Back to GetFilings.com
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--- ---
Commission file number 1-12733
TOWER AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 41-1746238
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5211 CASCADE ROAD SE - SUITE 300 49546
GRAND RAPIDS, MICHIGAN (Zip Code)
(Address of principal executive offices)
(616) 802-1600
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the Registrant's common stock, par value
$.01 per share, at November 12, 2002 was 56,719,255 shares.
----------
TOWER AUTOMOTIVE, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations (unaudited)
for the Three Months Ended September 30, 2002 and 2001
Condensed Consolidated Statements of Operations (unaudited)
for the Nine Months Ended September 30, 2002 and 2001
Condensed Consolidated Balance Sheets at September 30, 2002
(unaudited) and December 31, 2001
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Nine Months Ended September 30, 2002 and 2001
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See "Market Risk" section of Item 2
Item 4. Disclosure Controls and Procedures
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
CERTIFICATIONS
-2-
PART 1 - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
Three Months Ended September 30,
--------------------------------
2002 2001
----------- -----------
Revenues $ 653,841 $ 557,785
Cost of sales 587,218 502,366
----------- -----------
Gross profit 66,623 55,419
Selling, general and administrative
expenses 35,347 33,002
Amortization expense 1,022 6,232
----------- -----------
Operating income 30,254 16,185
Interest expense, net 16,593 19,082
----------- -----------
Income (loss) before provision for
income taxes, equity in earnings
of joint ventures and minority
interest 13,661 (2,897)
Provision (benefit) for income taxes 4,797 (2,771)
----------- -----------
Income (loss) before equity in earnings
of joint ventures and minority
interest 8,864 (126)
Equity in earnings of joint ventures, net 4,061 3,120
Minority interest, net (3,380) (4,358)
----------- -----------
Net income (loss) $ 9,545 $ (1,364)
=========== ===========
Basic earnings (loss) per common share $ 0.15 $ (0.03)
=========== ===========
Basic shares outstanding 65,525 45,784
=========== ===========
Diluted earnings (loss) per common share $ 0.15 $ (0.03)
=========== ===========
Diluted shares outstanding 65,612 45,784
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-3-
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS - UNAUDITED)
Nine Months Ended September 30,
--------------------------------
2002 2001
----------- -----------
Revenues $ 2,072,820 $ 1,828,568
Cost of sales 1,844,272 1,608,617
----------- -----------
Gross profit 228,548 219,951
Selling, general and administrative
expenses 105,621 103,321
Amortization expense 3,121 18,440
Restructuring and asset impairment charge 75,407 --
----------- -----------
Operating income 44,399 98,190
Interest expense, net 50,011 58,925
Other income, net (900) --
----------- -----------
Income (loss) before provision for
income taxes, equity in earnings
of joint ventures and minority
interest (4,712) 39,265
Provision (benefit) for income taxes (1,635) 13,701
----------- -----------
Income (loss) before equity in earnings
of joint ventures and minority
interest (3,077) 25,564
Equity in earnings of joint ventures, net 12,723 12,291
Minority interest, net (11,727) (9,686)
----------- -----------
Income (loss) before cumulative effect
of change in accounting principle (2,081) 28,169
Cumulative effect of change in
accounting principle (112,786) --
----------- -----------
Net income (loss) $ (114,867) $ 28,169
=========== ===========
Basic earnings (loss) per common share:
Income (loss) before cumulative effect $ (0.04) $ 0.63
Cumulative effect of change in
accounting principle (1.97) --
----------- -----------
Net income (loss) $ (2.01) $ 0.63
=========== ===========
Basic shares outstanding 57,206 44,770
=========== ===========
Diluted earnings (loss) per common share:
Income (loss) before cumulative effect $ (0.04) $ 0.63
Cumulative effect of change in
accounting principle (1.97) --
----------- -----------
Net income (loss) $ (2.01) $ 0.63
=========== ===========
Diluted shares outstanding 57,206 45,044
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-4-
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
September 30, December 31,
Assets 2002 2001
- ----------------------------------------- ------------ ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 25,924 $ 21,767
Accounts receivable, net 273,386 216,638
Inventories, net 116,960 112,536
Prepaid tooling and other 130,188 89,229
----------- -----------
Total current assets 546,458 440,170
----------- -----------
Property, plant and equipment, net 1,000,494 1,120,259
Investments in joint ventures 255,880 243,198
Deferred income taxes 76,696 61,461
Goodwill, net 466,063 567,080
Other assets, net 115,650 101,268
----------- -----------
$ 2,461,241 $ 2,533,436
=========== ===========
Liabilities and Stockholders' Investment
- -----------------------------------------
Current liabilities:
Current maturities of long-term debt
and capital lease obligations $ 114,275 $ 172,083
Accounts payable 402,913 368,910
Accrued liabilities 230,812 278,962
----------- -----------
Total current liabilities 748,000 819,955
----------- -----------
Long-term debt, net of current maturities 511,196 601,084
Obligations under capital leases, net
of current maturities 12,004 4,620
Convertible subordinated notes 199,984 199,984
Other noncurrent liabilities 184,429 201,635
----------- -----------
Total noncurrent liabilities 907,613 1,007,323
----------- -----------
Mandatorily redeemable trust convertible
preferred securities 258,750 258,750
Stockholders' investment:
Preferred stock -- --
Common stock 629 481
Additional paid-in capital 680,887 456,627
Retained earnings (deficit) (74,435) 40,432
Deferred compensation plans (13,479) (15,571)
Accumulated other comprehensive loss (25,606) (34,561)
Treasury stock, at cost (21,118) --
----------- -----------
Total stockholders' investment 546,878 447,408
----------- -----------
$ 2,461,241 $ 2,533,436
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated balance sheets.
-5-
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS - UNAUDITED)
Nine Months Ended September 30,
--------------------------------
2002 2001
----------- -----------
OPERATING ACTIVITIES:
Net income (loss) $ (114,867) $ 28,169
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities -
Cumulative effect of change in
accounting principle 112,786 --
Restructuring and asset
impairment charge 75,407 --
Depreciation and amortization 102,208 120,980
Deferred income tax provision
(benefit) (12,661) 9,371
Deferred compensation plans 1,631 --
Gain on sale of plant (3,839) --
Equity in earnings of joint
ventures, net (12,723) (12,291)
Change in working capital and
other operating items (128,837) 267,990
----------- -----------
Net cash provided by
operating activities 19,105 414,219
----------- -----------
INVESTING ACTIVITIES:
Acquisitions, divestitures and
investments in joint ventures (35,888) (1,812)
Capital expenditures, net (108,364) (147,583)
Proceeds from sale of fixed assets 50,313 --
----------- -----------
Net cash used in investing activities (93,939) (149,395)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,585,606 2,018,950
Repayments of debt (1,713,995) (2,310,067)
Net proceeds from issuance of
common stock 224,751 38,880
Payments for repurchase of common stock (17,371) --
----------- -----------
Net cash provided by (used for)
financing activities 78,991 (252,237)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 4,157 12,587
CASH AND CASH EQUIVALENTS:
Beginning of period 21,767 3,373
----------- -----------
End of period $ 25,924 $ 15,960
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amounts
capitalized $ 54,750 $ 68,948
=========== ===========
Income taxes paid, net of
amounts refunded $ 1,301 $ 4,516
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
-6-
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by Tower Automotive, Inc. (the "Company"), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. The
information furnished in the condensed consolidated financial statements
includes normal recurring adjustments and reflects all adjustments which
are, in the opinion of management, necessary for a fair presentation of
such financial statements. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although the Company believes that
the disclosures are adequate to make the information presented not
misleading, it is suggested that these condensed consolidated financial
statements be read in conjunction with the audited financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2001.
Revenues and operating results for the nine months ended September 30, 2002
are not necessarily indicative of the results to be expected for the full
year.
Certain prior period amounts were reclassified to conform to current period
presentation.
2. INVENTORIES
Inventories consisted of the following (in thousands):
SEPTEMBER 30, DECEMBER 31,
2002 2001
----------- -----------
Raw materials $ 55,189 $ 52,579
Work in process 15,702 24,636
Finished goods 46,069 35,321
----------- -----------
$ 116,960 $ 112,536
=========== ===========
3. EARNINGS PER SHARE
Basic earnings per share were computed by dividing net income by the
weighted average number of common shares outstanding during the respective
quarters. Diluted earnings per share for the three months ended September
30, 2002 and the nine months ended September 30, 2001 were determined on
the assumption that the Edgewood notes were converted at the beginning of
the period. The Convertible Subordinated Notes and Preferred Securities,
totaling approximately 16.2 million shares, were not included in the
computation of earnings per share for the three months ended September 30,
2002 and the nine months ended September 30, 2001 due to their
anti-dilutive effect. None of the common stock equivalents, totaling
approximately 16.2 million and 16.3 million shares for the nine months
ended September 30, 2002 and the three months ended September 30, 2001,
respectively, were included in the computation of earnings per share due to
their anti-dilutive effect (in thousands, except for per share data):
-7-
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net income (loss) $ 9,545 $ (1,364) $ (114,867) $ 28,169
Interest expense on Edgewood notes, net of -- -- -- 11
tax
----------- ----------- ----------- -----------
Net income (loss) applicable to common
stockholders -- diluted $ 9,545 $ (1,364) $ (114,867) $ 28,180
=========== =========== =========== ===========
Weighted average number of common shares
outstanding 65,525 45,784 57,206 44,770
Dilutive effect of outstanding stock
options and warrants after application of
the treasury stock method 71 -- -- 137
Dilutive effect of Edgewood notes, assuming
conversion 16 -- -- 137
------------ ----------- ----------- -----------
Diluted shares outstanding 65,612 45,784 57,206 45,044
=========== =========== =========== ===========
Basic earnings (loss) per share $ 0.15 $ (0.03) $ (2.01) $ 0.63
=========== =========== =========== ===========
Diluted earnings (loss) per share $ 0.15 $ (0.03) $ (2.01) $ 0.63
=========== =========== =========== ===========
4. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
SEPTEMBER 30, DECEMBER 31,
2002 2001
----------- -----------
Revolving credit facility $ 158,426 $ 100,608
Senior Euro notes 148,065 133,560
Term credit facility 125,000 325,000
Industrial development revenue bonds 43,765 43,765
Edgewood notes 50 50
Other foreign subsidiary indebtedness 126,059 136,987
Other 17,984 30,474
----------- -----------
619,349 770,444
Less-current maturities (108,153) (169,360)
----------- -----------
Total long-term debt $ 511,196 $ 601,084
=========== ===========
In June 2002, the Company completed an amendment to its senior credit
facility (the "Credit Agreement") that permanently reduced borrowings under
the facility and deferred the start of the scheduled repayment of its
remaining borrowings until March 2005. The amendment reduced the former
$1.15 billion facility to a $725 million facility by voluntarily repaying
$200 million of the $325 million term loan portion of the facility with
proceeds from the Company's May 2002 common stock offering (see Note 12),
and reduced capacity under the revolving credit facility from $825 million
to $600 million. The Credit Agreement also includes a multi-currency
borrowing feature that allows the Company to borrow up to $500 million in
certain freely tradable offshore currencies, and letter of credit sublimits
of $250 million. As of September 30, 2002, approximately $35.6 million of
the outstanding borrowings are denominated in Japanese Yen, $48.4 million
are denominated in Euro, and $15.8 million are denominated in Canadian
dollars. Interest on the Credit Agreement is at the financial institutions'
reference rate, LIBOR, or the Eurodollar rate plus a margin ranging from 0
to 200 basis points depending on the ratio of the consolidated funded debt
for restricted subsidiaries of the Company to its total EBITDA. The
weighted average interest rate for such borrowings was 6.4 percent for the
nine months ended September 30, 2002. The Credit Agreement has a final
maturity of 2006.
As a result of the permanent reduction of borrowing capacity under the
amendment, the Company recorded a $2.0 million non-cash charge in the
second quarter of 2002 that was classified as other expense for the
write-off of deferred financing costs associated with the credit facility.
-8-
The Credit Agreement requires the Company to meet certain financial
covenants, including but not limited to a minimum interest coverage and
maximum leverage ratio. The Credit Agreement also limits the Company's
ability to pay dividends. As of September 30, 2002, the Company was in
compliance with all debt covenants.
In July 2000, R. J. Tower Corporation, a wholly owned subsidiary of the
Company, issued Euro-denominated senior unsecured notes in the amount of
Euro 150 million ($148.1 million at September 30, 2002). The notes bear
interest at a rate of 9.25 percent, payable semi-annually. The notes rank
equally with all of the Company's other unsecured and unsubordinated debt.
The net proceeds after issuance costs were used to repay a portion of the
Company's existing Euro-denominated indebtedness under its credit facility.
The notes mature on August 1, 2010.
During September 2000, the Company entered into an interest rate swap
contract to hedge against interest rate exposure on approximately $160
million of its floating rate indebtedness under its Credit Agreement. The
contracts have the effect of converting the floating rate interest to a
fixed rate of approximately 6.9 percent, plus any applicable margin
required under the Credit Agreement. The interest rate swap contract was
executed to balance the Company's fixed-rate and floating-rate debt
portfolios and expires in September 2005.
The Company has designated the swap as a cash flow hedge. Accordingly,
gains and losses are recorded in accumulated other comprehensive income
(loss) net of income taxes. As of September 30, 2002, there is $13.1
million recorded in accumulated other comprehensive loss related to the
cash flow hedge. Derivative liabilities relating to the interest rate swap
agreement totaling $20.8 million have been recorded in accrued liabilities
on the balance sheet as of September 30, 2002. The fair value of the
interest rate swap agreement is based upon the difference between the
contractual rates and the present value of the expected future cash flows
on the hedged interest rate.
5. ACCOUNTS RECEIVABLE SECURITIZATION
At September 30, 2002, the Company had sold $113.8 million of net accounts
receivable pursuant to its accounts receivable securitization program in
exchange for $23.1 million of cash and a retained subordinated interest in
the receivables sold of $90.7 million. The receivables sold represented
amounts owed to the Company from customers as of August 31, 2002. The
majority of such receivables were collected in September 2002 and, as a
result, the Company's remaining retained interest in accounts receivable is
not significant as of September 30, 2002 and is not presented separately
from accounts receivable. As of September 30, 2002, the Company recorded a
liability to the funding agent of $23.1 million, which represents
receivables for which the Company has received collections from customers
and is required to be submitted to the funding agent. Settlement of amounts
due to the funding agent, as well as the cost of funding at a rate of
approximately 7.6 percent, occurs during the month subsequent to the sale
of the receivables.
6. ACQUISITIONS
Effective January 1, 2000, the Company acquired all of the outstanding
shares of Dr. Meleghy GmbH & Co. KG Werkzeugbau und Presswerk, Bergisch
Gladbach ("Dr. Meleghy") for approximately $86 million plus earnout
payments of $26.9 million paid in the first quarter of 2002 and $2.7
million paid in 2001. Dr. Meleghy designs and produces structural
stampings, assemblies, exposed surface panels and modules to the European
automotive industry. Dr. Meleghy also designs and manufactures tools and
dies for use in their production and for the external market. Dr. Meleghy
operates three facilities in Germany and one facility in both Hungary and
Poland. Dr. Meleghy's main customers include DaimlerChrysler, Audi,
Volkswagen, Ford, Opel and BMW. Products offered by Dr. Meleghy include
body side panels, floor pan assemblies and miscellaneous structural
stampings.
The Company's acquisitions have been accounted for using the purchase
method of accounting and, accordingly, the assets acquired and liabilities
assumed have been recorded at the fair value as of the
-9-
date of the acquisitions. The excess of the purchase price over the fair
value of the assets acquired and liabilities assumed has been recorded as
goodwill.
The Company is committed under existing certain agreements, assumed in
connection with prior acquisitions, to supply product to its customers at
selling prices that are not sufficient to cover the direct costs to produce
those parts. The Company is obligated to supply these products for the life
of the related vehicles, which is typically three to ten years.
Accordingly, the Company recognizes losses at the time these losses are
probable and reasonably estimable at an amount equal to the minimum amount
necessary to fulfill its obligations to its customers. The reserves
established in connection with these recognized losses are reversed as the
product is shipped to the customers.
In conjunction with its acquisitions, the Company has established reserves
for certain costs associated with facility shutdown and consolidation
activities, for general and payroll related costs primarily for planned
employee termination activities, and for provisions for acquired loss
contracts. A rollforward of these reserves is as follows (in millions):
FACILITY PAYROLL
SHUTDOWN RELATED LOSS
COSTS COSTS CONTRACTS
-------- ------- ---------
Balance at December 31, 2001 $5.2 $ 1.1 $17.0
Revision of estimate -- -- (2.3)
Utilization (0.6) (1.1) (3.1)
---- ----- -----
Balance at September 30, 2002 $4.6 $ -- $11.6
==== ===== =====
As of September 30, 2002, the facilities have been shutdown, but the
Company continues to incur costs related to maintenance, taxes and other
costs related to buildings that are held for sale. These reserves have been
utilized as originally intended and management believes the liabilities
recorded for shutdown and consolidation activities are adequate but not
excessive as of September 30, 2002. During the second quarter of 2002, the
Company determined that certain of its loss contracts would no longer be
utilized, and therefore, reversed $2.3 million of the loss contract
reserves.
7. INVESTMENTS IN JOINT VENTURES
The Company has a 31 percent equity interest in Yorozu Corporation
("Yorozu") acquired from Nissan Motor Co. Ltd. ("Nissan"). Yorozu, based in
Japan, is publicly traded on the first tier of the Tokyo Stock Exchange and
is a supplier of suspension modules and structural parts to the Asian and
North American automotive markets with principal customers including
Nissan, Auto Alliance, General Motors, Ford and Honda. The Company agreed
to pay Nissan approximately $68 million over two and one half years for its
original 17 percent interest acquired in September 2000 and its subsequent
13.8 percent interest it acquired in February 2001. As of September 30,
2002, $17.9 million remains to be paid under these arrangements and is
recorded as indebtedness in the Company's balance sheet. As of September
30, 2002, the traded market value of shares held in Yorozu was $18.7
million and the Company's investment in Yorozu was $60.4 million. The
Company periodically assesses its investment in Yorozu to determine the
proper carrying value for the investment in its financial statements. The
periodic assessment of value takes into account market value of shares,
operating performance, and the Company's book or liquidation value in
ascertaining whether an other than temporary impairment has occurred in the
investment. Based on this assessment, the Company does not believe at this
time that its investment in Yorozu has suffered an other than temporary
impairment.
The Company is a 40 percent partner in Metalsa S. de R.L. ("Metalsa") with
Promotora de Empresas Zano, S.A. de C.V. ("Proeza"). Metalsa is the largest
supplier of vehicle frames and structures in Mexico. In connection with the
original agreement, the Company paid $120 million to Proeza with an
additional amount of up to $45 million payable based upon net earnings of
Metalsa during 1998, 1999, and 2000. Based upon Metalsa's 1998 and 1999 net
earnings, the Company paid Proeza $9.0 million and $7.9 million in
additional consideration during 2000 and 1999, respectively. Based upon
Metalsa's
-10-
2000 net earnings, the Company paid $8.6 million of additional
consideration during the first quarter of 2002.
8. DIVESTITURES
On February 1, 2002, the Company sold its Iwahri, Korea plant to a Hyundai
affiliate for net proceeds of $4.2 million after fees and debt assumed by
the purchaser and realized a gain on sale of the plant of $3.8 million in
the first quarter of 2002 that was classified as other income. The net
proceeds were used to repay outstanding subsidiary indebtedness. The
results of operations of the Iwahri plant, which assembles the Kia Sportage
lower vehicle module, are not significant to the operating results of the
Company as a whole, and therefore, pro forma financial information has not
been provided, as the results would not be materially different. The
Company will continue to manufacture body structure components in Korea,
including those components used in the Kia Sportage module.
9. SEGMENT INFORMATION
The Company produces a broad range of assemblies and modules for vehicle
body structures and suspension systems for the global automotive industry.
These operations have similar characteristics including the nature of
products, production processes and customers, and produce lower vehicle
structures, body structures (including Class A surfaces), suspension
components, and modular assemblies for the automotive industry. Management
reviews the operating results of the Company and makes decisions based upon
two operating segments: United States/Canada and International. Financial
information by segment is as follows (in thousands):
UNITED STATES/
CANADA INTERNATIONAL TOTAL
------ ------------- -----
THREE MONTHS ENDED SEPTEMBER 30, 2002:
Revenues $ 491,913 $ 161,928 $ 653,841
Operating income 17,353 12,901 30,254
Total assets 1,697,077 764,164 2,461,241
THREE MONTHS ENDED SEPTEMBER 30, 2001:
Revenues $ 374,388 $ 183,397 $557,785
Operating income 4,651 11,534 16,185
Total assets 2,386,356 495,890 2,882,246
NINE MONTHS ENDED SEPTEMBER 30, 2002:
Revenues $1,589,902 $ 482,918 $2,072,820
Operating income 13,870 30,529 44,399
Restructuring and asset impairment charge 71,738 3,669 75,407
Cumulative effect of change in accounting
principle -- (112,786) (112,786)
Total assets 1,697,077 764,164 2,461,241
NINE MONTHS ENDED SEPTEMBER 30, 2001:
Revenues $1,321,318 $ 507,250 $1,828,568
Operating income 66,830 31,360 98,190
Total assets 2,386,356 495,890 2,882,246
-11-
10. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
MILWAUKEE PRESS OPERATIONS:
On January 31, 2002, the Company announced that it would discontinue the
remaining stamping and ancillary processes performed at its Milwaukee Press
Operations and relocate the remaining work to other Tower locations or Tier
II suppliers. The Company expects to complete the transfer process during
the fourth quarter of 2002. As a result of these efforts (the "2002 Plan"),
the Company recorded a restructuring charge in the first quarter of 2002
totaling $75.4 million, which reflects the estimated qualifying "exit
costs" to be incurred over the next 12 months pertaining to the 2002 Plan.
The 2002 Plan charge includes costs associated with asset impairments,
severance and outplacement costs related to employee terminations and
certain other exit costs. These activities are anticipated to result in a
reduction of approximately 490 colleagues in the Company's Milwaukee,
Wisconsin manufacturing location. Through September 30, 2002, the Company
had eliminated approximately 170 colleagues pursuant to the 2002 Plan. The
estimated restructuring charge does not cover certain aspects of the 2002
Plan, including movement of equipment and employee relocation and training.
These costs will be recognized in future periods as incurred.
The asset impairments consist of long-lived assets, including fixed assets,
buildings and manufacturing equipment from the facilities the Company
intends to dispose of or discontinue. The carrying value of the long-lived
assets written off was $47.2 million. Fixed assets that will be disposed of
as part of the 2002 Plan were written down to their estimated residual
values. For assets that will be sold currently, the Company measured
impairment based on estimated proceeds on the sale of the facilities and
equipment. These asset impairments have arisen as a consequence of the
Company making the decision to exit these activities during the first
quarter of 2002.
As of September 30, 2002, the Company anticipates future cash payments of
$8.8 million and other future obligations of $12.5 million under the 2002
Plan.
The accrual for operational realignment and other costs is included in
accrued liabilities in the accompanying condensed consolidated balance
sheet as of September 30, 2002. The table below summarizes the accrued
operational realignment and other charges related to the 2002 Plan through
September 30, 2002 (in millions):
SEVERANCE AND
ASSET OUTPLACEMENT OTHER EXIT
IMPAIRMENTS COSTS COSTS TOTAL
----------- ------ ------ ------
Balance at December 31, 2001 $ -- $ -- $ -- $ --
First quarter 2002 provision 47.2 8.4 19.8 75.4
Cash charges -- (4.7) (2.2) (6.9)
Non-cash charges (47.2) -- -- (47.2)
------ ------ ------ ------
Balance at September 30, 2002 $ -- $ 3.7 $ 17.6 $ 21.3
====== ====== ====== ======
SEBEWAING AND MILWAUKEE PRESS OPERATIONS:
In October 2001, the Company's board of directors approved a restructuring
of the enterprise that included the closing of the Sebewaing, Michigan
facility. In addition, in December 2001, the Company's board of directors
approved a restructuring plan that related to the consolidation of
technical activities and a reduction of other salaried colleagues in
conjunction with a reorganization of the Company's U.S. and Canada
operations and the relocation of some component manufacturing from the
Company's Milwaukee Press Operations to other Tower locations. As a result
of these realignment efforts (the "2001 Plan"), the Company recorded a
restructuring charge in the fourth quarter of 2001 of $178.1 million, which
reflects the estimated qualifying "exit costs" to be incurred over the next
12 months pertaining to the 2001 Plan.
-12-
The 2001 Plan charge includes costs associated with asset impairments,
severance and outplacement costs related to employee terminations and
certain other exit costs. These activities are anticipated to result in a
reduction of more than 700 colleagues in the Company's technical and
administrative centers in Novi, Rochester Hills, and Grand Rapids,
Michigan; Milwaukee, Wisconsin; and its U.S. and Canada manufacturing
locations. Through September 30, 2002, the Company had eliminated
approximately 680 colleagues pursuant to the 2001 Plan. The estimated
restructuring charge does not cover certain aspects of the 2001 Plan,
including movement of equipment and employee relocation and training. These
costs are being recognized as incurred.
As of September 30, 2002, the Company anticipates future cash payments of
approximately $13.4 million and other future obligations of $18.2 million
under the 2001 Plan.
The accrual for operational realignment and other costs, which was
established in the fourth quarter of 2001, is included in accrued
liabilities in the accompanying consolidated balance sheet as of September
30, 2002. The table below summarizes the accrued operational realignment
and accrued other charges related to the 2001 Plan through September 30,
2002 (in millions):
SEVERANCE AND
OUTPLACEMENT OTHER EXIT
COSTS COSTS TOTAL
----- ----- ------
Balance at December 31, 2001 $ 23.9 $ 31.4 $ 55.3
Cash charges (16.8) (6.9) (23.7)
------------- ---------- ------
Balance at September 30, 2002 $ 7.1 $ 24.5 $ 31.6
============= ========== ======
11. COMPREHENSIVE INCOME (LOSS)
The following table presents comprehensive income (loss) (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
2002 2001 2002 2001
------- ------- --------- -------
Net income (loss) $ 9,545 $(1,364) $(114,867) $28,169
Change in cumulative
translation adjustment (4,849) 1,394 13,735 (1,012)
Transition adjustment
relating to loss on
qualifying cash flow hedges -- -- -- (4,200)
Unrealized gain (loss) on
qualifying cash flow
hedges (3,600) (4,654) (4,780) (5,789)
------- ------- --------- -------
Comprehensive income (loss) $ 1,096 $(4,624) $(105,912) $17,168
======= ======= ========= =======
12. SALE OF COMMON STOCK
On May 13, 2002, the Company completed an underwritten primary offering of
17.25 million shares of Tower Automotive, Inc. common stock, which includes
the exercise of the underwriters' over-allotment option to acquire 2.25
million shares. The net proceeds from the offering were $222.4 million,
based on an offering price of $13.75 per share. The Company has used the
net proceeds to repay borrowings under its Credit Agreement (see Note 4).
13. SALE-LEASEBACK TRANSACTION
In April 2002, the Company entered into a sale-leaseback transaction on
seven of its business unit facilities in the United States. This
transaction resulted in net proceeds of $50.3 million after reflecting
-13-
prepaid lease payments retained by the lessor. The Company recorded a loss
on the sale of the buildings of $0.3 million in the second quarter 2002
that was classified as other expense. The lease requires quarterly payments
of approximately $1.6 million through 2020 and is accounted for as an
operating lease.
14. STOCK REPURCHASE
In May 2000, the Company announced that its board of directors approved the
purchase of up to $100 million of its Common Stock. The shares may be
repurchased in the open market at times and amounts to be determined by the
Company. On August 14, 2002, the Company announced its plan to resume its
stock repurchase program. During the quarter ended September 30, 2002,
approximately 3.0 million shares, at a total cost of $21.1 million have
been purchased. As of September 30, 2002, $17.4 million of these purchases
have been funded; the remaining $3.7 million are recorded in the
accompanying condensed consolidated balance sheet as a current liability.
These shares will be placed in treasury and may subsequently be reissued
for general corporate purposes.
15. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Intangible
Assets." Major provisions of these Statements are as follows: all business
combinations initiated after June 30, 2001 must use the purchase method of
accounting; the pooling of interest method of accounting is prohibited
except for transactions initiated before July 1, 2001; intangible assets
acquired in a business combination must be recorded separately from
goodwill if they arise from contractual or other legal rights or are
separable from the acquired entity and can be sold, transferred, licensed,
rented or exchanged, either individually or as part of a related contract,
asset or liability; goodwill and intangible assets with indefinite lives
are not amortized but tested for impairment annually, except in certain
circumstances, and whenever there is an impairment indicator; all acquired
goodwill must be assigned to reporting units for purposes of impairment
testing; effective January 1, 2002, goodwill is no longer subject to
amortization.
The Company adopted the new rules on accounting for goodwill and other
intangible assets as of January 1, 2002. Application of the nonamortization
provisions of the Statements is expected to result in a reduction in
goodwill amortization expense of approximately $16 million in fiscal 2002,
after reflecting 2001 goodwill writedowns of $196.1 million.
Under SFAS No. 142, the Company designated four reportable units: United
States/Canada, Europe, Asia and South America/Mexico. Preliminary
procedures under SFAS No. 142 indicated an excess of book value over fair
value for the Asia and South America/Mexico reportable units. During the
second quarter of 2002, the Company completed its formal valuation
procedures under SFAS No. 142, utilizing a combination of valuation
techniques including the discounted cash flow approach and the market
multiple approach. As a result of this valuation process as well as the
application of the remaining provision of SFAS No. 142, the Company
recorded a transitional impairment loss of $112.8 million, representing the
write-off of all of the Company's existing goodwill in the reportable units
of Asia ($29.7 million) and South America/Mexico ($83.1 million). The
write-off was recorded as a cumulative effect of a change in accounting
principle in the Company's condensed consolidated statements of operations
for the nine months ended September 30, 2002. There was no tax impact since
the Company recorded a $24.2 million tax valuation allowance for the
deductible portion of the goodwill written off in the reportable unit of
South America/Mexico. The Company determined that it was appropriate to
record a valuation allowance against the entire amount of the $24.2 million
deferred tax asset recognized in adopting SFAS No. 142 given the
uncertainty of realization and the lack of income in the reportable unit.
The Asia goodwill was not deductible for tax purposes.
-14-
The following table represents the impact of the transitional impairment
loss on the first quarter 2002 results as previously reported:
THREE MONTHS ENDED
MARCH 31, 2002
-------------------------
AS REPORTED AS ADJUSTED
----------- -----------
Loss before cumulative effect of change in accounting
principle $ (34,517) $ (34,517)
Cumulative effect of change in accounting principle -- (112,786)
----------- -----------
Net loss $ (34,517) $ (147,303)
=========== ===========
Basic loss per common share:
Loss before cumulative effect of change in accounting
principle $ (0.72) $ (0.72)
Cumulative effect of change in accounting principle -- (2.33)
----------- -----------
Net loss $ (0.72) $ (3.05)
=========== ===========
Basic shares outstanding 48,253 48,253
=========== ===========
Diluted loss per common share:
Loss before cumulative effect of change in accounting
principle $ (0.72) $ (0.72)
Cumulative effect of change in accounting principle -- (2.33)
----------- -----------
Net loss $ (0.72) $ (3.05)
=========== ===========
Diluted shares outstanding 48,253 48,253
=========== ===========
Under the adoption of SFAS No. 142, the Company discontinued the
amortization of goodwill. The following table presents a reconciliation of
net income and earnings per share adjusted for the exclusion of goodwill
amortization, net of tax (in thousands, except per share amounts):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ----------------------
2002 2001 2002 2001
------- ------- ---------- --------
Reported net income (loss) $ 9,545 $(1,364) $ (114,867) $ 28,169
Add: Goodwill amortization, net of
tax -- 3,236 -- 9,623
------- ------- ---------- --------
Adjusted net income (loss) $ 9,545 $ 1,872 $ (114,867) $ 37,792
======= ======= ========== ========
Reported basic earnings (loss) per
common share $ 0.15 $ (0.03) $ (2.01) $ 0.63
Add: Goodwill amortization, net of
tax -- 0.07 -- 0.21
------- ------- ---------- --------
Adjusted basic earnings (loss) per
common share $ 0.15 $ 0.04 $ (2.01) $ 0.84
======= ======= ========== ========
Reported diluted earnings (loss) per
common share $ 0.15 $ (0.03) $ (2.01) $ 0.63
Add: Goodwill amortization, net of
tax -- 0.07 -- 0.18
------- ------- ---------- --------
Adjusted diluted earnings (loss) per
common share $ 0.15 $ 0.04 $ (2.01) $ 0.81
======= ======= ========== ========
-15-
The change in the carrying amount of goodwill for the nine months ended
September 30, 2002, by operating segment, are as follows (in thousands):
UNITED STATES/
CANADA INTERNATIONAL TOTAL
-------------- ------------- ---------
Balance at December 31, 2001 $ 337,527 $ 229,553 $ 567,080
Transitional impairment loss -- (112,786) (112,786)
Currency translation adjustment -- 11,769 11,769
-------------- ------------- ---------
Balance at September 30, 2002 $ 337,527 $ 128,536 $ 466,063
============== ============= =========
In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after
December 15, 2001. The provisions of this Statement provide a single
accounting model for impairment of long-lived assets. The adoption of SFAS
No. 144 on January 1, 2002 did not have a material impact on the Company's
financial position or its results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." The Statement rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that Statement,
SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements." SFAS No. 145 recognizes that the use of debt extinguishment
can be a part of the risk management strategy of a company and hence, the
classification of all early extinguishment of debt as an extraordinary item
may no longer be appropriate. In addition, the Statement amends SFAS No.
13, "Accounting for Leases," to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that
are similar to sale-leaseback transactions. Provisions of this Statement,
as they relate to Statement No. 13, are to be effective for transactions
occurring after May 15, 2002. Provisions, which relate to Statement No. 4,
are effective for fiscal years beginning after May 15, 2002. SFAS No. 145
is not expected to materially impact the Company's consolidated financial
statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Exit or
Disposal Activities". SFAS No. 146 will be effective for the Company for
disposal activities initiated after December 31, 2002. The Company is in
the process of evaluating the effect that adopting SFAS No. 146 will have
on its consolidated financial statements.
16. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
The following condensed consolidating financial information presents
balance sheets, statements of operations and cash flow information related
to the Company's business. Each Guarantor, as defined, is a direct or
indirect wholly-owned subsidiary of the Company and has fully and
unconditionally guaranteed the 9.25 percent senior unsecured notes issued
by R. J. Tower Corporation, on a joint and several basis. Tower Automotive,
Inc. (the parent company) has also fully and unconditionally guaranteed the
note and is reflected as the Parent Guarantor in the condensed
consolidating financial information. The Non-Guarantors include the
Company's foreign subsidiaries. Separate financial statements and other
disclosures concerning the Guarantors have not been presented because
management believes that such information is not material to investors.
-16-
TOWER AUTOMOTIVE INC.
CONDENSED CONSOLIDATING BALANCE SHEETS AT SEPTEMBER 30, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- ------------- ------------ ------------
ASSETS
- ----------------------------------------------
Current assets:
Cash and cash equivalents $ -- $ -- $ 4,172 $ 21,752 $ -- $ 25,924
Accounts receivable, net -- -- 177,795 95,591 -- 273,386
Inventories, net -- -- 78,233 38,727 -- 116,960
Prepaid tooling and other -- -- 76,841 53,347 -- 130,188
------------ ----------- ----------- ------------- ------------ ------------
Total current assets -- -- 337,041 209,417 -- 546,458
------------ ----------- ----------- ------------- ------------ ------------
Property, plant and equipment, net -- -- 686,207 314,287 -- 1,000,494
Investments in joint ventures 253,845 -- 2,035 -- -- 255,880
Investment in subsidiaries 408,743 546,878 -- -- (955,621) --
Goodwill and other assets, net 6,542 8,726 455,627 187,514 -- 658,409
------------ ----------- ----------- ------------- ------------ ------------
$ 669,130 $ 555,604 $ 1,480,910 $ 711,218 $ (955,621) $ 2,461,241
============ =========== =========== ============= ============ ============
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ----------------------------------------------
Current liabilities:
Current maturities of long-term debt
and capital lease obligations $ 17,912 $ -- $ 4,740 $ 91,623 $ -- $ 114,275
Accounts payable -- -- 283,960 118,953 -- 402,913
Accrued liabilities 3,821 1,667 159,206 66,118 -- 230,812
------------ ----------- ----------- ------------- ------------ ------------
Total current liabilities 21,733 1,667 447,906 276,694 -- 748,000
------------ ----------- ----------- ------------- ------------ -----------
Long-term debt, net of current maturities 383,206 -- 43,765 84,225 -- 511,196
Obligations under capital leases, net of
current maturities -- -- 605 11,399 -- 12,004
Convertible subordinated notes -- 199,984 -- -- -- 199,984
Due to/(from) affiliates (304,837) (451,675) 745,096 11,416 -- -
Other noncurrent liabilities -- -- 132,249 52,180 -- 184,429
------------ ----------- ----------- ------------- ------------ ------------
Total noncurrent liabilities 78,369 (251,691) 921,715 159,220 -- 907,613
------------ ----------- ----------- ------------- ------------ ------------
Mandatorily redeemable trust convertible
preferred securities -- 258,750 -- -- -- 258,750
Stockholders' investment 572,484 546,878 125,762 282,981 (955,621) 572,484
Accumulated other comprehensive loss (3,456) -- (14,473) (7,677) -- (25,606)
------------ ----------- ----------- ------------- ------------ ------------
Total stockholders' investment 569,028 546,878 111,289 275,304 (955,621) 546,878
------------ ----------- ----------- ------------- ------------ ------------
$ 669,130 $ 555,604 $ 1,480,910 $ 711,218 $ (955,621) $ 2,461,241
============ =========== =========== ============= ============ ============
-17-
TOWER AUTOMOTIVE INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2002 (AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- ------------- ------------ ------------
Revenues $ -- $ -- $ 464,484 $ 189,357 $ -- $ 653,841
Cost of sales -- -- 421,542 165,676 -- 587,218
------------ ----------- ----------- ------------- ------------ ------------
Gross profit -- -- 42,942 23,681 -- 66,623
Selling, general and administrative expenses -- -- 27,072 8,275 -- 35,347
Amortization expense 257 328 -- 437 -- 1,022
------------ ----------- ----------- ------------- ------------ ------------
Operating income (loss) (257) (328) 15,870 14,969 -- 30,254
Interest expense, net 10,261 2,500 1,201 2,631 -- 16,593
------------ ----------- ----------- ------------- ------------ ------------
Income (loss) before provision for
income taxes, equity in earnings of
joint ventures and minority interest (10,518) (2,828) 14,669 12,338 -- 13,661
Provision (benefit) for income taxes (3,681) (990) 5,149 4,319 -- 4,797
------------ ----------- ----------- ------------- ------------ ------------
Income (loss) before equity in earnings
of joint ventures and minority interest (6,837) (1,838) 9,520 8,019 -- 8,864
Equity in earnings of joint ventures and 21,058 14,221 -- -- (31,218) 4,061
subsidiaries
Minority interest, net -- (2,838) -- (542) -- (3,380)
------------ ----------- ----------- ------------- ------------ ------------
Net income (loss) $ 14,221 $ 9,545 $ 9,520 $ 7,477 $ (31,218) $ 9,545
============ =========== =========== ============= ============ ============
-18-
TOWER AUTOMOTIVE INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2002 (AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- ------------- ------------ ------------
Revenues $ -- $ -- $ 1,480,305 $ 592,515 $ -- $ 2,072,820
Cost of sales -- -- 1,329,709 514,563 -- 1,844,272
------------ ----------- ----------- ------------- ------------ ------------
Gross profit -- -- 150,596 77,952 -- 228,548
Selling, general and administrative expenses -- -- 76,185 29,436 -- 105,621
Amortization expense 1,125 973 -- 1,023 -- 3,121
Restructuring and asset impairment charge -- -- 71,757 3,650 -- 75,407
------------ ----------- ----------- ------------- ------------ ------------
Operating income (loss) (1,125) (973) 2,654 43,843 -- 44,399
Interest expense (income), net 34,867 7,499 (217) 7,862 -- 50,011
Other expense (income), net 1,993 -- 946 (3,839) -- (900)
------------ ----------- ----------- ------------- ------------ ------------
Income (loss) before provision for
income taxes, equity in earnings of
joint ventures and minority interest (37,985) (8,472) 1,925 39,820 -- (4,712)
Provision (benefit) for income taxes (13,294) (2,965) 690 13,934 -- (1,635)
------------ ----------- ----------- ------------- ------------ ------------
Income (loss) before equity in earnings
of joint ventures and minority interest (24,691) (5,507) 1,235 25,886 -- (3,077)
Equity in earnings of joint ventures and (76,154) (100,845) -- -- 189,722 12,723
subsidiaries
Minority interest, net -- (8,515) -- (3,212) -- (11,727)
------------ ----------- ----------- ------------- ------------ ------------
Income (loss) before cumulative effect
of change in accounting principle (100,845) (114,867) 1,235 22,674 189,722 (2,081)
Cumulative effect of change in
accounting principle -- -- -- (112,786) -- (112,786)
------------ ----------- ----------- ------------- ------------ ------------
Net income (loss) $ (100,845) $ (114,867) $ 1,235 $ (90,112) $ 189,722 $ (114,867)
============ =========== =========== ============= ============ ============
-19-
TOWER AUTOMOTIVE INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2002
(AMOUNTS IN THOUSANDS - UNAUDITED)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
------------ ----------- ----------- ------------- ------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $ (100,845) $ (114,867) $ 1,235 $ (90,112) $ 189,722 $ (114,867)
Adjustments required to reconcile
net income (loss) to net cash provided
by (used in) operating activities
Cumulative effect of change in
accounting principle -- -- -- 112,786 -- 112,786
Restructuring and asset
impairment charge -- -- 71,757 3,650 -- 75,407
Depreciation and amortization 1,125 973 74,495 25,615 -- 102,208
Deferred income tax provision (benefit) -- -- (13,781) 1,120 -- (12,661)
Deferred compensation plans -- -- 1,631 -- -- 1,631
Gain on sale of plant -- -- -- (3,839) -- (3,839)
Equity in earnings of joint
ventures, net (12,723) -- -- -- -- (12,723)
Changes in working capital and other
operating items 255,263 4,366 (263,614) (23,931) (100,921) (128,837)
------------ ----------- ----------- ------------- ------------ ------------
Net cash provided by (used in)
operating activities 142,820 (109,528) (128,277) 25,289 88,801 19,105
------------ ----------- ----------- ------------- ------------ ------------
INVESTING ACTIVITIES:
Acquisitions, divestitures and investments
in joint ventures 15,816 (97,852) 130,945 4,004 (88,801) (35,888)
Capital expenditures, net -- -- (48,255) (60,109) -- (108,364)
Proceeds from sale of fixed assets -- -- 50,313 -- -- 50,313
------------ ----------- ----------- ------------- ------------ ------------
Net cash provided by (used in)
investing activities 15,816 (97,852) 133,003 (56,105) (88,801) (93,939)
------------ ----------- ----------- ------------- ------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,484,888 -- 93 100,625 -- 1,585,606
Repayments of debt (1,643,524) -- (3,091) (67,380) -- (1,713,995)
Net proceeds from issuance of stock -- 224,751 -- -- -- 224,751
Proceeds for repurchase of common shares -- (17,371) -- -- -- (17,371)
------------ ----------- ----------- ------------- ------------ ------------
Net cash provided by (used for)
financing activities (158,636) 207,380 (2,998) 33,245 -- 78,991
------------ ----------- ----------- ------------- ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS -- -- 1,728 2,429 -- 4,157
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD
-- -- 2,444 19,323 -- 21,767
------------ ----------- ----------- ------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ -- $ 4,172 $ 21,752 $ -- $ 25,924
============ =========== =========== ============= ============ ============
-20-
TOWER AUTOMOTIVE INC.
CONDENSED CONSOLIDATING BALANCE SHEETS AT DECEMBER 31, 2001
(AMOUNTS IN THOUSANDS)
R. J. TOWER PARENT GUARANTOR NON-GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ ------------- ------------
ASSETS
- ---------------------------------------------------
Current assets:
Cash and cash equivalents $ -- $ -- $ 2,444 $ 19,323 $ -- $ 21,767
Accounts receivable, net -- -- 140,402 76,236 -- 216,638
Inventories, net -- -- 72,003 40,533 -- 112,536
Prepaid tooling and other -- -- 52,238 36,991 -- 89,229
----------- ----------- ----------- --------- ----------- -----------
Total current assets -- -- 267,087 173,083 -- 440,170
----------- ----------- ----------- --------- ----------- -----------
Property, plant and equipment, net -- -- 824,437 295,822 -- 1,120,259
Investments in joint ventures 237,834 -- 4,177 1,187 -- 243,198
Investment in subsidiaries 744,808 447,408 -- -- (1,192,216) --
Goodwill and other assets, net 9,659 9,700 428,186 282,264 -- 729,809
----------- ----------- ----------- --------- ----------- -----------
$ 992,301 $ 457,108 $ 1,523,887 $ 752,356 $(1,192,216) $ 2,533,436
=========== =========== =========== ========= =========== ===========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
- ---------------------------------------------------
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 67,381 $ -- $ 2,723 $ 101,979 $ -- $ 172,083
Accounts payable -- -- 263,800 105,110 -- 368,910
Accrued liabilities 7,234 4,167 203,832 63,729 -- 278,962
----------- ----------- ----------- --------- ----------- -----------
Total current liabilities 74,615 4,167 470,355 270,818 -- 819,955
----------- ----------- ----------- --------- ----------- -----------
Long-term debt, net of current maturities 472,373 -- 44,765 83,946 -- 601,084
Obligations under capital leases, net of
current maturities -- -- 4,620 -- -- 4,620
Convertible subordinated notes -- 199,984 -- -- -- 199,984
Due to/(from) affiliates (27,392) (453,201) 428,037 52,556 -- --
Other noncurrent liabilities -- -- 150,639 50,996 -- 201,635
----------- ----------- ----------- --------- ----------- -----------
Total noncurrent liabilities 444,981 (253,217) 628,061 187,498 -- 1,007,323
----------- ----------- ----------- --------- ----------- -----------
Mandatorily redeemable trust convertible
preferred securities -- 258,750 -- -- -- 258,750
Stockholders' investment 481,969 447,408 439,943 304,865 (1,192,216) 481,969
Accumulated other comprehensive loss (9,264) -- (14,472) (10,825) -- (34,561)
----------- ----------- ----------- --------- ----------- -----------
Total stockholders' investment 472,705 447,408 425,471 294,040 (1,192,216) 447,408
----------- ----------- ----------- --------- ----------- -----------
$ 992,301 $ 457,108 $ 1,523,887 $ 752,356 $(1,192,216) $ 2,533,436
=========== =========== =========== ========= =========== ===========
-21-
TOWER AUTOMOTIVE INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2001 (AMOUNTS IN THOUSANDS - UNAUDITED)
NON-
R. J. TOWER PARENT GUARANTOR GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------- ------------ ------------
Revenues $ -- $ -- $ 350,279 $ 207,506 $ -- $ 557,785
Cost of sales -- -- 320,617 181,749 -- 502,366
--------- --------- --------- --------- --------- ---------
Gross profit -- -- 29,662 25,757 -- 55,419
Selling, general and administrative expenses -- -- 25,110 7,892 -- 33,002
Amortization expense 453 328 3,694 1,757 -- 6,232
--------- --------- --------- --------- --------- ---------
Operating income (loss) (453) (328) 858 16,108 -- 16,185
Interest expense (income), net 15,273 1,879 (2,345) 4,275 -- 19,082
--------- --------- --------- --------- --------- ---------
Income (loss) before provision for (15,726) (2,207) 3,203 11,833 -- (2,897)
income taxes, equity in earnings of
joint ventures and minority interest
Provision (benefit) for income taxes (6,133) (861) 1,249 2,974 -- (2,771)
--------- --------- --------- --------- --------- ---------
Income (loss) before equity in earnings
of joint ventures and minority interest (9,593) (1,346) 1,954 8,859 -- (126)
Equity in earnings of joint ventures and 12,239 2,646 -- -- (11,765) 3,120
subsidiaries
Minority interest, net -- (2,664) -- (1,694) -- (4,358)
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 2,646 ($ 1,364) $ 1,954 $ 7,165 ($ 11,765) ($ 1,364)
========= ========= ========= ========= ========= =========
-22-
TOWER AUTOMOTIVE INC.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001 (AMOUNTS IN THOUSANDS - UNAUDITED)
NON-
R. J. TOWER PARENT GUARANTOR GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------- ------------ ------------
Revenues $ -- $ -- $ 1,220,914 $ 607,654 $ -- $ 1,828,568
Cost of sales -- -- 1,072,912 535,705 -- 1,608,617
----------- ----------- ----------- ----------- ----------- -----------
Gross profit -- -- 148,002 71,949 -- 219,951
Selling, general and administrative expenses -- -- 77,130 26,191 -- 103,321
Amortization expense 1,378 973 11,033 5,056 -- 18,440
----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) (1,378) (973) 59,839 40,702 -- 98,190
Interest expense (income), net 50,949 5,430 (8,685) 11,231 -- 58,925
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before provision for (52,327) (6,403) 68,524 29,471 -- 39,265
income taxes, equity in earnings of
joint ventures and minority interest
Provision (benefit) for income taxes (20,408) (2,498) 26,725 9,882 -- 13,701
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before equity in earnings
of joint ventures and minority interest (31,919) (3,905) 41,799 19,589 -- 25,564
Equity in earnings of joint ventures and 71,985 40,066 -- -- (99,760) 12,291
subsidiaries
Minority interest, net -- (7,992) -- (1,694) -- (9,686)
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 40,066 $ 28,169 $ 41,799 $ 17,895 ($ 99,760) $ 28,169
=========== =========== =========== =========== =========== ===========
-23-
TOWER AUTOMOTIVE INC.
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-
R. J. TOWER PARENT GUARANTOR GUARANTOR
CORPORATION GUARANTOR COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------- ------------ ------------
OPERATING ACTIVITIES:
Net income (loss) $ 40,066 $ 28,169 $ 41,799 $ 17,895 ($ 99,760) $ 28,169
Adjustments required to reconcile net income (loss)
to net cash provided by (used in) operating
activities
Depreciation and amortization 453 973 92,718 26,836 -- 120,980
Deferred income tax provision -- -- 9,941 (570) -- 9,371
Equity in earnings of joint ventures, net (12,291) -- -- -- -- (12,291)
Changes in working capital and other
operating items 827,615 2,247 (327,126) (36,923) (197,823) 267,990
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities 855,843 31,389 (182,668) 7,238 (297,583) 414,219
----------- ----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES:
Acquisitions, divestitures and investments in joint (527,305) (70,269) 294,674 3,505 297,583 (1,812)
ventures
Capital expenditures, net -- -- (110,211) (37,372) -- (147,583)
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities (527,305) (70,269) 184,463 (33,867) 297,583 (149,395)
----------- ----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings 1,935,525 -- -- 83,425 -- 2,018,950
Repayments of debt (2,245,291) -- (1,957) (62,819) -- (2,310,067)
Net proceeds from the issuance of common stock -- 38,880 -- -- -- 38,880
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided by (used for) financing
activities (309,766) 38,880 (1,957) 20,606 -- (252,237)
----------- ----------- ----------- ----------- ----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS 18,772 -- (162) (6,023) -- 12,587
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
(18,772) -- 1,575 20,570 -- 3,373
----------- ----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ -- $ 1,413 $ 14,547 $ -- $ 15,960
=========== =========== =========== =========== =========== ===========
-24-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2002 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 2001
Revenues. Revenues for the third quarter of 2002 were $653.8 million, a 17.2
percent increase, compared to $557.8 million for the prior period. The increase
was comprised of volume increases of $110.0 million, primarily in the following
platforms: Dodge Ram Pickup, Cadillac CTS, and Ford Thunderbird, Econoline,
Expedition, and Explorer. These increases were offset by a decline in revenues
of $14.0 million, which were attributable to the sale of the Iwahri, Korea plant
to an affiliate of Hyundai.
Cost of Sales. Cost of sales as a percent of revenues for the third quarter of
2002 was 89.8 percent compared to 90.1 percent for the prior period. Gross
profit margin increased in the 2002 period compared to the 2001 period due to
increased volumes, changes in product mix on light truck, sport utility and
other models served by the Company and lack of significant product launch
activities compared to the prior period. The increase in the gross profit margin
was partially offset by a decline in profitability percentage on the Ford
Explorer and Dodge Ram pickup platforms, increased operating lease costs in the
2002 period, customer productivity price reductions beginning in the first
quarter of 2002, and operational inefficiencies associated with the production
of the new generation Ford Explorer frame.
S, G & A Expenses. Selling, general and administrative expenses were $35.3
million, or 5.4 percent of revenues, for the third quarter of 2002 compared to
$33.0 million, or 5.9 percent of revenues, for the prior period. The increase in
expense was due primarily to $2.3 million in increased program management costs
related to new programs.
Amortization Expense. Amortization expense for the third quarter of 2002 was
$1.0 million compared to $6.2 million for the prior period. The decrease was due
to the adoption of the requirements of SFAS No. 142, and as a result, beginning
January 1, 2002, the Company no longer records amortization expense of goodwill.
Goodwill amortization for the third quarter of 2001 was $5.3 million.
Interest Expense, net. Interest expense (net of interest income) for the third
quarter of 2002 was $16.6 million compared to $19.1 million for the prior
period. Interest expense decreased due to the (i) decreased borrowings during
the third quarter of 2002 compared to the third quarter of 2001 of $4.4 million,
and (ii) decreased interest rates and decreased spreads associated with the
Credit Agreement of $1.0 million, partially offset by (iii) decreased
capitalized interest on construction projects of $2.3 million and (iv) decreased
interest income in the 2002 period of $0.6 million.
Income Taxes. The effective income tax rate was 35.1 percent for the third
quarter of 2002. The effective income tax rate for the third quarter of 2001 is
not meaningful due to a minimal pre-tax loss adjusted for permanent differences
to reflect the actual rates in the tax jurisdictions in which the Company
operates.
Equity in Earnings of Joint Ventures, net. Equity in earnings of joint ventures,
net of tax, was $4.1 million and $3.1 million for the three months ended
September 30, 2002 and 2001, respectively. These amounts represent the Company's
share of the earnings from its joint venture interests in Metalsa, Yorozu, and
DTA Development. The Company's share of joint venture earnings in Metalsa in the
2002 period has increased as compared to the 2001 period by $1.0 million.
Minority Interest, net. Minority interest, net of tax, for the third quarter of
2002 represents dividends, net of income tax benefits, on the 6 3/4% Trust
Preferred Securities ("Preferred Securities"), the minority interest held by the
40 percent joint venture partners in Tower Golden Ring, and the minority
interest held by the 34 percent joint venture partner in Seojin. Minority
interest for the third quarter of 2001 represents dividends, net of income tax
benefits, on the Preferred Securities, and the minority interest held by the 40
percent joint venture partners in Tower Golden Ring.
-25-
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2002 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2001
Revenues. Revenues for the nine months ended September 30, 2002 were $2,072.8
million, a 13.4 percent increase, compared to $1,828.6 million for the prior
period. The increase was comprised of volume increases of $276.4 million,
primarily in the following platforms: Dodge Ram Pickup, Cadillac CTS, and Ford
Thunderbird, Econoline, Expedition, and Explorer, as well as incremental
revenues in the 2002 period of $23.3 million associated with the consolidation
of Tower Golden Ring, which first occurred in the third quarter of 2001. These
increases were offset by a decline in revenues of $55.5 million, which were
attributable to the sale of the Iwahri, Korea plant to an affiliate of Hyundai.
Cost of Sales. Cost of sales as a percent of revenues for the nine months ended
September 30, 2002 was 89.0 percent compared to 88.0 percent for the prior
period. Gross profit margin declined in the 2002 period compared to the 2001
period despite the increased volumes and lack of significant product launch
activity compared to the prior period due to the effect of customer productivity
price reductions beginning in the first quarter of 2002 and changes in product
mix on light truck, sport utility and other models served by the Company. The
decline in the gross profit margin is also attributable to a decline in
profitability percentage on the Ford Explorer and Dodge Ram pickup platforms,
increased operating lease costs in the 2002 period and operational
inefficiencies associated with the production of the new generation Ford
Explorer frame.
S, G & A Expenses. Selling, general and administrative expenses were $105.6
million, or 5.1 percent of revenues, for the nine months ended September 30,
2002 compared to $103.3 million, or 5.6 percent of revenues, for the prior
period. The Company has experienced $3.3 million in decreased costs due to
reductions in headcount in the consolidation of the Company's engineering and
support activities, offset by $3.9 million in increased program management
costs, and incremental costs of $1.7 million associated with the Company's
consolidation of Tower Golden Ring.
Amortization Expense. Amortization expense for the nine months ended September
30, 2002 was $3.1 million compared to $18.4 million for the prior period. The
decrease was due to the adoption of the requirements of SFAS No. 142, and as a
result, beginning January 1, 2002, the Company no longer records amortization
expense of goodwill. Goodwill amortization for the nine months ended September
30, 2001 was $15.8 million.
Interest Expense, net. Interest expense (net of interest income) for the nine
months ended September 30, 2002 was $50.0 million compared to $58.9 million for
the prior period. Interest expense decreased due to the (i) decreased borrowings
during the first nine months of 2002 compared to the first nine months of 2001
of $12.2 million, and (ii) decreased interest rates and decreased spreads
associated with the Credit Agreement of $5.8 million, offset by (iii) decreased
capitalized interest on construction projects of $7.5 million and (iv) decreased
interest income in the 2002 period of $1.6 million.
Income Taxes. The effective income tax rate was 34.7 percent and 34.9 percent
for the first nine months of 2002 and 2001, respectively. The effective tax rate
reflects the actual rates in the tax jurisdictions in which the Company
operates, adjusted for permanent differences.
Equity in Earnings of Joint Ventures, net. Equity in earnings of joint ventures,
net of tax, was $12.7 million and $12.3 million for the nine months ended
September 30, 2002 and 2001, respectively. These amounts represent the Company's
share of the earnings from its joint venture interests in Metalsa, Yorozu, and
DTA Development, in the 2002 and 2001 periods. In addition, the 2001 period
includes the Company's share of the earnings from its joint venture interest in
Tower Golden Ring, prior to its consolidation. The Company's share of joint
venture earnings in Metalsa and Yorozu has increased by $5.7 million, which was
offset by a reduction in equity earnings of $5.3 million due to the
consolidation of Tower Golden Ring beginning in third quarter of 2001.
Minority Interest, net. Minority interest, net of tax, for the nine months ended
September 30, 2002 represents dividends, net of income tax benefits, on the
Preferred Securities, the minority interest held by the 40 percent joint venture
partners in Tower Golden Ring, and the minority interest held by the 34 percent
joint venture
-26-
partner in Seojin. Minority interest, net of tax, for the nine months ended
September 30, 2001 represents dividends, net of income tax benefits, on the
Preferred Securities and the minority interest held by the 40 percent joint
venture partners in Tower Golden Ring.
RESTRUCTURING AND ASSET IMPAIRMENT CHARGE
The Company's growth through acquisitions coincided with an extended period of
high automotive production that resulted in higher levels of utilization of the
Company's acquired resources and capacity and contributed to periods of strong
operating results. During the second half of 2000, as automotive production
declined from previous levels, the Company focused its efforts on reducing the
capacity of the enterprise and improving the efficiency of its continuing
operations. During the 18 month period beginning in the fourth quarter of 2000,
the Company: (i) divested itself of its non-core heavy truck business, (ii)
consolidated its manufacturing operations by closing manufacturing locations in
Kalamazoo, Michigan; Sebewaing, Michigan; and certain operations in Milwaukee,
Wisconsin, (iii) reduced redundant overhead through a consolidation of its
technical activities and a reduction of other salaried colleagues, and (iv)
reorganized the management of its U.S. and Canada region. These were
accomplished through three restructurings, described in more detail below. The
first restructuring was initiated in October 2000 (the "2000 Plan"), the second
restructuring was initiated in October 2001 (the "2001 Plan"), with the
discontinuance of the remaining stamping and ancillary processes currently
performed at the Company's Milwaukee Press Operations announced in January 2002
(the "2002 Plan").
The restructuring and asset impairment charges consist of both restructuring
charges and non-restructuring related asset impairments, major components of
which are discussed in the sections below. The following table summarizes the
principal components of these charges (in millions):
2002 PLAN 2001 PLAN 2000 PLAN
--------- --------- ---------
RESTRUCTURING AND RELATED ASSET IMPAIRMENTS
Asset impairments $47.2 $127.4 $103.7
Severance and outplacement costs 8.4 24.6 25.2
Loss contracts -- -- 8.1
Other exit costs 19.8 26.1 4.3
----- ------ ------
Total 75.4 178.1 141.3
OTHER GOODWILL AND ASSET IMPAIRMENTS
Goodwill writedown -- 108.6 --
Other asset impairments -- 50.7 --
Investment impairment -- 46.3 --
----- ------ ------
Total -- 205.6 --
----- ------ ------
TOTAL RESTRUCTURING AND ASSET IMPAIRMENT
CHARGES $75.4 $383.7 $141.3
===== ====== ======
Non-cash charges $47.2 $333.0 $103.7
----- ------ ------
Cash charges $28.2 $ 50.7 $ 37.6
----- ------ ------
Under the 2000 Plan, the Company realized cash savings of approximately $32
million in 2001 as a result of reductions in payroll costs directly related to
restructuring activities. These cash savings from permanent payroll reductions
are expected to be realized annually. Under the 2001 Plan, the Company has
realized cash savings of approximately $14 million through September 30, 2002,
and expects to realize additional cash savings of approximately $10 million
through the remainder of 2002 attributable to permanent payroll reductions.
Under the 2002 Plan, the Company has realized cash savings of approximately $7
million through September 30, 2002, and expects to realize additional cash
savings of approximately $6 million through the remainder of 2002 attributable
to permanent payroll reductions with full realization of cash savings beginning
in 2003.
-27-
MILWAUKEE PRESS OPERATIONS:
On January 31, 2002, the Company announced that it would discontinue the
remaining stamping and ancillary processes performed at its Milwaukee Press
Operations and relocate the remaining work to other Tower locations or Tier II
suppliers. The Company expects to complete the transfer process during the
fourth quarter of 2002. As a result of these efforts (the "2002 Plan"), the
Company recorded a restructuring charge in the first quarter of 2002 totaling
$75.4 million, which reflects the estimated qualifying "exit costs" to be
incurred over the next 12 months pertaining to the 2002 Plan.
The 2002 Plan charge includes costs associated with asset impairments, severance
and outplacement costs related to employee terminations and certain other exit
costs. These activities are anticipated to result in a reduction of
approximately 490 colleagues in the Company's Milwaukee, Wisconsin manufacturing
location. Through September 30, 2002, the Company had eliminated approximately
170 colleagues pursuant to the 2002 Plan. The estimated restructuring charge
does not cover certain aspects of the 2002 Plan, including movement of equipment
and employee relocation and training. These costs will be recognized in future
periods as incurred.
The asset impairments consist of long-lived assets, including fixed assets,
buildings and manufacturing equipment from the facilities the Company intends to
dispose of or discontinue. The carrying value of the long-lived assets written
off was $47.2 million. Fixed assets that will be disposed of as part of the 2002
Plan were written down to their estimated residual values. For assets that will
be sold currently, the Company measured impairment based on estimated proceeds
on the sale of the facilities and equipment. These asset impairments have arisen
as a consequence of the Company making the decision to exit these activities
during the first quarter of 2002.
As of September 30, 2002, the Company anticipates future cash payments of $8.8
million and other future obligations of $12.5 million under the 2002 Plan.
The accrual for operational realignment and other costs is included in accrued
liabilities in the accompanying condensed consolidated balance sheet as of
September 30, 2002. The table below summarizes the accrued operational
realignment and other charges through September 30, 2002 (in millions):
SEVERANCE AND
ASSET OUTPLACEMENT OTHER EXIT
IMPAIRMENTS COSTS COSTS TOTAL
----------- ----- ----- -----
Balance at December 31, 2001 $ -- $ -- $ -- $ --
First quarter 2002 provision 47.2 8.4 19.8 75.4
Cash charges -- (4.7) (2.2) (6.9)
Non-cash charges (47.2) -- -- (47.2)
----- ----- ----- -----
Balance at September 30, 2002 $ -- $ 3.7 $17.6 $21.3
===== ===== ===== =====
SEBEWAING AND MILWAUKEE PRESS OPERATIONS:
In October 2001, the Company's board of directors approved a restructuring of
the enterprise that included the closing of the Sebewaing, Michigan facility. In
addition, in December 2001, the Company's board of directors approved a
restructuring plan that related to the consolidation of technical activities and
a reduction of other salaried colleagues in conjunction with a reorganization of
the Company's U.S. and Canada operations and the relocation of some component
manufacturing from the Company's Milwaukee Press Operations to other Tower
locations. As a result of these realignment efforts (the "2001 Plan"), the
Company recorded a restructuring charge in the fourth quarter of 2001 of $178.1
million, which reflects the estimated qualifying "exit costs" to be incurred
over the next 12 months pertaining to the 2001 Plan.
The 2001 Plan charge includes costs associated with asset impairments, severance
and outplacement costs related to employee terminations and certain other exit
costs. These activities are anticipated to result in a reduction of more than
700 colleagues in the Company's technical and administrative centers in Novi,
Rochester Hills, and Grand Rapids, Michigan; Milwaukee, Wisconsin; and its U.S.
and Canada manufacturing
-28-
locations. Through September 30, 2002, the Company had eliminated approximately
680 colleagues pursuant to the 2001 Plan. The estimated restructuring charge
does not cover certain aspects of the 2001 Plan, including movement of equipment
and employee relocation and training. These costs are being recognized in future
periods as incurred.
As of September 30, 2002, the Company anticipates future cash payments of $13.4
million and other future obligations of $18.2 million under the 2001 Plan.
The accrual for operational realignment and other costs, which was established
in the fourth quarter of 2001, is included in accrued liabilities in the
accompanying condensed consolidated balance sheet as of September 30, 2002. The
table below summarizes the accrued operational realignment and other accrued
charges through September 30, 2002 (in millions):
SEVERANCE AND
OUTPLACEMENT OTHER EXIT
COSTS COSTS TOTAL
----- ----- -----
Balance at December 31, 2001 $23.9 $31.4 $55.3
Cash charges (16.8) (6.9) (23.7)
----- ----- -----
Balance at September 30, 2002 $ 7.1 $24.5 $31.6
===== ===== =====
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF CASH
The Company's principal sources of cash are cash flow from operations,
commercial borrowings and capital markets activities. During the nine months
ended September 30, 2002, the Company generated $19.1 million of cash from
operations. This compares with $414.2 million generated during the same period
in 2001. Net income before depreciation and amortization, deferred income taxes,
deferred compensation plans, gain on sale of plant, equity in joint venture
earnings, restructuring and asset impairment charges, and cumulative effect of
change in accounting principle was $147.9 million and $146.2 million for the
2002 and 2001 periods, respectively. Operating cash flow was reduced by $30.6
million in 2002 and $16.2 million in 2001 for cash restructuring payments, and
was decreased as a result of net tax payments of $1.3 million and $4.5 million
in the 2002 and 2001 periods, respectively. Operating cash flow was also reduced
in the 2002 period by $28.0 million for required pension plan contributions. In
total, working capital and other operating items decreased operating cash flow
by $128.8 million in the 2002 period and increased operating cash flow by $268.0
million during the 2001 period.
In April 2002, the Company entered into a sale-leaseback transaction involving
seven of its manufacturing facilities contributing $50.3 million to the cash
flow of the 2002 period. Under the terms of the sale-leaseback agreement with
investment banking firm W.P. Carey and Company, LLC, the facilities will be
leased to the Company under an 18-year term. The lease requires quarterly
payments of approximately $1.6 million through 2020 and is accounted for as an
operating lease.
The issuance of common stock under the underwritten primary offering of 17.25
million shares completed in May 2002 contributed $222.4 million to the cash flow
of the 2002 period. The issuance of stock from the Company's colleague stock
purchase plan and option plans contributed an additional $2.3 million to cash
flow for the 2002 period. In August 2001, the Company realized net proceeds of
$37.6 million from the issuance of 3,636,400 shares of common stock at a price
of $11.00 per share in a private placement transaction. The issuance of stock
from the Company's colleague stock purchase plan and option plans contributed an
additional $1.3 million to cash flow for the 2001 period.
In June 2002, the Company completed an amendment to its senior credit facility
(the "Credit Agreement") that permanently reduced borrowings under the facility
and deferred the start of the scheduled repayment of its remaining borrowings
until March 2005. The amendment reduced the former $1.15 billion facility to a
$725 million facility by voluntarily repaying $200 million of the $325 million
term loan portion of the facility with proceeds from the Company's May 2002
common stock offering, and reduced capacity under
-29-
the revolving credit facility from $825 million to $600 million. The Credit
Agreement also includes a multi-currency borrowing feature that allows the
Company to borrow up to $500 million in certain freely tradable offshore
currencies, and letter of credit sublimits of $250 million. As of September 30,
2002, approximately $35.6 million of the outstanding borrowings are denominated
in Japanese Yen, $48.4 million are denominated in Euro and $15.8 million are
denominated in Canadian dollars. Interest on the Credit Agreement is at the
financial institutions' reference rate, LIBOR, or the Eurodollar rate plus a
margin ranging from 0 to 200 basis points depending on the ratio of the
consolidated funded debt for restricted subsidiaries of the Company to its total
EBITDA. The weighted average interest rate for such borrowings was 6.4 percent
for the nine months ended September 30, 2002. The Credit Agreement has a final
maturity of 2006.
At September 30, 2002, the Company had borrowed $158.4 million under its
revolving credit facility of $600 million. In order to borrow under the
revolving facility, the Company must meet certain covenant ratios. Based on
these covenants, the amount of unused availability under the revolving facility
was $221.4 million at September 30, 2002, compared to unused availability of
$99.1 million at September 30, 2001. This increase in availability resulted from
an increase due to the reduction of indebtedness (as defined in the credit
agreement), offset in part by a decrease in trailing four quarter EBITDA and a
decrease in the total amount available for borrowing under the revolver facility
(due to the amendment completed in the second quarter of 2002) between the
periods. The credit agreement requires the Company to meet certain financial
covenants, including but not limited to a minimum interest coverage and maximum
leverage ratio. The covenant conditions contained in the credit agreement also
limit the Company's ability to pay dividends to the available borrowings under
the revolving facility. As of September 30, 2002, the Company was in compliance
with all debt covenants.
In September 2000, the Company entered into an interest rate swap contract to
hedge against interest rate exposure on approximately $160 million of its
floating rate indebtedness under the credit agreement. The contracts have the
effect of converting the floating rate interest to a fixed rate of approximately
6.9 percent, plus any applicable margin required under the Credit Agreement. The
interest rate swap contract was executed to balance the Company's fixed-rate and
floating-rate debt portfolios and expires in September 2005.
USES OF CASH
The Company's principal uses of cash are debt repayment, capital expenditures
and acquisitions and investments in joint ventures. Net cash used in investing
activities was $93.9 million during the nine months ended September 30, 2002, as
compared to $149.4 million in the prior period. Net capital expenditures totaled
$108.3 million and $147.6 million for the comparable 2002 and 2001 periods,
respectively. Earnout payments offset by net proceeds received from the sale of
a plant, reduced investment cash flows by $35.9 million in the 2002 period. The
Company's consolidation of Tower Golden Ring, its acquisition of an additional
13.8 percent interest in Yorozu and payments and dividends received from
investments in joint ventures reduced investment cash flows by $1.8 million in
the 2001 period. Net cash proceeds of $50.3 million from the sale of fixed
assets under a sale-leaseback transaction contributed to the 2002 investment
activity cash flows. Net cash provided by financing activities totaled $79.0
million for the nine months ended September 30, 2002 and net cash used for
financing activities totaled $252.2 million for the nine months ended September
30, 2001. Net proceeds from the issuance of stock of $224.8 million and $38.9
million were offset by net repayments of debt of $128.4 million and $291.1
million for the comparable 2002 and 2001 periods, respectively. Also offsetting
proceeds from the issuance of stock in the 2002 period were payments for the
repurchase of common shares of $17.4 million.
The Company estimates its full year gross 2002 capital expenditures will be
approximately $155 million. Where appropriate, the Company may lease rather than
purchase such equipment, which would have the effect of reducing this
anticipated level of capital expenditures.
WORKING CAPITAL
During the nine months ended September 30, 2002, working capital increased by
$178.2 million. This net increase is due to a $56.7 million increase in accounts
receivable attributable to the significant sales increase in September 2002
relative to December 2001, a $41.0 million timing-related increase in tooling
and other costs,
-30-
a $4.4 million increase in inventory, a $4.1 million increase in cash on hand, a
$48.2 million decrease in accrued liabilities, and a $57.8 million decrease in
current maturities of long-term debt and capital lease obligations; offset by a
$34.0 million increase in accounts payable related to the continued
renegotiation of terms with key suppliers.
The Company expects to continue its focus on maintaining a large negative
working capital position through the continued focus on minimizing the length of
the cash flow cycle. The Company believes that the available borrowing capacity
under its credit agreement, together with funds generated by operations, should
provide sufficient liquidity and capital resources to pursue its business
strategy for the foreseeable future, with respect to working capital, capital
expenditures, and other operating needs.
EFFECTS OF INFLATION
Inflation generally affects the Company by increasing the interest expense of
floating-rate indebtedness and by increasing the cost of labor, equipment and
raw materials. Management believes that inflation has not significantly affected
the Company's business over the past 12 months. However, because selling prices
generally cannot be increased until a model changeover, the effects of inflation
must be offset by productivity improvements and volume from new business awards.
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 September 30, 2002, Tower Automotive had total debt and obligations under
capital leases of $837.5 million. The debt is comprised of fixed rate debt of
$508.0 million and floating rate debt of $329.5 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 $3.3
million, holding other variables constant. A one percentage point increase in
interest rates would not materially impact the fair value of the fixed rate
debt.
A portion of Tower Automotive's revenues were derived from manufacturing
operations in Europe, Asia and South America. The results of operations and
financial position of the Company's foreign operations are principally measured
in its respective currency and translated into U.S. dollars. The effects of
foreign currency fluctuations in Europe, Asia and South America are mitigated by
the fact that expenses are generally incurred in the same currency in which
revenues are generated. The reported income of these subsidiaries will be higher
or lower depending on a weakening or strengthening of the U.S. dollar against
the respective foreign currency.
A portion of Tower Automotive's assets are based in its foreign operations and
are translated into U.S. dollars at foreign currency exchange rates in effect as
of the end of each period, with the effect of such translation reflected as a
separate component of stockholders' investment. Accordingly, the Company's
consolidated stockholders' investment will fluctuate depending upon the
weakening or strengthening of the U.S. dollar against the respective foreign
currency.
The Company's strategy for management of currency risk relies primarily upon
conducting its operations in a country's respective currency and may, from time
to time, engage in hedging programs intended to reduce the Company's exposure to
currency fluctuations. Management believes the effect of a one percent
appreciation or
-31-
depreciation in foreign currency rates would not materially affect the Company's
financial position or results of operations for the periods presented.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Intangible Assets." Major
provisions of these Statements are as follows: all business combinations
initiated after June 30, 2001 must use the purchase method of accounting; the
pooling of interest method of accounting is prohibited except for transactions
initiated before July 1, 2001; intangible assets acquired in a business
combination must be recorded separately from goodwill if they arise from
contractual or other legal rights or are separable from the acquired entity and
can be sold, transferred, licensed, rented or exchanged, either individually or
as part of a related contract, asset or liability; goodwill and intangible
assets with indefinite lives are not amortized but tested for impairment
annually, except in certain circumstances, and whenever there is an impairment
indicator; all acquired goodwill must be assigned to reporting units for
purposes of impairment testing; effective January 1, 2002, goodwill is no longer
subject to amortization.
The Company adopted the new rules on accounting for goodwill and other
intangible assets as of January 1, 2002. Application of the nonamortization
provisions of the Statements is expected to result in a reduction in goodwill
amortization expense of approximately $16 million in fiscal 2002, after
reflecting 2001 goodwill write downs of $196.1 million.
Under SFAS No. 142, the Company designated four reportable units: United
States/Canada, Europe, Asia and South America/Mexico. Preliminary procedures
under SFAS No. 142 indicated an excess of book value over fair value for the
Asia and South America/Mexico reportable units. During the second quarter of
2002, the Company completed its formal valuation procedures under SFAS No. 142,
utilizing a combination of valuation techniques including the discounted cash
flow approach and the market multiple approach. As a result of this valuation
process as well as the application of the remaining provision of SFAS No. 142,
the Company recorded a transitional impairment loss of $112.8 million,
representing the write-off of all of the Company's existing goodwill in the
reportable units of Asia ($29.7 million) and South America/Mexico ($83.1
million). The write-off was recorded as a cumulative effect of a change in
accounting principle in the Company's condensed consolidated statements of
operations for the nine months ended September 30, 2002. There was no tax impact
since the Company recorded a $24.2 million tax valuation allowance for the
deductible portion of the goodwill written off in the reportable unit of South
America/Mexico. The Company determined that it was appropriate to record a
valuation allowance against the entire amount of the $24.2 million deferred tax
asset recognized in adopting SFAS No. 142 given the uncertainty of realization
and the lack of income in the reportable unit. The Asia goodwill was not
deductible for tax purposes.
In July 2001, the FASB issued SFAS No. 144, "Impairment or Disposal of
Long-Lived Assets," which is effective for fiscal years beginning after December
15, 2001. The provisions of this Statement provide a single accounting model for
impairment of long-lived assets. The adoption of SFAS No. 144 on January 1, 2002
did not have a material impact on the Company's financial position or its
results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
The Statement rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt," and an amendment of that Statement, SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." SFAS No.
145 recognizes that the use of debt extinguishment can be a part of the risk
management strategy of a company and hence, the classification of all early
extinguishment of debt as an extraordinary item may no longer be appropriate. In
addition, the Statement amends SFAS No. 13, "Accounting for Leases," to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions.
Provisions of this Statement, as they relate to Statement No. 13, are to be
effective for transactions occurring after May 15, 2002. Provisions, which
relate to Statement No. 4, are effective for fiscal years beginning after May
15, 2002. SFAS No. 145 is not expected to materially impact the Company's
consolidated financial statements.
-32-
In July 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities". SFAS No. 146 will be effective for the Company for disposal
activities initiated after December 31, 2002. The Company is in the process of
evaluating the effect that adopting SFAS No. 146 will have on its financial
statements.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This form 10-Q Report contains certain forward-looking statements that are
subject to risks and uncertainties. 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. These statements often include words such as "believe," "expect,"
"anticipate," "intend," "plan," "estimate," or similar expressions. The
statements are not a guarantee as to performance or results. They involve risks,
uncertainties and assumptions. Although the Company believes that these
forward-looking statements are based on reasonable assumptions, various economic
and competitive factors could cause actual results to differ materially from
those discussed in such forward-looking statements, including factors which are
outside the control of the Company, such as risks relating to: (i) the degree to
which the Company is leverages; (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 ability to achieve the anticipated volume of production from new and planned
supply programs; (viii) general economic or business conditions affecting the
automotive industry, either nationally or regionally, being less favorable than
expected; (ix) the Company's abilities to develop or successfully introduce new
products; (x) the highly competitive nature of the automotive supply industry,
(xi) unforeseen problems associated with international sales, including gains
and losses from foreign currency exchange; (xii) the implementation of or
changes in laws, regulations or policies that could negatively affect the
automotive supply industry; and (xiii) such other factors noted in this Form
10-Q with respect to the Company's businesses. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on
behalf of the Company are expressly qualified in their entirety by such
cautionary statements. Except for the Company's obligations to disclose material
information as required by the federal securities laws, the Company does not
have any obligation or intention to release publicly any revisions to any
forward-looking statements to reflect events or circumstances in the future or
to reflect the occurrence of unanticipated events. For any forward-looking
statements made in this Form 10-Q, the Company claims the protections of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
ITEM 4: DISCLOSURE CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
With the participation of management, the Company's chief executive officer and
chief financial officer, after evaluating the effectiveness of the Company's
disclosure controls and procedures (as defined in Exchange Act Rules 13(a) -
14(c) and 15(d) - 14(c)) on October 17, 2002 ("the Evaluation Date"), have
concluded that, as of such date, the Company's disclosure controls and
procedures were adequate and effective to ensure that material information
relating to the Company and its consolidated subsidiaries would be made known to
them by others within those entities in connection with the Company's filing of
its Quarterly Report on Form 10-Q for the quarterly period ended September 30,
2002.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect the Company's disclosure controls
subsequent to the Evaluation Date through the date of this filing of Form 10-Q
for the quarterly period ended September 30, 2002.
-33-
PART II. OTHER INFORMATION
TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES
Item 1. Legal Proceedings:
None.
Item 2. Change in Securities and Use of Proceeds:
None.
Item 3. Defaults Upon Senior Securities:
None.
Item 4. Submission of Matters to a Vote of Security Holders:
None.
Item 5. Other Information:
None.
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits:
Exhibit 10.1 - Second Amendment to Credit Agreement, dated as of
June 28, 2002, among R.J. Tower Corporation, Tower Automotive
Europe B.V., Tower Automotive Finance B.V., the parties named as
Guarantors, the several financial institutions from time to time
party to this Agreement, Bank of America, N.A., as administrative
agent, JPMorgan Chase Bank (formerly known as The Chase Manhattan
Bank), as syndication agent, and The Bank of Nova Scotia, Comerica
Bank, U.S. Bank National Association and Bank One, Michigan, as
co-agents.
Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
Exhibit 99.2 - Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
(b) During the quarter for which this report is filed, the Company
filed the following Form 8-K Current Reports with the Securities
and Exchange Commission:
1. The Company's Current Report on Form 8-K dated July 8, 2002,
under Item 5 (Commission File No. 1-12733).
2. The Company's Current Report on Form 8-K/A originally dated
June 20, 2002, under Item 4 (Commission File No. 1-12733).
3. The Company's Current Report on Form 8-K dated July 18,
2002, under Item 5 (Commission File No. 1-12733).
4. The Company's Current Report on Form 8-K dated August 6,
2002, under Item 5 (Commission File No. 1-12733).
5. The Company's Current Report on Form 8-K dated August 13,
2002, under Item 9 (Commission File No. 1-12733).
6. The Company's Current Report on Form 8-K dated August 13,
2002, under Item 5 (Commission File No. 1-12733).
-34-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOWER AUTOMOTIVE, INC.
Date: November 13, 2002 By /s/ Anthony A. Barone
-----------------------------------------
Anthony A. Barone
Vice President, Chief Financial Officer
(principal accounting and financial
officer)
-35-
CERTIFICATIONS
I, Dugald K. Campbell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tower Automotive,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
/s/ Dugald K. Campbell
- ------------------------------------
Dugald K. Campbell
Chief Executive Officer
-36-
I, Anthony A. Barone, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Tower Automotive,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 13, 2002
/s/ Anthony A. Barone
- ------------------------------------
Anthony A. Barone
Chief Financial Officer
-37-