1
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, 2001
OR
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ------------------------
Commission File Number: 001-13581
--------------
NOBLE INTERNATIONAL, LTD.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3139487
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
20101 Hoover Road, Detroit, Michigan 48205
------------------------------------------
(Address of principal executive offices)
(Zip Code)
(313) 245-5600
------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of shares of the registrant's common stock, $.001 par value,
outstanding as of March 31, 2001 was 6,611,950.
2
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 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 March 31, 2001
(unaudited) and December 31, 2000.......................................................................3
Consolidated Statements of Operations (unaudited) for the
Three Month Periods Ended March 31, 2001 and 2000.......................................................4
Consolidated Statements of Cash Flows (unaudited) for the
Three Month Periods Ended March 31, 2001 and 2000.......................................................5
Consolidated Statements of Comprehensive Income (unaudited)
for the Three Month Periods Ended March 31, 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..................................................................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................12
PART II - OTHER INFORMATION......................................................................................13
Item 1. Legal Proceedings......................................................................................13
Item 2. Changes in Securities and Use of Proceeds..............................................................13
Item 3. Defaults Upon Senior Securities........................................................................13
Item 4. Submission of Matters to a Vote of Security Holders....................................................13
Item 5. Other Information......................................................................................13
Item 6. Exhibits and Reports on Form 8-K.......................................................................13
2
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NOBLE INTERNATIONAL, LTD.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS)
MARCH 31, DECEMBER 31,
ASSETS 2001 2000
------------------ -------------------
CURRENT ASSETS
Cash and cash equivalents $ 307 $ 1,091
Accounts receivable, trade 14,064 20,214
Inventories 3,107 8,185
Prepaid expenses and other assets 1,910 1,312
Deferred income taxes 1,435 1,566
------------------ -------------------
Total Current Assets 20,823 32,368
PROPERTY, PLANT AND EQUIPMENT, NET 46,648 58,673
OTHER ASSETS
Goodwill - net 42,436 50,148
Covenants not to compete - net 1,323 1,389
Sundry 2,815 2,629
Investment in SET 3,050 -
Note Receivable - SET 27,202 -
------------------ -------------------
Total Other Assets 76,826 54,166
------------------ -------------------
$ 144,297 $ 145,207
================== ===================
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 80 $ 420
Accounts payable 5,468 12,180
Accrued liabilities 9,869 10,303
Income taxes payable 1,431 143
------------------ -------------------
Total Current Liabilities 16,848 23,046
LONG-TERM DEBT, EXCLUDING CURRENT MATURITIES 61,486 53,743
CONVERTIBLE SUBORDINATED DEBENTURES 16,727 16,252
JUNIOR SUBORDINATED NOTES 3,359 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 6,611,950 and 7,234,319
shares in 2001 and 2000, respectively 21,948 22,857
Retained earnings 20,513 21,217
Accumulated comprehensive loss (505) (354)
------------------ -------------------
42,077 43,841
------------------ -------------------
$ 144,297 $ 145,207
================== ===================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
3
4
NOBLE INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
2001 2000
-------------------- -----------------
Net Sales
Products $ 13,145 $ 25,064
Services 14,378
-------------------- -----------------
Net sales 27,523 25,064
Cost of Goods Sold
Product 9,208 17,013
Services 11,280
-------------------- -----------------
Cost of goods sold 20,488 17,013
-------------------- -----------------
Gross profit 7,035 8,051
Selling, general and
administrative expenses 5,414 3,870
-------------------- -----------------
Operating profit 1,621 4,181
Other income (expense)
Interest income 514 3
Interest expense (1,205) (515)
Income from unconsolidated subsidiary 50
Sundry, net 515 10
-------------------- -----------------
(126) (502)
-------------------- -----------------
Earnings from continuing operations before income taxes
and extraordinary item 1,495 3,679
Income tax expense 1,672 1,371
-------------------- -----------------
Net earnings (loss) from continuing operations before extraordinary item (177) 2,308
Preferred stock dividends 19 14
Net earnings (loss) from continuing operations on common shares -------------------- -----------------
before extraordinary item (196) 2,294
Net loss from discontinued operations - net of tax (115)
Gain on sale of discontinued operations - net of tax 11,200
-------------------- -----------------
Net earnings (loss) before extraordinary item (196) 13,379
Extraordinary item - loss from extinguishment of debt (394)
Net earnings (loss) on common shares $ (196) $ 12,985
==================== =================
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Earnings (loss) per common share from continuing operations before extraordinary item $ (0.03) $ 0.32
-------------------- -----------------
Earnings per common share - discontinued operations $ 1.53
-------------------- -----------------
Extraordinary item - loss from extinguishment of debt $ (0.06)
-------------------- -----------------
Earnings (loss) per common share $ (0.03) $ 1.79
-------------------- -----------------
Dividends declared and paid $ 508
-------------------- -----------------
EARNINGS (LOSS) PER COMMON SHARE - ASSUMING DILUTION:
Net earnings (loss) from continuing operations and before extraordinary item $ (196) $ 2,294
Proforma reduction in interest on convertible debentures 62
-------------------- -----------------
Proforma net earnings (loss) from continuing operations before extraordinary item (196) 2,356
Net earnings (loss) from discontinued operations - (115)
Gain on sale of discontinued operations (less income tax of $6,660) - 11,200
-------------------- -----------------
Proforma net earnings (loss) before extraordinary item (196) 13,441
Extraordinary item - loss from extinguishment of debt (less income tax of $203) - (394)
-------------------- -----------------
Proforma net earnings (loss) on common shares assuming dilution $ (196) $ 13,047
==================== =================
Earnings (loss) per common from continuing operations before extraordinary item $ (0.03) $ 0.29
-------------------- -----------------
Earnings per common share - discontinued operations $ 1.42
-------------------- -----------------
Extraordinary item - loss from extinguishment of debt $ (0.05)
-------------------- -----------------
Earnings (loss) per common share $ (0.03) $ 1.66
-------------------- -----------------
Basic weighted average common shares outstanding 6,704,478 7,234,051
-------------------- -----------------
Diluted weighted average common shares and equivalents 6,704,478 7,858,882
-------------------- -----------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
4
5
NOBLE INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
2001 2000
-------------- -------------
CASH FLOWS (USES) FROM OPERATING ACTIVITIES
Net earnings (loss) from continuing operations $ (177) $ 1,914
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operations
Interest paid in kind 475 354
Depreciation of property, plant and equipment 1,188 1,349
Amortization of goodwill 418 481
Deferred income taxes (958) -
Changes in operating assets and liabilities, net of business acquisition
Decrease (increase) in accounts receivable (2,157) (4,243)
Decrease (increase) in inventories (648) 653
Decrease (increase) in prepaid expenses (819) 797
Decrease (increase) in other assets 167 447
Increase (decrease) in accounts payable (1,414) 658
Increase (decrease) in income taxes payable 2,345 1,416
Increase (decrease) in accrued liabilities 369 (998)
-------------- -------------
Net cash provided by (used in) continuing operations (1,211) 2,828
Net cash used by discontinued operations (115)
Net cash from sale of discontinued operations 83,639
-------------- -------------
Net cash provided (used) by operations (1,211) 86,352
CASH FLOWS (USES) FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (1,440) (4,434)
Investment in SET (3,000)
Increase in other long term assets (941)
-------------- -------------
Net cash used in investing activities (5,381) (4,434)
CASH FLOWS (USES) FROM FINANCING ACTIVITIES
Repayments of notes payable - related parties (5,000)
Capital lease payments (20) (12)
Redemption of common stock (1,042) (300)
Redemption of convertible subordinated debentures - (5,688)
Dividends paid (527) (14)
Redemption of preferred stock of subsidiary (75) -
Payments on long-term debt (231) (234)
Net proceeds (repayments) on note payable to bank 7,854 (71,130)
-------------- -------------
Net cash provided (used) by financing activities 5,959 (82,378)
Effect of exchange rate changes on cash (151) -
-------------- -------------
Net decrease in cash (784) (460)
Cash at beginning of period 1,091 685
-------------- -------------
Cash at end of period $ 307 $ 225
============== =============
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for:
Interest $ 625 $ 923
============== =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY
The Company sold all of its capital stock in two subsidiaries in exchange
for a note receivable of $27.2 million.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
5
6
NOBLE INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND (LOSS)
(UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
------------------------------
2001 2000
------------- -------------
Net earnings (loss) $ (196) $12,985
Other comprehensive income (loss),
equity adjustment from foreign currency translation (151) (21)
------------- -------------
Comprehensive income (loss) $ (347) $12,964
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
6
7
NOBLE INTERNATIONAL, LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, the financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and such
adjustments are of a normal recurring nature.
The accompanying consolidated interim financial statements as of and for the
three months ended March 31, 2001 and for the period 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"), DSI Holdings,
Inc. ("DSI"), 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 all periods
presented. The assets and liabilities of these operations have been reported in
the Consolidated Balance Sheet as net assets of discontinued operations.
On February 16, 2001, the Company acquired a 49% interest in S.E.T. Steel, Inc.
("SET") for $3.0 million. 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"). The Company currently holds a note
receivable from SET in the amount of $27.2 million that is due June 14, 2001. In
addition, the Company is guarantor of $1.0 million of debt for SET.
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 the acquisition of all of the assets of H&H Steel
Processing Company, Inc. and is included in other income.
Results for interim periods should not be considered indicative of results for a
full year. The year-end consolidated balance sheet was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. 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.
7
8
NOTE B--INVENTORIES
Inventories at March 31, 2001 and December 31, 2000 consisted of the following
(in thousands):
MARCH 31, DECEMBER 31,
2001 2000
---- ----
Raw materials and purchased parts $ 284 $2,615
Work in process 231 629
Finished goods 2,378 3,440
Unbilled customer tooling 214 1,501
------ ------
$3,107 $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 and Land Holdings), distribution (Monroe) and logistics (ATD, CTD and DSI).
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 March
31, 2001 follows (in thousands):
METAL SEGMENT
PROCESSING DISTRIBUTION LOGISTICS TOTALS
---------- ------------ --------- ------
Revenues from external customers $ 11,916 $ 1,229 $ 14,378 $ 27,523
Interest income - - - -
Interest expense 785 43 649 1,477
Depreciation and amortization 1,140 96 172 1,408
Segment profit pre tax 531 177 (921) (213)
Segment assets 59,101 7,936 31,801 98,838
Expenditure for segment assets 1,213 51 17 1,281
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total loss for reportable segments $ (213)
Unallocated corporate headquarters expense 1,708
---------
Earnings from continuing operations before income
taxes and extraordinary item $ 1,495
=========
8
9
ASSETS
Total assets for reportable segments $ 98,838
Corporate headquarters 45,459
---------
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 1,440
Depreciation and amortization 1,612 51 1,663
GEOGRAPHIC INFORMATION
LONG-LIVED
REVENUES ASSETS
------------ ----------
United States $ 25,325 $ 87,364
Canada 2,159 1,720
Other 39 -
------------ ----------
Total $ 27,523 $ 89,084
============ ==========
The Company's operations by business segment for the three months ended March
31, 2000 follows (in thousands):
METAL SEGMENT
PROCESSING DISTRIBUTION TOTALS
---------- --------- ----------
Revenues from external customers $ 23,948 $ 1,116 $ 25,064
Interest income - - -
Interest expense 1,461 35 1,496
Depreciation and amortization 1,659 74 1,733
Segment profit pre-tax 3,002 271 3,273
Segment assets 100,608 6,676 107,284
Expenditure for segment assets 4,452 12 4,464
RECONCILIATION TO CONSOLIDATED AMOUNTS
EARNINGS
Total earnings for reportable segments $ 3,273
Unallocated corporate headquarters expense 406
--------
Earnings from continuing operations before income
taxes and extraordinary item $ 3,679
========
ASSETS
Total assets for reportable segments $107,284
Net assets of discontinued operations 1,329
Corporate headquarters 3,385
--------
Total consolidated assets $111,998
========
9
10
OTHER SIGNIFICANT ITEMS
SEGMENT CONSOLIDATED
TOTALS ADJUSTMENTS TOTALS
-------- ----------- ------------
Interest expense $ 1,496 $ (981) $ 515
Expenditures for segment assets 4,464 (30) 4,434
Depreciation and amortization 1,733 97 1,830
GEOGRAPHIC INFORMATION
LONG-LIVED
REVENUES ASSETS
------------ ----------
United States $ 20,460 $ 79,115
Canada 4,572 2,915
Mexico 32 -
------------ ----------
Total $ 25,064 $ 82,030
============ ==========
NOTE D - RESTRUCTURING RESERVE
The restructuring reserve of $3.9 million recorded in December 2000 was reduced
by $0.5 million to $3.4 million during the quarter due primarily to a change in
estimate regarding the holding period and carrying costs of some of the
Company's real estate.
NOTE E - STOCKHOLDER'S EQUITY
On January 27, 2000 the Board of Directors approved a stock repurchase program
of up to $5.0 million of the Company's common stock, which was subsequently
increased by $5.0 million on January 31, 2001
On February 15, 2001 the Company repurchased 160,000 shares of its common stock
from its Chief Executive Officer for $880,000 in cash.
NOTE F - SUBSEQUENT EVENTS
On May 9, 2001 the stockholders of the Company approved the 2001 Non-Employee
Director Stock Incentive Plan and the 2001 Stock Incentive Plan.
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 March 31, 2001 increased 9.8%
to $27.5 million from $25.1 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, 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 due to lower volumes.
10
11
COST OF GOODS SOLD. As a percent of net sales, cost of goods sold for
the three month period ended March 31, 2001 increased to 74.4% as compared with
67.9% for the prior year period. The increase in cost of goods sold as a percent
of net sales for the three months ended March 31, 2001 is primarily due to the
inclusion of the logistics group as this business has higher cost of goods sold
and due to volume and product mix in the metal processing group.
GROSS PROFIT. The Company's gross profit decreased by 12.6% to $7.0
million for the three months ended March 31, 2001 from $8.1 million for the
comparable period of 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.5 million, or 39.9% to $5.4 million for
the three month period ended March 31, 2001 as compared to the comparable period
of 2000. The increase in selling, general and administrative expenses 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. In addition, for the period ending
March 31, 2001, the Company reversed $0.5 million of its restructuring reserve
due primarily to a change in estimate related to its real estate holdings.
OPERATING PROFIT. As a result of the foregoing factors, operating
profit decreased to $1.6 million for the three months ended March 31, 2001
compared with $4.2 million in the prior period, a decrease of 61.2%.
INTEREST EXPENSE. Interest expense increased 134.0% to $1.2 million for
the three months ended March 31, 2001 from $0.5 million for the comparable
quarter of the prior year. The increase was primarily due to increased
borrowings due to the acquisition of the logistics group and investments in
property, plant and equipment.
INCOME TAX EXPENSE. Income tax expense increased 22.0% to $1.7 million
primarily as a result of 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 (LOSS). As a result of the foregoing factors, net earnings
(loss) from continuing operations decreased $2.5 million and resulted in a loss
of $0.2 million for the three months ended March 31, 2001 compared to earnings
of $2.3 million for the prior period. The net loss was favorably impacted by
other income which includes $0.6 million of income due to an award received
through binding arbitration.
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 the cash flow from
operations, equipment financing and revolving credit borrowings. As of March 31,
2001, the Company had working capital of approximately $4.0 million.
The Company used cash in continuing operations of $1.2 million for the
three months ended March 31, 2001. Net cash used by continuing operations was
primarily the result of net loss, increased accounts receivable, inventories,
prepaid expenses and lower accounts payable partially offset by increased income
taxes payable, accrued liabilities, depreciation, amortization and interest paid
in kind. Cash used in investing activities of $5.4 million for the three months
ended March 31, 2001 was primarily for the purchase of property, plant and
equipment and the Company's investment in SET. The Company generated cash from
financing activities of $6.0 million for the three months ended March 31, 2001.
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. The
11
12
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. 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 eurocurrency rate or a base rate. Advances under the Credit
Facility during the three months ended March 31, 2001 bore interest at the rate
of approximately 7.35% 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 liquidity provided by the Company's credit facilities is expected
to be sufficient to meet the Company's currently anticipated working capital and
capital expenditure needs for at least 12 months. There can be no assurance,
however, that such funds will not be expended prior thereto due to changes in
economic conditions or other unforeseen circumstances, requiring the Company to
obtain additional financing prior to the end of such 12 month period. In
addition, the Company regularly reviews, as part of its business strategy,
future growth through opportunistic acquisitions which may involve the
expenditure of significant funds. Depending upon the nature, size and timing of
future acquisitions, if any, the Company may be required to obtain additional
debt or equity financing in connection with such future acquisitions. There can
be no assurance, however, that additional financing will be available to the
Company, when and if needed, on acceptable terms or at all.
INFLATION
Inflation generally affects the Company by increasing the interest
expense of floating rate indebtedness and by increasing the cost of labor,
equipment and raw materials. The Company does not believe that inflation has had
a material effect on its business over the past two years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of foreign currency fluctuations.
International revenues from the Company's foreign subsidiaries were
approximately 8% of the total revenues for the three months ended March 31,
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).
12
13
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. The following current reports on Form 8-K were filed
during the first quarter of 2001.
(i) Report on Form 8-K filed on February 23, 2001, concerning the
termination of Grant Thornton as auditors after the completion of the
2000 fiscal year audit and the appointment of Deloitte & Touche as
auditors for the 2001 fiscal year.
(ii) Report on Form 8-K filed on March 1, 2001 concerning the sale of
assets to S.E.T. Steel, Inc. by the Company's wholly owned
subsidiaries, Noble Metal Processing, Inc. and Noble Technologies,
Inc. and the investment in S.E.T. Steel, Inc. by the Company.
(iii) Report on Form 8-K/A filed on April 6, 2001 concerning the completion
of the 2000 fiscal audit by Grant Thornton and notification that no
disagreements exist between the Company and Grant Thornton.
13
14
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, 2001 By: /s/ David V. Harper
-------------------------------------------
David V. Harper, Chief Financial Officer
14