WASHINGTON, D.C. 20549

 

Form 10-Q

 

R	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2013
	OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ____________________ to_____________________

 

 

(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)

 

(Registrant’s telephone number, including area code)

 

(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 R  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 R  No ¨

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12(b)-2 of the Securities and Exchange Act.

 

Large Accelerated Filer ¨

Accelerated Filer R

Non-Accelerated Filer ¨

Smaller Reporting Company ¨

 

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 R

 

As of October 25, 2013, there were 20,469,782 shares of the registrant’s common stock, $0.01 par value per share, outstanding.

 

 Tower International, Inc. and Subsidiaries

		Page
PART I.  Financial Information
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets at September 30, 2013 and December 31, 2012	1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2013 and 2012	2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012	3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	44
PART II.  Other Information
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6.	Exhibits	46

 

Signatures
Exhibit Index
31.1	Rule 13a-14(a) Certification of the Chief Executive Officer
31.2	Rule 13a-14(a) Certification of the Chief Financial Officer
32.1	Section 1350 Certification of the Chief Executive Officer
32.2	Section 1350 Certification of the Chief Financial Officer
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Scheme Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

 

PART 1 — FINANCIAL INFORMATION

ITEM 1. Financial Statements

TOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data - unaudited)

 

		September 30, 2013			December 31, 2012
ASSETS
Cash and cash equivalents		$	106,348		$	113,943
Accounts receivable, net of allowance of $2,294 and $4,105			331,898			266,138
Inventories (Note 3)			81,682			81,336
Deferred tax asset - current			7,901			10,447
Prepaid tooling, notes receivable, and other			77,278			96,349
Total current assets			605,107			568,213
Property, plant, and equipment, net			529,176			573,148
Goodwill (Note 6)			66,118			64,793
Investment in joint venture (Note 16)			7,975			-
Deferred tax asset - non-current			2,851			3,149
Other assets, net			27,891			28,819
Total assets		$	1,239,118		$	1,238,122
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt and current maturities of capital lease obligations (Note 8)		$	69,428		$	74,605
Accounts payable			309,898			264,897
Accrued liabilities			120,962			134,664
Total current liabilities			500,288			474,166
Long-term debt, net of current maturities (Note 8)			451,790			411,590
Obligations under capital leases, net of current maturities (Note 8)			10,154			10,783
Deferred tax liability - non-current			10,003			13,021
Pension liability (Note 10)			87,426			100,780
Other non-current liabilities			83,173			86,908
Total non-current liabilities			642,546			623,082
Total liabilities			1,142,834			1,097,248
Commitments and contingencies (Note 17)
Stockholders' Equity:
Tower International, Inc.'s stockholders' equity
Common stock, $0.01 par value, 350,000,000 authorized, 21,074,337 issued and 20,467,947 outstanding at September 30, 2013 and 20,830,425 issued and 20,247,134 outstanding at December 31, 2012			211			208
Additional paid in capital			326,759			321,032
Treasury stock, at cost, 606,390 shares as of September 30, 2013 and 583,291 shares as of December 31, 2012			(8,594)			(8,297)
Accumulated deficit			(276,457)			(237,212)
Accumulated other comprehensive loss (Note 11)			(8,477)			(12,484)
Total Tower International, Inc.'s stockholders' equity			33,442			63,247
Noncontrolling interests in subsidiaries			62,842			77,627
Total stockholders' equity			96,284			140,874
Total liabilities and stockholders' equity		$	1,239,118		$	1,238,122

 

TOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2013			2012			2013			2012
Revenues		$	495,197		$	492,127		$	1,585,215		$	1,576,770
Cost of sales			439,222			438,799			1,401,713			1,396,482
Gross profit			55,975			53,328			183,502			180,288
Selling, general, and administrative expenses			31,290			32,254			98,235			101,251
Amortization expense (Note 6)			646			1,120			2,134			3,439
Restructuring and asset impairment charges, net (Note 7)			1,575			3,186			18,906			7,953
Operating income			22,464			16,768			64,227			67,645
Interest expense			9,410			13,530			44,375			41,249
Interest income			283			358			898			831
Other expense (Note 8)			7,490			-			48,418			-
Income / (loss) before provision for income taxes and equity in loss of joint venture			5,847			3,596			(27,668)			27,227
Provision for income taxes (Note 9)			1,423			3,047			8,557			17,713
Equity in loss of joint venture, net of tax (Note 16)			(208)			-			(373)			-
Income / (loss) from continuing operations			4,216			549			(36,598)			9,514
Loss from discontinued operations, net of tax (Note 4)			-			(2,931)			-			(578)
Net income / (loss)			4,216			(2,382)			(36,598)			8,936
Less: Net income attributable to the noncontrolling interests			898			1,593			2,647			4,627
Net income / (loss) attributable to Tower International, Inc.		$	3,318		$	(3,975)		$	(39,245)		$	4,309
Weighted average common shares outstanding
Basic			20,449,920			20,246,797			20,358,641			20,098,355
Diluted			21,106,471			20,246,797			20,358,641			20,533,788
Basic income / (loss) per share attributable to Tower International, Inc.:
Income / (loss) per share from continuing operations (Note 12)		$	0.16		$	(0.05)		$	(1.93)		$	0.24
Loss per share from discontinued operations (Note 12)			-			(0.15)			-			(0.03)
Income / (loss) per share (Note 12)			0.16			(0.20)			(1.93)			0.21
Diluted income / (loss) per share attributable to Tower International, Inc.:
Income / (loss) per share from continuing operations (Note 12)		$	0.16		$	(0.05)		$	(1.93)		$	0.24
Loss per share from discontinued operations (Note 12)			-			(0.15)			-			(0.03)
Income / (loss) per share (Note 12)			0.16			(0.20)			(1.93)			0.21

 

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

 

 

 

 

TOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands - unaudited)

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2013			2012			2013			2012
Net income / (loss)		$	4,216		$	(2,382)		$	(36,598)		$	8,936
Other comprehensive income / (loss), net of tax:
Foreign currency translation adjustments			12,483			5,426			5,128			(3,444)
Unrealized gain / (loss) on qualifying cash flow hedge, net			(80)			10			108			21
Other comprehensive income / (loss)			12,403			5,436			5,236			(3,423)
Comprehensive income / (loss)			16,619			3,054			(31,362)			5,513
Less: Comprehensive income attributable to the noncontrolling interests			1,626			2,055			3,876			4,747
Comprehensive income / (loss) attributable to Tower International, Inc.		$	14,993		$	999		$	(35,238)		$	766

 

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

 

 

 

TOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands - unaudited)

 

		Nine Months Ended September 30,
		2013			2012
OPERATING ACTIVITIES:
Net income / (loss)		$	(36,598)		$	8,936
Add: Loss from discontinued operations, net of tax			-			(578)
Income / (loss) from continuing operations			(36,598)			9,514
Adjustments required to reconcile income / (loss) from continuing operations to net cash provided by operating activities:
Non-cash restructuring and asset impairments, net			11,006			-
Premium on notes redemption and other fees			48,418			-
Deferred income tax provision			373			12,590
Depreciation and amortization			70,933			68,213
Non-cash share-based compensation			3,660			8,485
Pension expense / (income), net of contributions			(13,354)			(15,949)
Change in working capital and other operating items			(34,669)			(45,076)
Net cash provided by continuing operating activities		$	49,769		$	37,777
INVESTING ACTIVITIES:
Cash disbursed for purchases of property, plant, and equipment, net		$	(47,224)		$	(84,703)
Investment in joint venture			(6,293)			-
Net proceeds from sale of property, plant, and equipment			12,040			-
Net cash used in continuing investing activities		$	(41,477)		$	(84,703)
FINANCING ACTIVITIES:
Purchase of treasury stock		$	(297)		$	(3,167)
Proceeds from borrowings			457,352			465,261
Repayments of borrowings			(484,847)			(411,026)
Proceeds from borrowings on Term Loan Credit Facility			417,900			-
Redemption of notes			(361,992)			-
Premium paid on notes redemption and other fees			(43,078)			-
Debt financing costs			(9,437)			-
Premium paid on re-pricing of Term Loan B and other fees			(4,378)			-
Proceeds from stock options exercised			2,067			-
Noncontrolling interest dividends			(6,748)			-
Net cash provided by / (used in) continuing financing activities		$	(33,458)		$	51,068
Discontinued operations:
Net cash from discontinued operating activities		$	-		$	(11,936)
Net cash from discontinued investing activities			15,694			(21,878)
Net cash from discontinued financing activities			-			11,575
Net cash from discontinued operations		$	15,694		$	(22,239)
Effect of exchange rate changes on continuing cash and cash equivalents		$	1,877		$	2,083
NET CHANGE IN CASH AND CASH EQUIVALENTS		$	(7,595)		$	(16,014)
CASH AND CASH EQUIVALENTS:
Beginning of period		$	113,943		$	134,984
End of period		$	106,348		$	118,970
Supplemental Cash Flow Information:
Interest paid, net of amounts capitalized		$	40,865		$	48,674
Income taxes paid			8,036			6,738
Non-cash Activities:
Capital expenditures in liabilities for purchases of property, plant, and equipment		$	15,590		$	9,907

 

 

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.

 

On October 14, 2010, the Company completed its initial public offering (the “IPO”), whereby Tower Automotive, LLC was converted to a Delaware corporation named Tower International, Inc.

 

On December 28, 2012, the Company consummated the divestiture of its South Korean subsidiary. In accordance with FASB ASC No. 205, Discontinued Operations, the results of the Company’s South Korean subsidiary are presented as discontinued operations in the Company’s Condensed Consolidated Financial Statements. See note 4 for additional information.

 

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 Not Yet Adopted

As of September 30, 2013, the Company has adopted all accounting pronouncements affecting the Company.

 

 

	5

Note 3. Inventories 

Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (“FIFO”) method. Maintenance, repair, and non-productive inventory, which are considered consumables, are expensed when acquired in cost of sales. Inventories consist of the following (in thousands):

 

Note 4. Discontinued Operations and Assets Held for Sale 

On December 28, 2012, the Company’s subsidiaries, Tower Automotive Holdings Asia B.V. and Tower Automotive International Holdings B.V. (the “Sellers”), entered into a Stock Purchase Agreement (“Agreement”) with SJ Holdings, Inc., a subsidiary of SECO (“Buyer”), and consummated the divestiture of its Korean subsidiary, Seojin Industrial Company Ltd. (“Seojin”). Pursuant to the Agreement, the Buyer assumed the outstanding debt of Seojin and acquired all of the outstanding capital stock of Seojin for a purchase price of fifty billion Korean Won (approximately $47 million USD), of which the Company received 50% on December 28, 2012 and 40% on January 31, 2013. During the nine months ended September 30, 2013, the Company received $18.6 million and paid transaction costs of $2.9 million in connection with the sale of Seojin. Pursuant to the terms of the Agreement, the Company expects to receive the remaining 10% in December 2013. As of September 30, 2013, the Company had a receivable recorded of approximately $4.7 million for the payments to be received in December 2013. This receivable is included in prepaid tooling, notes receivable, and other in the Condensed Consolidated Balance Sheets. Seojin has been presented as a discontinued operation, in accordance with FASB ASC No. 205, Discontinued Operations.

 

The following table discloses selected financial information of the discontinued operation in the International segment (in thousands):

 

		Three Months Ended September 30, 2012			Nine Months Ended September 30, 2012
Revenues		$	71,722		$	248,499
Loss before provision for income taxes		$	(3,738)		$	(721)
Benefit from income taxes			(807)			(143)
Loss from discontinued operation, net of tax		$	(2,931)		$	(578)

 

During the third quarter of 2013, the Company completed the sale of two facilities that were considered held for sale in accordance with FASB ASC No. 360, Property, Plant, and Equipment. On July 1, 2013, the Company completed the sale of its Bergisch Gladbach, Germany facility and received cash proceeds of $2.5 million. On July 26, 2013, the Company completed the sale of its Romulus, Michigan facility and received cash proceeds of $0.4 million. The Company did not incur any additional gain or loss in connection with the sale of these assets.

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 non-cancellable 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.

 

 

	6

 

When 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. The Company has certain other tooling costs related to tools the Company has the contractual right to use during the life of the supply arrangement, which are capitalized and amortized over the life of the related product program. Customer-owned tooling is included in prepaid tooling, notes receivable, and other while company-owned tooling is included in other assets, net in the Condensed Consolidated Balance Sheets.

 

The components of capitalized tooling costs are as follows (in thousands):

 

		September 30, 2013			December 31, 2012
Customer-owned tooling, net		$	41,611		$	33,308
Company-owned tooling			3,316			967
Total tooling, net		$	44,927		$	34,275

 

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.

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):

 

		International			Americas			Consolidated
Balance at December 31, 2012		$	61,826		$	2,967		$	64,793
Currency translation adjustment			1,551			(226)			1,325
Balance at September 30, 2013		$	63,377		$	2,741		$	66,118

 

Intangibles

The Company has certain intangible assets related to customer relationships in Europe and Brazil. These intangible assets have definite lives and are amortized on a straight-line basis over the estimated lives of the related assets, which approximates the recognition of related revenue. The intangible assets are recorded in other assets, net in the Condensed Consolidated Balance Sheets. The Company anticipates amortization expense of $2.7 million and $1.6 million for the years ended December 31, 2013 and 2014, respectively, at which time no further amortization expense will be incurred. The Company has incurred amortization expense of $0.6 million and $2.1 million, respectively, for the three and nine months ended September 30, 2013. The Company incurred amortization expense of $1.1 million and $3.4 million, respectively, for the three and nine months ended September 30, 2012. The following table presents information about the intangible assets of the Company at September 30, 2013 and December 31, 2012, respectively (in thousands):

 

				As of September 30, 2013						As of December 31, 2012
		Weighted Average Life		Gross Carrying Amount			Accumulated Amortization			Gross Carrying Amount			Accumulated Amortization
Amortized intangible:
Europe		7 years		$	16,016		$	14,369		$	15,978		$	12,759
Brazil		7 years			5,471			4,916			5,532			4,392
Total				$	21,487		$	19,285		$	21,510		$	17,151

 

Note 7. Restructuring and Asset Impairment Charges

As of September 30, 2013, the Company has executed various restructuring plans and may execute additional plans in the future to realign manufacturing capacity to prevailing global automotive production and to improve the utilization of existing 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.

 

 

	7

 

Restructuring and Asset Impairment Charges

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

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2013			2012			2013			2012
International		$	393		$	-		$	1,608		$	1,753
Americas			1,182			3,186			17,298			6,200
Consolidated		$	1,575		$	3,186		$	18,906		$	7,953

 

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 September 30,						Nine Months Ended September 30,
		2013			2012			2013			2012
Employee termination costs		$	602		$	639		$	1,646		$	2,497
Other exit costs			973			2,547			6,254			5,456
Asset impairment			-			-			11,006			-
Restructuring and asset impairment charges, net		$	1,575		$	3,186		$	18,906		$	7,953

 

The charges incurred during the nine months ended September 30, 2013 and 2012 related primarily to the following actions:

 

2013 Actions  

During the three months ended September 30, 2013, the charges incurred in the Americas segment related to the ongoing maintenance expense of facilities closed as a result of prior actions and the charges incurred in the International segment related to severance costs to reduce fixed costs. During the nine months ended September 30, 2013, the charges incurred in the Americas segment related to the closure of Tower Defense & Aerospace, LLC (“TD&A”) (described below), the ongoing maintenance expense of facilities closed as a result of prior actions, and an impairment charge on a facility in Romulus, Michigan that the Company ceased using during the first quarter of 2013 and sold during the third quarter of 2013. During the same period, the charges incurred in the International segment related to an impairment charge on the Bergisch facility, which was classified as held for sale during the second quarter of 2013 and was sold during the third quarter of 2013, and severance costs to reduce fixed costs.

 

Tower Defense & Aerospace

In April 2013, the Company announced the closing of the operations of TD&A. In June 2013, the Company received $9.1 million in cash proceeds for the sale of substantially all of TD&A’s assets. In connection with such closure, the Company incurred $11.5 million of restructuring charges, of which $8.2 million represents an impairment charge, $2.8 million represents other exit costs, and $0.5 million represents severance costs. With respect to TD&A, the Company did not incur additional restructuring charges during the third quarter of 2013 and does not anticipate that it will incur additional restructuring charges during the fourth quarter of 2013. 

  

2012 Actions 

During the three and nine months ended September 30, 2012, the charges incurred in the Americas segment related to the ongoing maintenance expense of facilities closed as a result of prior actions and the costs incurred to close two manufacturing facilities and relocate the operations to two of the Company’s existing manufacturing facilities. The charges incurred in the International segment related to severance costs in Europe to reduce  fixed costs.

 

 

	8

 

Restructuring Reserve

The following table summarizes the activity in the restructuring reserve by segment, reflected in accrued liabilities, for the above-mentioned actions through September 30, 2013 (in thousands):

 

		International			Americas			Consolidated
Balance at December 31, 2012		$	897		$	1,634		$	2,531
Payments			(921)			(1,333)			(2,254)
Increase			570			1,076			1,646
Adjustment			-			(20)			(20)
Balance at September 30, 2013		$	546		$	1,357		$	1,903

 

Except as disclosed in the table above, the Company does not anticipate incurring additional material cash charges associated with the actions described above. The increase in the liability above does not agree with the restructuring charges in the table above as certain items related to the actions described are expensed as incurred. The liability primarily relates to severance, with the exception of costs accrued resulting from the ceased use of a facility in North America during the first quarter of 2012.

 

The liability decreased during the first nine months of 2013 primarily due to severance payments made related to prior accruals. The majority of the $1.9 million restructuring reserve accrued as of September 30, 2013, is expected to be paid in 2013 and 2014.

 

During the nine months ended September 30, 2013, the Company made payments related to prior accruals in Europe and North America of $0.9 million and $1.3 million, respectively.

 

On April 23, 2013, the Company entered into a Term Loan and Guaranty Agreement (the “Term Loan Credit Agreement”) by and among Tower Automotive Holdings USA, LLC (the “Term Loan Borrower”), the Company, Tower Automotive Holdings I, LLC (“Term Loan Holdco”), Tower Automotive Holdings II(a), LLC, Tower Automotive Holdings II(b), LLC, the subsidiary guarantors named therein, the Lenders from time to time party thereto and Citibank, N.A., as administrative agent for the Lenders (the credit facility evidenced by the Term Loan Credit Agreement and related documentation, the “Term Loan Credit Facility”).

 

The Term Loan Credit Agreement provided for an initial term loan of $420 million and permitted the Term Loan Borrower to request, subject to the satisfaction of certain conditions set forth in the Term Loan Credit Agreement (including the agreement of one or more lenders to make incremental loans, which agreement may be granted or withheld in the sole discretion of any lender), future disbursements of incremental term loans in the aggregate principal amount of up to the greater of (i) $100 million and (ii) such other amount so long as Term Loan Holdco’s pro forma Total Net Leverage Ratio (as defined in the Term Loan Credit Agreement) does not exceed 2.00:1.00. The maturity date for the initial term loan disbursed under the Term Loan Credit Agreement was April 23, 2020. 

 

 

	9

 

The proceeds of the initial term loan disbursed under the Term Loan Credit Agreement were used upon the closing of the Term Loan Credit Facility to redeem all of the outstanding 10.625% Senior Secured Notes due 2017 (the “10.625% Senior Secured Notes” or the “notes”) previously issued pursuant to that certain Indenture, dated as of August 24, 2010, by and among the Term Loan Borrower and TA Holdings Finance, Inc., as issuers, the Company and certain of its direct and indirect subsidiaries as guarantors, and Wilmington Trust FSB as trustee, and to pay all accrued and unpaid interest thereon and related fees and expenses, including a tender premium, in connection with the tender offer described below.

  

 

On July 29, 2013, the Company amended the Term Loan and Credit Agreement, by entering into the First Refinancing Term Loan Amendment to Term Loan Credit Agreement, dated as of July 29, 2013, by and among Tower Automotive Holdings USA, LLC, as borrower, the Company, Tower Automotive Holdings I, LLC, Tower Automotive Holdings II(a), LLC, Tower Automotive Holdings II(b), LLC and the subsidiary guarantors named therein, as Guarantors, each of the financial institutions from time to time party thereto as lenders, and Citibank, N.A., as administrative agent for the lenders (the “Amendment”).

 

The purpose of the Amendment was to re-price the Term Loan Credit Facility. The maturity date of the Term Loan Credit Facility remains April 23, 2020. The Term Loan Credit Facility will bear interest at (i) the Alternate Base Rate plus a margin of 2.75% or (ii) the Adjusted LIBO Rate (calculated by multiplying the applicable LIBOR rate by a statutory reserve rate, with a floor of 1.00%) plus a margin of 3.75%. 

 

In connection with the re-pricing described above, the Company incurred charges of approximately $4.5 million in the third quarter of 2013 that was recognized as other expense. These charges relate to a premium paid by the Company and expenses associated with the re-pricing.

 

The Term Loan Borrower’s obligations under the Term Loan Credit Facility are guaranteed by the Company, on an unsecured basis, and 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 bases to the agent for the benefit of the lenders under the amended ABL Revolver described below. 

 

The Term Loan Credit Agreement includes customary events of default and amounts due there under may be accelerated upon the occurrence of an event of default.

 

During the third quarter of 2013, the Company made principal payments of $1 million on the Term Loan Credit Facility. As of September 30, 2013, the outstanding principal balance of the Term Loan Credit Facility was $417 million (net of a remaining $2 million original issue discount) and the interest rate was 4.75% per annum.

 

On August 24, 2010, the Company’s subsidiaries, Tower Automotive Holdings USA, LLC and TA Holdings Finance, Inc. (collectively, the “Issuers”), issued $430 million of 10.625% Senior Secured Notes (the “notes offering”). The notes were issued at an original issue discount of $12.8 million and bore an annual interest rate of 10.625%. The original issue discount was being amortized on a straight-line basis, which approximated the effective interest method, through interest expense over the term of the notes, which increased the effective annual interest rate to 11.25%. The notes were scheduled to mature on September 1, 2017.

 

 

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On April 23, 2013, the Company completed a cash tender offer (the “Tender Offer”) to purchase up to $276 million of the outstanding notes. An aggregate principal amount of $362 million of the notes was validly tendered in the Tender Offer and not validly withdrawn. The Company accepted for purchase $276 million in aggregate principal amount of the notes at an aggregate purchase price of 113.58% of the principal amount thereof plus accrued and unpaid interest, which resulted in a premium paid of $37.5 million and a tender fee of $0.7 million that were recognized as other expense. Because the maximum aggregate principal amount of $276 million for the notes was exceeded, the Company did not accept all of the notes tendered for purchase. The notes that were tendered but not accepted were promptly returned to the tendering parties. In connection with such repurchase, the Company accelerated the amortization of the original issue discount by $5.2 million and associated debt issue costs by $3.1 million in the second quarter of 2013. The accelerated amortization of the original issue discount and associated debt issue costs are recorded in the Condensed Consolidated Statements of Operations as interest expense.

  

On May 24, 2013, the Company redeemed $43 million of the notes at 105% of the principal amount thereof, plus accrued and unpaid interest, which resulted in a premium paid of $2.2 million that was recognized as other expense. In connection with the redemption, the Company accelerated the amortization of the original issue discount by $0.8 million and associated debt issue costs by $0.5 million in the second quarter of 2013.

 

On August 26, 2013, the Company redeemed the remaining $43 million of the notes at 105% of the principal amount thereof, plus accrued and unpaid interest, which resulted in a premium paid of $2.2 million that was recognized as other expense. In connection with the redemption, the Company accelerated the amortization of the original issue discount by $0.8 million and associated debt issue costs by $0.5 million in the third quarter of 2013. Per the Term Loan Credit Agreement, the Company used the $45.2 million that was being held in an escrow account to cover this redemption and associated premium. As of September 30, 2013, the notes have been repaid in full and no balance remains outstanding.

 

On June 19, 2013, the Company entered into a Second Amended and Restated Revolving Credit and Guaranty Agreement (the “Amended Revolving Credit Facility Agreement”) by and among Tower Automotive Holdings USA, LLC (the “Borrower”), the Company, Tower Automotive Holdings I, LLC (“Holdco”), Tower Automotive Holdings II(a), LLC, Tower Automotive Holdings II(b), LLC, the subsidiary guarantors named therein, JPMorgan Chase Bank, N.A., Wells Fargo Capital Finance, LLC and each of the other 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 (in such capacity, the “Agent”) for the Lenders.

 

The Amended Revolving Credit Facility Agreement amended and restated, in its entirety, the Amended and Restated Revolving Credit and Guaranty Agreement, dated as of June 13, 2011, by and among the Borrower, its domestic affiliate, and domestic subsidiary guarantors, named therein, and the lenders party thereto, and the Agent. The Amended Revolving Credit Facility Agreement provides for an asset-based revolving credit facility (the “Amended ABL Revolver”) in the aggregate amount of up to $150 million, subject to a borrowing base limitation. The Amended Revolving Credit Facility Agreement also provides for the issuance of letters of credit in an aggregate amount not to exceed $50 million, provided that the total amount of credit (inclusive of revolving loans and letters of credit) extended under the Amended Revolving Credit Facility Agreement is subject to an overall cap, on any date, equal to the lesser of $150 million or the amount of the borrowing base on such date. The maturity date for the Amended ABL Revolver is June 19, 2018.

 

Advances under the Amended ABL Revolver bear interest at the Alternate Base Rate plus a base rate margin or LIBOR plus a Eurodollar margin. The applicable margins are determined by the average availability under the Amended ABL Revolver over the preceding three consecutive full calendar months and as of the date of the Amended Revolving Credit Facility Agreement were 1.00% per annum and 2.00% per annum for base rate and LIBOR based borrowings, respectively.

The Amended Revolving Credit Facility is guaranteed by the Company, on an unsecured basis, and certain of the Company’s direct and indirect domestic subsidiaries, on a secured basis. The Amended Revolving Credit Facility is secured by the same assets of the Borrower and the subsidiary guarantors that secured the obligations under the prior ABL revolving facility. The Borrower’s and each subsidiary guarantor’s pledge of such assets as security for the obligations under the Amended Revolving Credit Facility is evidenced by a Second Amended and Restated ABL Security Agreement dated as of June 19, 2013 among the Borrower, the guarantors party thereto and the Agent.

 

 

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The 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 thereunder may be accelerated upon the occurrence of an event of default.

 

In connection with the Amended Revolving Credit Facility Agreement, the Company paid debt issue costs of $1.7 million and accelerated the amortization of the debt issue costs associated with the Amended and Restated Revolving Credit and Guaranty Agreement by $0.3 million in the second quarter of 2013. These costs are recorded in the Condensed Consolidated Statements of Operations as interest expense.

 

As of September 30, 2013, there was $148.6 million of borrowing availability under the Amended ABL Revolver, based on the value of the Company’s assets at August 31, 2013, of which $15 million of borrowings were outstanding and $11.5 million of letters of credit were outstanding. As of September 30, 2013, the applicable margins were 1% per annum and 2% per annum for base rate and LIBOR based borrowings, respectively, resulting in a weighted average interest rate of 2.19% per annum.

 

On June 13, 2011, the Company entered into a Letter of Credit Facility Agreement dated as of June 13, 2011 (the “Letter of Credit Facility Agreement”) by and among Tower Automotive Holdings USA, LLC (the “L/C Borrower”), the Company, JPMorgan Chase Bank, N.A., in its capacity as participant in respect of letters of credit issued thereunder, and JPMorgan Chase Bank, N.A., as Administrative Agent and Issuing Lender.

 

The Letter of Credit Facility Agreement originally provided for a letter of credit facility (the “Letter of Credit Facility”) for the issuance of up to $38 million of letters of credit with a sublimit for Euro dominated letters of credit (with an option to increase the Letter of Credit Facility to $44.5 million in the future). Upon a third party drawing on letters of credit issued under the Letter of Credit Facility, the L/C Borrower will become obligated to pay to the lenders the amounts so drawn. The maturity date of the Letter of Credit Facility is June 13, 2014.

 

The Company has amended the Letter of Credit Facility Agreement to reduce the Letter of Credit Facility on multiple occasions. In addition, on April 22, 2013, the Company amended the Letter of Credit Facility Agreement to, among other things, permit the incurrence of up to $430 million of indebtedness under the Term Loan Credit Agreement and the granting of liens to secure such indebtedness. On June 20, 2013, the Company amended the Letter of Credit Facility Agreement to reduce the Letter of Credit Facility from $22.5 million to $8.5 million (with an option to increase the Letter of Credit Facility to $44.5 million in the future). In connection with the reduction of the Letter of Credit Facility, the Company incurred a breakage fee of $0.6 million in the second quarter of 2013. This fee is recorded in the Condensed Consolidated Statements of Operations as other expense. The remaining terms of the Letter of Credit Facility Agreement have remained the same.

 

As of September 30, 2013, the outstanding letters of credit under the Letter of Credit Facility were $8.4 million. As of September 30, 2013, an 8.5% per annum fee is due on the total amount of the facility. This fee is subject to change in the future based upon then current market conditions.

 

The Letter of Credit Facility is guaranteed by the Company and certain of the Company’s direct and indirect domestic subsidiaries on an unsecured basis pursuant to a Guaranty entered into and made on June 13, 2011.

The Letter of Credit Facility is unsecured and the Letter of Credit Facility Agreement contains customary covenants applicable to certain of the Company's subsidiaries. The Letter of Credit Facility Agreement also includes customary events of default and amounts due thereunder may be accelerated upon the occurrence of an event of default.

 

The Company assumed an unsecured debt instrument of $1 million owed to the Detroit Investment Fund, L.P. upon the acquisition of substantially all of the assets of W Industries, Inc. in April 2011. The debt instrument required monthly principal and interest payments at an annual interest rate of 8.5%. During the second quarter of 2013, the remaining balance on the debt instrument was repaid in full. As of September 30, 2013, no balance remained outstanding.

 

 

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The Company incurred interest expense related to the amortization of debt issue costs of $0.9 million and $6 million during the three and nine months ended September 30, 2013, respectively. The Company incurred interest expense related to the amortization of debt issue costs of $0.4 million and $1.4 million during the three and nine months ended September 30, 2012, respectively.

 

Foreign Subsidiary Indebtedness 

As of September 30, 2013, the Company had foreign subsidiary indebtedness of $88 million, which consisted primarily of borrowings in Europe of $31.9 million, receivables factoring in Europe of $21.8 million, borrowings in Brazil of $19 million, and borrowings in China of $15.3 million.

 

The change in foreign subsidiary indebtedness from December 31, 2012 to September 30, 2013 is explained by the following (in thousands):

 

		Europe			Brazil			China
Balance as of December 31, 2012		$	43,422		$	30,426		$	16,380
Maturities of indebtedness			(5,072)			(19,439)			(7,516)
New / renewed indebtedness			6,763			10,373			7,516
Change in borrowings on credit facilities			7,488			-			(1,377)
Foreign exchange impact			1,089			(2,315)			298
Balance as of September 30, 2013		$	53,690		$	19,045		$	15,301

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 September 30, 2013, the secured lines of credit balance available to the Company was $39.3 million (€29.1 million), of which $31.9 million (€23.6 million) was outstanding. The facilities bear an interest rate based on the EURIBOR plus a spread ranging from 2.9% to 4.0% and have maturity dates ranging from October 2013 to April 2015. The effective annual interest rate as of September 30, 2013 was 4.11% per annum. The facilities are secured by certain accounts receivable related to customer funded tooling, mortgages over the land, certain buildings, and other assets and are subject to negotiated prepayments upon the receipt of funds from completed customer projects.

 

As of September 30, 2013, the receivables factoring facilities balance available to the Company was $22.9 million (€16.9 million), of which $21.8 million (€16.1 million) was drawn. The facilities 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 2.15% to 3.75%. The effective annual interest rates as of September 30, 2013 ranged from 2.37% to 3.97%, with a weighted average interest rate of 3.18% per annum. Any receivables factoring under these facilities is with recourse and is secured by the accounts receivable factored. The 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 September 30, 2013, the Company’s Brazilian subsidiary had borrowings of $19 million (R$42.2 million) which have annual interest rates ranging from 3.00% to 13.41% and maturity dates ranging from October 2013 to July 2022. As of September 30, 2013, the weighted average interest rate on the borrowings in Brazil was 10.52% per annum. The loans are provided through bilateral agreements with three local banks and are secured by certain fixed and current assets. Periodic interest and principal payments are required.

 

 

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As of September 30, 2013, the fixed rate secured lines of credit balance available to the Company was $9.6 million (Rmb 58.7 million), of which the entire amount was outstanding. The credit lines have maturity dates ranging from October 2013 to December 2017 and bear interest rates ranging from 5.99% to 7.68%. As of September 30, 2013, the variable rate secured line of credit balance available to the Company was $5.7 million (Rmb 35 million), of which the entire amount was outstanding. The credit line matures in June 2015. The fixed rate and variable rate secured lines of credit facilities are secured by machinery, equipment, and land rights.

 

During the third quarter of 2013, the Company renewed $1.6 million (Rmb 10 million) of maturing unsecured indebtedness for an additional year and obtained an additional fixed rate secured line of credit of $3.3 million (Rmb 20 million), of which the entire amount was outstanding. The credit line has a maturity date of March 2014 and bears an interest rate of 5.99%.

 

The effective annual interest rate for all the credit lines in China as of September 30, 2013 was 7.08%.

  

Covenants 

As of September 30, 2013, the Company was in compliance with all financial covenants that govern its credit agreements.

 

Capital Leases 

The Company had capital lease obligations of $11.4 million and $12.5 million as of September 30, 2013 and December 31, 2012, respectively. As of September 30, 2013, the Company’s capital lease obligations are scheduled to expire in March 2018.

Note 9. Income Taxes

The Company recognized total income tax expense of $1.4 million and $8.5 million during the three months and nine months ended September 30, 2013, respectively. The nine month income tax expense includes a $2.8 million provision for withholding taxes on current year and potential future dividends from Chinese joint ventures, $1.9 million of which was recognized during the three months ended September 30, 2013.  The income tax expense also includes a $2.3 million tax benefit for the favorable conclusion of two tax audits for tax years 2006-2009 in the International segment which were resolved during the three months ended September 30, 2013.

 

During the three months and nine months ended September 30, 2012, the Company recognized income tax expense of $3.1 million and $17.7 million, respectively. The income tax expense in the third quarter of 2012 included a tax benefit of $1.1 million for the favorable conclusion of a tax audit in the International segment. The income tax expense during the nine months ended September 30, 2012 included a non-cash charge of $6.5 million, which was recorded in the second quarter, for the recording of a valuation allowance on the Company’s deferred tax assets in Brazil. In accordance with FASB ASC No. 740, Income Taxes, the Company continually monitors its ability to realize  its deferred tax assets on a jurisdiction by jurisdiction basis. FASB ASC No. 740 requires that companies assess whether valuation allowances should be established against their deferred tax assets based on the consideration of all available evidence, both positive and negative, using “more likely than not” criteria. In making such judgments, significant weight is given to evidence that can be objectively verified, such as cumulative losses in recent years.

Note 10. Retirement Plans 

The Company sponsors various pension and other postretirement benefit plans for its employees.

 

The Tower International Consolidated Pension Plan (the “Pension Plan”) provides benefits for certain current and former U.S. employees. Benefits under the Pension Plan are based on years of service and compensation, among other factors. Effective October 1, 2006, the Pension Plan was frozen and ceased accruing any additional benefits. Contributions made by the Company are intended to fund benefits that accrued through October 1, 2006.

 

 

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The Company sponsors various qualified defined contribution retirement plans. 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.

  

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

 

 

 

(a)

Expected rate of return on plan assets is 7.4% for 2013 and was 7.4% for 2012

 

The Company expects its minimum pension funding requirements to be $15 million during 2013. The Company made contributions of $5.4 million and $11.8 million, respectively, to the Pension Plan during the three and nine months ended September 30, 2013.

 

Additionally, the Company contributed $1.2 million and $3.5 million, respectively, to its defined contribution retirement plans during the three and nine months ended September 30, 2013.

 

 

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Note 12. Earnings per Share (“EPS”) 

Basic earnings / (loss) per share is calculated by dividing the net income / (loss) attributable to Tower International, Inc. by the weighted-average number of common shares outstanding.

 

The share count for diluted earnings / (loss) per share is computed on the basis of the weighted-average number of common shares outstanding plus the effects of dilutive common stock equivalents (“CSEs”) outstanding during the period.  CSEs, which are securities that may entitle the holder to obtain common stock, include outstanding stock options and restricted stock units.  When the average price of the common stock during the period exceeds the exercise price of a stock option, the options are considered potentially dilutive CSEs.  When there is a loss from continuing operations, potentially dilutive shares are excluded from the computation of earnings per share, as their effect would be anti-dilutive.

 

The Company included the effects of all dilutive shares for the three months ended September 30, 2013. The Company excluded 1.5 million of potentially anti-dilutive shares for the nine months ended September 30, 2013. The Company excluded 1.7 million and 1 million of potentially anti-dilutive shares for the three and nine months ended September 30, 2012.

 

 

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A summary of information used to compute basic and diluted net income / (loss) per share attributable to Tower International, Inc. is shown below (amounts in thousands – except share and per share amounts):

 

Note 13. Share-Based and Long-Term Compensation 

2010 Equity Incentive Plan 

The Company adopted an equity incentive plan in connection with the IPO that allows for the grants of stock options, restricted stock awards, other equity-based awards, and certain cash-based awards to be made pursuant to the plan. The eligibility requirements and terms governing the allocation of any common stock, and the receipt of other consideration under the 2010 Equity Incentive Plan, are determined by the Board of Directors and/or its Compensation Committee. The number of shares of common stock that may be issued or delivered may not exceed, in the aggregate, 4.6 million shares. Cash settled awards do not count against the maximum aggregate number.

 

The primary objectives of the Company’s compensation programs are to (i) attract, motivate, and retain the best executive officers with the skills necessary to successfully manage the business and (ii) align the interests of the executive officers with stockholders by rewarding them for strong Company performance.

 

At September 30, 2013, 1,160,273 shares were available for future grants of options and other types of awards under the 2010 Equity Incentive Plan. Forfeited shares may be re-issued under the plan, up to the maximum amount to be issued as defined by the plan.

 

 

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