We Will Keep You Informed of Changes to These Key Issues

Tower Automotive

Overview

In our opinion, a decision to buy or not to buy Tower Automotive should depend primarily upon your expectation of cost cutting/capital spending controls, new business potential and leverage issues. We believe that at this point in time, the company will control its capital spending, $1B of new business may occur in the next three years, and leverage will remain too high.

We will keep you informed of changes to these key issues.

Tower Automotive is a Michigan-based company that is a leading supplier of chassis and suspension systems.

There are three major fundamental issues that research analysts identify as being critical in their view of the company and its investment attractiveness:

1)The first is the potential to cut costs and control capital spending. We believe that at this point in time, the company will control its capital spending aggressively and cut costs.

2)The second is new business wins. We believe there will be $1B of new business in the next three years. This should ensure a 4% growth rate through 2007.

3)The third is leverage. The company’s debt/capital at 72% is too high. We expect it to remain this high for the near future.

• Rising growth rate

• High leverage

• Cutting costs

• Cutting capital spending

One analyst has a positive rating. This analyst believes that there will be falling launch costs and rising revenue growth. Three analysts have a neutral rating on the stock. They believe that there will be improving operations and rising revenue growth. Two analysts have a negative rating on the stock.

Sales

Detailed summaries of analyst sales, margin and earnings estimates on an annual basis by segment are provided in an accompanying excel spreadsheet.

Tower Automotive, Inc. designs and produces engineered metal stampings and assemblies used by original equipment manufacturers (OEMs) in the automotive industry. The company’s products range from engineered mechanical parts, such as hood and deck lid hinges and brake components, to large

structural stampings and assemblies, such as frames, axles, floor pan components, and others.

Tower Automotive, Inc. (TWR) is a specialist in metal stampings and engineered assemblies. The

company’s product portfolio includes body pillars, full frame assemblies, chassis, brake parts, and

suspension links. Tower also makes truck frames, axles, and related components. The company’s largest

customers include Ford Motor (38% of sales), DaimlerChrysler (22%), and General Motors (8%). Tower

owns Metalsa, one of Mexico's largest suppliers of auto frames and structures, and all of Brazil's

Metalurgica Caterina, a supplier of structural assemblies and stampings. Approximately 71% of TWR’s

revenue is generated in North America, with 15% coming from Europe, 13% from Asia, and 1% from

South America. Tower Automotive has grown by acquiring complementary businesses that have allowed

the company to become one of the largest global suppliers of structural metal components and

assemblies. However, the company currently focuses on internal initiatives for growth.

Analyst sales estimates for Tower Automotive in FY 2004 range from $3.03 billion to $3.42 billion. The analyst at the upper-end believes there will be $1B of new business in the next three years.

The following are the digest average projections for total revenues:

(Figures in $Million)

Margins

Detailed summaries of analyst margins, on an annual basis by segment are provided in an accompanying excel spreadsheet.

The following are the projections of our digest group regarding the coming years.

Earnings Per Share

The most recent consensus for Tower Automotive in FY 2004 is $0.27 and in FY 2005 is $0.77. The range for 2004 is $0.10 on the low-end (Credit Lyonnais) to $0.40 on the high-end (MSDW). 2005 earnings range from $0.50 (JP Morgan) to $1.00 (RW Baird). The analysts at the low-end are concerned about operational problems.

Target Price/Valuation

Target prices for Tower Automotive range from $2 to $11, with an average of $5.00. The analyst with the lowest price target (Lehman) believes that the stock should be valued at 5.6X 2004 EBITDA. The analyst with the highest price target (RW Baird) believes thee stock should be valued at 5X 2005 EBITDA.

Key Events and Dates

None

Long-Term Growth

Growth in the auto industry is likely to be stagnant due to weak demand and pricing.

Demand is stagnant, as this is a mature sector. Demand for autos varies between (5)% and 5%, and is currently near (3)%. In 2004, we expect growth to be 1% due to a slowly improving economy. Lower interest rates are making cars more affordable, and this is helping growth. This sector is facing competition from imports, which now make up 37% of the U.S. market. This number is up from 22% at the beginning of the 1980s.

Pricing averages (2)% in this sector. This is due to pressure from OEM manufacturers to lower prices, along with little pricing power at the retail level. Incentives are up about $1,500-2000 from last year’s levels as the industry is trying to increase sales. Overcapacity is about 20% in this sector, and transplants in the U.S are adding capacity.

The only way to get pricing power is from improved mix. This occurs from the shift to SUV’s and trucks, and away from cars. The SUV and truck sector may begin to suffer pricing pressure in about 5 years. Option packages that include safety features also have led to pricing power due to a perceived increased in value.

Individual Analyst Opinions

POSITIVE RATINGS

R.W. Baird – The stock is rated outperform with a target of $11. This is 5X 2005 EBITDA. There is falling launch costs and rising revenue growth. An equity offering and free cash flow should make the balance sheet average by 2004. Cost cutting and lower capital spending should drive returns higher. There is $1B of new business in the next three years.

NEUTRAL RATINGS

MSDW – The stock is rated equal weight.

J.P Morgan – The stock is rated neutral. The company faces liquidity and execution risks in the near-term. The company has upside if it can execute on its $900M backlog.

Bank of America – The stock is rated neutral with a target of $4. This is 5X 2004 EBITDA. The new CEO is focused on getting capital spending under control, but business conditions could deteriorate further. The company is better utilizing its assets and selling non-core businesses.

NEGATIVE RATINGS

CSFB – The stock is rated sell. The early stages of the turnaround will be rocky, and investors should wait until positive cash flows materialize.

Lehman – The stock is rated under weight with a target of $2. This is 5.6X 2004 EBITDA. The company should navigate the current liquidity crunch, but operations have not turned the corner. There may be several restructuring charges in the next few quarters.