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, 2002
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 March 31, 2002 was 6,808,415.
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, 2001 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 MARCH 31, 2002
(UNAUDITED) AND DECEMBER 31, 2001.........................................................................3
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) FOR THE
THREE MONTH PERIOD ENDED MARCH 31, 2002 AND 2001..........................................................4
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE
THREE MONTH PERIOD ENDED MARCH 31, 2002 AND 2001..........................................................5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
FOR THE THREE PERIOD ENDED MARCH 31, 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....................................................................................11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........................................14
PART II - OTHER INFORMATION......................................................................................15
ITEM 1. LEGAL PROCEEDINGS...................................................................................15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...........................................................15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................................................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................15
ITEM 5. OTHER INFORMATION...............................................................................15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................................15
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
MARCH 31, DECEMBER 31,
ASSETS 2002 2001
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CURRENT ASSETS
Cash and cash equivalents $ 643 $ 943
Accounts receivable, trade 32,165 32,556
Inventories 19,954 20,495
Prepaid expenses and other assets 2,886 3,200
Deferred income taxes 506 506
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Total Current Assets 56,154 57,700
PROPERTY, PLANT AND EQUIPMENT, NET 47,965 46,989
OTHER ASSETS
Goodwill 40,754 40,755
Covenants not to compete 1,076 1,139
Other 10,818 10,356
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Total Other Assets 52,648 52,250
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$ 156,767 $ 156,939
========= =========
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 267 $ 51,035
Accounts payable 26,092 21,231
Accrued liabilities 8,185 12,823
Income taxes payable 826 --
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Total Current Liabilities 35,370 85,089
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES 49,898 809
CONVERTIBLE SUBORDINATED DEBENTURES 16,110 16,110
JUNIOR SUBORDINATED NOTES 3,447 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, 10% cumulative,
authorized 150,000 shares -- --
Paid-in capital - warrants, $10 per common share
exercise price, 90,000 warrants outstanding 121 121
Common stock, $.001 par value, authorized 20,000,000
shares, issued 7,617,632 and 7,519,186
shares in 2002 and 2001, respectively 23,953 22,871
Retained earnings 25,921 24,857
Accumulated comprehensive loss (711) (468)
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49,284 47,381
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$ 156,767 $ 156,939
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED, IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2002 2001
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Net sales
Products $ 38,902 $ 13,145
Services 16,092 14,378
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Total sales 54,994 27,523
Cost of sales
Products 32,924 9,208
Services 12,744 11,280
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Total cost of sales 45,668 20,488
Gross margin 9,326 7,035
Selling, general and
administrative expenses 6,213 5,414
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Operating income 3,113 1,621
Income from unconsolidated affiliate -- 50
Other Income (expense)
Interest income 244 514
Interest expense (818) (1,205)
Other, net -- 515
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(574) (176)
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Earnings (loss) before income taxes 2,539 1,495
Income tax expense 919 1,672
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Earnings (loss) before preferred stock dividends 1,620 (177)
Preferred stock dividends 10 19
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EARNINGS (LOSS) ON COMMON SHARES 1,610 (196)
BASIC EARNINGS (LOSS) PER COMMON SHARE: $ 0.24 $ (0.03)
DILUTED EARNINGS (LOSS) PER COMMON SHARE $ 0.23 $ (0.03)
DIVIDENDS DECLARED AND PAID $ 0.080 $ 0.075
Basic weighted average common shares outstanding 6,729,905 6,704,478
Diluted weighted average common shares outstanding 6,986,368 6,704,478
The accompanying notes are an integral part of these financial statements
NOBLE INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss) $ 1,620 $ (177)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operations
Interest paid in kind 8 475
Loss on sale of assets 6
Depreciation of property, plant and equipment 1,349 1,188
Amortization of intangible assets 64 418
Deferred income taxes -- (958)
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable 402 (2,157)
(Increase) decrease in inventories 541 (648)
(Increase) decrease in prepaid expenses 323 (819)
Decrease in other assets 58 167
Increase (decrease) in accounts payable 4,861 (1,414)
Increase in income taxes payable 817 2,345
Increase (decrease) in accrued liabilities (4,638) 369
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Net cash provided by (used in) operations 5,411 (1,211)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (3,046) (1,440)
Proceeds from sale of property, plant and equipment 704
Investment in SET -- (3,000)
Increase in other long term assets (520) (941)
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Net cash (used in) investing activities (2,862) (5,381)
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of common stock (31) (1,042)
Dividends paid (550) (527)
Redemption of preferred stock of subsidiary (250) (75)
Payments on long-term debt (157) (251)
Net borrowings (repayments) on note payable to bank (1,618) 7,854
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Net cash provided by (used in) financing activities (2,606) 5,959
Effect of exchange rate changes on cash (243) (151)
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Net decrease in cash (300) (784)
Cash at beginning of period 943 1,091
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Cash at end of period $ 643 $ 307
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SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for:
Interest $ 990 $ 625
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Taxes $ -- $ --
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
NOBLE INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2002 2001
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Net earnings (loss) $ 1,610 $ (196)
Other comprehensive income (loss),
equity adjustment from foreign currency translation,
net of tax $ (243) (151)
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Comprehensive income (loss), net of tax $ 1,367 $ (347)
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
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 March 31, 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"), and 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.)
("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 Form10-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, common stock was reclassified from long-term debt to
stockholders' equity.
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 at March 31, 2002 and December 31, 2001 consisted of the following
(in thousands):
MARCH 31, DECEMBER 31,
2002 2001
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Raw materials and purchased parts $ 14,088 $ 14,047
Work in process 1,965 2,367
Finished goods 3,901 3,906
Unbilled customer tooling - 175
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$ 19,954 $ 20,495
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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. 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.
The Company's operations by business segment for the three months ended March
31, 2002 follows (in thousands):
HEAVY SEGMENT
AUTOMOTIVE EQUIPMENT LOGISTICS TOTALS
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Revenues from external customers $ 26,211 $ 11,615 $ 17,168 $ 54,994
Interest expense 368 92 473 933
Depreciation and amortization 1,255 -- 60 1,315
Segment profit pre tax 2,056 297 285 2,638
Segment assets 80,462 18,473 39,271 138,206
Expenditures for segment assets 2,842 36 32 2,910
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total earnings for reportable segments $ 2,638
Unallocated corporate headquarters loss (99)
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Earnings before income taxes $ 2,539
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ASSETS
Total assets for reportable segments $138,206
Corporate headquarters 18,561
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Total consolidated assets $156,767
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OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
------------------------------------
Interest expense $ 933 $ (115) $ 818
Expenditures for segment assets 2,910 136 3,046
Depreciation and amortization 1,315 98 1,413
GEOGRAPHIC INFORMATION LONG-LIVED
REVENUES ASSETS
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United States $50,977 $87,374
Canada 3,971 1,345
Other 46 -
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Total $54,994 $88,719
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The Company's operations by business segment for the three months ended March
31, 2001 follows (in thousands):
HEAVY SEGMENT
AUTOMOTIVE EQUIPMENT LOGISTICS TOTALS
-------------------------------------------------------
Revenues from external customers $ 11,916 - $ 15,607 $ 27,523
Interest expense 785 - 692 $ 1,477
Depreciation and amortization 1,140 - 268 $ 1,408
Segment profit pre tax 531 - (744) $ (213)
Segment assets 59,101 - 39,737 $ 98,838
Expenditures for segment assets 1,213 - 68 $ 1,281
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total earnings for reportable segments $ (213)
Unallocated corporate headquarters income 1,708
---------
Earnings before income taxes and
extraordinary item $ 1,495
=========
ASSETS
Total assets for reportable segments $ 98,838
Corporate headquarters $ 45,459
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Total consolidated assets $ 144,297
=========
OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
----------------------------------------
Interest expense $1,477 $ (272) $1,205
Expenditures for segment assets 1,281 160 1,441
Depreciation and amortization 1,612 (6) 1,606
GEOGRAPHIC INFORMATION LONG-LIVED
REVENUES ASSETS
-------------------------
United States $ 25,325 $ 87,364
Canada 2,159 1,720
Other 39 -
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Total $ 27,523 $ 89,084
========================
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 quarter for lease costs incurred on vacated property and losses incurred in
connection with the sale of certain real estate. The balance in the
restructuring reserve at March 31, 2002 was $0.75 million and represents the
expected costs associated with the repair of vacated leased facilities and real
estate that is being marketed for sale. Resolution of these items is expected by
December 31, 2002.
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 142 is effective for fiscal years beginning after
December 15, 2001 and applies to all goodwill and other intangible assets
recognized in an entity's statement of financial position at that date,
regardless of when those assets were initially recognized. The Company is
currently evaluating the effects of this statement. The Company adopted this
statement on January 1, 2002, and goodwill will no longer be amortized; however,
tests for impairment will be performed annually or when a triggering event
occurs. For the three months ended March 31, 2001, our reported net loss and
basic and diluted loss per share were $0.2 million and $0.03 per share,
respectively. Adjusted for the non-amortization provisions of SFAS No. 142, our
reported net income and basic and diluted earnings per share would have been
$0.1 million and $0.02 per share, respectively, resulting in an increase in
earnings of $0.3 million, or $0.05 per share for the first quarter. The
after-tax impact in 2002 of the non-amortization provisions of SFAS No. 142 is
expected to be $0.5 million ($0.07 per share) for each of the succeeding three
quarters.
A reconciliation of previously reported net income (loss) and earnings (loss)
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 STATEMENTS NO. 142
(in thousands, except per share data) March 31,
---------------------------
2002 2001
---------------------------
Reported net income (loss) $ 1,610 $ (196)
Add: Goodwill amortization, net of tax -- 317
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Adjusted net income $ 1,610 $ 121
===========================
Reported basic earnings (loss) per share $ 0.24 $ (0.03)
Add: Goodwill amortization, net of tax -- 0.05
---------------------------
Adjusted basic earnings per share $ 0.24 $ 0.02
===========================
Reported diluted earnings (loss) per share $ 0.23 $ (0.03)
Add: Goodwill amortization, net of tax -- 0.05
---------------------------
Adjusted diluted earnings per share $ 0.23 $ 0.02
===========================
For the three months ended March 31, 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 three months ended March 31,
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:
(in thousands)
2003 $ 285
2004 267
2005 76
2006 65
2007 65
Thereafter 122
NOTE F--SUBSEQUENT EVENTS
On April 1, 2002, the Company converted its $7.6 million note receivable,
including interest, from SET Enterprises ("SET") into preferred stock of SET.
The preferred stock has no dividend, 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 it
Shelbyville, KY facility to the Company's Chief Executive Officer. The sale
price was $6.2 million. The sale price was the book value of the property. The
proceeds of the transaction were used to reduce the Company's debt under its
current credit facility.
On May 9, 2002 the Company's current credit facility was increased to a $60.0
million facility 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.
The Credit Facility 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. 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
three months ended March 2002 bore interest at the rate of approximately 4.01%
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. The Company currently guarantees $10.0 million of SET
Enterprises, Inc. senior debt. As of the date of this report, the Company does
not believe the lender will call the guarantee.
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 March 31, 2002
increased $27.5 million, or 99.8%, to $55.0 million from $27.5 million for the
comparable quarter of 2001. The increase in sales is attributable to increased
revenue from all operating segments. The automotive group increased sales by
120%. This increase was 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 group's revenue was positively
impacted by increased steel sales. The logistics group experienced increased
sales of 10.0% as this group continues to execute its strategy. Sales were also
positively impacted by the inclusion of the heavy equipment group, which was
acquired in December 2001.
Cost of Sales. Cost of sales increased by $25.2 million, or 123.0%, to
$45.7 million for the three-month period ended March 31, 2002, from $20.5
million for the same period in 2001. This increase was primarily the result of
increased steel sales within the automotive group. Steel is an increasing
component of cost of sales as the automotive group transitions to a full service
supplier from a toll processor. Cost of sales was also influenced by the
inclusion of the heavy equipment group acquired in December 2001. The heavy
equipment group has a higher cost of sales as a percentage of sales than our
other operating segments. The logistics group experienced costs of sales
consistent with historical results.
Gross Margin. Gross margin increased $2.3 million, or 32.6%, to $9.3
million for the three months ended March 31, 2002 from $7.0 million for the
comparable period of 2001. The increase was primarily the result of the
inclusion of the heavy equipment group, as well as increased sales in the
Company's other operating segments. As a percentage of sales gross margin
decreased from 25.6% in the 2001 period to 17.0% in the 2002 period. 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.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $0.8 million, or 14.8% to $6.2 million for
the three-month period ended March 31, 2002 as compared to $5.4 million in the
comparable period of 2001. This increase was primarily the result of the
inclusion of the heavy equipment group, acquired in December 2001, partially
offset by expense reductions in the logistics group. As a percentage of net
sales, such expenses decreased to 11.3% for the three months ended March 31,
2002 from 19.7% for the three months ended March 31, 2001.
Operating Profit. As a result of the foregoing factors, operating
profit increased $1.5 million, or 92% to $3.1 million for the three-month period
ended March 31, 2002 from $1.6 million for the same period in 2001. As a
percentage of net sales, operating profit decreased slightly to 5.7% for the
three months ended March 31, 2002 from 5.9% for the three months ended March 31,
2001.
Interest Income. Interest income decreased 52.5% to $0.2 million for
the period ended March 31, 2002 from $0.5 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 32.1%, to $0.8 million,
for the three months ended March 31, 2002 from $1.2 million for the comparable
quarter of the prior year. The reduction was the result of lower interest rates
and, to a lesser extent lower borrowings.
Income Tax Expense. Income tax expense for the three-month period ended
March 31, 2002 decreased 42.6%, or $0.7 million, to $0.9 million from $1.6
million for the comparable period in 2001. This decrease was primarily the
result of a one-time $1.1 million tax expense in the 2001 quarter related to a
difference between the tax and book bases for a business sold.
Net Earnings. As a result of the foregoing factors, net earnings from
continuing operations for the three-month period ended March 31, 2002 increased
to $1.6 million from a loss of $0.2 million for the comparable period of the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements have historically been satisfied
through a combination of cash flows 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.
The Company generated cash from operations of $5.4 million for the
three months ended March 31, 2002. Net cash provided by operations was primarily
the result of net income, increased accounts payable, depreciation,
amortization, income taxes payable, and decreased accounts receivable,
inventories and prepaid expenses, partially offset by decreased accrued
liabilities. Cash used investing activities of $2.9 million for the three months
ended March 31, 2002 was primarily due to purchases of property, plant and
equipment, partially offset by the sale of real estate. The Company used cash in
financing activities of $2.6 million for the three months ended March 31, 2002
primarily for the reduction of senior debt and payment of dividends.
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 and therefore has not
created a reserve for the possible uncollectible amounts of this receivable. 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 $50.0 million at December 31, 2001,
subsequently amended to a $60.0 million facility in May 2002. The Credit
Facility expires in September 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 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 three months ended March 31,
2002 bore interest at the rate of approximately 4.01% 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. The Company currently guarantees $10.0 million of SET Enterprises,
Inc. senior debt. As of the date of this report, the Company does not believe
the lender will call the guarantee.
The liquidity provided by the Company's current credit facilities and
committed credit facilities is expected to be sufficient to meet the Company's
currently anticipated working capital and capital expenditure needs for at least
12 months. There can be no assurance, however, that such funds will not be
expended prior thereto due to changes in economic conditions or other unforeseen
circumstances, requiring the Company to obtain additional financing prior to the
end of such 12 month period. In addition, the Company regularly reviews, as part
of its business strategy, future growth through opportunistic acquisitions which
may involve the expenditure of significant funds. Depending upon the nature,
size and timing of future acquisitions, if any, the Company may be required to
obtain additional debt or equity financing in connection with such future
acquisitions. There can be no assurance, however, that additional financing will
be available to the Company, when and if needed, on acceptable terms or at all.
INFLATION
Inflation generally affects the Company by increasing the interest
expense of floating rate indebtedness and by increasing the cost of labor,
equipment and raw materials. The Company does not believe that inflation has had
a material effect on its business over the past two years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of foreign currency fluctuations.
International revenues from the Company's foreign subsidiaries were
approximately 7.1% of the total revenues for the three months ended March 2002.
The Company's primary foreign currency exposure is the Canadian Dollar and
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 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).
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) The following report on Form 8-K was filed during the period ending March
31, 2002
(i) Report on Form 8-K filed on January 3, 2002, concerning the
purchase of Construction Equipment Direct, Inc. and the purchase of certain
assets and assumption of certain liabilities of Eagle-Picher Industries, Inc.'s
construction equipment division.
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 15, 2002 By: /s/ David V. Harper
---------------------------------
David V. Harper,
Chief Financial Officer