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 June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- ------------------
Commission File Number: 001-13581
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NOBLE INTERNATIONAL, LTD.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3139487
-------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
28213 Van Dyke Road, Warren, MI 48093
---------------------------------------
(Address of principal executive offices)
(Zip Code)
(586) 751-5600
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 August 13, 2002 was 6,790,387.
1
NOBLE INTERNATIONAL, LTD.
FORM 10-Q INDEX
This report contains statements (including certain projections and business
trends) accompanied by such phrases as "assumes," "anticipates," "believes,"
"expects," "estimates," "projects," "will" and other similar expressions, that
are "forward looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. 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, 2001
and other filings with the Securities and Exchange Commission. These forward
looking statements are made only as of the date hereof.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION...........................................................................3
ITEM 1: FINANCIAL STATEMENTS.........................................................................3
Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001..................3
Consolidated Statements of Income (unaudited) for the Three and Six Month Periods
Ended June 30, 2002 and 2001.......................................................................4
Consolidated Statements of Cash Flows (unaudited) for the Six Month Periods Ended
June 30, 2002 and 2001.............................................................................5
Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six
Month Periods Ended June 30, 2002 and 2001.........................................................6
Notes to Consolidated Interim Financial Statements.................................................7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......14
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..................................16
PART II - OTHER INFORMATION.............................................................................18
ITEM 1: LEGAL PROCEEDINGS...........................................................................18
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS...................................................18
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.............................................................18
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........................................18
ITEM 5: OTHER INFORMATION...........................................................................18
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K............................................................18
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
NOBLE INTERNATIONAL, LTD.
CONSOLIDATED
BALANCE SHEETS
(In thousands)
JUNE 30, DECEMBER 31,
2002 2001
----------- -----------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 666 $ 943
Accounts receivable, trade - net 34,244 32,556
Inventories 20,791 20,495
Prepaid expenses and other assets 5,019 3,200
Deferred income taxes 506 506
--------- ---------
61,226 57,700
PROPERTY, PLANT AND EQUIPMENT, NET 46,617 46,989
OTHER ASSETS
Goodwill 40,755 40,755
Covenants not to compete 1,013 1,139
Other 10,878 10,356
--------- ---------
52,646 52,250
--------- ---------
Total assets $ 160,489 $ 156,939
========= =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 256 $ 51,035
Accounts payable 23,220 21,231
Accrued liabilities 7,885 12,823
Income taxes payable 1,755 -
--------- ---------
33,116 85,089
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES 54,092 809
CONVERTIBLE SUBORDINATED DEBENTURES 16,109 16,110
JUNIOR SUBORDINATED NOTES 3,454 3,439
DEFERRED INCOME TAXES 2,658 2,658
PUTABLE COMMON STOCK - 1,203
REDEEMABLE PREFERRED STOCK - 250
STOCKHOLDERS' EQUITY
Preferred stock, $100 par value,
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 7,627,400 and 7,519,186
shares in 2002 and 2001, respectively 23,953 22,871
Retained earnings 27,335 24,857
Accumulated comprehensive loss (349) (468)
--------- ---------
Total stockholders' equity 51,060 47,381
--------- ---------
Total liabilities and stockholders' equity $ 160,489 $ 156,939
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
3
NOBLE INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except for per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net sales
Products $ 43,801 $ 17,317 $ 82,703 $ 30,462
Services 16,906 15,255 32,998 29,633
----------- ----------- ----------- -----------
Total net sales 60,707 32,572 115,701 60,095
Cost of sales
Products 36,405 12,752 69,329 21,960
Services 13,631 11,882 26,375 23,162
----------- ----------- ----------- -----------
Total cost of sales 50,036 24,634 95,704 45,122
Gross margin 10,671 7,938 19,997 14,973
Selling, general and
administrative expenses 6,873 5,235 13,086 10,649
----------- ----------- ----------- -----------
Operating profit 3,798 2,703 6,911 4,324
Loss from unconsolidated affiliate - (260) - (210)
Other income (expense)
Interest income 232 768 476 1,282
Interest expense (702) (1,415) (1,520) (2,620)
Other, net (183) 5 (183) 520
----------- ----------- ----------- -----------
(653) (642) (1,227) (818)
----------- ----------- ----------- -----------
Earnings before income taxes 3,145 1,801 5,684 3,296
Income tax expense 1,188 682 2,107 2,354
----------- ----------- ----------- -----------
Earnings before preferred stock dividends 1,957 1,119 3,577 942
Preferred stock dividends - - 10 19
----------- ----------- ----------- -----------
NET EARNINGS ON COMMON SHARES $ 1,957 $ 1,119 $ 3,567 $ 923
=========== =========== =========== ===========
BASIC EARNINGS PER COMMON SHARE $ 0.29 $ 0.17 $ 0.53 $ 0.14
DILUTED EARNINGS PER COMMON SHARE $ 0.28 $ 0.17 $ 0.51 $ 0.14
DIVIDENDS PER SHARE DECLARED AND PAID $ 0.08 $ 0.075 $ 0.16 $ 0.15
Basic weighted average common shares outstanding 6,773,880 6,609,455 6,740,327 6,634,571
Diluted weighted average common shares outstanding 7,019,985 6,640,896 6,968,549 6,665,137
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
NOBLE INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
SIX MONTHS ENDED
JUNE 30,
--------------------
2002 2001
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 3,577 $ 942
Adjustments to reconcile net earnings to
net cash provided by operations
Interest paid in kind - 475
Loss from unconsolidated entity - 210
Depreciation of property, plant and equipment 2,851 2,290
Amortization of intangible assets 333 1,333
Deferred income taxes - (958)
Gain on sale of property (35) -
Changes in operating assets and liabilities
Increase in accounts receivable (1,688) (3,629)
Increase in inventories (296) (2,183)
Increase in prepaid expenses (1,819) (303)
Increase in other assets (176) (161)
Increase in accounts payable 1,989 2,684
Increase (decrease) in income taxes payable 1,755 (815)
Increase (decrease) in accrued liabilities (4,938) 1,475
-------- --------
Net cash provided by operating activities 1,553 1,360
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (9,368) (4,381)
Proceeds from sale of property, plant and equipment 6,924 -
Long-term investments (538) (3,000)
S.E.T. Industrities, Inc. Receivable - 24,734
Increase in other long term assets - (1,461)
-------- --------
Net cash provided (used in) investing activities (2,982) 15,892
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of common stock (121) (1,055)
Capital lease payments (48) (39)
Redemption of convertible subordinated debentures (1) -
Dividends paid (1,083) (1,024)
Redemption of preferred stock of subsidiary (260) (75)
Payments on long-term debt (125) (150)
Net borrowings (repayments) on note payable to bank 2,677 (15,488)
-------- --------
Net cash provided by (used in) financing activities 1,039 (17,831)
Effect of exchange rate changes on cash 113 (59)
-------- --------
Net decrease in cash (277) (638)
Cash at beginning of period 943 1,091
-------- --------
Cash at end of period $ 666 $ 453
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for:
Interest $ 1,417 $ 1,473
======== ========
Taxes $ - $ 1,351
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
NOBLE INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2002 2001 2002 2001
-------- ------ ------ -------
Net earnings $1,957 $1,119 $3,567 $ 923
Other comprehensive income (loss), equity adjustment
from foreign currency translation, net of tax $ 362 $ 92 $ 119 (59)
------ ------ ------ ------
Comprehensive income, net of tax $2,319 $1,211 $3,686 $ 864
====== ====== ====== ======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
6
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 financial statements as of June 30, 2002 and for
the year ended December 31, 2001, include Noble International, Ltd. and its
wholly-owned subsidiaries, Noble Component Technologies ("NCT"); Monroe
Engineering Products, Inc. ("Monroe"), Skandy Corp. ("Skandy"), Noble Metal
Forming, Inc. ("NMF"), Noble Metal Processing, Inc. ("NMP"), Noble Land
Holdings, Inc. ("Land Holdings"), Noble Metal Processing-Midwest, Inc. (formerly
H&H Steel Processing, Inc.) ("NMPM"), Noble Manufacturing Group, Inc. ("NMG"),
(formerly Noble Technologies, Inc.), Noble Metal Processing Canada, Inc.
("NMPC"), Noble Metal Processing - Kentucky, LLC ("NMPK"), Noble Logistic
Services, Inc. ("NLS"), Noble Logistic Services, Inc. (formerly Assured
Transportation & Delivery, Inc. and Central Transportation & Delivery, Inc.,
collectively "NLS-CA"), Noble Logistic Services, Inc. (formerly Dedicated
Services, Inc.) ("NLS-TX"), Pro Motorcar Products, Inc. ("PMP"), Pro Motorcar
Distribution, Inc. ("PMD") and Noble Construction Equipment, Inc. ("NCE")
(formerly Construction Equipment Direct, Inc. ("CED")), (collectively, "Noble"
or the "Company") from the date of acquisition to the date of disposition, if
applicable.
Results for interim periods should not be considered indicative of results for a
full year. The December 31, 2001 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
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, 2001.
In February 2002, the market price requirement of 107,452 shares of the
Company's putable common stock that was issued in connection with the
acquisition of Dedicated Services, Inc. in 2000 was met, resulting in the put
option expiring. Therefore, the common stock was reclassified from long-term
debt to stockholders' equity.
On April 1, 2002, the Company converted its $7.6 million note receivable,
including interest, from SET Enterprises, Inc. ("SET") into preferred stock of
SET. The preferred stock is non-voting and is redeemable at the Company's option
in 2007. The Company agreed to convert the subordinated promissory note to
preferred stock in order to assist SET in obtaining capital without appreciably
decreasing the Company's repayment rights or jeopardize SET's minority status.
Management believes that continued support of SET furthers the joint strategic
objectives of the two companies.
On April 22, 2002, the Company completed a sale and leaseback transaction of its
Shelbyville, KY facility to the Company's Chief Executive Officer. The sale
price was $6.2 million which was equal to the book value of the property. The
proceeds of the transaction were used to reduce the Company's debt under its
current credit facility. The lease has a term of five years and provides for
monthly rent of $70,000. The sale price and rent amount were determined by the
estimated fair value of the property and estimated prevailing lease rates for
similar properties. Although the
7
Company did not obtain an independent valuation of the property or the terms of
the transaction, it believes the terms of the sale and leaseback were at least
as favorable to Noble as terms that could have been obtained from an
unaffiliated third party.
On May 9, 2002 the Company's current credit facility was increased to $60.0
million from $52.5 million. The credit facility expires in September 2002. The
Company has a binding commitment from its lender on a new $60.0 million credit
facility that will take effect in September 2002 and will expire in 2005.
Therefore, the Company has reclassified its current credit facility from current
liabilities to long-term liabilities.
On June 20, 2002 the Company filed a registration statement on Form S-2
concerning an offering of 3.5 million shares of its common stock. As of the date
of this report, the registration statement has not been declared effective by
the Securities and Exchange Commission.
Basic earnings per share are based upon the weighted average number of shares
outstanding during each quarter. Diluted earnings per share assumes the exercise
of common stock options and warrants when dilutive and the impact of restricted
stock.
NOTE B--INVENTORIES
Inventories on June 30, 2002 and December 31, 2001 consisted of the following
(in thousands):
June 30, 2002 December 31, 2001
------------- -----------------
Raw materials and purchased parts $15,756 $14,047
Work in process 1,828 2,367
Finished goods 3,207 3,906
Unbilled customer tooling - 175
------- -------
$20,791 $20,495
======= =======
NOTE C--INDUSTRY SEGMENTS
The Company classifies its operations into three industry segments based on
types of products and services: automotive (NMPK, NMPC, NMP, NMPM, NMF and Land
Holdings), heavy equipment (NCE) and logistics (NLS-TX, NLS-CA, Monroe, PMP and
PMD). The automotive group provides a variety of laser welding, metal blanking
and die construction products and services utilizing proprietary laser weld and
light die technology. The heavy equipment group designs and manufactures sub
assemblies and final assemblies of heavy equipment used primarily in the
construction industry. The logistics group provides same day package delivery
services to a variety of customers and sells tooling components, paint and
coatings related products to end users as well as distributors. The automotive
group sells direct to automotive OEMs and Tier I suppliers. The heavy equipment
group sells direct to OEMs and through an established network of dealers.
Transactions between the automotive, heavy equipment and logistics segments are
not significant and have been eliminated in the statements. Interest expense is
allocated to each segment based on the segment's 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.
8
The Company's operations by business segment and geography for three months
ended June 30, 2002 follow (in thousands):
HEAVY SEGMENT
AUTOMOTIVE EQUIPMENT LOGISTICS TOTALS
-----------------------------------------------
Revenues from external customers $ 30,072 $ 12,572 $ 18,063 $ 60,707
Interest expense 463 117 487 1,067
Depreciation and amortization 1,436 - 68 1,504
Segment profit pre tax 2,780 643 7 3,430
Segment assets 91,107 20,479 40,146 151,732
Expenditures for segment assets 6,081 122 74 6,277
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total earnings for reportable segments $ 3,430
Unallocated corporate headquarters loss (285)
---------
Earnings before income taxes $ 3,145
=========
ASSETS
Total assets for reportable segments $ 151,732
Corporate headquarters 8,757
---------
Total consolidated assets $ 160,489
=========
OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
------ ----------- ------------
Interest expense $1,067 $ (365) $ 702
Expenditures for segment assets 6,277 45 6,322
Depreciation and amortization 1,504 60 1,564
GEOGRAPHIC INFORMATION
LONG-LIVED
REVENUES ASSETS
-------- ----------
United States $49,171 $86,828
Canada 11,509 1,557
Other 27 -
------- -------
Total $60,707 $88,385
======= =======
9
The Company's operations by business segment and geography for the three months
ended June 30, 2001 follow (in thousands):
HEAVY SEGMENT
AUTOMOTIVE EQUIPMENT LOGISTICS TOTALS
-----------------------------------------------
Revenues from external customers $ 16,162 $ - $ 16,410 $ 32,572
Interest expense 574 - 629 1,203
Depreciation and amortization 1,369 - 721 2,090
Segment profit (loss) pre tax 1,780 - (395) 1,385
Segment assets 62,730 - 40,278 103,008
Expenditures for segment assets 3,076 - 28 3,104
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total earnings for reportable segments $ 1,385
Unallocated corporate headquarters income 416
--------
Earnings before income taxes $ 1,801
========
ASSETS
Total assets for reportable segments $103,008
Corporate headquarters 21,176
--------
Total consolidated assets $124,184
========
OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
------ ----------- ------------
Interest expense $1,203 $ 212 $1,415
Expenditures for segment assets 3,104 6 3,110
Depreciation and amortization 2,090 74 2,164
GEOGRAPHIC INFORMATION
LONG-LIVED
REVENUES ASSETS
-------- ----------
United States $29,663 $88,774
Canada 2,887 1,694
Other 22 -
------- -------
Total $32,572 $90,468
======= =======
10
The Company's operations by business segment and geography for the six months
ended June 30, 2002 follow (in thousands):
HEAVY SEGMENT
AUTOMOTIVE EQUIPMENT LOGISTICS TOTALS
-----------------------------------------------
Revenues from external customers $ 56,283 $ 24,187 $ 35,231 $ 115,701
Interest expense 831 209 960 2,000
Depreciation and amortization 2,692 - 128 2,820
Segment profit pre tax 4,836 940 292 6,068
Segment assets 91,107 20,479 40,146 151,732
Expenditures for segment assets 8,923 158 106 9,187
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total earnings for reportable segments $ 6,068
Unallocated corporate headquarters loss (384)
---------
Earnings before income taxes $ 5,684
=========
ASSETS
Total assets for reportable segments $ 151,732
Corporate headquarters 8,757
---------
Total consolidated assets $ 160,489
=========
OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
------ ----------- ------------
Interest expense $2,000 $ (480) $1,520
Expenditures for segment assets 9,187 181 9,368
Depreciation and amortization 2,820 156 2,976
GEOGRAPHIC INFORMATION
LONG-LIVED
REVENUES ASSETS
-------- ----------
United States $100,149 $ 86,828
Canada 15,480 1,557
Other 72 -
-------- --------
Total $115,701 $ 88,385
======== ========
11
The Company's operations by business segment and geography for the six months
ended June 30, 2001 follow (in thousands):
HEAVY SEGMENT
AUTOMOTIVE EQUIPMENT LOGISTICS TOTALS
-----------------------------------------------
Revenues from external customers $ 28,078 $ - $ 32,017 $ 60,095
Interest expense 1,359 - 1,321 2,680
Depreciation and amortization 2,509 - 989 3,498
Segment profit (loss) pre tax 2,311 - (1,139) 1,172
Segment assets 62,730 - 40,278 103,008
Expenditures for segment assets 4,289 - 96 4,385
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total earnings for reportable segments $ 1,172
Unallocated corporate headquarters income 2,124
--------
Earnings before income taxes $ 3,296
========
ASSETS
Total assets for reportable segments $103,008
Corporate headquarters 21,176
--------
Total consolidated assets $124,184
========
OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
------ ----------- ------------
Interest expense $2,680 $ (60) $2,620
Expenditures for segment assets 4,385 5 4,390
Depreciation and amortization 3,498 125 3,623
GEOGRAPHIC INFORMATION
LONG-LIVED
REVENUES ASSETS
-------- ----------
United States $54,988 $88,774
Canada 5,046 1,694
Other 61 -
------- -------
Total $60,095 $90,468
======= =======
NOTE D - RESTRUCTURING RESERVE
The restructuring reserve of $3.9 million recorded in December 2000, which had a
balance of $1.5 million at December 31, 2001, was reduced by $0.75 million
during the first quarter for lease costs incurred on vacated property and losses
incurred in connection with the sale of certain real estate. During the second
quarter the reserve was reduced by $0.2 million related to repair of vacated
facilities. The balance in the restructuring reserve at June 30, 2002 was $0.5
million and represents the expected costs associated with real estate that is
being marketed for sale. Resolution of these items is expected by December 31,
2002.
12
NOTE E - ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other
Intangible Assets. SFAS No. 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 adopted
this statement on January 1, 2002, and goodwill will no longer be amortized. As
of June 30, 2002 the Company has goodwill of $40.8 million.
A reconciliation of previously reported net income and earnings per share
related to the amounts adjusted for the exclusion of goodwill amortization net
of the related income tax effect follows:
GOODWILL AND ADOPTION OF STATEMENT NO. 142
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
(in thousands,except per share amounts) 2002 2001 2002 2001
---------- ----------- -------- ------------
Reported net income $ 1,957 $ 1,119 $ 3,567 $ 923
Add: Goodwill amortization, net of tax - 766 - 1,083
------- ------- ------- ---------
Adjusted net income $ 1,957 $ 1,885 $ 3,567 $ 2,006
======= ======= ======= =========
Reported basic earnings per share $ 0.29 $ 0.17 $ 0.53 $ 0.14
Add: Goodwill amortization, net of tax - 0.12 - 0.16
------- ------- ------- ---------
Adjusted basic earnings per share $ 0.29 $ 0.29 $ 0.53 $ 0.30
======= ======= ======= =========
Reported diluted earnings per share $ 0.28 $ 0.17 $ 0.51 $ 0.14
Add: Goodwill amortization, net of tax - 0.11 - 0.16
------- ------- ------- ---------
Adjusted diluted earnings per share $ 0.28 $ 0.28 $ 0.51 $ 0.30
======= ======= ======= =========
For the six-month period ended June 30, 2002 no goodwill or other intangible
assets were acquired, impaired or disposed.
Covenants not to compete are amortized over the life of the agreement, typically
three to ten years. Amortization expense for the six months ended June 30, 2002
and 2001 were $0.1 million and $0.1 million, respectively. Annual pre-tax
amortization of covenants not to compete are estimated as follows:
Fiscal Year (in thousands)
2003 $ 285
2004 267
2005 76
2006 65
2007 65
Thereafter 122
13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales. Net sales for the six months ended June 30, 2002 reached
$115.7 million, an increase of $55.6 million, or 92.5%, compared to the same
period of 2001. For the second quarter ending June 30, 2002, net sales grew to
$60.7 million, an increase of $28.1 million, or 86.4%, compared to the second
quarter of 2001. The increase in sales is attributable to increased revenue from
all operating segments. The automotive segment increased sales 86.1% for the
quarter and 100.5% for the six-month period. These increases were primarily the
result of increased value-added sales resulting from the utilization of
laser-welded components on more vehicle models and platforms. In addition, our
automotive segment's revenue was positively impacted by increased steel sales.
The logistics segment experienced increased sales of 10.1% for the quarter and
10.0% for the six-month period as this segment continues to execute its
strategy. Net sales were also positively impacted in 2002 by the inclusion of
net sales of the heavy equipment segment of $12.6 million and $24.2 million for
the three and six month periods respectively. The heavy equipment segment was
acquired in December 2001.
Cost of Sales. Cost of sales for the six-month period ended June 30,
2002 increased by $50.6 million to $95.7 million, an increase of 112.1% compared
to the same period in 2001. For the second quarter ending June 30, 2002, cost of
sales increased by $25.4 million, or 103.1%, compared to the second quarter of
2001. These increases were primarily the result of increased net sales across
all segments, increased steel purchases and the inclusion of the heavy equipment
segment acquired in December 2001. Cost of sales as a percentage of sales
increased from 75.1% for the six-month period June 30, 2001 to 82.7% for the
same period in 2002. For the second quarter of 2001 and 2002, cost of sales as a
percentage of sales was 75.6% and 82.4% respectively. The increase in the
percentage of cost of sales to sales for the quarter and six months periods is
due to the increased steel sales in the automotive segment as it transitions to
a full service supplier from a toll processor, as well as the inclusion of the
heavy equipment segment, which has higher cost of sales as a percentage of sales
than our other operating segments. The logistics segment experienced costs of
sales as a percentage of sales that were consistent with historical results.
Gross Margin. Gross margin increased $5.0 million to $20.0 million for
the period ending June 30, 2002, or 33.6%, from $15.0 million for the comparable
period in 2001. For the second quarter, gross margin increased by $2.7 million
to $10.7 million, or an increase of 34.4% compared to a gross margin of $8.0
million for the same quarter in 2001. The increase was primarily the result of
the inclusion of the heavy equipment segment as well as higher sales in the
other operating segments. Gross margin as a percentage of sales decreased from
24.9% in the 2001 six-month period to 17.3% in the 2002 period. For the second
quarter of 2002, gross margin as a percentage of sales decreased from 24.4% in
2001 to 17.6% in 2002. The decrease in gross margin as a percentage of sales was
primarily the result of increased steel sales within the automotive segment and
the inclusion of the heavy equipment segment, as noted above.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $2.4 million, or 22.9%, to $13.1 million
for the six-month period ended June 30, 2002 as compared to $10.6 million in the
comparable period of 2001. For the second quarter of 2002, these expenses grew
by $1.6 million, or 31.3%, to $6.9 million compared to the same period in 2001.
This increase was primarily the result of the inclusion of the heavy equipment
segment, acquired in December 2001, partially offset by expense reductions in
the logistics segment. As a percentage of net sales, such expenses decreased to
11.3% for the six months ended June 30, 2002 from 17.7% for the six months ended
June 30, 2001.
Operating Profit. As a result of the foregoing factors, operating
profit increased $2.6 million, or 59.8%, to $6.9 million for the six-month
period ended June 30, 2002 from $4.3 million
14
for the same period in 2001. For the second quarter ended June 30, 2002,
operating profit increased by $1.1 million, or 40.5%, to $3.8 million from $2.7
million in the same quarter of 2001. As a percentage of net sales, operating
profit decreased slightly to 6.0% for the six months ended June 30, 2002 from
7.2% for the six months ended June 30, 2001. For the three-month period ended
June 30, 2002 operating profit as a percentage of net sales decreased from 8.3%
to 6.2% compared to the same period in 2001.
Interest Income. Interest income decreased by $0.8 million, or 62.9% to
$0.5 million for the six-month period ended June 30, 2002 from $1.3 million for
the same period in 2001. For the three-month period ended June 30, 2002,
interest income decreased by $0.5 million, or 69.8% to $0.2 million from $0.8
million for the same period in 2001. The decrease was the result of lower notes
receivable balances related to the sale of a business in 2001.
Interest Expense. Interest expense decreased 42.0%, to $1.5 million,
for the six months ended June 30, 2002 from $2.6 million for the comparable
period of 2001. For the three-month period ended June 30, 2002 the reduction was
50.4% to $0.7 million. The reduction was the result of lower interest rates and,
to a lesser extent, lower borrowings.
Income Tax Expense. Income tax expense for the six-month period ended
June 30, 2002 decreased 10.5%, or $0.2 million, to $2.1 million from $2.4
million for the comparable period in 2001. The second quarter expense increased
74.2% or $0.5 million to $1.2 million from $0.7 million for the second quarter
of 2001. The six-month decrease is primarily the result of a one-time $1.1
million tax expense in the 2001 period related to a difference between the tax
and book bases for businesses sold. The increase in the second quarter of 2002
compared to the same quarter of 2001 was due primarily to higher earnings.
Net Earnings. As a result of the foregoing factors, net earnings for
the six-month period ended June 30, 2002 increased to $3.6 million from $0.9
million for the comparable period of the prior year, an increase of 286.5%. For
the second quarter, net income increased 74.9% to $2.0 million from $1.1 million
in the second quarter of 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements have historically been satisfied
through a combination of cash flows from operations, and equity and debt
financing. 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, revolving credit borrowings and equity financing.
The Company generated cash from operations of $1.6 million for the six
months ended June 30, 2002 compared to $1.4 million for the same period in 2001.
Net cash provided by operations was primarily the result of net income,
increased accounts payable, depreciation, amortization, and income taxes
payable, which was partially offset by a decrease in accrued liabilities and
increases in accounts receivable and prepaid expenses. Net cash used in
investing activities of $3.0 million for the six months ended June 30, 2002 was
primarily due to purchases of property, plant and equipment, partially offset by
the sale of real estate. Financing activities provided cash of $1.0 million for
the six months ended June 30, 2002 primarily from net borrowings on the
Company's Credit Facility.
In February 2002, one of the Company's customers, National Steel, Inc.
filed for Chapter 11 bankruptcy protection. The Company has a pre-petition
account receivable in the amount of approximately $1.2 million. The Company is
currently evaluating possible options for collection but has created a reserve
of $0.2 million for the possible uncollectible amounts of this receivable.
15
This reserve was based on the Company's best estimate. The Company does not
anticipate any loss of sales due to this event.
The amount of the Company's revolving credit facility with Comerica
Bank (the "Credit Facility") was $50 million at December 31, 2001, subsequently
amended to $60.0 million in May 2002. The Credit Facility expires on September
30, 2002. The Company has a commitment from its lender on a new $60.0 million
Credit Facility that will take effect in September 2002 and will expire in 2005.
Therefore, the Company has reclassified its current Credit Facility from current
liabilities to long-term liabilities. The Credit Facility is secured by the
assets of Noble and its subsidiaries and provides for the issuance of up to $5.0
million in standby or documentary letters of credit. 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 the six months ended June 30,
2002 bore interest at the rate of approximately 4.52% 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 $25.0 million ($15 million under the new facility). The Company is in
compliance with the terms of the Credit Facility. The Company currently
guarantees $10.0 million of SET Enterprises, Inc.'s senior debt. As of the date
of this report, the Company does not believe the lender will call the guarantee.
On April 22, 2002, the Company completed a sale and leaseback
transaction of its Shelbyville, KY facility to the Company's Chief Executive
Officer. The sale price was $6.2 million which was equal to the book value of
the property. The proceeds of the transaction were used to reduce the Company's
debt under the Credit Facility. The lease has a term of five years and provides
for monthly rent of $70,000. The sale price and rent amount were determined by
the estimated fair value of the property and estimated prevailing lease rates
for similar properties. Although the Company did not obtain an independent
valuation of the property or the terms of the transaction, management believes
the terms of the sale and leaseback were at least as favorable to Noble as terms
that could have been obtained from an unaffiliated third party.
The liquidity provided by the Company's Credit Facility and committed
Credit Facility is expected to be sufficient to meet the Company's currently
anticipated working capital and capital expenditure needs for at least twelve
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 twelve-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 13.4% of the total revenues
16
for the six months ended June 30, 2002 and 19.0% for the second quarter ended
June 30, 2002. The Company's primary foreign currency exposures are the Canadian
Dollar and the Mexican Peso. 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).
17
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
The Company's Annual Meeting of Stockholders was held on May 3, 2002.
The Company has a staggered Board of Directors, and Robert J. Skandalaris,
Anthony R. Tersigni and Mark. T. Behrman were elected to the Company's Board of
Directors. Each of the nominees was an incumbent director. Of the 6,772,043
shares issued, outstanding and entitled to vote at the Annual Meeting,
5,930,764, 6,035,496 and 6,033,063 shares were voted in favor of Messrs.
Skandalaris, Tersigni and Behrman respectively, and 110,780, 6,000 and 8,493
shares were voted against each of them respectively. The ratification of
Deloitte & Touche LLP as independent public accountants of the Company was also
approved, with 6,024,750 shares voted for approval, 5,806 shares voted against
and 10,890 shares abstaining.
ITEM 5: OTHER INFORMATION
Inapplicable.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification Pursuant to 18 U.S.C. 1350 of Robert J. Skandalaris.
99.2 Certification Pursuant to 18 U.S.C. 1350 of David V. Harper.
(b) The following report on Form 8-K was filed during the period ending
June 30, 2002:
(i) Report on Form 8-K filed on June 26, 2002, concerning the Company's
affirmation of 2002 earnings and clarification of its earnings estimate based
upon the potential effect of its proposed offering.
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: August 14, 2002 By: /s/ David V. Harper,
------------------------------------
David V. Harper,
Chief Financial Officer
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Exhibit Index
-------------
Exhibit No. Description
----------- -----------
99.1 Certification Pursuant to 18 U.S.C. 1350 of Robert J.
Skandalaris.
99.2 Certification Pursuant to 18 U.S.C. 1350 of David V. Harper.
19