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 March 31, 2003
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)
28213 Van Dyke Road, Warren, MI 48093
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(Address of principal executive offices)
(Zip Code)
(586) 751-5600
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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 May 14, 2003 was 7,751,074.
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, 2002
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 March 31, 2003 (unaudited) and December 31, 2002...................3
Consolidated Statements of Operations (unaudited) for the Three Month Periods Ended March 31, 2003
and 2002.............................................................................................4
Consolidated Statements of Cash Flows (unaudited) for the Three Month Periods Ended March 31, 2003
and 2002.............................................................................................5
Consolidated Statements of Comprehensive Income (unaudited) for the Three Month Periods Ended
March 31, 2003 and 2002..............................................................................6
Notes to Consolidated Interim Financial Statements...................................................7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........12
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................14
ITEM 4: DISCLOSURE CONTROLS AND PROCEDURES............................................................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. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
MARCH 31, DECEMBER 31,
2003 2002
(unaudited)
----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,156 $ 1,154
Accounts receivable, trade - net 30,924 22,992
Note receivable, short term 5,375 -
Inventories 11,466 9,363
Deferred income taxes 6,949 6,217
Income taxes refundable 250 250
Prepaid expenses 3,168 2,555
----------- -----------
Total Current Assets 59,288 42,531
Property, Plant & Equipment, net 49,361 47,762
Other Assets:
Goodwill, net 15,690 15,690
Covenants not to compete, net 333 383
Note receivable, long term 4,000 -
Other assets, net 10,374 10,487
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Total Other Assets 30,397 26,560
Assets Held for Sale 1,084 13,098
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TOTAL ASSETS $ 140,130 $ 129,951
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 24,287 $ 19,830
Accrued liabilities 7,774 5,685
Current maturities of long-term debt 8,421 8,414
Income taxes payable 6 -
----------- -----------
Total Current Liabilities 40,488 33,929
Long-Term Liabilities:
Deferred income taxes 2,015 2,006
Convertible subordinated debentures 16,037 16,037
Long-term debt, excluding current maturities 39,300 33,234
----------- -----------
Total Long-Term Liabilities 57,352 51,277
Liabilities Held for Sale - 2,684
STOCKHOLDERS' EQUITY
Common stock 9 9
Additional paid-in capital 32,930 32,874
Retained earnings 9,686 9,755
Accumulated comprehensive loss, net (335) (577)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 42,290 42,061
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 140,130 $ 129,951
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
3
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
-------------------------
2003 2002
----------- -----------
Net sales $ 40,848 $ 27,288
Cost of sales 34,174 22,831
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Gross margin 6,674 4,457
Selling, general and administrative expenses 3,428 2,243
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Operating profit 3,246 2,214
Interest income 155 245
Interest expense (346) (276)
Other, net (2) (5)
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Earnings from continuing operations before income taxes 3,053 2,178
Income tax expense 1,018 779
Preferred stock dividends - 10
----------- -----------
Earnings on common shares from continuing operations 2,035 1,389
Discontinued operations:
Earnings (loss) from discontinued operations (807) 221
Loss on sale of discontinued operations (678) -
----------- -----------
Net earnings on common shares $ 550 $ 1,610
=========== ===========
BASIC EARNINGS PER COMMON SHARE:
Earnings per share from continuing operations $ 0.26 $ 0.21
Earnings (loss) from discontinued operations (0.10) 0.03
Loss on sale of discontinued operations (0.09) -
----------- -----------
Basic earnings per common share $ 0.07 $ 0.24
=========== ===========
DILUTED EARNINGS PER COMMON SHARE
Earnings per share from continuing operations $ 0.25 $ 0.19
Earnings (loss) from discontinued operations (0.09) 0.03
Loss on sale of discontinued operations (0.08) -
----------- -----------
Diluted earnings per common share $ 0.08 $ 0.22
=========== ===========
Dividends declared and paid $ 0.080 $ 0.080
=========== ===========
Basic weighted average common shares outstanding 7,722,877 6,729,905
Diluted weighted average common shares outstanding 8,910,859 8,111,888
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
4
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
THREE MONTHS ENDED
MARCH 31,
---------------------
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings from continuing operations $ 2,035 $ 1,399
Adjustment to reconcile net earnings to net cash provided by
operations
Interest expense related to amortization of fees 137 112
Depreciation of property, plant and equipment 1,581 1,322
Amortization of intangible assets 67 54
Deferred income taxes (723) -
Loss on sale of property and equipment 2 6
Changes in assets and liabilities
Decrease (increase) in accounts receivable (7,932) 1,020
Decrease (increase) in inventories (2,103) 964
Decrease (increase) in prepaid expenses (613) 541
Decrease (increase) in other operating assets (34) 3
Increase in accounts payable 4,457 2,624
Increase in income taxes payable 6 856
Increase (decrease) in accrued liabilities 2,089 (723)
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Net cash provided by continuing operations (1,031) 8,178
Net cash used in discontinued operations (3,530) (2,784)
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Net cash provided by (used in) operating activities (4,561) 5,394
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (3,033) (2,987)
Proceeds from sale of property, plant and equipment - 650
Net proceeds from sale of discontinued operations 2,000 -
Investments - (520)
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Net cash used in investing activities (1,033) (2,857)
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of common stock - (123)
Proceeds from issuance of common stock 56 -
Capital lease payments - (12)
Preferred dividends declared and paid - (10)
Dividends on common declared and paid (619) (540)
Redemption of preferred stock of subsidiary - (250)
Payments on long-term debt (6) (125)
Net borrowings (repayments) on note payable to bank 6,072 (1,522)
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Net cash provided by (used in) financing activities 5,503 (2,582)
Effect of exchange rate changes on cash 93 (253)
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Net increase (decrease) in cash 2 (298)
Cash at beginning of period 1,154 943
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Cash at end of period $ 1,156 $ 645
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for:
Interest $ 712 $ 990
Taxes 952 -
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
5
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
THREE MONTHS ENDED
MARCH 31,
-------------------
2003 2002
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Net earnings on common shares $ 550 $ 1,610
Other comprehensive income (loss), equity adjustment
from foreign currency translation, net of tax $ 242 $ (235)
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Comprehensive income, net of tax $ 792 $ 1,375
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
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.
Results for interim periods should not be considered indicative of results for a
full year. The December 31, 2002 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, 2002.
Certain information for fiscal year 2002 related to discontinued operations has
been reclassified to conform to the current year presentation. Discontinued
operations include the Company's logistics group for the period ending March 31,
2003 and the Company's logistics and heavy equipment groups for the period
ending March 31, 2002.
The accompanying consolidated financial statements as of March 31, 2003 and for
the year ended December 31, 2002, include Noble International, Ltd. and its
wholly-owned subsidiaries, Noble Component Technologies ("NCT"); Monroe
Engineering Products, Inc. ("Monroe"), Noble Metal Processing, Inc. ("NMP"),
Noble Land Holdings, Inc. ("Land Holdings"), Noble Manufacturing Group, Inc.
("NMG"), Noble Metal Processing Canada, Inc. ("NMPC"), Noble Metal Processing --
Kentucky, LLC ("NMPK"), Pro Motorcar Products, Inc. ("PMP"), Pro Motorcar
Distribution, Inc. ("PMD"), Noble Logistic Services, Inc. ("NLS-CA" and
"NLS-TX"), and Noble Construction Equipment, Inc. ("NCE"), (collectively,
"Noble" or the "Company") from the date of acquisition to the date of
disposition, if applicable.
On March 21, 2003, the Company completed the sale of its logistics group for
approximately $11.1 million in cash and notes as well as the assumption of
substantially all payables and liabilities. The transaction included cash of
$2.0 million at closing, two 135 day notes totally approximately $5.1 million, a
$1.5 million three-year amortizing note and a $2.5 million five-year amortizing
note. The long-term notes bear an interest rate of 4.5% and will be repaid in
equal monthly installments. The 135-day notes are not interest bearing. The
notes are secured by the stock of the buyer in the entities purchased. The
results for the logistics group for the period ending March 31, 2002 and 2003
follows (in thousands):
2003 2002
---- ----
Revenue $14,800 $16,093
Pre tax income (loss) (1,216) 65
In addition, the period ending March 31, 2002 for discontinued operations
includes the results from the Company's heavy equipment group which had revenue
of $11.6 million and pretax profit of $0.3 million.
Basic earnings per share ("EPS") is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Calculation of diluted EPS assumes the exercise of common stock
options and warrants when dilutive, and the impact of restricted stock and the
assumed conversion of convertible debt, when dilutive. The following table
reconciles the numerator and denominator to calculate basic and diluted EPS for
the three months ended March 31, 2002 and 2003 (in thousands, except share and
per share amounts; per share amounts are subject to rounding).
7
Three months ended March 31,
-------------------------------------------------------------------------------
2003 2002
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Net Earnings Shares Per share Net Earnings Shares Per share
(Numerator) (Denominator) Amounts (Numerator) (Denominator) Amounts
----------- ------------- --------- ----------- ------------- ---------
Basic earnings per common share
Earnings on common shares from
continuing operations $ 2,035 7,722,877 $ 0.26 $ 1,389 6,729,905 $ 0.21
Effect of dilutive securities:
Contingently issuable shares 16,540 - 27,737 -
Convertible debentures 179 1,120,488 (0.01) 180 1,125,520 (0.02)
Warrants - - 18,106 -
Stock Options - 50,954 - - 210,620 -
--------- --------- ---------- --------- --------- --------
Earnings on common shares from continuing
operations assuming dilution $ 2,214 8,910,859 $ 0.25 $ 1,569 8,111,888 $ 0.19
========= ========= ========== ========= ========= ========
The Company has adopted the disclosure only provisions of SFAS 123 and SFAS 148.
As allowed by SFAS 123, the Company has elected to continue to follow APB
Opinion No. 25 in accounting for its stock option plans. Accordingly, no
compensation cost has been recognized under the stock-based compensation plan
("the Plan"). Had compensation cost been determined based on the fair value at
the grant dates for awards under the Plan utilizing the Black-Scholes option
pricing model, the Company's net earnings and earnings per share would have been
reduced to the pro forma amounts indicated below for the first quarter ended
March 31, 2003 and 2002 (in thousands, except per share data):
QUARTER ENDED MARCH 31,
2003 2002
--------------------------------------
Net earnings on common shares from continuing operations
As reported $ 2,035 $ 1,389
Less: Total employee stock option expense under the
fair value method, net of related tax effects 51 79
------------------- ----------------
Pro forma 1,984 1,310
Basic earnings per share from continuing operations
As reported $ 0.26 $ 0.21
Pro forma 0.26 0.19
Diluted earnings per share from continuing operations
As reported $ 0.25 $ 0.19
Pro forma 0.24 0.18
8
NOTE B--INVENTORIES
Inventories at March 31, 2003 and December 31, 2002 consisted of the following
(in thousands):
March 31, 2003 December 31, 2002
--------------- -----------------
Raw materials and purchased parts $ 5,118 $ 3,925
Work in process 2,956 2,346
Finished goods 3,392 3,011
Other - 81
--------------- -----------------
Total Inventory $ 11,466 $ 9,363
=============== =================
NOTE C--INDUSTRY SEGMENTS
The Company classifies its continuing operations into two industry segments
based on product type: automotive and distribution. The automotive group, as a
Tier I and Tier II supplier, provides prototype design, engineering, laser
welding of tailored blanks and other laser welding, and cutting services of
automotive components for major OEMs and Tier I automotive suppliers. The
Company's automotive manufacturing facilities have been awarded both QS-9000 and
ISO 14001 certifications. The Distribution Group distributes tooling components,
including adjustable handles, hand wheels, plastic knobs, levers, handles,
hydraulic clamps, drills, jigs, paint measurement and tint meter gauges, quick
drying lamps, and permanent magnets to various customers directly as well as
through a network of distributors.
Transactions between the automotive and distribution segments, as well as with
corporate headquarters have been eliminated in the consolidated financial
statements. There are no inter-segment sales. Interest expense is allocated to
each operating segment based on the segment's actual borrowings from the parent
holding company, 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 and geography for the three months
ended March 31, 2003 follow (in thousands):
SEGMENT
AUTOMOTIVE DISTRIBUTION TOTALS
----------------------------------------------------------
Revenues from external customers $ 39,625 $ 1,223 $ 40,848
Interest expense 398 25 423
Depreciation and amortization 1,568 35 1,603
Segment profit pre-tax 4,038 175 4,213
Segment assets 98,200 8,204 106,404
Expenditure for segment assets 2,995 45 3,040
9
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total earnings from reportable segments $ 4,213
Unallocated corporate headquarters expense (1,160)
------------
Earnings from continuing operations before
income taxes $ 3,053
============
ASSETS
Total assets for reportable segments $ 106,404
Corporate headquarters 32,642
Assets held for sale 1,084
------------
Total consolidated assets $ 140,130
============
OTHER SIGNIFICANT ITEMS SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
------------- ------------- -------------
Interest expense $ 423 $ (77) $ 346
Expenditure for segment assets 3,040 23 3,063
Depreciation and amortization 1,603 45 1,648
GEOGRAPHIC INFORMATION LONG-LIVED
REVENUES ASSETS
----------- ----------
United States $ 32,197 $ 62,984
Canada 8,603 2,400
Other 48 -
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Total $ 40,848 $ 65,384
=========== ==========
The Company's operations by business segment and geography for the three months
ended March 31, 2002 follow (in thousands):
SEGMENT
AUTOMOTIVE DISTRIBUTION TOTALS
---------------------------------------------
Revenues from external customers $ 26,212 $ 1,076 $ 27,288
Interest expense 364 27 391
Depreciation and amortization 1,260 21 1,281
Segment profit pre-tax 2,056 221 2,277
Segment assets 80,462 7,730 88,192
Expenditure for segment assets 2,842 9 2,851
10
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total earnings from reportable segments $ 2,277
Unallocated corporate headquarters expense (99)
-----------
Earnings from continuing operations before
income taxes $ 2,178
===========
ASSETS
Total assets for reportable segments $ 88,192
Corporate headquarters 19,552
Assets held for sale 49,023
-----------
Total consolidated assets $ 156,767
===========
OTHER SIGNIFICANT ITEMS SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
------------ ------------ -------------
Interest expense $ 391 $ (115) $ 276
Expenditure for segment assets 2,851 136 2,987
Depreciation and amortization 1,281 95 1,376
GEOGRAPHIC INFORMATION LONG-LIVED
REVENUES ASSETS
---------- -----------
United States $ 20,230 $ 62,654
Canada 7,047 1,345
Other 11 -
---------- -----------
Total $ 27,288 $ 63,999
========== ===========
NOTE D -- RESTRUCTURING RESERVE
The Company adopted SFAS 146 on January 1, 2003. SFAS 146 requires a company to
record a liability for costs associated with an exit activity, at fair value,
only when a liability is incurred. Accordingly, the Company has recorded as an
expense in selling, general and administrative and in accrued liabilities a
pre-tax restructuring charge of $0.65 million in March 2003 related to
organizational changes and headcount reductions. As of March 31, 2003 no amounts
had been paid. The Company expects to complete payment of the reserve by May 31,
2004.
NOTE E -- ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS 142 on January 1, 2002, and goodwill is no longer
amortized. As of March 31, 2003 the Company has goodwill in continuing
operations of $15.7 million, net of $4.6 million of accumulated amortization.
For the three-month period ended March 31, 2003 no goodwill or other intangible
assets related to continuing operations were acquired, impaired or disposed.
Covenants not to compete attributable to continuing operations are amortized
over the life of the agreement, typically three to five years. As of March 31,
2003 the Company has a balance of covenants not to compete of $0.3 million, net
of accumulated amortization of $1.1 million. Amortization expense for the three
months ended March 31, 2003 and 2002 were $0.05 million and $0.05 million,
respectively. The Company expects to fully amortize the existing covenants not
to compete by the end of 2004. Annual amortization expense of these covenants is
estimated to be $0.2 million for both fiscal 2003 and 2004.
11
In January 2003, FASB issued Interpretation 46, Consolidation of Variable
Interest Entities. In general, a variable interest entity is a corporation,
partnership, trust, or any other legal structure used for business purposes that
either (a) does not have equity investors with voting rights or (b) has equity
investors that do not provide sufficient financial resources for the entity to
support its activities. Interpretation 46 requires a variable interest entity to
be consolidated by a company if that company is subject to a majority of the
risk of loss from the variable interest entity's activities or entitled to
receive a majority of the entity's residual return or both. The consolidation
requirements of Interpretation 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
older entities in the first fiscal year or interim period beginning after June
15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. The Company is currently evaluating the
provisions of the Interpretation, but believes its adoption will not have a
material impact on its financial statements.
The Company adopted SFAS 144 on January 1, 2002. SFAS 144 requires that assets
that are planned to be disposed of be classified as held for sale on the
Company's balance sheet. At March 31, 2003 the Company had approximately $1.1
million of assets classified as assets held for sale. These assets consist of
real estate that is being marketed for sale.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
Net Sales. Net sales for the three months ended March 31, 2003 were
$40.8 million, an increase of $13.6 million, or 49.7%, compared to the same
period in 2002. The increase in sales is attributable to increased revenue in
both operating segments. The automotive segment increased sales by $13.4 million
or 51.2% over the first quarter of 2002. The distribution segment increased
sales $0.15 million or 13.7% over the first quarter of 2002. In the automotive
segment the increase was primarily the result of higher production volumes on
certain vehicles, higher steel sales and sales from new product launches. The
increase in distribution sales was primarily attributable to the successful
launch of new products.
Cost of Sales. Cost of sales for the three-month period ended March 31,
2003 increased by $11.3 million to $34.2 million, an increase of 49.7% compared
to the same period in 2001. These increases were primarily the result of
increased net sales across both segments and increased steel purchases in the
automotive segment. Cost of sales as a percentage of sales remained unchanged at
83.7% for the three-month period March 31, 2003 as compared to the same period
in 2002.
Gross Margin. Gross margin increased $2.2 million to $6.7 million for
the three months ending March 31, 2003, or 49.7%, from $4.5 million for the
comparable period in 2002. This increase was due to higher revenues. Gross
margin as a percentage of sales remained flat at 16.3%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.2 million, or 52.8%, to $3.4 million for
the three-month period ended March 31, 2003 as compared to $2.2 million in the
comparable period of 2002. This increase was primarily the result of the
inclusion of a $0.65 million restructuring charge as well as increased costs
related to higher volume. As a percentage of net sales, selling, general and
administrative expenses increased to 8.4% for the three months ended March 31,
2003 from 8.2% for the same period in 2002.
Operating Profit. As a result of the foregoing factors, operating
profit increased $1.0 million, or 46.6%, to $3.2 million for the three-month
period ended March 31, 2003 from $2.2 million for the same period in 2002. As a
percentage of net sales, operating profit decreased to 7.9% for the three months
ended March 31, 2003 from 8.1% for the same period in 2002. The decrease was
primarily the result of increased steel sales that have a lower margin than
value-added sales as well as the inclusion of a $0.65 million restructuring
charge.
12
Interest Income. Interest income decreased by $0.1 million, or 36.7% to
$0.2 million for the three-month period ended March 31, 2003 from $0.3 million
for the same period in 2002. The decrease was the result of lower notes
receivable balances resulting from the conversion of note receivables from SET
Enterprises ("SET") into preferred stock in April 2002.
Interest Expense. Interest expense increased 25.2%, to $0.4 million,
for the three months ended March 31, 2003 from $0.3 million for the comparable
period of 2002. The increase was the result of increased borrowing primarily
related to steel purchases and capital expenditures in the automotive group.
Income Tax Expense. Income tax expense for the three-month period ended
March 31, 2003 increased 30.7%, or $0.2 million, to $1.0 million from $0.8
million for the comparable period in 2002. The increase in income tax expense is
due to increased earnings.
Earnings on Common Shares from Continuing Operations. As a result of
the foregoing factors, earnings on common shares from continuing operations
increased for the three-month period ended March 31, 2003 to $2.0 million from
$1.4 million for the comparable period of the prior year, an increase of 46.5%.
Net Earnings. Due to the net loss in discontinued operations of $0.8
million and a loss on sale of discontinued operations of $0.7 million, net
earnings on common shares for the period ended March 31, 2003 decreased by $1.0
million or 65.8% to $0.6 million from $1.6 million in the same period in 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements have historically been satisfied
through a combination of cash flow from operations, equity and debt financings
and loans from stockholders. Working capital needs and capital equipment
requirements in the continuing operations have increased as a result of the
growth of the Company and are expected to continue to increase. Anticipated
increases in required working capital and capital equipment expenditures are
expected to be met from cash flow from operations, equipment financing and
borrowings under a credit facility. As of March 31, 2003, the Company had a
working capital surplus of approximately $18.8 million. The Company completed
the sale of its logistics business in March 2003 which resulted in cash received
of $2.0 million.
The Company used cash in continuing operations of $1.0 million for the
first quarter ended March 31, 2003. Net cash generated by continuing operating
activities was primarily the result of net earnings, plus non-cash expense such
as depreciation expense and increases in accounts payable and accrued
liabilities. This was offset by increases in accounts receivable, inventories
and prepaid expenses. The increase in accounts receivable of $7.9 million is
related to a start of a new production program at the automotive segment as well
as increased volume in current programs.
The Company used cash in investing activities of $1.0 million for the
first quarter ended March 31, 2003. This was primarily the result of the
purchase of fixed assets of $3.1 million offset by cash of $3.0 million received
in the sale of logistics business.
The Company generated $5.5 million in cash flow from financing
activities for the first quarter ended March 31, 2003, primarily from borrowings
under the Credit Facility. The Company paid dividends of $0.6 million.
The Company maintains a secured Credit Facility with Comerica Bank N.A.
The amount of the facility was $48.0 million on March 31, 2003, and has an
expiration date of January 2006. As of March 31, 2003 the Credit Facility had a
balance of $43.4 million. The Credit Facility consists of two loans. The first
is an $18.0 million revolving loan, increased in April 2003 to $20.0 million,
with a formula based on the Company's assets in the determination of available
credit. The second is a term loan of $28.0 million. The Company makes monthly
principal payments of $0.389 million on the term loan. The Credit Facility is
secured by assets of the Company and its subsidiaries and provides for the
issuance of up to $5 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
13
Company with borrowing options for multi-currency loans. Borrowing options
include a Eurocurrency rate, or a base rate. Advances under the facility bore
interest at an effective rate of approximately 4.51% as of March 31, 2003. Costs
of originating the Credit Facility of $1.0 million are being amortized over
three years; amortization expense for the first quarter of 2003 was $0.1
million. The unamortized balance of origination costs is $0.9 million at March
31, 2003 and is included in other assets. The Credit Facility is subject to
customary financial and other covenants including, but not limited to,
limitations on consolidations, mergers, and sales of assets, and bank approval
on acquisitions over $15 million.
The Company guarantees $10.0 million of SET Enterprise's ("SET") senior
debt in connection with its sale of businesses to SET. The Company would be
required to perform under the guarantee if SET was unable to repay or
renegotiate its credit facility. The maximum amount the Company would be
required to pay is $10.0 million. The Company does not currently carry a
liability for this guarantee. The guarantee is unsecured and the Company would
be entitled to the proceeds from any liquidation after the senior debt lender
had been paid in full.
The Company has from time to time been in violation of certain of its
financial debt ratio covenants and covenants relating to the issuance of
preferred stock and the payment of preferred and common stock dividends,
requiring it to obtain waivers of default from its lenders. At March 31, 2003
the Company is in compliance with all of its financial debt covenants under the
Credit Facility.
The liquidity provided by the Company's Credit Facility, combined with
cash flow from continuing operations is expected to be sufficient to meet
currently anticipated working capital and capital expenditure needs and for
existing debt service 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 twelve-month period. In
addition, the Company continues to evaluate, as part of its business strategy,
and may pursue future growth through opportunistic acquisitions of assets or
companies involved in the automotive component supply and distribution
industries, which acquisitions may involve the expenditure of significant funds.
Depending upon the nature, size and timing of future acquisitions, the Company
may be required to obtain additional debt or equity financing. 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 21.2% of the total revenues for the three months ended March 31,
2003. The Company's primary foreign currency exposure is to the Canadian Dollar.
The Company manages its exposure 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.
As of March 31, 2003 only 3.9% of the Company's long-lived assets are
based in its foreign subsidiaries. These assets 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.
14
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).
ITEM 4: DISCLOSURE CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. The Company's Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of the
Company's disclosure controls and procedures, as defined in the Securities
Exchange Act Rules 13a-14(c) and 15d-14(c) as of a date within 90 days of the
filing date of this Form 10-Q Quarterly Report (the "Evaluation Date"), have
concluded that as of the Evaluation Date, the Company's disclosure controls and
procedures were adequate and effective to ensure that material information
relating to the Company and its subsidiaries would be made known to them by
others within the Company, particularly during the period in which this Form
10-Q Quarterly Report was being prepared.
Changes in Internal Controls. There have been no significant changes in the
Company's internal controls that could significantly affect internal controls
subsequent to the date of the most recent evaluation, nor any significant
deficiencies or material weaknesses in such internal controls requiring
corrective actions.
15
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
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 March
31, 2003:
(i) Report on Form 8-K filed on January 15, 2003, concerning the
disposition of assets of Noble Construction Equipment, Inc.
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: May 14, 2003 By: /s/ David V. Harper
-------------------------------------
David V. Harper,
Chief Financial Officer
16
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert J. Skandalaris, certify with respect to the Quarterly Report of Noble
International, Ltd. on Form 10-Q for the quarterly period ended March 31, 2003
("Report") that
1. I have reviewed the Report;
2. Based on my knowledge, the Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by the Report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in the Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to them by others within those
entities, particularly during the period in which this Report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
the Report (the "Evaluation Date"); and
c) presented in the Report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons fulfilling the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in the Report
whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of their most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003 By: /s/ Robert J. Skandalaris
---------------------------------------
Name: Robert J. Skandalaris
Title: Chief Executive Officer (Principal
Executive Officer) of Noble International,
Ltd.
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David V. Harper, certify with respect to the Quarterly Report of Noble
International, Ltd. on Form 10-Q for the quarterly period ended March 31, 2003
("Report") that
1. I have reviewed the Report;
2. Based on my knowledge, the Report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by the Report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in the Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to them by others within those
entities, particularly during the period in which this Report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
the Report (the "Evaluation Date"); and
c) presented in the Report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons fulfilling the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in the Report
whether or not there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of their most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 14, 2003 By: /s/ David V. Harper
---------------------------------------
Name: David V. Harper
Title: Chief Financial Officer (Principal
Financial Officer) of Noble International,
Ltd.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
EX-99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002