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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, 2000 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.)
4508 IDS CENTER
MINNEAPOLIS, MINNESOTA 55402
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (612) 342-2310
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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
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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
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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. [ ]
As of March 21, 2001, 43,605,157 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 $423,561,000.
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 24, 2001 (the "2001 Proxy Statement").
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TOWER AUTOMOTIVE, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Item 1. Business 3
Item 2. Properties 13
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 Stockholder Matters 18
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition 19
Item 7A. Quantitative and Qualitative Disclosure about Market Risk 27
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 28
PART III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners and Management 28
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 29
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PART I
ITEM 1. BUSINESS
(a) 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 manufacturers ("OEMs"), including Ford, DaimlerChrysler, General
Motors, Honda, Toyota, Nissan, Fiat, Kia, Hyundai, BMW, and Volkswagen. The
Company's current products include automotive body structural stampings and
assemblies including exposed sheet metal components, lower vehicle structural
stampings and assemblies, as well as suspension components and suspension
modules. The Company believes it is the largest independent global supplier of
structural components and assemblies to the automotive market (based on net
revenues).
Since its inception in April 1993, the Company's revenues have grown
rapidly through a focused strategy of internal growth and a highly disciplined
acquisition program. During the last six years, the Company has successfully
completed 14 acquisitions and established joint ventures in China, Mexico,
Korea, Japan and the United States. As a result of such acquisitions and
internal growth, the Company's revenues have increased from approximately $86
million in 1993 to approximately $2.5 billion in 2000, representing a compound
annual growth rate of approximately 58 percent. The Company's North American
content per vehicle has increased from $6.23 in 1993 to $128.88 in 2000.
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.
The Company was formed to acquire R.J. Tower Corporation (the
"Predecessor" or "R.J. Tower"), the acquisition of which was completed in April
1993 for an aggregate cost of approximately $26 million. Since April 1993, the
Company has successfully completed 14 strategic acquisitions and established six
joint ventures.
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 addition, the Company has 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.
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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 (i) provided the
Company with a substantial manufacturing presence in one of the fastest growing
automotive markets in the world and (ii) added Volkswagen and Mercedes-Benz as
new customers.
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. The acquisition was funded with
proceeds from the Company's revolving credit facility.
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, will provide 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 will allow the
Company to have access to a broader and more cost efficient range of testing
capabilities. DTA Development will blend 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 had 1999 revenues of
approximately $100 million. 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. The Company may pay an
additional $38 million for this acquisition if it achieves certain operating
targets in 2000. The acquisition was financed with proceeds from the Company's
revolving credit facility.
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. Total consideration for the equity interest was
financed under the Company's revolving credit facility. In addition, the Company
advanced $19 million to Seojin in exchange for variable rate convertible bonds
(the "Bonds") due October 30, 2009. The 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. The Company has the right to convert the Bonds into common stock
of Seojin any time on or after October 30, 2000. The conversion rate is based
upon a predetermined formula that would increase 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
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shields. The acquisition of Active enhances the Company's ability to manufacture
large and complex structures, as well as exposed surface panels. The acquisition
was financed with proceeds from the Company's revolving credit facility.
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 $32.5 million cash
plus the assumption of approximately $17 million of indebtedness with an
additional amount of up to $15 million payable if IMAR achieves 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 future net earnings.
SIMES. In May 1997, the Company acquired Societa Industria Meccanica e
Stampaggio S.p.A. ("SIMES"), an Italian automotive parts manufacturer, for
approximately $50.7 million in cash, plus up to an additional $3.0 million if
SIMES achieves 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. SIMES generated revenues of approximately $70.0
million during its last fiscal year, with Fiat representing substantially all of
such revenues.
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. APC had revenues of $863.0 million in
1996.
MSTI. In May 1996, the Company acquired MascoTech Stamping Technologies,
Inc. ("MSTI") from MascoTech, Inc. ("MascoTech") for approximately $79 million,
plus additional earn-out payments if certain operating targets are achieved by
the MSTI facilities in the first three years 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 DaimlerChrysler Ram and Dakota as well as on high volume
passenger cars such as the Ford Taurus/Sable. MSTI had revenues of $152.9
million in 1995.
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.
Trylon generated $47.9 million in revenues in 1995.
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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 new customer, Mazda.
J.L. French. In October 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 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, 2000,
the Company has an ownership interest of approximately 16 percent 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 $36.9 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 completed an initial public offering (the "IPO") of its
Common Stock in August 1994, the sale of an additional 4,465,800 shares in June
1996 and an additional 17,000,000 shares in April 1997. The Company's principal
executive offices are located at 4508 IDS Center, Minneapolis, Minnesota 55402,
and its telephone number is (612) 342-2310.
Business Strategy
The Company's business objective is to capitalize upon the
consolidation, globalization and system/modular sourcing trends in the
automotive supply industry in order to be the leading provider of structural and
suspension components to OEMs on a worldwide basis. Where appropriate, the
Company outsources the production of commodity components to Tier II and Tier
III manufacturers, as well as seeks to provide program management and
administrative services to these manufacturers to maximize supply chain
efficiency. This also allows the Company to optimize the use and return on
capital employed in its operations. In addition, the Company has implemented an
economic value added management system to aid in guiding its investment
decisions, rewarding its colleagues and measuring its performance. Key elements
of the Company's operating and growth strategies are outlined below:
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OPERATING STRATEGY:
Full-Service Technical Design, Engineering and Program Management
Capabilities. The Company strives to maintain a competitive advantage through
investment in research and product development, advanced engineering and program
management. 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. During 1999, the Company added a technical and customer service
center in Hyderabad, India to enable around-the-clock product development across
several time zones.
Efficient Manufacturing/Continuous Improvement Programs. In response to
OEMs' increasingly stringent demands, the Company has implemented manufacturing
practices designed to maximize product quality and timeliness of delivery and
eliminate waste and inefficiency. The Company has continued to upgrade its
manufacturing equipment and processes through substantial investment in new
equipment, maintenance of existing equipment and utilization of manufacturing
engineering personnel. The Company employs flexible manufacturing processes that
allow it to maximize equipment utilization in meeting its customers'
expectations for product quality and timely delivery.
Global Presence. The Company strives to offer manufacturing and support
services to its customers on a global basis through a combination of
international wholly owned facilities and by entering into joint ventures and
partnerships with foreign suppliers. 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 resources to locations where OEMs are developing "world cars."
Decentralized, Participative Culture. The Company's decentralized
approach to managing its manufacturing facilities encourages decision making and
employee 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 employee
productivity, the Company utilizes incentive programs for all salaried and
hourly employees and provides incentives for employees who take advantage of its
continuous improvement programs and who provide cost savings ideas.
GROWTH STRATEGY:
Strategic Acquisitions. The Company continues to believe that
consolidation in the automotive supply industry will provide further attractive
opportunities to acquire high-quality companies that complement its existing
business. The Company seeks to make acquisitions that (i) provide additional
product, manufacturing and technical capabilities; (ii) broaden the Company's
geographic coverage domestically and strengthen its ability to supply products
on a global basis; (iii) increase the number of models for which the Company
supplies products and the content supplied for existing models; (iv) add new
customers; and (v) provide a minimum targeted return on invested capital. The
Company intends to seek future acquisitions or develop strategic alliances that
will strengthen the Company's ability to supply its products on a global basis.
Modular Product Opportunities. 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.
Increase Vehicle Penetration. The Company has developed strong
relationships with certain OEM engineering and purchasing personnel which allow
it to identify business opportunities and to react to customer needs in the
early stages of vehicle design. The Company believes that these relationships
give
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it a competitive advantage over smaller and less capable suppliers in marketing
its broad range of products and in developing new product concepts, such as
expanded use of modules, that complement its existing product lines.
Pursuit of "World Car" Opportunities. The Company has been working
closely with certain customers on the development of "world cars," which are
designed by OEMs in one vehicle center to a single global standard but produced
and sold in different geographic markets. Suppliers for a specific "world car"
are often required to provide their products on a worldwide basis. The Company
believes that it has a competitive advantage in potentially supplying certain
world cars given its international presence, full-service capabilities and
existing position as a leading supplier on the Ford Focus and Lincoln LS/Jaguar
S-Type platforms, as well as on other existing vehicle platforms which may
eventually evolve into world cars.
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.
Supplier Consolidation. The automotive supply industry has been
undergoing 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 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. For full-service suppliers such as the Company, this environment
provides an opportunity to grow by obtaining business previously provided by
other non-full service suppliers and 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 supplier 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 high-quality 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.
System/Modular Sourcing. OEMs are increasingly seeking suppliers capable
of providing complete systems or modules rather than suppliers who only provide
separate component parts. A system is a group of component parts which operate
together to provide a specific engineering driven functionality whereas a module
is a group of systems and/or component parts which are assembled and shipped to
the OEM 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 beginning
production.
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
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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:
lower vehicle structures; body structures and assemblies; suspension components,
modules and systems; and Class A surfaces and modules.
Lower Vehicle Structures. The Company's lower vehicle structures include
products that form the basic lower body structure of the vehicle and include
large metal stampings such as light truck 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.
Body Structures and Assemblies. The Company's body structures include
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. The Company's current assemblies include a broad
array of highly engineered parts such as brake components and fuel filler
assemblies. Such engineered assemblies are a natural extension to the Company's
other products in that they are attached to both lower vehicle and body
structures.
Suspension Components, Modules and Systems. The Company's current
suspension component 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.
Class A Surfaces and Modules. The Company's current 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.
Other. The Company manufactures a variety of other products, including
heat shields and other precision stampings, for its OEM customers.
The Company produces value-added assemblies and systems comprised of
components that it manufactures as well as those produced by other
manufacturers. Assemblies are groups of components that are grouped according to
their relative location, while systems are components that are grouped based
upon providing functionality. The Company sells these products to OEMs who have
been increasingly outsourcing assemblies and systems in order to reduce their
production and inventory management costs. The Company currently produces axle
assemblies, which consist of stamped metal trailing axles, assembled brake
shoes, hoses and tie rods and front and rear structural suspension systems,
which consist of control arms and suspension links.
Customers and Marketing
The North American automotive market is dominated by General Motors,
Ford and DaimlerChrysler, with Transplants representing approximately 21 percent
of this market in 2000. The Company currently supplies its products primarily to
Ford, DaimlerChrysler, General Motors, Honda, Toyota, Nissan, Fiat, BMW and
Volkswagen.
OEMs typically award contracts that cover parts to be supplied for a
particular car model. 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 customer 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. The
following table presents an overview of the major models for which the Company
supplies products:
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CUSTOMER CAR MODELS TRUCK MODELS
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Ford Taurus/Sable, Mustang, Escort, Crown Explorer, Ranger, F-Series, Econoline,
Victoria, Grand Marquis, Fiesta, Villager, Windstar, Medium Trucks,
Continental, Focus, LS/Jaguar S-Type, Expedition/Navigator, Excursion
Cougar, Thunderbird, Towncar, Mondeo
DaimlerChrysler Concorde/Intrepid, Neon, Viper, Avenger, Ram Pick-up, Dakota, Grand Cherokee,
Stratus/Cirrus/Breeze, 300m, Sebring Voyager, Sprinter, Caravan, Ram Van,
Wrangler, Durango, S-KN, L-KN
General Motors Cavalier, Sunfire, Grand Am, Lumina, Grand Silverado, Sierra, Tahoe, Yukon,
Prix Astro, Safari
Saturn LS, LS/LW
Honda Accord, Civic, Acura Integra Odyssey
Mazda 626,MX6
Toyota Avalon, Camry, Solara Sienna, Tacoma, Tundra, Sequoia
Nissan Sentra, Altima Quest, Xterra, Frontier
Isuzu Rodeo, Amigo
Fiat Marea, Punto, Bravo
Audi/Volkswagen Passat, Audi A4,Audi A6
BMW 3 Series, 5 Series
Opel Omega, Astra, Agila
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
Company's sales and engineering forces, 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.
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 400 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.
Global Initiatives
The Company has formed, or is in the process of forming, strategic
alliances with other suppliers throughout the world, including those located in
Europe, Asia and South America. As part of its acquisition of APC, the Company
acquired a 60 percent equity interest in a joint venture, Tower Golden Ring,
that manufactures structural components in China. The Company also has equity
interests in Mexico
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through its 40 percent interest in Metalsa, Japan through its 30.8 percent
interest in Yorozu and Korea through its 66 percent interest in Seojin. A
current focus of the Company's acquisition strategy is to continue to acquire
foreign suppliers that would provide the Company with a manufacturing presence
in new geographic areas and afford the Company access to new customer
opportunities.
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 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 adopted a quality
rating system known as QS-9000. The Company has 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 largest competitors include The Budd Company, a subsidiary of
Krupp-Thyssen AG ("Budd"), Magna International, Inc. ("Magna"), Dana
Corporation, Midway Products Corp., Modern Tool & Die Co., Midland Corporation
and divisions of OEMs with internal stamping and assembly operations, all of
which have substantial financial resources. The Company competes with Magna
across most of the Company's product lines, and with its other significant
competitors in various segments of its product lines. For example, the Company
competes with Budd for large stampings, while it competes with Trianon North
America, AG Simpson Ltd., and Oxford Automotive, Inc. for medium-size structural
stampings.
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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 producer has been designated to supply parts
for a new program, an OEM usually will continue to purchase those parts from the
designated 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.
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 53 percent of the Company's revenues in 2000.
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 72 percent of
the Company's revenues in 2000.
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.
Employees
As of December 31, 2000, the Company had approximately 16,000 employees
worldwide, of whom approximately 6,200 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 employee incentive
programs to increase employee morale and expand the employees' participation in
the Company's business. The Company has not experienced any work stoppages and
considers its relations with its employees to be good.
(b) DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in
this Form 10-K or incorporated by reference herein, including without limitation
the statements under "Business" 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-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-
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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; and (viii) 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 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.
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SQUARE TYPE OF
LOCATION FOOTAGE INTEREST DESCRIPTION OF USE
- ------------------------------------ ---------------- -------------- -----------------------------------
Milwaukee, Wisconsin 3,465,000 Owned Manufacturing
Elkton, Michigan 1,100,000 Owned Manufacturing
Caserta, Italy
(2 locations) 751,000 Owned Manufacutirng
Milan, Tennessee 531,000 Owned Manufacturing
Turin, Italy (4 locations) 512,000 Mixed Manufacturing/Office
Granite City, Illinois 458,000 Owned Manuacturing
Malacky, Slovakia 453,600 Owned Manuacturing
Zwickau, Germany 409,000 Owned Manufacturing
Clinton Township, Michigan 385,000 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
Kalamazoo, Michigan
(2 locations) 220,000 Mixed Manufacturing/Warehouse/Office
Sao Paolo, Brazil 171,000 Owned Manufacturing/Office
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
Rochester Hills, Michigan 89,000 Leased Office/Engineering/Design
Barrie, Ontario 72,000 Leased Manufacturing
Belcamp, Maryland 70,000 Owned Manufacturing
Minas Gerais, Brazil 60,000 Owned Manufacturing
Upper Sandusky, Ohio 56,000 Owned Manufacturing
Buchholz, Germany 54,000 Owned Manufacturing
Opole, Poland 54,000 Owned Manufacturing
Novi, Michigan 47,000 Leased Engineering/Design/Sales
Bowling Green, Kentucky 46,000 Owned Manufacturing
Fenton, Missouri 41,000 Leased Warehouse
Tokod, Hungary 22,000 Owned Manufacturing
Roseville, Michigan 21,000 Owned Office/Engineering
Grand Rapids, Michigan 11,000 Leased Operating Headquarters
Minneapolis, Minnesota 5,700 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.
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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 believes it conducts its operations in substantial
compliance with applicable environmental and occupational health and safety
laws. The Company does not expect to incur material capital expenditures for
environmental compliance during its current or succeeding fiscal year. However,
as is the case with manufacturers in general, if a release of hazardous
substances occurs on or from the Company's properties or at any associated
offsite disposal location, if contamination from prior activities is discovered
at any of the Company's properties or if non-compliance with environmental
regulations or permits is discovered, the Company may be held liable and the
amount of such liability could be material. In connection with the acquisition
of Trylon, MascoTech agreed to indemnify the Company for all losses (including
reasonable legal expenses) resulting from: (i) a breach of its representation
set forth in the acquisition agreement relating to environmental and safety
matters (to the extent that such breach results in a claim being made within
five years after the acquisition and subject to a $500,000 cap); and (ii) each
known environmental condition identified on a schedule to the acquisition
agreement, including the replacement of underground storage tanks at the
Traverse City facilities. In connection with the acquisition of MSTI, MascoTech
agreed to indemnify the Company for all losses (including reasonable legal
expenses) resulting from: (i) a breach of its representation set forth in the
acquisition agreement relating to environmental and safety matters (to the
extent that such breach results in a claim being made within five years after
the acquisition and subject to a $1.5 million threshold for all losses resulting
from breaches of representation and warranties contained in the acquisition
agreement); (ii) MSTI's non-compliance with applicable federal, state, local and
foreign statutes, regulations, ordinances and similar provisions that have the
force or effect of law, judicial orders and common law concerning public health
and safety, worker health and safety and pollution or protection of the
environment prior to the acquisition; and (iii) any remediation that may be
required at the Kendallville facility.
In connection with the acquisition of APC, A.O. Smith agreed, subject to
certain limitations, to indemnify the Company for environmental matters relating
to APC arising from events occurring, or conditions arising, prior to the
closing date of the acquisition of APC. This indemnification obligation applies
to claims to the extent exceeding $250,000 submitted by the Company within three
years of the acquisition date. To the extent that such claims exceed $5.0
million in the aggregate, A.O. Smith will indemnify 70 percent of such losses,
up to A.O. Smith's maximum $75.0 million indemnification obligation under the
purchase agreement. In addition, A.O. Smith has agreed to retain certain
environmental liabilities for, among other things, offsite disposal of hazardous
substances prior to the acquisition of APC.
In connection with the acquisition of Active, the Company will be
indemnified, subject to certain limitations, for all losses (including
reasonable legal fees and expenses) resulting from claims arising under
environmental laws relating to pre-closing environmental matters. This
indemnification obligation applies to certain claims submitted by the Company
within two years after the closing date of the merger agreement. To the extent
that indemnification claims exceed $1.0 million in the aggregate, this
indemnification obligation will be satisfied only out of escrowed funds held
pursuant to an escrow agreement, up to a maximum indemnification obligation of
$15.0 million under the merger agreement.
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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 2000.
ADDITIONAL ITEM - EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
Company's executive officers as of December 31, 2000:
Name Age Position
---- --- --------
S.A. Johnson..............................60 Chairman and Director
Dugald K. Campbell........................54 President, Chief Executive Officer and
Director
James W. Arnold...........................48 Vice President
Anthony A. Barone.........................51 Vice President and Chief Financial Officer
Richard S. Burgess........................46 Vice President
Kathy J. Johnston.........................43 Vice President
David D. Krohn............................49 Vice President
Roland J. Loup............................58 Vice President
Tommy G. Pitser...........................53 Vice President
Scott D. Rued.............................44 Vice President, Corporate Development and Director
Antonio R. Zarate.........................56 Vice President
S.A. (TONY) JOHNSON has served as Chairman and a Director of the Company
since April 1993. Mr. Johnson is the founder, Chief Executive Officer and
President of Hidden Creek Industries ("Hidden Creek"), a private industrial
management company based in Minneapolis which has provided certain management
and other services to the Company. Mr. Johnson is also the managing partner of
J2R Partners ("J2R"), an investment partnership that participated in the
acquisition of R.J. Tower. Prior to forming Hidden Creek, Mr. Johnson served
from 1985 to 1989 as Chief Operating Officer of Pentair, Inc., a diversified
industrial company. From 1981 to 1985, Mr. Johnson was President and Chief
Executive Officer of Onan Corp., a diversified manufacturer of electrical
generating equipment and engines for commercial, defense and industrial markets.
Mr. Johnson currently serves as Chairman and a director of Dura Automotive
Systems, Inc., a manufacturer of mechanical assemblies and integrated systems
for the automotive industry, and served as Chairman and a director of Automotive
Industries Holding, Inc., a supplier of automotive interior trim components,
from May 1990 until its sale to Lear Corporation in August 1995.
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. 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.
JAMES W. ARNOLD has served as Vice President of the Company since 1999,
with current responsibility for the Company's 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.
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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 business 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.
DAVID D. KROHN has served as Vice President of the Company since
December 2000 with responsibility for the Company's strategy in the United
States and Canada. From 1999 to 2000, Mr. Krohn served as Senior Vice President
for Federal-Mogul Corporation's Brake, Chassis, Ignition and Fuel division and
the Asia-Pacific region. From 1990 to 1998, Mr. Krohn served as President and
Chief Executive Officer of AE Goetze, Inc.
ROLAND J. LOUP has served as Vice President of the Company since May
2000 with responsibility for constructing systems, processes and procedures to
facilitate the exchange of information throughout Tower Automotive. From 1986 to
2000, Mr. Loup was a partner in Dannemiller Tyson Associates, a consulting firm.
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.
SCOTT D. RUED has served as Vice President, Corporate Development, and a
Director of the Company since April 1993. Mr. Rued served as Vice President,
Chief Financial Officer and a director of Automotive Industries Holding, Inc.
from April 1990 until its sale to Lear Corporation in August 1995. Mr. Rued, a
partner of J2R, has also served as Executive Vice President and Chief Financial
Officer of Hidden Creek since January 1994 and served as its Vice President -
Finance and Corporate Development from June 1989 through 1993. Mr. Rued is also
a director of The Rottlund Company, Inc., a corporation engaged in the
development and sale of residential real estate.
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.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is traded on the New York Stock Exchange under the
symbol TWR. As of March 21, 2001, there were approximately 2,951 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
--- ----
1999
- ----
First Quarter $ 17 $ 26 1/2
Second Quarter 17 5/8 26 1/8
Third Quarter 17 13/16 28 1/4
Fourth Quarter 13 1/2 20 5/8
2000
- ----
First Quarter $ 11 5/8 $ 17 1/2
Second Quarter 11 5/8 17 5/8
Third Quarter 9 1/8 13 9/16
Fourth Quarter 7 1/8 11
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 2001. The
Company's ability to pay cash dividends on its Common Stock is dependent upon
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.
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, 2000, 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 at December 31, 1999
and 2000 and for each of the three years in the period ended December 31, 2000
and the report of independent public accountants thereon are included elsewhere
in this report. The consolidated financial statements at and for the years ended
December 31, 1995, 1996 and 1997 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,
----------------------------------------------------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
INCOME STATEMENT DATA:
Revenues $ 399,925 $1,235,829 $1,836,479 $2,170,003 $2,531,953
Cost of sales 338,290 1,058,720 1,562,167 1,823,103 2,160,359
S,G & A expense 20,004 57,869 85,169 105,950 137,003
Amortization expense 2,191 9,537 13,472 15,803 21,517
Restructuring and asset
impairment charge -- -- -- -- 141,326
Operating income 39,440 109,703 175,671 225,147 71,748
Interest expense, net 5,103 28,962 40,318 37,981 64,711
Provision for income taxes 13,700 32,290 54,143 74,866 2,619
Net income 20,637 46,244 88,040 117,088 13,434
- ---------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.81 $ 1.14 $ 1.91 $ 2.50 $ 0.29
Diluted earnings per share $ 0.77 $ 1.09 $ 1.68 $ 2.10 $ 0.28
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DEC. 31, DEC. 31, DEC. 31, DEC. 31, DEC. 31,
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Working capital $ 85,523 $ 140,592 $ 106,936 $ 126,940 $ (24,181)
Total assets 402,595 1,680,088 1,936,167 2,552,550 2,892,747
Long-term debt 113,460 743,934 542,349 921,221 1,141,900
Stockholders' investment 181,877 515,279 606,796 727,135 700,095
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RECENT TRANSACTIONS
In December 2000, the Company sold its 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.
In November 2000, the Company completed the acquisition of 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.
In September 2000, the Company acquired a 17 percent equity interest in
Yorozu, a supplier of suspension modules and structural parts to the Asian and
North American automotive markets, from 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 addition, the Company has 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.
In July 2000, the Company acquired the remaining 60 percent equity
interest in Caterina for approximately $42 million. The initial 40 percent
interest was acquired in March 1998, for approximately $48 million. Caterina is
a supplier of structural stampings and assemblies to the Brazilian automotive
market, including Volkswagen and Mercedes-Benz. The acquisition was funded with
proceeds from the Company's revolving credit facility.
In May 2000, the Company acquired all of the outstanding common stock of
Algoods for total consideration of approximately $33 million. Algoods
manufactures aluminum heat shields and impact discs for the North American
automotive industry from aluminum mini-mill and manufacturing operations located
in Toronto, Canada. Its primary customer is DaimlerChrysler. The acquisition of
Algoods represents a significant investment in processing technology for
lightweight materials which complements the Company's existing heat shield
capabilities and provides opportunities for application in other lightweight
vehicle structural products. The acquisition was funded with proceeds from the
Company's revolving credit facility.
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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, will provide 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 will allow the Company to
have access to a broader and more cost efficient range of testing capabilities.
DTA Development will blend the benefits of chassis product technology and
development activities with leading edge commercial testing services.
Effective January 1, 2000, the Company acquired all of the outstanding
shares of Dr. Meleghy for approximately $86.4 million. Dr. Meleghy designs and
produces structural stampings, assemblies, exposed surface panels and modules to
the European automotive industry. Dr. Meleghy also designs and manufactures
tools and dies for use in their production and for the external market. Dr.
Meleghy operates three facilities in Germany and one facility in both Hungary
and Poland. Dr. Meleghy's main customers include DaimlerChrysler, Audi,
Volkswagen, Ford, Opel, and BMW. Products offered by Dr. Meleghy include body
side panels, floor pans assemblies, and miscellaneous structural stampings.
Based on the purchase contract, the Company will pay an additional $24 million
during the first quarter of 2001 for Dr. Meleghy achieving certain operating
earnings targets during the 2000 period. The acquisition was financed with
proceeds from the Company's revolving credit facility.
In October 1999, the Company invested $21 million for new shares
representing a 49 percent equity interest in Seojin, a supplier of frames,
modules and structural components to the Korean automotive industry. Total
consideration for the equity interest was financed under the Company's revolving
credit facility. 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 is based upon 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.
In October 1999, the Company loaned $30.0 million to 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. 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, 2000,
the Company has an ownership interest of approximately 16 percent in J. L.
French.
In July 1999, the Company acquired all of the outstanding stock of
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. The acquisition was
financed with proceeds from the Company's revolving credit facility.
In conjunction with its acquisitions, the Company has established
reserves for certain costs associated with facility shutdown and consolidation
activities and for general and payroll related costs primarily for planned
employee termination activities. As of December 31, 1999, approximately $13.8
million and $6.4 million were recorded for facility shutdown and payroll related
costs, respectively. Additional reserves of $1.0 million related to facility
shutdown costs were recorded for the year ended December 31, 2000. Costs
incurred and charged to such reserves amounted to $7.5 million for facility
shutdown costs and $2.5 million for payroll related termination costs during the
year ended December 31,
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2000. At December 31, 2000, liabilities of approximately $7.3 million for costs
associated with facility shutdown and consolidation and $3.9 million of costs
for planned employee termination activities remained. The timing of facility
shutdown and consolidation activities has been adjusted to reflect customer
concerns with supply interruption. These reserves have been utilized as
originally intended and management believes the liabilities recorded for
shutdown and consolidation activities are adequate but not excessive as of
December 31, 2000.
In certain instances, the Company is committed under existing agreements
to supply product to its customers at selling prices that are not sufficient to
cover the direct costs to produce such parts. The Company is obligated to supply
these products to its customers for the life of the related vehicles, 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. Such amounts reversed during the years ended December
31, 2000, 1999 and 1998 were $8.4 million, $16.8 million, and $9.7 million,
respectively.
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 $2.5
billion, a 16.7 percent increase, compared to $2.2 billion 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. 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.
The automotive market is highly cyclical and is dependent on consumer
spending. During the third and fourth quarters of 2000, the automotive market
began experiencing a decline in production levels. This decline is anticipated
to continue through the first, and possibly the second, quarter of 2001. Due to
the relatively long lead times required for 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 been actively pursuing the actions necessary to
mitigate the effects of this production downturn, focusing on reducing costs,
maximizing its cash return on invested capital, reducing debt balances and
matching capital expenditures with operating cash flow.
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. The decrease in gross margins was due to significant launch
activity on the new Ford Explorer program, the 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.
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 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.
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Interest Expense. Interest expense 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.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED DECEMBER 31,
1998
Revenues. Revenues for the year ended December 31, 1999 were $2.2
billion, an 18.2 percent increase, compared to $1.8 billion for the year ended
December 31, 1998. The increase was partially due to net new business of
approximately $157.3 million. The new business related primarily to the Ford
Explorer, F-Series pick-up, Ranger, Excursion and Lincoln LS/Jaguar S Type,
Dodge Durango and Dakota, Chrysler LH, and Fiat. Additional increases of $190.5
million related to the acquisitions of IMAR and OSLAMT in July 1998, and Active
in July 1999 were offset by $39.0 million related to the sale of the Company's
Hinge Business in August 1998. The General Motors strike had the effect of
reducing revenues in the 1998 period by approximately $24.7 million.
Cost of Sales. Cost of sales as a percent of revenues for the year ended
December 31, 1999 was 84.0 percent compared to 85.1 percent for the year ended
December 31, 1998. Improvement in gross profit was due to increased production
volumes and product mix on light truck, sport utility and other models served by
the Company. The improvement from increased production was partially offset by
inefficiencies caused by customer demand exceeding planned capacity at certain
locations, resulting in weekend overtime to meet production, and inefficiencies
due to significant launch activity.
S, G & A Expenses. Selling, general and administrative expenses
increased to $106.0 million, or 4.9 percent of revenues, for the year ended
December 31, 1999 compared to $85.2 million, or 4.6 percent of revenues, for the
year ended December 31, 1998. The increased expense was due to incremental costs
associated with the Company's acquisitions of IMAR, OSLAMT, and Active of $11.9
million and increased engineering, program development, and launch costs related
to new business of approximately $9.1 million. Additionally, the Company wrote
off certain expenses of approximately $1.7 million relating to unsuccessful
acquisition efforts. This increase was offset partially by the realization of
gains totaling $1.9 million on the cash settlement of amounts due under the
interest rate swap and lock agreements during 1999.
Amortization Expense. Amortization expense for the year ended December
31, 1999 was $15.8 million compared to $13.5 million for the year ended December
31, 1998. The increase was due to amortization related to the costs associated
with the Preferred Securities, incremental goodwill amortization related to the
acquisitions of IMAR and OSLAMT including performance payments, and the goodwill
amortization associated with the Active acquisition.
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Interest Expense. Interest expense for the year ended December 31, 1999
was $38.0 million compared to $40.3 million for the year ended December 31,
1998. Interest expense was affected by (i) increased borrowings incurred to fund
the Company's joint venture interest in Caterina in March 1998, (ii) increased
borrowings to fund the Company's acquisition of IMAR and OSLAMT in July 1998,
(iii) increased borrowings to fund the Company's acquisition of Active in July
1999, (iv) the proceeds from the June 1998 offering of Preferred Securities,
which were used to reduce borrowings under the Company's revolving credit
facility, and (v) increased capitalized interest on construction projects.
Income Taxes. The effective income tax rate was 40 percent for the years
ended December 31, 1999 and 1998. The effective rates differed from the
statutory rates primarily as a result of state taxes and non-deductible goodwill
amortization.
Equity in Earnings of Joint Ventures. Equity in earnings of joint
ventures net of tax was $15.3 million and $12.7 million for the years ended
December 31, 1999 and 1998, respectively. These amounts represent the Company's
share of the earnings from its joint venture interests in Metalsa, Caterina,
Tower Golden Ring and Seojin.
Minority Interest. Minority interest for the years ended December 31,
1999 and 1998 represents dividends, net of income tax benefits, on the Preferred
Securities.
RESTRUCTURING AND ASSET IMPAIRMENT CHARGE
On October 2, 2000, the Company's board of directors approved a
comprehensive operational realignment plan (the "Plan"), which is intended to
improve the Company's long-term competitive position and lower its cost
structure. The Plan includes phasing out the heavy truck rail manufacturing in
Milwaukee, Wisconsin; reducing stamping capacity by closing the Kalamazoo,
Michigan facility; and consolidating related support activities across the
enterprise. The Company recognized a charge to operations of approximately
$141.3 million in the fourth quarter of 2000, which reflects the estimated
qualifying "exit costs" to be incurred over the next 12 months under the Plan.
The charge includes costs associated with asset impairments, severance
and outplacement costs related to employee terminations, loss contract
provisions and certain other exit costs. These activities are anticipated to
result in a reduction of more than 800 employees. Through December 31, 2000, the
Company had eliminated approximately 200 employees pursuant to the Plan. The
estimated realignment charge does not cover certain aspects of the Plan,
including movement of equipment and employee relocation and training. These
costs will be recognized in future periods as incurred.
The asset impairments consist of long-lived assets, including fixed
assets, manufacturing equipment and land, from the facilities the Company
intends to dispose of or discontinue. For assets that will be disposed of
currently, the Company measured impairment based on estimated proceeds on the
sale of the facilities and equipment. The carrying value of the long-lived
assets held for sale on disposal is approximately $3.8 million as of December
31, 2000. For assets that will be held and used in the future, the Company
prepared a forecast of expected undiscounted cash flows to determine whether
asset impairment existed, and used fair values to measure the required
write-downs. These asset impairments have arisen only as a consequence of the
Company making the decision to exit these activities during the fourth quarter
of 2000.
Based on the current plan, the Company anticipates this charge will
require cash payments of approximately $37.6 million combined with the write-off
of assets having a book value of approximately $103.7 million.
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The accrual for operational realignment and other costs is included in
accrued liabilities in the accompanying consolidated balance sheet as of
December 31, 2000. The table below summarizes the accrued operational
realignment and other charges through December 31, 2000 (in millions):
SEVERANCE AND
-------------
ASSET OUTPLACEMENT LOSS OTHER EXIT
----- ------------ ---- ----------
IMPAIRMENTS COSTS CONTRACTS COSTS TOTAL
----------- ----- --------- ----- -----
Provision for operational realignment and
other charges $103.7 $ 25.2 $ 8.1 $ 4.3 $141.3
Cash payments -- (8.7) (2.5) (0.3) (11.5)
Non cash charges (73.1) -- -- -- (73.1)
------ ------ ------ ------ ------
Balance at December 31, 2000 $ 30.6 $ 16.5 $ 5.6 $ 4.0 $ 56.7
====== ====== ====== ====== ======
The following table summarizes the major components of the asset
impairment charge for the year ended December 31, 2000 (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. The assets will be abandoned or disposed of upon
the exit of the activity, with expected completion during the first nine months
of 2001.
LIQUIDITY AND CAPITAL RESOURCES
In July 2000, the Company replaced its existing $750 million amortizing
credit agreement with a new six-year $1.15 billion senior unsecured credit
agreement. The new credit agreement includes a non-amortizing revolving facility
of $825 million along with an amortizing term loan of $325 million. The new
facility also includes a multi-currency borrowing feature that allows the
Company to borrow up to $500 million in certain freely tradable offshore
currencies, and letter of credit sublimits of $100 million. As of December 31,
2000, approximately $8.2 million of the outstanding borrowings are denominated
in Japanese yen and $63.7 million of the outstanding borrowings are denominated
in Euro. Interest on the new credit facility is at the financial institutions'
reference rate, LIBOR, or the Eurodollar rate plus a margin ranging from 0 to
200 basis points depending on the ratio of the consolidated funded debt for
restricted subsidiaries of the Company to its total EBITDA. The weighted average
interest rate for such borrowings was 5.9 percent for year ended December 31,
2000. The new credit agreement has a final maturity of 2006. As a result of the
debt replacement, the Company recorded an extraordinary loss, net of tax, of
$3.0 million during the third quarter of 2000.
The Credit Agreement requires the Company to meet certain financial
tests, including but not limited to a minimum interest coverage and maximum
leverage ratio. As of December 31, 2000, the Company was in compliance with all
debt covenants.
In July 2000, R. J. Tower (the "Issuer"), a wholly-owned subsidiary of
the Company, issued Euro-denominated senior unsecured notes in the amount of
E150 million (approximately $141.3 million at
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December 31, 2000). The notes bear interest at a rate of 9.25 percent, payable
semi-annually. The notes rank equally with all of the Company's other unsecured
and unsubordinated debt. The net proceeds after issuance costs were used to
repay a portion of the Company's existing Euro-denominated indebtedness under
its existing credit facility. The notes mature on August 1, 2010.
In September 2000, the Company entered into an interest rate swap
contract to hedge against interest rate exposure on approximately $160 million
of its floating rate indebtedness under its $1.15 billion senior unsecured
credit facility. The contracts have the effect of converting the floating rate
interest to a fixed rate of approximately 6.9 percent, plus any applicable
margin required under the revolving credit facility. The interest rate swap
contract was executed to balance the Company's fixed-rate and floating-rate debt
portfolios and it expires in September 2005.
For the periods presented through July 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. In addition, under the terms of the revolving credit
facility, the equivalent of up to $85 million in borrowings could be denominated
in Italian lira. The amount available under the revolving credit facility
reduced to $675 million in April 2000, $600 million in April 2001 and $500
million in April 2002. The Credit Agreement had a final maturity of April 2003.
Interest on the credit facility is 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 August 1999, the Company amended and restated its Credit Agreement to
include a term loan add on facility of $325 million. The weighted average
interest rate for the term loan facility was 7.4 percent for the year ended
December 31, 1999. The proceeds from the term facility were used to repay
outstanding indebtedness under the revolving facility incurred in connection
with the acquisition of Active in July 1999. The term loan facility was replaced
in July 2000 by the amortizing term loan under the new $1.15 billion senior
unsecured credit agreement.
During 1997, the Company entered into interest rate swap contracts to
hedge against interest rate exposures on certain floating-rate indebtedness
under its $750 million amortizing revolving credit facility. These contracts,
which were to expire in November 2002, had the effect of converting the
floating-rate interest related to a notional amount of $300 million of
borrowings outstanding under the revolving credit facility into a fixed-rate of
approximately 6.75 percent. The interest rate swap contract was executed to
balance the Company's fixed-rate and floating-rate debt portfolios. During June
1999, the Company terminated its position in the interest rate swap contracts
resulting in a gain of $0.5 million.
During 1997, the Company entered into an interest rate contract in a
notional amount of $75 million in anticipation of financing that did not
materialize. Accordingly, the Company adjusted the interest rate contract to
market as of December 31, 1998 and 1997. The write-down to fair value of
approximately $6.4 million and $2.0 million, respectively, was recorded as
expense in the consolidated statements of operations. During the first quarter
of 1999, the Company settled the $75 million contract with a cash payment of
approximately $7.0 million.
During the year ended December 31, 2000, the Company generated $203.3
million of cash from operations. This compares with $227.3 million provided
during the same period in 1999. Cash provided by net income before depreciation
and amortization was $158.2 million and $228.7 million for 2000 and 1999,
respectively. During 2000, operating cash included a restructuring and asset
impairment charge of $141.3 million, offset by cash restructuring payments of
$11.5 million and an extraordinary loss on the early extinguishments of debt of
$3.0 million. Other operating items and working capital requirements relating to
customer tooling development and related receivables during pre-launch phase
decreased operating cash flow by approximately $87.7 million and $1.4 million
during the 2000 and 1999 periods, respectively.
Net cash used in investing activities was $377.4 million during the year
ended December 31, 2000 as compared to $599.2 million in the prior period. Net
capital expenditures totaled $181.8 million and $197.3 million for the
comparable 2000 and 1999 periods, respectively. Acquisitions and investments in
joint ventures were approximately $251.0 million and $401.9 million for the 2000
and 1999 periods,
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respectively. The sale of the Roanoke Heavy Truck Business contributed $55.4
million during the 2000 period.
Net cash provided by financing activities totaled $173.9 million for the
year ended December 31, 2000 compared with $372.1 million in the prior period.
Net proceeds from borrowings were $207.3 million in 2000, with net proceeds of
$367.5 million in 1999. The issuance of stock from the Company's employee stock
purchase plan and option plan contributed $6.8 million and $4.6 million to cash
flow for 2000 and 1999, respectively. During 2000, the Company used cash of
$40.2 million to repurchase common stock.
At December 31, 2000, the Company had unused borrowing capacity of
approximately $326 million, under its most restrictive debt covenant. The
Company believes the borrowing availability under its credit agreement, together
with funds generated by operations, should provide liquidity and capital
resources to pursue its business strategy for the foreseeable future, with
respect to working capital, capital expenditures, and other operating needs. The
Company estimates its 2001 capital expenditures will approximate $225 million.
Under present conditions, management does not believe access to funds will
restrict its ability to pursue its business strategy.
EFFECTS OF INFLATION
Inflation generally affects the Company by increasing the interest
expense of floating-rate indebtedness and by increasing the cost of labor,
equipment and raw materials. Management believes that inflation has not
significantly affected the Company's business over the past 12 months. However,
because selling prices generally cannot be increased until a model changeover,
the effects of inflation must be offset by productivity improvements and volume
from new business awards.
MARKET RISK
The Company is exposed to various market risks, including changes in
foreign currency exchange rates and interest rates. Market risk is the potential
loss arising from adverse changes in market rates and prices, such as foreign
currency exchange and interest rates. The Company's policy is 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, 2000, Tower Automotive had total debt and obligations
under capital leases of $1.3 billion. The debt is comprised of fixed rate debt
of $501.3 million and floating rate debt of $789.7 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 $7.9
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 2000 and 1999 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.
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A portion of Tower Automotive's assets at December 31, 2000 and 1999 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, 2000, 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 years ended December 31, 2000 and 1999.
YEAR 2000
The Company completed its effort in resolving the impact of the year
2000 ("Y2K") on the processing of date-sensitive information by the Company's
computerized and embedded systems. The Company experienced no significant
business interruption as a result of Y2K, either internally or externally from
suppliers. The Company does not anticipate any further impact relating to
date-sensitive information processing capabilities. The Company spent
approximately $2.0 million during the year ended December 31, 1999 on Y2K
readiness activities.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," becomes effective for years beginning after June 15, 2000. The
Company adopted SFAS No. 133 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 adoption of SFAS No. 133 did not
have a material impact on the Company's financial position or its results of
operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Market Risk" section of Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Tower Automotive are hereby
incorporated by reference to Exhibit 99.1.
Management of the Company is responsible for the financial information
and representations contained in the consolidated financial statements and other
sections of the 2000 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 2000 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.
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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 2000 financial
statements, Arthur Andersen LLP obtained an understanding of, and selectively
tested, certain aspects of the Company's system of internal controls.
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 2001 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 2001 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 2001 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 "Security Ownership" which appears in the Company's 2001
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to the sections labeled "Other Compensatory Agreements" and "Certain
Relationships and Related Transactions" which appears in the Company's 2001
Proxy Statement.
-28-
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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,
2000 and 1999
- Consolidated Statements of Operations for the
Years Ended December 31, 2000, 1999 and 1998
- Consolidated Statements of Stockholders'
Investment for the Years Ended December 31,
2000, 1999 and 1998
- Consolidated Statement of Cash Flows for the
Years Ended December 31, 2000, 1999 and 1998 -
- Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
- Report of Independent Public Accountants - S-1
- Financial Statement Schedule I - Condensed
Financial Information of Registrant - S-2
- Financial Statement Schedule II - Valuation and
Qualifying Accounts of Registrant
(3) Exhibits: See "Exhibit Index" beginning on page 31.
(b) REPORTS ON FORM 8-K
(1) During the fourth quarter of 2000, the Company filed the
following Form 8-K Current Reports with the Securities
and Exchange Commission:
- The Company's Current Report on Form 8-K, dated
October 2, 2000 (Commission File No. 1-12733),
under Items 5 and 7.
- The Company's Current Report on Form 8-K, dated
October 23, 2000 (Commission File No. 1-12733),
under Items 5 and 7.
-29-
30
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.
Date: March 21, 2001 By/s/ S.A. Johnson
----------------------------------
S.A. Johnson, Chairman
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.
Signature Title Date
- --------- ----- ----
/s/ S.A. Johnson Chairman and Director March 21, 2001
- -----------------------------
S.A. Johnson
/s/ Dugald K. Campbell President, Chief Executive March 21, 2001
- ----------------------------- Officer (Principal Executive
Dugald K. Campbell Officer) and Director
/s/ James R. Lozelle Director March 21, 2001
- -----------------------------
James R. Lozelle
/s/ Scott D. Rued Vice President, Corporate March 21, 2001
- ----------------------------- Development and Director
Scott D. Rued
/s/ F.J. Loughrey Director March 21, 2001
- -----------------------------
F.J. Loughrey
/s/ Kim B. Clark Director March 21, 2001
- -----------------------------
Kim B. Clark
/s/ Enrique Zambrano Director March 21, 2001
- -----------------------------
Enrique Zambrano
/s/ Jurgen M. Geissinger Director March 21, 2001
- -----------------------------
Jurgen M. Geissinger
/s/ Ali Jenab Director March 21, 2001
- -----------------------------
Ali Jenab
/s/ Anthony A. Barone Vice President and Chief March 21, 2001
- ----------------------------- Financial Officer (Principal
Anthony A. Barone Accounting Officer)
-30-
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TOWER AUTOMOTIVE, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
Page Number in
Sequential
Numbering
of all Form 10-K
Exhibit and 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 By-laws of the Registrant, incorporated by *
reference to Exhibit 3.2 of the Company's Form S-1 Registration
Statement (Registration No. 33-80320) (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 States 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% 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 Employee 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 MascoTech, 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.
-31-
32
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% 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% 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% 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
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. Employee 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. *
-32-
33
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.
99.1 Consolidated Financial Statements of Tower Automotive, Inc. for the Year
Ended December 31, 2000 together with Report of Independent Public --
Accountants filed herewith.
- ------------------
* Incorporated by reference.
** Indicates compensatory arrangement.
-33-
34
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
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 26, 2001.
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 26, 2001
S-1
35
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
(Amounts in thousands, except share amounts)
2000 1999
---- ----
ASSETS
Investment in consolidated subsidiaries $1,107,718 $1,147,746
Interest receivable 381 --
Investment in J. L. French 43,912 30,000
Debt issue costs, net of accumulated amortization
of $4,059 and $2,754 11,001 12,306
------------ ------------
$1,163,012 $1,190,052
------------ ------------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Accrued liabilities $ 4,167 $ 4,167
Convertible subordinated notes 200,000 200,000
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; 47,584,391 and 46,879,454 shares issued
and outstanding 476 469
Warrants to acquire common stock -- 2,000
Additional paid-in capital 450,455 437,210
Retained earnings 307,956 294,522
Deferred Income Stock Plan (8,942) (4,484)
Accumulated other comprehensive loss -
cumulative translation adjustment (9,672) (2,582)
Treasury stock, at cost: 4,112,100 shares (40,178) --
------------ ------------
Total stockholders' investment 700,095 727,135
------------ ------------
$1,163,012 $1,190,052
------------ ------------
The accompanying notes are an integral part of these condensed statements.
S-2
36
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, 2000, 1999 AND 1998
(in thousands)
2000 1999 1998
---- ---- ----
Amortization expense $ 1,305 $ 1,304 $ 1,106
---------- --------- ----------
Operating loss (1,305) (1,304) (1,106)
Interest expense 27,466 27,466 19,769
Interest income (2,094) (488) --
---------- --------- ----------
Loss before income taxes and equity in
earnings of consolidated subsidiaries (26,677) (28,282) (20,875)
Income tax benefit 10,671 11,313 8,354
Equity in earnings of consolidated subsidiaries 29,440 134,057 100,561
---------- --------- ----------
Net income $ 13,434 $ 117,088 $ 88,040
========== ========= ==========
The accompanying notes are an integral part of these condensed statements.
S-3
37
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TOWER AUTOMOTIVE, INC. (PARENT COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(Amounts in thousands, except share amounts)
Deferred
Common Stock Additional Warrants to Income
---------------------------- Paid-in Retained Acquire Stock '
Shares Amount Capital Earnings Common Stock Plan
------ ------ ------- -------- ------------ ----
BALANCE, DECEMBER 31, 1997 45,975,490 $ 460 $ 423,403 $ 89,394 $ 2,000 --
Conversion of Edgewood notes 62,000 1 188 -- -- --
Exercise of options 112,300 1 467 -- -- --
Sales of stock under Employee
Stock Discount Purchase Plan 132,090 1 2,344 -- -- --
Collection of common stock
subscriptions receivable -- -- 69 -- -- --
Net income -- -- -- 88,040 -- --
Other comprehensive income -
foreign currency
translation adjustment -- -- -- -- -- --
Total comprehensive income
----------- --------- ---------- ----------- ----------- ------------
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 income -
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 income -
foreign translation adjustment -- -- -- -- -- --
Total comprehensive income
----------- --------- ---------- ----------- ----------- ------------
BALANCE, DECEMBER 31, 2000 $47,584,391 $ 476 $ 450,455 $ 307,956 $ -- $ (8,942)
=========== ========= ========== =========== =========== ============
Accumulated
Treasury Stock Other Total
----------------------------- Comprehensive Stockholders
Shares Amount Income Investment
------ ------ ------ ----------
BALANCE, DECEMBER 31, 1997 -- $ -- $ 22 $ 515,279
Conversion of Edgewood notes -- -- -- 189
Exercise of options -- -- -- 468
Sales of stock under Employee
Stock Discount Purchase Plan -- -- -- 2,345
Collection of common stock
subscriptions receivable -- -- -- 69
Net income -- -- --
Other comprehensive income -
foreign currency translation
adjustment -- -- 406
Total comprehensive income 88,446
----------- ------------ ------------ ---------
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 income -
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 income -
foreign translation
adjustment -- -- (7,090)
Total comprehensive income 6,344
----------- ------------ ------------ ---------
BALANCE, DECEMBER 31, 2000 (4,112,100) $ (40,178) $ (9,672) $ 700,095
=========== ============ ============ =========
The accompanying notes are an integral part of these
consolidated financial statements.
S-4
38
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, 2000, 1999 AND 1998
(Amounts in thousands)
2000 1999 1998
---- ---- ----
Operating Activities:
Net income $ 13,434 $117,088 $ 88,040
Amortization expense 1,305 1,304 1,106
Equity in earnings of consolidated subsidiaries (29,440) (134,057) (100,561)
Change in current operating items - interest
receivable (381) -- --
Change in current operating items - accrued
liabilities -- 9 (92)
---------- ---------- ---------
Net cash provided by (used in) operating activities (15,082) (15,656) (11,507)
---------- ---------- ---------
Investing Activities:
Dividends received from consolidated subsidiaries 27,466 27,466 19,861
Additional investment in consolidated subsidiaries 21,000 (16,446) (260,950)
---------- ---------- ---------
Net cash provided by (used in) investing activities 48,466 11,020 (241,089)
---------- ---------- ---------
Financing Activities:
Net proceeds from issuance of common stock 6,794 4,636 2,883
Payments for repurchase of common shares (40,178) -- --
Net proceeds from 6 3/4% convertible subordinated
debentures payable to trust subsidiary -- -- 249,713
---------- ---------- ---------
Net cash provided by (used for) financing activities (33,384) 4,636 252,596
---------- ---------- ---------
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 $ 19,861
---------- ---------- ---------
Income taxes $ -- $ -- $ --
---------- ---------- ---------
The accompanying notes are an integral part of these condensed statements.
S-5
39
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.
The Company has facilities in the United States, Canada, Italy and
Japan, in China through its joint venture investment in Tower Golden
Ring, Germany, Hungary, Poland, Brazil, India, Slovakia, Korea, and in
Mexico through its joint venture investment in Metalsa.
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%, 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% to 100.714% 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. 6 3/4% 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% 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% 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
40
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
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% 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% 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, 2000, the Company has an ownership
interest of approximately 16% 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, 2000, approximately $8.2
million of the outstanding borrowings are denominated in Japanese yen
and $63.7 million of the outstanding borrowings are denominated in Euro.
Interest on the new credit facility is at the financial institutions'
reference rate, LIBOR, or the Eurodollar rate plus a margin ranging from
0 to 200 basis points depending on the ratio of the consolidated funded
debt for restricted subsidiaries of the Company to its total EBITDA. The
weighted average interest rate for such borrowings was 5.9 percent for
year ended December 31, 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 (Euro) 150 million (approximately $141.3 million at
December 31, 2000). The notes bear interest at a rate of 9.25 percent,
payable semi-annually. The notes rank equally with all of the Company's
other unsecured and unsubordinated debt. The net proceeds after issuance
costs were used to repay a portion of the Company's existing
Euro-denominated indebtedness under its existing credit facility. The
notes mature on August 1, 2010.
In April 1997, the Subsidiaries entered into a 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. Under the terms of the credit
facility, the equivalent of up to $85 million in borrowings could be
denominated in foreign currency. The amount available under the
revolving credit facility reduced to $675 million in April 2000, $600
million in April 2001 and $500 million in April 2002. The Credit
Agreement had a final maturity of April 2003. Interest on the credit
facility is 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 August 1999, the Company amended and restated its Credit Agreement to
include a term loan add on facility of $325 million. The weighted
average interest rate for the term loan facility was 7.4 percent for the
year ended December 31, 1999. The proceeds from the term facility were
used to repay outstanding indebtedness under the revolving facility
incurred in connection with the acquisition of Active in July 1999. The
term loan facility was replaced in July 2000 by the amortizing term loan
under the new $1.15 billion senior unsecured credit agreement.
S-7
41
SCHEDULE I
TOWER AUTOMOTIVE, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
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 Company 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, 2000, the Subsidiaries
could have paid up to approximately $125.0 million to the Parent Company
under the exception described in item (i) above.
S-8
42
SCHEDULE II
TOWER AUTOMOTIVE, INC.
VALUATION AND QUALIFYING ACCOUNTS OF REGISTRANT
(DOLLARS IN THOUSANDS)
RESTRUCTURING
-------------
AND ASSET
---------
EMPLOYEE FACILITY IMPAIRMENT
-------- -------- ----------
DESCRIPTION COST COST COST
----------- ---- ---- ----
Balance, December 31, 1997 $ 9,036 $ 22,666 $ --
Utilization (5,402) (1,485) --
Additional Provision -- -- --
Change in Estimate (10) (69) --
------------- --------------- -------------------
Balance, December 31, 1998 3,624 21,112 --
Utilization (5,229) (2,523) --
Additional Provision 8,732 5,439 --
Change in Estimate (760) (10,226) --
------------- --------------- -------------------
Balance, December 31, 1999 6,367 13,802 --
Utilization (2,509) (7,539) (84,565)
Additional Provision -- 1,000 141,326
Change in Estimate -- -- --
------------- --------------- -------------------
Balance, December 31, 2000 $ 3,858 $ 7,263 $ 56,761
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