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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, 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 June 30, 2001 was 6,609,019.
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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 June 30, 2001
(unaudited) and December 31, 2000..............................................3
Consolidated Statements of Income (unaudited) for the
Three Month and Six Month Periods Ended June 30, 2001 and 2000.................4
Consolidated Statements of Cash Flows (unaudited) for the
Six Month Periods Ended June 30, 2001 and 2000.................................5
Consolidated Statements of Comprehensive Income (unaudited)
for the Three and Six Month Periods Ended June 30, 2001 and 2000...............6
Notes to Consolidated Interim Financial Statements.............................7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................13
PART II - OTHER INFORMATION.............................................................14
Item 1. Legal Proceedings.............................................................14
Item 2. Changes in Securities and Use of Proceeds.....................................14
Item 3. Defaults Upon Senior Securities...............................................14
Item 4. Submission of Matters to a Vote of Security Holders...........................14
Item 5. Other Information.............................................................14
Item 6. Exhibits and Reports on Form 8-K..............................................14
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
June 30, December 31,
ASSETS 2001 2000
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 453 $ 1,091
Accounts receivable, trade 15,536 20,214
Inventories 4,642 8,185
Prepaid expenses and other assets 1,394 1,312
Deferred income taxes 1,435 1,566
--------- ---------
Total Current Assets 23,460 32,368
PROPERTY, PLANT AND EQUIPMENT, NET 48,487 58,673
OTHER ASSETS
Goodwill - net 41,906 50,148
Covenants not to compete 1,266 1,389
Sundry 9,297 2,629
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Total Other Assets 52,469 54,166
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$ 124,416 $ 145,207
========= =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 66 $ 420
Accounts payable 9,566 12,180
Accrued liabilities 8,685 10,303
Income taxes payable 561 143
--------- ---------
Total Current Liabilities 18,878 23,046
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES 38,876 53,743
CONVERTIBLE SUBORDINATED DEBENTURES 16,726 16,252
JUNIOR SUBORDINATED NOTES 3,358 3,359
DEFERRED INCOME TAXES 2,272 3,230
PUTABLE COMMON STOCK 1,203 1,336
REDEEMABLE PREFERRED STOCK 325 400
SHAREHOLDERS' 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, $.001 par value, authorized 20,000,000
shares, issued and outstanding 6,609,019 and 6,902,629
shares in 2001 and 2000, respectively 21,935 22,857
Retained earnings 21,135 21,217
Accumulated comprehensive loss (413) (354)
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42,778 43,841
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$ 124,416 $ 145,207
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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2001 2000 2001 2000
----------- ----------- ----------- -----------
Net Sales
Products $ 17,317 $ 23,271 $ 30,462 $ 48,335
Services 15,255 29,633
----------- ----------- ----------- -----------
Total Sales 32,572 $ 23,271 60,095 $ 48,335
Cost of goods sold
Products 12,752 16,118 21,960 33,131
Services 11,882 23,162
----------- ----------- ----------- -----------
Total Cost of Sales 24,634 16,118 45,122 33,131
Gross Profit 7,938 7,153 14,973 15,204
Selling, general and
administrative expenses 5,235 3,889 10,649 7,759
----------- ----------- ----------- -----------
Operating income 2,703 3,264 4,324 7,445
(Loss) from unconsolidated affiliate (260) (210)
Other Income (expense)
Interest income 768 -- 1,282 3
Interest expense (1,415) (412) (2,620) (927)
Sundry, net 5 (27) 520 (17)
----------- ----------- ----------- -----------
(642) (439) (818) (941)
----------- ----------- ----------- -----------
Earnings from continuing operations before income taxes and
extraordinary item 1,801 2,825 3,296 6,504
Income tax expense 682 1,086 2,354 2,457
----------- ----------- ----------- -----------
Earnings from continuing operations before extraordinary item 1,119 1,739 942 4,047
Preferred stock dividends 13 19 27
EARNINGS FROM CONTINUING OPERATIONS ON COMMON SHARES
----------- ----------- ----------- -----------
BEFORE EXTRAORDINARY ITEM 1,119 1,726 923 4,020
LOSS FROM DISCONTINUED OPERATIONS (115)
GAIN ON SALE OF DISCONTINUED OPERATIONS 11,200
----------- ----------- ----------- -----------
EARNINGS BEFORE EXTRAORDINARY ITEM $ 1,119 $ 1,726 $ 923 $ 15,105
----------- ----------- ----------- -----------
EXTRAORDINARY ITEM - (LOSS) FROM EXTINGUISHMENT OF DEBT (394)
----------- ----------- ----------- -----------
EARNINGS ON COMMON SHARES $ 1,119 $ 1,726 $ 923 $ 14,711
=========== =========== =========== ===========
BASIC EARNINGS PER COMMON SHARE:
Earnings per common share from continuing operations before
extraordinary item $ 0.17 $ 0.24 $ 0.14 $ 0.56
----------- ----------- ----------- -----------
Earnings per common share - discontinued operations -- -- -- 1.53
----------- ----------- ----------- -----------
Extraordinary item - (loss) from extinguishment of debt -- -- -- (0.06)
----------- ----------- ----------- -----------
Earnings per common share $ 0.17 $ 0.24 $ 0.14 $ 2.03
----------- ----------- ----------- -----------
Dividends declared and paid $ 0.075 $ 0.075 $ 0.150 $ 0.075
----------- ----------- ----------- -----------
EARNINGS ASSUMING DILUTION:
Earnings from continuing operations before extraordinary item $ 1,119 $ 1,726 $ 923 $ 4,020
Proforma reduction in interest on convertible debentures 186 248
----------- ----------- ----------- -----------
Proforma earnings from continuing operations before
extraordinary item 1,119 1,912 923 4,268
Loss from discontinued operations -- -- -- (115)
Gain on sale of discontinued operations -- -- -- 11,200
----------- ----------- ----------- -----------
Proforma earnings before extraordinary item 1,119 1,912 923 15,353
Extraordinary item - (loss) from extinguishment of debt -- -- -- (394)
----------- ----------- ----------- -----------
Proforma earnings on common shares assuming dilution $ 1,119 $ 1,912 $ 923 $ 14,959
=========== =========== =========== ===========
EARNINGS (LOSS) PER COMMON SHARE - ASSUMING DILUTION:
Earnings per common share from continuing operations before
extraordinary item $ 0.17 $ 0.23 $ 0.14 $ 0.52
----------- ----------- ----------- -----------
Earnings per common share - discontinued operations -- -- -- 1.35
----------- ----------- ----------- -----------
Extraordinary item - (loss) from extinguishment of debt -- -- -- (0.05)
----------- ----------- ----------- -----------
Earnings per common share $ 0.17 $ 0.23 $ 0.14 $ 1.82
----------- ----------- ----------- -----------
Basic weighted average common shares outstanding 6,609,455 7,170,938 6,634,571 7,202,494
----------- ----------- ----------- -----------
Diluted weighted average common shares and equivalents 6,640,896 8,547,741 6,665,137 8,199,420
----------- ----------- ----------- -----------
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NOBLE INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings from continuing operations before extraordinary items $ 942 $ 3,653
Adjustments to reconcile net earnings to
net cash provided by operations
Interest paid in kind 475 354
Loss from unconsolidated entity 210
Depreciation of property, plant and equipment 2,290 2,711
Amortization of goodwill 1,333 1,058
Deferred income taxes (958) 247
Changes in operating assets and liabilities, net of business acquisition
Increase in accounts receivable (3,629) (2,292)
(Increase) decrease in inventories (2,183) 915
(Increase) decrease in prepaid expenses (303) 1,028
(Increase) decrease in other assets (161) 1,434
Increase (decrease) in accounts payable 2,684 (257)
(Decrease) increase in income taxes payable (815) 1,945
Increase (decrease) in accrued liabilities 1,475 (1,643)
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Net cash provided by continuing operations 1,360 9,153
Net cash used by discontinued operations (115)
Net cash from sale of discontinued operations 80,689
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Net cash provided by operations 1,360 89,727
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (4,381) (7,053)
Investment in S.E.T (3,000)
S.E.T Receivable 24,734
Other Receivable (1,461)
-------- --------
Net cash provided by (used in) investing activities 15,892 (7,053)
CASH FLOWS USED IN FINANCING ACTIVITIES
Repayments of notes payable - related parties (5,000)
Capital lease payments (39) (25)
Redemption of common stock (1,055) (1,428)
Redemption of convertible subordinated debentures (5,688)
Dividends paid (1,024) (561)
Redemption of preferred stock of subsidiary (75) --
Payments on long-term debt (150) (2,159)
Net repayments on note payable to bank (15,488) (68,456)
-------- --------
Net cash used in financing activities (17,831) (83,317)
Effect of exchange rate changes on cash (59) --
-------- --------
Net decrease in cash (638) (643)
Cash at beginning of period 1,091 685
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Cash at end of period $ 453 $ 42
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for:
Interest $ 1,473 $ 1,107
======== ========
Taxes $ 1,351 $ 3,886
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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NOBLE INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND (LOSS)
(UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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2001 2000 2001 2000
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Net earnings $ 1,119 $ 1,726 $ 923 $14,711
Other comprehensive income (loss),
equity adjustment from foreign currency translation $ 92 (34) (59) (55)
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Comprehensive income $ 1,211 $ 1,692 $ 864 $14,656
============= ============== ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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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 six
months ended June 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 metal processing 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. In addition, the Company is guarantor of $10.0 million of SET's
senior debt.
On March 7, 2001 the Company, through it wholly owned subsidiary, NHL, formed
the company PECO Manufacturing, Inc. for the purpose of marketing and
distributing molded plastic products to the automotive, industrial and machine
building markets.
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.
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
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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, 2000.
NOTE B--INVENTORIES
Inventories at June 30, 2001 and December 31, 2000 consisted of the following
(in thousands):
JUNE 30, DECEMBER 31,
2001 2000
---- ----
Raw materials and purchased parts $ 1,242 $ 2,615
Work in process 632 629
Finished goods 2,567 3,440
Unbilled customer tooling 201 1,501
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$ 4,642 $ 8,185
======================= ===================
NOTE C--INDUSTRY SEGMENTS
The Company classifies its operating subsidiaries into three industry segments
based on types of products and services: metal processing (NMP, NMPC, NMPM, NMF,
UPP, Skandy and Land Holdings), distribution (Monroe) and logistics (ATD, CTD,
DSI, NLS and SCOL). The metal processing 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 metal processing 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 metal processing, 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 June 30,
2001 follows (in thousands):
METAL SEGMENT
PROCESSING DISTRIBUTION LOGISTICS TOTALS
---------- ------------ --------- ------
Revenues from external customers $ 16,162 $ 1,155 $ 15,255 $ 32,572
Interest income - - - -
Interest expense 574 32 597 1,203
Depreciation and amortization 1,369 94 627 2,090
Segment profit (loss) pre tax 1,780 89 (484) 1,385
Segment assets 62,730 7,718 32,635 103,083
Expenditures for segment assets 3,076 7 21 3,104
RECONCILIATION TO CONSOLIDATED AMOUNTS
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EARNINGS
Total earnings for reportable segments $ 1,385
Unallocated corporate headquarters expense 416
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Earnings from continuing operations before income
taxes and extraordinary item $ 1,801
=======
ASSETS
Total assets for reportable segments $ 103,083
Corporate headquarters 21,176
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Total consolidated assets $ 124,259
=========
OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
---------- ----------- ----------
Interest expense $ 1,203 $ 212 $ 1,415
Expenditures for segment assets 3,104 165 3,269
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
Mexico 9 -
Other 13 -
---------- ----------
Total $ 32,572 $ 90,468
========== ==========
The Company's operations by business segment for the six months ended June 30,
2001 follows (in thousands):
METAL SEGMENT
PROCESSING DISTRIBUTION LOGISTICS TOTALS
---------- ------------ --------- ------
Revenues from external customers $ 28,078 $ 2,384 $ 29,633 $ 60,095
Interest income - - - -
Interest expense 1,359 75 1,246 2,680
Depreciation and amortization 2,509 190 799 3,498
Segment profit (loss) pre tax 2,311 266 (1,405) 1,172
Segment assets 62,730 7,718 32,635 103,083
Expenditures for segment assets 4,269 58 38 4,385
RECONCILIATION TO CONSOLIDATED AMOUNTS
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EARNINGS
Total earnings for reportable segments $ 1,172
Unallocated corporate headquarters expense 2,124
--------
Earnings from continuing operations before income
taxes and extraordinary item $ 3,296
========
ASSETS
Total assets for reportable segments $ 103,083
Corporate headquarters 21,176
----------
Total consolidated assets $ 124,259
==========
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
Mexico 9 -
Other 52 -
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Total $ 60,095 $ 90,468
========== ==========
The Company's operations by business segment for the three months ended June 30,
2000 follows (in thousands):
METAL SEGMENT
PROCESSING DISTRIBUTION TOTALS
---------- ------------ ----------
Revenues from external customers $ 22,214 $ 1,057 $ 23,271
Interest income - - -
Interest expense 1,463 26 1,489
Depreciation and amortization 1,672 72 1,744
Segment profit pre-tax 2,102 233 2,335
Segment assets 100,832 6,451 107,283
Expenditure for segment assets 2,601 17 2,618
RECONCILIATION TO CONSOLIDATED AMOUNTS
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EARNINGS
Total earnings for reportable segments $ 2,335
Unallocated corporate headquarters expense 490
-------
Earnings from continuing operations before income
taxes and extraordinary item $ 2,825
========
ASSETS
Total assets for reportable segments $ 107,283
Net assets of discontinued operations 1,344
Corporate headquarters 2,768
---------
Total consolidated assets $ 111,395
=========
OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
---------- ------------ ----------
Interest expense $ 1,489 $ (1,077) $ 412
Expenditures for segment assets 2,618 1 2,619
Depreciation and amortization 1,744 195 1,939
GEOGRAPHIC INFORMATION
LONG-LIVED
REVENUES ASSETS
---------- ----------
United States $ 18,704 $ 80,762
Canada 4,551 2,177
Mexico 16 -
---------- ----------
Total $ 23,271 $ 82,939
========== ==========
The Company's operations by business segment for the six months ended June 30,
2000 follows (in thousands):
METAL SEGMENT
PROCESSING DISTRIBUTION TOTALS
---------- ------------ ----------
Revenues from external customers $ 46,162 $ 2,173 $ 48,335
Interest income - - -
Interest expense 2,924 61 2,985
Depreciation and amortization 3,331 146 3,477
Segment profit pre-tax 5,104 504 5,608
Segment assets 100,832 6,451 107,283
Expenditure for segment assets 7,053 29 7,082
RECONCILIATION TO CONSOLIDATED AMOUNTS
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EARNINGS
Total earnings for reportable segments $ 5,608
Unallocated corporate headquarters expense 896
--------
Earnings from continuing operations before income
taxes and extraordinary item $ 6,504
========
ASSETS
Total assets for reportable segments $ 107,283
Net assets of discontinued operations 1,344
Corporate headquarters 2,768
----------
Total consolidated assets $ 111,395
==========
OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
---------- ----------- ----------
Interest expense $ 2,985 $ (2,058) $ 927
Expenditures for segment assets 7,082 (29) 7,053
Depreciation and amortization 3,477 292 3,769
GEOGRAPHIC INFORMATION
LONG-LIVED
REVENUES ASSETS
---------- ----------
United States $ 39,164 $ 80,762
Canada 9,123 2,177
Mexico 48 -
---------- ----------
Total $ 48,335 $ 82,939
========== ==========
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.
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
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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 $1.3 million for the six months ended June 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 June 30, 2001 increased
40.0% to $32.6 million from $23.3 million for the comparable quarter of 2000.
The increase in sales is substantially due to the inclusion of the logistics
group that was acquired in the third quarter of 2000 and higher steel sales
within the Company's metal processing group. This increase was partially offset
by the overall reduction in sales in the metal processing group due to the sale
of NMF and NMPM in February 2001 and lower revenue in NMP and the distribution
group due to lower production volumes and product mix. The logistics group net
sales for the period were $15.3 million. The metal and distribution groups net
sales for the period declined 25.6% to $17.3 million as compared to $23.3
million in the same period in 2000.
Net sales for the six months ending June 30, 2001 increased 24.3% to $60.1
million from $48.3 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, as well as the higher steel sales within the Company's
metal processing group. This increase was partially offset by the reduction in
sales due to the sale of NMF and NMPM in February 2000. The logistics group
revenue for the period was $29.6 million. The metal and distribution group's
revenue declined 37.0% to $30.5 million from $48.3 million during the same
period in 2000.
COST OF GOODS SOLD. As a percent of net sales, cost of goods sold for
the three-month period ended June 30, 2001 increased to 75.6% as compared with
69.3% for the same period in 2000. The increase in cost of goods sold as a
percent of net sales is primarily due to the inclusion of the logistics group as
this business has higher cost of goods sold and due to lower production volumes
and product mix in the metal processing and distribution groups. For the three
months ended June 30, 2001 the logistics group had cost of goods sold of 77.9%.
The metal processing and distribution group's cost of goods sold increased to
74.6% from 69.3%.
For the six-months ended June 30, 2001, cost of goods sold increased to 75.1%
from 68.5% 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 due to lower production volumes and product mix in the metal
processing and distribution groups. The logistics group's cost of sales, as
percent of net sales, for the six-month period ended June 30, 2001 was 78.2%.
The metal processing and distribution group's costs of sales, as percent of net
sales, increased to 71.2% as compared to 68.5% for the comparable period in
2000.
GROSS PROFIT. The Company's gross profit increased 11.0% to $7.9
million for the three months ended June 30, 2001 from $7.2 million for the
comparable period of 2000. The increase was primarily the result of the
acquisition of the logistics group in 2000 offset by the sale of NMF and NMPM
earlier in the year. The logistic group's gross profit was $3.4 million in the
period. The metal and distribution group's gross profit declined 36.2% to $4.6
million as compared to $7.2 million for the comparable period in 2000.
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For the six month period ended June 30, 2001 gross profit decreased 1.5% to
$15.0 million from $15.2 million for the same period in 2000. The decline was
primarily the result of lower gross profit in the metal processing due to the
sale of NMF and NMPM earlier this year. The logistics group's gross profit for
the period ended June 30, 2001 was $6.5 million. Gross profit for the metal and
distribution groups declined 44.1% to $8.5 million from $15.2 million in the
comparable period in 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.4 million, or 34.6% to $5.2 million for
the three-month period ended June 30, 2001 as compared to the comparable period
of 2000. For the six-month period ended June 30, 2001, selling, general and
administrative expenses increased $2.9 million to $10.6 million from $7.8
million. The increase in selling, general and administrative expenses for the
three and six 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 change in estimate for local taxes totaling $0.4 million.
OPERATING INCOME. As a result of the foregoing factors, operating
profit decreased $0.6 million for the three-month period ended June 30, 2001 to
$2.7 million from $3.3 million for the same period in 2000, a decrease of 17.2%.
For the six-month period, operating profit decreased $3.1 million to $4.3
million from $7.5 million for the comparative six-month period in 2000, a
decrease of 41.9%.
INTEREST EXPENSE. Interest expense increased 243.5% to $1.4 million for
the three months ended June 30, 2001 from $0.4 million for the comparable
quarter of the prior year. For the six month period ended June 30, 2001,
interest expense increased 182.6% to $2.6 million from $0.9 million for the same
period in 2000. The increase for the three month and six month periods was
primarily the result to increased borrowings due to the acquisition of the
logistics group, the temporary financing of the sale of NMPM and NMF since
February 2001 and investments in property, plant and equipment.
INCOME TAX EXPENSE. Income tax expense for the three-month period ended
June 30, 2001 decreased $0.4 million to $0.7 million from $1.1 million for the
comparable period in 2000. This decrease was the result of lower taxable income
in the 2001 period. Income tax expense for the six months ended June 30, 2001
decreased $0.1 million to $2.4 million from $2.5 million for the same period in
the prior year. The six-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.
NET EARNINGS. As a result of the foregoing factors, net earnings from
continuing operations for the three-month period ended June 30, 2001 decreased
$0.6 million to $1.1 million from $1.7 million for the comparable period of the
prior year. Net earnings for the six-month period ended June 30, 2001 decreased
$3.1 million to $0.9 million from $4.0 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 June 30, 2001, the
Company had working capital of approximately $4.6 million.
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The Company generated cash from continuing operations of $1.4 million
for the six months ended June 30, 2001. Net cash provided by continuing
operations was primarily the result of net income, increased accounts payable,
accrued liabilities, depreciation, amortization and interest paid in kind,
partially offset by decreased income taxes payable and deferred income taxes,
and increased accounts receivable, inventories, prepaid expenses and other
assets. Cash provided by investing activities of $15.9 million for the six
months ended June 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 investment in SET. The Company used cash in financing activities of
$17.8 million for the six months ended June 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 the six months ended June 2001 bore interest at the rate of
approximately 7.02% 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. In addition, the Company is guarantor of $10.0 million of the purchaser's
senior debt obligations. The subordinated note is 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.
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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 8.5% of the total revenues for the six months ended June, 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 shareholders' equity. Accordingly, the
Company's consolidated shareholders' 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).
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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: August 14, 2001 By: /s/ David V. Harper
---------------------------------
David V. Harper,
Chief Financial Officer
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