Company Quick10K Filing
Quick10K
Tower International
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$20.94 21 $433
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-12 Enter Agreement, Amend Bylaw, Other Events, Exhibits
8-K 2019-07-12 Officers, Exhibits
8-K 2019-06-17 Officers, Exhibits
8-K 2019-05-02 Earnings, Regulation FD, Exhibits
8-K 2019-04-18 Shareholder Vote
8-K 2019-02-12 Earnings, Regulation FD, Exhibits
8-K 2019-02-12 Earnings, Regulation FD, Exhibits
8-K 2018-12-14 Officers, Exhibits
8-K 2018-12-14 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-12-06 Enter Agreement, Exhibits
8-K 2018-11-20 Regulation FD, Exhibits
8-K 2018-11-20 Enter Agreement, Exhibits
8-K 2018-10-29 Earnings, Regulation FD, Exhibits
8-K 2018-07-31 Earnings, Regulation FD, Exhibits
8-K 2018-05-18 Enter Agreement, Leave Agreement, Exhibits
8-K 2018-04-19 Shareholder Vote
8-K 2018-03-05 Officers
8-K 2018-02-20 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-02-13 Earnings, Regulation FD, Exhibits
8-K 2018-01-26 Officers, Exhibits
ALL Allstate 31,440
MRO Marathon Oil 12,490
NVT Nvent Electric 4,590
QTWO Q2 Holdings 3,130
LEGH Legacy Housing 291
IPDN Professional Diversity Network 16
AWIN Altegris Winton Futures Fund 0
ISCO International Stem Cell 0
DEAC Elite Data Services 0
SPA Sparton 0
TOWR 2019-06-30
Part 1 — Financial Information
Item 1. Financial Statements.
Note 1. Organization and Basis of Presentation
Note 2. New Accounting Pronouncements
Note 3. Revenue
Note 4. Inventories
Note 6. Tooling
Note 7. Goodwill and Other Intangible Assets
Note 8. Restructuring and Asset Impairment Charges
Note 9. Leases
Note 10. Debt
Note 11. Derivative Financial Instruments
Note 12. Income Taxes
Note 13. Retirement Plans
Note 14. Stockholders’ Equity and Noncontrolling Interests
Note 15. Earnings per Share (“Eps”)
Note 16. Share-Based and Long-Term Compensation
Note 17. Segment Information
Note 18. Fair Value of Financial Instruments
Note 19. Commitments and Contingencies
Note 20. Subsequent Events
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II — Other Information
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits.
EX-31.1 towr-20190630ex3114c21dc.htm
EX-31.2 towr-20190630ex312864822.htm
EX-32.1 towr-20190630ex321e95bcd.htm
EX-32.2 towr-20190630ex3222b30c7.htm
EX-99.1 towr-20190630ex991a62029.htm

Tower International Earnings 2019-06-30

TOWR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 towr-20190630x10q.htm 10-Q towr_Current_Folio_20190630_10Q

 

 

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 June 30, 2019

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)

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Ticker symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

TOWR

New York Stock Exchange

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit 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.

 

 

 

Large Accelerated Filer ☐

Accelerated Filer ☒

Non-Accelerated Filer ☐ 

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 July 22, 2019, there were 20,690,472 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

 

 

 

 

Explanatory Note

PART I. Financial Information

 

 

 

 

 

Item 1. 

 

Financial Statements (unaudited

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2019 and December 31, 2018

1

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018

2

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2019 and 2018

3

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

4

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

5

 

 

 

 

Item 2.

 

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

26

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

41

 

 

 

 

Item 4.

 

Controls and Procedures

42

 

 

 

 

PART II. Other Information 

 

 

 

 

 

Item 1A.

 

Risk Factors

43

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

44

 

 

 

 

Item 6.

 

Exhibits

45

 

 

 

 

Signatures 

 

 

46

 

 

 

EXPLANATORY NOTE

 

 

On July 12, 2019, Tower International, Inc. (the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Autokiniton US Holdings, Inc., a Delaware corporation (“Parent”), and Tiger Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Parent (“Merger Sub”). Pursuant to the terms of the Merger Agreement, Merger Sub will commence a cash tender offer (as it may be extended and amended from time to time as permitted under, or required by, the Merger Agreement, the “Offer”), no sooner than August 14, 2019 and no later than August 19, 2019, to purchase any and all of the outstanding shares of common stock of the Company, par value $0.01 per share (each, a “Share,” and collectively, “Shares”), at a price per Share of $31.00 in cash, net of applicable withholding, without interest (such amount, or any other amount per share paid in the Offer in accordance with the Merger Agreement, the “Offer Price”).

 

The consummation of the Offer is subject to, among other things, (1) there having been validly tendered and not validly withdrawn Shares that represent at least one more Share than 50% of the Shares outstanding as of the expiration of the Offer, (2) the expiration or termination of any applicable waiting period (or extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or receipt of any related affirmative governmental approval or clearance, (3) the absence of a material adverse effect on the Company and (4) other customary closing conditions contained in the Merger Agreement.

 

Assuming the Offer is consummated in accordance with the Merger Agreement, then, as soon as practicable following the consummation of the Offer, and subject to the satisfaction or waiver of the applicable conditions in the Merger Agreement, pursuant to Section 251(h) of the Delaware General Corporation Law, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a direct, wholly owned subsidiary of Parent, without a meeting or vote of the Company’s stockholders. As of the effective time of the Merger (the “Effective Time”), each Share issued and outstanding immediately prior to the Effective Time, other than cancelled shares (including shares owned directly by Parent or Merger Sub) and dissenting shares, will be converted into the right to receive an amount equal to $31.00 per share in cash, net of applicable tax withholding, without interest (the “Merger Consideration”).

 

The Merger Agreement is more fully described in a Current Report on Form 8-K filed by the Company with the Securities and Exchange Commission (the “SEC”) prior to the opening of the market on July 12, 2019 (the “First July 12 8-K”). A copy of the Merger Agreement was filed by the Company as an exhibit to that Current Report. The descriptions herein of the Offer, the Merger and the Merger Agreement do not purport to be complete and are subject to, and qualified in their entirety by, the full text of the Merger Agreement filed with that Current Report. In a Current Report on Form 8-K filed by the Company with the SEC after the market closed on July 12, 2019 (the “Second July 12 8-K”), the Company also disclosed certain compensatory arrangements approved by the Company in connection with the execution of the Merger Agreement.

 

 

PART 1 — FINANCIAL INFORMATION

ITEM 1. Financial Statements.

TOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data - unaudited)

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

    

2019

    

2018

 

 

 

 

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

155,722

 

$

68,066

Accounts receivable, net of allowance of $486 and $823

 

 

140,789

 

 

113,128

Inventories (Note 4)

 

 

70,643

 

 

69,434

Assets held for sale (Note 5)

 

 

 —

 

 

431,613

Prepaid tooling, notes receivable, and other

 

 

44,363

 

 

27,552

Total current assets

 

 

411,517

 

 

709,793

 

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

546,554

 

 

347,803

Operating lease right-of-use assets (Note 9)

 

 

128,976

 

 

 —

Goodwill (Note 7)

 

 

7,643

 

 

7,453

Deferred tax asset

 

 

85,772

 

 

82,832

Other assets, net

 

 

25,830

 

 

22,511

Total assets

 

$

1,206,292

 

$

1,170,392

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

Short-term debt and current maturities of finance lease liabilities (Notes 9 and 10)

 

$

27,300

 

$

4,148

Short-term operating lease liabilities (Note 9)

 

 

12,769

 

 

 —

Accounts payable

 

 

181,630

 

 

188,760

Accrued liabilities

 

 

72,589

 

 

84,306

Liabilities held for sale (Note 5)

 

 

 —

 

 

167,882

Total current liabilities

 

 

294,288

 

 

445,096

 

 

 

 

 

 

 

Long-term debt, net of current maturities (Note 10)

 

 

242,348

 

 

294,457

Finance lease liabilities , net of current maturities (Note 9)

 

 

138,481

 

 

 —

Operating lease liabilities, net of current maturities (Note 9)

 

 

119,369

 

 

 —

Pension liability (Note 13)

 

 

42,870

 

 

45,762

Other non-current liabilities

 

 

52,114

 

 

84,163

Total non-current liabilities

 

 

595,182

 

 

424,382

Total liabilities

 

 

889,470

 

 

869,478

Commitments and contingencies (Note 19)

 

 

 

 

 

 

 

 

 

 

 

 

 

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, 22,517,718 issued and 20,690,472

 

 

 

 

 

 

outstanding at June 30, 2019, and 22,400,074 issued and 20,606,736 outstanding at

 

 

 

 

 

 

December 31, 2 018

 

 

225

 

 

224

Additional paid in capital

 

 

351,423

 

 

347,816

Treasury stock, at cost, 1,827,246 and 1,793,338 shares as of June 30, 2019 and

 

 

 

 

 

 

December 31, 2018

 

 

(37,743)

 

 

(36,882)

Retained earnings

 

 

64,182

 

 

64,676

Accumulated other comprehensive loss (Note 13)

 

 

(61,265)

 

 

(74,920)

Total stockholders' equity

 

 

316,822

 

 

300,914

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

1,206,292

 

$

1,170,392

 

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 June 30,

 

Six Months Ended June 30,

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

Revenues (Note 3)

 

$

345,446

 

$

395,929

 

$

724,184

 

$

803,162

Cost of sales

 

 

308,971

 

 

345,107

 

 

650,942

 

 

704,156

Gross profit

 

 

36,475

 

 

50,822

 

 

73,242

 

 

99,006

Selling, general, and administrative expenses

 

 

17,584

 

 

22,927

 

 

42,770

 

 

46,272

Amortization expense (Note 7)

 

 

109

 

 

108

 

 

218

 

 

220

Restructuring and asset impairment charges, net (Note 8)

 

 

5,329

 

 

(199)

 

 

5,452

 

 

1,044

Operating income

 

 

13,453

 

 

27,986

 

 

24,802

 

 

51,470

Interest expense

 

 

5,636

 

 

4,907

 

 

11,276

 

 

9,583

Interest income

 

 

1,046

 

 

233

 

 

1,655

 

 

558

Net periodic benefit income (Note 13)

 

 

31

 

 

559

 

 

62

 

 

1,117

Other income / (expense) (Note 19)

 

 

 —

 

 

(977)

 

 

4,540

 

 

(977)

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

 

 

8,894

 

 

22,894

 

 

19,783

 

 

42,585

Provision for income taxes (Note 12)

 

 

3,083

 

 

4,616

 

 

6,300

 

 

7,852

Income  from continuing operations

 

 

5,811

 

 

18,278

 

 

13,483

 

 

34,733

Income / (loss) from discontinued operations, net of tax (Note 5)

 

 

 —

 

 

4,098

 

 

(12,740)

 

 

4,943

Net income

 

$

5,811

 

$

22,376

 

$

743

 

$

39,676

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average basic shares outstanding

 

 

20,689,474

 

 

20,597,482

 

 

20,660,959

 

 

20,577,161

Weighted average diluted shares outstanding

 

 

20,998,849

 

 

20,986,122

 

 

21,030,890

 

 

20,969,142

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income / (loss) per share (Note 15):

 

 

 

 

 

 

 

 

 

 

 

 

Income per share from continuing operations

 

$

0.28

 

$

0.89

 

$

0.65

 

$

1.69

Income / (loss) per share from discontinued operations

 

 

 —

 

 

0.20

 

 

(0.62)

 

 

0.24

Income per share

 

 

0.28

 

 

1.09

 

 

0.03

 

 

1.93

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income / (loss) per share (Note 15):

 

 

 

 

 

 

 

 

 

 

 

 

Income per share from continuing operations

 

$

0.28

 

$

0.87

 

$

0.64

 

$

1.66

Income / (loss) per share from discontinued operations

 

 

 —

 

 

0.20

 

 

(0.61)

 

 

0.24

Income per share

 

 

0.28

 

 

1.07

 

 

0.03

 

 

1.90

 

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 June 30,

 

Six Months Ended June 30,

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

Net income

 

$

5,811

 

$

22,376

 

$

743

 

$

39,676

Other comprehensive income / (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax expense / (benefit) of $0 million, $2.5 million, $0.7 million, and $1.4 million

 

 

633

 

 

(16,442)

 

 

(2,734)

 

 

(13,251)

Unrealized gain / (loss) on qualifying cash flow hedge, net of tax expense / (benefit) of ($0.6) million, $0.5 million, ($1.1 million), and $1.9 million

 

 

(1,685)

 

 

1,608

 

 

(3,698)

 

 

4,989

Other comprehensive income / (loss), net of tax:

 

 

(1,052)

 

 

(14,834)

 

 

(6,432)

 

 

(8,262)

  Comprehensive income / (loss)

 

$

4,759

 

$

7,542

 

$

(5,689)

 

$

31,414

 

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)

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

    

2019

    

2018

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income

 

$

743

 

$

39,676

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

 

 

(12,740)

 

 

4,943

Income from continuing operations

 

 

13,483

 

 

34,733

 

 

 

 

 

 

 

Adjustments required to reconcile income from continuing operations to net

 

 

 

 

 

 

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

 

 

 

 

 

 

Deferred income tax provision

 

 

3,585

 

 

5,761

Depreciation and amortization

 

 

31,703

 

 

28,527

Non-cash share-based compensation

 

 

3,116

 

 

1,609

Pension income, net of contributions

 

 

(2,893)

 

 

(4,655)

Change in working capital and other operating items

 

 

(70,006)

 

 

(65,467)

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

 

$

(21,012)

 

$

508

 

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

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

 

$

(69,854)

 

$

(37,332)

Proceeds from disposition of European operations, net

 

 

277,162

 

 

 —

Proceeds from sale of China joint ventures, net

 

 

 —

 

 

4,314

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

 

$

207,308

 

$

(33,018)

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from borrowings

 

$

44,500

 

$

20,378

Repayments of  borrowings

 

 

(52,248)

 

 

(18,704)

Repayment on Term Loan Credit Facility

 

 

(50,000)

 

 

 —

Debt financing costs

 

 

(2,276)

 

 

 —

Payments for termination of hedging instruments

 

 

(28,582)

 

 

 —

Dividend payment to Tower stockholders

 

 

(5,369)

 

 

(4,937)

Proceeds from stock options exercised

 

 

180

 

 

219

Purchase of treasury stock

 

 

(861)

 

 

(474)

Net cash used in continuing financing activities

 

$

(94,656)

 

$

(3,518)

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

Net cash from discontinued operating activities

 

$

7,142

 

$

50,150

Net cash used in discontinued investing activities

 

 

(9,086)

 

 

(33,250)

Net used in discontinued financing activities

 

 

(1,787)

 

 

(16,687)

Net cash from / (used in) discontinued operations

 

$

(3,731)

 

$

213

 

 

 

 

 

 

 

Effect of exchange rate changes on continuing cash and cash equivalents

 

$

(253)

 

$

(2,019)

 

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

$

87,656

 

$

(37,834)

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

 

Beginning of period

 

$

68,066

 

$

96,313

 

 

 

 

 

 

 

End of period

 

$

155,722

 

$

58,479

 

 

 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

Interest paid, net of amounts capitalized

 

$

12,543

 

$

10,079

Income taxes paid

 

 

1,228

 

 

3,781

Non-cash Investing Activities:

 

 

 

 

 

 

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

 

$

9,096

 

$

12,755

 

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 manufacturer of engineered automotive structural metal components and assemblies, primarily serving original equipment manufacturers (“OEMs”), including Ford, Fiat-Chrysler, Nissan, Toyota, BMW, Volkswagen Group 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”). The Company has strategically located production facilities in the United States, Mexico, and Brazil, supported by engineering and sales locations in the United States, Brazil, Japan, China 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

 

Recently Adopted

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-02, Leases (Topic 842). This ASU introduces a lessee model that brings most leases on the balance sheet. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Under this standard, leases are classified as finance or operating, with balance sheet classification affecting the pattern and classification of expense recognition in the income statement. Subsequent to initial issuance of ASU No. 2016-02, the FASB has issued numerous ASU's that contain targeted improvements to the original standard.

 

The Company adopted the new standard effective January 1, 2019. The new standard allows for two different transition approaches that are required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the Consolidated Financial Statements. The Company utilized the transition method that allowed for application of the new lease standard at the adoption date (January 1, 2019). Upon adoption, the Company did not retrospectively adjust prior period financial information, but did recognize a cumulative-effect adjustment of $5.5 million and corresponding tax effect adjustment of $1.4 million to the opening balance of retained earnings.

 

The Company did not utilize the package of practical expedients provided under the new standard. The Company determined that it has certain manufacturing equipment leases previously classified as operating leases that are classified as finance leases under the new standard. In addition, there are certain considerations related to internal control over financial reporting that are associated with implementing the new guidance under Accounting Standards Codification (“ASC”) No. 842 and the Company has implemented the necessary changes to its control framework. The Company has also included the new disclosure requirements required under ASC No. 842 (See Note 9 of the Condensed Consolidated Financial Statements).

 

5

Stock Compensation 

On June 20, 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting. This ASU simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees is aligned with the requirements for share-based payments granted to employees. The Company adopted the new standard effective January 1, 2019. Adoption of the ASU did not result in a material impact to the Company’s Condensed Consolidated Financial Statements.

 

Pending Adoption

 

Fair Value Measurement

On August 28, 2018, the FASB issued ASU No. 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements on fair value measurements. This ASU is effective for annual and interim periods beginning after December 15, 2019 and early adoption is permitted. The Company does not expect a material financial statement impact related to the adoption of this ASU.

 

Retirement Benefits

On August 28, 2018, the FASB issued ASU No. 2018-14, Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU modifies the disclosure requirements related to defined benefit pension or other postretirement benefit plans. This ASU is effective for annual and interim periods beginning after December 15, 2020 and early adoption is permitted. The Company does not expect a material financial statement impact related to the adoption of this ASU.

 

Note 3. Revenue

 

The Company enters into contracts with its customers that create enforceable rights and obligations. Each such contract requires the Company to supply products for specific vehicle programs. The Company has determined that each unit produced represents a separate performance obligation. The Company satisfies its performance obligations and recognizes revenue at a point in time when the customer has obtained control of the unit. Determining when control transfers requires management to make judgments that affect the timing of revenue recognized. The Company has determined that control has transferred when its products are shipped to its customers because the Company has a present right to payment at that time, legal title and risk of loss have passed to the customer and the customer is able to direct the use of, and obtain substantially all of the benefits from, the products. Invoices are generated upon shipment to the customer and are based on contractually agreed upon unit prices. The Company has payment terms with its customers that generally require payment within 30 to 60 days of invoice date. FASB ASC No. 606,  Revenue from Contracts with Customers, provides a practical expedient that allows companies to exclude from the transaction price any amounts collected from customers for all sales (and other similar) taxes. The Company does not include sales and other taxes in its transaction price and thus does not recognize these amounts as revenue. Shipping and handling costs are accounted for as fulfilment costs and are included in cost of sales.

 

It is common for the Company to negotiate pricing with its customers on an annual basis which can result in price adjustments over the program lives or other variable consideration adjustments. Based on extensive historical experience, the Company has concluded its estimate of variable consideration is not constrained. Therefore, the Company accrues for these items using the most likely amount method in accordance with FASB ASC No. 606‑10‑32 and records adjustments to revenue throughout the year as negotiations progress and are finalized. In certain cases, the Company provides lump sum payments to its customers that are directly related to awarded programs. These payments are expected to be recovered over the life of the associated program; therefore, the Company capitalizes these payments and amortizes them into revenue over the life of the associated program.

 

The Company participates in certain of its customers’ steel repurchase programs, under which it purchases steel directly from a customer’s designated steel supplier, for use in manufacturing products for that customer. The Company takes delivery and title to such steel and bears the risk of loss and obsolescence. The Company invoices its customers based upon annually negotiated selling prices, which inherently include a component for steel under such repurchase programs. Under guidance provided in FASB ASC No. 606‑10‑55, Principal versus Agent Considerations, the Company has risks and rewards of a principal and therefore, for sales transactions in which the Company participates in a customer’s steel resale program, revenue is recognized on a gross basis for the entire amount of the sales, including the component for purchases under that customer’s steel resale program. The purchases through customer resale programs have buffered the impact of price swings associated with the procurement of these metals. The remainder of the Company’s steel and aluminum purchasing requirements are met through contracts with mills, in which the Company negotiates its own price and seeks to pass through price increases and decreases to the Company’s customers.

 

6

The Company enters into agreements to produce products for its customers at the beginning of a given vehicle program’s life. Once such agreements are entered into by the Company, it is obligated to fulfil the customers’ purchasing requirements for the entire production period of the vehicle programs, which range from three to ten years, and generally, the Company has no provisions to terminate such contracts. These contracts may be terminated by the Company’s customers at any time. Historically, terminations of these contracts have been minimal.

 

The manufacture of certain products shipped to the Company's customers during the life of specific vehicle programs typically relies on dedicated property, plant, and equipment (production facilities, machinery, and equipment). The Company's customers issue purchase orders, and regular releases against these purchase orders, to determine the timing and delivery of these products to them. This dedicated property, plant, and equipment typically includes individual assets that are highly dependent on or interrelated with each other for purposes of producing products for the Company's customers. The embedded lease payments received from the Company's customers during the vehicle program life are considered variable under FASB ASC No. 842 as they are based on the quantity of products shipped. Therefore, the portion of customer payments allocated to the dedicated property, plant, and equipment is recognized at the same time as product revenue which typically occurs upon shipment to the customer.

 

The Company monitors the aging of uncollected billings and adjusts its accounts receivable allowance on a quarterly basis, as necessary, based upon its evaluation of the probability of collection. The adjustments made by the Company due to the write-off of uncollectible amounts have been immaterial for all periods presented. At June 30, 2019 and December 31, 2018,  the Company’s accounts receivable, net of allowances, were $140.8 million and $113.1 million, respectively. The Company did not have any material unbilled or deferred revenue recorded on the Condensed Consolidated Balance Sheets as of June 30, 2019, or December 31, 2018.

 

For the three and six months ended June 30, 2019 and 2018, revenue recognized from performance obligations related to prior periods (for example, due to changes in transaction price) was not material.

 

Revenue expected to be recognized in any future period related to remaining performance obligations, excluding revenue pertaining to contracts that have an original expected duration of one year or less or contracts where revenue is recognized as invoiced, is not material.

 

The following table summarizes the Company’s customer mix as a percent of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2019

 

2018

 

2019

 

2018

Ford

 

42%

 

48%

 

44%

 

48%

Fiat - Chrysler

 

21%

 

22%

 

21%

 

23%

Nissan

 

12%

 

12%

 

12%

 

12%

BMW

 

10%

 

5%

 

9%

 

4%

Toyota

 

9%

 

8%

 

9%

 

7%

Volkswagen Group

 

3%

 

2%

 

2%

 

2%

Honda

 

2%

 

2%

 

2%

 

2%

Other

 

1%

 

1%

 

1%

 

2%

Total

 

100%

 

100%

 

100%

 

100%

 

7

The following table summarizes the Company’s vehicle platform mix as a percent of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2019

 

2018

 

2019

 

2018

SUV (sport-utility vehicles)

 

52%

 

53%

 

52%

 

53%

Pickup

 

30%

 

27%

 

29%

 

27%

Van

 

3%

 

4%

 

3%

 

4%

MPV (multi-purpose vehicles)

 

2%

 

2%

 

2%

 

2%

Light trucks

 

87%

 

86%

 

86%

 

86%

Large Car

 

6%

 

7%

 

7%

 

7%

Small Car

 

5%

 

5%

 

5%

 

6%

All Other

 

2%

 

2%

 

2%

 

1%

Total

 

100%

 

100%

 

100%

 

100%

 

 

Note 4. 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):

 

 

 

 

 

 

 

 

 

 

    

June 30, 2019

    

December 31, 2018

Raw materials

 

$

29,015

 

$

29,752

Work in process

 

 

14,745

 

 

13,008

Finished goods

 

 

26,883

 

 

26,674

Total inventory

 

$

70,643

 

$

69,434

 

 

Note 5. Discontinued Operations and Assets Held for Sale

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

    

2019

    

2018

    

2019

    

2018

Revenues

 

$

 —

 

$

173,844

 

$

110,930

 

$

345,462

Loss from sale of discontinued operations

 

 

 —

 

 

 —

 

 

(6,895)

 

 

 —

Income / (loss) from discontinued operations:

 

 

 

 

 

 

 

 

 

 

 

 

Income / (loss) before provision for income taxes

 

 

 —

 

 

5,153

 

 

(9,906)

 

 

7,956

Provision for income taxes

 

 

 —

 

 

1,055

 

 

2,834

 

 

3,013

Income / (loss) from discontinued operations

 

$

 —

 

$

4,098

 

$

(12,740)

 

$

4,943

 

Europe Operations

During the fourth quarter of 2018, the Company’s subsidiaries Tower Automotive Holdings III Cooperatie U.A. and Tower Automotive Holdings USA, LLC entered into a Memorandum of Understanding and Stock Purchase Agreement with Financière SNOP Dunois S.A. (the “Purchaser”). Pursuant to the agreement, the Purchaser acquired all of the stock of TA Holdings Europe B.V., an indirect wholly owned subsidiary of the Company, and an intercompany loan, for a purchase price of €255 million on a cash free, debt free basis, subject to working capital and other customary adjustments and a reduction to the extent that capital expenditures for the Company’s European operations for calendar year 2018 were less than €45 million. The anticipated purchase price less expected transaction related costs was less than the carrying value as of December 31, 2018; therefore, the Company recorded a fair value adjustment of $44 million during the fourth quarter of 2018. During the first quarter of 2019, the Company completed the sale of its European operations, receiving net sale proceeds of $277.2 million after payment of transaction costs. The Company recorded an additional fair value adjustment of $6.9 million, which related primarily to the cumulative translation adjustment that was reclassified to earnings and the strengthening of the U.S. dollar against the Euro that resulted in a lower U.S. dollar purchase price.

 

8

The Company’s European operations have been presented as discontinued operations in the Company’s Condensed Consolidated Financial Statements in accordance with FASB ASC No. 205, Discontinued Operations.  

 

China Joint Ventures

In October 2016, the Company entered into an agreement to sell its joint venture in Ningbo, China: Tower DIT Automotive Products Co., Ltd (“Ningbo”). The sale agreement provided for purchase of the Company’s equity in the joint venture for approximately $4 million, net of tax. The Company completed the sale of Ningbo during the second quarter of 2018 and received proceeds of $4.3 million, net of tax.

 

Ningbo has been presented as discontinued operations in the Company’s Consolidated Financial Statements, in accordance with FASB ASC No. 205,  Discontinued Operations.

 

The following table summarizes assets and liabilities held for sale by category (in thousands):

 

 

 

 

 

 

    

December 31, 2018

 

 

 

 

ASSETS

 

 

 

Current assets

 

$

175,774

Property, plant, and equipment, net

 

 

239,023

Other assets, net

 

 

7,072

Goodwill

 

 

17,744

Fair value adjustment

 

 

(8,000)

Total assets held for sale

 

$

431,613

 

 

 

 

LIABILITIES

 

 

 

Short-term debt

 

$

14,890

Accounts payable

 

 

142,638

Total current liabilities

 

 

157,528

 

 

 

 

Long-term debt, net of current maturities

 

 

 —

Other non-current liabilities

 

 

10,354

Total non-current liabilities

 

 

10,354

Total liabilities held for sale

 

$

167,882

 

 

Note 6. 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.

 

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 the Condensed Consolidated Balance Sheets in prepaid tooling, notes receivable, and other, while Company-owned and other tooling is included in other assets, net.

 

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

 

 

 

 

 

 

 

 

 

    

June 30, 2019

    

December 31, 2018

Customer-owned tooling, net

 

$

30,601

 

$

14,758

Company-owned tooling

 

 

631

 

 

507

Total tooling, net

 

$

31,232

 

$

15,265

 

9

 

Note 7. Goodwill and Other Intangible Assets

 

Goodwill

The change in the carrying amount of goodwill is set forth below (in thousands):

 

 

 

 

 

 

    

 

Balance at December 31, 2018

 

$

7,453

Currency translation adjustment

 

 

190

Balance at June 30, 2019

 

$

7,643

 

Intangibles

An intangible asset of $3.6 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 and $0.2 million for the three and six months ended June 30, 2019, respectively. The Company incurred amortization expense of $0.1 million and $0.2 million for the three and six months ended June 30, 2018, respectively.

 

Note 8. Restructuring and Asset Impairment Charges

 

As of June 30, 2019, the Company has executed various restructuring plans and may execute additional plans in the future to realign manufacturing capacity to prevailing 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

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 June 30,

 

Six Months Ended June 30,

 

    

2019

    

2018

    

2019

    

2018

Employee termination costs

 

$

5,219

 

$

105

 

$

5,303

 

$

961

Other exit costs

 

 

110

 

 

(304)

 

 

149

 

 

83

Total restructuring expense / (income)

 

$

5,329

 

$

(199)

 

$

5,452

 

$

1,044

 

The charges incurred during the six months ended June 30, 2019 and 2018 related primarily to the following actions:

 

2019 Actions

During the three and six months ended June 30, 2019, the charges incurred related to severance charges and ongoing maintenance expense of facilities closed as a result of prior actions. During the second quarter of 2019, the Company took numerous actions to better align the management teams to the remaining footprint of the continuing operations. These actions included a shift in composition of the executive leadership team as well as certain changes within the corporate and regional management teams. All estimated costs related to these actions have been recorded during the second quarter of 2019; however, the separation agreement with Pär Malmhagen (the Company’s former President) will result in additional charges of approximately $3.5 million upon a change in control event (See Note 20).

 

2018 Actions

During the three and six months ended June 30, 2018, the charges incurred related to severance charges and ongoing maintenance expense of facilities closed as a result of prior actions. During the second quarter of 2018, the Company amended the lease agreements related to closed facilities which resulted in a $0.3 million adjustment to the liability previously recorded. As a result of these amendments, the Company will no longer record material restructuring expense related to such closed facilities.

 

10

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 June 30, 2019 (in thousands):

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

$

2,708

Payments

 

 

(2,558)

Increase in liability

 

 

3,928

Balance at June 30, 2019

 

$

4,078

 

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.

 

The restructuring reserve increased during the six months ended June 30, 2019, reflecting primarily accruals for cash severance, offset partially by payments related to the 2019 actions and prior accruals. During the six months ended June 30, 2019, the Company incurred payments of $2.6 million related primarily to the 2019 actions and prior accruals.

 

Note 9. Leases

 

The Company leases office space, manufacturing space, and certain equipment under noncancellable lease agreements, which require the Company to pay maintenance, insurance, taxes, and other expenses, in addition to rental payments. In certain cases, the lease payments include both lease and nonlease components. The Company has not elected the practical expedient under which the lease component would not be separated from the nonlease components; however, the nonlease components in the Company’s contracts are immaterial. Certain of the Company’s real estate lease payments vary based on changes in the Consumer Price Index (“CPI”). While the lease liabilities are not remeasured as a result of changes to the CPI, these changes are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.

 

The Company’s leasing arrangements have lease terms that expire between the years 2019 and 2035. The Company has options to extend the terms of certain leases into future periods. For options that the Company is reasonably certain to exercise, the payments associated with these renewal periods have been included in the measurement of the lease liabilities and ROU assets. The Company does not record lease liabilities and ROU assets for leases with terms less than 12 months. In addition, for certain equipment leases, the Company has an obligation to return the equipment to the lessor at the end of the lease term. The estimated costs of returning the equipment to the lessor have been included in the measurement of the lease liability and ROU asset. The Company’s leasing arrangements do not have residual value guarantees, covenant requirements, or place any other restrictions on the Company.

 

Future operating and finance lease payments, on an undiscounted basis, at June 30, 2019 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1 Year

 

 

2 Years

 

 

3 Years

 

 

4 Years

 

 

5 Years

 

 

After 5 Years

 

 

Total

Operating lease payments

 

$

20,025

 

$

19,457

 

$

18,960

 

$

18,967

 

$

18,999

 

$

101,473

 

$

197,881

Finance lease payments

 

 

32,337

 

 

33,916

 

 

33,916

 

 

33,916

 

 

30,484

 

 

27,187

 

 

191,756

 

The Company measures the lease liabilities and ROU assets associated with these payments using its incremental borrowing rate, as it is not typical for the rate implicit in the lease to be readily determinable. The Company uses estimated interest rates from third party banking institutions that would be applicable over a similar lease term.

11

The following table presents a reconciliation of the undiscounted cash flows to the operating lease liabilities and finance lease liabilities recognized in the Condensed Consolidated Balance Sheets as of June 30, 2019 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Operating Leases

 

 

Finance Leases

Total undiscounted cash flows

 

$

197,881

 

$

191,756

Present value impact

 

 

(65,743)

 

 

(29,988)

Total lease liabilities

 

$

132,138

 

$

161,768

 

 

 

 

 

 

 

Short-term lease liabilities

 

$

12,769

 

$

23,287

Long-term lease liabilities

 

 

119,369

 

 

138,481

Total lease liabilities

 

$

132,138

 

$

161,768

 

As of June 30, 2019, the Company had finance lease ROU assets of $160.5 million that have been presented within property, plant, and equipment, net on the Condensed Consolidated Balance Sheets.

 

During the second quarter of 2019, the Company extended the lease for one of its manufacturing facilities which increased the operating lease liability and ROU asset by $13.5 million. Additionally, the Company’s landlord completed a building expansion at another of the Company’s manufacturing facilities. The lease for the expanded premises commenced during the second quarter of 2019 and increased the operating lease liability and ROU asset by $10 million.

 

The Company expects to lease additional equipment under finance leases during the third quarter of 2019 which will result in incremental finance lease liabilities and ROU assets of approximately $1 million.

 

The following table discloses the components of the total lease cost recognized (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2019

 

 

June 30, 2019

Lease cost

 

 

 

 

 

 

Finance lease cost:

 

 

 

 

 

 

Amortization of right-of-use assets

 

$

3,996

 

$

7,436

Interest on lease liabilities

 

 

1,166

 

 

2,171

Total finance lease cost

 

 

5,162

 

 

9,607

Operating lease cost

 

 

4,959

 

 

9,962

Short-term lease cost

 

 

 -

 

 

264

Variable lease cost

 

 

 -

 

 

 -

Total lease cost

 

$

10,121