FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 1-12733
TOWER AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 41-1746238
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5211 CASCADE ROAD SE - SUITE 300 49546
GRAND RAPIDS, MICHIGAN (Zip Code)
(Address of principal executive offices)
(616) 802-1600
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
The number of shares outstanding of the Registrant's common stock, par value
$.01 per share, at April 30, 2003 was 56,222,207 shares.
TOWER AUTOMOTIVE, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 2003
(unaudited) and December 31, 2002
Condensed Consolidated Statements of Operations (unaudited)
for the Three Months Ended March 31, 2003 and 2002
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Three Months Ended March 31, 2003 and 2002
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See "Market Risk" section of Item 2
Item 4. Disclosure Controls and Procedures
PART II OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
-2-
ITEM 1 - FINANCIAL INFORMATION
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
March 31, December 31,
2003 2002
------------- -------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 18,772 $ 13,699
Accounts receivable 338,629 249,341
Inventories 116,635 133,074
Deferred income taxes, net 18,360 20,634
Prepaid tooling and other 111,414 100,433
------------- -------------
Total current assets 603,810 517,181
------------- -------------
Property, plant and equipment, net 1,046,819 1,073,619
Investments in joint ventures 258,970 260,898
Deferred income taxes, net 99,436 105,699
Goodwill 478,972 472,967
Other assets, net 160,978 127,521
------------- -------------
$ 2,648,985 $ 2,557,885
============= =============
Liabilities and Stockholders' Investment
Current liabilities:
Current maturities of long-term debt and capital lease
obligations $ 99,049 $ 120,470
Accounts payable 461,864 417,727
Accrued liabilities 269,728 284,450
------------- -------------
Total current liabilities 830,641 822,647
------------- -------------
Long-term debt, net of current maturities 602,536 535,220
Obligations under capital leases, net of current maturities 32,582 29,731
Convertible subordinated notes 199,984 199,984
Other noncurrent liabilities 195,588 199,477
------------- -------------
Total noncurrent liabilities 1,030,690 964,412
------------- -------------
Mandatorily redeemable trust convertible preferred securities 258,750 258,750
Stockholders' investment:
Preferred stock -- --
Common stock 660 659
Additional paid-in capital 683,384 683,072
Retained earnings (45,602) (57,174)
Deferred compensation plans (8,687) (10,746)
Accumulated other comprehensive loss (40,991) (43,875)
Treasury stock (59,860) (59,860)
------------- -------------
Total stockholders' investment 528,904 512,076
------------- -------------
$ 2,648,985 $ 2,557,885
============= =============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
Three Months Ended March 31,
----------------------------
2003 2002
----------- -----------
Revenues $ 732,578 $ 668,107
Cost of sales 658,054 599,098
----------- -----------
Gross profit 74,524 69,009
Selling, general and administrative expenses 34,676 32,995
Restructuring and asset impairment charge -- 75,407
----------- -----------
Operating income (loss) 39,848 (39,393)
Interest expense, net 16,769 18,031
Other income -- (3,839)
----------- -----------
Income (loss) before provision for income taxes,
equity in earnings of joint ventures, minority
interest and cumulative effect of accounting change 23,079 (53,585)
Provision (benefit) for income taxes 7,847 (18,756)
----------- -----------
Income (loss) before equity in earnings of joint
ventures, minority interest and cumulative effect of 15,232 (34,829)
accounting change
Equity in earnings of joint ventures, net of tax 644 4,385
Minority interest, net of tax (4,304) (4,073)
----------- -----------
Income (loss) before cumulative effect of accounting
change 11,572 (34,517)
Cumulative effect of change in accounting principle, net
of tax -- (112,786)
----------- -----------
Net income (loss) $ 11,572 $ (147,303)
=========== ===========
Basic earnings (loss) per common share:
Income (loss) before cumulative effect of change in
accounting principle $ 0.21 $ (0.72)
Cumulative effect of change in accounting principle -- (2.33)
----------- -----------
Net income (loss) $ 0.21 $ (3.05)
=========== ===========
Weighted average number of basic shares outstanding 56,194 48,253
=========== ===========
Diluted earnings (loss) per common share:
Income (loss) before cumulative effect of change in
accounting principle $ 0.21 $ (0.72)
Cumulative effect of change in accounting principle -- (2.33)
----------- -----------
Net income (loss) $ 0.21 $ (3.05)
=========== ===========
Weighted average number of diluted shares outstanding 56,210 48,253
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-4-
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
Three Months Ended March 31,
----------------------------
2003 2002
----------- -----------
OPERATING ACTIVITIES:
Net income (loss) $ 11,572 $ (147,303)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities -
Cumulative effect of change in accounting principle, net -- 112,786
Restructuring and asset impairment charge -- 75,407
Depreciation 39,051 32,413
Deferred income tax provision (benefit) 8,274 (22,283)
Gain on sale of plant -- (3,839)
Equity in earnings of joint ventures, net (644) (4,385)
Change in working capital and other operating items (57,030) (71,934)
----------- -----------
Net cash provided by (used in) operating activities 1,223 (29,138)
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures, net (41,200) (13,201)
Acquisitions, including joint ventures interests, earnout
payments and dividends 3,232 (38,039)
----------- -----------
Net cash used in investing activities (37,968) (51,240)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings 699,646 486,549
Repayment of debt (658,131) (414,612)
Proceeds from issuance of stock 303 1,275
----------- -----------
Net cash provided by financing activities 41,818 73,212
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 5,073 (7,166)
CASH AND CASH EQUIVALENTS:
Beginning of period 13,699 21,767
----------- -----------
End of period $ 18,772 $ 14,601
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized $ 22,626 $ 23,613
=========== ===========
Income taxes paid (refunded) $ 70 $ (425)
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-5-
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by Tower Automotive, Inc. (the "Company"), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. The
information furnished in the condensed consolidated financial statements
includes normal recurring adjustments and reflects all adjustments which
are, in the opinion of management, necessary for a fair presentation of
such financial statements. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although the Company believes that
the disclosures are adequate to make the information presented not
misleading, it is suggested that these condensed consolidated financial
statements be read in conjunction with the audited financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002.
Revenues and operating results for the three months ended March 31, 2003
are not necessarily indicative of the results to be expected for the full
year.
Certain prior year amounts were reclassified to conform to current year
presentation.
2. INVENTORIES
Inventories are valued at the lower of first-in-first-out ("FIFO") cost or
market, and consisted of the following (in thousands):
MARCH 31, DECEMBER 31,
2003 2002
------------ -------------
Raw materials $ 57,496 $ 64,777
Work in process 21,012 20,630
Finished goods 38,127 47,667
---------- ----------
$ 116,635 $ 133,074
========== ==========
3. STOCKHOLDERS' INVESTMENT
STOCK REPURCHASE:
During 2002, the Company repurchased approximately 9.8 million shares at a
total cost of $59.9 million to complete the total original board-approved
amount of $100 million. These shares are classified as treasury stock in
the Company's condensed consolidated balance sheets and may be subsequently
reissued for general corporate purposes.
-6-
EARNINGS PER SHARE:
Basic earnings per share were computed by dividing net income by the
weighted average number of common shares outstanding during the respective
quarters. Diluted earnings per share for the three months ended March 31,
2003 were determined based on the assumption that the Edgewood notes were
converted at the beginning of the period. The Convertible Subordinated
Notes and Preferred Securities, totaling approximately 16.2 million shares,
were not included in the computation of earnings per share for the three
months ended March 31, 2003 due to their anti-dilutive effect. None of the
common stock equivalents, totaling approximately 16.2 million shares, were
included in the computation of earnings per share for the three months
ended March 31, 2002 due to their anti-dilutive effect (in thousands,
except for per share data):
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2003 2002
------------- -------------
Net income (loss) - basic and diluted $ 11,572 $ (147,303)
============= =============
Weighted average number of common shares outstanding 56,194 48,253
Dilutive effect of Edgewood notes, assuming conversion 16 --
------------- -------------
Weighted average number of diluted shares outstanding 56,210 48,253
============= =============
Basic earnings (loss) per share $ 0.21 $ (3.05)
============= =============
Diluted earnings (loss) per share $ 0.21 $ (3.05)
============= =============
STOCK-BASED COMPENSATION:
The Company accounts for stock options under the provisions of Accounting
Principles Board Opinion ("APB") No. 25, under which no compensation
expense is recognized when the stock options are granted to colleagues and
directors at fair market value as of the grant date. The Company may also
grant stock options to outside consultants. The fair value of these option
grants are expensed over the period services are rendered based on the
Black-Scholes valuation model. There were no stock options granted during
the three months ended March 31, 2003.
The Company has three stock option plans: the 1994 Stock Option Plan, the
Long Term Incentive Plan, and the Independent Director Stock Option Plan
and three stock purchase plans (the Employee Stock Purchase Plan, the Key
Leadership Deferred Income Stock Purchase Plan and the Director Deferred
Income Stock Purchase Plan). Had compensation cost for these plans been
determined as required under SFAS No. 123, "Accounting for Stock-Based
Compensation," amended by SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure," the Company's pro forma net
income (loss) and pro forma earnings (loss) per share would have been as
follows (in thousands, except per share data):
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2003 2002
------------- -------------
Net income (loss)
As Reported $ 11,572 $ (147,303)
Pro Forma $ 10,108 $ (148,328)
Basic earnings (loss) per share
As Reported $ 0.21 $ (3.05)
Pro Forma $ 0.18 $ (3.07)
Diluted earnings (loss) per share
As Reported $ 0.21 $ (3.05)
Pro Forma $ 0.18 $ (3.07)
-7-
4. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
Revolving credit facility $ 243,069 $ 177,303
Senior Euro notes 163,815 157,440
Term credit facility 125,000 125,000
Industrial development revenue bonds 43,765 43,765
Edgewood notes 50 50
Other foreign subsidiary indebtedness 114,413 123,518
Other 77 18,422
------------ ------------
690,189 645,498
Less-current maturities (87,653) (110,278)
------------ ------------
Total long-term debt $ 602,536 $ 535,220
============ ============
In June 2002, the Company completed an amendment to its senior credit
facility (the "Credit Agreement") that permanently reduced borrowings under
the facility and deferred the start of the scheduled repayment of its
remaining borrowings until March 2005. The amendment reduced the former
$1.15 billion facility to a $725 million facility by voluntarily repaying
$200 million of the $325 million term loan portion of the facility with
proceeds from the Company's May 2002 common stock offering, and reduced
capacity under the revolving credit facility from $825 million to $600
million. The Credit Agreement also includes a multi-currency borrowing
feature that allows the Company to borrow up to $500 million in certain
freely tradable offshore currencies, and letters of credit sublimits of
$250 million. As of March 31, 2003, approximately $61.5 million of the
outstanding borrowings are denominated in Japanese Yen, $16.4 million are
denominated in Euro, and $17.0 million are denominated in Canadian dollars.
Interest on the Credit Agreement is at the financial institutions'
reference rate, LIBOR, or the Eurodollar rate plus a margin ranging from 0
to 200 basis points depending on the ratio of the consolidated funded debt
for restricted subsidiaries of the Company to its total EBITDA. The
weighted average interest rate for such borrowings was 5.6 percent for the
three months ended March 31, 2003 (including the effect of the interest
rate swap contract discussed below). The Credit Agreement has a final
maturity of 2006.
The Credit Agreement requires the Company to meet certain financial tests,
including but not limited to a minimum interest coverage and maximum
leverage ratio. The Credit Agreement limits the Company's ability to pay
dividends. As of March 31, 2003, the Company was in compliance with all
debt covenants and anticipates achieving covenant compliance during the
remainder of 2003. The Company anticipates that the sufficient flexibility
under its Credit Agreement will allow it to adequately meet its 2003
liquidity requirements through the prudent use of its cash resources,
continued effective management of operating working capital and capital
expenditures, and also employing other potential financing alternatives, as
required.
In July 2000, R. J. Tower Corporation (the "Issuer"), a wholly-owned
subsidiary of the Company, issued Euro-denominated senior unsecured notes
in the amount of (euro)150 million ($163.8 million at March 31, 2003) The
notes bear interest at a rate of 9.25 percent, payable semi-annually. The
notes rank equally with all of the Company's other senior unsecured and
unsubordinated debt and mature on August 1, 2010.
During September 2000, the Company entered into an interest rate swap
contract to hedge against interest rate exposure on approximately $160
million of its floating rate indebtedness under its Credit Agreement. The
contracts have the effect of converting the floating rate interest to a
fixed rate of approximately 6.9 percent, plus any applicable margin
required under the revolving credit facility. The interest rate swap
contract was executed to balance the Company's fixed-rate and floating-rate
debt portfolios and expires in September 2005.
-8-
The Company has designated the swap as a cash flow hedge. Accordingly,
gains and losses are recorded in accumulated other comprehensive income
(loss), net of income taxes. As of March 31, 2003, there is $12.3 million
(net of tax) recorded in accumulated other comprehensive loss related to
the cash flow hedge. Derivative liabilities relating to the interest rate
swap agreement totaling $19.6 million have been recorded in accrued
liabilities in the condensed consolidated balance sheet as of March 31,
2003. The fair value of the interest rate swap agreement is based upon the
difference between the contractual rates and the present value of the
expected future cash flows on the hedged interest rate.
5. ACCOUNTS RECEIVABLE SECURITIZATION
At March 31, 2003, the Company had sold $130.3 million of net accounts
receivable pursuant to its accounts receivable securitization program in
exchange for $28.9 million of cash and a retained subordinated interest in
the receivables sold of $101.4 million. The receivables sold represented
amounts owed to the Company from customers as of February 28, 2003. The
majority of such receivables were collected in March 2003 and as a result,
the Company's retained interest in accounts receivable is not significant
as of March 31, 2003 and is not presented separately from accounts
receivable. As of March 31, 2003, the Company recorded a liability to the
funding agent of $28.9 million, which represents receivables for which the
Company has received collections from customers and is required to be
submitted to the funding agent. Settlement of amounts due to the funding
agent, as well as the cost of funding at a rate of approximately 7.6
percent, occurs during the month subsequent to the sale of the receivables.
6. ACQUISITIONS
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 $26.9 million paid in 2002 and $2.7 million paid in 2001. 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.
The Company's acquisitions have been accounted for using the purchase
method of accounting and, accordingly, the assets acquired and liabilities
assumed have been recorded at the fair value as of the date of the
acquisitions. The excess of the purchase price over the fair value of the
assets acquired and liabilities assumed has been recorded as goodwill.
The Company is committed under certain existing agreements, assumed in
connection with prior acquisitions, to supply product to its customers at
selling prices that are not sufficient to cover the direct costs to produce
those parts. The Company is obligated to supply these products for the life
of the related vehicles, which is typically three to ten years.
Accordingly, the Company 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.
-9-
In conjunction with its acquisitions, the Company has established reserves
for certain costs associated with facility shutdown and consolidation
activities and for provisions for acquired loss contracts. A rollforward of
these reserves is as follows (in millions):
FACILITY
SHUTDOWN LOSS
COSTS CONTRACTS
--------- ---------
Balance at December 31, 2002 $ 4.5 $ 6.1
Utilization (0.2) (0.8)
--------- ---------
Balance at March 31, 2003 $ 4.3 $ 5.3
========= =========
As of March 31, 2003, all of the identified facilities have been shutdown,
but the Company continues to incur costs related to maintenance, taxes and
other costs related to buildings that are held for sale. The Company's
acquisition reserves have been utilized as originally intended and
management believes the liabilities recorded for shutdown and consolidation
activities are adequate but not excessive as of March 31, 2003.
7. INVESTMENTS IN JOINT VENTURES
On September 21, 2000, the Company acquired a 17 percent equity interest in
Yorozu Corporation ("Yorozu"), a supplier of suspension modules and
structural parts to the Asian and North American automotive markets, from
Nissan Motor Co. Ltd. ("Nissan"). On February 20, 2001, the Company
exercised its option to increase its holdings in Yorozu by 13.8 percent
through the purchase of additional Yorozu shares. Yorozu is based in Japan
and is publicly traded on the first tier of the Tokyo Stock Exchange. Its
principal customers include Nissan, Auto Alliance, General Motors, Ford,
and Honda. The Company paid Nissan approximately $68 million over two and
one half years for its 30.8 percent interest. As of March 31, 2003, the
traded market value of shares held in Yorozu was $18.5 million and the
Company's investment in Yorozu was $61.3 million, as compared with a traded
market value of $22.4 million and investment in Yorozu of $60.4 million at
the original dates of the investment. The Company has determined that the
investment in Yorozu has not suffered an other than temporary decline in
market value. This determination is based on the long-term strategic nature
of the investment, which supported the Company's original investment
decision, and the fact that the Company believes that there is a
significant value premium associated with the large block of stock held in
Japan.
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 $9.7
million of additional consideration during 2002.
8. DIVESTITURE
On February 1, 2002, the Company sold its Iwahri, Korea plant to a Hyundai
affiliate for net proceeds of $4.0 million after fees and debt assumed by
the purchaser and realized a gain on sale of the plant of $3.8 million in
the first quarter of 2002 that was classified as other income. The net
proceeds were used to repay outstanding subsidiary indebtedness. The
results of operations of the Iwahri plant, which assembles the Kia Sportage
lower vehicle module, are not significant to the operating results of the
Company as a whole, and therefore, pro forma financial information has not
been provided as the results would not be materially different. The Company
continues to manufacture body structure components in Korea, including
those components used in the Kia Sportage module.
-10-
9. SEGMENT INFORMATION
The Company produces a broad range of assemblies and modules for vehicle
body structures and suspension systems for the global automotive industry.
These operations have similar characteristics including the nature of
products, production processes and customers, and produce lower vehicle
structures, body structures (including Class A surfaces), suspension
components, and suspension and powertrain modules for the automotive
industry. Management reviews the operating results of the Company and makes
decisions based upon two operating segments: United States/Canada and
International.
Financial information by segment is as follows (in thousands):
UNITED STATES/
CANADA INTERNATIONAL TOTAL
------ ------------- -----
THREE MONTHS ENDED MARCH 31, 2003:
Revenues $ 532,062 $ 200,516 $ 732,578
Operating income 21,839 18,009 39,848
Total assets 1,883,351 765,634 2,648,985
THREE MONTHS ENDED MARCH 31, 2002:
Revenues $ 516,399 $ 151,708 $ 668,107
Operating income (loss) (42,698) 3,305 (39,393)
Restructuring and asset impairment charge 71,757 3,650 75,407
Cumulative effect of accounting change -- (112,786) (112,786)
Total assets 1,798,686 642,136 2,440,822
The change in the carrying amount of goodwill for the three months ended
March 31, 2003, by operating segment, is as follows (in thousands):
UNITED STATES/
CANADA INTERNATIONAL TOTAL
------ ------------- -----
Balance at December 31, 2002 $ 336,653 $ 136,314 $ 472,967
Currency translation adjustment 718 5,287 6,005
-------------- -------------- --------------
Balance at March 31, 2003 $ 337,371 $ 141,601 $ 478,972
============== ============== ==============
10. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
MILWAUKEE PRESS OPERATIONS (2002 PLAN):
On January 31, 2002, the Company announced that it would discontinue the
remaining stamping and ancillary processes performed at its Milwaukee Press
Operations and relocate the remaining work to other Tower locations or Tier
II suppliers. The Company substantially completed the transfer process in
2002. As a result of these efforts (the "2002 Plan"), the Company recorded
a restructuring charge in the first quarter of 2002 totaling $75.4 million,
which reflects the estimated qualifying "exit costs" to be incurred during
the 12 months subsequent to the establishment of the 2002 Plan. During the
fourth quarter of 2002, due to a favorable settlement of anticipated other
exit costs and an assessment of remaining costs, the Company subsequently
reduced the estimates associated with the 2002 and 2001 Plans by $14.3
million, resulting in a net restructuring charge of $61.1 million for 2002.
The 2002 Plan charge includes costs associated with asset impairments,
severance and outplacement costs related to colleague terminations and
certain other exit costs. These activities resulted in a reduction of
approximately 500 colleagues. The estimated restructuring charge does not
cover certain aspects of the 2002 Plan, including movement of equipment and
colleague relocation and training. These costs will be recognized in future
periods as incurred.
-11-
The accrual for the 2002 Plan is included in accrued liabilities in the
accompanying condensed consolidated balance sheet as of March 31, 2003. The
table below summarizes the accrued operational realignment and other
charges related to the 2002 Plan through March 31, 2003 (in millions):
SEVERANCE AND
OUTPLACEMENT OTHER EXIT
COSTS COSTS TOTAL
----- ----- -----
Balance at December 31, 2002 $ 3.5 $ 1.0 $ 4.5
Cash usage (1.3) (0.6) (1.9)
------------- ------------- -------------
Balance at March 31, 2003 $ 2.2 $ 0.4 $ 2.6
============= ============= =============
The Company anticipates utilizing the remaining 2002 Plan restructuring
reserves as originally intended, with the ultimate disposition occurring
during the year ending December 31, 2003.
SEBEWAING AND MILWAUKEE PRESS OPERATIONS (2001 PLAN):
In October 2001, the Company's board of directors approved a restructuring
of the enterprise that included the closing of the Sebewaing, Michigan
facility. In addition, in December 2001, the Company's board of directors
approved a restructuring plan that related to the consolidation of
technical activities and a reduction of other salaried colleagues in
conjunction with a reorganization of the Company's U.S. and Canada
operations and the relocation of some component manufacturing from the
Company's Milwaukee Press Operations to other Tower locations. As a result
of the 2001 Plan, the Company recorded a restructuring charge in the fourth
quarter of 2001 of $178.1 million, which reflects the estimated qualifying
"exit costs" to be incurred during the 12 months subsequent to the
establishment of the 2001 Plan. This total reflected a provision of $184.0
million, net of certain revisions in the estimate of the 2000 Plan of $5.9
million, which were reversed in 2001.
The 2001 Plan charge includes costs associated with asset impairments,
severance and outplacement costs related to colleague terminations and
certain other exit costs. These activities resulted in a reduction of more
than 700 colleagues in the Company's technical and administrative centers
in Novi, Rochester Hills, and Grand Rapids, Michigan; Milwaukee, Wisconsin;
and its U.S. and Canada manufacturing locations. The 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 accrual for the 2001 Plan is included in accrued liabilities in the
accompanying condensed consolidated balance sheet as of March 31, 2003. The
table below summarizes the accrued operational realignment and other
charges related to the 2001 Plan through March 31, 2003 (in millions):
SEVERANCE AND
OUTPLACEMENT OTHER EXIT
COSTS COSTS TOTAL
----- ----- -----
Balance at December 31, 2002 $ 1.0 $ 8.3 $ 9.3
Cash usage (1.0) (1.6) (2.6)
------------- ------------- -------------
Balance at March 31, 2003 $ -- $ 6.7 $ 6.7
============= ============= =============
The remaining other exit costs relate primarily to the present value of
operating lease payments that the Company is obligated to pay through 2010.
-12-
11. COMPREHENSIVE INCOME (LOSS)
The following table presents comprehensive income (loss) for the three
months ended March 31, 2003 and 2002 (in thousands):
THREE MONTHS ENDED
MARCH 31,
--------------------------------
2003 2002
------------- -------------
Net income (loss) $ 11,572 $ (147,303)
Change in cumulative translation adjustment 2,373 (569)
Unrealized gain on qualifying cash flow hedges, net of tax 511 1,428
------------- -------------
Comprehensive income (loss) $ 14,456 $ (146,444)
============= =============
12. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." Among other provisions, this Statement eliminates the
requirement that gains and losses from extinguishment of debt be classified
as extraordinary items. SFAS No. 145 became effective for the Company on
January 1, 2003. Upon adoption of SFAS No. 145, the Company now
reclassifies losses on extinguishments of debt that were classified as
extraordinary items in prior periods when such prior periods are presented.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement requires that
a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred, rather than when a company
commits to an exit plan as was previously required. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December
31, 2002. The new standard will result in the Company recognizing
liabilities for any future restructuring activities at the time the
liability is incurred rather than the past method of recognizing the
liability upon the announcement of the plan and communication to
colleagues.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure." SFAS No. 148 amends SFAS No.
123, "Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about
the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. SFAS 148 is effective for
financial statements for fiscal years ending after December 15, 2002. The
Company has included the additional disclosures about its method of
stock-based compensation in Note 3.
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates
on the disclosures to be made by a guarantor about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the guarantee. The
recognition and measurement provisions of FIN 45 are effective for all
guarantees issued or modified after December 31, 2002. The Company
currently does not have any guarantees requiring disclosure under FIN 45.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51." FIN 46 addresses
consolidation by business enterprises of certain variable interest entities
that are currently not consolidated. FIN 46 is effective for variable
interests created after January 31, 2003 and to variable interest entities
in which an enterprise obtains an interest after that date. For variable
interest entities in which the Company holds a variable interest that it
acquired before February 1, 2003, the Interpretation applies on July 1,
2003. The Company is currently analyzing the impact of FIN 46 on its
condensed consolidated financial statements.
-13-
13. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
The following consolidating financial information presents balance sheets,
statements of operations and cash flow information related to the Company's
business. Each Guarantor, as defined, is a direct or indirect wholly-owned
subsidiary of the Company and has fully and unconditionally guaranteed the
9.25 percent senior unsecured notes issued by R. J. Tower Corporation, on a
joint and several basis. Tower Automotive, Inc. (the parent company) has
also fully and unconditionally guaranteed the note and is reflected as the
Parent Guarantor in the consolidating financial information. The
Non-Guarantors include the Company's foreign subsidiaries. Separate
financial statements and other disclosures concerning the Guarantors have
not been presented because management believes that such information is not
material to investors.
-14-
TOWER AUTOMOTIVE INC.
CONSOLIDATING BALANCE SHEETS AT MARCH 31, 2003
(AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR
CORPORATION GUARANTOR COMPANIES
------------- ------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ -- $ -- $ --
Accounts receivable -- -- 226,235
Inventories -- -- 67,692
Deferred income taxes, net -- -- 12,255
Prepaid tooling and other -- -- 78,971
------------- ------------- -------------
Total current assets -- -- 385,153
------------- ------------- -------------
Property, plant and equipment, net -- -- 715,363
Investments in joint ventures 258,642 -- --
Investment in subsidiaries 505,866 528,904 --
Deferred income taxes, net -- -- 94,189
Goodwill -- -- 328,432
Other assets, net 5,857 28,308 57,385
------------- ------------- -------------
$ 770,365 $ 557,212 $ 1,580,522
============= ============= =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt and capital
lease obligations $ -- $ -- $ 3,692
Accounts payable -- -- 326,754
Accrued liabilities 4,023 3,390 163,204
------------- ------------- -------------
Total current liabilities 4,023 3,390 493,650
------------- ------------- -------------
Long-term debt, net of current maturities 515,580 -- 43,765
Obligations under capital leases, net of current maturities -- -- 250
Convertible subordinated notes -- 199,984 --
Due to/(from) affiliates (324,729) (438,227) 732,858
Other noncurrent liabilities -- 4,411 151,894
------------- ------------- -------------
Total noncurrent liabilities 190,851 (233,832) 928,767
------------- ------------- -------------
Manditorily redeemable trust convertible preferred securities -- 258,750 --
Stockholders' investment 575,491 528,904 158,105
------------- ------------- -------------
$ 770,365 $ 557,212 $ 1,580,522
============= ============= =============
NON-GUARANTOR
COMPANIES ELIMINATIONS CONSOLIDATED
------------- ------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 18,772 $ -- $ 18,772
Accounts receivable 112,394 -- 338,629
Inventories 48,943 -- 116,635
Deferred income taxes, net 6,105 -- 18,360
Prepaid tooling and other 32,443 -- 111,414
------------- ------------- -------------
Total current assets 218,657 -- 603,810
------------- ------------- -------------
Property, plant and equipment, net 331,456 -- 1,046,819
Investments in joint ventures 328 -- 258,970
Investment in subsidiaries -- (1,034,770) --
Deferred income taxes, net 5,247 -- 99,436
Goodwill 150,540 -- 478,972
Other assets, net 69,428 -- 160,978
------------- ------------- -------------
$ 775,656 $ (1,034,770) $ 2,648,985
============= ============= =============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt and capital
lease obligations $ 95,357 $ -- $ 99,049
Accounts payable 135,110 -- 461,864
Accrued liabilities 99,111 -- 269,728
------------- ------------- -------------
Total current liabilities 329,578 -- 830,641
------------- ------------- -------------
Long-term debt, net of current maturities 43,191 -- 602,536
Obligations under capital leases, net of current maturities 32,332 -- 32,582
Convertible subordinated notes -- -- 199,984
Due to/(from) affiliates 30,098 -- --
Other noncurrent liabilities 39,283 -- 195,588
------------- ------------- -------------
Total noncurrent liabilities 144,904 1,030,690
------------- ------------- -------------
Manditorily redeemable trust convertible preferred securities -- -- 258,750
Stockholders' investment 301,174 (1,034,770) 528,904
------------- ------------- -------------
$ 775,656 $ (1,034,770) $ 2,648,985
============= ============= =============
-15-
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003
(AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR
CORPORATION GUARANTOR COMPANIES
-------------- -------------- --------------
Revenues $ -- $ -- $ 500,763
Cost of sales -- -- 456,979
-------------- -------------- --------------
Gross profit -- -- 43,784
Selling, general and administrative expenses -- -- 24,245
-------------- -------------- --------------
Operating income -- -- 19,539
Interest expense, net 12,026 6,866 (5,401)
-------------- -------------- --------------
Income (loss) before provision for
income taxes, equity in earnings of
joint ventures and minority interest (12,026) (6,866) 24,940
Provision (benefit) for income taxes (4,089) (2,334) 8,480
-------------- -------------- --------------
Income (loss) before equity in earnings
of joint ventures and minority interest (7,937) (4,532) 16,460
Equity in earnings of joint ventures and
subsidiaries, net 26,923 18,986 --
Minority interest, net -- (2,882) --
-------------- -------------- --------------
Net income $ 18,986 $ 11,572 $ 16,460
============== ============== ==============
NON-GUARANTOR
COMPANIES ELIMINATIONS CONSOLIDATED
-------------- -------------- --------------
Revenues $ 231,815 $ -- $ 732,578
Cost of sales 201,075 -- 658,054
-------------- -------------- --------------
Gross profit 30,740 -- 74,524
Selling, general and administrative expenses 10,431 -- 34,676
-------------- -------------- --------------
Operating income 20,309 -- 39,848
Interest expense, net 3,278 -- 16,769
-------------- -------------- --------------
Income (loss) before provision for
income taxes, equity in earnings of
joint ventures and minority interest 17,031 -- 23,079
Provision (benefit) for income taxes 5,790 -- 7,847
-------------- -------------- --------------
Income (loss) before equity in earnings
of joint ventures and minority interest 11,241 -- 15,232
Equity in earnings of joint ventures and
subsidiaries, net -- (45,265) 644
Minority interest, net (1,422) -- (4,304)
-------------- -------------- --------------
Net income $ 9,819 $ (45,265) $ 11,572
============== ============== ==============
-16-
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2003
(AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- ------------- ------------ ------------
OPERATING ACTIVITIES:
Net income $ 18,986 $ 11,572 $ 16,460 $ 9,819 $ (45,265) $ 11,572
Adjustments required to reconcile net income to net
cash provided by (used in) operating activities
Depreciation -- -- 28,173 10,878 -- 39,051
Deferred income tax provision (benefit) -- -- 7,328 946 -- 8,274
Equity in earnings of joint ventures, net (644) -- -- -- -- (644)
Changes in working capital and other
operating items 6,967 (3,984) (93,169) 14,184 18,972 (57,030)
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) operating
activities 25,309 7,588 (41,208) 35,827 (26,293) 1,223
--------- --------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures, net -- -- (34,409) (6,791) -- (41,200)
Acquisitions and other, net (93,897) (7,891) 76,329 2,398 26,293 3,232
--------- --------- --------- --------- --------- ---------
Net cash provided by (used in) investing
activities (93,897) (7,891) 41,920 (4,393) 26,293 (37,968)
--------- --------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Proceeds from borrowings 690,726 -- 6 8,914 -- 699,646
Repayments of debt (622,138) -- (718) (35,275) -- (658,131)
Proceeds from issuance of stock -- 303 -- -- -- 303
--------- --------- --------- --------- --------- ---------
Net cash provided by (used for) financing
activities 68,588 303 (712) (26,361) -- 41,818
--------- --------- --------- --------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS -- -- -- 5,073 -- 5,073
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- -- -- 13,699 -- 13,699
--------- --------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ -- $ -- $ 18,772 $ -- $ 18,772
========= ========= ========= ========= ========= =========
-17-
TOWER AUTOMOTIVE INC.
CONSOLIDATING BALANCE SHEETS AT DECEMBER 31, 2002
(AMOUNTS IN THOUSANDS)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- ---------- ------------- ------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ -- $ -- $ -- $ 13,699 $ -- $ 13,699
Accounts receivable -- -- 151,774 97,567 -- 249,341
Inventories -- -- 82,765 50,309 -- 133,074
Deferred income taxes, net -- -- 12,255 8,379 -- 20,634
Prepaid tooling and other -- -- 55,453 44,980 -- 100,433
---------- --------- - -------- ------------- ----------- ------------
Total current assets -- -- 302,247 214,934 -- 517,181
---------- --------- - -------- ------------- ----------- ------------
Property, plant and equipment, net -- -- 709,127 364,492 -- 1,073,619
Investments in joint ventures 260,898 -- -- -- -- 260,898
Investment in subsidiaries 404,864 512,076 -- -- (916,940) --
Deferred income taxes, net -- -- 99,313 6,386 -- 105,699
Goodwill -- -- 328,308 144,659 -- 472,967
Other assets, net 1,501 27,144 60,839 38,037 -- 127,521
---------- --------- ---------- ------------- ----------- ------------
$ 667,263 $ 539,220 $1,499,834 $ 768,508 $ (916,940) $ 2,557,885
---------- ========= ========== ============= =========== ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 8,352 $ -- $ 4,274 $ 107,844 $ -- $ 120,470
Accounts payable -- -- 285,585 132,142 -- 417,727
Accrued liabilities 6,963 5,889 183,876 87,722 -- 284,450
---------- --------- ---------- ------------- ----------- ------------
Total current liabilities 15,315 5,889 473,735 327,708 -- 822,647
---------- --------- ---------- ------------- ----------- ------------
Long-term debt, net of current maturities 428,651 -- 43,765 62,804 -- 535,220
Obligations under capital leases, net of current
maturities -- -- 370 29,361 -- 29,731
Convertible subordinated notes -- 199,984 -- -- -- 199,984
Due to/(from) affiliates (337,294) (443,582) 757,808 23,068 -- --
Other noncurrent liabilities -- 6,103 157,230 36,144 -- 199,477
---------- --------- ---------- ------------- ----------- ------------
Total noncurrent liabilities 91,357 (237,495) 959,173 151,377 -- 964,412
---------- --------- ---------- ------------- ----------- ------------
Manditorily redeemable trust convertible
preferred securities -- 258,750 -- -- -- 258,750
Stockholders' investment 560,591 512,076 66,926 289,423 (916,940) 512,076
---------- --------- ---------- ------------- ----------- ------------
$ 667,263 $ 539,220 $1,499,834 $ 768,508 $ (916,940) $ 2,557,885
========== ========= ========== ============= =========== ============
-18-
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- ------------- ------------ ------------
Revenues $ -- $ -- $ 479,204 $ 188,903 $ -- $ 668,107
Cost of sales -- -- 434,686 164,412 -- 599,098
---------- --------- --------- ------------ ----------- ------------
Gross profit -- -- 44,518 24,491 -- 69,009
Selling, general and administrative expenses -- -- 21,461 11,534 -- 32,995
Restructuring and asset impairment charge -- -- 71,757 3,650 -- 75,407
---------- --------- --------- ------------ ----------- ------------
Operating income (loss) -- -- (48,700) 9,307 -- (39,393)
Interest expense, net 11,912 2,821 420 2,878 -- 18,031
Other income -- -- -- (3,839) -- (3,839)
---------- --------- --------- ------------ ----------- ------------
Income (loss) before provision for
income taxes, equity earnings of joint
ventures, minority interest and
cumulative effect of accounting change (11,912) (2,821) (49,120) 10,268 -- (53,585)
Provision (benefit) for income taxes (4,169) (987) (17,194) 3,594 -- (18,756)
---------- --------- --------- ------------ ----------- ------------
Income (loss) before equity in earnings
of joint ventures, minority interest and
cumulative effect of accounting change (7,743) (1,834) (31,926) 6,674 -- (34,829)
Equity in earnings of joint ventures and
subsidiaries, net (134,888) (142,631) -- -- 281,904 4,385
Minority interest, net -- (2,838) -- (1,235) -- (4,073)
---------- --------- --------- ------------ ----------- ------------
Income (loss) before cumulative effect of
accounting change (142,631) (147,303) (31,926) 5,439 281,904 (34,517)
Cumulative effect of change in accounting
principle, net -- -- -- (112,786) -- (112,786)
----------- --------- --------- ------------ ----------- ------------
Net income (loss) $ (142,631) $(147,303) $ (31,926) $ (107,347) $ 281,904 $ (147,303)
========== ========= ========= ============ =========== ============
-19-
TOWER AUTOMOTIVE INC.
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- --------- --------- ------------- ------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $ (142,631) $(147,303) $ (31,926) $ (107,347) $ 281,904 $ (147,303)
Adjustments required to reconcile net income (loss)
to net cash provided by (used in) operating
activities
Cumulative effect of change in accounting
principle, net -- -- -- 112,786 -- 112,786
Restructuring and asset impairment charge -- -- 71,757 3,650 -- 75,407
Depreciation -- -- 24,635 7,778 -- 32,413
Deferred income tax provision (benefit) -- -- (38,615) 16,332 -- (22,283)
Gain on sale of plant -- -- -- (3,839) -- (3,839)
Equity in earnings of joint ventures, net (4,385) -- -- -- -- (4,385)
Changes in working capital and other
operating items 231,623 2,188 (131,484) (24,673) (149,588) (71,934)
---------- --------- --------- ------------ ----------- ------------
Net cash provided by (used in) operating
activities 84,607 (145,115) (105,633) 4,687 132,316 (29,138)
---------- --------- --------- ------------ ----------- ------------
INVESTING ACTIVITIES:
Capital expenditures, net -- -- 936 (14,137) -- (13,201)
Acquisitions and other, net (157,338) 143,840 103,771 4,004 (132,316) (38,039)
---------- --------- --------- ------------ ----------- ------------
Net cash provided by (used in) investing
activities (157,338) 143,840 104,707 (10,133) (132,316) (51,240)
---------- --------- --------- ------------ ----------- ------------
FINANCING ACTIVITIES:
Proceeds from borrowings 458,961 -- -- 27,588 -- 486,549
Repayments of debt (386,230) -- (665) (27,717) -- (414,612)
Proceeds from issuance of stock -- 1,275 -- -- -- 1,275
---------- --------- --------- ------------ ----------- ------------
Net cash provided by (used for) financing
activities 72,731 1,275 (665) (129) -- 73,212
---------- --------- --------- ------------ ----------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS -- -- (1,591) (5,575) -- (7,166)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD -- -- 2,444 19,323 -- 21,767
---------- --------- --------- ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ -- $ 853 $ 13,748 $ -- $ 14,601
========== ========= ========= ============ =========== ============
-20-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2003 TO THE THREE MONTHS ENDED
MARCH 31, 2002
Revenues. Revenues for the three months ended March 31, 2003 were $732.6
million, a 9.7 percent increase, compared to $668.1 million for the three months
ended March 31, 2002. The increase of $64.5 million was composed of net volume
increases of $56.7 million, primarily in the following platforms: Dodge Ram,
Ford Expedition, Cadillac CTS, and various Kia and Volkswagen programs, offset
by volume declines primarily in the Dodge Durango and Dakota platforms. The net
volume increase of $56.7 million comprises a non-value- added module assembly
revenue increase of $11.4 million and a $45.3 million increase in the Company's
value-added revenue platforms. In addition, the foreign exchange rate effect in
Europe and Asia increased revenues by $20.1 million in the first quarter of
2003, offset by a decline in revenues of $12.3 million attributable to the sale
of the Iwahri, Korea plant which occurred during the first quarter of 2002.
Cost of Sales. Cost of sales as a percent of revenues for the three months ended
March 31, 2003 was 89.8 percent compared to 89.7 percent for the three months
ended March 31, 2002. Gross profit increased $5.5 million from $69.0 million in
the 2002 period to $74.5 million in the 2003 period and is attributable to the
combined effects of: (i) $9.1 million in gross profit conversion on value-added
revenue increases of $45.3 million partially offset by revenue decline of $12.3
million due to the sale of the Iwahri, Korea plant, (ii) $1.4 million in
positive foreign exchange rate effect on gross profit, offset by (iii) $5.0
million in negative profit effect of pricing and cost economics. As stated
above, the Company's module assembly revenues increased by $11.4 million in the
2003 period over the 2002 period which do not contribute to an increase in gross
profits.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $34.7 million, or 4.7 percent of revenues,
for the three months ended March 31, 2003 compared to $33.0 million, or 4.9
percent of revenues, for the three months ended March 31, 2002. The $1.7 million
increase in expense is due primarily to increased program management costs in
the engineering and support activities of the launch of the Company's upcoming
new programs related to Volvo, Ford and Nissan. The efficient use of management
resources to support the Company's growing revenue base has allowed these
expenses as a percentage of revenues to decline in the 2003 period as compared
to the 2002 period.
Interest Expense, net. Interest expense (net of interest income) for the three
months ended March 31, 2003 was $16.8 million compared to $18.0 million for the
three months ended March 31, 2002. The $1.2 million reduction in net interest
expense is attributable to $0.6 million due to reduced borrowings in the 2003
period compared to the 2002 period, $0.3 million due to lower interest rates and
increased capitalized interest on construction projects in the 2003 period of
$0.3 million.
Income Taxes. The effective income tax rate was 34.0 percent and 35.0 percent
for the first quarter of 2003 and 2002, respectively. The effective tax rate
reflects the actual rates in the tax jurisdictions in which the Company
operates, adjusted for permanent differences.
Equity in Earnings of Joint Ventures, net. Equity in earnings of joint ventures,
net of tax, was $0.6 million and $4.4 million for the three months ended March
31, 2003 and 2002, respectively. These amounts represent the Company's share of
the earnings from its joint venture interests in Metalsa, Yorozu, and DTA
Development. The Company's share of Metalsa's joint venture earnings and
Yorozu's joint venture earnings has decreased quarter over quarter by $2.5
million and $1.3 million, respectively.
Minority Interest, net. Minority interest, net of tax, was $4.3 million and $4.1
million for the three months ended March 31, 2003 and 2002, respectively and
represents dividends, net of income tax benefits, on the 6 3/4% Trust Preferred
Securities and the minority interest held by the 40 percent joint venture
partners in Tower Golden Ring.
-21-
Cumulative Effect of a Change in Accounting Principle, net. The Company adopted
SFAS No. 142 relating to the accounting for goodwill and other intangible assets
as of January 1, 2002. Under SFAS No. 142, the Company designated four reporting
units: 1) United States/Canada, 2) Europe, 3) Asia and 4) South America/Mexico.
As a result of the Company completing its formal valuation procedures under SFAS
No. 142, utilizing a combination of valuation techniques including the
discounted cash flow approach and the market multiple approach, the Company
recorded a transitional impairment loss of $112.8 million as a cumulative effect
of a change in accounting principle in the first quarter of 2002, representing
the write-off of all of the Company's existing goodwill in the reporting units
of Asia ($29.7 million) and South America/Mexico ($83.1 million). There was no
tax impact upon adoption of SFAS No. 142 since the Company recorded a $24.2
million tax valuation allowance for the deductible portion of the goodwill
written off in the reporting unit of South America/Mexico given the uncertainty
of realization and the lack of income in the reporting unit. The Asia goodwill
was not deductible for tax purposes.
RESTRUCTURING AND ASSET IMPAIRMENT CHARGE
The Company's growth through acquisitions coincided with an extended period of
high automotive production that resulted in higher levels of utilization of the
Company's acquired resources and capacity and contributed to periods of strong
operating results. During the second half of 2000, the Company focused its
efforts on reducing the capacity of the enterprise and improving the efficiency
of its continuing operations. Beginning in the fourth quarter of 2000, the
Company: (i) divested its non-core heavy truck business, (ii) consolidated its
manufacturing operations by closing manufacturing locations in Kalamazoo,
Michigan; Sebewaing, Michigan; and certain operations in Milwaukee, Wisconsin,
(iii) reduced redundant overhead through a consolidation of its technical
activities and a reduction of other salaried colleagues, (iv) reorganized the
management of its U.S. and Canada region, and (v) discontinued remaining
stamping and ancillary processes performed at its Milwaukee Press Operations and
relocated remaining work to other locations or Tier II suppliers. These actions
were accomplished through three restructurings. The first restructuring was
initiated in October 2000 (the "2000 Plan"), the second restructuring was
initiated in October 2001 (the "2001 Plan"), and the third restructuring was
initiated in January 2002 (the "2002 Plan"). There are cash costs remaining to
be paid in connection with the 2001 Plan and the 2002 Plan; these plans are
described in further detail below.
Under the 2002 Plan, the Company has realized cash savings of approximately $4
million during the first quarter of 2003 and expects to realize an additional
$12 million of cash savings through the remainder of 2003. Under the 2001 Plan,
the Company has realized cash savings of approximately $6 million during the
first quarter of 2003 and expects to realize an additional $17 million of cash
savings through the remainder of 2003. These cash savings from permanent payroll
reductions are expected to be realized annually.
MILWAUKEE PRESS OPERATIONS (2002 PLAN):
On January 31, 2002, the Company announced that it would discontinue the
remaining stamping and ancillary processes performed at its Milwaukee Press
Operations and relocate the remaining work to other Tower locations or Tier II
suppliers. The Company substantially completed the transfer process in 2002. As
a result of these efforts (the "2002 Plan"), the Company recorded a
restructuring charge in the first quarter of 2002 totaling $75.4 million, which
reflects the estimated qualifying "exit costs" to be incurred during the 12
months subsequent to the establishment of the 2002 Plan. During the fourth
quarter of 2002, due to a favorable settlement of anticipated other exit costs
and an assessment of remaining costs, the Company subsequently reduced the
estimates associated with the 2002 and 2001 Plans by $14.3 million, resulting in
a net restructuring charge of $61.1 million for 2002.
The 2002 Plan charge includes costs associated with asset impairments, severance
and outplacement costs related to colleague terminations and certain other exit
costs. These activities resulted in a reduction of approximately 500 colleagues.
The estimated restructuring charge does not cover certain aspects of the 2002
Plan, including movement of equipment and colleague relocation and training.
These costs will be recognized in future periods as incurred.
-22-
The accrual for the 2002 Plan is included in accrued liabilities in the
accompanying condensed consolidated balance sheet as of March 31, 2003. The
table below summarizes the accrued operational realignment and other charges
related to the 2002 Plan through March 31, 2003 (in millions):
SEVERANCE AND
OUTPLACEMENT OTHER EXIT
COSTS COSTS TOTAL
------------- ---------- -----
Balance at December 31, 2002 $ 3.5 $ 1.0 $ 4.5
Cash usage (1.3) (0.6) (1.9)
------ ------- -----
Balance at March 31, 2003 $ 2.2 $ 0.4 $ 2.6
====== ======= =====
The Company anticipates utilizing the remaining 2002 Plan restructuring reserves
as originally intended, with the ultimate disposition occurring during the year
ending December 31, 2003.
SEBEWAING AND MILWAUKEE PRESS OPERATIONS (2001 PLAN):
In October 2001, the Company's board of directors approved a restructuring of
the enterprise that included the closing of the Sebewaing, Michigan facility. In
addition, in December 2001, the Company's board of directors approved a
restructuring plan that related to the consolidation of technical activities and
a reduction of other salaried colleagues in conjunction with a reorganization of
the Company's U.S. and Canada operations and the relocation of some component
manufacturing from the Company's Milwaukee Press Operations to other Tower
locations. As a result of the 2001 Plan, the Company recorded a restructuring
charge in the fourth quarter of 2001 of $178.1 million, which reflects the
estimated qualifying "exit costs" to be incurred during the 12 months subsequent
to the establishment of the 2001 Plan. This total reflected a provision of
$184.0 million, net of certain revisions in the estimate of the 2000 Plan of
$5.9 million, which were reversed in 2001.
The 2001 Plan charge includes costs associated with asset impairments, severance
and outplacement costs related to colleague terminations and certain other exit
costs. These activities resulted in a reduction of more than 700 colleagues in
the Company's technical and administrative centers in Novi, Rochester Hills, and
Grand Rapids, Michigan; Milwaukee, Wisconsin; and its U.S. and Canada
manufacturing locations. The 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 accrual for the 2001 Plan is included in accrued liabilities in the
accompanying condensed consolidated balance sheet as of March 31, 2003. The
table below summarizes the accrued operational realignment and other charges
related to the 2001 Plan through March 31, 2003 (in millions):
SEVERANCE AND
OUTPLACEMENT OTHER EXIT
COSTS COSTS TOTAL
------------- ---------- -----
Balance at December 31, 2002 $ 1.0 $ 8.3 $ 9.3
Cash usage (1.0) (1.6) (2.6)
------ ------- -----
Balance at March 31, 2003 $ -- $ 6.7 $ 6.7
====== ======= =====
The remaining other exit costs relate primarily to the present value of
operating lease payments that the Company is obligated to pay through 2010.
-23-
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF CASH
The Company's principal sources of cash are cash flow from operations,
commercial borrowings and capital markets activities. During the three months
ended March 31, 2003, the Company generated $1.2 million of cash from
operations. This compares with $29.1 million used during the same period in
2002. Net income before depreciation, deferred income taxes, gain on sale of
plant, equity in joint venture earnings, restructuring and asset impairment
charges, and cumulative effect of change in accounting principle was $58.2
million and $42.8 million for the 2003 and 2002 periods, respectively. Operating
cash flow was reduced by $4.5 million in 2003 and $11.4 million in 2002 for cash
restructuring payments, and was decreased by net taxes paid of $0.1 million in
2003 and increased by net tax refunds of $0.4 million in 2002. Operating cash
flow was also reduced in the 2003 and 2002 periods by $5.0 million and $1.8
million, respectively, for required pension contributions. Expected pension
contribution funding requirements of the Company for the remainder of 2003 are
approximately $22 million. In total, working capital and other operating items
decreased operating cash flow by $57.0 million and $71.9 million during 2003 and
2002, respectively.
The issuance of stock from the Company's colleague stock purchase plan and
option plans contributed an additional $0.3 million and $1.3 million to cash
flow for the 2003 and 2002 periods, respectively.
In June 2002, the Company completed an amendment to its senior credit facility
(the "Credit Agreement") that permanently reduced borrowings under the facility
and deferred the start of the scheduled repayment of its remaining borrowings
until March 2005. The amendment reduced the former $1.15 billion facility to a
$725 million facility by voluntarily repaying $200 million of the $325 million
term loan portion of the facility with proceeds from the Company's May 2002
common stock offering, and reducing capacity under the revolving credit facility
from $825 million to $600 million. The Credit Agreement also includes a
multi-currency borrowing feature that allows the Company to borrow up to $500
million in certain freely tradable offshore currencies, and letter of credit
sublimits of $250 million. At March 31, 2003, approximately $61.5 million of the
outstanding borrowings are denominated in Japanese Yen, $16.4 million are
denominated in Euro, and $17.0 million are denominated in Canadian dollars.
Interest on the Credit Agreement is at the financial institutions' reference
rate, LIBOR, or the Eurodollar rate plus a margin ranging from 0 to 200 basis
points depending on the ratio of the consolidated funded debt for restricted
subsidiaries of the Company to its total EBITDA. The weighted average interest
rate for such borrowings was 5.6 percent for the three months ended March 31,
2003 (including the effect of the interest rate swap contract discussed below).
The Credit Agreement has a final maturity of 2006.
At March 31, 2003, the Company had borrowed $243.1 million under its revolving
credit facility of $600 million. In order to borrow under the revolving
facility, the Company must meet certain covenant ratio requirements, including
but not limited to a minimum interest coverage and maximum leverage ratio. Under
the most restrictive covenants, the amount of unused availability under the
revolving facility was $115.9 million at March 31, 2003, compared to unused
availability of $57.9 million at March 31, 2002. This increase in availability
between the periods resulted from the reduction of indebtedness (as defined in
the credit agreement), and an increase in trailing four quarter EBITDA between
the periods. The covenant conditions contained in the credit agreement also
limit the Company's ability to pay dividends. As of March 31, 2003, the Company
was in compliance with all debt covenants and anticipates achieving covenant
compliance during the remainder of 2003. The Company anticipates that the
sufficient flexibility under its Credit Agreement will allow it to adequately
meet its 2003 liquidity requirements through the prudent use of its cash
resources, continued effective management of operating working capital and
capital expenditures, and also employing other potential financing alternatives,
as required.
In July 2000, R. J. Tower Corporation (the "Issuer"), a wholly-owned subsidiary
of the Company, issued Euro-denominated senior unsecured notes in the amount of
(euro)150 million ($163.8 million at March 31, 2003) The notes bear interest at
a rate of 9.25 percent, payable semi-annually. The notes rank equally with all
of the Company's other senior unsecured and unsubordinated debt and mature on
August 1, 2010.
-24-
During September 2000, the Company entered into an interest rate swap contract
to hedge against interest rate exposure on approximately $160 million of its
floating rate indebtedness under the Credit Agreement. The contracts have the
effect of converting the floating rate interest to a fixed rate of approximately
6.9 percent, plus any applicable margin required under the revolving credit
facility. The interest rate swap contract was executed to balance the Company's
fixed-rate and floating-rate debt portfolios and expires in September 2005.
USES OF CASH
The Company's principal uses of cash are debt repayment, capital expenditures
and acquisitions. Net cash used in investing activities was $38.0 million during
the three months ended March 31, 2003, as compared to $51.2 million in the prior
period. Dividends received from investments in joint ventures increased
investing cash flows by $3.2 million in the 2003 period. Earnout payments offset
by net proceeds received from the sale of a plant, reduced investing cash flows
by $38.0 million in the 2002 period. During the balance of 2003, the Company
will be reviewing the merits of acquiring, from its joint venture partner, the
remaining 34 percent interest in Seojin. The amount to be paid would be based
upon a range of value that would indicate the market value of the remaining
shares held by the existing minority interest partner. Seojin is currently owed
a note receivable of approximately $10 million from this minority interest
partner, which became past due in March 2003. The minority interest partner's
shares in Seojin are pledged as collateral for the note receivable. In order to
enforce the collateral agreement, the Company must purchase the remaining shares
from its joint venture partner, the terms of which are being negotiated. The
Company believes that Seojin has adequate financing resources under its local
revolving debt facilities not covered under the Company's Credit Agreement or
can secure additional local financing, if necessary, in order to fund any
additional purchase of shares. If the Company were to acquire these remaining
shares, the Company would own 100 percent of Seojin.
Net capital expenditures were $41.2 million and $13.2 million during the three
months ended March 31, 2003 and 2002, respectively. Capital expenditures in 2003
include significant investments to support major product launches along with a
continued focus on safety and productivity improvements. The Company estimates
its 2003 capital expenditures will be approximately $200 million. Where
appropriate, the Company may lease rather than purchase such equipment, which
would have the effect of reducing this anticipated level of capital
expenditures. The Company leases certain equipment utilized in its operations
under operating lease agreements. The Company intends to continue to utilize
operating lease financing on occasion when the effective interest rate equals or
is lower than the Company's financing costs and the lease terms match the
expected life of the respective program. Annual operating lease payments under
the Company's lease agreements range from $51 million to $62 million for the
next five years.
Net cash provided by financing activities totaled $41.8 million and $73.2
million for the three months ended March 31, 2003 and 2002, respectively. Net
borrowings of debt were $41.5 million and $71.9 million for the comparable 2003
and 2002 periods, respectively.
WORKING CAPITAL
The Company maintained significant negative levels of working capital of $226.8
million and $305.5 million as of March 31, 2003 and December 31, 2002,
respectively, as a result of its continuing focus on minimizing the cash flow
cycle. The $78.7 million net increase in working capital in 2003 was due to the
combined effects of an $89.3 million increase in accounts receivable
attributable to the significant sales increase in the first quarter of 2003, an
$11.0 million timing-related increase in tooling, $4.5 million usage of
restructuring reserves during 2003, and a $7.8 million net increase in other
working capital items, offset by a $33.9 million net increase in accounts
payable and accrued liabilities resulting from the increase in production
volumes. The Company's management of its accounts receivable includes
participation in specific receivable programs with key customers that allow for
accelerated collection of receivables, subject to interest charges ranging from
4.5 percent to 6.5 percent at an annualized rate.
The Company expects to continue its focus on maintaining a large negative
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,
-25-
together with funds generated by operations, should provide sufficient liquidity
and capital resources to pursue its business strategy for the foreseeable
future, with respect to working capital, capital expenditures, and other
operating needs.
EFFECTS OF INFLATION
Inflation generally affects the Company by increasing the interest expense of
floating-rate indebtedness and by increasing the cost of labor, equipment and
raw materials. However, because selling prices generally cannot be increased
until a model changeover, the effects of inflation must be offset by
productivity improvements and volume from new business awards.
MARKET RISK
The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. The Company's policy is to not enter into
derivatives or other financial instruments for trading or speculative purposes.
The Company periodically enters into financial instruments to manage and reduce
the impact of changes in interest rates.
Interest rate swaps are entered into as a hedge of underlying debt instruments
to effectively change the characteristics of the interest rate without actually
changing the debt instrument. Therefore, these interest rate swap agreements
convert outstanding floating rate debt to fixed rate debt for a period of time.
For fixed rate debt, interest rate changes affect the fair market value but do
not impact earnings or cash flows. Conversely for floating rate debt, interest
rate changes generally do not affect the fair market value but do impact future
earnings and cash flows, assuming other factors are held constant.
At March 31, 2003, Tower Automotive had total debt and obligations under capital
leases of $934.2 million. The debt is comprised of fixed rate debt of $523.8
million and floating rate debt of $410.4 million. The pre-tax earnings and cash
flows impact for the next year resulting from a one percentage point increase in
interest rates on variable rate debt would be approximately $4.1 million,
holding other variables constant. A one percentage point increase in interest
rates would not materially impact the fair value of the fixed rate debt.
A portion of Tower Automotive's revenues were derived from manufacturing
operations in Europe, Asia and South America. The results of operations and
financial position of the Company's foreign operations are principally measured
in its respective currency and translated into U.S. dollars. The effects of
foreign currency fluctuations in Europe, Asia and South America are somewhat
mitigated by the fact that expenses are generally incurred in the same currency
in which revenues are generated. The reported income of these subsidiaries will
be higher or lower depending on a weakening or strengthening of the U.S. dollar
against the respective foreign currency.
A portion of Tower Automotive's assets are based in its foreign operations and
are translated into U.S. dollars at foreign currency exchange rates in effect as
of the end of each period, with the effect of such translation reflected as a
separate component of stockholders' investment. Accordingly, the Company's
consolidated stockholders' investment will fluctuate depending upon the
weakening or strengthening of the U.S. dollar against the respective foreign
currency.
The Company's strategy for management of currency risk relies primarily upon
conducting its operations in a country's respective currency and may, from time
to time, also involve hedging programs intended to reduce the Company's exposure
to currency fluctuations. Management believes the effect of a 100 basis point
movement in foreign currency rates versus the dollar would not have materially
affected the Company's financial position or results of operations for the
periods presented.
-26-
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
Among other provisions, this Statement eliminates the requirement that gains and
losses from extinguishment of debt be classified as extraordinary items. SFAS
No. 145 became effective for the Company on January 1, 2003. Upon adoption of
SFAS No. 145, the Company now reclassifies losses on extinguishments of debt
that were classified as extraordinary items in prior periods when such prior
periods are presented.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred, rather than when a company commits to an exit plan as was
previously required. SFAS No. 146 is effective for exit or disposal activities
that are initiated after December 31, 2002. The new standard will result in the
Company recognizing liabilities for any future restructuring activities at the
time the liability is incurred rather than the past method of recognizing the
liability upon the announcement of the plan and communication to colleagues.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure." SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS 148 is effective for financial statements for fiscal years ending
after December 15, 2002. The Company has included the additional disclosures
about its method of stock-based compensation in Note 3.
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 elaborates on the
disclosures to be made by a guarantor about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The recognition and
measurement provisions of FIN 45 are effective for all guarantees issued or
modified after December 31, 2002. The Company currently does not have any
guarantees requiring disclosure under FIN 45.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51." FIN 46 addresses consolidation by
business enterprises of certain variable interest entities that are currently
not consolidated. FIN 46 is effective for variable interests created after
January 31, 2003 and to variable interest entities in which an enterprise
obtains an interest after that date. For variable interest entities in which the
Company holds a variable interest that it acquired before February 1, 2003, the
Interpretation applies on July 1, 2003. The Company is currently analyzing the
impact of FIN 46 on its condensed consolidated financial statements.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this Form
10-Q or incorporated by reference herein, are, or may be deemed to be,
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). When used in this Form 10-Q, the words "anticipate," "believe,"
"estimate," "expect," "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
-27-
reliance on major customers and selected models; (iii) the cyclicality and
seasonality of the automotive market; (iv) the failure to realize the benefits
of recent acquisitions and joint ventures; (v) obtaining new business on new and
redesigned models; (vi) the Company's ability to continue to implement its
acquisition strategy; (vii) the highly competitive nature of the automotive
supply industry; (viii) the ability to achieve the anticipated volume of
production from new and planned supply programs; and (ix) such other factors
noted in this Form 10-Q with respect to the Company's businesses. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on behalf of the Company are expressly qualified in their
entirety by such cautionary statements.
ITEM 4: DISCLOSURE CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
With the participation of management, the Company's chief executive officer and
chief financial officer, after evaluating the effectiveness of the Company's
disclosure controls and procedures (as defined in Exchange Act Rules 13a --
14(c) and 15d -- 14(c)) on April 16, 2003 ("the Evaluation Date"), have
concluded that, as of such date, the Company's disclosure controls and
procedures were adequate and effective to ensure that material information
relating to the Company and its consolidated subsidiaries would be made known to
them by others within those entities in connection with the Company's filing of
its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect the Company's disclosure controls
subsequent to the Evaluation Date through the date of this filing of Form 10-Q
for the quarterly period ended March 31, 2003.
-28-
PART II. OTHER INFORMATION
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings:
None.
Item 2. Change in Securities and Use of Proceeds:
None.
Item 3. Defaults Upon Senior Securities:
None.
Item 4. Submission of Matters to a Vote of Security Holders:
None.
Item 5. Other Information:
LEADERSHIP PLANNING
Dugald K. Campbell became President and Chief Executive Officer of the
Company in December 1993, shortly after the Company was founded. At
that time, Mr. Campbell conveyed to the Board of Directors his desire
to lead the Company for the first decade of its growth. Accordingly,
the Nominating and Governance Committee of the Board, in conjunction
with Mr. Campbell, recently initiated a succession planning process
that would ultimately result in the identification of Mr. Campbell's
successor from both internal and external candidates. The timing of any
change in leadership will be subject to the Company's ability to
identify and retain a person having the requisite skills and experience
necessary to lead the Company through the next stages of its evolution.
It is the intention of the Company and Mr. Campbell that any change in
leadership will take place in a planned and orderly manner and will be
accomplished with Mr. Campbell's active participation throughout the
transition.
Item 6. Exhibits and Reports on Form 8-K:
(b) During the quarter for which this report is filed, the Company
filed the following Form 8-K Current Reports with the Securities
and Exchange Commission:
1. The Company's Current Report on Form 8-K dated February 14,
2003, under Item 5 (Commission File No. 1-12733).
2. The Company's Current Report on Form 8-K dated February 14,
2003, under Item 9 (Commission File No. 1-12733).
3. The Company's Current Report on Form 8-K dated March 24, 2003,
under Item 5 (Commission File No. 1-12733).
-29-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOWER AUTOMOTIVE, INC.
Date: May 9, 2003 By /s/ Ernest T. Thomas
---------------------------------------------
Ernest T. Thomas
Chief Financial Officer and Treasurer
(principal accounting and financial officer)
-30-
CERTIFICATIONS
I, Dugald K. Campbell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tower Automotive,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 9, 2003
/s/ Dugald K. Campbell
-------------------------------------
Dugald K. Campbell
President and Chief Executive Officer
-31-
I, Ernest T. Thomas, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tower Automotive,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 9, 2003
/s/ Ernest T. Thomas
-------------------------------------
Ernest T. Thomas
Chief Financial Officer and Treasurer
-32-