Company Quick10K Filing
Quick10K
Tower International
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$20.94 21 $433
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 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-12-14 Officers, Exhibits
8-K 2018-12-06 Enter Agreement, Exhibits
8-K 2018-11-20 Enter Agreement, Exhibits
8-K 2018-11-20 Regulation FD, 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
TREE LendingTree 5,060
ANF Abercrombie & Fitch 1,900
FRME First Merchants 1,840
GLOG Gaslog 1,200
HCLP Hi-Crush Partners 269
NTIP Network 1 Technologies 60
UHLN US Highland 0
VRCP Virtual Crypto Technologies 0
ELRA Elray Resources 0
FRZT Freeze Tag 0
TOWR 2019-03-31
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
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-10.1 towr-20190331xex10_1.htm
EX-31.1 towr-20190331xex31_1.htm
EX-31.2 towr-20190331xex31_2.htm
EX-32.1 towr-20190331xex32_1.htm
EX-32.2 towr-20190331xex32_2.htm

Tower International Earnings 2019-03-31

TOWR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 towr-20190331x10q.htm FORM 10-Q 20190331 10-Q Q1

 

  

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 



 

 



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



For the quarterly period ended March 31, 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 April 25, 2019, there were 20,688,725 shares of the registrant’s common stock, $0.01 par value per share, outstanding.



 

 

 


 





Tower International, Inc. and Subsidiaries

Form 10-Q

 

Table of Contents

 



 

 

 

 

 

 

Page

 

 

 

 

PART I.  Financial Information

 

 

 

 

 

Item 1.

 

Financial Statements (unaudited):

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2019 and December 31, 2018

1

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2019 and 2018

2

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and 2018

3

 

 

 

 

 

 

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

22

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

32

 

 

 

 

Item 4.

 

Controls and Procedures

33

 

 

 

 

PART II.  Other Information

 

 

 

 

 

Item 1A.

 

Risk Factors

34

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

 

Item 6.

 

Exhibits

35

 

 

 

 

Signatures

 

 

36



 

 

 


 

PART 1 — FINANCIAL INFORMATION

ITEM 1. Financial Statements.

TOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share data - unaudited)

 









 

 

 

 

 

 



 

March 31,

 

December 31,



 

2019

 

2018



 

 

 

 

ASSETS

 

 

 

 

 

 

Cash and cash equivalents

 

$

197,947 

 

$

68,066 

Accounts receivable, net of allowance of $846 and $823

 

 

154,094 

 

 

113,128 

Inventories (Note 4)

 

 

64,005 

 

 

69,434 

Assets held for sale (Note 5)

 

 

 -

 

 

431,613 

Prepaid tooling, notes receivable, and other

 

 

32,424 

 

 

27,552 

Total current assets

 

 

448,470 

 

 

709,793 



 

 

 

 

 

 

Property, plant, and equipment, net

 

 

537,763 

 

 

347,803 

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

 

 

106,414 

 

 

 -

Goodwill (Note 7)

 

 

7,560 

 

 

7,453 

Deferred tax asset

 

 

86,769 

 

 

82,832 

Other assets, net

 

 

22,775 

 

 

22,511 

Total assets

 

$

1,209,751 

 

$

1,170,392 



 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

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

 

$

26,274 

 

$

4,148 

Short-term operating lease liabilities (Note 9)

 

 

13,256 

 

 

 -

Accounts payable

 

 

187,603 

 

 

188,760 

Accrued liabilities

 

 

94,733 

 

 

84,306 

Liabilities held for sale (Note 5)

 

 

 -

 

 

167,882 

Total current liabilities

 

 

321,866 

 

 

445,096 



 

 

 

 

 

 

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

 

 

242,870 

 

 

294,457 

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

 

 

140,496 

 

 

 -

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

 

 

96,185 

 

 

 -

Pension liability (Note 13)

 

 

44,381 

 

 

45,762 

Other non-current liabilities

 

 

51,459 

 

 

84,163 

Total non-current liabilities

 

 

575,391 

 

 

424,382 

Total liabilities

 

 

897,257 

 

 

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, 22,515,971 issued and 20,688,725

 

 

 

 

 

 

 outstanding at March 31, 2019, and 22,400,074 issued and 20,606,736 outstanding at

 

 

 

 

 

 

 December 31, 2018

 

 

225 

 

 

224 

Additional paid in capital

 

 

349,272 

 

 

347,816 

Treasury stock, at cost, 1,827,246 and 1,793,338 shares as of March 31, 2019

 

 

 

 

 

 

 December 31, 2018

 

 

(37,743)

 

 

(36,882)

Retained earnings

 

 

61,060 

 

 

64,676 

Accumulated other comprehensive loss (Note 14)

 

 

(60,320)

 

 

(74,920)

Total stockholders' equity

 

 

312,494 

 

 

300,914 



 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

1,209,751 

 

$

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 March 31,



 

2019

 

2018



 

 

 

 

Revenues (Note 3)

 

$

378,738 

 

$

407,233 

Cost of sales

 

 

341,971 

 

 

359,049 

Gross profit

 

 

36,767 

 

 

48,184 

Selling, general, and administrative expenses

 

 

25,186 

 

 

23,345 

Amortization expense (Note 7)

 

 

109 

 

 

112 

Restructuring and asset impairment charges, net (Note 8)

 

 

123 

 

 

1,243 

Operating income

 

 

11,349 

 

 

23,484 

Interest expense

 

 

5,640 

 

 

4,676 

Interest income

 

 

609 

 

 

325 

Net periodic benefit income (Note 13)

 

 

31 

 

 

558 

Other income (Note 19)

 

 

4,540 

 

 

 -

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

 

 

10,889 

 

 

19,691 

Provision for income taxes (Note 12)

 

 

3,217 

 

 

3,236 

Income from continuing operations

 

 

7,672 

 

 

16,455 

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

 

 

(12,740)

 

 

845 

Net income / (loss)

 

$

(5,068)

 

$

17,300 



 

 

 

 

 

 

Weighted average basic shares outstanding

 

 

20,632,128 

 

 

20,556,613 

Weighted average diluted shares outstanding

 

 

21,063,287 

 

 

20,951,973 



 

 

 

 

 

 

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

 

 

 

 

 

 

Income per share from continuing operations

 

$

0.37 

 

$

0.80 

Income / (loss) per share from discontinued operations

 

 

(0.62)

 

 

0.04 

Income / (loss) per share

 

 

(0.25)

 

 

0.84 



 

 

 

 

 

 

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

 

 

 

 

 

 

Income per share from continuing operations

 

$

0.36 

 

$

0.79 

Income / (loss) per share from discontinued operations

 

 

(0.60)

 

 

0.04 

Income / (loss) per share

 

 

(0.24)

 

 

0.83 



 

 

 

 

 

 



 

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

 



2

 


 

 

 

TOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands - unaudited)

 





 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

 

 



 

Three Months Ended March 31,



 

2019

 

2018



 

 

 

 

Net income / (loss)

 

$

(5,068)

 

$

17,300 

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

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax expense / (benefit) of $0.7 million and ($1.1 million)

 

 

(3,367)

 

 

3,191 

Unrealized gain / (loss) on qualifying cash flow hedge, net of tax expense / (benefit) of ($0.6) million and $1.3 million

 

 

(2,013)

 

 

3,381 

Other comprehensive income / (loss), net of tax

 

 

(5,380)

 

 

6,572 

  Comprehensive income / (loss)

 

$

(10,448)

 

$

23,872 



 

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

3

 


 

TOWER INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands - unaudited)







 

 

 

 

 

 



 

Three Months Ended March 31,



 

2019

 

2018



 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income / (loss)

 

$

(5,068)

 

$

17,300 

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

 

 

(12,740)

 

 

845 

Income from continuing operations

 

 

7,672 

 

 

16,455 



 

 

 

 

 

 

Adjustments required to reconcile income from continuing operations to net

 

 

 

 

 

 

cash used in continuing operating activities:

 

 

 

 

 

 

Deferred income tax provision

 

 

2,272 

 

 

2,080 

Depreciation and amortization

 

 

15,425 

 

 

14,511 

Non-cash share-based compensation

 

 

986 

 

 

703 

Pension income, net of contributions

 

 

(1,381)

 

 

(2,237)

Change in working capital and other operating items

 

 

(40,574)

 

 

(61,934)

Net cash used in continuing operating activities

 

$

(15,600)

 

$

(30,422)



 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

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

 

$

(39,642)

 

$

(12,075)

Proceeds from disposition of European operations, net

 

 

277,406 

 

 

 -

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

 

$

237,764 

 

$

(12,075)



 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

Proceeds from borrowings

 

$

44,500 

 

$

1,339 

Repayments of borrowings

 

 

(48,658)

 

 

(1,138)

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 shareholders

 

 

(2,680)

 

 

(2,465)

Proceeds from stock options exercised

 

 

160 

 

 

112 

Purchase of treasury stock

 

 

(861)

 

 

(474)

Net cash used in continuing financing activities

 

$

(88,397)

 

$

(2,626)



 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

Net cash from discontinued operating activities

 

$

7,142 

 

$

29,615 

Net cash used in discontinued investing activities

 

 

(9,086)

 

 

(18,079)

Net cash used in discontinued financing activities

 

 

(1,787)

 

 

(12,613)

Net cash used in discontinued operations

 

$

(3,731)

 

$

(1,077)



 

 

 

 

 

 

Effect of exchange rate changes on continuing cash and cash equivalents

 

$

(155)

 

$

1,856 



 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

$

129,881 

 

$

(44,344)



 

 

 

 

 

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

 

Beginning of period

 

$

68,066 

 

$

96,313 



 

 

 

 

 

 

End of period

 

$

197,947 

 

$

51,969 



 

 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

Interest paid, net of amounts capitalized

 

$

5,946 

 

$

5,050 

Income taxes paid

 

 

819 

 

 

759 

Non-cash Investing Activities:

 

 

 

 

 

 

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

 

$

17,911 

 

$

15,033 



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

4

 


 



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.



As described in Note 5 of the Condensed Consolidated Financial Statements, on March 1, 2019, the Company consummated the sale of its European operations, resulting in net proceeds of approximately $250 million after payment of transaction costs and the repayment of its cross currency swap.

 

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).



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.



5

 


 

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. 



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

6

 


 

been immaterial for all periods presented. At March 31, 2019 and December 31, 2018, the Company’s accounts receivable, net of allowances, were $154.1 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 March 31, 2019, or December 31, 2018.



For the three months ended March 31, 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 March 31,



 

2019

 

2018

Ford

 

45% 

 

49% 

Fiat - Chrysler

 

21% 

 

23% 

Nissan

 

12% 

 

12% 

Toyota

 

8% 

 

7% 

BMW

 

8% 

 

3% 

Volkswagen Group

 

2% 

 

2% 

Honda

 

2% 

 

2% 

Other

 

2% 

 

2% 

Total

 

100% 

 

100% 



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





 

 

 

 



 

Three Months Ended March 31,



 

2019

 

2018

SUV (sport-utility vehicles)

 

53% 

 

52% 

Pickup

 

28% 

 

27% 

Van

 

4% 

 

4% 

MPV (multi-purpose vehicles)

 

1% 

 

2% 

Light trucks

 

86% 

 

85% 

Large Car

 

7% 

 

7% 

Small Car

 

5% 

 

7% 

All Other

 

2% 

 

1% 

Total

 

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):

 





 

 

 

 

 

 



 

March 31, 2019

 

December 31, 2018

Raw materials

 

$

32,065 

 

$

29,752 

Work in process

 

 

15,220 

 

 

13,008 

Finished goods

 

 

16,720 

 

 

26,674 

  Total inventory

 

$

64,005 

 

$

69,434 

















7

 


 

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 March 31,



 

2019

 

2018

Revenues

 

$

110,930 

 

$

171,618 

Loss from sale of discontinued operations

 

 

(6,895)

 

 

 -

Income / (loss) from discontinued operations:

 

 

 

 

 

 

Income / (loss) before provision for income taxes

 

 

(9,906)

 

 

2,803 

Provision for income taxes

 

 

2,834 

 

 

1,958 

Income / (loss) from discontinued operations

 

$

(12,740)

 

$

845 



 

 

 

 

 

 

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 $277.4 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.



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 









8

 


 

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):





 

 

 

 

 

 



 

March 31, 2019

 

December 31, 2018

Customer-owned tooling, net

 

$

20,138 

 

$

14,758 

Company-owned tooling

 

 

494 

 

 

507 

Total tooling, net

 

$

20,632 

 

$

15,265 





Note 7. 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):



 



 

 

 



 

Consolidated

Balance at December 31, 2018

 

$

7,453 

Currency translation adjustment

 

 

107 

Balance at March 31, 2019

 

$

7,560 



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 $0.1 million for the three months ended March 31, 2019 and 2018, respectively.



Note 8. Restructuring and Asset Impairment Charges

 

As of March 31, 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 March 31,



 

2019

 

2018

Employee termination costs

 

$

84 

 

$

856 

Other exit costs

 

 

39 

 

 

387 

Total restructuring expense

 

$

123 

 

$

1,243 









9

 


 

The charges incurred during the three months ended March 31, 2019 and 2018 related primarily to the following actions:

 

2019 Actions

During the three months ended March 31, 2019, the charges incurred related to severance charges and ongoing maintenance expense of facilities closed as a result of prior actions.



2018 Actions

During the three months ended March 31, 2018, the charges incurred related to severance charges and ongoing maintenance expense of facilities closed as a result of prior actions.



Restructuring Reserve

The table below summarizes the activity in the restructuring reserve, which is included in accrued liabilities in the Condensed Consolidated Balance Sheets, for the above-mentioned actions through March 31, 2019 (in thousands):

 





 

 

 



 

 

 

Balance at December 31, 2018

 

$

2,708 

Payments

 

 

(762)

Increase in liability

 

 

84 

Balance at March 31, 2019

 

$

2,030 

 

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 decreased during the three months ended March 31, 2019, reflecting primarily payments related to prior accruals. During the three months ended March 31, 2019, the Company incurred payments of $0.8 million related primarily to 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 March 31, 2019 are as follows (in thousands):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

1 Year

 

 

2 Years

 

 

3 Years

 

 

4 Years

 

 

5 Years

 

 

After 5 Years

 

 

Total

Operating lease payments

 

$

18,743 

 

$

18,284 

 

$

17,142 

 

$

15,048 

 

$

14,787 

 

$

80,446 

 

$

164,450 

Finance lease payments

 

 

29,297 

 

 

32,114 

 

 

32,114 

 

 

32,114 

 

 

31,932 

 

 

29,628 

 

 

187,199 



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.



10

 


 

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 March 31, 2019 (in thousands):







 

 

 

 

 

 



 

 

Operating Leases

 

 

Finance Leases

Total undiscounted cash flows

 

$

164,450 

 

$

187,199 

Present value impact

 

 

(55,009)

 

 

(24,503)

Total lease liabilities

 

$

109,441 

 

$

162,696 



 

 

 

 

 

 

Short-term lease liabilities

 

$

13,256 

 

$

22,200 

Long-term lease liabilities

 

 

96,185 

 

 

140,496 

Total lease liabilities

 

$

109,441 

 

$

162,696 



As of March 31, 2019, the Company had finance lease ROU assets of $162.8 million that have been presented within property, plant, and equipment, net on the Condensed Consolidated Balance Sheets.



The Company is currently in the process of extending the lease for one of its manufacturing facilities which is estimated to increase the operating lease liability and ROU asset by approximately $15 million during the second quarter of 2019. Additionally, the Company’s landlord is in the process of completing a building expansion at another of the Company’s manufacturing facilities. The lease for the expanded premises is expected to commence during the third quarter of 2019 and the related operating lease liability and ROU asset will be approximately $10 million.



The Company expects to lease additional equipment under finance leases during the second quarter of 2019 which will result in incremental finance lease liabilities and ROU assets of approximately $2 million.



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





 

 

 



 

 

Three Months Ended



 

 

March 31, 2019

Lease cost

 

 

 

Finance lease cost:

 

 

 

Amortization of right-of-use assets

 

$

3,440 

Interest on lease liabilities

 

 

1,005 

Total finance lease cost

 

 

4,445 

Operating lease cost

 

 

5,003 

Short-term lease cost

 

 

264 

Variable lease cost

 

 

 -

Total lease cost

 

$

9,712 



 

 

 

Other information

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

Operating cash flows from finance leases

 

$

1,005 

Operating cash flows from operating leases

 

 

5,028 

Financing cash flows from finance leases

 

 

2,795 

Right-of-use assets obtained in exchange for new finance lease liabilities

 

 

8,806 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

4,049 

Weighted-average remaining lease term - finance leases

 

 

5.5 years

Weighted-average remaining lease term - operating leases

 

 

10.5 years

Weighted-average discount rate - finance leases

 

 

6.0% 

Weighted average discount rate - operating leases

 

 

6.1% 





Note 10. Debt



Short-Term Debt

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







 

 

 

 

 

 



 

March 31, 2019

 

December 31, 2018

Current maturities of debt (excluding finance leases)

 

$

4,074 

 

$

4,148 

Current maturities of finance leases

 

 

22,200 

 

 

 -

Total short-term debt

 

$

26,274 

 

$

4,148 



11

 


 

Long-Term Debt



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

 





 

 

 

 

 

 



 

March 31, 2019

 

December 31, 2018

Term Loan Credit Facility (net of discount of $1,315 and $1,653)

 

$

252,955 

 

$

303,521 

Amended Revolving Credit Facility

 

 

 -

 

 

 -

Other foreign subsidiary indebtedness

 

 

895 

 

 

1,044 

Debt issue costs

 

 

(6,906)

 

 

(5,960)

Total debt

 

 

246,944 

 

 

298,605 

Less: Current maturities of debt

 

 

(4,074)

 

 

(4,148)

Total long-term debt

 

$

242,870 

 

$

294,457 

 

Term Loan Credit Facility



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



On December 14, 2018, the Company amended the Third Term Loan Amendment by entering into a Consent and Amendment (the “Term Loan Agreement”). Per the Term Loan Agreement, the Company was required to prepay outstanding Loans (as defined in the Term Loan Agreement) in an aggregate principal amount of $50 million substantially simultaneously with the consummation of the sale of the Company’s European operations.



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



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



On July 27, 2018, the Company made a $50 million voluntary repayment on its Term Loan Credit Facility. In connection with this prepayment, the Company accelerated the amortization of the original issue discount and the associated debt issue costs by $1 million.



On March 4, 2019, in connection with the sale of the Company’s European operations, the Company made the $50 million repayment required per the Term Loan Agreement. In connection with this payment, the Company incurred consent and arranger fees of $1.2 million. In addition, the Company accelerated the amortization of the original issue discount and the associated debt issue costs by $0.9 million.



As of March 31, 2019, the outstanding principal balance of the Term Loan Credit Facility was $253 million (net of a $1.3 million original issue discount) and the effective interest rate was 5.25% per annum.

 

Amended Revolving Credit Facility



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



The Fourth Amended Revolving Credit Facility Agreement provides for a cash flow revolving credit facility in the aggregate amount of up to $200 million. The Fourth Amended Revolving Credit Facility Agreement also provides for the issuance of letters of credit in an aggregate amount not to exceed $30 million, provided that the total amount of credit (inclusive of revolving loans and letters of credit) extended under the Fourth

12

 


 

Amended Revolving Credit Facility Agreement is subject to an overall cap, on any date, of $200 million. The Company may request the issuance of Letters of Credit denominated in Dollars or Euros.

 

On December 14, 2018, the Company amended the Fourth Amended Revolving Credit Facility Agreement by entering into a Consent and Amendment (the “Revolver Amendment”), pursuant to which, among other things, substantially simultaneously with the consummation of the sale of the Company’s European operations, the expiration date for the Fourth Amended Revolving Credit Facility Agreement was extended from March 7, 2022 to March 7, 2023. On March 1, 2019, the amendment was consummated upon the sale of the Company’s European operations and the Company incurred consent and arranger fees of $1.1 million.



Advances under the Amended Revolving Credit Facility bear interest at an alternate base rate plus a base rate margin or LIBOR plus a Eurodollar margin. The applicable margins are determined by the Company’s Total Net Leverage Ratio (as defined in the Fourth Amended Revolving Credit Facility Agreement). As of March 31, 2019, the applicable margins were 2% per annum for LIBOR based borrowings and 1% per annum for base rate borrowings. The Company will pay a commitment fee at a rate equal to 0.50% per annum on the average daily unused total revolving credit commitment.

 

The Amended Revolving Credit Facility is guaranteed by the Company on an unsecured basis and is guaranteed by certain of the Company’s other direct and indirect domestic subsidiaries on a secured basis. The Amended Revolving Credit Facility is secured (i) by a first priority security interest in certain assets of the Borrower and the Subsidiary Guarantors, including accounts, inventory, chattel paper, cash, deposit accounts, securities accounts, machinery, equipment and real property and all contract rights, and records and proceeds relating to the foregoing and (ii) on a second priority basis to all other assets of the Borrower and the Subsidiary Guarantors. The 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 Revolving Credit Security Agreement dated as of March 17, 2017, among the Borrower, the guarantors party thereto, and the Agent.



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

 

As of March 31, 2019, there was $191.8 million of unutilized borrowing availability under the Amended Revolving Credit Facility. At that date, there were no borrowings and $8.2 million of letters of credit outstanding under the Amended Revolving Credit Facility.



Other Foreign Subsidiary Indebtedness

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

 

As of March 31, 2019, the Company’s Brazilian subsidiary had borrowings of $0.9 million (R$ 3.5 million), which have annual interest rates ranging from 5.50% to 8.70% and maturity dates ranging from November 2019 to July 2022. As of March 31, 2019, the weighted average interest rate on the borrowings in Brazil was 7.33% per annum. The loans are provided through bilateral agreements with two local banks and are secured by certain fixed and current assets. Periodic interest and principal payments are required.



Covenants

As of March 31, 2019, the Company was in compliance with the financial covenants that govern its credit agreements.



Debt Issue Costs

The Company had debt issuance costs, net of amortization, of $6.9 million and $6 million as of March 31, 2019 and December 31, 2018, respectively. These amounts are reflected in the Condensed Consolidated Balance Sheets as a direct deduction from long-term debt, net of current maturities.

 

The Company incurred interest expense related to the amortization of debt issue costs of $1 million and $0.3 million during the three months ended March 31, 2019 and 2018, respectively.



Note 11. Derivative Financial Instruments

 

The Company’s derivative financial instruments include interest rate and cross currency swaps. The Company does not enter into derivative financial instruments for trading or speculative purposes. On an on-going basis, the Company monitors counterparty credit ratings. The Company considers credit non-performance risk to be low because the Company enters into agreements with commercial institutions that have at least an S&P, or equivalent, investment grade credit rating.



As of December 31, 2018, the Company had outstanding a $186.1 million variable to fixed interest rate swap with a fixed interest rate of 5.878% per annum and a €178 million cross currency swap based on the U.S. dollar / Euro exchange spot rate of $1.2733 which was the prevailing rate at the time of the transaction. The maturity date for both swap instruments was March 7, 2024.



13

 


 

During the first quarter of 2019, the Company paid $28.6 million to terminate its fixed interest rate and cross currency swaps. For the fixed interest rate swap, the balance within accumulated other comprehensive income (“AOCI”) was frozen and will be recognized within interest expense over the remaining term of the hedged transaction. As of March 31, 2019, the Company had a cumulative balance of $2.1 million recorded in AOCI related to these interest rate swaps. During the three months ended March 31, 2019 and 2018, the Company recognized $0.2 million and $0.3 million, respectively, within interest expense. The amount previously being recognized related to a swap modification that occurred in August 2017.



As the Company’s European operations have been sold effective March 1, 2019, the entire accumulated gain within AOCI of $17.1 million, net of tax, related to the cross currency swap was recognized into earnings during the first quarter of 2019.



Also during the first quarter of 2019, the Company entered into a new $100 million variable rate to fixed rate interest rate swap for a portion of the Company’s Term Loan. The fair value of the swap will fluctuate with changes in interest rates. The fixed interest rate is 5.35% per annum and the swap has a maturity date of March 7, 2024. The interest rate swap qualifies as a cash flow hedge and is accounted for under FASB ASC No. 815, Derivatives and Hedging.



At March 31, 2019 and December 31, 2018, the following amounts were recorded in the Condensed Consolidated Balance Sheets as being payable to counterparties under FASB ASC No. 815 (in thousands):







 

 

 

 

 

 

 

 



 

Location

 

March 31, 2019

 

December 31, 2018

Cross currency swap

 

Other non-current liabilities

 

$

 -

 

$

19,903 

Interest rate swap

 

Other non-current liabilities

 

 

1,834 

 

 

5,034 



All derivative instruments are recorded at fair value. Effectiveness for net investment and cash flow hedges is initially assessed at the inception of the hedging relationship and on a quarterly basis thereafter. The change in fair value of the hedging instruments are recorded in other comprehensive income. The earnings effect of the hedged items is recorded in the Condensed Consolidated Statements of Operations as interest expense when the hedged item affects earnings. The interest rate swap qualifies as a cash flow hedge of the interest payments related to the Company’s Term Loan.



The following table presents the deferred gains / (losses) reported in AOCI at March 31, 2019 and December 31, 2018 (in thousands):





 

 

 

 

 

 



 

Deferred gain in AOCI



 

March 31, 2019

 

December 31, 2018

Cross currency swap

 

$

 -

 

$

21,099 

Interest rate swap

 

 

(3,932)

 

 

(1,546)

Total

 

$

(3,932)

 

$

19,553 



The following table presents the total amounts reported in interest expense in the Condensed Consolidated Statement of Operations and the effects of hedging on those line items:



 

 

 

 

 

 



 

 

Three Months Ended March 31,



 

2019

 

2018

Interest expense

 

$

5,640 

 

$

4,676 



 

 

 

 

 

 

Effect of hedging

 

 

(266)

 

 

(128)









Note 12. Income Taxes



During the three months ended March 31, 2019, the Company recorded income tax expense of $3.2 million on $10.9 million of pre-tax profit from continuing operations – for an effective tax rate of 29.5%.  Included in the $3.2 million of consolidated tax expense was $1 million of deferred tax expense attributable to U.S. operations.



During the three months ended March 31, 2018, the Company recorded income tax expense of $3.2 million on $19.7 million of pre-tax profit from continuing operations – for a consolidated effective tax rate of 16.4%. Included in the $3.2 million of consolidated tax expense was $2.9 million of deferred tax expense attributable to U.S. operations.

14

 


 





Note 13. Retirement Plans

 

The Company sponsors a pension and various other postretirement benefit plans for its employees. Each plan serves a defined group of employees and has varying levels of Company contributions. The Company’s contributions to certain plans may be required by the terms of the Company’s collective bargaining agreements. The components of net periodic benefit cost are included within net periodic benefit income on the Condensed Consolidated Statement of Operations.



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



 



 

 

 

 

 

 

 

 

 

 

 

 







 

 

 

 

 

 

 

 

 

 

 

 



 

Pension Benefits

 

Other Benefits



 

Three Months Ended March 31,

 

Three Months Ended March 31,



 

2019

 

2018

 

2019

 

2018

Service cost

 

$

 

$

 

$

 

$

Interest cost

 

 

2,000 

 

 

1,835 

 

 

138 

 

 

128 

Expected return on plan assets (a)

 

 

(2,182)

 

 

(2,537)

 

 

 -

 

 

 -

Amortization of prior service credit

 

 

(24)

 

 

(24)

 

 

33 

 

 

33 

Net periodic benefit cost / (income)

 

$

(203)

 

$

(721)

 

$

172 

 

$

163 



(a)Expected rate of return on plan assets is 7.40% for 2019 and was 7.40% for 2018

 

The Company expects its minimum pension funding requirements to be $5.9 million during 2019. During the three months ended March 31, 2019 and 2018, the Company made contributions of $1.2 million and $1.5 million, respectively.



Additionally, during the three months ended March 31, 2019 and 2018, the Company contributed $1.8 million and $1.6 million, respectively, to its defined contribution retirement plans.



Note 14. Stockholders’ Equity and Noncontrolling Interests



The table below provides a reconciliation of the carrying amount of total stockholders’ equity for the three months ended March 31, 2019 (dollars in thousands):

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 



 

Common

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

 



 

Stock

 

 

 

 

Paid in

 

Treasury

 

Retained

 

Comprehensive

 

 

 



 

Units/Shares