FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 001-13581
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NOBLE INTERNATIONAL, LTD.
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(Exact name of registrant as specified in its charter)
Delaware 38-3139487
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
20101 Hoover Road, Detroit, Michigan 48205
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(Address of principal executive offices)
(Zip Code)
(313) 245-5600
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
The number of shares of the registrant's common stock, $.001 par value,
outstanding as of September 30, 2001 was 6,587,551.
NOBLE INTERNATIONAL, LTD.
FORM 10-Q INDEX
This report contains "forward looking statements" within the meaning of Section
27A of the Securities Act of 1933 and is subject to the safe harbor created by
that section. Statements regarding future operating performance, new programs
expected to be launched and other future prospects and developments are based
upon current expectations and involve certain risks and uncertainties that could
cause actual results and developments to differ materially. Potential risks and
uncertainties include such factors as demand for the company's products,
pricing, the company's growth strategy, including its ability to consummate and
successfully integrate future acquisitions, industry cyclicality, fuel prices
and seasonality, the company's ability to continuously improve production
technologies, activities of competitors and other risks detailed in the
company's Annual Report on Form 10-K for the year ended December 31, 2000 and
other filings with the Securities and Exchange Commission.
Page
PART I - FINANCIAL INFORMATION....................................................................................3
Item 1. Financial Statements.....................................................................................3
Consolidated Balance Sheets as of September 30, 2001
(unaudited) and December 31, 2000........................................................................3
Consolidated Statements of Income (unaudited) for the
Three Month and Nine Month Periods Ended September 30, 2001 and 2000.....................................4
Consolidated Statements of Cash Flows (unaudited) for the
Nine Month Periods Ended September 30, 2001 and 2000.....................................................5
Consolidated Statements of Comprehensive Income (unaudited)
for the Three and Nine Month Periods Ended September 30, 2001 and 2000...................................6
Notes to Consolidated Interim Financial Statements.......................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................................................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................15
PART II - OTHER INFORMATION......................................................................................16
Item 1. Legal Proceedings......................................................................................16
Item 2. Changes in Securities and Use of Proceeds..............................................................16
Item 3. Defaults Upon Senior Securities........................................................................16
Item 4. Submission of Matters to a Vote of Security Holders....................................................16
Item 5. Other Information......................................................................................16
Item 6. Exhibits and Reports on Form 8-K.......................................................................16
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOBLE INTERNATIONAL, LTD.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2001 2000
------------------- ------------------
CURRENT ASSETS
Cash and cash equivalents $ 267 $ 1,091
Accounts receivable, trade 16,987 20,214
Inventories 5,831 8,185
Prepaid expenses and other assets 4,728 1,312
Income taxes currently refundable 235
Deferred income taxes 1,435 1,566
------------------- ------------------
Total Current Assets
29,483 32,368
PROPERTY, PLANT AND EQUIPMENT, NET
45,603 58,673
OTHER ASSETS
Goodwill - net 41,069 50,148
Covenants not to compete 1,205 1,389
Sundry 9,462 2,629
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Total Other Assets 51,736 54,166
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$ 126,822 $ 145,207
=================== ==================
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 47 $ 420
Accounts payable 13,099 12,180
Accrued liabilities 7,832 10,303
Income taxes payable 143
------------------- ------------------
Total Current Liabilities 20,978 23,046
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES 37,833 53,743
CONVERTIBLE SUBORDINATED DEBENTURES 17,214 16,252
JUNIOR SUBORDINATED NOTES 3,359 3,359
DEFERRED INCOME TAXES 2,271 3,230
PUTABLE COMMON STOCK 1,203 1,336
REDEEMABLE PREFERRED STOCK 288 400
STOCKHOLDERS' EQUITY
Preferred stock, $100 par value, 10% cumulative,
authorized 150,000 shares
Paid-in capital - warrants, $10 per common share exercise price, 90,000
warrants outstanding 121 121
Common stock, $.001 par value, authorized 20,000,000 shares, issued and
outstanding 6,609,019 and 6,902,629 shares in 2001 and 2000,
respectively 21,716 22,857
Retained earnings 22,363 21,217
Accumulated comprehensive loss (524) (354)
------------------- ------------------
43,676 43,841
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$ 126,822 $ 145,207
=================== ==================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
3
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- -----------------------------
2001 2000 2001 2000
----------------- ---------------- --------------- -----------
Net Sales
Products $ 19,380 $ 16,778 $ 49,842 $ 64,056
Services 15,838 9,542 45,471 10,599
----------------- ---------------- --------------- -------------
Total Sales 35,218 $ 26,320 95,313 $ 74,655
Cost of goods sold
Products 15,341 20,331 37,301 53,462
Services 12,468 35,630
----------------- ---------------- --------------- -------------
Total Cost of Sales 27,809 20,331 72,931 53,462
Gross Profit 7,409 5,989 22,382 21,193
Selling, general and
administrative expenses 6,524 4,640 17,173 12,399
----------------- ---------------- --------------- -------------
Operating income 885 1,349 5,209 8,794
(Loss) from unconsolidated affiliate 160 (50)
Other Income (expense)
Interest income 183 - 1,465 3
Interest expense (1,141) (764) (3,761) (1,691)
Sundry, net 1,132 153 1,652 136
----------------- ---------------- --------------- -------------
174 (611) (644) (1,552)
----------------- ---------------- --------------- -------------
Earnings from continuing operations before income taxes
and extraordinary item 1,219 738 4,515 7,242
Income tax expense (benefit) (509) 305 1,845 2,762
----------------- ---------------- --------------- -------------
Earnings from continuing operations before
extraordinary item 1,728 433 2,670 4,480
Preferred stock dividends 8 12 27 39
EARNINGS FROM CONTINUING OPERATIONS ON COMMON SHARES
BEFORE EXTRAORDINARY ITEM
----------------- ---------------- --------------- -------------
1,720 421 2,643 4,441
LOSS FROM DISCONTINUED OPERATIONS (115)
GAIN (LOSS) ON SALE OF DISCONTINUED OPERATIONS (1,158) 10,042
----------------- ---------------- --------------- -------------
EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM $ 1,720 $ (737) $ 2,643 $ 14,368
================= ================ =============== =============
EXTRAORDINARY ITEM - GAIN (LOSS) FROM EXTINGUISHMENT
OF DEBT $ 90 (304)
----------------- ---------------- --------------- -------------
EARNINGS (LOSS) ON COMMON SHARES $ 1,720 $ (647) $ 2,643 $ 14,064
================= ================ =============== =============
BASIC EARNINGS PER COMMON SHARE:
Earnings per common share from continuing operations $ 0.26 $ 0.06 $ 0.40 $ 0.62
before extraordinary item
----------------- ---------------- --------------- -------------
Earnings (loss) per common share -
discontinued operations - (0.16) - 1.38
----------------- ---------------- --------------- -------------
Extraordinary item - Gain (loss) from
extinguishment of debt - 0.01 - (0.04)
----------------- ---------------- --------------- -------------
Earnings (loss) per common share $ 0.26 $ (0.09) $ 0.40 $ 1.96
----------------- ---------------- --------------- -------------
Dividends declared and paid $ 0.075 $ 0.150 $ 0.075 $ 0.075
----------------- ---------------- --------------- -------------
EARNINGS ASSUMING DILUTION:
Earnings from continuing operations before
extraordinary item $ 1,720 $ 421 $ 2,643 $ 4,441
Loss from discontinued operations - - - (115)
Gain (loss) on sale of discontinued operations - (1,158) - 10,042
----------------- ---------------- --------------- -------------
Earnings (loss) before extraordinary item 1,720 (737) 2,643 14,368
Extraordinary item - Gain (loss) from
extinguishment of debt - 90 - (304)
----------------- ---------------- --------------- -------------
Earnings (loss) on common shares assuming dilution $ 1,720 $ (647) $ 2,643 $ 14,064
================= ================ =============== =============
4
EARNINGS (LOSS) PER COMMON SHARE - ASSUMING DILUTION:
Earnings per common share from continuing operations $ 0.26 $ 0.06 $ 0.40 $ 0.61
before extraordinary item
----------------- ---------------- --------------- -------------
Earnings (loss) per common share -
discontinued operations - (0.16) - 1.35
----------------- ---------------- --------------- -------------
Extraordinary item - Gain (loss) from
extinguishment of debt - 0.01 - (0.04)
----------------- ---------------- --------------- -------------
Earnings (loss) per common share $ 0.26 $ (0.09) $ 0.40 $ 1.92
----------------- ---------------- --------------- -------------
Basic weighted average common shares outstanding 6,605,988 7,128,866 6,632,073 7,177,772
----------------- ---------------- --------------- -------------
Diluted weighted average common shares and equivalents 6,652,323 7,223,501 6,656,789 7,327,368
----------------- ---------------- --------------- -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
NOBLE INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings from continuing operations before preferred stock dividends and $ 2,670 $ 4,176
extraordinary items
Adjustments to reconcile net earnings to
net cash provided by operations
Interest paid in kind 962 836
Loss from unconsolidated entity 50
Depreciation of property, plant and equipment 3,472 4,141
Amortization of goodwill 1,975 1,437
Deferred income taxes (958) 247
Gain on Sale of Property 221
Changes in operating assets and liabilities, net of business acquisition
Increase in accounts receivable (4,080) (3,371)
(Increase) decrease in inventories (3,372) (210)
(Increase) decrease in prepaid expenses (3,637) 82
(Increase) decrease in other assets 95 (872)
Increase (decrease) in accounts payable 6,216 (1,025)
(Decrease) increase in income taxes payable (1,668) 1,928
Increase (decrease) in accrued liabilities 679 (1,062)
------------------- ------------------
Net cash provided by continuing operations 2,625 6,307
Net cash used by discontinued operations (115)
Net cash from sale of discontinued operations 79,127
------------------- ------------------
Net cash provided by operations 2,625 85,319
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of Building 2,378
Purchase of property, plant and equipment (5,278) (8,793)
Investment in S.E.T -
S.E.T Receivable 24,734
Acquisitions of businesses (21,988)
Other Receivable (1,466)
------------------- ------------------
Net cash provided by (used in) investing activities 20,368 (30,781)
CASH FLOWS USED IN FINANCING ACTIVITIES
Repayments of notes payable - related parties (5,000)
Capital lease payments (58) 315
Redemption of common stock (1,274) (4,071)
Redemption of convertible subordinated debentures (6,225)
Dividends paid (1,524) (1,098)
Redemption of preferred stock of subsidiary (112) (75)
Payments on long-term debt (966) (611)
Net repayments on note payable to bank (19,713) (37,518)
------------------- ------------------
Net cash used in financing activities (23,647) (54,283)
Effect of exchange rate changes on cash (170) -
------------------- ------------------
Net increase (decrease) in cash (824) 255
Cash at beginning of period 1,091 254
------------------- ------------------
Cash at end of period $ 267 $ 509
=================== ==================
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for:
Interest $ 2,557 $ 1,875
=================== ==================
Taxes $ 1,569 $ 4,633
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
6
NOBLE INTERNATIONAL, LTD
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -----------------------------
2001 2000 2001 2000
------------ ------------ ------------- ------------
Net earnings (loss) $ 1,720 $ (647) $ 2,643 $ 14,064
Other comprehensive income (loss),
equity adjustment from foreign currency
translation $ (111) (48) (170) (103)
------------ ------------ ------------- ------------
Comprehensive income (loss) $ 1,609 $ (695) $ 2,473 $ 13,961
============ ============ ============= ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
7
NOBLE INTERNATIONAL, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, the financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and such
adjustments are of a normal recurring nature.
The accompanying consolidated interim financial statements as of and for the
nine months ended September 30, 2001 and for the year ended December 31, 2000,
include Noble International, Ltd. (the "Company") and its wholly-owned
subsidiaries Monroe Engineering Products, Inc. ("Monroe"), Skandy Corp.
("Skandy"), Utilase Production Process, Inc. ("UPP"), Noble Metal Forming, Inc.
("NMF"), Noble Metal Processing, Inc. ("NMP"), Noble Land Holdings, Inc. ("Land
Holdings"), Noble Components & Systems, Inc. ("NCS"), Noble Technologies, Inc.
("NTI"), Noble Metal Processing Canada, Inc. ("NMPC"), Noble Metal
Processing-Midwest, Inc. ("NMPM"), Noble Holdings, Ltd. ("NHL"), Noble Logistic
Holdings, Inc. (NLH) (formerly known as DSI Holdings, Inc.), Assured
Transportation & Delivery, Inc. ("ATD"), Central Transportation & Delivery, Inc.
("CTD"), and Noble Logistic Services, Inc. (NLS), (collectively, "Noble" or the
"Company"). All significant inter-company balances and transactions have been
eliminated in consolidation.
Discontinued operations include all of the companies previously classified as
the Company's plastics and coatings industry segment (Noble Component
Technologies, Inc., Cass River Coatings, Inc., Noble Canada, Inc., Noble Canada
Holdings, Ltd., Noble Canada Holdings II, Ltd., Noble Canada II, Inc., Tiercon
Coatings, Inc., and Tiercon Industries, Inc.). On December 24, 1999 the Company
executed a definitive agreement to sell these operations and the sale was
completed on January 11, 2000. Results of these operations are reported as
discontinued operations in the Consolidated Financial Statements for the periods
presented.
On February 16, 2001, the Company acquired a 49% interest in S.E.T. Steel, Inc.
("SET") for $3.0 million, the ("SET Acquisition"). SET is a Qualified Minority
Business Enterprise, providing automotive services to the original equipment
manufacturers ("OEMs"). Contemporaneously with the SET acquisition, the Company,
through its wholly owned subsidiary NTI, sold all of the capital stock of NMPM
and NMF to SET for $27.2 million (the "SET Sale"). On February 16, 2001, the
Company received a note for $27.2 million due June 14, 2001. On June 28, 2001,
SET completed the financing of its purchase of NMF and MNPM. The Company
received $24.7 million in cash and a $4.0 million, 12% subordinated note due in
2003, that is included in Sundry on the balance sheet. In addition, the Company
is guarantor of $10.0 million of SET's senior debt.
On March 12, 2001 the Company was awarded through binding arbitration, $0.6
million in connection with its previous acquisition of all of the assets of H&H
Steel Processing Company, Inc. and is included in Sundry income.
On June 8, 2001 the Company acquired a 51% interest in SCO Logistics, Inc.
("SCOL"). SCOL is a provider of logistics management services to the bulk
chemical industry.
During the quarter ending September 30, 2001, SET repurchased the Company's 49%
interest for $3.0 million. The Company received a $3.0 million, 12% subordinated
note due in 2003, also included in Sundry on the balance sheet.
Results for interim periods should not be considered indicative of results for a
full year. The December 31, 2000 consolidated balance sheet was derived from
audited financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America. For
8
further information, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
NOTE B--INVENTORIES
Inventories at September 30, 2001 and December 31, 2000 consisted of the
following (in thousands):
SEPTEMBER 30, DECEMBER 31,
2001 2000
---- ----
Raw materials and purchased parts $ 1,902 $ 2,615
Work in process 765 629
Finished goods 2,976 3,440
Unbilled customer tooling 188 1,501
----------------------- -------------------
$ 5,831 $ 8,185
======================= ===================
NOTE C--INDUSTRY SEGMENTS
The Company classifies its operating subsidiaries into three industry segments
based on types of products and services: automotive (NMP, NMPC, NMPM, NMF, UPP,
Skandy and Land Holdings), distribution (Monroe) and logistics (ATD, CTD, DSI,
NLS and SCOL). The automotive group provides a variety of laser welding, metal
blanking, forming, slitting, cutting and die construction products and services
utilizing proprietary laser weld and light die technology. The automotive group
sells direct to automotive OEM's and Tier I suppliers. The distribution group
distributes tooling components and paint gauges. The logistics group provides
customized, time sensitive delivery services to a variety of retail, medical and
service businesses, including automobile dealerships, pharmaceutical suppliers
and reprographic service providers.
Transactions between the automotive, distribution and logistics segments are not
significant and have been eliminated. Interest expense is allocated to each
segment based on the segments actual borrowings from the corporate headquarters,
together with a partial allocation of corporate general and administrative
expenses. Revenues from external customers are identified geographically based
on the customer's shipping destination.
The Company's operations by business segment for the three months ended
September 30, 2001 follows (in thousands):
SEGMENT
AUTOMOTIVE DISTRIBUTION LOGISTICS TOTALS
---------- ------------ --------- -------
Revenues from external customers $ 18,365 $ 1,015 $ 15,838 $ 35,218
Interest income - - - -
Interest expense 466 26 577 1,069
Depreciation and amortization 1,277 87 399 1,763
Segment profit (loss) pre tax 1,426 102 (424) 1,104
Segment assets 67,124 7,507 32,509 107,140
Expenditures for segment assets 1,048 13 21 1,082
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total earnings for reportable segments $ 1,104
Unallocated corporate headquarters expense 115
-----------
Earnings from continuing operations before income
taxes and extraordinary item $ 1,219
===========
9
ASSETS
Total assets for reportable segments $ 107,140
Corporate headquarters 19,682
-----------
Total consolidated assets $ 126,822
===========
OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
---------- ----------- ----------
Interest expense $ 1,069 $ 72 $ 1,141
Expenditures for segment assets 1,082 (194) 888
Depreciation and amortization 1,763 61 1,824
GEOGRAPHIC INFORMATION
LONG-LIVED
REVENUES ASSETS
---------- ----------
United States $ 31,067 $ 86,338
Canada 4,144 1,539
Mexico 2 -
Other 5 -
----------- ----------
Total $ 35,218 $ 87,877
=========== ==========
The Company's operations by business segment for the nine months ended
September 30, 2001 follows (in thousands):
SEGMENT
AUTOMOTIVE DISTRIBUTION LOGISTICS TOTALS
---------- ------------ --------- ------
Revenues from external customers $ 46,443 $ 3,399 $ 45,471 $ 95,313
Interest income - - - -
Interest expense 1,825 101 1,823 3,749
Depreciation and amortization 3,786 277 1,198 5,261
Segment profit (loss) pre tax 3,737 368 (1,829) 2,276
Segment assets 67,124 7,507 32,509 107,140
Expenditures for segment assets 5,337 71 59 5,467
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total earnings for reportable segments $ 2,276
Unallocated corporate headquarters expense 2,239
-----------
Earnings from continuing operations before income
taxes and extraordinary item $ 4,515
===========
ASSETS
Total assets for reportable segments $ 107,140
Corporate headquarters 19,682
-----------
Total consolidated assets $ 126,822
===========
10
OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
---------- ----------- ----------
Interest expense $ 3,749 $ 12 $ 3,761
Expenditures for segment assets 5,467 (189) 5,278
Depreciation and amortization 5,261 186 5,447
GEOGRAPHIC INFORMATION
LONG-LIVED
REVENUES ASSETS
---------- ----------
United States $ 86,055 $ 86,338
Canada 9,190 1,539
Mexico 11 -
Other 57 -
----------- ----------
Total $ 95,313 $ 87,877
=========== ==========
The Company's operations by business segment for the three months ended
September 30, 2000 follows (in thousands):
SEGMENT
AUTOMOTIVE DISTRIBUTION LOGISTICS TOTALS
---------- ------------ --------- ------
Revenues from external customers $ 17,894 $ 1,023 $ 7,403 $ 26,320
Interest income - - - -
Interest expense 1,472 22 424 1,918
Depreciation and amortization 1,711 78 266 2,055
Segment profit (loss) pre tax 87 215 (132) 170
Segment assets 2,039 60 32,019 34,118
Expenditures for segment assets 1,742 6 (7) 1,741
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total earnings for reportable segments $ 170
Unallocated corporate headquarters expense 568
----------
Earnings from continuing operations before income
taxes and extraordinary item $ 738
==========
ASSETS
Total assets for reportable segments $ 141,401
Corporate headquarters 2,268
----------
Total consolidated assets $ 143,669
==========
OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
---------- ----------- ----------
Interest expense $ 1,918 $ (1,154) $ 764
Expenditures for segment assets 1,741 (1) 1,740
Depreciation and amortization 2,055 (246) 1,809
11
GEOGRAPHIC INFORMATION
LONG-LIVED
REVENUES ASSETS
---------- ----------
United States $ (6,795) $ 106,211
Canada 2,580 3,197
Mexico 30,535 -
Other -
---------- ---------
Total $ 26,320 $ 109,408
========== =========
The Company's operations by business segment for the nine months ended
September 30, 2000 follows (in thousands):
SEGMENT
AUTOMOTIVE DISTRIBUTION LOGISTICS TOTALS
---------- ------------ --------- ------
Revenues from external customers $ 64,056 $ 3,196 $ 7,403 $ 74,655
Interest income - - - -
Interest expense 4,396 83 424 4,903
Depreciation and amortization 5,042 224 266 5,532
Segment profit (loss) pre tax 5,191 719 (132) 5,778
Segment assets 102,871 6,511 32,019 141,401
Expenditures for segment assets 8,795 35 (7) 8,823
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total earnings for reportable segments $ 5,778
Unallocated corporate headquarters expense 1,464
---------
Earnings from continuing operations before income
taxes and extraordinary item $ 7,242
=========
ASSETS
Total assets for reportable segments $ 141,401
Corporate headquarters 2,268
---------
Total consolidated assets $ 143,669
=========
OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
---------- ----------- ----------
Interest expense $ 4,903 $ (3,212) $ 1,691
Expenditures for segment assets 8,823 (30) 8,793
Depreciation and amortization 5,532 46 5,578
GEOGRAPHIC INFORMATION
LONG-LIVED
REVENUES ASSETS
---------- ----------
United States $ 32,369 $ 106,211
Canada 11,703 3,197
Mexico 30,583 -
Other -
----------- ---------
Total $ 74,655 $ 109,408
=========== =========
12
NOTE D - RESTRUCTURING RESERVE
The restructuring reserve of $3.9 million recorded in December 2000 was reduced
by $0.5 million in the first quarter due primarily to a change in estimate
regarding the holding period and carrying costs of some of the Company's real
estate. In the second quarter, the reserve was reduced an additional $0.27
million due to a change in estimate related to the loss anticipated in
connection with the imminent disposition of real estate. There were no changes
in estimate for the three-month period ending September 30, 2001.
NOTE E - ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued two new
pronouncements: Statement of Financial Accounting Standards ("SFAS") No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS 141 is effective as follows: a) use of the pooling-of-interest method is
prohibited for business combinations initiated after June 30, 2001; and b) the
provisions of SFAS 141 apply to all business combinations accounted for by the
purchase method that are completed after June 30, 2001 (that is, the date of the
acquisition is July 2001 or later). There are also transition provisions that
apply to business combinations completed before July 1, 2001, that were
accounted for by the purchase method. SFAS 142 is effective for fiscal years
beginning after December 15, 2001 and applies to all goodwill and other
intangible assets recognized in an entity's statement of financial position at
that date, regardless of when those assets were initially recognized. The
Company is currently evaluating the effects of these statements, however, the
Company has recorded amortization related to its goodwill and identifiable
intangible assets of $2.0 million for the nine months ended September 30, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES. Net sales for the three months ended September 30, 2001
increased 33.8% to $35.2 million from $26.3 million for the comparable quarter
of 2000. The increase was due primarily to increased volumes and steel sales in
the Company's automotive group and the inclusion of revenue due to the
acquisition of the Company's logistics group during the third quarter of 2000.
The automotive group experienced higher value-added sales due to increased
volumes resulting from additional platforms utilizing the groups laser-welding
technology. The automotive group has experienced increased steel sales. When
adjusted for the sales of NMF and NMPM earlier this year, net sales for the
automotive and distribution groups increased 123.8% to $19.4 million from $8.7
million for the same period in 2000. Without adjusting for the sales of NMF and
NMPM, the automotive and distribution groups net sales for the period increased
2.6% to $19.4 million as compared to $18.9 million in the same period in 2000.
The logistics group net sales for the period were $15.8 million as compared to
$7.4 million for the same period in 2000.
Net sales for the nine months ending September 30, 2001 increased 27.6% to $95.3
million from $74.7 million for the same period in 2000. The increase in sales
was primarily due to the acquisition of the Company's logistics group in the
third quarter of 2000 and, when adjusted for the sale of NMF and NMPM earlier
this year, to increased volumes and steel sales within the Company's automotive
group. The increased volumes and steel sales within the automotive group were
attributable to the increased penetration and acceptance of the group's laser
welding technology on additional platforms. When adjusted for the sale of NMF
and NMPM earlier this year net sales in the automotive and distribution groups
increased 55.3% to $46.5 million from $29.4 million during the same period in
2000. Without adjusting for the sale of NMF and NMPM the automotive and
distribution group's sales decreased 23.7% to $48.9 million from $64.1 million
for the same period in 2000. The logistics group revenue for the period was
$45.5 million as compared to $7.4 million for the same period in 2000.
13
COST OF GOODS SOLD. As a percent of net sales, cost of goods sold for
the three-month period ended September 30, 2001 increased to 79.0% as compared
with 77.3% for the same period in 2000. The increase in cost of goods sold as a
percent of net sales was primarily due to the inclusion of the logistics group
as this business has higher cost of goods sold and an increase in steel sales in
the automotive group. When adjusted for the sales of NMF and NMPM earlier this
year, the cost of goods sold for the automotive and distribution groups, as a
percentage of sales, increased to 79.2% from 75.1%. This was primarily due to
increased steel sales that have higher cost of goods sold than value added
revenue. Without adjusting for the sale of NMF and NMPM, the cost of goods sold,
as a percentage of sales, for the automotive and distribution groups increased
to 79.2% from 77.7%. The logistics group had cost of sales of 78.7% as compared
to 76.1% for the same period in 2000.
For the nine-months ended September 30, 2001, cost of goods sold increased to
76.5% from 71.6% for the same period in 2000. This increase was primarily the
result of the inclusion of the logistics group as this business has higher cost
of goods sold and to an increase in steel sales in the automotive group. When
adjusted for the sale of NMF and NMPM earlier this year, cost of goods sold for
the automotive and distribution groups increased to 73.8% from, 61.8% for the
same period in 2000. This change was primarily due to increased steel sales that
have higher cost of good sold than value added revenue. Without adjusting for
the sale of NMF and NMPM earlier this year, cost of goods sold in the automotive
and distribution groups, as a percentage of net sales, increased to 73.8% from
71.1% for the same period in 2000. The logistics group's cost of sales, as
percent of net sales, was 78.4% as compared to 76.1% for the same period in
2000.
GROSS PROFIT. The Company's gross profit increased 23.7% to $7.4
million for the three months ended September 30, 2001 from $6.0 million for the
comparable period of 2000. The increase was primarily the result of the
acquisition of the logistics group in 2000 and increased volumes within the
automotive group. When adjusted for the sale of NMF and NMPM earlier this year,
gross profit in the automotive and distribution groups increased 87.3% to $4.0
million from $2.2 million for the same period in 2000. Without adjusting for the
sale of NMF and NMPM earlier this year, gross profit decreased 10.7% to $4.0
million from $4.5 million for the same period in 2000. The logistic group's
gross profit was $3.4 million in the period as compared to $1.8 million for the
same period in 2000.
For the nine month period ended September 30, 2001 gross profit increased 5.6%
to $22.4 million from $21.2 million for the same period in 2000. The increase
was primarily the result of the inclusion of the logistics group, offset by
lower volumes within the automotive group earlier this year and the sale of NMF
and NMPM. When adjusted for the sale of NMF and NMPM earlier this year, gross
profit in the automotive and distribution groups decreased 0.7% to $12.5 million
from $12.6 million. Without adjusting for the sale of NMF and NMPM earlier this
year, gross profit in the automotive and distribution groups decreased 35.5 % to
$12.5 million from $19.4 million. The logistics group's gross profit was $9.8
million as compared to $1.8 million for the same period in 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.9 million, or 41.1% to $6.5 million for
the three-month period ended September 30, 2001 as compared to the comparable
period of 2000. For the nine-month period ended September 30, 2001, selling,
general and administrative expenses increased $4.8 million to $17.2 million from
$12.4 million. The increase in selling, general and administrative expenses for
the three and nine month periods was due primarily to the inclusion of the
Company's logistics group that was acquired in the third quarter of 2000,
partially offset by a reduction in expenses due to the sale of NMF and NMPM in
February 2001 and a second quarter change in estimate for local taxes totaling
$0.4 million.
OPERATING INCOME. As a result of the foregoing factors, operating
income decreased $0.5 million for the three-month period ended September 30,
2001 to $0.9 million from $1.3 million for the same period in 2000, a decrease
of 36.2%. For the nine-month period, operating income decreased $3.6 million to
$5.2 million from $8.8 million for the comparative nine-month period in 2000, a
decrease of 41.1%.
INTEREST EXPENSE. Interest expense increased 49.3% to $1.1 million for
the three months ended September 30, 2001 from $0.8 million for the comparable
quarter of the prior year. For the nine month
14
period ended September 30, 2001, interest expense increased 122.4% to $3.8
million from $1.7 million for the same period in 2000. The increase for the
three month and nine month periods was primarily the result of increased
borrowings due to the acquisition of the logistics group during the third
quarter of 2000, the temporary financing of the sale of NMPM and NMF during the
first and second quarters and investments in property, plant and equipment.
OTHER INCOME. During the three month period ending September 30, 2000
the Company recorded $1.0 million of income related to the arrangement of
financing for SET in connection with its purchase of NMF and NMPM earlier this
year.
INCOME TAX EXPENSE. During the three-month period ended September 30,
2001 the Company recorded an income tax benefit of $0.5 million as compared to
an income tax expense of $0.3 million for the same period in 2000. The benefit
was the result of tax strategies implemented during the period that resulted in
a $1.1 million benefit for 2001. Without this benefit income tax expense would
have been $.6 million. Income tax expense for the nine months ended September
30, 2001 decreased $0.9 million to $1.8 million from $2.8 million for the same
period in the prior year. The nine-month period in 2001 includes a one-time
income tax expense of $1.1 million due to the difference between the book and
tax basis resulting from the sale of NMF and NMPM in February 2001. This was
offset by the tax strategies implemented in the third quarter of 2001 that
reduced tax expense by $1.1 million.
NET EARNINGS. As a result of the foregoing factors, net earnings from
continuing operations for the three-month period ended September 30, 2001
increased $1.3 million to $1.7 million from $0.4 million for the comparable
period of the prior year. Net earnings for the nine-month period ended September
30, 2001 decreased $1.8 million to $2.6 million from $4.5 million for the same
period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements have historically been satisfied
through a combination of cash flow from operations, equipment financing, bank
financing and loans from stockholders. The Company's working capital needs and
capital equipment requirements have increased as a result of the growth of the
Company and are expected to continue to increase as a result of anticipated
growth. The anticipated increase in required working capital and capital
equipment requirements are expected to be met from cash flow from operations,
equipment financing and revolving credit borrowings. As of September 30, 2001,
the Company had working capital of approximately $8.5 million.
The Company generated cash from continuing operations of $2.4 million
for the nine months ended September 30, 2001. Net cash provided by continuing
operations was primarily the result of net income, increased accounts payable,
depreciation, amortization, interest paid in kind and decreased income taxes
payable, partially offset by deferred income taxes and accrued liabilities, and
increased accounts receivable, inventories, prepaid expenses. Cash provided by
investing activities of $20.6 million for the nine months ended September 30,
2001 was primarily due to the receipt of $24.7 million related to the sale of
NMF and NMPM to SET earlier in the year. This was partially offset by the
purchase of property, plant and equipment and the Company's loans to SET. The
Company used cash in financing activities of $23.6 million for the nine months
ended September 30, 2001 primarily for the reduction of senior debt.
The amount of the Company's revolving credit facility with Comerica
Bank (the "Credit Facility") was $55 million at December 31, 2000, subsequently
amended to a $75 million facility. On June 30, 2001, the Credit Facility was
reduced to $50.0 million in connection with the collection of $24.7 million
related to the sale of NMF and NMPM earlier in the year. The Credit Facility
expires in May 2002, is secured by the assets of Noble and its subsidiaries and
provides for the issuance of up to $5 million in standby or documentary letters
of credit. Management believes the Credit Facility will be renewed on
substantially the same terms and therefore, continues to classify this
obligation as long-term debt. The Credit Facility may be utilized for general
corporate purposes, including working capital and acquisition financing, and
provides the Company with borrowing options for multi-currency loans. Borrowing
options include a euro-currency rate or a base rate. Advances under the Credit
Facility during
15
the nine months ended September 2001 bore interest at the rate of approximately
6.19% per annum. The Credit Facility is subject to customary financial and other
covenants including, but not limited to, limitations on payment of dividends,
limitations on consolidations, mergers, and sales of assets, and bank approval
on acquisitions over $25 million. The Company is in compliance with the terms of
the Credit Facility.
On February 16, 2001, the Company received a $27.2 million note in
connection with the SET Sale, due June 14, 2001. On June 28, 2001, the Company
received $24.7 million in cash and a $4.0 million, 12% subordinated note due in
2003. During the third quarter, SET repurchased the Company's 49% interest for
$3.0 million. The Company received a $3.0 million, 12% subordinated note due
2003. In addition, the Company is guarantor of $10.0 million of the SET's senior
debt obligations. The subordinated notes are classified in Sundry on the
Company's balance sheet.
The liquidity provided by the Company's credit facilities is expected
to be sufficient to meet the Company's currently anticipated working capital and
capital expenditure needs for at least 12 months. There can be no assurance,
however, that such funds will not be expended prior thereto due to changes in
economic conditions or other unforeseen circumstances, requiring the Company to
obtain additional financing prior to the end of such 12 month period. In
addition, the Company regularly reviews, as part of its business strategy,
future growth through opportunistic acquisitions which may involve the
expenditure of significant funds. Depending upon the nature, size and timing of
future acquisitions, if any, the Company may be required to obtain additional
debt or equity financing in connection with such future acquisitions. There can
be no assurance, however, that additional financing will be available to the
Company, when and if needed, on acceptable terms or at all.
INFLATION
Inflation generally affects the Company by increasing the interest
expense of floating rate indebtedness and by increasing the cost of labor,
equipment and raw materials. The Company does not believe that inflation has had
a material effect on its business over the past two years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of foreign currency fluctuations.
International revenues from the Company's foreign subsidiaries were
approximately 9.7% of the total revenues for the nine months ended September 30
2001. The Company's primary foreign currency exposure is the Canadian Dollar.
The Company manages its exposures to foreign currency assets and earnings
primarily by funding certain foreign currency denominated assets with
liabilities in the same currency and, as such, certain exposures are naturally
offset.
A portion of the Company's assets are based in its foreign operations
and are translated into U.S. Dollars at foreign currency exchange rates in
effect as of the end of each period, with the effect of such translation
reflected as a separate component of stockholders' equity. Accordingly, the
Company's consolidated stockholders' equity will fluctuate depending on the
weakening or strengthening of the U.S. Dollar against the respective foreign
currency.
The Company's financial results are affected by changes in U.S. and
foreign interest rates. The Company does not hold financial instruments that are
subject to market risk (interest rate risk and foreign exchange risk).
16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Inapplicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Inapplicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
ITEM 5. OTHER INFORMATION
Inapplicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports of Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOBLE INTERNATIONAL, LTD.
Dated: November 14, 2001 By: /s/ David V. Harper
------------------------------------
David V. Harper,
Chief Financial Officer
17