolidation within the structural and suspension
component segments of the automotive industry will continue to provide
attractive opportunities to acquire or partner with companies that complement
its existing business.
Global Sourcing. Regions such as Asia, Latin America, Mexico and Eastern
Europe are expected to experience significant growth in vehicle demand over the
next ten years. OEMs are positioning themselves to reach these emerging markets
in a cost-effective manner by seeking to design and produce "world cars" which
can be designed in one vehicle center to a single global standard but produced
and sold in different geographic markets, thereby allowing OEMs to reduce design
costs, take advantage of low-cost manufacturing locations and improve product
quality and consistency. OEMs increasingly are requiring their suppliers to have
the capability to design and manufacture their products in multiple geographic
markets. In order to best meet these OEM requirements, the Company has over 24
manufacturing facilities outside the U.S., including locations in Canada,
Brazil, Germany, Italy, Poland, Slovakia, Hungary, Korea, and China. In
addition, the Company's alliance/partnership relationships provide access to new
geographic markets and customers. A more recent trend beyond the development of
"world cars", is the consolidation of platforms across OEMs through joint
development efforts. GM and Fiat have announced plans to combine platforms
across the two companies. DaimlerChrysler with Mitsubishi and Renault with
Nissan will combine platforms as well. OEMs also plan to create common component
sets across platforms in areas such as powertrain, axles, suspensions, HVAC, and
other areas, thereby reducing the degree of product differentiation.
System/Modular Sourcing. OEMs are increasingly seeking suppliers capable
of providing complete systems or modules. A system is a group of components,
which may be dispersed throughout the vehicle, yet operate together to provide a
specific engineering function. Modules, on the other hand, consist of sub-
assemblies at a specific location in the vehicle, incorporating components from
various functional systems,
7
which are assembled and shipped to the OEM ready for installation in a vehicle
as a unit. By outsourcing complete systems or modules, OEMs are able to reduce
their costs associated with the design and integration of different components
and improve quality by enabling their suppliers to assemble and test major
portions of the vehicle prior to production. The Company has capitalized on the
system/modular sourcing trend among OEMs by offering customers higher
value-added supply capabilities through an increasing focus on the production of
assemblies consisting of multiple component parts that are welded or otherwise
fastened together by the Company. The Company has the ability to supply OEMs
with modules consisting of integrated assemblies and component parts that can be
installed as a unit in a vehicle at the OEM assembly plant.
OEM Consolidation. The recent acquisition and consolidation activity among
select OEMs has not led to the disadvantage of the smaller OEMs in the industry
as previously predicted. Rather, smaller OEMs such as Peugeot, Honda,
Hyundai/Kia, and BMW have strengthened their positions in the industry and their
financial performance, while some of the larger OEMs have struggled to
successfully integrate acquisitions. The Company's global capabilities have
allowed it to continue to serve as a valuable supplier to those smaller
producers.
PRODUCTS
The Company produces a broad range of structural components and assemblies,
many of which are critical to the structural integrity of a vehicle. Many of the
Company's stamped, formed and welded components and assemblies are attached
directly to the frame of an automobile at the OEM assembly plant and comprise
the major structure of a vehicle. The Company's products generally can be
classified into the following categories: body structures and assemblies; lower
vehicle structures; suspension modules and systems; and suspension components. A
brief summary of each of the Company's principal product categories follows:
PRODUCT CATEGORY/DESCRIPTION
BODY STRUCTURES AND ASSEMBLIES:
Products that form the basic upper body structure of the vehicle and
include large metal stampings such as body pillars, roof rails, side sills,
parcel shelves and intrusion beams. Current assemblies include a broad array of
highly engineered parts such as fuel filler assemblies, which are attached to
both lower vehicle and body structures. This category also includes Class A
surfaces and modules. Class A surfaces include exposed sheet metal components
such as body sides, pick-up box sides, door panels and fenders. The capability
to produce these types of components complements the Company's substantial
presence in lower vehicle and body structures and allows for the combination of
these offerings into modules for supply to customers.
LOWER VEHICLE STRUCTURES:
Products that form the basic lower body structure of the vehicle and
include large metal stampings from both traditional and hydroforming methods,
such as pickup truck and SUV full frames, automotive engine cradles, floor pan
components and cross members. Critical to the strength and safety of vehicles,
these products carry the load of the vehicle and provide crash integrity.
SUSPENSION MODULES AND SYSTEMS:
Products include axle assemblies which consist of stamped metal trailing
axles, assembled brake shoes, hoses and tie rods and front and rear structural
suspension modules/systems, which consist of control arms, suspension links and
value-added assemblies and systems comprised of components that it manufactures
as well as those produced by other manufacturers. Assemblies are groups of
components grouped according to their relative location, while systems are
components grouped based upon providing
8
functionality. The Company sells this expertise to OEMs who have been
increasingly outsourcing assemblies and systems in order to reduce production
and inventory management costs.
SUSPENSION COMPONENTS:
Products include stamped, formed and welded products such as control arms,
suspension links, track bars, spring and shock towers and trailing axles.
Critical to the ride, handling and noise characteristics of a vehicle,
suspension components are a natural extension of the Company's larger structural
components.
OTHER:
The Company manufactures a variety of other products, including heat
shields and other precision stampings, for its OEM customers.
The following table summarizes the approximate composition by product
category of the Company's global revenues for the last two fiscal years:
YEAR ENDED
DECEMBER 31,
------------
PRODUCT CATEGORY 2001 2000
---------------- ---- ----
Body structures & assemblies (including Class A surfaces)... 39% 39%
Lower vehicle structures.................................... 36 41
Suspension modules & systems................................ 15 11
Suspension components....................................... 8 8
Other....................................................... 2 1
--- ---
Total.................................................. 100% 100%
=== ===
CUSTOMERS AND MARKETING
The North American automotive manufacturing market is dominated by GM, Ford
and DaimlerChrysler, with the Japanese and European OEMs representing
approximately 23 percent of production in this market in 2001. The Company
currently supplies its products primarily to Ford, DaimlerChrysler, GM, Honda,
Toyota, and Nissan in North America. As a result of past growth strategies, the
Company has further expanded its global presence and has increased penetration
into certain existing customers and added new customers such as Fiat, BMW,
Volkswagen, Nissan, and Hyundai/Kia.
OEMs typically award contracts that cover parts to be supplied for a
particular vehicle model or platform. Such contracts range from one year to over
the life of the model, which is generally three to ten years and do not require
the purchase by the OEM of any minimum number of parts. The Company also
competes for new business to supply parts for successor models and therefore is
subject to the risk that the OEM will not select the Company to produce parts on
a successor model. The Company supplies parts for a broad cross-section of both
new and mature models, thereby reducing its reliance on any particular model.
For example, the Company supplies parts for substantially all models produced by
Ford, Honda and Toyota in North America and also currently supplies
DaimlerChrysler with substantially all of its full frame requirements.
9
Following is a summary of the global composition of significant customers
for the last two fiscal years:
YEAR ENDED
DECEMBER 31,
------------
CUSTOMER 2001 2000
-------- ---- ----
Ford/Jaguar/Volvo........................................... 35% 37%
DaimlerChrysler............................................. 25 31
Hyundai/Kia................................................. 12 4
General Motors.............................................. 4 5
Fiat........................................................ 4 4
VW Group.................................................... 4 2
Honda....................................................... 3 3
Toyota...................................................... 2 2
Nissan...................................................... 1 1
Other....................................................... 10 11
--- ---
Total.................................................. 100% 100%
=== ===
Below is a summary of the Company's sales by geographic region for the last
two fiscal years:
YEAR ENDED
DECEMBER 31,
------------
GEOGRAPHIC CATEGORY 2001 2000
------------------- ---- ----
U.S. and Canada............................................. 72% 85%
Asia........................................................ 15 4
Europe...................................................... 11 10
Mexico and South America.................................... 2 1
--- ---
Total.................................................. 100% 100%
=== ===
The following table presents an overview of the major models for which the
Company supplies products:
CUSTOMER CAR MODELS TRUCK MODELS
-------- ---------- ------------
Ford........................... Taurus/Sable, Mustang, Focus, Explorer/Mountaineer, Explorer
Escort, Crown Victoria/Grand Sport Trac, Explorer Sport,
Marquis, Cougar Continental, Econoline, Villager, Windstar,
Lincoln LS/Jaguar S-Type, Escape, Expedition, Excursion,
Thunderbird, Towncar, Mondeo, Ranger, F-Series LD & HD,
Fiesta Lincoln Blackwood, Transit,
Medium Duty Trucks
DaimlerChrysler................ Concorde/Intrepid/300M, Neon, Ram Pick-up, Dakota, Grand
Stratus/Sebring, Sebring Cherokee, Voyager/Caravan/ Town
Convertible & Country, Ram Van, Jeep
Cherokee Wrangler, Durango, Jeep
Liberty, PT Cruiser
Mercedes....................... A-Class, C-Class, E-Class, Sprinter
S-Class, SLK, CLK
General Motors................. Cadillac CTS Silverado/Sierra, Astro/Safari,
Medium Duty Trucks
Saturn......................... LS/LW Saturn VUE
Opel........................... Omega, Astra, Agila, Corsa,
Vectra
Honda.......................... Accord, Civic, Acura TL Odyssey, Passport
Mazda.......................... Mazda 626 Tribute, B-Series Pickup
10
CUSTOMER CAR MODELS TRUCK MODELS
-------- ---------- ------------
Toyota......................... Avalon, Camry, Solara, Corolla Sienna, Tacoma, Tundra, Sequoia
Nissan......................... Sentra, Altima Quest, Xterra, Frontier
Isuzu.......................... Rodeo, Amigo
VW............................. Passat, Cabrio, Jetta, Transporter/Van, LT
Golf/Bora, Gol
Audi........................... A3, A4, A6, TT, Cabrio
Skoda.......................... Felicia/Fabia, Octavia
BMW............................ 3 Series, 5 Series, 7 Series X5 SUV
Fiat........................... Marea, Punto, Bravo/Brava, Multipla, Ducato
Palio, Panda, Stilo
Alfa Romeo..................... 146/147, 156, 166 GTV, Spider
Lancia......................... Lybra, Kappa, Y
Hyundai........................ Teracan, Falloper, Starex,
Libero, Craco, SantaFe
Kia............................ Spectra, Rio, Optima, Sportage, Carens, Retona,
Enterprise, Potentia Pregio, Carnival, Frontier
Most of the parts the Company produces have a lead time of two to five
years from product development to production. See "Design and Engineering
Support." The selling prices of these products are generally negotiated between
the Company and its customers and are typically not subject to a competitive bid
process.
Sales of the Company's products to OEMs are made directly by the sales and
engineering teams, located at its technical/customer service centers in Novi,
Michigan; Rochester Hills, Michigan; Yokohama, Japan; Turin, Italy;
Bergisch-Gladbach, Germany; Sao Paolo, Brazil; and Hyderabad, India. Through its
technical centers, the Company services its OEM customers and manages its
continuing programs of product design improvement and development. The Company
periodically places engineering staff at various customer facilities to
facilitate the development of new programs.
The Company's sales and marketing efforts are designed to create overall
awareness of its engineering, program management, manufacturing and assembly
expertise to acquire new business and to provide ongoing customer service. The
sales group is organized into customer-dedicated teams within product groups.
From time to time, the Company also participates in industry and customer
specific trade and technical shows.
DESIGN AND ENGINEERING SUPPORT
The Company strives to maintain a technological advantage through
investment in product development and advanced engineering capabilities. The
Company's manufacturing engineering capabilities enable it to design and build
high-quality and efficient manufacturing systems, processes and equipment and to
continually improve its production processes and equipment. The Company's
manufacturing engineers are located at each of its manufacturing facilities. The
Company's engineering staff currently consists of approximately 330 full-time
engineers, whose responsibilities range from research and development, advanced
product development, product design, testing and initial prototype development
to the design and implementation of manufacturing processes.
Because assembled parts must be designed at an early stage in the
development of new vehicles or model revisions, the Company is increasingly
given the opportunity to utilize its product engineering resources early in the
planning process. Advanced development engineering resources create original
engineering designs, computer-aided designs, feasibility studies, working
prototypes and testing programs to meet customer specifications. The Company
also has full-service design capability for chassis components.
11
The Company's Hyderabad, India technical center allows for 24 hour engineering
globally, thereby optimizing product design and analysis capabilities, leading
to reduced development costs.
MANUFACTURING
The Company's manufacturing operations consist primarily of stamping
operations, system and modular assembly operations, roll-forming and
hydroforming operations and associated coating and other ancillary operations.
Stamping involves passing metal through dies in a stamping press to form
the metal into three-dimensional parts. The Company produces stamped parts using
over 640 precision single-stage, progressive and transfer presses, ranging in
size from 150 to 4,000 tons, which perform multiple functions as raw material
proceeds through the press and is converted into a finished product. The Company
continually invests in its press technology to increase flexibility, improve
safety and minimize die changeover time.
After forming is completed, stampings that are to be used in assemblies are
placed in work-in-progress staging areas from which they are fed into
cell-oriented assembly operations that produce complex, value-added assemblies
through the combination of multiple parts that are welded or fastened together.
The Company's assembly operations are performed on either dedicated, high-volume
welding/fastening machines or on flexible-cell oriented robotic lines for units
with lower volume production runs. The assembly machines attach additional
parts, fixtures or stampings to the original metal stampings. In addition to
standard production capabilities, the Company's assembly machines are also able
to perform various statistical control functions and identify improper welds and
attachments. The Company continually works with manufacturers of fixed/robotic
welding systems to develop faster, more flexible machinery. Several of the
Company's welding systems were designed by the Company.
The products manufactured by the Company use various grades and thicknesses
of steel and aluminum, including high strength hot and cold rolled, galvanized,
organically coated, stainless and aluminized steel. The Company also produces
exposed sheet metal components, such as exterior body panels. See "Suppliers and
Raw Materials."
OEMs have established quality rating systems involving rigorous inspections
of suppliers' facilities and operations. OEMs' factory rating programs provide a
quantitative measure of a company's success in improving the quality of its
operations. The Company has received quality awards from Ford (Q1) and
DaimlerChrysler (Pentastar). The automotive industry has adopted a quality
rating system known as QS-9000. All of the Company's existing operating
facilities in North America have received QS-9000 certification in compliance
with the automotive industry requirements.
COMPETITION
The Company operates in a highly competitive, fragmented market segment of
the automotive supply industry, with a limited number of competitors generating
revenues in excess of $200 million. The number of the Company's competitors has
decreased in recent years and is expected to continue to decrease due to the
supplier consolidation resulting from changing OEM policies. The Company's major
competitors include The Budd Company, a subsidiary of Thyssen-Krupp AG, Magna
International, Inc. ("Magna"), Dana Corporation, and divisions of OEMs with
internal stamping and assembly operations, all of which have substantial
financial resources. The Company competes with other significant competitors in
various segments of its product lines and in various geographic markets. The
Company views Magna as its strongest competitor across most of the Company's
product lines; however, the Company believes that no single competitor can
provide the same range of products and capabilities as the Company in all of the
major international automotive markets.
The Company principally competes for new business both at the beginning of
the development of new models and upon the redesign of existing models. New
model development generally begins two to five years before the marketing of
such models to the public. Once a supplier has been designated to supply parts
for a new program, an OEM usually will continue to purchase those parts from the
designated
12
producer for the life of the program, although not necessarily for a redesign.
Competitive factors in the market for the Company's products include product
quality and reliability, cost and timely delivery, technical expertise and
development capability, new product innovation and customer service. In
addition, there is substantial and continuing pressure at the OEMs to reduce
costs, including the cost of products purchased from outside suppliers such as
the Company. Historically, the Company has been able to generate sufficient
production cost savings to offset these price reductions.
SUPPLIERS AND RAW MATERIALS
The primary raw material used to produce the majority of the Company's
products is steel. The Company purchases hot and cold rolled, galvanized,
organically coated, stainless and aluminized steel from a variety of suppliers.
The Company employs just-in-time manufacturing and sourcing systems enabling it
to meet customer requirements for faster deliveries while minimizing its need to
carry significant inventory levels. The Company has not experienced any
significant shortages of raw materials and normally does not carry inventories
of raw materials or finished products in excess of those reasonably required to
meet production and shipping schedules. Raw material costs represented
approximately 56 percent of the Company's revenues in 2001.
Ford, Honda and DaimlerChrysler currently purchase all of the steel used by
the Company for their models directly from steel producers. As a result, the
Company has minimal exposure to changes in steel prices for parts supplied to
Ford, Honda and DaimlerChrysler, which collectively represented 63 percent of
the Company's revenues in 2001.
The Company expects that the content level of metal in cars and light
trucks will remain constant or increase slightly due to the trend toward
increased vehicle size and a greater emphasis on metal recycling. Although the
search for improved fuel economy and weight reduction has resulted in attempts
to reduce the sheet metal content of light vehicles, an efficient,
cost-effective substitute for steel used in the Company's structural products
has not been found. While various polymers have been used recently for fenders,
hoods and decks, such products do not have the inherent strength or structural
integrity on a cost-effective basis to be used for structural components. The
Company is involved in ongoing evaluations of the potential for the use of
aluminum and of specialty steel in its products.
Other raw materials purchased by the Company include dies, fasteners,
tubing, springs, rivets and rubber products, all of which are available from
numerous sources.
COLLEAGUES
As of December 31, 2001, the Company had approximately 13,000 colleagues
worldwide, of whom approximately 5,300 are covered under collective bargaining
agreements. These collective bargaining agreements expire between 2002 and 2005.
The Company believes that its future success will depend in part on its ability
to continue to recruit, retain and motivate qualified personnel at all levels of
the Company. The Company has instituted a large number of colleague incentive
programs to increase colleague morale and expand the colleagues' participation
in the Company's business. Since its inception in 1993, the Company has not
experienced any significant work stoppages and considers its relations with its
colleagues to be good.
13
ITEM 2. PROPERTIES
FACILITIES
The following table provides information regarding Tower Automotive's
principal facilities. The Company maintains several manufacturing facilities
located in close proximity to many of the high-volume vehicle assembly plants of
its customers. The Company's facilities are geographically located in such a way
as to enable the Company to optimize its management and logistical capabilities
on a regional basis.
SQUARE TYPE OF
LOCATION FOOTAGE INTEREST DESCRIPTION OF USE
-------- --------- --------- --------------------------------
Milwaukee, Wisconsin................. 3,118,000 Owned Manufacturing
Elkton, Michigan..................... 1,100,000 Owned Manufacturing
Caserta, Italy (2 locations)......... 751,000 Owned Manufacturing
Milan, Tennessee..................... 531,000 Owned Manufacturing
Turin, Italy (4 locations)........... 512,000 Mixed Manufacturing/Office
Granite City, Illinois............... 458,000 Owned Manufacturing
Malacky, Slovakia.................... 453,600 Owned Manufacturing
Zwickau, Germany..................... 409,000 Owned Manufacturing
Clinton Township, Michigan........... 385,000 Owned Manufacturing
Gent, Belgium........................ 376,000 Owned Manufacturing
Sebewaing, Michigan.................. 366,000 Owned Manufacturing
Toronto, Ontario..................... 329,400 Owned Manufacturing/Office
Bardstown, Kentucky.................. 300,000 Owned Manufacturing
Plymouth, Michigan................... 294,000 Leased Manufacturing
Corydon, Indiana..................... 290,000 Leased Manufacturing
Lansing, Michigan.................... 250,000 Leased Manufacturing
Hwasung kun, Korea................... 219,000 Owned (2) Manufacturing
Kunpo City, Korea.................... 200,000 Owned (2) Manufacturing
Sao Paolo, Brazil.................... 193,000 Owned Manufacturing/Office
Kalamazoo, Michigan.................. 180,000 Owned Manufacturing
Traverse City, Michigan.............. 170,000 Owned Manufacturing
Greenville, Michigan................. 156,000 Owned Manufacturing/Office
Changchun, China..................... 140,500 Leased (1) Manufacturing
Auburn, Indiana...................... 132,000 Owned Manufacturing/Office
Kendallville, Indiana................ 131,000 Owned Manufacturing
Bellevue, Ohio....................... 126,000 Owned Manufacturing
Bluffton, Ohio....................... 102,000 Owned Manufacturing
Bergisch-Gladbach, Germany........... 102,000 Owned Manufacturing/Engineering/Office
Shiheung City, Korea................. 93,000 Owned (2) Manufacturing
Rochester Hills, Michigan............ 89,000 Leased Office/Engineering/Design
Chemnitz, Germany.................... 76,000 Leased Manufacturing
Barrie, Ontario...................... 72,000 Leased Manufacturing
Belcamp, Maryland.................... 70,000 Owned Manufacturing
Kwangju City, Korea.................. 64,000 Owned (2) Manufacturing
Minas Gerais, Brazil................. 59,000 Owned Manufacturing
Upper Sandusky, Ohio................. 56,000 Owned Manufacturing
Ansan City, Korea.................... 56,000 Owned (2) Manufacturing
14
SQUARE TYPE OF
LOCATION FOOTAGE INTEREST DESCRIPTION OF USE
-------- --------- --------- --------------------------------
Buchholz, Germany.................... 54,000 Owned Manufacturing
Opole, Poland........................ 54,000 Owned Manufacturing
Youngchun City, Korea................ 50,000 Owned (2) Manufacturing
Novi, Michigan....................... 47,000 Leased Engineering/Design/Sales
Bowling Green, Kentucky.............. 46,000 Owned Manufacturing
Fenton, Missouri..................... 41,000 Leased Warehouse
Ulsan City, Korea.................... 29,000 Owned (2) Manufacturing
Tokod, Hungary....................... 22,000 Owned Manufacturing
Grand Rapids, Michigan............... 18,000 Leased Corporate Headquarters
Hyderabad, India..................... 2,800 Leased Engineering/Design
Yokohama, Japan...................... 1,000 Leased Sales
---------------
(1) Facility is leased by a joint venture in which the Company holds a 60
percent equity interest.
(2) Facility is owned by a joint venture in which the Company holds a 66 percent
equity interest.
Management believes that substantially all of the Company's property and
equipment is in good condition. In order to increase efficiency, the Company
expects to continue to make capital expenditures for equipment upgrades at its
facilities as necessary.
The Company believes that its existing facilities will be adequate to meet
its production demands for the foreseeable future. The Company's facilities were
specifically designed for the manufacturing of the Company's products. The
utilization and capacity of such facilities are dependent upon the mix of
products being produced by the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material lawsuits. The Company
believes it maintains adequate insurance, including product liability coverage.
The Company historically has not been required to pay any material liability
claims.
ENVIRONMENTAL MATTERS
The Company is subject to foreign, federal, state and local laws and
regulations governing the protection of the environment and occupational health
and safety, including laws regulating the generation, storage, handling, use and
transportation of hazardous materials; the emission and discharge of hazardous
materials into the soil, ground or air; and the health and safety of its
colleagues. The Company is also required to obtain permits from governmental
authorities for certain operations. The Company cannot assure that it has been
or will be at all times in complete compliance with such laws, regulations and
permits. If it violates or fails to comply with these laws, regulations or
permits, it could be fined or otherwise sanctioned by regulators. In some
instances, such a fine or sanction could be material. The Company does not
expect that its capital expenditures for environmental controls will be material
for the current or succeeding fiscal year.
The Company is also subject to laws imposing liability for the cleanup of
contaminated property. Under these laws, it could be held liable for costs and
damages relating to contamination at its past or present facilities and at third
party sites to which these facilities sent wastes containing hazardous
substances. The amount of such liability could be material.
As part of the Company's acquisition of Active in 1999, it acquired a
facility located in Sebewaing, Michigan. In 2001, the Sebewaing facility
received a claim from the Village of Sebewaing for costs associated with the
removal of sludge from the Village's wastewater treatment lagoon. The Village
alleged that wastewater discharges from the facility resulted in contamination
of the sludge, which, in turn,
15
increased the disposal costs incurred by the Village. The amount of the
Village's claim is $208,000. The Company is in discussions with the Village
regarding resolving claim. The Company also acquired from Active a facility
located in Elkton, Michigan. The Company is in the process of investigating
contamination at the Elkton facility, and at a nearby waste disposal site that
was allegedly used for the disposal of wastes from the Elkton facility in the
1970s. These investigations are being conducted under the oversight of the
Michigan Department of Environmental Quality ("MDEQ"). Because the MDEQ has not
yet approved a Remedial Action Plan for these sites, the cost to remediate the
sites is not known, although it is not expected to exceed the $14 million in the
escrow established for indemnification, described below.
In connection with the Company's acquisition of Active, it is entitled to
indemnification for losses (including reasonable legal fees and expenses)
resulting from claims arising from certain pre-closing matters, including
pre-closing environmental matters. The indemnity covers losses that exceed $1
million, up to the amount of escrowed funds, which is currently about $14
million. The indemnity is limited to the claims the Company submitted within two
years after acquiring Active. The Company submitted several claims under this
indemnity, including claims for the Sebewaing wastewater matter and the Elkton
contamination matters described above. The Company is currently in negotiations
with the former shareholders of Active to reach agreement regarding the amount
funds that will be paid out of the escrow to settle indemnified claims.
The Company acquired Algoods, Inc. in 2000, with a facility in Toronto,
Ontario. Prior operations had resulted in contamination at the facility. In
2000, the Company had preliminarily estimated that the present value of its
costs to address these issues at $5.5 million (CDN). Alcan Aluminum, Ltd., a
former owner of the property, is in the process of investigating and remediating
this contamination. Until 2008, the Company has agreed to contribute up to
$100,000 (CDN) per year for remediation activities. After 2008, the Company has
agreed to be responsible for on-site contamination and Alcan has agreed to be
responsible for off-site contamination.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of Stockholders during the fourth
quarter of 2001.
ADDITIONAL ITEM -- EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's executive officers as of December 31, 2001:
NAME AGE POSITION
---- --- --------
Dugald K. Campbell........................ 55 President, Chief Executive Officer and Director
James W. Arnold........................... 49 Vice President
Anthony A. Barone......................... 52 Vice President and Chief Financial Officer
Richard S. Burgess........................ 47 Vice President
Kathy J. Johnston......................... 44 Vice President
Tommy G. Pitser........................... 54 Vice President
Antonio R. Zarate......................... 57 Vice President
DUGALD K. CAMPBELL has served as President, Chief Executive Officer and a
Director of the Company since December 1993. From 1991 to 1993, Mr. Campbell
served as a consultant to Hidden Creek Industries, a private industrial
management company. From 1988 to 1991, he served as Vice President and General
Manager of the Sensor Systems Division of Siemens Automotive, a manufacturer of
engine management systems and components. From 1972 to 1988, he held various
executive, engineering and marketing positions with Allied Automotive, a
manufacturer of vehicle systems and components and a subsidiary of AlliedSignal,
Inc.
16
JAMES W. ARNOLD has served as Vice President of the Company since 1999,
with current responsibility for the Company's North American and Asian strategy.
Mr. Arnold joined the Company in 1998. From 1977 to 1998, Mr. Arnold held a
variety of manufacturing, sales, marketing and Asian general management
positions at AlliedSignal.
ANTHONY A. BARONE has served as Vice President and Chief Financial Officer
of the Company since May 1995. From 1984 to 1995, Mr. Barone served as Chief
Financial Officer of O'Sullivan Corporation, a manufacturer of interior trim
components for the automotive industry.
RICHARD S. BURGESS has served as Vice President of the Company with
responsibility for colleague growth and development since January 1996. From
June 1994 to January 1996, Mr. Burgess served as the colleague growth and
development leader during the start-up of the Bardstown, Kentucky operation.
From October 1991 to June 1994, Mr. Burgess filled various roles in colleague
growth and development of R.J. Tower Corporation.
KATHY J. JOHNSTON has served as Vice President of the Company since June
2000 with responsibility for enterprise strategy and commercial development.
From 1997 to 2000, Ms. Johnston served as Vice President Planning and Business
Development at TRW Automotive in Cleveland, Ohio. From 1981 to 1997, Ms.
Johnston served in finance, sales and marketing, purchasing, operations and
strategic planning roles at TRW's vehicle safety systems group in Detroit,
Michigan.
TOMMY G. PITSER has served as Vice President since 1996, with current
responsibility for the Company's European strategy. Mr. Pitser previously had
responsibility for the Company's South American strategy and its joint venture
investment in China and operations in Barrie, Ontario; Plymouth, Michigan;
Yokohama, Japan; Romulus, Michigan; Manchester, Michigan and Novi, Michigan,
since May 1996. Prior to joining the Company, Mr. Pitser served in various sales
and marketing capacities at MSTI. Prior to joining MSTI, Mr. Pitser served as
Market Director-Automotive at AE Goetze North America. From 1969 to 1992, Mr.
Pitser was an employee of Borg-Warner Corporation, most recently as General
Manager-Marine & Industrial Transmissions.
ANTONIO R. ZARATE has served as Vice President of the Company since May
2000 with responsibility for the Company's strategy in Mexico and South America.
From 1994 to 2000, Mr. Zarate served as President of the Automotive Division of
Proeza, S.A. de C.V., a diversified international company that has operations
primarily in the automotive and citrus juice processing industries.
There are no family relationships between or among the above-named
executive officers. There are no arrangements or understandings between any of
these officers pursuant to which any of them served as an officer.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol TWR. As of March 15, 2002, there were approximately 2,893
stockholders of record of the Company's stock. The following table sets forth,
for the periods indicated, the low and high closing sale prices for Common Stock
as reported on the New York Stock Exchange:
LOW HIGH
------ ------
2000
First Quarter............................................. $11.63 $17.50
Second Quarter............................................ 11.63 17.63
Third Quarter............................................. 9.13 13.56
Fourth Quarter............................................ 7.13 11.00
2001
First Quarter............................................. $ 8.50 $11.65
Second Quarter............................................ 8.70 11.21
Third Quarter............................................. 7.01 14.71
Fourth Quarter............................................ 5.90 9.65
During the last two years, the Company has not paid any cash dividends. The
Company has no current intention of paying any cash dividends in 2002. The
Company's ability to pay cash dividends on its Common Stock is dependent on the
receipt of dividends or other payments from its operating subsidiaries. The
payment of cash dividends to the Company by such operating subsidiaries for the
purpose of paying cash dividends on the Common Stock is limited by the terms of
the $1.15 billion senior unsecured credit agreement.
18
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data for Tower Automotive presented
below for and as of the end of each of the years in the five-year period ended
December 31, 2001, is derived from Tower Automotive, Inc.'s Consolidated
Financial Statements which have been audited by Arthur Andersen LLP, independent
public accountants. The consolidated financial statements as of December 31,
2000 and 2001 and for each of the three years in the period ended December 31,
2001 and the report of independent public accountants thereon are included
elsewhere in this report. The consolidated financial statements as of December
31, 1997, 1998 and 1999 are not included herein. This selected consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and Tower
Automotive's Consolidated Financial Statements and Notes to Consolidated
Financial Statements, included elsewhere in this report.
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Revenues......................... $2,467,433 $2,531,953 $2,170,003 $1,836,479 $1,235,829
Cost of sales.................... 2,190,248 2,160,359 1,823,103 1,562,167 1,058,720
S,G & A expense.................. 139,203 137,003 105,950 85,169 57,869
Amortization expense............. 24,804 21,517 15,803 13,472 9,537
Restructuring and asset
impairment charge.............. 383,739 141,326 -- -- --
Operating income (loss).......... (270,561) 71,748 225,147 175,671 109,703
Interest expense, net............ 73,765 64,711 37,981 40,318 28,962
Provision (benefit) for income
taxes.......................... (73,312) 2,619 74,866 54,143 32,290
Net income (loss)................ (267,524) 13,434 117,088 88,040 46,244
Basic earnings (loss) per
share.......................... $ (5.87) $ 0.29 $ 2.50 $ 1.91 $ 1.14
Diluted earnings (loss) per
share.......................... $ (5.87) $ 0.28 $ 2.10 $ 1.68 $ 1.09
DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Working capital.................. $ (379,785) $ 78,753 $ 126,940 $ 106,936 $ 140,592
Total assets..................... 2,533,436 2,892,747 2,552,550 1,936,167 1,680,088
Long-term debt................... 805,688 1,141,900 921,221 542,349 743,934
Mandatorily redeemable trust
preferred securities........... 258,750 258,750 258,750 258,750 --
Stockholders' investment......... 447,408 700,095 727,135 606,796 515,279
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
INTRODUCTION
Since its inception in April 1993, when the Company was formed to acquire
R. J. Tower Corporation, the Company's revenues have grown rapidly through a
focused strategy of internal growth and a highly disciplined acquisition
program. Since 1993, the Company has successfully completed 14 acquisitions and
established six joint ventures in China, Mexico, Korea, Japan and the United
States. As a result of these acquisitions and internal growth, the Company's
revenues have increased from approximately $86 million in 1993 to approximately
$2.5 billion in 2001.
Initially, the Company's growth came primarily from acquisitions of North
American-based automotive suppliers, some of which had international operations.
The Company succeeded in consolidating a portion of the North American
automotive supplier base for structural components and assemblies and
established itself as a key supplier of those products. The Company's more
recent acquisitions have been intended to strengthen its ability to supply
products on a global basis, grow its technology and manufacturing capabilities,
and diversify its customer base. See "Recent Transactions" below.
The Company's rapid growth through acquisitions coincided with an extended
period of increased automotive production that resulted in high levels of
utilization of the Company's acquired resources and capacity and contributed to
periods of strong operating results. Beginning in late 2000, automotive
production declined relative to prior periods, leading the Company to focus its
efforts on reducing the capacity of the enterprise and improving the efficiency
of its continuing operations. These efforts resulted in two significant
restructurings, described in more detail below, that reduced excess capacity,
eliminated redundant overhead costs, and reorganized the management structure of
the Company's U.S. and Canadian operations. These efforts also involved the
divestiture of certain non-core functions, including the sale of the Company's
heavy truck business, in December 2000, to its joint venture partner, Metalsa.
Prior to these restructurings, the Company did not undertake any significant
reductions in the scope of its operations or any capacity rationalizations as a
result of or following any of its prior acquisitions.
The Company's most recent objective has been to reduce indebtedness by
maximizing cash flow. Several initiatives, such as extending its accounts
payable terms to coincide with prevailing industry practices and accelerating
collections from customers took place in 2001. As a result, and as described in
more detail below under "Liquidity and Capital Resources," the Company was able
to significantly reduce its indebtedness in 2001 by making net repayments of
$335 million, despite last year's downturn in the automotive industry.
The automotive market continues to be highly cyclical and dependent upon
consumer spending. Due to the relatively long lead times required to produce
many of the Company's complex structural components, it may be difficult, in the
short term, for the Company to obtain new sales to replace any decline in the
sales of existing products. As a result, the Company has implemented and
continues to pursue the actions necessary to mitigate the effects of any
production downturn, focusing on reducing costs, maximizing its cash return on
invested capital, reducing debt balances and matching capital expenditures with
operating cash flow.
The Company's growth in Europe and with foreign transplant operations in
the U.S. has reduced the Company's reliance on Ford and DaimlerChrysler. As a
result, revenues from Ford and DaimlerChrysler decreased from 37 percent and 31
percent in 2000, respectively, to 35 percent and 25 percent in 2001,
respectively. The Company expects this trend to continue as a result of its
anticipated organic growth outside the U.S. and from recent awards to supply
foreign transplant operations in the U.S.
RECENT TRANSACTIONS
During the last two years, the Company extended the geographic scope of its
manufacturing base through both acquisitions and joint ventures. In November
2000, the Company acquired Presskam for approximately $10 million. Located near
Bratislava, Slovakia, Presskam manufactures upper body
20
structural assemblies for Volkswagen, Porsche and Skoda. The Company also
acquired a 30.8 percent interest in Yorozu, a supplier of suspension modules and
structural parts to the Asian and North American automotive markets. The total
purchase price of approximately $68 million is payable over a three-year period
beginning in September 2000. The remaining obligation of $29.5 million as of
December 31, 2001, is recorded as indebtedness on the Company's balance sheet.
In July 2000, the Company acquired for approximately $42 million, the
remaining 60 percent interest in Caterina, a supplier of structural stampings
and assemblies to the Brazilian automotive market, including Volkswagen and
Mercedes-Benz. In May 2000, the Company paid approximately $33 million to
acquire Algoods, a Canadian manufacturer of aluminum heat shields and impact
discs for the North American automotive industry. The acquisition represented a
significant investment in processing technology for lightweight materials to
complement the Company's existing heat shield capabilities and provides
opportunities for application in other lightweight vehicle structural products.
Finally, in January 2000, the Company acquired German-based Dr. Meleghy for
approximately $86 million, plus an earnout payment of $29.6 million. Dr. Meleghy
designs and produces structural stampings, assemblies, exposed surface panels
and modules for the European automotive industry. Dr. Meleghy operates three
facilities in Germany and one facility in both Hungary and Poland. Its main
customers include DaimlerChrysler, Audi, Volkswagen, Ford, Opel, and BMW.
In addition to the purchase of Algoods, the Company invested in two joint
ventures to further improve its technology and manufacturing process
capabilities. In January 2001, the Company invested approximately $2 million in
a joint venture with Carron Industries, located in Inkster, Michigan, to provide
the Company with detail stamping and tooling capabilities, as well as full frame
prototyping. In March 2000, the Company invested $2.1 million in the formation
of a product technology and development joint venture with Defiance Testing &
Engineering Services, Inc., a subsidiary of GenTek. This entity provides the
Company with product testing services and allows the Company to have access to a
broader and more cost efficient range of testing capabilities.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED DECEMBER 31,
2000
Revenues. Revenues for the year ended December 31, 2001 were $2,467.4
million, a 2.5 percent decrease, compared to $2,532.0 million for the year ended
December 31, 2000. The decrease was comprised of U.S. and Canada volume declines
of $263.0 million, primarily in the following platforms: Dodge Dakota, Durango
and Ram pickup; Chrysler LH; Ford Econoline, Focus, Explorer, Expedition, Taurus
and Ranger; and Lincoln LS/Jaguar S-Type. Other declines in revenues of $126.0
million were attributable to a decline in GM light truck program sales and the
sale of the heavy truck business in December 2000. These declines were offset by
$324.4 million in incremental revenues associated with the acquisitions of
Algoods (May 2000), Caterina (July 2000), Presskam (November 2000) and Seojin
(November 2000) and the consolidation of Tower Golden Ring (July 2001).
Cost of Sales. Cost of sales as a percent of revenues for the year ended
December 31, 2001 was 88.8 percent compared to 85.3 percent for the year ended
December 31, 2000. The decline in the gross profit margin was primarily due to
decreased production volumes and product mix changes on light truck, sport
utility and other models served by the Company in North America and increasing
sales with lower margins in Europe, Asia and South America. Increased costs
associated with the launch of the Ford Explorer, Dodge Ram Truck and Cadillac
CTS programs also contributed to the decline in 2001 gross margins as compared
to 2000. The Company experienced an unusually high number of launches in 2001.
The costs incurred with respect to these launches exceeded planned costs due to
both a greater than expected number of engineering changes from the Company's
customers as well as unanticipated launch inefficiencies.
S, G & A Expenses. Selling, general and administrative expenses increased
to $139.2 million, or 5.6 percent of revenues, for the year ended December 31,
2001 compared to $137.0 million, or 5.4 percent of revenues, for the year ended
December 31, 2000. This increase was due primarily to incremental costs of $12.4
million associated with the Company's acquisition of Algoods, Caterina,
Presskam, and Seojin and
21
the consolidation of Tower Golden Ring, offset by $10.2 million in decreased
costs due mainly to reductions in headcount in the consolidation of the
Company's engineering and support activities.
Amortization Expense. Amortization expense for the year ended December 31,
2001 was $24.8 million compared to $21.5 million for the year ended December 31,
2000. The increase was due to incremental goodwill amortization related to the
acquisitions of Algoods, Caterina, Presskam and Seojin.
Interest Expense, net. Interest expense (net of interest income) for the
year ended December 31, 2001 was $73.8 million compared to $64.7 million for the
year ended December 31, 2000. Interest expense increased due to the (i) full
year effect in 2001 of increased borrowings to fund the Company's acquisitions
of Algoods, Caterina, Presskam and Seojin and additional equity investment in
Yorozu totaling $23.5 million, offset by (ii) decreased interest rates and
decreased spreads associated with the new credit agreement of $12.7 million, and
(iii) increased capitalized interest on construction projects of $1.7 million.
Income Taxes. The effective income tax rate is not comparable between the
years as a result of the loss in 2001 compared to income in 2000. The entire
amount of the loss in 2001 did not receive tax benefit due to amortization and
write-off of nondeductible goodwill, and the provision of a valuation allowance
for a capital loss carryforward.
Equity in Earnings of Joint Ventures. Equity in earnings of joint ventures
net of tax, was $17.2 million and $22.5 million for the years ended December 31,
2001 and 2000, respectively. These amounts represent the Company's share of the
earnings from its joint venture interests in Metalsa, Tower Golden Ring, Yorozu,
and DTA Development, in the 2001 period and Metalsa, Caterina, Tower Golden
Ring, and Seojin in the 2000 period. The decrease in 2001 was due primarily to
the consolidation of Tower Golden Ring beginning in the third quarter of 2001.
Minority Interest. Minority interest for the years ended December 31, 2001
represents dividends, net of income tax benefits, on the 6 3/4% Trust Preferred
Securities ("Preferred Securities") and the minority interest held by the 40
percent joint venture partners in Tower Golden Ring. Minority interest for the
year ended December 31, 2000 represents dividends, net of income tax benefits on
the Preferred Securities. The increase in minority interest expense in 2001 was
due primarily to the consolidation of Tower Golden Ring in the third quarter of
2001.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED DECEMBER 31,
1999
Revenues. Revenues for the year ended December 31, 2000 were $2,532.0
million, a 16.7 percent increase, compared to $2,170.0 million for the year
ended December 31, 1999. The increase was primarily due to $506.0 million
related to the acquisitions of Active in July 1999, Dr. Meleghy effective
January 2000, Algoods in May 2000, Caterina in July 2000, Seojin in November
2000, and Presskam in November 2000. These increases were offset by declines in
GM truck programs of $114.0 million and heavy truck rail manufacturing sales of
$56.6 million as a result of the sharp decline in automotive production in the
second half of 2000. Overall net increases on all other platforms, including the
Ford Focus, Taurus, Explorer, Expedition, Excursion, and Lincoln LS/Jaguar
S-Type, Nissan Xterra and Dodge Dakota, of $26.6 million composed the balance of
the revenue change.
Cost of Sales. Cost of sales as a percent of revenues for the year ended
December 31, 2000 was 85.3 percent compared to 84.0 percent for the year ended
December 31, 1999. Despite the incremental sales growth year over year, which
occurred predominantly in the first half of 2000, the Company experienced a
decline in gross profit margin due primarily to the combined effects of volume
declines in the GM truck sales and heavy truck rail sales, the DaimlerChrysler
plant shutdowns, production slowdowns at Ford due to the Firestone tire recall
and increasing lower margin foreign sales in 2000 as compared to 1999. The
beginning of the launch of the new Ford Explorer program, which was delayed
beyond the original start date, also adversely impacted gross profit margin.
S, G & A Expenses. Selling, general and administrative expenses increased
to $137.0 million, or 5.4 percent of revenues, for the year ended December 31,
2000 compared to $106.0 million, or 4.9 percent of revenues, for the year ended
December 31, 1999. The increased expense was due to incremental costs
22
associated with the Company's acquisitions of Active, Dr. Meleghy, Algoods,
Caterina, Seojin and Presskam of $20.5 million and increased engineering,
program development, and launch costs related to new business of approximately
$8.6 million. The realization of gains on the cash settlement of amounts due
under the interest rate swap and lock agreements during 1999, had the effect of
reducing the 1999 expense by $1.9 million.
Amortization Expense. Amortization expense for the year ended December 31,
2000 was $21.5 million compared to $15.8 million for the year ended December 31,
1999. The increase was due to the incremental goodwill amortization related to
the acquisitions of Active in 1999 and Dr. Meleghy, Algoods, Caterina, and
Presskam in 2000.
Interest Expense, net. Interest expense (net of interest income) for the
year ended December 31, 2000 was $64.7 million compared to $38.0 million for the
year ended December 31, 1999. Interest expense increased due to (i) increased
borrowings incurred to fund the Company's acquisitions of Active, Dr. Meleghy,
Algoods, Caterina and Presskam of $23.0 million, (ii) increased borrowings to
fund the Company's joint venture interest in Yorozu of $0.6 million, (iii)
increased interest rates and spreads associated with the new credit agreement of
$8.7 million, and (iv) the issuance of the senior Euro notes of $5.3 million.
These increases were offset by increased interest income from the convertible
notes in J.L. French and Seojin of $4.9 million and increased capitalized
interest on construction projects of $6.0 million.
Income Taxes. The effective income tax rate was 37.2 percent for the year
ended December 31, 2000 and 40 percent for the year ended December 31, 1999. The
decrease in the effective rates in 2000 is due primarily as a result of
increased income in lower tax jurisdictions.
Equity in Earnings of Joint Ventures. Equity in earnings of joint ventures
net of tax was $22.5 million and $15.3 million for the years ended December 31,
2000 and 1999, respectively. These amounts represent the Company's share of the
earnings from its joint venture interests in Metalsa, Caterina, Tower Golden
Ring and Seojin. The increase in 2000 was due primarily to the full year impact
of earnings related to the Seojin joint venture.
Minority Interest. Minority interest for the years ended December 31, 2000
and 1999 represents dividends, net of income tax benefits, on the Preferred
Securities.
RESTRUCTURING AND ASSET IMPAIRMENT CHARGE
The Company's growth through acquisitions coincided with an extended period
of high automotive production that resulted in higher levels of utilization of
the Company's acquired resources and capacity and contributed to periods of
strong operating results. More recently, as automotive production has declined
from previous levels, the Company has focused its efforts on reducing the
capacity of the enterprise and improving the efficiency of its continuing
operations. During the 18 month period beginning in the fourth quarter of 2000,
the Company: (i) divested itself of its non-core heavy truck business, (ii)
consolidated its manufacturing operations by closing manufacturing locations in
Kalamazoo, Michigan; Sebewaing, Michigan; and certain operations in Milwaukee,
Wisconsin, (iii) reduced redundant overhead through a consolidation of its
technical activities and a reduction of other salaried colleagues, and (iv)
reorganized the management of its U.S. and Canada region. These were
accomplished through two restructurings, described in more detail below. The
first restructuring was initiated in October 2000 (the "2000 Plan"), while the
second restructuring was initiated in October 2001 (the "2001 Plan").
23
The restructuring and asset impairment charges consist of both
restructuring charges and non-restructuring related asset impairments, major
components of which are discussed in the sections below. The following table
summarizes the principal components of these charges for each of the last two
years (in millions):
2001 PLAN 2000 PLAN
--------- ---------
RESTRUCTURING AND RELATED ASSET IMPAIRMENTS
Asset impairments......................................... $127.4 $103.7
Severance and outplacement costs.......................... 24.6 25.2
Loss contracts............................................ -- 8.1
Other exit costs.......................................... 26.1 4.3
------ ------
Total.................................................. 178.1 141.3
OTHER GOODWILL AND ASSET IMPAIRMENTS
Goodwill write down....................................... 108.6 --
Other asset impairments................................... 50.7 --
Investment impairment..................................... 46.3 --
------ ------
Total.................................................. 205.6 --
------ ------
Total restructuring and asset impairment charges....... $383.7 $141.3
====== ======
Non-cash charges..................................... $333.0 $103.7
------ ------
Cash charges......................................... $ 50.7 $ 37.6
------ ------
Under the 2000 Plan, the Company realized cash savings of approximately $32
million in 2001 as a result of reductions in payroll costs directly related to
restructuring activities. These cash savings from permanent payroll reductions
are expected to be realized annually. Further, under the 2001 Plan, the Company
is expected to realize an additional annual cash savings of approximately $35
million attributable to permanent payroll reductions that will begin in 2002.
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 relates 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 over the next 12 months
pertaining to the 2001 Plan.
The 2001 Plan charge includes costs associated with asset impairments,
severance and outplacement costs related to colleague terminations and certain
other exit costs. These activities are anticipated to result in a reduction of
more than 700 colleagues in the Company's technical and administrative centers
in Novi, Rochester Hills, and Grand Rapids, Michigan; Milwaukee, Wisconsin; and
its U.S. and Canada manufacturing locations. Through December 31, 2001, the
Company had eliminated approximately 270 colleagues pursuant to the 2001 Plan.
The estimated restructuring charge does not cover certain aspects of the 2001
Plan, including movement of equipment and colleague relocation and training.
These costs will be recognized in future periods as incurred.
The asset impairments consist of long-lived assets, including fixed assets,
buildings and manufacturing equipment from the facilities the Company intends to
dispose of or discontinue, and goodwill. The carrying value of the long-lived
assets written off was $127.4 million as of December 31, 2001. For assets that
will be disposed of currently, the Company measured impairment based on
estimated proceeds on the sale of
24
the facilities and equipment. These asset impairments have arisen only as a
consequence of the Company making the decision to exit these activities during
the fourth quarter of 2001.
Based on the current plan, the Company anticipates this charge recorded
under the 2001 Plan will require cash payments of $34.9 million combined with
the write-off of assets having a book value of $127.4 million and other future
obligations of $15.8 million. The asset write-offs include $87.5 million of
goodwill associated with Sebewaing and Milwaukee Press Operations, $20.6 million
of property, plant and equipment associated with the Sebewaing operations and
$12.1 million of property, plant and equipment associated with the Milwaukee
Press Operations business that will be discontinued. Additionally, there was
$7.2 million of property and building write downs associated with the decision
to consolidate the Company's technical centers.
The accrual for the 2001 Plan is included in accrued liabilities in the
accompanying consolidated balance sheet as of December 31, 2001. The table below
summarizes the accrued operational realignment and other charges through
December 31, 2001 (in millions):
SEVERANCE AND
ASSET OUTPLACEMENT
IMPAIRMENTS COSTS OTHER EXIT COSTS TOTAL
----------- ------------- ---------------- -------
Provision........................... $ 127.4 $24.6 $26.1 $ 178.1
Reclassification from 2000 Plan..... -- -- 5.9 5.9
Cash payments....................... -- (0.7) (0.6) (1.3)
Non cash charges.................... (127.4) -- -- (127.4)
------- ----- ----- -------
Balance at December 31, 2001........ $ -- $23.9 $31.4 $ 55.3
======= ===== ===== =======
On January 31, 2002, the Company announced that it will be discontinuing
the remaining stamping and ancillary processes currently performed at the
Company's Milwaukee Press Operations and relocating the remaining work to other
Tower locations or Tier II suppliers. The Company expects to complete the
transfer process during the second quarter of 2002. As a result of these
efforts, the Company expects to record a restructuring charge in the first
quarter of 2002 totaling approximately $75 million comprised of expected cash
payments of $15 million, asset impairment charges of $47 million and other
future obligations of $13 million.
HEAVY TRUCK AND KALAMAZOO STAMPING OPERATIONS (2000 PLAN):
In October 2000, the Company's board of directors approved the 2000 Plan,
which was intended to improve the Company's long-term competitive position and
lower its cost structure. The 2000 Plan included phasing out the heavy truck
rail manufacturing in Milwaukee, Wisconsin; reducing stamping capacity by
closing the Kalamazoo, Michigan facility; and consolidating related support
activities across the enterprise. The Company recognized a charge to operations
of approximately $141.3 million in the fourth quarter of 2000, which reflected
the estimated qualifying "exit costs" to be incurred over the next 12 months
under the 2000 Plan.
The 2000 Plan charge included costs associated with asset impairments,
severance and outplacement costs related to colleague terminations, loss
contract provisions and certain other exit costs. These activities resulted in a
reduction of approximately 850 colleagues.
The asset impairments consisted of long-lived assets, including fixed
assets, manufacturing equipment and land, from the facilities the Company
intends to dispose of or discontinue. For assets that were disposed of
currently, the Company measured impairment based on estimated proceeds on the
sale of the facilities and equipment. The carrying value of the long-lived
assets held for sale on disposal is approximately $3.8 million as of December
31, 2001. For assets that will be held and used in the future, the Company
prepared a forecast of expected undiscounted cash flows to determine whether
asset impairment existed, and used fair values to measure the required
write-downs. These asset impairments
25
have arisen only as a consequence of the Company making the decision to exit
these activities during the fourth quarter of 2000.
The accrual for the 2000 Plan has been fully utilized and revised as of
December 31, 2001. The table below summarizes the accrued operational
realignment and other charges through December 31, 2001 (in millions):
SEVERANCE AND OTHER
ASSET OUTPLACEMENT LOSS EXIT
IMPAIRMENTS COSTS CONTRACTS COSTS TOTAL
----------- ------------- --------- ----- -------
Provision for operational realignment
and other charges................... $ 103.7 $ 25.2 $ 8.1 $ 4.3 $ 141.3
Cash payments......................... -- (8.7) (2.5) (0.3) (11.5)
Non cash charges...................... (103.7) -- -- -- (103.7)
------- ------ ----- ----- -------
Balance at December 31, 2000.......... -- 16.5 5.6 4.0 26.1
Cash payments......................... -- (13.6) (4.2) (2.4) (20.2)
Revision of estimate.................. -- (2.9) (1.4) (1.6) (5.9)
------- ------ ----- ----- -------
Balance at December 31, 2001.......... $ -- $ -- $ -- $ -- $ --
======= ====== ===== ===== =======
The following table summarizes the major components of the asset impairment
charge for the 2000 Plan (in millions):
CARRYING
AMOUNT
--------
Milwaukee Heavy Truck Rail Manufacturing.................... $ 47.3
Milwaukee Press Operations Machinery & Equipment............ 7.9
Milwaukee Shared Services Land & Equipment.................. 19.8
Milwaukee Prototype & Technical Center Building, Machinery &
Equipment................................................. 14.0
Kalamazoo Stamping Operations Land, Building & Equipment.... 5.7
Granite City Stamping Operations Machinery & Equipment...... 4.6
Related Stamping & Assembly Machinery & Equipment........... 4.4
------
Total.................................................. $103.7
======
The triggering event for each major component's asset impairment charge was
the decision to exit the activities, which was made by the Company's board of
directors on October 2, 2000.
NON-RESTRUCTURING ASSET IMPAIRMENTS:
The other goodwill and asset impairment charges recorded in 2001 are a
result of the Company's review of the carrying amount of certain of its
goodwill, fixed assets and certain investments, in light of its current
operating environment, worldwide economic conditions and trends in the Company's
industry. Based upon a review of anticipated cash flows, the Company determined
that goodwill assigned to two of its plants was impaired and was written down.
In addition, the Company identified assets which no longer had sufficient cash
flows to support their carrying amounts and were written down to fair value,
including its investment in J.L. French. At December 31, 2001, the Company had
approximately $567 million of unamortized goodwill. Later in 2002, the Company
will perform a review of its goodwill to determine the extent to which any
further impairment charges are necessary under the new accounting requirements
of SFAS 142. See -- "Critical Accounting Policies" and "Recently Issued
Accounting Policies."
26
LIQUIDITY AND CAPITAL RESOURCES
The following summarizes the Company's primary sources and uses of cash (in
millions):
YEAR ENDED
DECEMBER 31,
----------------
2001 2000
------ -------
Sources of Cash:
Net income (loss) before depreciation and amortization,
deferred income taxes, extraordinary loss, equity in
joint venture earnings, and restructuring and asset
impairment charges(1).................................. $178.1 $ 256.7
Proceeds from sale of receivables......................... 15.2
Decreases in accounts receivable.......................... 74.5 111.7
Decrease in inventories................................... 21.4 6.8
Decrease (increase) in prepaid tooling and other assets... 129.3 (115.8)
Increase (decrease) in accounts payable................... 120.5 (28.3)
Increase (decrease) in accrued liabilities................ 13.1 (91.5)
Changes in other assets and liabilities................... (38.3) (47.0)
------ -------
Net cash provided by operating activities.............. 513.8 92.6
Proceeds from issuance of stock........................... 39.0 6.8
Proceeds from debt issuances and net borrowings........... -- 207.3
Proceeds from divestiture................................. -- 55.4
------ -------
Total sources of cash....................................... $552.8 $ 362.1
====== =======
Uses of Cash:
Capital expenditures, net(2).............................. 194.0 93.6
Acquisitions and investments in joint ventures............ 5.4 228.5
Repurchase of stock....................................... -- 40.2
Increase (decrease) in cash balances...................... 18.4 (0.2)
Net repayments of debt.................................... 335.0 --
------ -------
Total uses of cash.......................................... $552.8 $ 362.1
====== =======
---------------
(1) Net income before depreciation and amortization, deferred income taxes,
extraordinary loss, equity in joint venture earnings, and restructuring and
asset impairment charges is computed as follows (in millions):
YEAR ENDED
DECEMBER 31,
----------------
2001 2000
------- ------
Net income (loss).......................................... $(267.5) $ 13.4
Depreciation and amortization.............................. 159.9 144.8
Deferred income tax benefit................................ (80.8) (23.3)
Extraordinary loss on extinguishment of debt............... -- 3.0
Equity in earnings of joint ventures....................... (17.2) (22.5)
Restructuring and asset impairment charges................. 383.7 141.3
------- ------
$ 178.1 $256.7
======= ======
(2) The Company leases certain equipment utilized in its operations under
operating lease agreements. If certain equipment had been purchased instead
of leased, capital expenditures would have been $265.7 million and $181.8
million in 2001 and 2000, respectively.
27
SOURCES OF CASH
The Company's principal sources of cash are cash flow from operations,
commercial borrowings and capital markets activities. During the year ended
December 31, 2001, the Company generated $513.8 million of cash from operations.
This compares with $92.6 million generated during the same period in 2000. Net
income before depreciation and amortization, deferred income taxes,
extraordinary loss, equity in joint venture earnings, and restructuring and
asset impairment charges was $178.1 million and $256.7 million for 2001 and
2000, respectively. Operating cash flow was reduced by $21.5 million in 2001 and
$11.5 million in 2000 for cash restructuring payments, and was increased by net
tax refunds of $12.9 million in 2001 and decreased as a result of net tax
payments of $18.8 million in 2000. In total, working capital and other operating
items increased operating cash flow by $335.7 million during 2001 and decreased
operating cash flow by $164.1 million during 2000.
In August 2001, the Company realized net proceeds of $37.5 million from the
issuance of 3,636,400 shares of common stock at a price of $11.00 per share in a
private placement transaction. The issuance of stock from the Company's
colleague stock purchase plan and option plan contributed an additional $1.5
million and $6.8 million to cash flow for 2001 and 2000, respectively.
In June 2001, the Company entered into a financing agreement whereby its
domestic operating units sell eligible customer receivables on an ongoing basis
to a newly formed, fully consolidated, financing subsidiary. The financing
subsidiary subsequently sells its interest in the receivables to a third party
funding agent in exchange for cash and a subordinated interest in the unfunded
receivables transferred. The Company acts as an administrative agent in the
management and collection of accounts receivable sold. Through December 31,
2001, the Company realized net cash proceeds of $15.2 million from the sale of
receivables.
In July 2000, the Company replaced its previous $750 million amortizing
credit agreement with a new six-year $1.15 billion senior unsecured credit
agreement. The new credit agreement includes an $825 million non-amortizing
revolving facility and a $325 million amortizing term loan. The credit agreement
also includes a multi-currency borrowing feature that allows the Company to
borrow up to $500 million in certain freely-tradable offshore currencies and
letter of credit sublimits of $100 million. As of December 31, 2001, $20.0
million of the outstanding borrowings are denominated in Japanese yen, $55.6
million are denominated in Euros and $15.7 million are denominated in Canadian
dollars. Interest on borrowings under the credit agreement is at the financial
institutions' reference rate, LIBOR, or the Eurodollar rate plus a margin
ranging from 0 to 200 basis points depending on the ratio of the consolidated
funded debt for restricted subsidiaries of the Company to its total earnings
before interest, taxes, depreciation and amortization (EBITDA as defined in the
credit agreement). The weighted average interest rate for such borrowings was
7.0 percent for year ended December 31, 2001. The credit agreement has a final
maturity of 2006. As a result of the debt replacement, the Company recorded an
extraordinary loss, net of tax, of $3.0 million during the third quarter of
2000.
At December 31, 2001, the Company had borrowed approximately $101 million
under its revolving credit facility of $825 million. In order to borrow under
the revolving facility, the Company must meet certain covenant ratios. Based on
these covenants, the amount of unused availability under the revolving facility
was approximately $103 million at December 31, 2001, compared to unused
availability of approximately $326 million at December 31, 2000. This reduction
in availability resulted from a decrease in trailing four quarter EBITDA, offset
in part by an increase in availability due to the reduction of indebtedness (as
defined in the credit agreement) between the periods. The credit agreement
requires the Company to meet certain financial tests, including but not limited
to a minimum interest coverage and maximum leverage ratio. The covenant
conditions contained in the credit agreement also limit the Company's ability to
pay dividends to the available borrowings under the revolving facility. As of
December 31, 2001, the Company was in compliance with all debt covenants.
In September 2000, the Company entered into an interest rate swap contract
to hedge against interest rate exposure on approximately $160 million of its
floating rate indebtedness under the credit agreement. The contracts have the
effect of converting the floating rate interest to a fixed rate of approximately
28
6.9 percent, plus any applicable margin required under the revolving credit
facility. The interest rate swap contract was executed to balance the Company's
fixed-rate and floating-rate debt portfolios and it expires in September 2005.
In July 2000, R. J. Tower Corporation, a wholly owned subsidiary of the
Company, issued Euro-denominated senior unsecured notes in the amount of E150
million ($133.6 million at December 31, 2001). The notes bear interest at a rate
of 9.25 percent, payable semi-annually. The notes rank equally with all of the
Company's other unsecured and unsubordinated debt. The net proceeds after
issuance costs were used to repay a portion of the Company's existing
Euro-denominated indebtedness under its credit facility. The notes mature on
August 1, 2010.
USES OF CASH
The Company's principal uses of cash are debt repayment, capital
expenditures and acquisitions and investments in joint ventures. Net cash used
in investing activities was $199.4 million during the year ended December 31,
2001, as compared to $266.8 million in the prior period. Net capital
expenditures totaled $194.0 million and $93.6 million for the comparable 2001
and 2000 periods, respectively. Net cash used in financing activities totaled
$296.0 million for the year ended December 31, 2001, compared with net cash
provided by financing activities of $173.9 million in the prior period. Net
repayments of debt were $335.0 million in 2001, with net proceeds from
borrowings of $207.3 million in 2000.
Capital expenditures were $194.0 million and $93.6 million in 2001 and
2000, respectively. The Company leases certain equipment utilized in its
operations under operating lease agreements. If certain equipment had been
purchased instead of leased, capital expenditures would have been $265.7 million
and $181.8 million in 2001 and 2000, respectively. The equipment leased during
2001 and 2000 was primarily associated with new customer programs such as the
Dodge Ram and Cadillac CTS programs that launched during 2001. 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 cost of capital
and the lease terms match the expected life of the respective program. Annual
operating lease payments under the Company's lease agreements range from $54
million to $48 million over the next five years. Operating lease expense is
included in cost of sales in the Company's statements of operations.
Capital expenditures in 2001 also included investment in other new
programs, additional capabilities in Europe, and maintenance, safety and
productivity improvements. The Company estimates its 2002 capital expenditures
will be approximately $155 million. Where appropriate, the Company may lease
rather than purchase such equipment, which would have the effect of reducing
this anticipated level of capital expenditures.
Acquisitions and investments in joint ventures were approximately $5.4
million and $228.5 million for the 2001 and 2000 periods, respectively, offset
by proceeds from the sale of its heavy truck business of $55.4 million during
2000. During 2000, the Company used cash of $40.2 million to repurchase common
stock.
WORKING CAPITAL
During the year ended December 31, 2001, working capital decreased by
approximately $458.5 million. During that year, the Company focused specifically
on working capital improvement in executing its objectives of reducing
indebtedness by maximizing free cash flow. In addition to the items listed
above, several key initiatives were utilized, the results of which contributed
to the working capital decrease during the year and resulted in the significant
improvement in cash generated from operations. Approximately $120.5 million of
the decrease in working capital was comprised of an increase in accounts payable
by renegotiating terms with key suppliers to terms that are more reflective of
industry norms. A decrease of accounts receivable of approximately $74.5 million
resulted primarily from the Company's participation in specific receivable
programs with key customers. These programs allow for accelerated collection of
receivables from key customers, subject to interest charges ranging from 7.25
percent to 8.5 percent at an annualized rate. Working capital also decreased as
a result of the collection of tooling receivables and the receipt of proceeds
from certain operating lease arrangements that were finalized in 2001 but
pertained to dedicated capital costs incurred in 2000 in anticipation of the
completion of those leases. The Company also emphasized the maintenance of low
inventory levels.
29
The Company expects to continue to maintain a low working capital position
through a continuation of the efforts discussed above and continued focus on
minimizing the length of the cash flow cycle. The Company believes that the
available borrowing capacity under its credit agreement, together with funds
generated by operations, should provide sufficient liquidity and capital
resources to pursue its business strategy for the foreseeable future, with
respect to working capital, capital expenditures, and other operating needs.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The Company's contractual obligations and commercial commitments as of
December 31, 2001 are as follows:
PAYMENTS DUE BY PERIOD
-------------------------------------------------------------
LESS THAN AFTER
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1 - 3 YEARS 4 - 5 YEARS 5 YEARS
----------------------- ---------- --------- ----------- ----------- --------
Long-term debt................ $ 770,444 $169,360 $174,842 $232,331 $193,911
Convertible Subordinated
Notes*...................... 199,984 -- 199,984 -- --
Capital lease obligations..... 7,343 3,227 4,116 -- --
Operating leases.............. 383,244 54,177 106,853 100,787 121,427
---------- -------- -------- -------- --------
Balance at December 31,
2001........................ $1,361,015 $226,764 $485,795 $333,118 $315,380
========== ======== ======== ======== ========
---------------
* The Convertible Subordinated Notes are due on August 1, 2004 and are
convertible into common stock of the Company at a conversion price of $25.88
per share; therefore, they have been included as part of the contractual
obligations in the 1 - 3 year period above.
At December 31, 2001, the Company's commercial commitments included $100
million of standby letters of credit which are available under the terms of the
Company's $1.15 billion senior unsecured credit agreement.
LOSS CONTRACTS, FACILITY SHUTDOWN AND PAYROLL RELATED COSTS
The Company is committed under existing certain agreements, assumed in
connection with prior acquisitions, to supply product to its customers at
selling prices that are not sufficient to cover the direct costs to produce
those parts. The Company is obligated to supply these products for the life of
the related vehicles, which is typically three to ten years. Accordingly, the
Company recognizes losses at the time these losses are probable and reasonably
estimable at an amount equal to the minimum amount necessary to fulfill its
obligations to its customers. The reserves established in connection with these
recognized losses are reversed as the product is shipped to the customers.
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 fair value as of the dates 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. Results of operations for
these acquisitions have been included in the accompanying consolidated financial
statements since the dates of acquisition.
In conjunction with its acquisitions, reserves have been established for
certain costs associated with facility shutdown and consolidation activities,
for general and payroll related costs primarily for planned colleague
termination activities, and for provisions for acquired loss contracts. A
rollforward of these reserves is as follows (in millions):
FACILITY PAYROLL
SHUTDOWN COSTS RELATED COSTS LOSS CONTRACTS
-------------- ------------- --------------
December 31, 1999............................ $13.8 $ 6.4 $ 24.8
Additions.................................. 1.0 -- 12.3
Utilizations............................... (7.5) (2.6) (8.4)
----- ----- ------
December 31, 2000............................ 7.3 3.8 28.7
Additions.................................. -- -- --
Utilization................................ (2.1) (2.7) (11.7)
----- ----- ------
December 31, 2001............................ $ 5.2 $ 1.1 $ 17.0
===== ===== ======
30
The timing of facility shutdown and consolidation activities were adjusted
to reflect customer concerns with supply interruption. As of December 31, 2001,
the facilities have been shutdown, but the Company continues to incur costs
related to maintenance, taxes and other costs related to buildings that are held
for sale. These reserves have been utilized as originally intended and
management believes the liabilities recorded for shutdown and consolidation
activities are adequate but not excessive as of December 31, 2001.
EFFECTS OF INFLATION
Inflation generally affects the Company by increasing the interest expense
of floating-rate indebtedness and by increasing the cost of labor, equipment and
raw materials. Management believes that inflation has not significantly affected
the Company's business over the past 12 months. However, because selling prices
generally cannot be increased until a model changeover, the effects of inflation
must be offset by productivity improvements and volume from new business awards.
MARKET RISK
The Company is exposed to various market risks, including changes in
foreign currency exchange rates and interest rates. Market risk is the potential
loss arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. The Company's policy is to not enter into
derivatives or other financial instruments for trading or speculative purposes.
The Company periodically enters into financial instruments to manage and reduce
the impact of changes in interest rates.
Interest rate swaps are entered into as a hedge of underlying debt
instruments to effectively change the characteristics of the interest rate
without actually changing the debt instrument. Therefore, these interest rate
swap agreements convert outstanding floating rate debt to fixed rate debt for a
period of time. For fixed rate debt, interest rate changes affect the fair
market value but do not impact earnings or cash flows. Conversely for floating
rate debt, interest rate changes generally do not affect the fair market value
but do impact future earnings and cash flows, assuming other factors are held
constant.
At December 31, 2001, Tower Automotive had total debt and obligations under
capital leases of $977.8 million. The debt is comprised of fixed rate debt of
$493.6 million and floating rate debt of $484.2 million. The pre-tax earnings
and cash flows impact for the next year resulting from a one percentage point
increase in interest rates on variable rate debt would be approximately $4.8
million, holding other variables constant. A one percentage point increase in
interest rates would not materially impact the fair value of the fixed rate
debt.
A portion of Tower Automotive's revenues were derived from manufacturing
operations in Europe, Asia and South America. The results of operations and
financial position of the Company's foreign operations are principally measured
in its respective currency and translated into U.S. dollars. The effects of
foreign currency fluctuations in Europe, Asia and South America are somewhat
mitigated by the fact that expenses are generally incurred in the same currency
in which revenues are generated. The reported income of these subsidiaries will
be higher or lower depending on a weakening or strengthening of the U.S. dollar
against the respective foreign currency.
A portion of Tower Automotive's assets are based in its foreign operations
and are translated into U.S. dollars at foreign currency exchange rates in
effect as of the end of each period, with the effect of such translation
reflected as a separate component of stockholders' investment. Accordingly, the
Company's consolidated stockholders' investment will fluctuate depending upon
the weakening or strengthening of the U.S. dollar against the respective foreign
currency.
The Company's strategy for management of currency risk relies primarily
upon conducting its operations in a country's respective currency and may, from
time to time, engage in hedging programs intended to reduce the Company's
exposure to currency fluctuations. As of December 31, 2001, the Company held no
foreign currency hedge positions. Management believes the effect of a one
percent appreciation or depreciation in foreign currency rates would not
materially affect the Company's financial position or results of operations for
the periods presented.
31
CRITICAL ACCOUNTING POLICIES
The Company believes the following represent its critical accounting
policies:
Goodwill and Impairment of Long-Lived Assets -- The Company performs
impairment analyses of its recorded goodwill and long-lived assets whenever
events and circumstances indicate that they may be impaired. When the
undiscounted cash flows, without interest or tax charges, are less than the
carrying value of the assets being reviewed for impairment, the assets are
written down to fair market value. During 2001, the Company recorded goodwill
and long-lived asset impairment writedown provisions of $333.0 million, which
largely resulted from the downturn in the automotive market and the resulting
restructuring of the Company's operations. Future events could cause the Company
to conclude that additional impairment indicators exist and that goodwill
associated with its acquired business is further impaired. Any resulting
impairment loss could have a material adverse impact on the financial condition
and results of operations of the Company.
In 2002, Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" (SFAS 142) became effective and as a result, the
Company will cease to amortize approximately $567 million of goodwill. The
Company had recorded approximately $21 million of amortization on these amounts
during 2001 and would have recorded approximately $16 million of amortization
during 2002 after recording 2001 goodwill writedowns of approximately $196
million. In lieu of amortization, the Company is required to perform an initial
impairment review of its goodwill in 2002 and an annual impairment review
thereafter. The initial review is expected to be completed during the second
quarter of 2002. There can be no assurance that at the time the review is
completed a material impairment charge will not be recorded.
Other Loss Reserves -- The Company has other loss reserves such as purchase
accounting reserves, restructuring reserves, and loss contract reserves that
require the use of estimates and judgment with regard to risk exposure and
ultimate liability. Reserves for loss contracts are estimated by determining
which parts are being sold pursuant to loss contracts and determining an
estimate of the per-part negative margin. Additionally, the Company must
estimate the volumes that are committed to sell over the life of the related
production cycle. Other losses are estimated using consistent and appropriate
methods; however, changes to the assumptions could materially affect the
recorded liabilities for loss.
Customer Tooling and Other Design Costs -- As indicated in Note 2 to the
Consolidated Financial Statements, the Company incurs costs related to tooling.
Based on the fact that the Company has the contractual right to use the tool
over the life of the supply arrangement, these costs are capitalized and
amortized over the life of the related product.
Pension and Other Post-Employment Benefits -- The determination of the
obligation and expense for pension and other postretirement benefits is
dependent on the selection of certain assumptions used by actuaries in
calculating such amounts. Those assumptions are described in Note 11 to the
Consolidated Financial Statements and include, among others, the discount rate,
expected long-term rate of return on plan assets and rates of increase in
compensation and healthcare costs. In accordance with generally accepted
accounting principles, actual results that differ from these assumptions are
accumulated and amortized over future periods and therefore, generally affect
the recognized expense and recorded obligation in such future periods. While the
Company believes that the assumptions are appropriate, significant differences
in the actual experience or significant changes in the assumptions may
materially affect the pension and other postretirement obligations and the
future expense.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) 141, "Business Combinations," and SFAS
142, "Goodwill and Intangible Assets." Major provisions of these Statements are
as follows: all business combinations initiated after June 30, 2001 must use the
purchase method of accounting; the pooling of interest method of accounting is
prohibited except for transactions initiated before July 1, 2001; intangible
assets acquired in a business
32
combination must be recorded separately from goodwill if they arise from
contractual or other legal rights or are separable from the acquired entity and
can be sold, transferred, licensed, rented or exchanged, either individually or
as part of a related contract, asset or liability; goodwill and intangible
assets with indefinite lives are not amortized but tested for impairment
annually, except in certain circumstances, and whenever there is an impairment
indicator; all acquired goodwill must be assigned to reporting units for
purposes of impairment testing; effective January 1, 2002, goodwill is no longer
subject to amortization.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal year 2002. As of
December 31, 2001, the Company has unamortized goodwill of $567.1 million that
will be subject to the transition provisions of the Statements. The Company has
not yet determined the impact of adopting these Statements on its earnings and
financial position, including whether it will be required to recognize any
transitional impairment losses as a cumulative effect of a change in accounting
principle. Application of the nonamortization provisions of the Statements is
expected to result in a reduction in goodwill amortization expense of
approximately $16 million in fiscal 2002, after reflecting the writedowns of
goodwill totaling $196.1 million, which were recorded during 2001.
In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after December
15, 2001. The provisions of this Statement provide a single accounting model for
impairment of long-lived assets. The adoption of SFAS No. 144 on January 1, 2002
is not expected to have a material impact on the Company's financial position or
its results of operations.
RISK FACTORS
The Company is subject to the following risks relating to its operations
and the nature of the industry in which it competes:
- THE LOSS OF FORD, DAIMLERCHRYSLER OR ANY OTHER SIGNIFICANT CUSTOMER COULD HAVE
A MATERIAL ADVERSE EFFECT ON EXISTING AND FUTURE REVENUES AND NET INCOME
(LOSS)
Revenues from Ford and DaimlerChrysler represented approximately 35 percent
and 25 percent, respectively, of the Company's revenues in 2001. The contracts
with many customers, including Ford and DaimlerChrysler, provide for supplying
the customer's requirements for a particular model, rather than for
manufacturing a specific quantity of products. These contracts range from one
year to the life of the model, usually three to ten years, and do not require
the purchase by the customer of any minimum number of parts. Therefore, the loss
of any one of these customers or a significant reduction in demand for certain
key models or a group of related models sold by any major customer could have a
material adverse effect on the Company's existing and future revenues and net
income (loss).
- GROSS MARGIN AND PROFITABILITY WILL BE ADVERSELY AFFECTED BY THE INABILITY TO
REDUCE COSTS
There is substantial continuing pressure from the major OEMs to reduce
costs, including the cost of products purchased from outside suppliers. In
addition, the Company's profitability is dependent, in part, on its ability to
spread fixed production costs over increasing product sales. If the Company is
unable to generate sufficient production cost savings in the future to offset
price reductions and any reduction in consumer demand for automobiles resulting
in decreased sales, the Company's gross margin and profitability would be
adversely affected.
- CYCLICALITY AND SEASONALITY IN THE AUTOMOTIVE MARKET COULD ADVERSELY AFFECT
REVENUES AND NET INCOME (LOSS)
The automotive market is highly cyclical and is dependent on consumer
spending. For example, during the third and fourth quarters of 2000, the
automotive market began experiencing a decline in production levels. This
decline continued throughout 2001. Economic factors adversely affecting
automotive production and consumer spending could adversely impact the Company's
revenues and net income. The automotive market is also somewhat seasonal. The
Company typically experiences decreased
33
revenue and operating income during the third calendar quarter of each year due
to the impact of scheduled OEM plant shutdowns in July and August for vacations
and new model changeovers.
- THE COMPANY IS SUBJECT TO CERTAIN RISKS ASSOCIATED WITH FOREIGN OPERATIONS
THAT COULD HARM REVENUES AND PROFITABILITY
The Company has significant international operations, specifically in
Europe, Asia and South America. Certain risks are inherent in international
operations, including:
- difficulty in enforcing agreements and collecting receivables through
certain foreign legal systems;
- foreign customers may have longer payment cycles than customers in the
United States;
- tax rates in certain foreign countries may exceed those in the United
States, and foreign earnings may be subject to withholding requirements
or the imposition of tariffs, exchange controls or other restrictions;
- general economic and political conditions in countries where the Company
operates may have an adverse effect on operations in those countries;
- the Company may find it difficult to manage a large organization spread
throughout various countries; and
- the Company may find it difficult to comply with foreign laws and
regulations.
As the Company continues to expand its business globally, its success will
depend, in part, on the ability to anticipate and effectively manage these and
other risks. The occurrence of any of the foregoing risks could have a
significant effect on the Company's international operations and, as a result,
its revenues and profitability.
- CURRENCY EXCHANGE RATE FLUCTUATIONS COULD HAVE AN ADVERSE EFFECT ON REVENUES
AND FINANCIAL RESULTS
The Company generates a significant portion of its revenues and incurs a
significant portion of its expenses in currencies other than U.S. dollars. To
the extent that the Company is unable to match revenues received in foreign
currencies with costs paid in the same currency, exchange rate fluctuations in
any such currency could have an adverse effect on revenues and financial
results. For example, the weakening of European currencies in relation to the
U.S. dollar had a negative impact on revenues in 2000 and 2001.
- THE COMPANY'S BUSINESS MAY BE DISRUPTED SIGNIFICANTLY BY WORK STOPPAGES AND
OTHER LABOR MATTERS
Many OEMs and their suppliers have unionized work forces. Work stoppages or
slow-downs experienced by OEMs or their suppliers could result in slow-downs or
closures of assembly plants where the Company's products are included in
assembled vehicles. For example, strikes by the United Auto Workers led to the
shutdown of most of GM's North American assembly plants in June and July of
1998. The Company estimates that this work stoppage at GM's facilities had an
unfavorable impact of approximately $24.7 million on its 1998 revenues. In the
event that one or more of its customers experiences a material work stoppage,
such a work stoppage could have a material adverse effect on the Company's
business.
In addition, approximately 5,300 of the Company's colleagues are unionized
(representing approximately 41 percent of its colleagues as of December 31,
2001). The Company may encounter strikes, further unionization efforts or other
types of conflicts with labor unions or the Company's colleagues, any of which
could have an adverse effect on the Company's ability to produce structural
components and assemblies or may limit its flexibility in dealing with its
workforce.
34
- OPERATING RESULTS MAY BE ADVERSELY AFFECTED BY THE IMPACT OF ENVIRONMENTAL AND
SAFETY REGULATIONS
The Company is subject to foreign, federal, state and local laws and
regulations governing the protection of the environment and occupational health
and safety, including laws regulating the generation, storage, handling, use and
transportation of hazardous materials; the emission and discharge of hazardous
materials into the soil, ground or air; and the health and safety of its
colleagues. The Company is also required to obtain permits from governmental
authorities for certain operations. The Company cannot assure that it has been
or will be at all times in complete compliance with such laws, regulations and
permits. If it violates or fails to comply with these laws, regulations or
permits, it could be fined or otherwise sanctioned by regulators. In some
instances, such a fine or sanction could be material. The Company does not
expect that its capital expenditures for environmental controls will be material
for the current or succeeding fiscal year.
The Company is also subject to laws imposing liability for the cleanup of
contaminated property. Under these laws, it could be held liable for costs and
damages relating to contamination at its past or present facilities and at third
party sites to which these facilities sent wastes containing hazardous
substances. The amount of such liability could be material.
- THE INABILITY TO COMPETE EFFECTIVELY IN THE HIGHLY COMPETITIVE AUTOMOTIVE
SUPPLY INDUSTRY COULD RESULT IN THE LOSS OF CUSTOMERS, WHICH COULD HAVE AN
ADVERSE EFFECT ON THE COMPANY'S REVENUES AND OPERATING RESULTS
The automotive component supply industry is highly competitive. Some of the
Company's competitors are companies, or divisions or subsidiaries of companies,
that are larger than the Company and have greater financial and other resources.
In addition, with respect to certain of the Company's products, it competes with
divisions of its OEM customers. The Company's products may not be able to
compete successfully with the products of these other companies, which could
result in the loss of customers and, as a result, decreased revenues and
profitability. In addition, the Company's competitive position in the automotive
component supply industry could be adversely affected in the event that it is
unsuccessful in making strategic acquisitions or establishing joint ventures
that would enable it to expand globally.
The Company principally competes for new business both at the beginning of
the development of new models and upon the redesign of existing models by its
major customers. New model development generally begins two to five years prior
to the marketing of such models to the public. The failure to obtain new
business on new models or to retain or increase business on redesigned existing
models could adversely affect the Company's business and financial results. In
addition, as a result of the relatively long lead times required for many of its
complex structural components, it may be difficult in the short-term for the
Company to obtain new sales to replace any unexpected decline in the sale of
existing products. The Company may incur significant expense in preparing to
meet anticipated customer requirements which may not be recovered.
- ACTUAL PROGRAM VOLUMES AND PRICING MAY BE LESS THAN PLANNED
The Company incurs costs and makes capital expenditures for new program
awards based upon certain estimates of production volumes for certain vehicles.
While the Company attempts to establish the price of its products for variances
in production volumes, if the actual production of certain vehicle models is
significantly less than planned, the Company's revenues and net income may be
adversely affected. The Company cannot predict its customers' demands for the
products it supplies either in the aggregate or for particular reporting
periods. For example, the Company cannot predict whether or to what extent the
expected $760 million in annual new program revenue, anticipated to be fully
realized by 2005, will actually result in firm orders from customers.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this
Form 10-K or incorporated by reference herein, are, or may be deemed to be,
forward-looking statements within the meaning of
35
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-K, the words
"anticipate," "believe," "estimate," "expect," "intends" and similar
expressions, as they relate to the Company, are intended to identify
forward-looking statements. Such forward-looking statements are based on the
beliefs of the Company's management as well as on assumptions made by and
information currently available to the Company at the time such statements were
made. Various economic and competitive factors could cause actual results to
differ materially from those discussed in such forward-looking statements,
including factors which are outside the control of the Company, such as risks
relating to: (i) the degree to which the Company is leveraged; (ii) the
Company's reliance on major customers and selected models; (iii) the cyclicality
and seasonality of the automotive market; (iv) the failure to realize the
benefits of recent acquisitions and joint ventures; (v) obtaining new business
on new and redesigned models; (vi) the Company's ability to continue to
implement its acquisition strategy; (vii) the highly competitive nature of the
automotive supply industry; (viii) the ability to achieve the anticipated volume
of production from new and planned supply programs; and (ix) such other factors
noted in this Form 10-K 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Market Risk" section of Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management of the Company is responsible for the financial information and
representations contained in the consolidated financial statements and other
sections of the 2001 Annual Report. The consolidated financial statements have
been prepared in conformity with generally accepted accounting principles and
therefore include certain amounts based on management's best estimates and
judgments. The financial information contained elsewhere in the 2001 Annual
Report is consistent with that in the consolidated financial statements.
The Company maintains internal accounting control systems which management
believes provide reasonable assurance that the Company's assets are properly
safeguarded and accounted for, that the Company's books and records properly
reflect all transactions, and that the Company's policies and procedures are
implemented by qualified personnel. Reasonable assurance is based upon the
recognition that the cost of an internal control system should not exceed the
related benefits.
The Audit Committee of the Board of Directors meets with representatives of
management and Arthur Andersen LLP, the Company's independent public
accountants, on financial reporting matters and the evaluation of internal
accounting controls. The independent public accountants have free access to meet
with the Audit Committee, without the presence of management, to discuss any
appropriate matters.
Arthur Andersen LLP is engaged to express an opinion as to whether the
consolidated financial statements present fairly, in all material respects and
in accordance with generally accepted accounting principles, the financial
position, results of operations and cash flows of the Company. Solely for
purposes of planning and performing their audit of the Company's 2001 financial
statements, Arthur Andersen LLP obtained an understanding of, and selectively
tested, certain aspects of the Company's system of internal controls.
36
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................... 38
Consolidated Balance Sheets as of December 31, 2001 and
2000...................................................... 39
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999.......................... 40
Consolidated Statements of Stockholders' Investment for the
years ended December 31, 2001, 2000 and 1999.............. 41
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999.......................... 42
Notes to Consolidated Financial Statements.................. 43
37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tower Automotive, Inc.:
We have audited the accompanying consolidated balance sheets of Tower
Automotive, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
2001 and 2000, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tower Automotive, Inc. and
Subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.
As explained in Note 2 to the financial statements, effective January 1,
2001, the Company adopted the new requirements of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities."
Arthur Andersen LLP
Minneapolis, Minnesota,
January 25, 2002
38
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
(AMOUNTS IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 21,767 $ 3,373
Accounts receivable....................................... 216,638 278,707
Inventories............................................... 112,536 132,478
Prepaid tooling and other................................. 89,229 222,119
---------- ----------
Total current assets................................... 440,170 636,677
---------- ----------
Property, Plant and Equipment, net.......................... 1,120,259 1,111,780
Investments in Joint Ventures............................... 243,198 267,217
Deferred Income Taxes....................................... 61,461 11,641
Goodwill, net of accumulated amortization of $56,850 and
$51,391................................................... 567,080 794,362
Other Assets, net of accumulated amortization of $17,083 and
$13,360................................................... 101,268 71,070
---------- ----------
$2,533,436 $2,892,747
========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current maturities of long-term debt and capital lease
obligations............................................ $ 172,083 $ 149,066
Accounts payable.......................................... 368,910 248,389
Accrued liabilities....................................... 278,962 160,469
---------- ----------
Total current liabilities.............................. 819,955 557,924
---------- ----------
Long-Term Debt, net of current maturities................... 601,084 933,442
Obligations Under Capital Leases, net of current
maturities................................................ 4,620 8,458
Convertible Subordinated Notes.............................. 199,984 200,000
Deferred Income Taxes....................................... -- 33,884
Other Noncurrent Liabilities................................ 201,635 200,194
---------- ----------
Total noncurrent liabilities........................... 1,007,323 1,375,978
---------- ----------
Commitments and Contingencies (Notes 4, 6 and 12)
Mandatorily Redeemable Trust Convertible Preferred
Securities................................................ 258,750 258,750
Stockholders' Investment:
Preferred stock, par value $1; 5,000,000 shares
authorized; no shares issued or outstanding............ -- --
Common stock, par value $.01; 200,000,000 shares
authorized; 48,077,142 and 47,584,391 shares issued and
outstanding............................................ 481 476
Additional paid-in capital................................ 456,627 450,455
Retained earnings......................................... 40,432 307,956
Deferred Compensation Plans............................... (15,571) (8,942)
Accumulated other comprehensive loss...................... (34,561) (9,672)
Treasury stock, at cost: 4,112,100 shares in 2000......... -- (40,178)
---------- ----------
Total stockholders' investment......................... 447,408 700,095
---------- ----------
$2,533,436 $2,892,747
========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
39
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
---------------------------------------------
2001 2000 1999
------------- ------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues................................................. $2,467,433 $2,531,953 $2,170,003
Cost of sales............................................ 2,190,248 2,160,359 1,823,103
---------- ---------- ----------
Gross profit........................................... 277,185 371,594 346,900
Selling, general and administrative expenses............. 139,203 137,003 105,950
Amortization expense..................................... 24,804 21,517 15,803
Restructuring and asset impairment charges............... 383,739 141,326 --
---------- ---------- ----------
Operating income (loss)................................ (270,561) 71,748 225,147
Interest expense......................................... 80,319 71,162 39,491
Interest income.......................................... (6,554) (6,451) (1,510)
---------- ---------- ----------
Income (loss) before provision for income taxes, equity
in earnings of joint ventures and minority
interest............................................ (344,326) 7,037 187,166
Provision (benefit) for income taxes..................... (73,312) 2,619 74,866
---------- ---------- ----------
Income (loss) before equity in earnings of joint
ventures, minority interest and extraordinary
item................................................ (271,014) 4,418 112,300
Equity in earnings of joint ventures, net................ 17,250 22,480 15,268
Minority interest, net................................... (13,760) (10,476) (10,480)
---------- ---------- ----------
Income (loss) before extraordinary item................ (267,524) 16,422 117,088
Extraordinary loss on early extinguishment of debt,
net.................................................... -- 2,988 --
---------- ---------- ----------
Net income (loss)................................... $ (267,524) $ 13,434 $ 117,088
========== ========== ==========
Basic earnings (loss) per share (Note 4):
Income (loss) before extraordinary loss................ $ (5.87) $ 0.35 $ 2.50
Extraordinary loss..................................... -- (0.06) --
---------- ---------- ----------
Net income (loss)................................... $ (5.87) $ 0.29 $ 2.50
========== ========== ==========
Diluted earnings (loss) per share (Note 4):
Income (loss) before extraordinary loss................ $ (5.87) $ 0.34 $ 2.10
Extraordinary loss..................................... -- (0.06) --
---------- ---------- ----------
Net income (loss)................................... $ (5.87) $ 0.28 $ 2.10
========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
40
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
COMMON STOCK ADDITIONAL WARRANTS TO DEFERRED
------------------- PAID-IN RETAINED ACQUIRE COMPENSATION
SHARES AMOUNT CAPITAL EARNINGS COMMON STOCK PLANS
---------- ------ ---------- -------- ------------ ------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
BALANCE, DECEMBER 31, 1998.............. 46,281,880 $463 $426,471 $177,434 $ 2,000 $ --
Conversion of Edgewood notes............ 250,000 3 755 -- -- --
Exercise of options..................... 125,000 1 996 -- -- --
Sales of stock under Employee Stock
Discount Purchase Plan................ 222,574 2 3,579 -- -- --
Deferred Income Stock Plan.............. -- -- 4,484 -- -- (4,484)
Non-employee options grant.............. -- -- 897 -- -- --
Collection of common stock subscriptions
receivable............................ -- -- 28 -- -- --
Net income.............................. -- -- -- 117,088 -- --
Other comprehensive loss -- foreign
currency translation adjustment....... -- -- -- -- -- --
Total comprehensive income..............
---------- ---- -------- -------- ------- --------
BALANCE, DECEMBER 31, 1999.............. 46,879,454 469 437,210 294,522 2,000 (4,484)
Conversion of warrants.................. 400,000 4 5,596 -- (2,000) --
Exercise of options..................... 56,000 1 348 -- -- --
Sales of stock under Employee Stock
Discount Purchase Plan................ 224,342 2 2,843 -- -- --
Deferred Income Stock Plan.............. 24,595 -- 4,458 -- -- (4,458)
Common share repurchase................. -- -- -- -- -- --
Net income.............................. -- -- -- 13,434 -- --
Other comprehensive loss -- foreign
currency translation adjustment....... -- -- -- -- -- --
Total comprehensive income..............
---------- ---- -------- -------- ------- --------
BALANCE, DECEMBER 31, 2000.............. 47,584,391 476 450,455 307,956 -- (8,942)
Conversion of Edgewood and 5%
convertible notes..................... 273,862 3 825 -- -- --
Exercise of options..................... 42,750 -- 268 -- -- --
Sales of stock under Employee Stock
Discount Purchase Plan................ 172,502 2 1,167 -- -- --
Deferred Income Stock Plan.............. -- -- 1,279 -- -- (1,279)
Restricted stock issued in exchange for
stock options......................... -- -- 5,350 -- -- (5,350)
Private placement of common stock....... 3,637 -- (2,717) -- -- --
Net loss................................ -- -- -- (267,524) -- --
Other comprehensive loss -- foreign
currency translation adjustment....... -- -- -- -- -- --
Transition adjustment relating to loss
on qualifying cash flow hedges........ -- -- -- -- -- --
Unrealized loss on qualifying cash flow
hedges................................ -- -- -- -- -- --
Minimum pension liability............... -- -- -- -- -- --
Total comprehensive loss................
---------- ---- -------- -------- ------- --------
BALANCE, DECEMBER 31, 2001.............. 48,077,142 $481 $456,627 $ 40,432 $ -- $(15,571)
========== ==== ======== ======== ======= ========
ACCUMULATED
TREASURY STOCK OTHER TOTAL
--------------------- COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT INCOME (LOSS) INVESTMENT
---------- -------- ------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
BALANCE, DECEMBER 31, 1998.............. -- $ -- $ 428 $ 606,796
Conversion of Edgewood notes............ -- -- -- 758
Exercise of options..................... -- -- -- 997
Sales of stock under Employee Stock
Discount Purchase Plan................ -- -- -- 3,581
Deferred Income Stock Plan.............. -- -- -- --
Non-employee options grant.............. -- -- -- 897
Collection of common stock subscriptions
receivable............................ -- -- -- 28
Net income.............................. -- -- --
Other comprehensive loss -- foreign
currency translation adjustment....... -- -- (3,010)
Total comprehensive income.............. 114,078
---------- -------- -------- ---------
BALANCE, DECEMBER 31, 1999.............. -- -- (2,582) 727,135
Conversion of warrants.................. -- -- -- 3,600
Exercise of options..................... -- -- -- 349
Sales of stock under Employee Stock
Discount Purchase Plan................ -- -- -- 2,845
Deferred Income Stock Plan.............. -- -- -- --
Common share repurchase................. (4,112,100) (40,178) -- (40,178)
Net income.............................. -- -- --
Other comprehensive loss -- foreign
currency translation adjustment....... -- -- (7,090)
Total comprehensive income.............. 6,344
---------- -------- -------- ---------
BALANCE, DECEMBER 31, 2000.............. (4,112,100) (40,178) (9,672) 700,095
Conversion of Edgewood and 5%
convertible notes..................... -- -- -- 828
Exercise of options..................... -- -- -- 268
Sales of stock under Employee Stock
Discount Purchase Plan................ -- -- -- 1,169
Deferred Income Stock Plan.............. 479,337 -- -- --
Restricted stock issued in exchange for
stock options......................... -- -- -- --
Private placement of common stock....... 3,632,763 40,178 -- 37,461
Net loss................................ -- -- --
Other comprehensive loss -- foreign
currency translation adjustment....... -- -- (2,115)
Transition adjustment relating to loss
on qualifying cash flow hedges........ -- -- (4,200)
Unrealized loss on qualifying cash flow
hedges................................ -- -- (4,102)
Minimum pension liability............... -- -- (14,472)
Total comprehensive loss................ (292,413)
---------- -------- -------- ---------
BALANCE, DECEMBER 31, 2001.............. -- $ -- $(34,561) $ 447,408
========== ======== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
41
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
---------------------------------------
2001 2000 1999
----------- ----------- -----------
(AMOUNTS IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss)................................... $ (267,524) $ 13,434 $ 117,088
Adjustments required to reconcile net income (loss)
to net cash provided by operating activities-
Depreciation and amortization.................... 159,893 144,805 111,611
Deferred income tax provision (benefit).......... (80,758) (23,373) 45,528
Extraordinary loss on extinguishment of debt,
net............................................ -- 2,988 --
Equity in earnings of joint ventures, net........ (17,250) (22,480) (15,268)
Restructuring and asset impairment charge........ 383,739 141,326 --
Change in other operating items:
Accounts receivable............................ 74,515 111,706 (73,903)
Inventories.................................... 21,415 6,789 (9,340)
Prepaid tooling and other...................... 129,339 (115,780) 52,270
Accounts payable and accrued liabilities....... 148,802 (119,763) 40,491
Other assets and liabilities................... (38,356) (47,004) (56,474)
----------- ----------- -----------
Net cash provided by operating activities... 513,815 92,648 212,003
----------- ----------- -----------
INVESTING ACTIVITIES:
Capital expenditures, net........................... (193,955) (93,588) (197,315)
Acquisitions, net of cash acquired.................. (2,689) (182,252) (320,662)
Acquisition of joint venture interests and other.... (2,729) (46,295) (68,594)
Net proceeds from sale of Roanoke Heavy Truck
Business......................................... -- 55,353 --
Change in restricted cash........................... -- -- 2,677
----------- ----------- -----------
Net cash used for investing activities...... (199,373) (266,782) (583,894)
----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings............................ 2,308,821 3,372,311 2,208,667
Repayments of debt.................................. (2,643,860) (3,299,737) (1,841,229)
Net proceeds from issuance of senior Euro notes..... -- 134,700 --
Net proceeds from issuance of common stock.......... 1,530 6,794 4,636
Net proceeds from private placement of common
stock............................................ 37,461 -- --
Payments for repurchase of common shares............ -- (40,178) --
----------- ----------- -----------
Net cash provided by (used for) financing
activities................................ (296,048) 173,890 372,074
----------- ----------- -----------
Net Change in Cash and Cash Equivalents............... 18,394 (244) 183
Cash and Cash Equivalents, beginning of year.......... 3,373 3,617 3,434
----------- ----------- -----------
Cash and Cash Equivalents, end of year................ $ 21,767 $ 3,373 $ 3,617
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized........... $ 79,099 $ 63,776 $ 36,023
=========== =========== ===========
Income taxes (refunded) paid........................ $ (12,853) $ 18,808 $ 17,136
=========== =========== ===========
NON CASH FINANCING ACTIVITIES:
Notes payable converted to common stock............. $ 828 $ -- $ 758
=========== =========== ===========
Non-employee options grant.......................... $ -- $ -- $ 897
=========== =========== ===========
Deferred Income Stock Plan.......................... $ 1,279 $ 4,458 $ 4,484
=========== =========== ===========
Issuance of restricted stock for options............ $ 5,350 $ -- $ --
=========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
42
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Tower Automotive, Inc. and subsidiaries (the "Company") produces a broad
range of assemblies and modules for vehicle frames, upper body structures and
suspension systems for the global automotive industry. Including both
wholly-owned subsidiaries and investments in joint ventures, the Company has
facilities in the United States, Canada, Italy, Germany, Hungary, Poland,
Brazil, India, Slovakia, Korea, Japan, China, and Mexico.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of
Tower Automotive, Inc., its wholly-owned subsidiaries, and its majority-owned
and majority-controlled investments. All material intercompany accounts and
transactions have been eliminated in consolidation.
As part of the acquisition of Automotive Products Company in 1997, the
Company acquired a 60 percent joint venture interest in Tower Golden Ring, which
produces certain parts in China. The remaining 40 percent of the joint venture
is owned by unrelated third parties. Prior to the third quarter of 2001, this
investment was accounted for using the equity method since all significant
business decisions required the approval of 80 percent of the joint venture
partners. During the third quarter of 2001, the Company determined that its
relationship with the other investors and the fact that representatives
appointed by the Company hold key management positions within the joint venture
allowed it to exercise significant control over significant business decisions.
As a result, this joint venture was consolidated effective as of the third
quarter of 2001. The Company's investments in Metalsa and Yorozu are accounted
for using the equity method. The Company's minority-controlled investments (less
than 20 percent ownership) are accounted for under the cost method.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consist of highly liquid investments with an
original maturity of three months or less. Cash equivalents are stated at cost
which approximates fair value.
SUBORDINATED INTEREST IN ACCOUNTS RECEIVABLE:
In June 2001, the Company entered into a financing agreement whereby its
domestic operating units sell eligible customer receivables on an ongoing basis
to a newly formed, fully consolidated, financing entity. The financing entity
subsequently sells its interest in the receivables to a third party funding
agent in exchange for cash and a subordinated interest in the unfunded
receivables transferred. The Company acts as an administrative agent in the
management and collection of accounts receivable sold.
At December 31, 2001, the Company sold approximately $111.2 million of net
accounts receivable in exchange for $15.2 million of cash and a retained
subordinated interest in the receivables sold of approximately $96.0 million.
The receivables sold represented amounts owed to the Company from customers as
of November 30, 2001. The majority of such receivables were collected in
December 2001 and as a result, the Company's retained interest in accounts
receivable is not significant as of December 31, 2001 and is not presented
separately from accounts receivable. The net proceeds from the sale of the
receivables were used to pay down borrowings under the Company's revolving
credit facility. As of December 31, 2001, the Company recorded a liability to
the funding agent of $15.2 million, which represents receivables for which the
Company has received collections from customers and are required to be submitted
to the funding agent. Settlement of amounts due to the funding agent, as well as
the cost of funding at a rate of approximately 7.6 percent, occurs during the
month subsequent to the sale of the receivables.
43
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES:
Inventories are valued at the lower of first-in, first-out ("FIFO") cost or
market.
Inventories consisted of the following (in thousands):
DECEMBER 31,
-------------------
2001 2000
-------- --------
Raw materials............................................... $ 52,579 $ 54,958
Work-in-process............................................. 24,636 40,281
Finished goods.............................................. 35,321 37,239
-------- --------
$112,536 $132,478
======== ========
TOOLING AND OTHER DESIGN COSTS:
Tooling and other design costs represent costs incurred by the Company in
the development of new tooling used in the manufacture of the Company's
products. The Company follows the provisions of Emerging Issues Task Force
("EITF") Issue No. 99-5, "Accounting for Pre-Production Costs Related to
Long-Term Supply Arrangements," that requires all pre-production tooling costs
incurred for tools that the Company will not own and that will be used in
producing products to be supplied under long-term supply agreements be expensed
as incurred unless the supply agreement provides the supplier with the
noncancellable right to use the tools or the reimbursement of such costs is
contractually guaranteed by the customer. At the time that the customer awards a
contract to the Company, the customer agrees to reimburse the Company for
certain of its tooling costs either in the form of a lump sum payment or by
reimbursement on a piece price basis. When the part for which tooling has been
developed reaches a production-ready status, the Company is reimbursed by its
customers for the cost of the tooling (in instances of lump sum payment), at
which time the tooling becomes the property of the customers. For those costs
related to other tooling and design costs reimbursed through the piece price as
contractually guaranteed, such costs are capitalized as property, plant and
equipment and amortized using the unit of production method over the life of the
related product. The Company has certain other tooling costs related to tools
for which the Company has the contractual right to use the tool over the life of
the supply arrangement, which are capitalized as property, plant and equipment
and amortized over the life of the related product. The components of
capitalized tooling costs are as follows (in thousands):
DECEMBER 31,
------------------
2001 2000
------- --------
Reimbursable pre-production design and development costs.... $ 5,628 $ 2,442
Customer-owned tooling...................................... 51,019 85,416
Supplier-owned tooling...................................... 28,533 18,197
------- --------
Total.................................................. $85,180 $106,055
======= ========
All tooling amounts owned by the customer for which the Company expects
reimbursement are recorded in other current and other long-term assets on the
accompanying consolidated balance sheet. If the Company forecasts that the
amount of capitalized tooling and design costs exceeds the amount to be realized
through the sale of product, a loss is recognized currently.
44
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following (in thousands):
DECEMBER 31,
-----------------------
2001 2000
---------- ----------
Land........................................................ $ 8,058 $ 7,126
Buildings and improvements.................................. 348,200 310,129
Machinery and equipment..................................... 1,095,955 1,028,365
Construction in progress.................................... 145,108 165,260
---------- ----------
1,597,321 1,510,880
Less-Accumulated depreciation............................... (477,062) (399,100)
---------- ----------
Net property, plant and equipment...................... $1,120,259 $1,111,780
========== ==========
Property, plant and equipment acquired in the acquisitions discussed in
Note 6 was recorded at its fair value, determined based on appraisals, as of the
respective acquisition dates. Additions to property, plant and equipment
following the acquisitions are stated at cost. For financial reporting purposes,
depreciation and amortization are provided using the straight-line method over
the following estimated useful lives:
Buildings and improvements.................................. 15 to 40 years
Machinery and equipment..................................... 3 to 20 years
Accelerated depreciation methods are used for tax reporting purposes.
Interest is capitalized during the construction of major facilities and is
amortized over their estimated useful lives. Interest of $14.6 million was
capitalized during the year ended December 31, 2001, $12.9 million was
capitalized during the year ended December 31, 2000 and $6.9 million was
capitalized during the year ended December 31, 1999.
Maintenance and repairs are charged to expense as incurred. Major
betterments and improvements which extend the useful life of the related item
are capitalized and depreciated. The cost and accumulated depreciation of
property, plant and equipment retired or otherwise disposed of are removed from
the related accounts, and any residual values after considering proceeds are
charged or credited to income.
GOODWILL:
Goodwill represents the excess of the purchase price over the fair value of
the net assets acquired, and through December 31, 2001, was being amortized on a
straight-line basis over 40 years.
The Company periodically evaluates whether events and circumstances have
occurred which may affect the estimated useful life or the recoverability of the
remaining balance of its goodwill and other long-lived assets. If such events or
circumstances were to indicate that the carrying amount of these assets were not
recoverable, the Company would estimate the future cash flows expected to result
from the use of the assets and their eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) were less
than the carrying amount of goodwill, the Company would recognize an impairment
loss. Impairment losses are measured by comparing fair value of the goodwill as
determined by discounting the future cash flows at a market rate of interest.
During the fourth quarter of 2001, the Company recorded a goodwill
impairment charge of $87.5 million as a result of the restructuring of certain
operations (See Note 3). In addition, based upon the Company's current operating
plans (including the organizational realignment initiative discussed in Note 3)
and current and forecasted trends in the automotive industry, the Company
re-evaluated the
45
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carrying amount of goodwill and other long-lived assets. Based upon this
analysis, the Company determined that an additional $108.6 million of goodwill
and $97.0 million of manufacturing equipment and other assets were impaired. As
a result, these assets were written down to their estimated fair value as
discussed above (See Note 3).
OTHER ASSETS:
Other assets consist primarily of deferred rent expense and debt issuance
costs. Debt issue costs are amortized on a straight-line basis over the term of
the related obligations.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and revolving credit facilities approximates fair value because
of the short maturity of these instruments. The carrying amount of the Company's
long-term debt approximates fair value because of the variability of the
interest cost associated with these instruments. The fair value of the Company's
Convertible Subordinated Notes and Preferred Securities approximated $167.5
million and $111.3 million, respectively, as of December 31, 2001.
DERIVATIVE FINANCIAL INSTRUMENTS:
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 133 "Accounting for Derivative Instruments and Hedging Activities,"
effective January 1, 2001. SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments embedded in other contracts be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge criteria are met, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. The effect of this change as of January 1, 2001,
was a pretax charge to accumulated other comprehensive loss of $6.8 million
($4.2 million net of income tax benefit).
The Company uses derivative financial instruments principally to manage the
risk that changes in interest rates will affect the amount of its future
interest payments. Interest rate swap contracts are used to adjust the
proportion of total debt that is subject to variable and fixed interest rates.
Under these agreements, the Company agrees to pay an amount equal to a specified
fixed rate times a notional principal amount, and to receive in return an amount
equal to a specified variable rate times the same notional principal amount. The
notional amounts of the contract are not exchanged. No other cash payments are
made unless the contract is terminated prior to maturity, in which case the
amount paid or received in settlement is established by agreement at the time of
termination, and usually will represent the net present value, at current rates
of interest, of the remaining obligation to exchange payments under the term of
the contract.
The interest rate swap contracts are recorded at fair value in the
consolidated balance sheet as accrued liabilities and the related gains or
losses on these contracts are deferred in stockholders' investment (as a
component of other comprehensive income (loss)). Amounts to be paid or received
under the contracts are accrued as interest rates change and are recognized over
the life of the contracts as an adjustment to interest expense. The net effect
of this accounting is that interest expense on the portion of variable rate debt
being hedged is generally recorded based on fixed interest rates.
During September 2000, the Company entered into an interest rate swap
contract to hedge against interest rate exposure on approximately $160 million
of its floating rate indebtedness under its $1.15 billion senior unsecured
credit facility. The contract has the effect of converting the floating rate
interest to a
46
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. As of December 31, 2001, this is the only swap
contract the Company has outstanding. The fair value of the interest rate swap
agreement at December 31, 2001 and 2000 was a liability of $13.4 million and
$6.9 million, respectively, representing the cost that would be incurred to
terminate the agreement. This swap contract has been designated as a highly
effective cash flow hedge and accordingly, gains or losses on any
ineffectiveness was not material to any period.
OTHER NONCURRENT LIABILITIES:
Other noncurrent liabilities consisted of the following (in thousands):
DECEMBER 31,
-------------------
2001 2000
-------- --------
Post-retirement benefits.................................... $ 86,382 $ 93,668
Purchase accounting reserves................................ 43,119 68,369
Other....................................................... 72,134 38,157
-------- --------
$201,635 $200,194
======== ========
REVENUE RECOGNITION AND SALES COMMITMENTS:
The Company recognizes revenue as its products are shipped to its
customers. The Company enters into agreements to produce products for its
customers at the beginning of a given vehicle's life. Once such agreements are
entered into by the Company, fulfillment of the customers' purchasing
requirements is the obligation of the Company for the entire production life of
the vehicle, with terms of three to ten years and the Company has no provisions
to terminate such contracts. In certain instances, the Company may be committed
under existing agreements to supply product to its customers at selling prices
which are not sufficient to cover the direct cost to produce such product. In
such situations, the Company records a liability for the estimated future amount
of such losses. Such losses are recognized at the time that the loss is probable
and reasonably estimable and is recorded at the minimum amount necessary to
fulfill the Company's obligations to its customers. Losses are discounted and
are estimated based upon information available at the time of the estimate,
including future production volume estimates, length of the program and selling
price and production cost information.
INCOME TAXES:
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using currently enacted tax rates.
COMPREHENSIVE INCOME (LOSS):
Comprehensive income (loss) reflects the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. For the Company, comprehensive income (loss) represents
net income (loss) adjusted for foreign currency translation adjustments, minimum
pension liability adjustments, and gains or losses on qualifying cash flow
hedges in accordance with SFAS No. 133.
47
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT REPORTING:
In accordance with SFAS No. 131, the Company uses the "management approach"
to reporting segment disclosures. The management approach designates the
internal organization that is used by management for making operating decisions
and assessing performance as the source of the Company's reportable segments.
SFAS No. 131 also requires disclosures about products and services, geographic
areas, and major customers.
STOCK OPTIONS:
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 employees and directors at fair
market value. The pro forma effects had the Company followed the provisions of
SFAS No. 123 are included in Note 4. 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.
USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The actual results could differ from those
estimates.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of the Company's foreign operations are translated
into U.S. dollars using the year-end rates of exchange. Results of operations
are translated at average rates prevailing throughout the period. Translation
gains or losses are accumulated as a separate component of "other comprehensive
loss" in the accompanying consolidated statements of stockholders' investment.
RECLASSIFICATIONS:
Certain prior year amounts were reclassified to conform to the current year
presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
On June 29, 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS 141, "Business Combinations," and SFAS 142, "Goodwill and Intangible
Assets." Major provisions of these Statements are as follows: all business
combinations initiated after June 30, 2001 must use the purchase method of
accounting; the pooling of interest method of accounting is prohibited except
for transactions initiated before July 1, 2001; intangible assets acquired in a
business combination must be recorded separately from goodwill if they arise
from contractual or other legal rights or are separable from the acquired entity
and can be sold, transferred, licensed, rented or exchanged, either individually
or as part of a related contract, asset or liability; goodwill and intangible
assets with indefinite lives are not amortized but tested for impairment
annually, except in certain circumstances, and whenever there is an impairment
indicator; all acquired goodwill must be assigned to reporting units for
purposes of impairment testing; effective January 1, 2002, goodwill is no longer
subject to amortization.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal year 2002. As of
December 31, 2001, the Company has unamortized goodwill of $567.1 million that
will be subject to the transition provisions of the Statements. The Company
48
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has not yet determined the impact of adopting these Statements on its earnings
and financial position, including whether it will be required to recognize any
transitional impairment losses as a cumulative effect of a change in accounting
principle. Application of the nonamortization provisions of the Statements is
expected to result in a reduction in goodwill amortization expense of
approximately $16 million in fiscal 2002, after reflecting 2001 goodwill
writedowns of $196.1 million.
In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after December
15, 2001. The provisions of this Statement provide a single accounting model for
impairment of long-lived assets. The adoption of SFAS No. 144 on January 1, 2002
is not expected to have a material impact on the Company's financial position or
its results of operations.
3. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES:
SEBEWAING AND MILWAUKEE PRESS OPERATIONS:
In October 2001, the Company's board of directors approved a restructuring
of the enterprise that included the closing of the Sebewaing, Michigan facility.
In addition, in December 2001, the Company's board of directors approved a
restructuring plan that related to the consolidation of technical activities and
a reduction of other salaried colleagues in conjunction with a reorganization of
the Company's U.S. and Canada operations and the relocation of some component
manufacturing from the Company's Milwaukee Press Operations to other Tower
locations. As a result of these realignment efforts (the "2001 Plan"), the
Company recorded a restructuring charge in the fourth quarter of 2001 of $178.1
million, which reflects the estimated qualifying "exit costs" to be incurred
over the next 12 months pertaining to the 2001 Plan.
The 2001 Plan charge includes costs associated with asset impairments,
severance and outplacement costs related to employee terminations and certain
other exit costs. These activities are anticipated to result in a reduction of
more than 700 colleagues in the Company's technical and administrative centers
in Novi, Rochester Hills, and Grand Rapids, Michigan; Milwaukee, Wisconsin; and
its U.S. and Canada manufacturing locations. Through December 31, 2001, the
Company had eliminated approximately 270 colleagues pursuant to the 2001 Plan.
The estimated restructuring charge does not cover certain aspects of the 2001
Plan, including movement of equipment and employee relocation and training.
These costs will be recognized in future periods as incurred.
The asset impairments consist of long-lived assets, including fixed assets,
buildings and manufacturing equipment from the facilities the Company intends to
dispose of or discontinue, and goodwill. The carrying value of the long-lived
assets written off was approximately $127.4 million as of December 31, 2001.
Fixed assets that will be disposed of as part of the 2001 Plan were written down
to their estimated residual values. For assets that will be sold currently, the
Company measured impairment based on estimated proceeds on the sale of the
facilities and equipment. These asset impairments have arisen as a consequence
of the Company making the decision to exit these activities during the fourth
quarter of 2001.
Based on the current plan, the Company anticipates this charge will require
cash payments of approximately $34.9 million combined with the $127.4 million
write-off of assets and other future obligations of $15.8 million. The asset
write-offs include $87.5 million of goodwill associated with Sebewaing and
Milwaukee Press Operations, $20.6 million of property, plant and equipment
associated with the Sebewaing operations and $12.1 million of property, plant
and equipment associated with the Milwaukee Press Operations business that will
be discontinued. Additionally, there was $7.2 million of property and building
write downs associated with the decision to consolidate the Company's technical
centers.
49
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accrual for operational realignment and other costs is included in
accrued liabilities in the accompanying consolidated balance sheet as of
December 31, 2001. The table below summarizes the accrued operational
realignment and other charges through December 31, 2001 (in millions):
SEVERANCE AND
ASSET OUTPLACEMENT OTHER EXIT
IMPAIRMENTS COSTS COSTS TOTAL
----------- ------------- ---------- -------
Provision and reclassifications.......... $ 127.4 $24.6 $26.1 $ 178.1
Reclassification from 2000 Plan.......... -- -- 5.9 5.9
Cash payments............................ -- (0.7) (0.6) (1.3)
Non cash charges......................... (127.4) -- -- (127.4)
------- ----- ----- -------
Balance at December 31, 2001............. $ -- $23.9 $31.4 $ 55.3
======= ===== ===== =======
SUBSEQUENT EVENT (UNAUDITED):
On January 31, 2002, the Company announced that it will discontinue the
remaining stamping and ancillary processes currently performed at the Company's
Milwaukee Press Operations and relocate the remaining work to other Tower
locations or Tier II suppliers. The Company expects to complete the transfer
process during the second quarter of 2002. As a result of these efforts, the
Company expects to record a restructuring charge in the first quarter of 2002
totaling approximately $75 million.
HEAVY TRUCK AND KALAMAZOO STAMPING OPERATIONS:
In October 2000, the Company's board of directors approved a comprehensive
operational realignment plan (the "2000 Plan") to improve the Company's
long-term competitive position and lower its cost structure. The 2000 Plan
included phasing out the heavy truck rail manufacturing in Milwaukee, Wisconsin;
reducing stamping capacity by closing the Kalamazoo, Michigan facility; and
consolidating related support activities across the enterprise. The Company
recognized a charge to operations of approximately $141.3 million in the fourth
quarter of 2000, which reflected the estimated qualifying "exit costs" to be
incurred over the ensuing twelve months.
The 2000 Plan charge included costs associated with asset impairments,
severance and outplacement costs related to employee terminations, loss contract
provisions and certain other exit costs. These activities resulted in a
reduction of approximately 850 employees.
The asset impairments consisted of long-lived assets, including fixed
assets, manufacturing equipment and land, from the facilities the Company
intends to dispose of or discontinue. For assets that were disposed of
currently, the Company measured impairment based on estimated proceeds on the
sale of the facilities and equipment. The carrying value of the long-lived
assets held for sale or disposal was approximately $3.8 million as of December
31, 2001. For assets that will be held and used in the future, the Company
prepared a forecast of expected undiscounted cash flows to determine whether
asset impairment existed, and used fair values to measure the required
write-downs. These asset impairments have arisen as a consequence of the Company
making the decision to exit these activities during the fourth quarter of 2000.
The Company anticipated this charge would require cash payments of
approximately $37.6 million combined with the write-off of assets having a book
value of approximately $103.7 million. Actual amounts have been revised by $5.9
million compared to the original estimate. The assets written off included
Milwaukee heavy truck rail manufacturing machinery and equipment of
approximately $47.3 million, Milwaukee and corporate campus support operating
assets of approximately $46.1 million, Kalamazoo
50
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stamping operation's land, buildings and equipment of approximately $5.7 million
and Granite City stamping, machinery and equipment of $4.6 million.
The accrual for the 2000 Plan has been fully utilized and revised as of
December 31, 2001. The table below summarizes the accrued operational
realignment and other charges through December 31, 2001 (in millions):
SEVERANCE AND
ASSET OUTPLACEMENT LOSS OTHER EXIT
IMPAIRMENTS COSTS CONTRACTS COSTS TOTAL
----------- ------------- --------- ---------- -------
Provision...................... $ 103.7 $ 25.2 $ 8.1 $ 4.3 $ 141.3
Cash payments.................. -- (8.7) (2.5) (0.3) (11.5)
Non cash charges............... (103.7) -- -- -- (103.7)
------- ------- ----- ----- -------
(103.7) -- -- --
Balance at December 31, 2000... -- 16.5 5.6 4.0 26.1
Cash payments.................. -- (13.6) (4.2) (2.4) (20.2)
Revision of estimate........... -- (2.9) (1.4) (1.6) (5.9)
------- ------- ----- ----- -------
Balance at December 31, 2001... $ -- $ -- $ -- $ -- $ --
======= ======= ===== ===== =======
NON-RESTRUCTURING ASSET IMPAIRMENTS:
The restructuring and asset impairment charges line on the accompanying
consolidated statement of operations is comprised of both restructuring and
non-restructuring related asset impairments. The components of that line are as
follows for each of the three years ending December 31, 2001 (in millions):
2001 2000 1999
------ ------ ----
Restructuring and related asset impairments................. $178.1 $141.3 $--
Other goodwill and asset impairments........................ 205.6 -- --
------ ------ --
Total....................................................... $383.7 $141.3 $--
====== ====== ==
The other goodwill and asset impairment charges recorded in 2001 are a
result of the Company's review of the carrying amount of certain of its
goodwill, fixed assets, and certain investments based upon the Company's current
operating plans (including the organizational realignment initiative discussed
above) and current and forecasted trends in the automotive industry. Based upon
a review of anticipated cash flows, the Company determined that goodwill
assigned to two of its plants was impaired and was written off. In addition, the
Company identified assets which no longer had sufficient cash flows to support
their carrying amounts and were written down to fair value, including its
investment in J.L. French.
The total of the other goodwill and asset impairment charges included above
is as follows (in millions):
Goodwill writedown.......................................... $108.6
Other asset impairments..................................... 50.7
Investment in J.L. French impairment........................ 46.3
------
Total.................................................. $205.6
======
51
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. STOCKHOLDERS' INVESTMENT:
SALE OF COMMON STOCK:
On August 30, 2001, the Company issued 3,636,400 shares of common stock
(par value $0.01 per share) at a price of $11.00 per share in a private
placement transaction. The Company used the net proceeds of approximately $37.5
million to repay outstanding indebtedness under its revolving credit facility.
STOCK REPURCHASE:
On May 26, 2000, the Company announced that its board of directors approved
the purchase of up to $100 million of its common stock, if authorized by the
executive committee of the board. The shares may be purchased in the open market
at prevailing prices and at times and amounts to be determined by the board's
executive committee as market conditions and the Company's capital position
warrant. During the year ended December 31, 2000, approximately 4.1 million
shares at a total cost of approximately $40.2 million were purchased. The
repurchased shares were placed in treasury and were reissued during 2001 for
general corporate purposes. There were no shares repurchased during 2001.
EARNINGS PER SHARE:
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the year. Diluted earnings
per share for the 1999 period was calculated on the following assumptions: (i)
the Edgewood notes were converted at the beginning of the respective periods,
(ii) the Convertible Subordinated Notes were converted at the beginning of the
respective periods, and (iii) the Preferred Securities (as defined in Note 5)
were converted at the beginning of the period. The Convertible Subordinated
Notes and Preferred Securities were not included in the computation of earnings
per share for the year ended December 31, 2001 and 2000, due to their
anti-dilutive effect. In addition, common stock equivalents relating to options
and Edgewood notes totaling approximately 230,000 shares, using the treasury
stock method, were excluded from the calculation of earnings per share in 2001
because their impact was anti-dilutive.
YEARS ENDED DECEMBER 31,
---------------------------------------
2001 2000 1999
------------ ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net income (loss).................................... $(267,524) $13,434 $117,088
Interest expense on Edgewood notes, net of tax....... -- 30 33
Interest expense on Convertible Subordinated Notes,
net of tax......................................... -- -- 6,508
Dividends on Preferred Securities, net of tax........ -- -- 10,480
--------- ------- --------
Net income (loss) applicable to common stockholders--
diluted............................................ $(267,524) $13,464 $134,109
========= ======= ========
52
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31,
---------------------------------------
2001 2000 1999
------------ ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Weighted average number of common shares
outstanding........................................ 45,597 47,100 46,934
Dilutive effect of outstanding stock options and
warrants after application of the treasury stock
method............................................. -- 171 560
Dilutive effect of Edgewood notes, assuming
conversion......................................... -- 289 326
Dilutive effect of Convertible Subordinated Notes,
assuming conversion................................ -- -- 7,729
Dilutive effect of Preferred Securities, assuming
conversion......................................... -- -- 8,425
--------- ------- --------
Diluted shares outstanding........................... 45,597 47,560 63,974
========= ======= ========
Basic earnings (loss) per share...................... $ (5.87) $ 0.29 $ 2.50
========= ======= ========
Diluted earnings (loss) per share.................... $ (5.87) $ 0.28 $ 2.10
========= ======= ========
STOCK OPTION PLAN:
The Company sponsors the 1994 Key Employee Stock Option Plan (the "Stock
Option Plan"), under which any person who is a full-time, salaried employee of
the Company (excluding non-management directors) is eligible to participate in
the Stock Option Plan (an "Employee Participant"). A committee of the board of
directors selects the Employee Participants and determines the terms and
conditions of the options. The Stock Option Plan provides for the issuance of
options up to 3,000,000 shares of Common Stock at exercise prices equal to the
stock market price on the date of grant, subject to certain adjustments
reflecting changes in the Company's capitalization. Information regarding the
Stock Option Plan is as follows:
WEIGHTED
WEIGHTED AVERAGE FAIR
SHARES AVERAGE VALUE OF EXERCISABLE
UNDER EXERCISE OPTIONS AT END OF
OPTION EXERCISE PRICE PRICE GRANTED YEAR
---------- -------------- -------- ------------ -----------
Outstanding, December 31, 1998.... 1,853,350 $ 4.00 - 25.75 $17.89 $10.43 252,100
Granted......................... 795,500 19.25 19.25
Exercised....................... (125,000) 4.00 - 18.94 8.54
Forfeited....................... (81,000) 7.56 - 22.97 20.05
---------- -------------- ------
Outstanding, December 31, 1999.... 2,442,850 4.00 - 25.75 13.07 9.51 552,475
Exercised....................... (56,000) 4.00 - 7.56 6.48
Forfeited....................... (366,500) 4.00 - 25.75 19.20
---------- -------------- ------
Outstanding, December 31, 2000.... 2,020,350 4.00 - 22.97 19.00 9.72 978,725
Exercised....................... (42,750) 4.00 - 7.56 6.60
Converted to restricted stock... (1,251,500) 17.13 - 22.97 19.98
Forfeited....................... (223,500) 4.00 - 22.97 19.70
---------- -------------- ------
Outstanding, December 31, 2001.... 502,600 $ 4.00 - 22.97 $17.29 $ 8.85 378,600
========== ============== ======
The weighted average exercise price of options exercisable at end of year
was $16.59 at December 31, 2001, $18.13 at December 31, 2000 and $16.48 at
December 31, 1999.
53
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All options granted in the stock option plan have a contractual life of 10
years from the date of grant and vest ratably over a four-year period from the
date of grant.
In March 1999, the Company's board of directors adopted and shareholders
approved the Tower Automotive Inc. Long Term Incentive Plan ("Incentive Plan").
The Incentive Plan is designed to promote the long term success of the Company
through stock based compensation by aligning the interests of participants with
those of its stockholders. Eligible participants under the Incentive Plan
include key company colleagues, directors, and outside consultants. Awards under
the Incentive Plan may include stock options, stock appreciation rights,
performance shares, and other stock based awards. The Incentive Plan provides
for the issuance of up to 3,000,000 shares of common stock. A committee of the
board of directors is responsible for administration, participant selection, and
determination of terms and conditions of the Incentive Plan. Information
regarding the Incentive Plan is as follows:
WEIGHTED
AVERAGE
WEIGHTED FAIR
SHARES AVERAGE VALUE OF EXERCISABLE
UNDER EXERCISE OPTIONS AT END OF
OPTION EXERCISE PRICE PRICE GRANTED YEAR
--------- -------------- -------- -------- -----------
Granted.............................. 405,000 $ 19.25 $19.25
Granted.............................. 121,490 26.81 26.81
--------- -------------- ------
Outstanding, December 31, 1999....... 526,490 19.25 - 26.81 20.99 $9.08 --
Granted.............................. 1,315,480 13.19 13.19
Granted.............................. 120,000 15.56 15.56
Granted.............................. 60,000 12.06 12.06
Granted.............................. 5,000 11.94 11.94
Granted.............................. 5,000 9.63 9.63
Granted.............................. 5,000 10.75 10.75
Granted.............................. 10,000 10.19 10.19
Granted.............................. 120,000 9.13 9.13
Forfeited............................ (179,000) 13.19 - 19.25 18.44
--------- -------------- ------
Outstanding, December 31, 2000....... 1,987,970 9.13 - 26.81 14.61 7.94 70,000
Granted.............................. 918,450 11.33 11.33
Converted to restricted stock........ (252,000) 19.25 19.25
Forfeited............................ (273,450) 9.13 - 13.19 10.62
--------- -------------- ------
Outstanding, December 31, 2001....... 2,380,970 $ 9.63 - 26.81 $13.36 $7.48 373,783
========= ============== ======
Options granted in each of the past three years have a remaining
contractual life of five to 10 years and vest ratably over a four-year period
from the date of grant. The weighted average exercise price of options
exercisable under the Incentive Plan was $13.65 at December 31, 2001 and $19.25
at December 31, 2000. No options issued under the Incentive Plan were
exercisable as of December 31, 1999.
INDEPENDENT DIRECTOR STOCK OPTION PLAN:
In February 1996, the Company's board of directors approved the Tower
Automotive, Inc. Independent Director Stock Option Plan (the "Director Option
Plan") that provides for the issuance of options to Independent Directors, as
defined, to acquire up to 200,000 shares of the Company's Common Stock, subject
to certain adjustments reflecting changes in the Company's capitalization. The
option exercise price must be at least equal to the fair value of the Common
Stock at the time the option is
54
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
issued. Vesting is determined by the board of directors at the date of grant and
in no event can be less than six months from the date of grant. Information
regarding the Director Option Plan is as follows:
WEIGHTED
AVERAGE
WEIGHTED FAIR
SHARES AVERAGE VALUE OF EXERCISABLE
UNDER EXERCISE OPTIONS AT END OF
OPTION EXERCISE PRICE PRICE GRANTED YEAR
------- -------------- -------- -------- -----------
Outstanding, December 31,
1998.......................... 123,000 $7.56 - 22.97 $15.37 $8.38 49,800
Granted....................... 40,000 19.25 19.25
------- ------------- ------
Outstanding, December 31,
1999.......................... 163,000 7.56 - 22.97 16.32 8.70 90,600
Forfeited..................... (41,000) 7.56 - 22.97 15.37
------- ------------- ------
Outstanding, December 31,
2000.......................... 122,000 7.56 - 22.97 16.64 8.80 91,200
Forfeited..................... (6,800) 19.25 19.25
------- ------------- ------
Outstanding, December 31,
2001.......................... 115,200 $7.56 - 22.97 $16.49 $8.75 108,400
======= ============= ======
The weighted average exercise price of options exercisable under the
Director Option Plan was $16.31 at December 31, 2001, $15.59 at December 31,
2000 and $13.56 at December 31, 1999.
EMPLOYEE STOCK PURCHASE PLAN:
The Company also sponsors an employee stock discount purchase plan which
provides for the sale of up to 1,000,000 shares of the Company's Common Stock at
discounted purchase prices, subject to certain limitations. The cost per share
under this plan is 85 percent of the market value of the Company's Common Stock
at the date of purchase, as defined. During the year ended December 31, 2001,
172,502 shares of Common Stock were issued to employees pursuant to this plan,
224,342 shares of Common Stock were issued during the year ended December 31,
2000, and 222,574 shares of Common Stock were issued during the year ended
December 31, 1999. The weighted average fair value of shares sold in 2001, 2000,
and 1999 was $6.64, $11.23, and $16.09, respectively.
DEFERRED STOCK PLANS:
The Company sponsors the Tower Automotive, Inc. Key Leadership Deferred
Income Stock Purchase Plan and the Tower Automotive, Inc. Director Deferred
Stock Purchase Plan (the "Deferred Stock Plans"), which allow certain employees
to defer receipt of all or a portion of their annual cash bonus and outside
directors to defer all or a portion of their annual retainer. The Company makes
a matching contribution of one-third of the deferral. The Company matching
contribution vests on the 15th day of December of the second plan year following
the date of the deferral. In accordance with the terms of the plans, the
deferral and Company's matching contribution may be placed in a "Rabbi" trust,
which invests solely in the Company's Common Stock. This trust arrangement
offers a degree of assurance for ultimate payment of benefits without causing
constructive receipt for income tax purposes. Distributions from the trust can
only be made in the form of the Company's Common Stock. The assets in the trust
remain subject to the claims of creditors of the Company and are not the
property of the employee or outside director; therefore, they are included as a
separate component of stockholders' investment under the caption Deferred
Compensation Plans. The Company recorded $1.3 million, $4.5 million and $4.4
million of expense related to these plans during the years ended December 31,
2001, 2000 and 1999, respectively.
55
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RESTRICTED STOCK:
In July 2001, the Company offered to its existing colleagues, and certain
consultants, the right to exchange the Company stock options, having an exercise
price of $17.125 or more, for shares of restricted stock. As a result of the
offer, effective September 17, 2001, the Company issued approximately 530,671
shares of its common stock in exchange for the surrender of options to purchase
a total of 1,503,500 shares of the Company's Common Stock. The cost of this
exchange was recorded in stockholders' investment as deferred compensation based
upon the fair value of stock issued and is being expensed as the restrictions
lapse.
SUPPLEMENTAL RETIREMENT PLAN:
During 2001, the Company's board of directors approved the Tower Automotive
Supplemental Retirement Plan (the "Supplemental Retirement Plan"), which allows
certain employees who are restricted in their contributions to the Tower
Automotive Retirement Plan by certain statutory limitations on benefits to defer
receipt of all or a portion of their annual cash compensation. The Company makes
a matching contribution based on the terms of the plan. The Company's matching
contributions vests on the first day of the third plan year following the date
of the employee's deferral. The Company recorded $0.4 million of compensation
expense related to this plan during the year ended December 31, 2001.
STOCK-BASED COMPENSATION PLANS:
As discussed above, the Company has three stock option plans: the Stock
Option Plan, the Long Term Incentive Plan and the Independent Director Stock
Option Plan. Additionally the Company has two stock purchase plans: the Employee
Stock Purchase Plan and the Deferred Income Stock Plan. The Company has elected
to continue to account for these plans under APB No. 25, under which no
compensation cost has been recognized for employee groups and directors eligible
for the plans. Had compensation cost for these plans been determined as required
under SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's pro
forma net income (loss) and pro forma earnings per share would have been as
follows (in thousands, except per share data):
YEARS ENDED DECEMBER 31,
------------------------------
2001 2000 1999
--------- ------- --------
Net income (loss)
As Reported....................................... $(267,524) $13,434 $117,088
Pro Forma......................................... (271,396) 5,001 109,003
Basic earnings (loss) per share
As Reported....................................... $ (5.87) $ 0.29 $ 2.50
Pro Forma......................................... (5.95) 0.11 2.33
Diluted earnings (loss) per share
As Reported....................................... $ (5.87) $ 0.28 $ 2.10
Pro Forma......................................... (5.95) 0.11 1.97
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 4.88 percent in 2001, 5.56 percent to
6.72 percent in 2000, and 4.54 percent in 1999; expected life of seven years for
2001, 2000, and 1999; expected volatility of 52 percent in 2001, 49 percent in
2000, and 40 percent in 1999; expected dividends of zero.
56
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER COMMON STOCK EQUIVALENTS:
In connection with the acquisition of Edgewood Tool and Manufacturing
Company ("Edgewood") in May 1994, the Company issued options to acquire 205,968
shares of Common Stock at an exercise price of $3.28 per share. These options
are fully exercisable through 2004. As of December 31, 2001, all of these
options were exercisable.
In connection with the acquisition of MSTI in May 1996, the Company issued
warrants to MascoTech, Inc. ("MascoTech") to acquire 400,000 shares of Common
Stock at an exercise price of $9 per share. On May 5, 2000, MascoTech exercised
all of the warrants outstanding under this agreement.
In addition, the Company has Convertible Subordinated Notes outstanding as
discussed in Note 8, and Convertible Preferred Securities as discussed in Note
5.
DIVIDENDS:
The Company has not declared or paid any cash dividends in the past. As
discussed in Note 8, the Company's debt agreements restrict the amount of
dividends the Company can declare or pay. As of December 31, 2001, under the
most restrictive debt covenants, the Company could not have paid any cash
dividends.
5. MANDATORILY REDEEMABLE TRUST CONVERTIBLE PREFERRED SECURITIES:
On June 9, 1998, Tower Automotive Capital Trust (the "Preferred Issuer"), a
wholly owned statutory business trust of the Company, completed the offering of
$258.8 million of its 6 3/4 percent Trust Convertible Preferred Securities
("Preferred Securities"), resulting in net proceeds of approximately $249.7
million. The Preferred Securities are redeemable, in whole or in part, on or
after June 30, 2001 and all Preferred Securities must be redeemed no later than
June 30, 2018. The Preferred Securities are convertible, at the option of the
holder, into common stock of the Company at a rate of 1.6280 shares of common
stock for each Preferred Security, which is equivalent to a conversion price of
$30.713 per share. The net proceeds of the offering were used to repay
outstanding indebtedness. Minority interest reflected in the accompanying
consolidated statements of operations represents dividends on the Preferred
Securities at a rate of 6 3/4 percent, net of income tax benefits at the
Company's incremental tax rate of 39 percent in 2001 and 40 percent in 2000 and
1999.
No separate financial statements of the Preferred Issuer have been included
herein. The Company does not consider that such financial statements would be
material to holders of Preferred Securities because (i) all of the voting
securities of the Preferred Issuer are owned, directly or indirectly, by the
Company, a reporting company under the Exchange Act, (ii) the Preferred Issuer
has no independent operations and exists for the sole purpose of issuing
securities representing undivided beneficial interests in the assets of the
Preferred Issuer and investing the proceeds thereof in 6 3/4 percent Convertible
Subordinated Debentures due June 30, 2018 issued by the Company and (iii) the
obligations of the Preferred Issuer under the Preferred Securities are fully and
unconditionally guaranteed by the Company.
6. ACQUISITIONS AND INVESTMENT IN JOINT VENTURES:
ACQUISITIONS:
On November 30, 2000 the Company completed the acquisition of Strojarne
Malacky, a.s. ("Presskam"), a manufacturer of upper body structural assemblies
for Volkswagen, Porsche and Skoda, located in Bratislava, Slovakia. The Company
paid total consideration of approximately $10 million for Presskam and intends
to use the investment to further support Volkswagen's Bratislava assembly
operation.
57
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On July 6, 2000, the Company acquired the remaining 60 percent equity
interest in Metalurgica Caterina S.A. ("Caterina") for approximately $42
million. The initial 40 percent interest was acquired in March 1998, for
approximately $48 million. Caterina is a supplier of structural stampings and
assemblies to the Brazilian automotive market, including Volkswagen and
Mercedes-Benz.
On May 3, 2000, the Company acquired all of the outstanding common stock of
Algoods, Inc. ("Algoods") for total consideration of approximately $33 million.
Algoods manufactures aluminum heat shields and impact discs for the North
American automotive industry from aluminum mini-mill and manufacturing
operations located in Toronto, Canada. Its primary customer is DaimlerChrysler.
The acquisition of Algoods represents a significant investment in processing
technology for lightweight materials which complements the Company's existing
heat shield capabilities and provides opportunities for application in other
lightweight vehicle structural products.
Effective January 1, 2000, the Company acquired all of the outstanding
shares of Dr. Meleghy GmbH & Co. KG Werkzeugbau und Presswerk, Bergisch Gladbach
("Dr. Meleghy") for approximately $86 million plus earnout payments of $2.7
million paid in 2001 and $26.9 million to be paid in 2002. Dr. Meleghy designs
and produces structural stampings, assemblies, exposed surface panels and
modules to the European automotive industry. Dr. Meleghy also designs and
manufactures tools and dies for use in its production and for the external
market. Dr. Meleghy operates three facilities in Germany and one facility in
both Hungary and Poland. Dr. Meleghy's main customers include DaimlerChrysler,
Audi, Volkswagen, Ford, Opel, and BMW. Products offered by Dr. Meleghy include
body side panels, floor pan assemblies, and miscellaneous structural stampings.
On October 29, 1999, the Company invested $21 million for new shares
representing a 49 percent equity interest in Seojin Industrial Company Limited
("Seojin"). Seojin is a supplier of frames, modules and structural components to
the Korean automotive industry. In addition, the Company advanced $19 million to
Seojin in exchange for variable rate convertible bonds (the "Bonds") due October
30, 2009. The conversion rate was based on a predetermined formula that would
increase the Company's equity interest to 66 percent. On October 31, 2000, the
Company exercised its right to convert the bonds into 17 percent of the common
stock of Seojin. Based upon the formula for conversion of the Seojin bonds, the
Company paid an additional $1.2 million for the 17 percent equity interest.
On July 29, 1999, the Company acquired all of the outstanding stock of
Active Tool Corporation and Active Products Corporation (collectively, "Active")
for total approximate consideration of $315 million. Active, which has five
facilities, designs and produces a variety of large unexposed structural
stampings, exposed surface panels, and modules to the North American automotive
industry. Active's main customers include DaimlerChrysler, Ford, General Motors,
and Saturn. Products offered by Active include body sides, pickup box sides,
fenders, floor pan assemblies, door panels, pillars, and heat shields. The
acquisition of Active enhances the Company's ability to manufacture large and
complex structures, as well as exposed surface panels.
These acquisitions have been accounted for using the purchase method of
accounting and, accordingly, the assets acquired and liabilities assumed have
been recorded at fair value as of the dates 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. Results of operations for these
acquisitions have been included in the accompanying consolidated financial
statements since the dates of acquisition.
In conjunction with its acquisitions, reserves have been established for
certain costs associated with facility shutdown and consolidation activities,
for general and payroll related costs primarily for planned
58
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employee termination activities, and for provisions for acquired loss contracts.
A rollforward of these reserves is as follows (in millions):
FACILITY PAYROLL LOSS
SHUTDOWN COSTS RELATED COSTS CONTRACTS
-------------- ------------- ---------
December 31, 1999............................... $13.8 $ 6.4 $ 24.8
Additions..................................... 1.0 -- 12.3
Utilizations.................................. (7.5) (2.6) (8.4)
----- ----- ------
December 31, 2000............................... 7.3 3.8 28.7
Additions..................................... -- -- --
Utilization................................... (2.1) (2.7) (11.7)
----- ----- ------
December 31, 2001............................... $ 5.2 $ 1.1 $ 17.0
===== ===== ======
The timing of facility shutdown and consolidation activities were adjusted
to reflect customer concerns with supply interruption. As of December 31, 2001,
the facilities have been shutdown, but the Company continues to incur costs
related to maintenance, taxes and other costs related to buildings that are held
for sale. These reserves have been utilized as originally intended and
management believes the liabilities recorded for shutdown and consolidation
activities are adequate but not excessive as of December 31, 2001.
A reconciliation of the purchase accounting liabilities detailed in the
table above to the total purchase accounting liabilities shown in Note 2 follows
(in millions):
DECEMBER 31,
-------------
2001 2000
----- -----
Facility shutdown costs..................................... $ 5.2 $ 7.3
Payroll-related costs....................................... 1.1 3.8
Loss contracts.............................................. 17.0 28.7
Environmental liabilities................................... 10.8 12.5
Customer obligations........................................ 2.7 4.4
Legal and other............................................. 6.3 11.7
----- -----
Total purchase accounting reserves..................... $43.1 $68.4
===== =====
INVESTMENT IN JOINT VENTURES:
On January 2, 2001, the Company invested approximately $2 million in the
formation of a prototyping joint venture with Carron Industries. The joint
venture, Carron Prototype Center, located in Inkster, Michigan, provides the
Company with detail stamping and tooling capabilities and has capacity for full
frame prototypes and vehicle builds. The Company accounts for this investment
using the cost method.
On September 21, 2000, the Company acquired a 17 percent equity interest in
Yorozu Corporation ("Yorozu"), a supplier of suspension modules and structural
parts to the Asian and North American automotive markets, from Nissan Motor Co.
Ltd. ("Nissan"). Yorozu is based in Japan and is publicly traded on the first
tier of the Tokyo Stock Exchange. Its principal customers include Nissan, Auto
Alliance, General Motors, Ford, and Honda. The Company will pay Nissan
approximately $68 million over two and one half years for the original 17
percent interest and an option to increase its holdings in Yorozu by 13.8
percent through the purchase of additional Yorozu shares, which was exercised on
February 20, 2001. As of December 31, 2001, $29.5 million remains to be paid
under these arrangements and is recorded as indebtedness on the Company's
balance sheet. As of December 31, 2001, the traded market
59
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
value of shares held in Yorozu was $17.6 million and the Company's investment in
Yorozu was $54.8 million. The Company has determined that the investment in
Yorozu has not suffered a permanent decline in market value. This determination
is based on the long-term nature of the investment and the fact that the Company
believes that there is a significant premium associated with the large block of
stock held.
On March 23, 2000, the Company invested $2.1 million in the formation of a
product technology and development joint venture with Defiance Testing &
Engineering Services, Inc., a subsidiary of GenTek Inc. The joint venture, DTA
Development, located in Westland, Michigan, provides the Company with
product-testing services. Traditionally, the Company utilizes both internal and
external product testing extensively to validate complex systems during the
development stage of a program. This joint venture allows the Company to have
access to a broader and more cost efficient range of testing capabilities. DTA
Development blends the benefits of chassis product technology and development
activities with leading edge commercial testing services.
On October 14, 1999, the Company loaned $30.0 million to J. L. French
Automotive Castings, Inc., ("J.L. French") in exchange for a convertible
subordinated promissory note due October 14, 2009 that bears interest at 7.5
percent. On November 30, 2000, the Company exercised its option to convert the
note into 7,124 shares of Class A "1" Common Stock of J. L. French, which has a
7.5 percent pay-in-kind dividend right.
Additionally, on November 30, 2000, the Company invested $2.9 million in J.
L. French through the purchase of Class P Common Stock, which has an 8 percent
pay-in-kind dividend right. On May 24, 2000, the Company invested $11.0 million
in J. L. French through the purchase of Class A Common Stock. At December 31,
2001, the Company has an ownership interest of approximately 16 percent in J. L.
French. As discussed in Note 3, the Company evaluated its investment in J.L.
French and determined that the investment has been impaired. Due to this
impairment, the Company recorded a charge of $46.3 million to write off the
entire investment in J.L. French during the fourth quarter of 2001.
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. 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 $8.6
million of additional consideration during the first quarter of 2002.
60
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized unaudited financial information for Metalsa is as follows (in
thousands):
DECEMBER 31,
------------------------------
2001 2000 1999
-------- -------- --------
CONDENSED STATEMENTS OF EARNINGS
Revenues........................................... $280,543 $258,951 $239,902
Operating income................................... $ 31,940 $ 38,355 $ 54,104
Net income......................................... $ 21,520 $ 31,001 $ 28,679
======== ======== ========
CONDENSED BALANCE SHEETS
Current assets..................................... $115,728 $ 79,182 $ 78,712
Noncurrent assets.................................. 303,717 234,105 147,901
-------- -------- --------
$419,445 $313,287 $226,613
======== ======== ========
Current liabilities.................................. $ 64,502 $ 58,550 $ 45,288
Noncurrent liabilities............................... 157,819 105,517 55,293
Stockholders' investment............................. 197,124 149,220 126,032
-------- -------- --------
$419,445 $313,287 $226,613
======== ======== ========
The accompanying unaudited consolidated pro forma results of operations for
the year ended December 31, 2000 give effect to the following as if they were
completed at the beginning of the year: (i) the acquisitions of Algoods,
Caterina, Seojin and Presskam, (ii) the refinancing of bank indebtedness under
the new senior credit facility (Note 8), and (iii) the completion of the sale of
the senior Euro notes and the application of the net proceeds therefrom (Note
8). The accompanying unaudited consolidated pro forma results of operations for
the year ended December 31, 1999 give effect to the transactions described above
and the following as if they were completed at the beginning of the year: (i)
the acquisition of Active, (ii) the investment in Seojin, and (iii) the $325
million term loan add on facility (Note 8). The unaudited pro forma financial
information does not purport to represent what the Company's results of
operations would actually have been if such transactions in fact had occurred at
such date or to project the Company's results of future operations (in
thousands, except per share data):
PRO FORMA FOR THE YEARS
ENDED DECEMBER 31,
-----------------------
2000 1999
---------- ----------
Revenues.................................................... $2,920,727 $2,896,176
Net income.................................................. $ 9,276 $ 123,109
Basic earnings per share.................................... $ 0.20 $ 2.63
Diluted earnings per share.................................. $ 0.20 $ 2.19
7. DIVESTITURES:
On December 7, 2000, the Company sold its Roanoke, Virginia heavy truck
rail manufacturing business (the "Roanoke Heavy Truck Business") to its joint
venture partner, Metalsa, for net proceeds of approximately $55 million, which
approximated the book value of the net assets sold, plus an earnout of up to $30
million based on achieving certain profit levels over the three years following
the sale. Through December 31, 2001, no additional payments have been earned.
The net proceeds were used to repay outstanding indebtedness under the revolving
credit facility. The results of operations of the Roanoke Heavy Truck Business
are not significant to the operating results of the Company as a whole and have,
therefore, been excluded from the pro forma financial information in Note 6.
61
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands):
DECEMBER 31,
----------------------
2001 2000
--------- ----------
Revolving credit facility, due July 2006, interest at prime
or LIBOR plus a margin ranging from 0 to 200 basis points
(3.5 percent at December 31, 2001 and 8.45 percent at
December 31, 2000)........................................ $ 9,300 $ 274,000
Revolving credit facility, multi currency borrowings, due
July 2006, interest at prime or LIBOR plus a margin
ranging from 0 to 200 basis points (4.26 percent at
December 31, 2001 and 5.89 percent at December 31, 2000).. 91,308 71,919
Term credit facility, due in quarterly repayments beginning
June 2002 to July 2006. Interest at prime or LIBOR plus a
margin ranging from 0 to 200 basis points (3.85 percent at
December 31, 2001 and 8.27 percent at December 31,
2000)..................................................... 325,000 325,000
R. J. Tower Corporation 9.25 percent Senior Euro Notes due
August 2010............................................... 133,560 141,330
Industrial development revenue bonds, due in lump sum
payments in June 2024 and March 2025, interest payable
monthly at a rate adjusted weekly by the bond remarketing
agent (2.17 percent at December 31, 2001 and 6.82 percent
at December 31, 2000)..................................... 43,765 43,765
Convertible Edgewood notes, due May 2003, interest at 5.75
percent payable quarterly................................. 50 878
Other foreign subsidiary indebtedness, consisting primarily
of borrowings at Seojin, interest ranging from 4.53
percent to 13.82 percent, renewable annually.............. 136,987 151,171
Other....................................................... 30,474 72,969
--------- ----------
770,444 1,081,032
Less -- Current maturities.................................. (169,360) (147,590)
--------- ----------
$ 601,084 $ 933,442
========= ==========
Future maturities of long-term debt as of December 31, 2001 are as follows
(in thousands):
2002........................................................ $169,360
2003........................................................ 97,157
2004........................................................ 77,685
2005........................................................ 84,223
2006........................................................ 148,108
Thereafter.................................................. 193,911
--------
$770,444
========
On July 25, 2000, the Company replaced its previous $750 million amortizing
credit agreement with a new six-year $1.15 billion senior unsecured credit
agreement. The new credit agreement includes a non-amortizing revolving facility
of $825 million along with an amortizing term loan of $325 million. The new
facility also includes a multi-currency borrowing feature that allows the
Company to borrow up to $500 million in certain freely tradable offshore
currencies, and letter of credit sublimits of $100 million. As of December 31,
2001, $20.0 million of the outstanding borrowings are denominated in Japanese
yen, $55.6 million are denominated in Euro, and $15.7 million are denominated in
Canadian dollars. Interest on
62
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the new credit facility is at the financial institutions' reference rate, LIBOR,
or the Eurodollar rate plus a margin ranging from 0 to 200 basis points
depending on the ratio of the consolidated funded debt for restricted
subsidiaries of the Company to its total EBITDA. The weighted average interest
rate for such borrowings was 7.0 percent and 7.3 percent for years ended
December 31, 2001 and 2000, respectively. The new credit agreement has a final
maturity of 2006. As a result of the debt replacement, the Company recorded an
extraordinary loss, net of tax, of $3.0 million during the third quarter of
2000.
The Credit Agreement requires the Company to meet certain financial tests,
including but not limited to a minimum interest coverage and maximum leverage
ratio. The credit agreement limits the Company's ability to pay dividends. As of
December 31, 2001, the Company was in compliance with all debt covenants.
On July 25, 2000, R. J. Tower Corporation (the "Issuer"), a wholly-owned
subsidiary of the Company, issued Euro-denominated senior unsecured notes in the
amount of E150 million ($133.6 million at December 31, 2001). The notes bear
interest at a rate of 9.25 percent, payable semi-annually. The notes rank
equally with all of the Company's other unsecured and unsubordinated debt. The
net proceeds after issuance costs were used to repay a portion of the Company's
existing Euro-denominated indebtedness under its credit facility. The notes
mature on August 1, 2010.
During September 2000, the Company entered into an interest rate swap
contract to hedge against interest rate exposure on approximately $160 million
of its floating rate indebtedness under its $1.15 billion senior unsecured
credit facility. The contracts have the effect of converting the floating rate
interest to a fixed rate of approximately 6.9 percent, plus any applicable
margin required under the revolving credit facility. The interest rate swap
contract was executed to balance the Company's fixed-rate and floating-rate debt
portfolios and expires in September 2005.
For the periods presented through July 24, 2000, the Company's Credit
Agreement included an amortizing revolving credit facility that provided for
borrowings of up to $750 million on an unsecured basis with a letter of credit
sublimit of $75 million. Interest on the credit facility was at the prime rate
or LIBOR plus a margin ranging from 17 to 50 basis points depending upon the
ratio of the consolidated indebtedness of the Company to its total
capitalization.
In July 1997, the Company completed the offering of $200 million of
Convertible Subordinated Notes (the "Notes"). The Notes bear interest at 5
percent, are unsecured, due on August 1, 2004 and are convertible into Common
Stock at a conversion price of $25.88 per share. The Company may make optional
redemptions of the Notes after August 1, 2000 at amounts ranging from 102.857
percent to 100.714 percent of face value. In the event of a change in control
(as defined) the holders of the Notes may require the Company to redeem the
Notes at face value plus accrued interest. Proceeds from the Notes were used to
repay outstanding indebtedness under the revolving credit facility.
In 1994 and 1995, the Company issued $25.0 million and $20.0 million,
respectively, of industrial development revenue bonds related to the
construction and equipping of a manufacturing facility in Bardstown, Kentucky.
The bonds are collateralized by letters of credit.
63
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES:
The provision for income taxes consisted of the following (in thousands):
YEARS ENDED DECEMBER 31,
-----------------------------
2001 2000 1999
-------- -------- -------
Currently payable --
Domestic............................................ $ 201 $ 19,383 $25,422
Foreign............................................. 7,245 6,609 3,916
-------- -------- -------
Total............................................ 7,446 25,992 29,338
Deferred --
Domestic............................................ (75,139) (13,264) 46,994
Foreign............................................. (5,619) (10,109) (1,466)
-------- -------- -------
Total............................................ (80,758) (23,373) 45,528
-------- -------- -------
Total............................................ $(73,312) $ 2,619 $74,866
======== ======== =======
A reconciliation of income taxes computed at the statutory rates to the
reported income tax provision is as follows (in thousands):
YEARS ENDED DECEMBER 31,
----------------------------
2001 2000 1999
--------- ------ -------
Taxes at federal statutory rates....................... $(120,514) $2,463 $65,508
State income taxes, net of federal benefit............. 2,503 852 4,940
Effect of permanent differences, primarily interest
expense and nondeductible goodwill................... 32,174 (696) 4,418
Valuation allowance.................................... 16,254 -- --
Foreign provision in excess of (less than) U.S. tax
rate................................................. (3,729) -- --
--------- ------ -------
Total............................................. $ (73,312) $2,619 $74,866
========= ====== =======
The summary of income (loss) before provision (benefit) for income taxes,
equity in earnings of joint ventures, minority interests and extraordinary items
consisted of the following (in thousands):
YEARS ENDED DECEMBER 31,
------------------------------
2001 2000 1999
--------- ------- --------
Domestic............................................. $(364,688) $(4,669) $183,113
Foreign.............................................. 20,362 11,706 4,053
--------- ------- --------
Total........................................... $(344,326) $ 7,037 $187,166
========= ======= ========
64
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of deferred income tax assets (liabilities) is as follows (in
thousands):
DECEMBER 31,
--------------------
2001 2000
-------- ---------
Deferred Income Tax Assets:
Accrued compensation costs................................ $ 11,569 $ 8,446
Postretirement benefit obligations........................ 31,952 39,435
Loss contracts............................................ 5,397 14,950
Facility closure and consolidation costs.................. 48,009 37,626
Net operating loss carryforwards and tax credits.......... 76,618 34,365
Investment valuation adjustments.......................... 16,254 --
Other reserves and accruals not currently deductible for
tax purposes........................................... 10,975 23,524
-------- ---------
200,774 158,346
Less: Valuation allowance.............................. (16,254) --
-------- ---------
Total deferred income tax assets....................... 184,520 158,346
Deferred Income Tax Liabilities -- Depreciation lives and
methods................................................... (96,736) (151,320)
-------- ---------
Net deferred tax assets................................ $ 87,784 $ 7,026
======== =========
Net current deferred tax assets of $26.3 million in 2001 and $29.3 million
in 2000 have been recorded in other current assets. The valuation allowance has
been provided due to the uncertainty of the use of the tax benefit associated
with a specific reserve recorded against the carrying value of a cost-based
investment.
The Company has an alternative minimum tax ("AMT") credit carryforward of
approximately $21.1 million. The AMT credit has an indefinite carryforward
period. The Company has federal net operating loss carryforwards ("NOL's") of
approximately $69.5 million which expire 2020 through 2021 and various state
NOL's that expire through 2021.
The Company has not recorded deferred income taxes applicable to
undistributed earnings of its foreign joint venture operations as all such
earnings are deemed to be indefinitely reinvested in those operations. If the
earnings of such joint ventures were not indefinitely reinvested, a deferred
liability would have been required which would not have been material as of
December 31, 2001 or 2000. Undistributed amounts, if remitted in the future, may
not result in additional U.S. income taxes because of the use of available
foreign tax credits at that time.
65
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. 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 modular
assemblies for the automotive industry. Management reviews the operating results
of the Company and makes decisions based upon two operating segments: United
States/Canada and International. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies (see
Note 2). Financial information by segment is as follows (in thousands):
UNITED STATES/
CANADA INTERNATIONAL TOTAL
-------------- ------------- ----------
2001:
Revenues........................................ $1,777,361 $690,072 $2,467,433
Interest income................................. 4,859 1,695 6,554
Interest expense................................ 66,580 13,739 80,319
Operating income (loss)......................... (315,387) 44,826 (270,561)
Total assets.................................... 2,041,851 491,585 2,533,436
Capital expenditures, net....................... 131,455 62,500 193,955
Depreciation and amortization expense........... 126,863 33,030 159,893
Restructuring and asset impairment charges...... 383,739 -- 383,739
Provision (benefit) for income taxes............ (80,008) 6,696 (73,312)
2000:
Revenues........................................ $2,163,358 $368,595 $2,531,953
Interest income................................. 5,955 496 6,451
Interest expense................................ 63,194 7,968 71,162
Operating income................................ 45,463 26,285 71,748
Total assets.................................... 2,516,000 376,747 2,892,747
Capital expenditures, net....................... 78,512 15,076 93,588
Depreciation and amortization expense........... 126,011 18,794 144,805
Restructuring and asset impairment charges...... 141,326 -- 141,326
Provision (benefit) for income taxes............ (2,963) 5,582 2,619
1999:
Revenues........................................ $2,042,998 $127,005 $2,170,003
Interest income................................. 1,338 172 1,510
Interest expense................................ 35,965 3,526 39,491
Operating income................................ 216,492 8,655 225,147
Total assets.................................... 2,377,849 174,701 2,552,550
Capital expenditures, net....................... 185,926 11,389 197,315
Depreciation and amortization expense........... 104,731 6,880 111,611
Restructuring and asset impairment charges...... -- -- --
Provision for income taxes...................... 73,139 1,727 74,866
66
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of revenues and long-lived assets by geographic
location (in thousands):
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------------
2001 2000 1999
----------------------- ----------------------- -----------------------
LONG-LIVED LONG-LIVED LONG-LIVED
REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS
---------- ---------- ---------- ---------- ---------- ----------
United States and
Canada.................. $1,777,361 $ 852,887 $2,163,358 $ 985,215 $2,042,998 $1,034,745
Europe.................... 278,789 121,993 256,970 114,920 127,005 58,082
Asia...................... 376,040 159,940 91,270 118,254 -- --
Mexico and South America.. 35,243 12,972 20,355 11,863 -- --
---------- ---------- ---------- ---------- ---------- ----------
$2,467,433 $1,147,792 $2,531,953 $1,230,252 $2,170,003 $1,092,827
========== ========== ========== ========== ========== ==========
Revenues are attributed to geographic locations based on the location of
specific production. Long-lived assets consist of net property, plant and
equipment and capitalized tooling, and excludes intangible assets.
The following is a summary of the approximate composition by product
category of the Company's revenues (in thousands):
YEARS ENDED DECEMBER 31,
------------------------------------
2001 2000 1999
---------- ---------- ----------
Body structures and assemblies (including Class A
surfaces)...................................... $ 971,858 $ 998,407 $ 543,175
Lower vehicle structures......................... 895,118 1,029,596 1,205,873
Suspension modules and systems................... 355,981 270,892 208,700
Suspension components............................ 198,296 199,567 205,914
Other............................................ 46,180 33,491 6,341
---------- ---------- ----------
$2,467,433 $2,531,953 $2,170,003
========== ========== ==========
The Company sells its products directly to automotive manufacturers.
Following is a summary of customers that accounted for 10 percent or more of
consolidated revenues in any of the three years in the period ended December 31,
2001:
2001 2000 1999
---- ---- ----
Ford........................................................ 35% 37% 38%
DaimlerChrysler............................................. 25 31 29
Hyundai/Kia................................................. 12 4 --
General Motors.............................................. 4 5 10
Receivables from these customers represented 41 percent of total accounts
receivable at December 31, 2001, 57 percent of total accounts receivable at
December 31, 2000 and 65 percent of total accounts receivable at December 31,
1999.
11. EMPLOYEE BENEFIT PLANS:
The Company sponsors various pension and other postretirement benefit plans
for its employees.
RETIREMENT PLANS:
The Company's UAW Retirement Income Plan and the Tower Automotive Pension
Plan provides for substantially all union employees. Benefits under the plans
are based on years of service. Contributions by
67
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company are intended to provide not only for benefits attributed to service
to date, but also for those benefits expected to be earned in the future. The
Company's funding policy is to contribute annually the amounts sufficient to
meet the higher of the minimum funding requirements set forth in the Employee
Retirement Income Security Act of 1974 or the minimum funding requirements under
the Company's union contracts.
The following tables provide a reconciliation of the changes in the benefit
obligations and fair value of assets for the defined benefit pension plans (in
thousands):
2001 2000
-------- --------
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS:
Fair value of plan assets at the beginning of the year...... $104,884 $ 68,266
Actual return on plan assets................................ (10,746) 6,089
Employer contributions...................................... -- 32,455
Benefits paid............................................... (4,783) (1,926)
-------- --------
Fair value of plan assets at the end of the year....... $ 89,355 $104,884
======== ========
CHANGE IN BENEFIT OBLIGATIONS:
Benefit obligations at the beginning of the year............ $115,525 $ 99,282
Service cost................................................ 9,956 11,676
Interest cost............................................... 9,883 8,126
Plan amendments............................................. -- 3,187
Actuarial loss (gain)....................................... 11,171 (4,298)
Benefits paid............................................... (4,783) (1,926)
Curtailment loss (gain)..................................... 1,422 (1,107)
Settlements................................................. -- 585
Special termination benefit................................. 311 --
-------- --------
Benefit obligations at the end of the year............. $143,485 $115,525
======== ========
FUNDED STATUS RECONCILIATION:
Funded status............................................... $(54,130) $(10,642)
Unrecognized transition asset............................... (67) (98)
Unrecognized prior service cost............................. 9,787 23,702
Unrecognized actuarial losses (gains)....................... 25,065 (8,378)
-------- --------
Net amount recognized.................................. $(19,345) $ 4,584
======== ========
AMOUNTS RECOGNIZED IN THE BALANCE SHEET AS OF EACH YEAR END:
Accrued benefit liability................................... $(51,396) $(10,772)
Intangible asset............................................ 9,787 15,356
Accumulated other comprehensive income...................... 22,264 --
-------- --------
Net amount recognized.................................. $(19,345) $ 4,584
======== ========
The Tower Automotive Pension Plan was the only pension plan with an
accumulated benefit obligation in excess of plan assets. The plan's accumulated
benefit obligation was $133.9 million and $108.9 million at September 30, 2001
and 2000, respectively. The fair value of the assets was $84.1 million and $98.5
million at September 30, 2001 and 2000, respectively.
68
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the comprehensive realignment plans discussed in Note 3,
benefits for certain employees covered by the Tower Automotive Pension Plan and
the UAW Retirement Income Plan are accounted for as a curtailment for the
periods ending December 31, 2001 and 2000.
The following table provides the components of net periodic benefit cost
for the plans for the years ended December 31, 2001, 2000, and 1999 (in
thousands):
2001 2000 1999
------- ------- -------
Service cost............................................ $ 9,956 $11,677 $11,350
Interest cost........................................... 9,883 8,126 4,702
Expected return on plan assets.......................... (9,815) (7,431) (2,980)
Amortization of transition asset........................ (31) (31) (31)
Amortization of prior-service cost...................... 1,077 2,533 1,902
Amortization of net (gains) losses...................... (287) (158) 202
Curtailment loss (gain)................................. 12,839 (572) --
Special termination benefit............................. 311 586 --
------- ------- -------
Net periodic benefit cost.......................... $23,933 $14,730 $15,145
======= ======= =======
The assumptions used in the measurement of the Company's benefit obligation
are as follows:
2001 2000
--------- ---------
Weighted-average assumptions of each year end:
Discount rate............................................. 7.5% 8.1%
Expected return on plan assets............................ 9.5% 9.5%
Rate of compensation increase............................. 4.5% 4.5%
Measurement date.......................................... 9/30/2001 9/30/2000
The Company contributes to a union sponsored multi-employer pension plan
providing defined benefits to certain Michigan hourly employees. Contributions
to the pension plan are based on rates set forth in the Company's union
contracts. The expense related to this plan was $0.7 million for the year ended
December 31, 2001, $0.8 million for the year ended December 31, 2000 and $0.8
million for the year ended December 31, 1999.
The Company also contributes to a union sponsored multi-employer pension
plan providing defined benefits for certain hourly employees of the Milwaukee
facility. Expense relating to this plan was $0.6 million, $0.5 million and $1.3
million for the years ended December 31, 2001, 2000 and 1999, respectively. The
expense is determined based on contractual rates with the union.
The Company also maintains a qualified profit sharing retirement plan and
401(k) employee savings plan covering certain salaried and hourly employees. The
expense related to these plans was $11.0 million during 2001 and 2000, and $9.7
million during 1999.
The Company sponsors a 401(k) employee savings plan covering certain union
employees. The Company matches a portion of the employee contributions made to
this plan. The expense under this plan in each of the three years in the period
ended December 31, 2001 was not material.
POSTRETIREMENT PLANS:
The Company provides certain medical insurance benefits for retired
employees. Certain employees of the Company are eligible for these benefits if
they remain employed until age 55 or 59 and fulfill other eligibility
requirements specified by the plans. Certain retirees between the ages of 55 and
62 must
69
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contribute 100 percent of the group rate for active employees. No contributions
are required for retirees 62 or older. Benefits are continued for dependents of
eligible retiree participants after the death of the retiree.
The following tables provide a reconciliation of the changes in the benefit
obligations for the retiree medical plans (in thousands):
2001 2000
--------- ---------
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS:
Fair value of plan assets at the beginning of the year...... $ -- $ --
Employer contributions...................................... 12,435 12,606
Benefits paid............................................... (12,435) (12,606)
--------- ---------
Fair value of plan assets at the end of the year............ $ -- $ --
========= =========
CHANGE IN BENEFIT OBLIGATIONS:
Benefit obligations at the beginning of the year............ $ 117,664 $ 117,351
Service cost................................................ 862 1,524
Interest cost............................................... 10,676 9,174
Actuarial loss (gain)....................................... 28,671 3,227
Benefits paid............................................... (12,435) (12,606)
Curtailment loss (gain)..................................... 114 (1,007)
--------- ---------
Benefit obligations at the end of the year.................. $ 145,552 $ 117,663
========= =========
FUNDED STATUS RECONCILIATION:
Funded status............................................... $(145,552) $(117,663)
Unrecognized actuarial losses (gains)....................... 42,572 15,385
--------- ---------
Net amount recognized....................................... $(102,980) $(102,278)
========= =========
AMOUNTS RECOGNIZED IN THE BALANCE SHEET AS OF EACH YEAR END:
Accrued benefit liability................................... $(102,980) $(102,278)
========= =========
The following table provides the components of net periodic benefit cost
for the plans for the years ended December 31, (in thousands):
2001 2000 1999
------- ------- -------
Service cost............................................ $ 862 $ 1,524 $ 1,511
Interest cost........................................... 10,676 9,174 8,023
Amortization of net loss................................ 1,484 3,227 477
Curtailment loss........................................ 115 -- --
------- ------- -------
Net periodic benefit cost............................... $13,137 $13,925 $10,011
======= ======= =======
The discount rate used to measure the Company's post retirement medical
benefit obligation was 8.1 percent in 2001 and 2000.
For measurement purposes, an 11.5 percent annual rate of increase in per
capita cost of covered health care benefits was assumed for 2001. The rate was
assumed to decrease gradually to 5.5 percent for 2006 and remain at that level
thereafter.
70
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assumed health care cost trend rates have a significant effect on the
amounts reported for the post retirement medical plans. A one percentage point
change in assumed health care costs trend rates would have the following effects
(in thousands):
INCREASE DECREASE
-------- --------
ONE PERCENTAGE POINT:
Effect on total service and interest cost components...... $ 184 $ 167
====== ======
Effect on the accumulated benefit obligation.............. $2,700 $2,409
====== ======
12. COMMITMENTS:
LEASES:
The Company leases office and manufacturing space and certain equipment
under lease agreements which require it to pay maintenance, insurance, taxes and
other expenses in addition to annual rentals. The Company has entered into
several leasing commitments with maturities of between 2002 and 2015. The
properties covered under these transactions include manufacturing equipment,
facilities and administrative offices. The leases provide for a substantial
residual value guarantee (less than 90 percent of the total cost), which may
become payable upon the termination of the transaction, and include purchase and
renewal options. As of December 31, 2001, residual value guarantees in
connection with these leases totaled approximately $103.4 million. Upon
termination of the leases, the Company expects the fair market value of the
leased properties to reduce substantially or eliminate entirely the payment
under the residual value guarantees. Future annual rental commitments at
December 31, 2001 under these leases are as follows (in thousands):
YEAR OPERATING CAPITAL
---- --------- -------
2002........................................................ $ 54,177 $3,227
2003........................................................ 53,288 4,449
2004........................................................ 53,565 275
2005........................................................ 53,108 --
2006........................................................ 47,679 --
Thereafter.................................................. 121,427 --
-------- ------
$383,244 $7,951
========
Less-amount representing interest........................... 608
------
Present value of minimum lease payments..................... $7,343
======
Total rent expense for all operating leases totaled $55.2 million, $21.5
million and $15.0 million in 2001, 2000 and 1999, respectively.
Rent commitments associated with acquired facilities which will not be
utilized by the Company have been excluded from the above amounts and were
provided for in the recording of the related acquisition, as discussed in Note
6.
LITIGATION:
The Company is party to certain claims arising in the ordinary course of
business. In the opinion of management, based upon the advice of legal counsel,
the outcomes of such claims are not expected to be material to the Company's
financial position and statements of operations.
71
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. RELATED PARTY TRANSACTIONS:
The Company has made payments to Hidden Creek Industries, an affiliate of
the Company, for certain acquisition related and other management services
totaling $0.6 million during 2001, $4.4 million during 2000 and $3.1 million
during 1999.
14. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a condensed summary of quarterly results of operations for
2001 and 2000. The restructuring and asset impairment charges described in Note
3 are reflected in the fourth quarter 2001 and 2000 amounts. The sum of the per
share amounts for the quarters does not equal the total for the year due to the
effects of rounding and the anti-dilutive effects of certain common stock
equivalents (in thousands, except per share amounts):
BASIC DILUTED
OPERATING EARNINGS EARNINGS
GROSS INCOME NET INCOME (LOSS) (LOSS)
REVENUES PROFIT (LOSS) (LOSS) PER SHARE PER SHARE
---------- -------- --------- ---------- --------- ---------
2001:
First.................... $ 628,376 $ 79,271 $ 37,894 $ 12,861 $ 0.29 $ 0.28
Second................... 642,407 85,261 44,111 16,672 0.38 0.35
Third.................... 557,785 55,419 16,185 (1,364) (0.03) (0.03)
Fourth................... 638,865 57,234 (368,751) (295,693) (6.15) (6.15)
---------- -------- --------- --------- ------ ------
$2,467,433 $277,185 $(270,561) $(267,524) $(5.87) $(5.87)
========== ======== ========= ========= ====== ======
2000:
First.................... $ 685,364 $111,722 $ 71,967 $ 37,123 $ 0.79 $ 0.65
Second................... 681,020 114,371 75,822 39,293 0.83 0.68
Third.................... 536,210 64,728 27,617 6,965 0.15 0.15
Fourth................... 629,359 80,773 (103,658) (69,947) (1.54) (1.54)
---------- -------- --------- --------- ------ ------
$2,531,953 $371,594 $ 71,748 $ 13,434 $ 0.29 $ 0.28
========== ======== ========= ========= ====== ======
15. 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 notes issued by R. J. Tower Corporation, on a joint and
several basis. Tower Automotive, Inc. (the parent company) has also fully and
unconditionally guaranteed the note and is reflected as the Parent Guarantor in
the consolidating financial information. The Non-Guarantors are the Company's
foreign subsidiaries. Separate financial statements and other disclosures
concerning the Guarantors have not been presented because management believes
that such information is not material to investors.
72
TOWER AUTOMOTIVE INC.
CONSOLIDATING BALANCE SHEETS
AT DECEMBER 31, 2001
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- ---------- ------------- ------------ ------------
(AMOUNTS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents....... $ -- $ -- $ 2,444 $ 19,323 $ -- $ 21,767
Accounts receivable............. -- -- 140,402 76,236 -- 216,638
Inventories..................... -- -- 72,003 40,533 -- 112,536
Prepaid tooling and other....... -- -- 52,238 36,991 -- 89,229
-------- --------- ---------- -------- ----------- ----------
Total current assets......... -- -- 267,087 173,083 -- 440,170
-------- --------- ---------- -------- ----------- ----------
Property, plant and equipment,
net............................. -- -- 824,437 295,822 -- 1,120,259
Investments in joint ventures..... 237,834 -- 4,177 1,187 -- 243,198
Investment in subsidiaries........ 744,808 447,408 -- -- (1,192,216) --
Goodwill and other assets, net.... 9,659 9,700 428,186 282,264 -- 729,809
-------- --------- ---------- -------- ----------- ----------
$992,301 $ 457,108 $1,523,887 $752,356 $(1,192,216) $2,533,436
======== ========= ========== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term
debt and capital lease
obligations.................. $ 67,381 $ -- $ 2,723 $101,979 $ -- $ 172,083
Accounts payable................ -- -- 263,800 105,110 -- 368,910
Accrued liabilities............. 7,234 4,167 203,832 63,729 -- 278,962
-------- --------- ---------- -------- ----------- ----------
Total current liabilities.... 74,615 4,167 470,355 270,818 -- 819,955
-------- --------- ---------- -------- ----------- ----------
Long-term debt, net of current
maturities...................... 472,373 -- 44,765 83,946 -- 601,084
Obligations under capital leases,
net of current maturities....... -- -- 4,620 -- -- 4,620
Convertible subordinated notes.... -- 199,984 -- -- -- 199,984
Due to/(from) affiliates.......... (27,392) (453,201) 428,037 52,556 -- --
Other noncurrent liabilities...... -- -- 150,639 50,996 -- 201,635
-------- --------- ---------- -------- ----------- ----------
Total noncurrent
liabilities................ 444,981 (253,217) 628,061 187,498 -- 1,007,323
-------- --------- ---------- -------- ----------- ----------
Manditorily redeemable trust
convertible preferred
securities...................... -- 258,750 -- -- -- 258,750
Stockholders' investment.......... 481,969 447,408 439,943 304,865 (1,192,216) 481,969
Accumulated other comprehensive
loss............................ (9,264) -- (14,472) (10,825) -- (34,561)
-------- --------- ---------- -------- ----------- ----------
Total stockholders'
investment................. 472,705 447,408 425,471 294,040 (1,192,216) 447,408
-------- --------- ---------- -------- ----------- ----------
$992,301 $ 457,108 $1,523,887 $752,356 $(1,192,216) $2,533,436
======== ========= ========== ======== =========== ==========
73
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- ---------- ------------- ------------ ------------
(AMOUNTS IN THOUSANDS)
Revenues...................... $ -- $ -- $1,644,357 $823,076 $ -- $2,467,433
Cost of sales................. -- -- 1,467,062 723,186 -- 2,190,248
--------- --------- ---------- -------- -------- ----------
Gross profit............. -- -- 177,295 99,890 -- 277,185
Selling, general and
administrative expenses..... -- -- 103,591 35,612 -- 139,203
Restructuring and asset
impairment charges.......... -- -- 383,614 125 -- 383,739
Amortization expense.......... 1,774 1,301 14,660 7,069 -- 24,804
--------- --------- ---------- -------- -------- ----------
Operating income
(loss)................. (1,774) (1,301) (324,570) 57,084 -- (270,561)
Interest expense, net......... 60,621 7,516 (7,773) 13,401 -- 73,765
--------- --------- ---------- -------- -------- ----------
Income (loss) before
provision for income
taxes.................. (62,395) (8,817) (316,797) 43,683 -- (344,326)
Provision (benefit) for income
taxes....................... (24,334) (3,439) (57,803) 12,264 -- (73,312)
--------- --------- ---------- -------- -------- ----------
Income (loss) before
equity in earnings of
joint ventures and
minority interest...... (38,061) (5,378) (258,994) 31,419 -- (271,014)
Equity in earnings of joint
ventures and subsidiaries,
net......................... (213,429) (251,490) 300 -- 481,869 17,250
Minority interest, net........ -- (10,656) -- (3,104) -- (13,760)
--------- --------- ---------- -------- -------- ----------
Net income (loss)........ $(251,490) $(267,524) $ (258,694) $ 28,315 $481,869 $ (267,524)
========= ========= ========== ======== ======== ==========
74
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001
NON-
R. J. TOWER PARENT GUARANTOR GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- --------- ------------ ------------
(AMOUNTS IN THOUSANDS)
OPERATING ACTIVITIES:
Net income (loss).................. $ (251,490) $(267,524) $(258,694) $ 28,315 $ 481,869 $ (267,524)
Adjustments required to reconcile
net income (loss) to net cash
provided by (used in) operating
activities
Depreciation and amortization.... 1,774 1,301 122,026 34,792 -- 159,893
Deferred income tax provision
(benefit)..................... -- -- (65,976) (14,782) -- (80,758)
Equity in earnings of joint
ventures, net................. (16,950) -- (300) -- -- (17,250)
Restructuring and asset
impairment charge............. -- -- 383,614 125 -- 383,739
Changes in other operating
items......................... 251,214 381 281,364 (2,562) (194,682) 335,715
----------- --------- --------- --------- --------- -----------
Net cash provided by (used in)
operating activities........ (15,452) (265,842) 462,034 45,888 287,187 513,815
----------- --------- --------- --------- --------- -----------
INVESTING ACTIVITIES:
Capital expenditures, net.......... -- -- (142,253) (51,702) -- (193,955)
Acquisitions and other, net........ 366,055 226,851 (316,282) 5,145 (287,187) (5,418)
----------- --------- --------- --------- --------- -----------
Net cash provided by (used in)
investing activities........ 366,055 226,851 (458,535) (46,557) (287,187) (199,373)
----------- --------- --------- --------- --------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings........... 2,201,333 -- -- 107,488 -- 2,308,821
Repayments of debt................. (2,533,164) -- (2,630) (108,066) -- (2,643,860)
Net proceeds from private placement
of stock......................... -- 37,461 -- -- -- 37,461
Net proceeds from the issuance of
common stock..................... -- 1,530 -- -- -- 1,530
----------- --------- --------- --------- --------- -----------
Net cash provided by (used
for) financing activities... (331,831) 38,991 (2,630) (578) -- (296,048)
----------- --------- --------- --------- --------- -----------
Net Change in Cash and Cash
Equivalents...................... 18,772 -- 869 (1,247) -- 18,394
Cash and Cash Equivalents,
Beginning of Period.............. (18,772) -- 1,575 20,570 -- 3,373
----------- --------- --------- --------- --------- -----------
Cash and Cash Equivalents, End of
Period........................... $ -- $ -- $ 2,444 $ 19,323 $ -- $ 21,767
=========== ========= ========= ========= ========= ===========
75
TOWER AUTOMOTIVE INC.
CONSOLIDATING BALANCE SHEETS
AT DECEMBER 31, 2000
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- ---------- ------------- ------------ ------------
(AMOUNTS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents........ $(18,772) $ -- $ 1,575 $ 20,570 $ -- $ 3,373
Accounts receivable.............. 6,983 381 172,332 99,011 -- 278,707
Inventories...................... 2,032 -- 83,479 46,967 -- 132,478
Prepaid tooling and other........ 24,704 -- 171,107 26,308 -- 222,119
-------- -------- ---------- -------- ----------- ----------
Total current assets.......... 14,947 381 428,493 192,856 -- 636,677
-------- -------- ---------- -------- ----------- ----------
Property, plant and equipment,
net.............................. 37,245 -- 836,175 238,360 -- 1,111,780
Investments in joint ventures...... 221,165 43,912 2,140 -- -- 267,217
Investment in subsidiaries......... 541,468 734,624 -- -- (1,276,092) --
Goodwill and other assets, net..... 21,527 11,001 536,142 308,403 -- 877,073
-------- -------- ---------- -------- ----------- ----------
$836,352 $789,918 $1,802,950 $739,619 $(1,276,092) $2,892,747
======== ======== ========== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Current maturities of long-term
debt and capital lease
obligations................... $ 56,569 $ -- $ 1,477 $ 91,020 $ -- $ 149,066
Accounts payable................. (13,260) -- 156,724 104,925 -- 248,389
Accrued liabilities.............. 35,183 4,167 101,001 20,118 -- 160,469
-------- -------- ---------- -------- ----------- ----------
Total current liabilities..... 78,492 4,167 259,202 216,063 -- 557,924
-------- -------- ---------- -------- ----------- ----------
Long-term debt, net of current
maturities....................... 800,401 -- 44,787 88,254 -- 933,442
Obligations under capital leases,
net of current maturities........ -- -- 8,458 -- -- 8,458
Convertible subordinated notes..... -- 200,000 -- -- -- 200,000
Due to/(from) affiliates........... (822,981) (373,094) 915,331 280,744 -- --
Deferred income taxes.............. 29,102 -- (631) 5,413 -- 33,884
Other noncurrent liabilities....... 9,060 -- 132,105 59,029 -- 200,194
-------- -------- ---------- -------- ----------- ----------
Total noncurrent
liabilities................. 15,582 (173,094) 1,100,050 433,440 -- 1,375,978
-------- -------- ---------- -------- ----------- ----------
Mandatorily redeemable trust
convertible preferred
securities....................... -- 258,750 -- -- -- 258,750
Stockholders' investment........... 744,296 700,095 443,698 97,770 (1,276,092) 709,767
Accumulated other comprehensive
loss............................. (2,018) -- -- (7,654) -- (9,672)
-------- -------- ---------- -------- ----------- ----------
Total stockholders'
investment.................. 742,278 700,095 443,698 90,116 (1,276,092) 700,095
-------- -------- ---------- -------- ----------- ----------
$836,352 $789,918 $1,802,950 $739,619 $(1,276,092) $2,892,747
======== ======== ========== ======== =========== ==========
76
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
NON-
R. J. TOWER PARENT GUARANTOR GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- ---------- --------- ------------ ------------
(AMOUNTS IN THOUSANDS)
Revenues...................... $77,723 $ -- $1,911,493 $542,737 $ -- $2,531,953
Cost of sales................. 47,389 -- 1,627,593 485,377 -- 2,160,359
------- -------- ---------- -------- -------- ----------
Gross profit............. 30,334 -- 283,900 57,360 -- 371,594
Selling, general and
administrative expenses..... 5,030 -- 108,636 23,337 -- 137,003
Restructuring and asset
impairment charges..... 12,465 -- 128,861 -- -- 141,326
Amortization expense.......... 2,921 1,305 13,210 4,081 -- 21,517
------- -------- ---------- -------- -------- ----------
Operating income
(loss)................. 9,918 (1,305) 33,193 29,942 -- 71,748
Interest expense, net......... 63,795 7,906 (15,044) 8,054 -- 64,711
------- -------- ---------- -------- -------- ----------
Income (loss) before
provision for income
taxes.................. (53,877) (9,211) 48,237 21,888 -- 7,037
Provision (benefit) for income
taxes....................... (21,550) (3,681) 19,289 8,561 -- 2,619
------- -------- ---------- -------- -------- ----------
Income (loss) before
equity in earnings of
joint ventures and
minority interest...... (32,327) (5,530) 28,948 13,327 -- 4,418
Equity in earnings of joint
ventures and subsidiaries,
net......................... 64,755 29,440 -- -- (71,715) 22,480
Minority interest, net........ -- (10,476) -- -- -- (10,476)
------- -------- ---------- -------- -------- ----------
Income before
extraordinary item..... 32,428 13,434 28,948 13,327 (71,715) 16,422
Extraordinary loss on early
extinguishments of debt,
net......................... 2,988 -- -- -- -- 2,988
------- -------- ---------- -------- -------- ----------
Net income............... $29,440 $ 13,434 $ 28,948 $ 13,327 $(71,715) $ 13,434
======= ======== ========== ======== ======== ==========
77
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000
NON-
R. J. TOWER PARENT GUARANTOR GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- --------- ------------ ------------
(AMOUNTS IN THOUSANDS)
OPERATING ACTIVITIES:
Net income.......................... $ 29,440 $ 13,434 $ 28,948 $ 13,327 $(71,715) $ 13,434
Adjustments required to reconcile
net income to net cash provided by
(used in) operating activities
Depreciation and amortization..... 6,426 1,305 115,873 21,201 -- 144,805
Deferred income tax provision
(benefit)....................... (23,335) -- (631) 593 -- (23,373)
Extraordinary loss on
extinguishments of debt......... 2,988 -- -- -- -- 2,988
Equity in earnings of joint
ventures, net................... (22,480) -- -- -- -- (22,480)
Restructuring and asset impairment
charge.......................... 12,465 -- 128,861 -- -- 141,326
Changes in other operating
items........................... (144,253) (381) (184,533) 165,115 -- (164,052)
----------- -------- --------- --------- -------- -----------
Net cash provided by (used in)
operating activities......... (138,749) 14,358 88,518 200,236 (71,715) 92,648
----------- -------- --------- --------- -------- -----------
INVESTING ACTIVITIES:
Capital expenditures, net........... (20,800) -- (85,898) 13,110 -- (93,588)
Acquisitions and other, net......... (164,981) 19,026 (35,082) (119,225) 71,715 (228,547)
Net proceeds from the sale of
Roanoke Heavy Truck Business...... -- -- 55,353 -- -- 55,353
----------- -------- --------- --------- -------- -----------
Net cash provided by (used in)
investing activities......... (185,781) 19,026 (65,627) (106,115) 71,715 (266,782)
----------- -------- --------- --------- -------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings............ 3,304,062 -- 21 68,228 -- 3,372,311
Repayments of debt.................. (3,135,316) -- (21,821) (142,600) -- (3,299,737)
Net proceeds from issuance of senior
Euro notes........................ 134,700 -- -- -- -- 134,700
Net proceeds from the issuance of
common stock...................... -- 6,794 -- -- -- 6,794
Payments for the repurchase of
common shares..................... -- (40,178) -- -- -- (40,178)
----------- -------- --------- --------- -------- -----------
Net cash provided by (used for)
financing activities......... 303,446 (33,384) (21,800) (74,372) -- 173,890
----------- -------- --------- --------- -------- -----------
Net Change in Cash and Cash
Equivalents....................... (21,084) -- 1,091 19,749 -- (244)
Cash and Cash Equivalents, Beginning
of Period......................... 2,312 -- 484 821 -- 3,617
----------- -------- --------- --------- -------- -----------
Cash and Cash Equivalents, End of
Period............................ $ (18,772) $ -- $ 1,575 $ 20,570 $ -- $ 3,373
=========== ======== ========= ========= ======== ===========
78
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- ---------- ------------- ------------ ------------
(AMOUNTS IN THOUSANDS)
Revenues....................... $ 79,265 $ -- $1,814,273 $276,465 $ -- $2,170,003
Cost of sales.................. 74,401 -- 1,492,879 255,823 -- 1,823,103
-------- -------- ---------- -------- --------- ----------
Gross profit.............. 4,864 -- 321,394 20,642 -- 346,900
Selling, general and
administrative expenses...... 6,398 -- 93,370 6,182 -- 105,950
Amortization expense........... 3,075 1,304 10,031 1,393 -- 15,803
-------- -------- ---------- -------- --------- ----------
Operating income (loss)... (4,609) (1,304) 217,993 13,067 -- 225,147
Interest expense, net.......... 30,115 9,512 (5,000) 3,354 -- 37,981
-------- -------- ---------- -------- --------- ----------
Income (loss) before
provision for income
taxes................... (34,724) (10,816) 222,993 9,713 -- 187,166
Provision (benefit) for income
taxes........................ (13,890) (4,327) 89,198 3,885 -- 74,866
-------- -------- ---------- -------- --------- ----------
Income (loss) before
equity in earnings of
joint ventures and
minority interest....... (20,834) (6,489) 133,795 5,828 -- 112,300
Equity in earnings of joint
ventures and subsidiaries,
net.......................... 154,891 134,057 -- -- (273,680) 15,268
Minority interest, net......... -- (10,480) -- -- -- (10,480)
-------- -------- ---------- -------- --------- ----------
Net income................ $134,057 $117,088 $ 133,795 $ 5,828 $(273,680) $ 117,088
======== ======== ========== ======== ========= ==========
79
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- ------------- ------------ ------------
(AMOUNTS IN THOUSANDS)
OPERATING ACTIVITIES:
Net income................... $ 134,057 $ 117,088 $ 133,795 $ 5,828 $(273,680) $ 117,088
Adjustments required to
reconcile net income to net
cash provided by (used in)
operating activities
Depreciation and
amortization............ 6,614 1,304 96,613 7,080 -- 111,611
Deferred income tax
provision (benefit)..... 34,894 -- 13,208 (2,574) -- 45,528
Equity in earnings of joint
ventures, net........... (15,268) -- -- -- -- (15,268)
Changes in other operating
items................... (346,604) 9 297,982 1,657 -- (46,956)
----------- --------- --------- -------- --------- -----------
Net cash provided by
(used in) operating
activities............ (186,307) 118,401 541,598 11,991 (273,680) 212,003
----------- --------- --------- -------- --------- -----------
INVESTING ACTIVITIES:
Capital expenditures, net.... (5,338) -- (192,835) 858 -- (197,315)
Acquisitions and other,
net........................ (172,008) (123,037) (347,416) (20,475) 273,680 (389,256)
Change in restricted cash.... 2,677 -- -- -- -- 2,677
----------- --------- --------- -------- --------- -----------
Net cash provided by
(used in) investing
activities............ (174,669) (123,037) (540,251) (19,617) 273,680 (583,894)
----------- --------- --------- -------- --------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings..... 2,168,000 -- 6,632 34,035 -- 2,208,667
Repayments of debt........... (1,805,397) -- (7,418) (28,414) -- (1,841,229)
Net proceeds from the
issuance of common stock... -- 4,636 -- -- -- 4,636
----------- --------- --------- -------- --------- -----------
Net cash provided by
(used for) financing
activities............ 362,603 4,636 (786) 5,621 -- 372,074
----------- --------- --------- -------- --------- -----------
Net Change in Cash and Cash
Equivalents................ 1,627 -- 561 (2,005) -- 183
Cash and Cash Equivalents,
Beginning of Period........ 685 -- (77) 2,826 -- 3,434
----------- --------- --------- -------- --------- -----------
Cash and Cash Equivalents,
End of Period.............. $ 2,312 $ -- $ 484 $ 821 $ -- $ 3,617
=========== ========= ========= ======== ========= ===========
80
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. DIRECTORS OF THE REGISTRANT
The information required by Item 10 with respect to the directors and
director nominees is incorporated herein by reference to the section labeled
"Election of Directors" which appears in the Company's 2002 Proxy Statement.
B. EXECUTIVE OFFICERS
See "Additional Item -- Executive Officers" in Part I.
C. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The information required by Item 10 with respect to compliance with
reporting requirements is incorporated herein by reference to the section
labeled "Section 16(a) Beneficial Ownership Reporting Compliance" which appears
in the Company's 2002 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the sections labeled "Compensation of Directors" and "Executive Compensation"
which appear in the Company's 2002 Proxy Statement, excluding information under
the headings "Compensation Committee Report on Executive Compensation" and
"Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the section labeled "Ownership of Tower Automotive Common Stock" which appears
in the Company's 2002 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the section labeled "Other Compensatory Agreements" which appears in the
Company's 2002 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
(1) Financial Statements:
- Report of Independent Public Accountants
- Consolidated Balance Sheets as of December 31, 2001 and 2000
- Consolidated Statements of Operations for the Years Ended December
31, 2001, 2000 and 1999
- Consolidated Statements of Stockholders' Investment for the Years
Ended December 31, 2000, 2000 and 1999
- Consolidated Statements of Cash Flows for the Years Ended December
31, 2001, 2000 and 1999
- Notes to Consolidated Financial Statements
81
(2) Financial Statement Schedules:
- Report of Independent Public Accountants
- Financial Statement Schedule I -- Condensed Financial Information
of Registrant
- Financial Statement Schedule II -- Valuation and Qualifying
Accounts of Registrant
(3) Exhibits: See "Exhibit Index" beginning on following page.
(b) REPORTS ON FORM 8-K
(1) During the fourth quarter of 2001, the Company furnished the
following Form 8-K Current Reports to the Securities and Exchange
Commission:
- The Company's Current Report on Form 8-K, dated October 18, 2001
(Commission File No. 1-12733), under Item 9.
- The Company's Current Report on Form 8-K, dated December 28, 2001
(Commission File No. 1-12733), under Item 9, which was subsequently
amended by the filing of the Form 8-K/A Report, dated January 3,
2002 (Commission file no. 1-12733) under Item 5.
82
TOWER AUTOMOTIVE, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
PAGE NUMBER IN
SEQUENTIAL
NUMBERING OF ALL
FORM 10-K AND
EXHIBIT EXHIBIT PAGES
------- ----------------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant, as amended by the Certificate of Amendment to
Certificate of Incorporated, dated June 2, 1997,
incorporated by reference to the Registrant's Form S-3
Registration Statement (Registration No. 333-38827), filed
under the Securities Act of 1933 (the "S-3"). *
3.2 Amended and Restated Bylaws of the Registrant, incorporated
by reference to Exhibit 3.2 of the Company's Form S-1
Registration Statement (Registration No. 333-80320) (the
"S-1"). *
4.1 Form of Common Stock Certificate incorporated by reference
to Exhibit 4.1 of the S-1. *
4.2 Euro Indenture, dated July 25, 2000, by and among R.J. Tower
Corporation, certain of its affiliates and United Stated
Trust Company of New York, as trustee (including the form of
notes), incorporated by reference to Exhibit 4.1 of the
Registrant's Form S-4 Registration Statement (Reg. No.
333-45528, as filed with the SEC on December 21, 2000 (the
"S-4"). *
4.3 Exchange and Registration Rights Agreement, dated July 25,
2000, by and among R.J. Tower Corporation, certain of its
affiliates and Chase Manhattan International Limited, Bank
of American International Limited, ABN AMRO Incorporated,
Donaldson, Lufkin & Jennrette International, First Chicago
Limited and Scotia Capital (USA) Inc. (collectively, the
"Initial Purchasers"), incorporated by reference to Exhibit
4.2 of the S-4. *
4.4 Deposit Agreement, dated July 25, 2000, among R.J. Tower
Corporation, Deutsche Bank Luxembourg S.A., and the Trustee,
incorporated by reference to Exhibit 4.3 of the S-4. *
4.5 Indenture, dated as of July 28, 1997, by and between the
Registrant and Bank of New York, as trustee (including form
of 5 percent Convertible Subordinated Note due 2004)
incorporated by reference to Exhibit 4.5 of the S-3. *
10.1 Registration Agreement dated as of April 15, 1993 between
the Registrant and certain investors; and First Amendment to
Registration Agreement dated as of May 4, 1994 by and among
the Registrant and certain investors, incorporated by
reference to Exhibit 10.4 of the S-1. *
10.2 Form of Convertible Promissory Note dated as of May 4, 1994
of the Registrant, incorporated by reference to Exhibit
10.12 of the S-1. *
10.3** Stock Option Agreement, dated May 4, 1994, by and between
the Registrant and James R. Lozelle, incorporated by
reference to Exhibit 10.14 of the S-1. *
10.4** 1994 Key Colleague Stock Option Plan, incorporated by
reference to Exhibit 10.18 of the S-1. *
10.5 Registration Rights and Voting Agreement, dated as of May
31, 1996, between Tower Automotive, Inc. and Masco Tech,
Inc., incorporated by reference to Exhibit 4.17 of the May
8-K. *
10.6** Tower Automotive, Inc. Independent Director Stock Option
Plan, incorporated by reference to Exhibit 4.3 of the
Registrant's Form S-8 dated December 5, 1996, filed under
the Securities Act of 1933. *
83
PAGE NUMBER IN
SEQUENTIAL
NUMBERING OF ALL
FORM 10-K AND
EXHIBIT EXHIBIT PAGES
------- ----------------
10.7 Joint Venture Agreement by and among Promotora de Empresas
Zano, S.A. de C.V., Metalsa, S.A. de C.V. and R.J. Tower
Corporation dated as of September 26, 1997, incorporated by
reference to Exhibit 2.1 of the Registrant's Form 8-K dated
October 23, 1997, filed under the Securities Exchange Act of
1934. *
10.8 Certificate of Trust of Tower Automotive Capital Trust,
incorporated by reference to Exhibit 4.1 of the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1998, filed under the Securities Exchange Act of
1934. *
10.9 Amended and Restated Declaration of Trust of Tower
Automotive Capital Trust, dated June 9, 1998, incorporated
by reference to Exhibit 4.2 of the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1998, filed under the Securities Exchange Act of 1934. *
10.10 Junior Convertible Subordinated Indenture for the 6 3/4
percent Convertible Subordinated Debentures, between Tower
Automotive, Inc. and the First National Bank of Chicago, as
Subordinated Debt Trustee, dated as of June 9, 1998,
incorporated by reference to Exhibit 4.3 of the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1998, filed under the Securities Exchange Act of
1934. *
10.11 Form of 6 3/4 percent Preferred Securities, incorporated by
reference to Exhibit 4.4 of the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1998, filed under the Securities Exchange Act of 1934. *
10.12 Form of 6 3/4 percent Junior Convertible Subordinated
Debentures, incorporated by reference to Exhibit 4.5 of the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1998, filed under the Securities
Exchange Act of 1934. *
10.13 Guarantee Agreement, dated as of June 9, 1998, between Tower
Automotive, Inc., as Guarantor, and the First National Bank
of Chicago, as Guarantee Trustee, incorporated by reference
to Exhibit 4.6 of the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998, filed
under the Securities Exchange Act of 1934. *
10.14 Amended and Restated Credit Agreement among R.J. Tower
Corporation, Tower Italia, S.r.L., Bank of America National
Trust and Savings Association, as agent, and the other
financial institutions named therein, dated August 23, 1999,
incorporated by reference to Exhibit 10.43 of the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999, filed under the Securities Exchange
Act of 1934. *
10.15 Asset Purchase Agreement, dated October 2, 2000, between
Metalsa-Roanoke, Inc. and Tower Automotive Products Company,
Inc., incorporated by reference to Exhibit 2.1 of the S-4. *
10.16 Purchase Agreement, dated July 19, 2000, among R.J. Tower
Corporation ("Issuer"), Tower Automotive, Inc. ("Parent"),
those subsidiaries of the Issuer named therein (the
"Subsidiary Guarantors", and together with Parent, the
"Guarantors") and the Initial Purchasers, incorporated by
reference to Exhibit 1.1 of the S-4. *
10.17** Tower Automotive, Inc. Long-Term Incentive Plan,
incorporated by reference to Appendix A to Parent's Proxy
Statement, dated April 12, 1999. *
10.18** Tower Automotive, Inc. Director Deferred Stock Purchase
Plan, incorporated by reference to Appendix A to Parent's
Proxy Statement, dated April 10, 2000. *
84
PAGE NUMBER IN
SEQUENTIAL
NUMBERING OF ALL
FORM 10-K AND
EXHIBIT EXHIBIT PAGES
------- ----------------
10.19** Tower Automotive, Inc. Key Leadership Deferred Income Stock
Purchase Plan, incorporated by reference to Appendix B to
Parent's Proxy Statement, dated April 12, 1999. *
10.20** Tower Automotive, Inc. Colleague Stock Purchase Plan,
incorporated by reference to Exhibit 10.19 of the S-1. *
10.21 Credit Agreement, dated as of July 25, 2000, among the
Issuer, certain direct and indirect wholly-owned
subsidiaries of the Issuer and Bank of America, N.A., as
administrative agent, and The Chase Manhattan Bank, as
syndication agent, and the other lenders named therein,
incorporated by reference to Exhibit 10.1 of the S-4. *
10.22 Receivables Purchase Agreement, dated as of June 19, 2001,
among tower Automotive Receivables Company, Inc., as Seller,
R.J. Tower Corporation, as initial servicer, Blue Ridge
Funding Corporation, and Wachovia Bank, N.A., as agent,
incorporated by reference to Exhibit 10.1 of the
Registrant's Form 10-Q for the quarterly period ended
September 30, 2001, filed under the Securities Exchange Act
of 1934. *
12.1 Statement and Computation of Ratio of Earnings to Fixed
Charges filed herewith.
21.1 List of Subsidiaries filed herewith.
23.1 Consent of Independent Public Accountants filed herewith.
99 Letter to Commission Pursuant to Temporary Note 3T.
---------------
* Incorporated by reference.
** Indicates compensatory arrangement.
85
SIGNATURES
Pursuant to the requirements of Section 13 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.
By /s/ S.A. JOHNSON
------------------------------------
Its Chairman
-----------------------------------
Date: March 21, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated. Each director of
the Registrant, whose signature appears below, hereby appoints Dugald K.
Campbell and Anthony A. Barone and each of them severally, as his or her
attorney-in-fact, to sign in his or her name and on his or her behalf, as a
director of the Registrant, and to file with the Commission any and all
amendments to this Report on Form 10-K.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ S. A. JOHNSON Chairman and Director March 21, 2002
------------------------------------------------
S. A. Johnson
/s/ DUGALD K. CAMPBELL President, Chief Executive March 21, 2002
------------------------------------------------ Officer (Principal Executive
Dugald K. Campbell Officer)
and Director
/s/ JAMES R. LOZELLE Director March 21, 2002
------------------------------------------------
James R. Lozelle
/s/ SCOTT D. RUED Director March 21, 2002
------------------------------------------------
Scott D. Rued
/s/ F. J. LOUGHREY Director March 21, 2002
------------------------------------------------
F. J. Loughrey
/s/ GEORGIA R. NELSON Director March 21, 2002
------------------------------------------------
Georgia R. Nelson
/s/ ENRIQUE ZAMBRANO Director March 21, 2002
------------------------------------------------
Enrique Zambrano
86
SIGNATURE TITLE DATE
--------- ----- ----
Director March , 2002
------------------------------------------------
Ali Jenab
Director March , 2002
------------------------------------------------
Jurgen M. Geissinger
/s/ ANTHONY A. BARONE Vice President and March 21, 2002
------------------------------------------------ Chief Financial Officer
Anthony A. Barone (Principal Accounting Officer)
87
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited, in accordance with auditing standards generally accepted
in the United States, the financial statements included in the Tower Automotive,
Inc. and Subsidiaries' annual report to stockholders incorporated by reference
in this Form 10-K, and have issued our report thereon dated January 25, 2002.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Schedule I -- Condensed Financial
Information of Registrant and Schedule II -- Valuation and Qualifying Accounts
of Registrant are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
Arthur Andersen LLP
Minneapolis, Minnesota,
January 25, 2002
S-1
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000
2001 2000
-------- ----------
(AMOUNTS IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
ASSETS
Investment in consolidated subsidiaries..................... $900,609 $1,107,718
Interest receivable......................................... -- 381
Investment in J. L. French.................................. -- 43,912
Debt issue costs, net of accumulated amortization of $5,810
and $4,509................................................ 9,700 11,001
-------- ----------
$910,309 $1,163,012
======== ==========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Accrued liabilities......................................... $ 4,167 $ 4,167
Convertible subordinated notes.............................. 199,984 200,000
6 3/4% convertible subordinated debentures payable to trust
subsidiary................................................ 258,750 258,750
-------- ----------
Commitments and contingencies
Stockholders' investment:
Preferred stock, par value $1; 5,000,000 shares
authorized; no shares issued or outstanding............ -- --
Common stock, par value $.01; 200,000,000 shares
authorized; 48,077,142 and 47,584,391 shares issued and
outstanding............................................ 481 476
Additional paid-in capital................................ 456,627 450,455
Retained earnings......................................... 40,432 307,956
Deferred compensation plans............................... (15,571) (8,942)
Accumulated other comprehensive loss...................... (34,561) (9,672)
Treasury stock, at cost: 4,112,100 shares in 2000......... -- (40,178)
-------- ----------
Total stockholders' investment....................... 447,408 700,095
-------- ----------
$910,309 $1,163,012
======== ==========
The accompanying notes are an integral part of these condensed statements.
S-2
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
--------- -------- --------
(IN THOUSANDS)
Amortization expense........................................ $ 1,301 $ 1,305 $ 1,304
--------- -------- --------
Operating loss............................................ (1,301) (1,305) (1,304)
Interest expense............................................ 27,466 27,466 27,466
Interest income............................................. (2,484) (2,094) (488)
--------- -------- --------
Loss before income taxes and equity in earnings of
consolidated subsidiaries.............................. (26,283) (26,677) (28,282)
Income tax benefit.......................................... 10,250 10,671 11,313
Equity in earnings of consolidated subsidiaries............. (251,491) 29,440 134,057
--------- -------- --------
Net income (loss)......................................... $(267,524) $ 13,434 $117,088
========= ======== ========
The accompanying notes are an integral part of these condensed statements.
S-3
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS' INVESTMENT
COMMON STOCK ADDITIONAL WARRANTS TO DEFERRED
------------------- PAID-IN RETAINED ACQUIRE COMPENSATION
SHARES AMOUNT CAPITAL EARNINGS COMMON STOCK PLANS
---------- ------ ---------- -------- ------------ ------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
BALANCE, DECEMBER 31, 1998......... 46,281,880 $463 $ 426,471 $177,434 $ 2,000 $ --
Conversion of Edgewood notes....... 250,000 3 755 -- -- --
Exercise of options................ 125,000 1 996 -- -- --
Sales of stock under Employee
Discount Purchase Plan............ 222,574 2 3,579 -- -- --
Deferred Income Stock Plan......... -- -- 4,484 -- -- (4,484)
Non-employee options grant......... -- -- 897 -- -- --
Collection of common stock
subscriptions receivable.......... -- -- 28 -- -- --
Net income......................... -- -- -- 117,088 -- --
Other comprehensive loss -- foreign
currency translation adjustment... -- -- -- -- -- --
Total comprehensive income....
---------- ---- --------- -------- ------- --------
BALANCE, DECEMBER 31, 1999......... 46,879,454 469 437,210 294,522 2,000 (4,484)
Conversion of warrants............. 400,000 4 5,596 -- (2,000) --
Exercise of options................ 56,000 1 348 -- -- --
Sales under the Employee Stock
Discount Purchase Plan............ 224,342 2 2,843 -- -- --
Deferred Income Stock Plan......... 24,595 -- 4,458 -- -- (4,458)
Common share repurchase............ -- -- -- -- -- --
Net income......................... -- -- -- 13,434 -- --
Other comprehensive loss -- foreign
translation adjustment............ -- -- -- -- -- --
Total comprehensive income....
---------- ---- --------- -------- ------- --------
BALANCE, DECEMBER 31, 2000......... 47,584,391 476 450,455 307,956 -- (8,942)
Conversion of Edgewood and 5%
Convertible Notes................. 273,862 3 825 -- -- --
Exercise of options................ 42,750 -- 268 -- -- --
Sales under the Employee Stock
Discount Purchase Plan............ 172,502 2 1,167 -- -- --
Deferred Income Stock Plan......... -- -- 1,279 -- -- (1,279)
Restricted stock issued in exchange
for stock options................. -- -- 5,350 -- -- (5,350)
Private placement of common
stock............................. 3,637 -- (2,717) -- -- --
Net loss........................... -- -- -- (267,524) -- --
Other comprehensive loss -- foreign
currency translation adjustment... -- -- -- -- -- --
Translation adjustment relating to
loss on qualifying cash flow
hedges............................ -- -- -- -- -- --
Unrealized loss on qualifying cash
flow hedges....................... -- -- -- -- -- --
Minimum pension liability.......... -- -- -- -- -- --
Total comprehensive loss......
---------- ---- --------- -------- ------- --------
BALANCE, DECEMBER 31, 2001......... 48,077,142 $481 $ 456,627 $ 40,432 $ -- $(15,571)
========== ==== ========= ======== ======= ========
ACCUMULATED
OTHER
TREASURY STOCK COMPREHENSIVE TOTAL
--------------------- INCOME STOCKHOLDERS'
SHARES AMOUNT (LOSS) INVESTMENT
---------- -------- ------------- -------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
BALANCE, DECEMBER 31, 1998......... -- $ -- $ 428 $ 606,796
Conversion of Edgewood notes....... -- -- -- 758
Exercise of options................ -- -- -- 997
Sales of stock under Employee
Discount Purchase Plan............ -- -- -- 3,581
Deferred Income Stock Plan......... -- -- -- --
Non-employee options grant......... -- -- -- 897
Collection of common stock
subscriptions receivable.......... -- -- -- 28
Net income......................... -- -- --
Other comprehensive loss -- foreign
currency translation adjustment... -- -- (3,010)
Total comprehensive income.... 114,078
---------- -------- -------- ---------
BALANCE, DECEMBER 31, 1999......... -- -- (2,582) 727,135
Conversion of warrants............. -- -- -- 3,600
Exercise of options................ -- -- -- 349
Sales under the Employee Stock
Discount Purchase Plan............ -- -- -- 2,845
Deferred Income Stock Plan......... -- -- -- --
Common share repurchase............ (4,112,100) (40,178) -- (40,178)
Net income......................... -- -- -- --
Other comprehensive loss -- foreign
translation adjustment............ -- -- (7,090)
Total comprehensive income.... 6,344
---------- -------- -------- ---------
BALANCE, DECEMBER 31, 2000......... (4,112,100) (40,178) (9,672) 700,095
Conversion of Edgewood and 5%
Convertible Notes................. -- -- -- 828
Exercise of options................ -- -- -- 268
Sales under the Employee Stock
Discount Purchase Plan............ -- -- -- 1,169
Deferred Income Stock Plan......... 479,337 -- -- --
Restricted stock issued in exchange
for stock options................. -- -- -- --
Private placement of common
stock............................. 3,632,763 40,178 -- 37,461
Net loss........................... -- -- --
Other comprehensive loss -- foreign
currency translation adjustment... -- -- (2,115) --
Translation adjustment relating to
loss on qualifying cash flow
hedges............................ -- -- (4,200) --
Unrealized loss on qualifying cash
flow hedges....................... -- -- (4,102) --
Minimum pension liability.......... -- -- (14,472) --
Total comprehensive loss...... (292,413)
---------- -------- -------- ---------
BALANCE, DECEMBER 31, 2001......... -- $ -- $(34,561) $ 447,408
========== ======== ======== =========
The accompanying notes are an integral part of these consolidated financial
statements.
S-4
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
--------- -------- ---------
(AMOUNTS IN THOUSANDS)
Operating Activities:
Net income (loss)......................................... $(267,524) $ 13,434 $ 117,088
Amortization expense...................................... 1,301 1,305 1,304
Equity in earnings of consolidated subsidiaries........... 251,491 (29,440) (134,057)
Change in current operating items -- interest
receivable............................................. 381 (381) --
Change in current operating items -- accrued
liabilities............................................ -- -- 9
--------- -------- ---------
Net cash provided by (used in) operating activities.... (14,351) (15,082) (15,656)
--------- -------- ---------
Investing Activities:
Dividends received from consolidated subsidiaries......... 27,466 27,466 27,466
Additional investment in consolidated subsidiaries........ (52,106) 21,000 (16,446)
--------- -------- ---------
Net cash provided by (used in) investing activities.... (24,640) 48,466 11,020
--------- -------- ---------
Financing Activities:
Net proceeds from issuance of common stock................ 1,530 6,794 4,636
Payments for repurchase of common shares.................. -- (40,178) --
Net proceeds from private placement of common stock....... 37,461 -- --
--------- -------- ---------
Net cash provided by (used for) financing activities... 38,991 (33,384) 4,636
--------- -------- ---------
Net change in cash and cash equivalents................ -- -- --
Cash and cash equivalents:
Beginning of period....................................... -- -- --
--------- -------- ---------
End of period............................................. $ -- $ -- $ --
========= ======== =========
Supplemental Cash Flow Information:
Cash paid for --
Interest............................................... $ 27,466 $ 27,466 $ 27,466
========= ======== =========
Income taxes........................................... $ -- $ -- $ --
========= ======== =========
The accompanying notes are an integral part of these condensed statements.
S-5
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND OPERATIONS
Tower Automotive, Inc. (the "Parent Company") and its consolidated
subsidiaries (the "Subsidiaries"), collectively "the Company", produces a broad
range of assemblies and modules for vehicle frames, upper body structures and
suspension systems for the global automotive industry. Including both wholly-
owned subsidiaries and investments in joint ventures, the Company has facilities
in the United States, Canada, Italy, Germany, Hungary, Poland, Brazil, India,
Slovakia, Korea, Japan, China, and Mexico.
The Notes to Consolidated Financial Statements of Tower Automotive, Inc.
and Subsidiaries should be read in conjunction with this Schedule I.
NOTE 2. CONVERTIBLE SUBORDINATED NOTES
In July 1997, the Parent Company completed the offering of $200 million of
Convertible Subordinated Notes (the "Notes"). The net proceeds from the Notes,
$194.1 million, were contributed as an additional investment in the
Subsidiaries. The Notes bear interest at 5 percent, are unsecured, are due on
August 1, 2004 and are convertible into Common Stock of the Parent Company at a
conversion price of $25.88 per share. The Parent Company may make optional
redemptions of the Notes after August 1, 2000 at amounts ranging from 102.857
percent to 100.714 percent of face value. In the event of a change in control
(as defined), the holders of the Notes may require the Parent Company to redeem
the Notes at face value plus accrued interest.
NOTE 3. STOCKHOLDERS' INVESTMENT
On May 19, 1998, the Parent Company's Board of Directors approved a
two-for-one stock split, which was effected as a stock dividend. On July 15,
1998, stockholders were issued one additional share of Common Stock for each
share of Common Stock held on the record date of June 30, 1998. All references
to the number of common shares and per share amounts have been adjusted to
reflect the stock split on a retroactive basis.
NOTE 4. CONVERTIBLE SUBORDINATED DEBENTURES
On June 9, 1998, Tower Automotive Capital Trust (the "Preferred Issuer"), a
wholly owned statutory business trust of the Parent Company, completed the
offering of $258.8 million of its 6 3/4 percent Trust Convertible Preferred
Securities ("Preferred Securities"), resulting in net proceeds of approximately
$249.7 million. The Preferred Securities are redeemable, in whole or in part, on
or after June 30, 2001 and all Preferred Securities must be redeemed no later
than June 30, 2018. The Preferred Securities are convertible, at the option of
the holder, into Common Stock of the Parent Company at a rate of 1.6280 shares
of Common Stock for each Preferred Security, which is equivalent to a conversion
price of $30.713 per share. The obligations of the Preferred Issuer under the
Preferred Securities are fully and unconditionally guaranteed by the Parent
Company. Concurrently with the issuance of the Preferred Securities, the
Preferred Issuer acquired $258.8 million of the Parent Company's 6 3/4 percent
Convertible Subordinated Debentures ("Debentures") for net proceeds of $249.7
million. Interest is payable quarterly and the notes mature on June 30, 2018.
The net proceeds received from the issuance of the Debentures by the Parent
Company were contributed as an additional investment in the Subsidiaries.
S-6
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. INVESTMENT IN J.L. FRENCH
On October 14, 1999, the Company loaned $30.0 million to J.L. French
Automotive Castings, Inc. ("J.L. French") in exchange for a convertible
subordinated promissory note due October 14, 2009. The note bears interest at
7.5% annually with interest payable on the last day of each calendar quarter
beginning December 31, 1999. On November 30, 2000, the Company exercised its
option to convert the note into 7,124 shares of Class A "1" Common Stock of J.
L. French, which has a 7.5 percent pay-in-kind dividend right. Additionally, on
November 30, 2000, the Company invested $2.9 million in J. L. French through the
purchase of Class P Common Stock, which has an 8 percent pay-in-kind dividend
right. On May 24, 2000, the Company invested $11.0 million in J. L. French
through the purchase of Class A Common Stock. At December 31, 2001, the Company
has an ownership interest of approximately 16 percent in J. L. French. During
the fourth quarter of 2001, the Company evaluated its investment in J.L. French
and determined that the investment has been impaired, and therefore, recorded a
charge of $46.3 million to write off the entire investment in J.L. French.
NOTE 6. GUARANTEES AND RESTRICTIONS
Guarantee of Subsidiaries' Debt
In July 2000, the Subsidiaries replaced the existing $750 million
amortizing credit agreement with a new six-year $1.15 billion senior unsecured
credit agreement. The new credit agreement includes a non-amortizing revolving
facility of $825 million along with an amortizing term loan of $325 million. The
new facility also includes a multi-currency borrowing feature that allows the
Company to borrow up to $500 million in certain freely tradable offshore
currencies, and letter of credit sublimits of $100 million. The Parent Company
provided a guarantee for this debt. As of December 31, 2001, $20.0 million of
the outstanding borrowings are denominated in Japanese yen, $55.6 million are
denominated in Euro, and $15.7 million are denominated in Canadian dollars.
Interest on the new credit facility is at the financial institutions' reference
rate, LIBOR, or the Eurodollar rate plus a margin ranging from 0 to 200 basis
points depending on the ratio of the consolidated funded debt for restricted
subsidiaries of the Company to its total EBITDA. The weighted average interest
rate for such borrowings was 7.3 percent and 7.0 percent for the years ended
December 31, 2001 and 2000. The new credit agreement has a final maturity of
2006. As a result of the debt replacement, the Subsidiaries recorded an
extraordinary loss, net of tax, of $3.0 million during the third quarter of
2000.
In July 2000, R. J. Tower (the "Issuer"), a wholly-owned subsidiary of the
Parent Company, issued Euro-denominated senior unsecured notes in the amount of
E150 million ($133.6 million at December 31, 2001). The notes bear interest at a
rate of 9.25 percent, payable semi-annually. The notes rank equally with all of
the Company's other unsecured and unsubordinated debt. The notes mature on
August 1, 2010.
For the periods presented through July 24, 2000, the Subsidiaries' Credit
Agreement included an amortizing revolving credit facility that provided for
borrowings of up to $750 million on an unsecured basis with a letter of credit
sublimit of $75 million. The Parent Company provided a guarantee for this debt.
Interest on the credit facility was at the prime rate or LIBOR plus a margin
ranging from 17 to 50 basis points depending upon the ratio of the consolidated
indebtedness of the Company to its total capitalization.
S-7
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Restrictions on Subsidiaries to Make Distributions to the Parent Company
Under the terms of the $1.15 billion senior unsecured credit agreement
described above, the Subsidiaries are restricted in their ability to dividend,
loan or otherwise distribute assets, properties, cash, rights, obligations or
securities to the Parent Company. These restrictions are subject to a number of
important exceptions, including the ability of the Subsidiaries to: (i) purchase
shares of the capital stock of the Parent and declare or pay cash dividends to
the Parent Company in an aggregate amount equal to $125,000,000 (provided that
no event of default exists after giving effect to such action); (ii) declare and
pay dividends to the Parent Company to be used to pay taxes and other expenses
of the Parent Company and the Subsidiaries on a consolidated basis; and (iii)
declare and pay dividends to the Parent Company to enable the Parent Company to
make regularly scheduled interest payments or the payment of principal at
maturity of any unsecured indebtedness issued by the Parent Company (including
the Notes and the Debentures (see Note 3)), the proceeds of which are applied to
the prepayment of the revolving loans, in each case (a) has no scheduled
principal payments before July 25, 2006; (b) has no guaranty obligation by the
borrower under the revolving credit facility; and (c) has terms and conditions
which are acceptable to the principal lender under the revolving credit
facility. As of December 31, 2001, the Subsidiaries could have paid up to
approximately $103 million to the Parent Company under the exception described
in item (i) above.
S-8
SCHEDULE II
TOWER AUTOMOTIVE, INC.
VALUATION AND QUALIFYING ACCOUNTS OF REGISTRANT
(DOLLARS IN MILLIONS)
LOSS RESTRUCTURING RELATED
CONTRACTS -----------------------------------------------
ESTABLISHED IN RESTRUCTURING OTHER
EMPLOYEE FACILITY PURCHASE RELATED LOSS RESTRUCTURING TOTAL
DESCRIPTION COST COST ACCOUNTING CONTRACTS COSTS RESTRUCTURING
----------- -------- -------- -------------- ------------- --------------- -------------
Balance, December 31, 1998... $ 3.6 $ 21.1 $ 22.8 $ -- $ -- $ --
Additional Provision......... 8.7 5.4 18.8 -- -- --
Utilization.................. (5.2) (2.5) (16.8) -- -- --
Change in Estimate........... (0.7) (10.2) -- -- -- --
----- ------ ------ ----- ------ ------
Balance, December 31, 1999... 6.4 13.8 24.8 -- -- --
Additional Provision......... -- 1.0 12.3 8.1 29.5 37.6
Utilization.................. (2.6) (7.5) (8.4) (2.5) (9.0) (11.5)
Change in Estimate........... -- -- -- -- -- --
----- ------ ------ ----- ------ ------
Balance, December 31, 2000... 3.8 7.3 28.7 5.6 20.5 26.1
Additional Provision......... -- -- -- -- 50.7 50.7
Reclassification............. -- -- -- -- 5.9 5.9
Utilization.................. (2.7) (2.1) (11.7) (4.2) (17.3) (21.5)
Change in Estimate........... -- -- -- (1.4) (4.5) (5.9)
----- ------ ------ ----- ------ ------
Balance, December 31, 2001... $ 1.1 $ 5.2 $ 17.0 $ -- $ 55.3 $ 55.3
===== ====== ====== ===== ====== ======
S-9