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EX-32.2 - EXHIBIT 32.2 - Tower International, Inc.towr-20170331xex32_2.htm
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EX-31.2 - EXHIBIT 31.2 - Tower International, Inc.towr-20170331xex31_2.htm
EX-31.1 - EXHIBIT 31.1 - Tower International, Inc.towr-20170331xex31_1.htm



 



 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 



 

 



QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended March 31, 2017

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 001-34903

 

TOWER INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)

 



 

Delaware

27-3679414

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

17672 Laurel Park Drive North Suite 400 E

48152

Livonia, Michigan

(Zip Code)

(Address of principal executive offices)

 

 

(248) 675-6000

(Registrant’s telephone number, including area code)

 

N/A

(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 No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

 

Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act. Check one:



 

 

 

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer  (Do not check if a smaller reporting company)

Smaller Reporting Company 

Emerging growth company 

 

 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 



 

 

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12(b)-2 of the Securities and Exchange Act).

 

Yes No

As of April 18, 2017, there were 20,489,822 shares of the registrant’s common stock, $0.01 par value per share, outstanding.



 



 

 


 



Tower International, Inc. and Subsidiaries

Form 10-Q

 

Table of Contents

 



 

 

 

 

 

 

Page

 

 

 

 

PART I.  Financial Information

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited):

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2017 and December 31, 2016

1

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016

2

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016

3

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016

4

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

5

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

29

 

 

 

 

Item 4.

 

Controls and Procedures

30

 

 

 

 

PART II.  Other Information

 

 

 

 

 

Item 1A.

 

Risk Factors

31

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

31

 

 

 

 

Item 6.

 

Exhibits

32

 

 

 

 

Signatures

 

 

33



 

 

 


 

PART 1 — FINANCIAL INFORMATION

ITEM 1. Financial Statements.

TOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data - unaudited)

 









 

 

 

 

 



March 31,

 

December 31,



2017

 

2016



 

 

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

$

27,523 

 

$

62,788 

Accounts receivable, net of allowance of $1,150 and $961

 

250,092 

 

 

178,251 

Inventories (Note 3)

 

75,492 

 

 

71,710 

Assets held for sale (Note 4)

 

100,182 

 

 

102,252 

Prepaid tooling, notes receivable, and other

 

134,212 

 

 

103,023 

 Total current assets

 

587,501 

 

 

518,024 



 

 

 

 

 

Property, plant, and equipment, net

 

472,493 

 

 

465,569 

Goodwill (Note 6)

 

57,761 

 

 

56,383 

Deferred tax asset

 

117,033 

 

 

112,645 

Other assets, net

 

10,920 

 

 

9,902 

 Total assets

$

1,245,708 

 

$

1,162,523 



 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

Short-term debt and current maturities of capital lease obligations (Note 8)

$

39,735 

 

$

34,211 

Accounts payable

 

280,103 

 

 

258,129 

Accrued liabilities

 

121,801 

 

 

114,079 

Liabilities held for sale (Note 4)

 

48,294 

 

 

53,310 

 Total current liabilities

 

489,933 

 

 

459,729 



 

 

 

 

 

Long-term debt, net of current maturities (Note 8)

 

389,907 

 

 

351,232 

Obligations under capital leases, net of current maturities (Note 8)

 

 -

 

 

4,863 

Deferred tax liability

 

5,108 

 

 

5,594 

Pension liability (Note 11)

 

59,277 

 

 

61,627 

Other non-current liabilities

 

64,558 

 

 

65,539 

 Total non-current liabilities

 

518,850 

 

 

488,855 

 Total liabilities

 

1,008,783 

 

 

948,584 

Commitments and contingencies (Note 17)

 

 

 

 

 



 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

Tower International, Inc.'s stockholders' equity

 

 

 

 

 

 Preferred stock, $0.01 par value, 50,000,000 authorized and 0 issued and outstanding

$

 -

 

$

 -

 Common stock, $0.01 par value, 350,000,000 authorized, 22,265,081 issued and 20,489,860

 

 

 

 

 

 outstanding at March 31, 2017, and 22,107,402 issued and 20,359,131 outstanding at

 

 

 

 

 

 December 31, 2016

 

223 

 

 

221 

 Additional paid in capital

 

342,060 

 

 

340,623 

 Treasury stock, at cost, 1,775,221 and 1,748,271 shares as of March 31, 2017 and December 31, 2016

 

(36,406)

 

 

(35,645)

 Accumulated surplus / (deficit)

 

6,411 

 

 

(14,021)

 Accumulated other comprehensive loss (Note 12)

 

(81,627)

 

 

(83,383)

 Total Tower International, Inc.'s stockholders' equity

 

230,661 

 

 

207,795 

Noncontrolling interests in subsidiaries (Note 12)

 

6,264 

 

 

6,144 

 Total stockholders' equity

 

236,925 

 

 

213,939 

 Total liabilities and stockholders' equity

$

1,245,708 

 

$

1,162,523 



 

 

 

 

 



 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1

 


 



 

 

TOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share amounts - unaudited)

 







 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Three Months Ended March 31,

 



 

2017

 

2016

 



 

 

 

 

 

Revenues

 

$

497,590 

 

$

489,194 

 

Cost of sales

 

 

440,811 

 

 

432,105 

 

Gross profit

 

 

56,779 

 

 

57,089 

 

Selling, general, and administrative expenses

 

 

29,225 

 

 

32,852 

 

Amortization expense (Note 6)

 

 

103 

 

 

116 

 

Restructuring and asset impairment charges, net (Note 7)

 

 

3,911 

 

 

746 

 

Operating income

 

 

23,540 

 

 

23,375 

 

Interest expense

 

 

453 

 

 

7,582 

 

Interest income

 

 

47 

 

 

28 

 

Other expense

 

 

575 

 

 

3,576 

 

Income before provision for income taxes, and income / (loss) from discontinued operations

 

 

22,559 

 

 

12,245 

 

Provision for income taxes (Note 10)

 

 

6,496 

 

 

3,516 

 

Income from continuing operations

 

 

16,063 

 

 

8,729 

 

Income / (loss) from discontinued operations, net of tax (Note 4)

 

 

1,350 

 

 

(345)

 

Net income

 

 

17,413 

 

 

8,384 

 

Less: Net income attributable to the noncontrolling interests

 

 

68 

 

 

 

Net income attributable to Tower International, Inc.

 

$

17,345 

 

$

8,378 

 



 

 

 

 

 

 

 

Weighted average basic shares outstanding

 

 

20,425,216 

 

 

21,126,462 

 

Weighted average diluted shares outstanding

 

 

20,820,457 

 

 

21,444,570 

 



 

 

 

 

 

 

 

Basic income per share attributable to Tower International, Inc.:

 

 

 

 

 

 

 

Income per share from continuing operations (Note 13)

 

$

0.78 

 

$

0.41 

 

Income / (loss) per share from discontinued operations (Note 13)

 

 

0.07 

 

 

(0.02)

 

Income per share (Note 13)

 

 

0.85 

 

 

0.40 

 



 

 

 

 

 

 

 

Diluted income per share attributable to Tower International, Inc.:

 

 

 

 

 

 

 

Income per share from continuing operations (Note 13)

 

$

0.77 

 

$

0.41 

 

Income / (loss) per share from discontinued operations (Note 13)

 

 

0.06 

 

 

(0.02)

 

Income per share (Note 13)

 

 

0.83 

 

 

0.39 

 



 

 

 

 

 

 

 

Dividends declared per share

 

$

0.11 

 

$

0.10 

 



 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 



2

 


 

 

 

TOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands - unaudited)

 





 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Three Months Ended March 31,

 



 

2017

 

2016

 



 

 

 

 

 

Net income

 

$

17,413 

 

$

8,384 

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax (benefit) of ($0.9 million), and ($3.1 million)

 

 

5,882 

 

 

8,397 

 

Unrealized loss on qualifying cash flow hedge, net of tax (benefit) of ($2.5 million), and $0 million

 

 

(4,074)

 

 

 -

 

Other comprehensive income, net of tax:

 

 

1,808 

 

 

8,397 

 

  Comprehensive income

 

 

19,221 

 

 

16,781 

 

Less: Comprehensive income attributable to

 

 

 

 

 

 

 

noncontrolling interests

 

 

120 

 

 

20 

 

  Comprehensive income attributable to Tower International, Inc.

 

$

19,101 

 

$

16,761 

 



 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

 


 

 

TOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands - unaudited)







 

 

 

 

 

 



 

Three Months Ended March 31,



 

2017

 

2016



 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

17,413 

 

$

8,384 

Less: Income / (loss) from discontinued operations, net of tax

 

 

1,350 

 

 

(345)

Income from continuing operations

 

 

16,063 

 

 

8,729 



 

 

 

 

 

 

Adjustments required to reconcile income from continuing operations to net

 

 

 

 

 

 

cash provided by / (used in) continuing operating activities:

 

 

 

 

 

 

Deferred income tax provision

 

 

3,955 

 

 

2,996 

Depreciation and amortization

 

 

17,766 

 

 

17,276 

Non-cash share-based compensation

 

 

499 

 

 

529 

Pension income, net of contributions

 

 

(2,351)

 

 

(2,147)

Change in working capital and other operating items

 

 

(84,356)

 

 

(17,121)

Net cash provided by / (used in) continuing operating activities

 

$

(48,424)

 

$

10,262 



 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

Cash disbursed for purchases of property, plant, and equipment, net

 

$

(23,909)

 

$

(25,696)

Net cash used in continuing investing activities

 

$

(23,909)

 

$

(25,696)



 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from borrowings

 

$

236,744 

 

$

146,327 

Repayments of borrowings

 

 

(192,426)

 

 

(138,198)

Repayments on Term Loan Credit Facility

 

 

 -

 

 

(50,000)

Original issuance discount

 

 

(1,808)

 

 

 -

Debt financing costs

 

 

(4,083)

 

 

 -

Dividend payment to Tower stockholders

 

 

(2,242)

 

 

(2,111)

Proceeds from stock options exercised

 

 

938 

 

 

 -

Purchase of treasury stock

 

 

(761)

 

 

(622)

Net cash provided by / (used in) continuing financing activities

 

$

36,362 

 

$

(44,604)



 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

Net cash from / (used in) discontinued operating activities

 

$

(570)

 

$

2,847 

Net cash used in discontinued investing activities

 

 

(406)

 

 

(418)

Net cash from / (used in) discontinued financing activities

 

 

497 

 

 

(3,109)

        Net cash used in discontinued operations

 

$

(479)

 

$

(680)



 

 

 

 

 

 

Effect of exchange rate changes on continuing cash and cash equivalents

 

$

1,185 

 

$

1,942 



 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

$

(35,265)

 

$

(58,776)



 

 

 

 

 

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

 

Beginning of period

 

$

62,788 

 

$

121,594 



 

 

 

 

 

 

End of period

 

$

27,523 

 

$

62,818 



 

 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

Interest paid, net of amounts capitalized

 

$

7,075 

 

$

5,019 

Income taxes paid

 

 

2,424 

 

 

1,184 

Non-cash Investing Activities:

 

 

 

 

 

 

Capital expenditures in liabilities for purchases of property, plant, and equipment

 

$

10,777 

 

$

19,815 



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



4

 


 



 

TOWER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1. Organization and Basis of Presentation

 

Tower International, Inc. and its subsidiaries (collectively referred to as the “Company” or “Tower International”), is a leading integrated global manufacturer of engineered automotive structural metal components and assemblies, primarily serving original equipment manufacturers (“OEMs”), including Ford, Volkswagen Group, Fiat-Chrysler, Volvo, Nissan, Daimler, Toyota, BMW, and Honda. Products include body structures, assemblies and other chassis, structures, and lower vehicle systems and suspension components for small and large cars, crossovers, pickups, and sport utility vehicles (“SUVs”). Including both wholly owned subsidiaries and majority owned subsidiaries, the Company has strategically located production facilities in the United States, Germany, Belgium, Slovakia, Italy, Poland, Mexico, and the Czech Republic, supported by engineering and sales locations in the United States, Germany, Italy, Japan and India.

 

The accompanying Condensed Consolidated Financial Statements have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). 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 the fair presentation of such financial statements. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the SEC. Although the Company believes that the disclosures are adequate to make the information presented not misleading, these Condensed Consolidated Financial Statements should be read in conjunction with the audited year-end financial statements and the notes thereto included in the most recent Annual Report on Form 10-K filed by the Company with the SEC. The interim results for the periods presented may not be indicative of the Company’s actual annual results.

 

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of the Company and all subsidiaries over which the Company exercises control. All intercompany transactions and balances have been eliminated upon consolidation.



 

Note 2. New Accounting Pronouncements



Retirement Benefits

On March 10, 2017, the FASB issued Accounting Standard Update (“ASU”) No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU is designed to increase the transparency and usefulness of information about defined benefit costs for pension plans and other post-retirement benefit plans presented in employer financial statements. This ASU is effective for interim and annual periods after December 15, 2017. Early adoption is allowed, and requires that the guidance be applied retrospectively to all prior periods. Effective October 1, 2006, the Company’s pension plan was frozen and the Company ceased accruing any additional benefits; as such, the Company does not expect a material financial statement impact related to the adoption of this ASU.

Stock Compensation

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods therein. Upon adoption in the first quarter of 2017, the Company recorded a cumulative adjustment for previously unrecognized tax benefits to retained earnings of approximately $5.3 million.

Revenue Recognition 

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU outlines a single comprehensive model for entities to utilize to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that will be received in exchange for the goods and services. Additional disclosures will also be required to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In August 2015, the FASB deferred the effective date of this standards update to fiscal years beginning after December 15, 2017, with early adoption permitted on the original effective date of fiscal years beginning after December 15, 2016. In 2016, the FASB issued ASU No. 2016-08, ASU No. 2016-10, ASU No. 2016-11, and ASU 2016-12, all of which amend the implementation guidance and illustrations in the Board’s new revenue standard.

5

 


 



The new revenue standards may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption.  The Company currently expects to adopt the new revenue standards in its first quarter of 2018 utilizing the full retrospective transition method.  The Company does not expect the adoption of the new revenue standards to have a material impact on its consolidated financial statements, but we are still evaluating certain contracts with customers related to the development of tooling used in the manufacture of our products.

Leases

In February 2016, the FASB issued ASU No. 2016-02, Lease Accounting. This ASU introduces a lessee model that brings most leases on the balance sheet. Further, the standard also aligns certain of the underlying principles of the new lessor model with those in ASU 2014-09. This new ASU on leases is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating significant contracts and assessing any impact to the Consolidated Financial Statements.



Note 3. Inventories

 

Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first-in, first-out method. Maintenance, repair, and non-productive inventory, which are considered consumables, are expensed when acquired and included in the Condensed Consolidated Statements of Operations as cost of sales. Inventories consist of the following (in thousands):

 





 

 

 

 

 

 



 

March 31, 2017

 

December 31, 2016

Raw materials

 

$

34,598 

 

$

31,993 

Work in process

 

 

17,769 

 

 

14,721 

Finished goods

 

 

23,125 

 

 

24,996 

  Total inventory

 

$

75,492 

 

$

71,710 





 

Note 4. Discontinued Operations and Assets Held for Sale

 

During the second quarter of 2016, the Company’s Board of Directors approved a plan to sell the Company’s remaining business operations in Brazil and China. At March 31, 2017 and December 31, 2016, all of the Brazilian and Chinese business operations are considered held for sale in accordance with FASB ASC No. 360, Property, Plant, and Equipment, and presented as discontinued operations in the Condensed Consolidated Financial Statements, in accordance with FASB ASC No. 205, Discontinued Operations.

 

The following table discloses select financial information of the discontinued operations of the Company’s Brazilian and Chinese business operations (in thousands):

 





 

 

 

 

 

 

 



 

Three Months Ended March 31,

 



 

2017

 

2016

 

Revenues

 

$

29,956 

 

$

22,302 

 

Income / (loss) from discontinued operations:

 

 

 

 

 

 

 

Income / (loss) before provision for income taxes and

 

 

 

 

 

 

 

  equity in income / (loss) of joint venture

 

 

1,829 

 

 

(158)

 

Provision for income taxes

 

 

479 

 

 

187 

 

Equity in income / (loss) of joint venture, net of tax

 

 

 -

 

 

 -

 

Income (loss) from discontinued operations

 

$

1,350 

 

$

(345)

 



 

 

 

 

 

 

 

 

Sale of China Joint Ventures

In October of 2016, the Company entered into agreements to sell its two remaining joint ventures in China:  Tower Automotive (“Wuhu”) Company, Ltd. and Tower (“Ningbo”) DIT Automotive Products Co., Ltd.  The sale agreements provided for purchase of the Company’s equity in the joint ventures for approximately $25 million, net of tax. Both agreements are subject to Chinese government approval.  The Company received proceeds of $4.5 million from these sales in the fourth quarter of 2016; the remainder is expected to be received during 2017.  No material gain or loss on sale is expected to be recorded beyond the impairment loss of $3.1 million recorded in the period ended June 30, 2016 related to Ningbo.

6

 


 



Sale of Brazil Facility

On December 21, 2015, the Company sold one of its two operations in Brazil. Net cash proceeds from this sale were $9.5 million.   During the second quarter of 2016, the Company’s Board of Directors approved a plan to sell the Company’s remaining business operations in Brazil. During the second quarter of 2016, the Company recorded a fair value adjustment of $15 million that represents the cumulative translation adjustment related to Brazil.



The assets and liabilities held for sale are recorded at the lower of carrying value or fair value less costs to sell and are summarized by category in the following table (in thousands):

 





 

 

 

 

 

 



 

March 31, 2017

 

December 31, 2016



 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets

 

$

56,519 

 

$

59,137 

Property, plant, and equipment, net

 

 

47,979 

 

 

47,640 

Other assets, net

 

 

13,784 

 

 

13,575 

Fair value adjustment

 

 

(18,100)

 

 

(18,100)

Total assets held for sale

 

$

100,182 

 

$

102,252 



 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

Short-term debt and current maturities of capital lease obligations

 

$

3,889 

 

$

2,792 

Accounts payable

 

 

37,538 

 

 

43,661 

Total current liabilities

 

 

41,427 

 

 

46,453 



 

 

 

 

 

 

Long-term debt, net of current maturities

 

 

2,155 

 

 

2,393 

Other non-current liabilities

 

 

4,712 

 

 

4,464 

Total non-current liabilities

 

 

6,867 

 

 

6,857 

Total liabilities held for sale

 

$

48,294 

 

$

53,310 



 

 

Note 5. Tooling

 

Tooling represents costs incurred by the Company in the development of new tooling used in the manufacture of the Company’s products. All pre-production tooling costs incurred for tools that the Company will not own and that will be used in producing products supplied under long-term supply agreements are expensed as incurred, unless the supply agreement provides the Company with the noncancellable right to use the tools or the reimbursement of such costs is contractually guaranteed by the customer. Generally, the customer agrees to reimburse the Company for certain of its tooling costs at the time the customer awards a contract to the Company.

 

After the part for which tooling has been developed reaches a production-ready status, the Company is reimbursed by its customer for the cost of the tooling, at which time the tooling becomes the property of the customer. Any gain recognized, which is defined as the excess of reimbursement over cost, is amortized over the life of the program. If estimated costs are expected to be in excess of reimbursement, a loss is recorded in the period in which the loss is estimated. Customer-owned tooling is included in the Condensed Consolidated Balance Sheets in prepaid tooling, notes receivable, and other.  At March 31, 2017 and December 31, 2016, the Company had an asset related to customer-funded tooling of $117.7 million and $87.9 million, respectively.



Note 6. Goodwill and Other Intangible Assets

 

Goodwill

 

The change in the carrying amount of goodwill is set forth below by reportable segment and on a consolidated basis (in thousands):

 





 

 

 

 

 

 

 

 

 



 

Europe

 

North America

 

Consolidated

Balance at December 31, 2016

 

$

49,293 

 

$

7,090 

 

$

56,383 

Currency translation adjustment

 

 

636 

 

 

742 

 

 

1,378 

Balance at March 31, 2017

 

$

49,929 

 

$

7,832 

 

$

57,761 

 

7

 


 



Intangibles

 

In the North America segment, an intangible asset of $3.5 million related to customer relationships was recorded in 2015, as part of the acquisition of a facility in Mexico. This intangible asset has a definite life and will be amortized on a straight-line basis over seven years, the estimated life of the related asset, which approximates the recognition of related revenues.

 

The Company incurred amortization expense of $0.1 million for the three months ended March 31, 2017 and 2016. 

 

Note 7. Restructuring and Asset Impairment Charges

 

As of March 31, 2017, the Company has executed various restructuring plans and may execute additional plans in the future to reduce corporate overhead, to realign manufacturing capacity to prevailing global automotive production levels, and to improve the utilization of remaining facilities. Estimates of restructuring charges are based on information available at the time such charges are recorded. Due to the inherent uncertainty involved in estimating restructuring expenses, actual amounts paid for such activities may differ from amounts initially recorded. Accordingly, the Company may record revisions of previous estimates by adjusting previously established reserves.

 

Restructuring and Asset Impairment Charges

 

Net restructuring and asset impairment charges for each of the Company’s segments include the following (in thousands):

 





 

 

 

 

 

 

 



 

Three Months Ended March 31,

 



 

2017

 

2016

 

Europe

 

$

128 

 

$

 -

 

North America

 

 

3,783 

 

 

746 

 

Consolidated

 

$

3,911 

 

$

746 

 

   

The following table sets forth the Company’s net restructuring and asset impairment charges by type for the periods presented (in thousands):

 





 

 

 

 

 

 

 



 

Three Months Ended March 31,

 



 

2017

 

2016

 

Employee termination costs

 

$

3,695 

 

$

 -

 

Other exit costs

 

 

216 

 

 

746 

 

Total restructuring expense

 

$

3,911 

 

$

746 

 

 

The charges incurred during the three months ended March 31, 2017 and 2016 related primarily to the following actions:

 

2017 Actions

During the three months ended March 31, 2017, the charges incurred in the North America segment related to severance charges to reduce corporate overhead and ongoing maintenance expense of facilities closed as a result of prior actions. The charges incurred in the Europe segment related to severance charges to reduce fixed costs.



2016 Actions

During the three months ended March 31, 2016, the charges incurred in the Americas segment related to ongoing maintenance expense of facilities closed as a result of prior actions and severance charges to reduce fixed costs.



Restructuring Reserve

 

The table below summarizes the activity in the restructuring reserve by segment, reflected in accrued liabilities and other non-current liabilities, for the above-mentioned actions through March 31, 2017 (in thousands):

 





 

 

 

 

 

 

 

 

 



 

Europe

 

North America

 

Consolidated

Balance at December 31, 2016

 

$

92 

 

$

197 

 

$

289 

Payments

 

 

(122)

 

 

(1,208)

 

 

(1,330)

Increase in liability

 

 

128 

 

 

3,567 

 

 

3,695 

Balance at March 31, 2017

 

$

98 

 

$

2,556 

 

$

2,654 

 

Except as disclosed in the table above, the Company does not anticipate incurring additional material cash charges associated with the actions described above. The changes in the restructuring reserve set forth in the table above do not agree with the restructuring charges for the period, as certain items are expensed as incurred related to the actions described.

8

 


 

 

The restructuring reserve increased during the three months ended March 31, 2017, reflecting primarily accruals for severance, offset partially by payments of other exit costs related to prior accruals.

 

During the three months ended March 31, 2017, the Company incurred payments related to prior accruals in Europe of $0.1 million and in North America of $1.2 million.

Note 8. Debt

 

Short-Term Debt

 

Short-term debt consists of the following (in thousands):

 





 

 

 

 

 

 



 

March 31, 2017

 

December 31, 2016

Current maturities of debts (excluding capital leases)

 

$

34,101 

 

$

33,277 

Current maturities of capital leases

 

 

5,634 

 

 

934 

Total short-term debt

 

$

39,735 

 

$

34,211 

 

Long-Term Debt

 

Long-term debt consists of the following (in thousands):

 





 

 

 

 

 

 



 

March 31, 2017

 

December 31, 2016

Term Loan Credit Facility (net of discount of $2,563 and $827)

 

$

358,937 

 

$

361,798 

Amended Revolving Credit Facility

 

 

44,000 

 

 

 -

Other foreign subsidiary indebtedness

 

 

30,486 

 

 

28,777 

Debt issue costs

 

 

(9,415)

 

 

(6,066)

Total debt

 

 

424,008 

 

 

384,509 

Less: Current maturities of debts (excluding capital leases)

 

 

(34,101)

 

 

(33,277)

Total long-term debt

 

$

389,907 

 

$

351,232 

 

Term Loan Credit Facility

 



On March 7, 2017, the Company amended the Term Loan Credit Agreement by entering into the Third Refinancing Term Loan Amendment and Restatement Agreement (“Third Term Loan Amendment”), pursuant to which, among other things, the outstanding term loans under the Term Loan Credit Agreement were refinanced in full. There were no additional borrowings associated with this refinancing. The aggregate principal amount of $358.9 million is outstanding under the Term Loan Credit Agreement. The maturity date of the Term Loan Credit Facility is March 7, 2024 and the Term Loans bear interest at (i) the Alternate Base Rate plus a margin of 1.75% or (ii) the Adjusted LIBO Rate (calculated by multiplying the applicable LIBOR rate by a statutory reserve rate) plus a margin of 2.75%.

 

The Term Loan Borrower’s obligations under the Term Loan Credit Facility are guaranteed by the Company on an unsecured basis and guaranteed by Term Loan Holdco and certain of the Company's other direct and indirect domestic subsidiaries on a secured basis (the “Subsidiary Guarantors”). The Term Loan Credit Facility is secured by (i) a first priority security interest in certain assets of the Term Loan Borrower and the Subsidiary Guarantors, other than, inter alia, accounts, chattel paper, inventory, cash deposit accounts, securities accounts, machinery, equipment and real property and all contract rights, and records and proceeds relating to the foregoing and (ii) on a second priority basis to all other assets of the Term Loan Borrower and the Subsidiary Guarantor which have been pledged on a first priority basis to the agent for the benefit of the lenders under the Amended Revolving Credit Facility described below.

 

The Term Loan Credit Agreement includes customary covenants applicable to certain of the Company’s subsidiaries and includes customary events of default and amounts due there under may be accelerated upon the occurrence of an event of default.

 

As of March 31, 2017, the outstanding principal balance of the Term Loan Credit Facility was $358.9 million (net of a $2.6 million original issue discount) and the effective interest rate was 3.63% per annum.

 

9

 


 



Amended Revolving Credit Facility

 



On March 7, 2017, the Company entered into a Fourth Amended and Restated Revolving Credit and Guaranty Agreement (“Fourth Amended Revolving Credit Facility Agreement”), by and among Tower Automotive Holdings USA, LLC, the Company, Tower Automotive Holdings I, LLC, Tower Automotive Holdings II(a), LLC, the subsidiary guarantors named therein, the financial institutions from time to time party thereto as Lenders, and JPMorgan Chase Bank, N.A. as Issuing Lender, as Swing Line Lender, and as Administrative Agent for the Lenders. The Fourth Amended Revolving Credit Facility Agreement amended and restated, in its entirety, the Third Amended Revolving Credit Facility Agreement, dated as of September 17, 2014, by and among Tower Automotive Holdings USA, LLC (“the Borrower”), its domestic affiliate and domestic subsidiary guarantors named therein, and the lenders party thereto, and the Agent.

 

The Fourth Amended Revolving Credit Facility Agreement provides for a cash flow revolving credit facility in the aggregate amount of up to $200 million. The Fourth Amended Revolving Credit Facility Agreement also provides for the issuance of letters of credit in an aggregate amount not to exceed $30 million, provided that the total amount of credit (inclusive of revolving loans and letters of credit) extended under the Fourth Amended Revolving Credit Facility Agreement is subject to an overall cap, on any date, of $200 million. The Company may request the issuance of Letters of Credit denominated in Dollars or Euros. The expiration date for the Amended Revolving Credit Facility is March 7, 2022.

 

Advances under the Amended Revolving Credit Facility bear interest at an alternate base rate plus a base rate margin or LIBOR plus a Eurodollar margin. The applicable margins are determined by the Company’s Total Net Leverage Ratio (as defined in the Fourth Amended Revolving Credit Facility Agreement). As of March 31, 2017, the applicable margins were 2.50% per annum for LIBOR based borrowings and 1.50% per annum for base rate borrowings, resulting in a weighted average interest rate of 4.05%. The Company will pay a commitment fee at a rate equal to 0.50% per annum on the average daily unused total revolving credit commitment.

 

The Amended Revolving Credit Facility is guaranteed by the Company on an unsecured basis and is guaranteed by certain of the Company’s other direct and indirect domestic subsidiaries on a secured basis. The Amended Revolving Credit Facility is secured (i) by a first priority security interest in certain assets of the Borrower and the Subsidiary Guarantors, including accounts, inventory, chattel paper, cash, deposit accounts, securities accounts, machinery, equipment and real property and all contract rights, and records and proceeds relating to the foregoing and (ii) on a second priority basis to all other assets of the Borrower and the Subsidiary Guarantors.

 

The Fourth Amended Revolving Credit Facility Agreement contains customary covenants applicable to certain of the Company’s subsidiaries and includes customary events of default and amounts due there under may be accelerated upon the occurrence of an event of default.

 

As of March 31, 2017, there was $147 million of unutilized borrowing availability under the Amended Revolving Credit Facility.  At that date, there were $44 million of borrowings and $9 million of letters of credit outstanding under the Amended Revolving Credit Facility.



Other Foreign Subsidiary Indebtedness

 



As of March 31, 2017, other foreign subsidiary indebtedness of $30.5 million consisted primarily of receivables factoring in Europe of $22.1 million and other indebtedness in Europe of $6.2 million of term debt and $2.2 million of indebtedness outstanding on a secured credit line.



The change in foreign subsidiary indebtedness from December 31, 2016 to March 31, 2017 is explained by the following (in thousands):

 





 

 

 



 

Europe

Balance at December 31, 2016

 

$

28,777 

Maturities of indebtedness

 

 

(333)

Change in borrowings on credit facilities, net

 

 

1,670 

Foreign exchange impact

 

 

372 

Balance at March 31, 2017

 

$

30,486 

 

Generally, borrowings of foreign subsidiaries are made under credit agreements with commercial lenders and are used to fund working capital and other operating requirements.



As of March 31, 2017, the receivables factoring facilities balance available to the Company was $22.1 million (€20.8 million), of which the entire amount was drawn. These are uncommitted, demand facilities which are subject to termination at the discretion of the banks and bear interest rates based on the average three month EURIBOR plus a spread ranging from 2.50% to 3.00%. The effective annual interest rates as of March 31, 2017 ranged from 2.17% to 2.67%, with a weighted average interest rate of 2.46% per annum. Any receivables factoring under these facilities is with recourse and is secured by the accounts receivable factored. These receivables factoring transactions are recorded in the Company’s Condensed Consolidated Balance Sheets in short-term debt and current maturities of capital lease obligations.



As of March 31, 2017, the Company’s European subsidiaries had borrowings of $6.2 million (€5.8 million), which had an annual interest rate of 6.25% and matures in November 2017. This term loan is secured by certain machinery and equipment.

 

10

 


 

As of March 31, 2017, the secured line of credit balance available to the Company was $9.2 million (€8.6 million), of which $2.2 million borrowings were outstanding. The facility bears an interest rate based on the EURIBOR plus a spread of 1.9% and matures in October 2017. The effective annual interest rate as of March 31, 2017 was 1.9% per annum. The facilities are secured by certain accounts receivable related to customer funded tooling, real estate, and other assets, and are subject to negotiated prepayments upon the receipt of funds from completed customer projects. 

 

As of March 31, 2017, the Company’s European subsidiaries had an asset-based revolving credit facility balance available to the Company of $30.8 million, of which no borrowings were outstanding. This facility bears an interest rate based upon one month LIBOR plus a margin of 4.00%, or base rate plus a margin of 3.00%, and matures in October 2017. Availability on the credit facility is determined based upon the appraised value of certain machinery, equipment, and real estate, subject to a borrowing base availability limitation and customary covenants.

 

Covenants

 

As of March 31, 2017, the Company was in compliance with the financial covenants that govern its credit agreements.

 

Capital Leases

   

The Company had the following capital lease obligations as of the dates presented (in thousands). These capital lease obligations expire in March 2018:

 





 

 

 

 

 

 



 

March 31, 2017

 

December 31, 2016

Current maturities of capital leases

 

$

5,634 

 

$

934 

Non-current maturities of capital leases

 

 

 -

 

 

4,863 

Total capital leases

 

$

5,634 

 

$

5,797 

 

Debt Issue Costs

 

The Company had debt issuance costs, net of amortization, of $9.4 million and $6.1 million as of March 31, 2017 and December 31, 2016, respectively. These amounts are reflected in the Condensed Consolidated Balance Sheets as a direct deduction from long-term debt, net of current maturities.

 

The Company incurred interest expense related to the amortization of debt issue costs of $0.8 million and $1.1 million during the three months ended March 31, 2017 and March 31, 2016, respectively.



 

Note 9. Derivative Financial Instruments

 

The Company’s derivative financial instruments include interest rate and cross currency swaps. The Company does not enter into derivative financial instruments for trading or speculative purposes. On an on-going basis, the Company monitors counterparty credit ratings. The Company considers credit non-performance risk to be low because the Company enters into agreements with commercial institutions that have at least an S&P, or equivalent, investment grade credit rating. On October 17, 2014, the Company entered into a $200 million variable rate to fixed rate interest rate swap for a portion of the Company’s Term Loan and a €157.1 million cross currency swap based on the U.S. dollar / Euro exchange spot rate of $1.2733 which was the prevailing rate at the time of the transaction. The maturity date for both swap instruments was April 16, 2020.

 

On March 7, 2017, the Company amended the $200 million variable rate to fixed rate interest rate swap, for a portion of the Company’s Term Loan, entered into on October 17, 2014. The U.S. dollar notional amount remained the same at $186.1 million, the fixed interest rate was changed from 5.09% to 5.628% per annum, and the maturity date was extended from April 16, 2020 to March 7, 2024. The fair value of the swap will fluctuate with changes in interest rates.



Also on March 7, 2017, the Company amended the cross currency swap, entered into on January 23, 2015, and into a new cross currency swap, to hedge its net investment in Europe, based on the U.S. dollar / Euro exchange spot rate of $1.04795. The Euro notional amount remained the same at €178 million, the interest rate was lowered from 3.40% to 2.85%, and the maturity date was extended from April 16, 2020 to March 7, 2024.



Both swaps were amended and restated in conjunction with the March 7, 2017 amendment to the Company’s Term Loan Credit Agreement.

11

 


 



At March 31, 2017 and December 31, 2016, the U.S. dollar / Euro exchange spot rate was $1.0683 and $1.0516, respectively. The following amounts were recorded in the Condensed Consolidated Balance Sheets as being payable to counterparties under FASB ASC No. 815, Derivatives and Hedging (in thousands):

 





 

 

 

 

 

 

 

 



 

Location

 

March 31, 2017

 

December 31, 2016

Cross currency swap

 

Other non-current liabilities

 

$

3,310 

 

$

4,993 

Interest rate swap

 

Other non-current liabilities

 

 

8,731 

 

 

2,451 

 

All derivative instruments are recorded at fair value. Effectiveness for net investment and cash flow hedges is initially assessed at the inception of the hedging relationship and on a quarterly basis thereafter. To the extent that derivative instruments are deemed to be effective, changes in the fair value of derivatives are recognized in the Condensed Consolidated Balance Sheets as accumulated other comprehensive income (“AOCI”), and to the extent they are ineffective or were not designated as part of a hedge transaction, they are recorded in the Condensed Consolidated Statements of Operations as interest expense, net. The cross currency swap qualifies as a net investment hedge of the Company’s European subsidiaries. The interest rate swap qualifies as a cash flow hedge of the interest payments related to the Company’s Term Loan. In all previous periods, the Company had not accounted for the interest rate swap as a cash flow hedge, as all such changes in fair value were recognized in the Condensed Consolidated Statements of Operations as interest expense, net.

 

The following table presents the deferred gain / (loss) reported in AOCI at March 31, 2017 and December 31, 2016 (in thousands):

 





 

 

 

 

 

 



 

Deferred gain in AOCI



 

March 31, 2017

 

December 31, 2016

Cross currency swap

 

$

33,391 

 

$

35,699 

Interest rate swap

 

 

(6,572)

 

 

 -

Total

 

$

26,819 

 

$

35,699 



Derivative instruments held during the period resulted in the following (income) / expense recorded in income (in thousands):

 





 

 

 

 

 

 

 



 

(Income) / expense recognized

 



 

(ineffective portion)

 



 

Three Months Ended March 31,

 



 

2017

 

2016

 

Cross currency swap

 

$

(3,990)

 

$

(28)

 

Interest rate swap

 

 

(292)

 

 

2,455 

 

Total

 

$

(4,282)

 

$

2,427 

 







Note 10. Income Taxes

During the three months ended March 31, 2017, the Company recorded income tax expense of $6.5 million on $22.6 million of pre-tax profit from continuing operations – for a consolidated effective tax rate of 28.8%. Included in the $6.5 million of consolidated tax expense was $5.3 million of deferred tax expense attributable to U.S. operations.

During the three months ended March 31, 2016, the Company recorded income tax expense of $3.5 million on $12.2 million of pre-tax profit from continuing operations – for a consolidated effective tax rate of 28.6%. Included in the $3.5 million of consolidated tax expense was $2.3 million of deferred income tax expense attributable to U.S. profits.



Note 11. Retirement Plans

 

The Company sponsors a pension and various other postretirement benefit plans for its employees. Each plan serves a defined group of employees and has varying levels of Company contributions. The Company’s contributions to certain plans may be required by the terms of the Company’s collective bargaining agreements.

 

12

 


 



The following tables provide the components of net periodic pension benefit cost and other post-retirement benefit cost (in thousands):

 





 

 

 

 

 

 

 

 

 

 

 

 



 

Pension Benefits

 

Other Benefits



 

Three Months Ended March 31,

 

Three Months Ended March 31,



 

2017

 

2016

 

2017

 

2016

Service cost

 

$

 

$

 

$

 

$

Interest cost

 

 

1,924 

 

 

1,947 

 

 

136 

 

 

136 

Expected return on plan assets (a)

 

 

(2,555)

 

 

(2,546)

 

 

 -

 

 

 -

Amortization of prior service credit

 

 

(24)

 

 

(24)

 

 

33 

 

 

33 

Net periodic benefit cost / (income)

 

$

(650)

 

$

(617)

 

$

171 

 

$

171 





(a)Expected rate of return on plan assets is 7.40% for 2017 and was 7.40% for 2016

 

The Company expects its minimum pension funding requirements to be $8.8 million during 2017. During the three months ended March 31, 2017, the Company made contributions of $1.7 million.



Additionally, during the three months ended March 31, 2017, the Company contributed $1.5 million, to its defined contribution retirement plans.



 

Note 12. Stockholders’ Equity and Noncontrolling Interests

 

The table below provides a reconciliation of the carrying amount of total stockholders’ equity, including stockholders’ equity attributable to Tower International, Inc. (“Tower”) and equity attributable to the noncontrolling interests (“NCI”) (in thousands):

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three Months Ended March 31,



 

2017

 

2016



 

Tower

 

NCI

 

Total

 

Tower

 

NCI

 

Total

Stockholders' equity beginning balance

 

$

207,795 

 

$

6,144 

 

$

213,939 

 

$

197,495 

 

$

9,224 

 

$

206,719 

Net income

 

 

17,345 

 

 

68 

 

 

17,413 

 

 

8,378 

 

 

 

 

8,384 

Other comprehensive income / (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

5,830 

 

 

52 

 

 

5,882 

 

 

8,383 

 

 

14 

 

 

8,397 

Unrealized loss on qualifying cash flow hedge

 

 

(4,074)

 

 

 -

 

 

(4,074)

 

 

 -

 

 

 -

 

 

 -

Total comprehensive income

 

 

19,101 

 

 

120 

 

 

19,221 

 

 

16,761 

 

 

20 

 

 

16,781 

Vesting of RSUs

 

 

 

 

 -

 

 

 

 

 

 

 -

 

 

Treasury stock

 

 

(761)

 

 

 -

 

 

(761)

 

 

(622)

 

 

 -

 

 

(622)

Share based compensation expense

 

 

499 

 

 

 -

 

 

499 

 

 

529 

 

 

 -

 

 

529 

Proceeds from stock options exercised

 

 

938 

 

 

 -

 

 

938 

 

 

 -

 

 

 -

 

 

 -

Dividend paid

 

 

(2,242)

 

 

 -

 

 

(2,242)

 

 

(2,111)

 

 

 -

 

 

(2,111)

Cumulative effect of the adoption of ASU No. 2016-09

 

 

5,329 

 

 

 -

 

 

5,329 

 

 

 -

 

 

 -

 

 

 -

Noncontrolling interest dividends - Wuhu

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

(2,164)

 

 

(2,164)

Stockholders' equity ending balance

 

$

230,661 

 

$

6,264 

 

$

236,925 

 

$

212,053 

 

$

7,080 

 

$

219,133 

 

On June 17, 2016, the Company announced its Board of Directors’ authorization to repurchase up to $100 million of the Company’s issued and outstanding common stock from time to time in the open market, or in privately negotiated transactions. The Company expects to fund such repurchases from cash flow from operations, cash on hand, asset dispositions, and borrowings under its revolving credit facility. Through March 31, 2017, the Company repurchased a total of 829,648 shares of common stock at an aggregate cost of $18.9 million under this repurchase program. 

13

 


 



The following table presents the components of accumulated other comprehensive loss (in thousands):

 





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

As of March 31, 2017

 

As of December 31, 2016

 

Change

Foreign currency translation adjustments, net of tax of $9.2 million and $10.1 million

 

$

(38,581)