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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, 2004
OR
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- -------------------------
Commission File Number: 001-13581
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NOBLE INTERNATIONAL, LTD.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3139487
------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
28213 Van Dyke Road, Warren, MI 48093
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(586) 751-5600
--------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes No X
------- -------
The number of shares of the registrant's common stock, $.001 par value,
outstanding as of August 4, 2004 was 9,183,144.
NOBLE INTERNATIONAL, LTD.
FORM 10-Q INDEX
This report contains statements (including certain projections and
business trends) accompanied by such phrases as "assumes," "anticipates,"
"believes," "expects," "estimates," "projects," "will" and other similar
expressions, that are "forward looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Statements regarding future operating
performance, new programs expected to be launched and other future prospects and
developments are based upon current expectations and involve certain risks and
uncertainties that could cause actual results and developments to differ
materially. Potential risks and uncertainties include such factors as demand for
the company's products, pricing, the company's growth strategy, including its
ability to consummate and successfully integrate future acquisitions, industry
cyclicality 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, 2003
and other filings with the Securities and Exchange Commission. These forward
looking statements are made only as of the date hereof.
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION.................................................3
ITEM 1: FINANCIAL STATEMENTS...............................................3
Consolidated Balance Sheets as of December 31, 2003 and June 30, 2004
(unaudited)...............................................................3
Consolidated Statements of Income (unaudited) for the Three and Six
Month Periods Ended June 30, 2003 and 2004 ...............................4
Consolidated Statements of Cash Flows (unaudited) for the Three and
Six Month Periods Ended June 30, 2003 and 2004............................5
Consolidated Statements of Comprehensive Income (unaudited) for the
Three and Six Month Periods Ended June 30, 2003 and 2004..................6
Notes to Consolidated Financial Statements (unaudited)....................7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............................................14
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........18
ITEM 4: DISCLOSURE CONTROLS AND PROCEDURES.......... .....................19
PART II - OTHER INFORMATION...................................................20
ITEM 1: LEGAL PROCEEDINGS.................................................20
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS.........................20
ITEM 3: DEFAULTS UPON SENIOR SECURITIES...................................20
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............20
ITEM 5: OTHER INFORMATION.................................................20
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K..................................20
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
DECEMBER 31 JUNE 30
2003 2004
----------- ---------
ASSETS Unaudited
Current Assets:
Cash and cash equivalents $ 715 $ 7,467
Accounts receivable, trade, net 34,030 58,629
Note receivable 1,799 1,740
Inventories 14,543 18,502
Income taxes refundable 5,920 --
Other current assets 3,909 3,401
--------- ---------
Total Current Assets 60,916 89,739
Property, plant & equipment 70,059 77,964
Accumulated depreciation (22,940) (27,013)
--------- ---------
Property, Plant & Equipment, net 47,119 50,951
Other Assets:
Goodwill 11,839 19,870
Other intangible assets, net 183 2,105
Other assets, net 12,890 13,303
--------- ---------
Total Other Assets 24,912 35,278
Assets Held for Sale 10,036 3,889
--------- ---------
TOTAL ASSETS $ 142,983 179,857
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 29,517 $ 54,538
Accrued liabilities 4,967 7,374
Income taxes payable -- 3,161
Current maturities of long-term debt 9,999 1,975
Conversion option derivative liability -- 2,950
Deferred income taxes 54 54
--------- ---------
Total Current Liabilities 44,537 70,052
Long-Term Liabilities:
Deferred income taxes 3,860 3,855
Convertible subordinated debentures, net of discount 7,026 36,750
Long-term debt, excluding current maturities 35,974 764
--------- ---------
Total Long-Term Liabilities 46,860 41,369
Liabilities Held for Sale 775 --
STOCKHOLDERS' EQUITY
Common stock 9 9
Additional paid-in capital 38,161 50,207
Retained earnings 12,490 18,130
Accumulated comprehensive income, net 151 90
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 50,811 68,436
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 142,983 $ 179,857
========= =========
The accompanying notes are an integral part of these consolidated financial
statements
3
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except share and per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2003 2004 2003 2004
------------ ------------ ------------ ------------
Net sales $ 40,037 $ 87,392 $ 79,661 $ 168,996
Cost of sales 33,478 77,608 67,087 149,057
------------ ------------ ------------ ------------
Gross margin 6,559 9,784 12,574 19,939
Selling, general and administrative expenses 2,669 3,640 5,638 7,892
------------ ------------ ------------ ------------
Operating profit 3,890 6,144 6,936 12,047
Interest income 209 66 364 163
Interest expense (676) (891) (997) (2,007)
Change in fair value of conversion option derivative -- 595 -- 595
liability
Other, net 272 217 270 344
------------ ------------ ------------ ------------
Earnings from continuing operations before income
taxes 3,695 6,131 6,573 11,142
Income tax expense 1,267 1,990 2,225 3,693
------------ ------------ ------------ ------------
Earnings on common shares from continuing operations 2,428 4,141 4,348 7,449
Discontinued operations:
(Loss) from discontinued operations (300) -- (992) (121)
Gain (loss) on sale of discontinued operations -- -- (677) 121
------------ ------------ ------------ ------------
Net earnings on common shares $ 2,128 $ 4,141 $ 2,679 $ 7,449
============ ============ ============ ============
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Earnings per share from continuing operations $ 0.31 $ 0.45 $ 0.56 $ 0.78
(Loss) from discontinued operations (0.04) -- (0.13) (0.01)
Gain (loss) on sale of discontinued operations -- -- (0.09) 0.01
------------ ------------ ------------ ------------
Basic earnings per common share $ 0.28 $ 0.45 $ 0.35 $ 0.78
============ ============ ============ ============
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Earnings per share from continuing operations $ 0.29 $ 0.40 $ 0.53 $ 0.76
(Loss) from discontinued operations (0.03) -- (0.11) (0.01)
Gain (loss) on sale of discontinued operations -- -- (0.08) 0.01
------------ ------------ ------------ ------------
Diluted earnings per common share $ 0.26 $ 0.40 $ 0.34 $ 0.76
============ ============ ============ ============
Dividends declared and paid $ 0.08 $ 0.10 $ 0.16 $ 0.20
============ ============ ============ ============
Basic weighted average common shares outstanding 7,723,710 9,116,063 7,723,296 9,015,707
Diluted weighted average common shares outstanding 8,935,602 10,632,661 8,921,814 10,065,438
The accompanying notes are integral part of these consolidated financial
statements
4
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
SIX MONTHS ENDED
JUNE 30
2003 2004
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings on common shares from continuing operations $ 4,348 $ 7,449
Adjustments to reconcile earnings
to net cash provided by (used in) continuing operations
Interest expense 269 1,046
Depreciation of property, plant and equipment 3,193 4,702
Amortization of intangible assets 100 101
Deferred income taxes (903) (5)
Loss on sale of property and equipment 2 --
Change in fair value of conversion option derivative liability -- (595)
Stock compensation expense 37 37
Changes in assets and liabilities
Increase in accounts receivable (9,235) (19,557)
Increase in inventories (5,945) (1,438)
Decrease (increase) in prepaid expenses (2,018) 770
Decrease in other operating assets 4 53
Increase in accounts payable 8,098 19,661
Increase in income taxes payable 1,117 9,081
Increase in accrued liabilities 712 932
-------- --------
Net cash provided by (used in) continuing operations (221) 22,237
Net cash used in discontinued operations (3,096) (128)
-------- --------
Net cash provided by (used in) operating activities (3,317) 22,109
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (6,463) (5,475)
Proceeds from sale of discontinued operations 4,718 5,500
Acquisition of business, net of cash acquired -- (13,605)
Proceeds from Notes Receivable on sale of discontinued
operations -- 500
-------- --------
Net cash used in investing activities (1,745) (13,080)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 75 2,193
Financing fees -- (1,758)
Proceeds from issuance of convertible subordinated debentures 40,000
Dividends paid on common stock (1,239) (1,809)
Redemption of convertible subordinated debentures -- (826)
Payments on long-term debt (138) (125)
Net borrowings (payments) on credit facility 6,044 (40,060)
-------- --------
Net cash provided by (used in) financing activities 4,742 (2,385)
Effect of exchange rate changes on cash 316 108
-------- --------
Net increase (decrease) in cash (4) 6,752
Cash and cash equivalents at beginning of period 1,154 715
-------- --------
Cash and cash equivalents at end of period $ 1,150 $ 7,467
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for:
Interest $ 1,003 $ 813
Taxes $ 1,244 463
Fair value of assets acquired, including goodwill -- 21,325
Liabilities assumed -- (7,695)
Cash paid -- 13,630
The accompanying notes are an integral part of these consolidated financial
statements
5
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
2003 2004 2003 2004
------- ------- ------- -------
Net earnings on common shares $ 2,128 $ 4,141 $ 2,679 $ 7,449
Other comprehensive income (loss), equity
adjustment from foreign currency translation,
net 424 16 666 (61)
------- ------- ------- -------
Comprehensive income, net $ 2,552 $ 4,157 $ 3,345 $ 7,388
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements
6
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, the financial statements for interim reporting do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included and such adjustments are of a normal recurring nature. Results for
interim periods should not be considered indicative of results for a full year.
The December 31, 2003 consolidated balance sheet was derived from audited
financial statements, but does not include all disclosures required by
accounting principles generally accepted in the United States of America. For
further information, refer to the consolidated financial statements and notes
thereto included in the company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission for the period ended December 31, 2003.
Certain information for fiscal year 2003 related to discontinued
operations has been reclassified to conform to the current year presentation.
Discontinued operations include the Company's logistics and distribution
businesses for the three and six month periods ended June 30, 2003 and for the
distribution business for the six month period ended June 30, 2004. The
accompanying consolidated financial statements as of June 30, 2004 and for the
year ended December 31, 2003, include Noble International, Ltd. and its
wholly-owned subsidiaries. The following chart outlines the wholly-owned
subsidiaries of the Company and their current status.
WHOLLY-OWNED SUBSIDIARIES OF NOBLE INTERNATIONAL LTD.
Subsidiary Acquired/Formed Status
---------- --------------- ------
Noble Metal Processing - Australia Pty. Formed - 2004 Active
Prototech Laser Welding, Inc. ("LWI") Acquired - 2004 Active
NMP Prototube, LLC ("Prototube") Acquired - 2003 Active
Noble Metal Processing, Inc. ("NMP") Acquired - 1997 Active
Noble Land Holdings, Inc. ("Land Holdings") Formed - 1997 Active
Noble Manufacturing Group, Inc. (formerly Noble Technologies, Inc.)
("NMG") Formed - 1998 Active
Noble Metal Processing Canada, Inc. ("NMPC") Acquired - 1997 Active
Noble Metal Processing - Kentucky, LLC ("NMPK") Formed - 2001 Active
Peco Manufacturing, Inc. ("Peco") Acquired - 2001 Sold - 2004
Pro Motorcar Products, Inc. ("PMP") Acquired - 2000 Sold - 2004
Pro Motorcar Distribution, Inc. ("PMD") Acquired - 2000 Sold - 2004
Monroe Engineering Products, Inc. ("Monroe") Acquired - 1996 Sold - 2004
Noble Logistic Services, Inc. (formerly Assured Transportation & Delivery,
Inc. and Central Transportation & Delivery, Inc.) ("NLS-CA") Acquired - 2000 Assets Sold - 2003
Noble Logistic Services Holdings, Inc. (formerly Dedicated Services
Holdings, Inc. ("NLS-TX") Acquired - 2000 Sold - 2003
Noble Components & Systems, Inc. Formed - 1998 Inactive
Noble Logistics Services, Inc. ("NLS-MI") Formed - 2000 Inactive
7
The Company's continuing operating subsidiaries are organized into a
single reporting segment operating in the automotive supply business.
On January 21, 2004, the Company completed the acquisition of Prototech
Laser Welding, Inc. ("LWI") for approximately $13.6 million in cash and the
assumption of approximately $0.7 million in subordinated debt and up to an
additional $1.0 million payable if certain new business is awarded to Noble
within the next twelve months. LWI, based in Clinton Township, Michigan, is a
supplier of laser-welded blanks to General Motors. The Company has not completed
the allocation of the purchase price pursuant to purchase accounting
requirements for LWI as of June 30, 2004. An intangible asset apart from
goodwill was recognized related to the fair value of the customer contracts
acquired with LWI in the amount of $2.1 million. Goodwill recorded at June 30,
2004 for the LWI acquisition is $8.0 million, subject to final allocation.
During the second quarter of 2004, the Company entered into an amendment
to its Fourth Amended and Restated Credit Agreement ("Credit Facility") which
provided, among other things, an extension of the maturity date for the Credit
Facility to April 1, 2009, a reduction in the number of banks participating in
the Credit Facility from three to one, as well as adjustments to several
financial and other covenants. Subsequent to the amendment to the Credit
Facility the Company maintains a $35 million revolving credit facility with
Comerica Bank which had no outstanding borrowings as of June 30, 2004.
On March 26, 2004, the Company issued $40 million in 4% unsecured
convertible subordinated notes (the "Notes") in a private placement. The Notes
have a three year term, maturing on March 31, 2007 and may be extended another
three years at the holders' option. The Notes are convertible at the holders'
option at anytime prior to maturity into shares of the Company's common stock at
$32 per share (subject to adjustment pursuant to the terms of the Note). The
interest rate on the Notes is 4% and is fixed for the entire term. Proceeds from
the Notes were used to reduce the Company's current bank borrowings, including
paying off the term loan balance and reduce amounts outstanding under the $35.0
million Credit Facility. The holders of the Notes have a right to participate in
dividends declared and paid to the Company's common shareholders to the extent
that such dividends exceed $0.48 per share (in any twelve month period) within
the initial three year term on the Notes. The holders' participation rights are
only on the amount, if any, in excess of $0.48 per share. The holders are not
entitled to participate in any dividends after the initial three year term.
The terms of conversion option were evaluated by the Company to
determine if it gave rise to an embedded derivative instrument that would need
to be accounted for separately in accordance with Statement of Financial
Accounting Standards ("SFAS") 133, "Accounting for Derivative Instruments and
Hedging Activities" and Emerging Issues Task Force ("EITF") 00-19, "Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock." The Company concluded that certain provisions which are
contingent upon a change in control of the Company and allow for a net cash
settlement of the conversion option qualified as an embedded derivative and did
not meet the scope exceptions of SFAS 133. Therefore, the Company was required
to bifurcate the conversion option and establish the fair value of the embedded
derivative separate from the debt instrument and record it as a derivative
liability. At issuance of the Notes, the holders conversion right had an
estimated initial fair value of $3.5 million, which was recorded as a discount
to the Notes and a derivative liability on the consolidated balance sheet. The
discount on the Notes will be accreted to par value over the term of the Notes
through quarterly non-cash charges to interest expense over the initial three
year term. The derivative liability associated with the conversion option will
be adjusted quarterly for changes in fair value over the term of the Notes with
the corresponding charge or credit to other expense or income. The estimated
fair value of the holder's conversion option was determined using a convertible
bond valuation model which utilizes assumptions including: The historical stock
price volatility; risk-free interest rate; credit spreads; remaining maturity;
and the current stock price.
As a result of the participation right related to the Notes, in
accordance with EITF 03-6: "Participating Securities and the Two Class Method
under SFAS 128, Earnings Per Share" for purposes
8
of calculating basic earnings per share, undistributed earnings are allocated to
common stock and the Notes holders based upon the assumption that all of the
earnings for the period are distributed. If earnings for a given period exceed
$0.48 per share, undistributed earnings in excess of $0.48 per share are
allocated to the Notes holders according to the terms of the Notes. Accordingly,
for the three and six month periods ended June 30, 2004, basic earnings per
share ("EPS") is computed based upon net earnings calculated as detailed in
following schedule:
THREE MONTHS SIX MONTHS
ENDED JUNE 30, 2004 ENDED JUNE 30, 2004
------------------- -------------------
Net earnings on common shares as reported $4,141 $7,449
Net earnings allocated to participating
securities -- 380
------ ------
Net earnings on common shares after
allocation to participating securities $4,141 $7,069
====== ======
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Calculation of diluted EPS assumes the exercise of common stock
options and warrants, when dilutive, and the impact of restricted stock and the
assumed conversion of convertible debt, when dilutive. The following tables
reconcile the numerator and denominator to calculate basic and diluted EPS from
continuing operations for the three and six month periods ended June 30, 2003
and 2004 (in thousands, except share and per share amounts; per share amounts
are subject to rounding).
THREE MONTHS ENDED JUNE 30
------------------------------------------------------------------------------------
2003 2004
--------------------------------------- ------------------------------------------
NET EARNINGS SHARES PER SHARE NET EARNINGS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- ------- ----------- ------------- -------
Basic earnings per common share
Earnings on common shares from
continuing operations $ 2,428 7,723,710 $ 0.31 $ 4,141 9,116,063 $ 0.45
Effect of dilutive securities:
Contingently issuable shares -- 27,252 -- -- 18,260 --
Convertible debentures 181 1,120,489 (0.02) 70 1,381,585 (0.05)
Net earnings allocated to participating
securities -- -- -- -- -- --
Stock Options -- 64,151 -- -- 116,753 --
---------- ---------- ------- ---------- ---------- --------
Earnings on common shares from continuing
operations assuming dilution $ 2,609 8,935,602 $ 0.29 $ 4,211 10,632,661 $ 0.40
========== ========== ======= ========== ========== ========
SIX MONTHS ENDED JUNE 30
--------------------------------------------------------------------------------
2003 2004
--------------------------------------- --------------------------------------
NET EARNINGS SHARES PER SHARE NET EARNINGS SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- ------- ----------- ------------- -------
Basic earnings per common share
Earnings on common shares from
continuing operations $ 4,348 7,723,296 $ 0.56 $ 7,069 9,015,707 $ 0.78
Effect of dilutive securities:
Contingently issuable shares -- 21,926 -- -- 17,973 --
Convertible debentures 359 1,120,489 (0.03) 154 895,578 (0.06)
Net earnings allocated to participating -- -- -- 380 -- 0.04
securities
Stock Options -- 56,103 -- -- 136,180 (0.01)
---------- ---------- -------- ---------- ---------- --------
Earnings on common shares from continuing
operations assuming dilution $ 4,707 8,921,814 $ 0.53 $ 7,603 10,065,438 $ 0.76
========== ========== ======== ========== ========== ========
9
The diluted EPS net earnings adjustments (net of applicable taxes)
related to convertible debentures are as follows:
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
2003 2004 2003 2004
------------------- -------------------
Interest on convertible debentures, net of tax $ 181 $ 370 $ 359 $ 454
Amortization of debt discount -- 295 -- 295
Gain on value of convertible option derivative
liability -- (595) -- (595)
----- ----- ----- -----
$ 181 $ 70 $ 359 $ 154
===== ===== ===== =====
The Company has adopted the disclosure-only provisions of SFAS 123,
"Accounting for Stock-Based Compensation," and SFAS 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure." As allowed by SFAS 123,
the Company has elected to continue to follow APB Opinion No. 25 in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized under the Company's stock-based compensation plan (the "Plan"). There
were no options granted during the first six months of 2004. Had compensation
cost been determined based on the fair value at the grant dates for awards under
the Plan utilizing the Black-Scholes option pricing model, the Company's net
earnings and earnings per share would have been reduced to the pro forma amounts
indicated below for the three and six month periods ended June 30, 2003 and 2004
(in thousands, except per share data):
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
2003 2004 2003 2004
------------------------------------------------------
Net earnings on common shares from continuing operations
as reported $ 2,428 $ 4,141 $ 4,348 $ 7,449
Less: Total employee stock option expense under the
fair value method, net of related tax effects 51 42 102 85
--------- --------- --------- ---------
Pro forma 2,377 4,099 4,246 7,364
Basic earnings per share from continuing operations
As reported $ 0.31 $ 0.45 $ 0.56 $ 0.78
Pro forma 0.31 0.45 0.55 0.77
Diluted earnings per share from continuing operations
As reported $ 0.29 $ 0.40 $ 0.53 $ 0.76
Pro forma 0.29 0.39 0.52 0.75
NOTE B--GOODWILL AND OTHER INTANGIBLE ASSETS
NMP Prototube LWI Total
Purchase Purchase Purchase Goodwill
-----------------------------------------------------
Goodwill, December 31, 2003 $11,463 $ 376 $ -- $11,839
Purchase of LWI -- -- 8,031 8,031
------- ------- ------- -------
Goodwill, net June 30, 2004 $11,463 $ 376 8,031 $19,870
======= ======= ======= =======
10
Consistent with SFAS 141, "Business Combinations," in conjunction with
the purchase of LWI, an intangible asset apart from Goodwill was recognized
related to the fair value of the customer contracts acquired with the purchase
of LWI. A fair value of $2.1 million was determined for these contracts at the
time of acquisition using a discounted cash flow model. This intangible asset is
being amortized over ten years.
Total amortization expense for all intangible assets for the three month
and six month periods ending June 30, 2003 was $0.05 million and $0.1 million,
respectively. Total amortization expense for all intangible assets for the three
month and six month periods ended June 30, 2004 was $0.1 million and $0.15
million, respectively. Components of other intangible assets, net (in thousands)
are as follows:
DECEMBER 31, 2003 JUNE 30, 2004
------------------------------------- ------------------------------------
GROSS ACCUM GROSS ACCUM
VALUE AMORT NET VALUE VALUE AMORT NET VALUE
----------------------------------- -----------------------------------
Value of customer contracts - LWI acquisition $ -- $ -- $ -- $ 2,073 $ (51) $ 2,022
Covenants not to compete 1,400 (1,217) 183 1,400 (1,317) 83
------- ------- ------- ------- ------- -------
Other Intangible Assets, net $ 1,400 $(1,217) $ 183 $ 3,473 $(1,368) $ 2,105
======= ======= ======= ======= ======= =======
NOTE C--INVENTORIES
Inventories at December 31, 2003 and June 30, 2004 consisted of the
following (in thousands):
DECEMBER 31 JUNE 30
2003 2004
----------- -------
Raw materials $ 5,242 $ 5,321
Work in process 5,067 8,234
Finished goods 4,234 4,947
------- -------
Total Inventory $14,543 $18,502
======= =======
11
NOTE D--GEOGRAPHIC INFORMATION
The Company classifies continuing operations into one industry segment.
This segment is within the automotive industry. The following tables identify
the breakdown of the Company's net sales by country (which are classified based
upon country of production) and long-lived assets by country, which consist
primarily of fixed assets and intangible assets including goodwill (in
thousands):
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
NET SALES 2003 2004 2003 2004
-------- -------- -------- --------
United States $ 30,158 $ 66,140 $ 61,172 $132,808
Canada 9,879 21,134 18,489 35,998
Australia -- 118 -- 190
-------- -------- -------- --------
$ 40,037 $ 87,392 $ 79,661 $168,996
======== ======== ======== ========
DECEMBER 31 JUNE 30
LONG-LIVED ASSETS 2003 2004
----------- ---------
United States $ 55,225 $ 94,161
Canada 3,916 5,297
Australia -- 481
--------- ---------
$ 59,141 $ 99,939
========= =========
NOTE E - DISCONTINUED OPERATIONS
On March 21, 2003, the Company completed the sale of its logistics
group for approximately $11.1 million in cash and notes as well as the
assumption of substantially all payables and liabilities. The transaction
included cash of $2.0 million at closing, two short-term notes totaling
approximately $5.1 million, a $1.5 million three-year amortizing note and a $2.5
million five-year amortizing note. The two long-term notes bear an annual
interest rate of 4.5% and will be repaid in equal monthly installments. The
notes are secured by the stock of the buyer in the entities purchased. On August
14, 2003 the Company and the issuer of the short-term notes amended the
repayment terms of the remaining balance on the short-term notes. The amended
terms provide for repayment of the short-term notes by July 31, 2004 and for
payment of interest on the outstanding balance at an annual rate of 7%. As of
June 30, 2004 the Company has received approximately $6.5 million in proceeds
from the sale of the logistics business, including $2.0 million at closing and
$4.5 million in payments on the notes. As of June 30, 2004, the balance on the
short-term and long term notes was $4.6 million. On August 10, 2004, the Company
received approximately $1.7 million in payments due on the short-term notes.
The results for the logistics group included in discontinued operations
for the three and six month periods ended June 30, 2003 and 2004 (in thousands)
are as follows:
THREE MONTHS ENDED
JUNE 30 JUNE 30
2003 2004
------------------------------
Revenue $ -- $ --
(Loss) from operations, after-tax $ (375) $ --
(Loss) on sale, after-tax $ -- $ --
SIX MONTHS ENDED
JUNE 30 JUNE 30
2003 2004
------------------------------
Revenue $ 14,800 $ --
(Loss) from operations, after-tax $ (1,182) $ (121)
(Loss) on sale, after-tax $ (677) $ --
12
The Company made the decision to exit the distribution (Monroe, PMP, PMD
and Peco) business in the fourth quarter of 2003 and has classified this
operation as discontinued. On January 28, 2004 the Company completed the sale of
the distribution business to an entity in which the Company's Chairman and
another officer have an interest for approximately $5.5 million in cash. An
independent committee of the board of directors of the Company was established
to evaluate, negotiate and complete the transaction. In addition, an independent
opinion regarding the fairness transaction was obtained.
The results for the distribution business included in discontinued
operations for the three and six month periods ended June 30, 2003 and 2004 (in
thousands) are as follows:
THREE MONTHS ENDED
JUNE 30 JUNE 30
2003 2004
----------------------------
Revenue $ 1,160 $ --
Earnings from operations, after-tax $ 75 $ --
Gain on sale, after-tax $ -- $ --
SIX MONTHS ENDED
JUNE 30 JUNE 30
2003 2004
-----------------------------
Revenue $ 2,384 $ --
Earnings from operations, after-tax $ 190 $ --
Gain on sale, after-tax $ -- $ 121
NOTE F - COMMITMENTS AND CONTINGENCIES
The Company is not a party to any legal proceedings other than routine
litigation incidental to its business, none of which would have a material
adverse impact on the Company's financial position or results from operations.
13
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Noble International Ltd., through its subsidiaries, is a full-service
provider of tailored laser welded blanks for the automotive industry. In the
fourth quarter of 2002 the Company made the strategic decision to exit the
logistics business and has classified this segment as discontinued. The sale of
the logistics segment was completed in March 2003 for approximately $11.1
million in cash and notes. In the fourth quarter of 2003, the Company made the
strategic decision to exit the distribution business and has classified this
segment as discontinued. The sale of the distribution business was completed in
January 2004 for approximately $5.5 million in cash to a related party. In
January 2004, the Company completed the acquisition of Prototech Laser Welding,
Inc. ("LWI") for approximately $13.6 million in cash and the assumption of
approximately $0.7 million in subordinated debt and up to an additional $1.0
million payable if certain new business is awarded to the Company within the
next twelve months. The Company has not completed the allocation of the purchase
price pursuant to purchase accounting requirements as of June 30, 2004. An
intangible asset apart from Goodwill was recognized related to the value of the
customer contracts acquired with the purchase of LWI in the amount of $2.1
million. Goodwill recorded at June 30, 2004 related to the LWI acquisition was
$8.0 million, subject to completion of the allocation of purchase price pursuant
to purchase accounting requirements. LWI, based in Clinton Township, Michigan,
is a supplier of laser-welded blanks to General Motors Corporation.
RESULTS OF CONTINUING OPERATIONS
The following management's discussion and analysis of financial
condition and results of operations ("MD&A") should be read in conjunction with
the MD&A section included in our Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission, for the year ended December 31, 2003.
Net Sales. Net sales for the three months ended June 30, 2004 were
$87.4 million, an increase of $39.9 million or 118% compared to the same period
in 2003. Net sales for the six months ended June 30, 2004 were $169.0 million,
and increase of $89.3 million or 112% compared to the same period in 2003. These
increases in revenues are attributable primarily to higher production volumes on
certain vehicles, higher steel content in sales, new product launches and sales
from the acquisition of LWI.
Cost of Sales. Cost of sales for the three month period ended June 30,
2004 increased by $44.1 million to $77.6 million, an increase of 132% compared
to the same period in 2003. Cost of sales for the six month period ended June
30, 2004 increased by $82.0 million to $149.1 million, an increase of 122%
compared to the same period in 2003. These increases were primarily the result
of increased sales, including increased steel content in sales. Cost of sales as
a percentage of sales increased to 88.8% in the three month period ended June
30, 2004 from 83.6% in the same period in 2003. Cost of sales as a percentage of
sales increased to 88.2% in the six month period ended June 30, 2004 from 84.2%
in the same period in 2003. This increase in cost of sales as a percentage of
net sales is primarily the result of higher steel content in cost of sales for
the first half of 2004 compared to the first half of 2003.
Gross Margin. Gross margin increased by $3.2 million, or 49%, to $9.8
million for the three months ended June 30, 2004, from $6.6 million for the
comparable period in 2003. Gross margin increased by $7.3 million, or 59%, to
$19.9 million for the six months ended June 30, 2004, from $12.6 million for the
comparable period in 2003. The increase in gross margin was primarily the result
of increased sales. For the three and six month periods ended June 30, 2004,
gross margin as a percentage of sales (11.2% and 11.8%, respectively) decreased
compared to the three and six month periods ended June 30, 2003 (16.4% and
15.8%, respectively). Gross margin as a percentage of sales has decreased
primarily as a result of the increased steel content in sales and cost of sales
compared to total sales for the same periods in 2003.
14
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) increased by $0.9 million to $3.6 million for the
three-month period ended June 30, 2004 as compared to $2.7 million in the
comparable period in 2003. SG&A increased by $2.3 million to $7.9 million for
the six-month period ended June 30, 2004 as compared to $5.6 million in the
comparable period in 2003. For the three and six month periods ended June 30,
2004, SG&A as a percentage of sales (4.2% and 4.7%, respectively) decreased
compared to the three and six month periods ended June 30, 2003 (7.9% and 7.1%,
respectively). The dollar value increase in SG&A is driven primarily by the
increase in sales and production activities of the Company. Included in SG&A in
the first half of 2004 is bad debt expense of $0.3 million primarily related to
the bankruptcy of a Canadian steel company. Included in SG&A for the six-month
period ended June 30, 2003 is a restructuring charge of $0.65 million.
Operating Profit. As a result of the foregoing factors, operating
profit increased $2.2 million, or 58%, to $6.1 million for the three month
period ended June 30, 2004 from $3.9 million for the same period in 2003.
Operating profit increased $5.1 million, or 74%, to $12.0 million for the six
month period ended June 30, 2004 from $6.9 million for the same period in 2003.
For the three and six month periods ended June 30, 2004, operating profit as a
percentage of net sales (7.0% and 7.1%, respectively) decreased compared to the
three and six month periods ended June 30, 2003 (9.7% and 8.7%, respectively).
The decrease as a percentage of net sales is driven primarily by the increased
steel content in sales for the first half of 2004 compared to the first half of
2003.
Interest Income. Interest income decreased by $0.1 million, or 68% to
$0.1 million for the three-month period ended June 30, 2004 from $0.2 million
for the same period in 2003. Interest income decreased by $0.2 million, or 55%
to $0.2 million for the six month period ended June 30, 2004 from $0.4 million
for the same period in 2004. The decrease in interest income was primarily due
to lower balances on interest bearing assets.
Interest Expense. Interest expense increased by $0.2 million to $0.9
million for the three-month period ended June 30, 2004 from $0.7 million for the
comparable period of 2003. Interest expense increased by $1.0 million to $2.0
million for the six-month period ended June 30, 2004 from $1.0 million for the
comparable period of 2003. During the first quarter of 2004, the Company
recorded an expense of $0.4 million as a result of the write-off of deferred
financing fees related to the repayment of the term loan portion of the
Company's credit facility. During the second quarter of 2004, the Company
recorded an expense of $0.3 million related to the amortization of the debt
discount attributable to the convertible notes. For the first quarter of 2003, a
portion of interest expense was allocated to discontinued operations.
Other, net. Other, net for the three and six month periods ended June
30, 2004 remained relatively consistent with the Other, net for the three and
six month periods ended June 30, 2003. Other, net consists primarily of dividend
income.
Change in Fair Value of Conversion Option Derivative Liability.
Pursuant to SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," the Company has bifurcated the conversion option and established
the fair value of the embedded derivative separate from the debt instrument and
recorded it as a derivative liability. At issuance of the convertible notes, the
estimated initial fair value of embedded derivative liability was $3.5 million,
which was recorded as a discount to the convertible notes and a derivative
liability on the consolidated balance sheet. This derivative liability will be
adjusted quarterly for changes in fair value over the term of the convertible
notes with the corresponding charge or credit to other expense or income. During
the three month period ended June 30, 2004, the Company recognized a $0.6
million gain based upon the fair value of the embedded derivative liability as
of June 30, 2004.
15
Income Tax Expense. Income tax expense for the three month period ended
June 30, 2004 increased 57%, or $0.7 million, to $2.0 million, an effective tax
rate of 32.5%, from $1.3 million, an effective tax rate of 34.3%, for the
comparable period in 2003. Income tax expense for the six month period ended
June 30, 2004 increased 66%, or $1.5 million, to $3.7 million, an effective tax
rate of 33.1%, from $2.2 million, an effective tax rate of 33.9%, for the
comparable period in 2003. The increase in income tax expense is due primarily
to increased earnings.
Earnings on Common Shares from Continuing Operations. As a result of
the foregoing factors, earnings on common shares from continuing operations
increased for the three month period ended June 30, 2004 to $4.1 million from
$2.4 million for the comparable period of the prior year, an increase of 71%.
Earnings on common shares from continuing operations increased for the six month
period ended June 30, 2004 to $7.4 million from $4.3 million for the comparable
period of the prior year, an increase of 71%.
Net Earnings on Common Shares. Net earnings on common shares increased
by $2.0 million to $4.1 million for the three-month period ended June 30, 2004
compared to the same period in 2003. Included in discontinued operations in the
second quarter of 2003 is a $0.4 million loss from the logistics business offset
by earnings of $0.1 million from the distribution business. Net earnings on
common shares increased by $4.7 million to $7.4 million for the six-month period
ended June 30, 2004 compared to the same period in 2003. Included in
discontinued operations for in the first half of 2003 is a $1.9 million loss
from the logistics business offset by earnings of $0.2 million from the
distribution business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements have historically been satisfied through
a combination of cash flow from operations, equity and debt financings. Working
capital needs and capital equipment requirements in the continuing operations
have increased as a result of the growth of the Company and are expected to
continue to increase. Anticipated increases in required working capital and
capital equipment expenditures are expected to be met from cash flow from
operations, equipment financing and borrowings under the Company's credit
facility. As of June 30, 2004, the Company had a working capital surplus of
approximately $19.7 million. The Company completed the sale of its distribution
business in January 2004 which resulted in cash proceeds of $5.5 million at
closing. In addition, the Company completed the acquisition of LWI in January of
2004 for $13.6 million in cash and the assumption of $0.7 million in debt and up
to an additional $1.0 million payable if certain new business is awarded to the
Company. During the first quarter of 2004 the Company received approximately
$6.1 million in a tax refund. Availability under the Company's revolving credit
facility was approximately $34.6 million as of June 30, 2004.
On March 26, 2004, the Company issued $40.0 million in 4% unsecured
convertible subordinated notes (the "Notes") in a private placement. The Notes
have a three year term, maturing on March 31, 2007 and may be extended another
three years at the holder's option. The Notes are convertible at the holders'
option at anytime prior to maturity into shares of the Company's common stock at
$32 per share (subject to adjustment pursuant to the terms of the Note). The
interest rate on the Notes is 4% and is fixed for the entire term. Proceeds from
the Note were used to reduce the Company's current bank borrowings, including
paying off the term loan balance and reduce amounts outstanding under the $35.0
million revolving credit facility. The holders of the Notes have a right to
participate in dividends declared and paid to the Company's common shareholders
to the extent that such dividends exceed $0.48 per share (in any twelve month
period) within the initial three year term on the Notes. The holders'
participation rights are only on the amount, if any, in excess of $0.48 per
share. The holders are not entitled to participate in any dividends after the
initial three year term.
The terms of the Notes include a right of the holders of the Notes to
convert the Notes into the Company's common stock at $32 per share. This right
was evaluated by the Company to determine if it gave rise to an embedded
derivative instrument that would need to be accounted for separately in
accordance with Statement of Financial Accounting Standards ("SFAS") 133,
"Accounting for Derivative
16
Instruments and Hedging Activities" and Emerging Issues Task Force ("EITF")
00-19, "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock." The Company concluded that
certain provisions which are contingent upon a change in control of the Company
and allow for a net cash settlement of the conversion option qualified as an
embedded derivative and did not meet the scope exceptions of SFAS 133.
Therefore, the Company was required to bifurcate the conversion option and
establish the fair value of the embedded derivative separate from the debt
instrument and record it as a derivative liability. At issuance of the Notes,
the holders conversion right had an estimated initial fair value of $3.5
million, which was recorded as a discount to the Notes and a derivative
liability on the consolidated balance sheet. The discount on the Notes will be
accreted to par value over the term of the Notes through quarterly non-cash
charges to interest expense over the initial three year term. The derivative
liability associated with the conversion option will be adjusted quarterly for
changes in fair value over the term of the Notes with the corresponding charge
or credit to other expense or income. The estimated fair value of the holder's
conversion option was determined using a convertible bond valuation model which
utilizes assumptions including: The historical stock price volatility; risk-free
interest rate; credit spreads; remaining maturity; and the current stock price.
During the first six months of 2004, holders of approximately $9.9
million in the Company's 1998 6% subordinated debentures ("1998 Debentures")
exercised their option to convert their 1998 Debentures into the Company's
common stock. On February 2, 2004 the Company made a mandatory retirement
payment pursuant to the terms of the 1998 Debentures of $0.8 million. The
balance of 1998 Debentures outstanding after the conversions and the mandatory
retirement payment is approximately $1.7 million at June 30, 2004. The Company
called the remaining balance of the 1998 Debentures and expects a substantial
portion of the remaining balance will be converted in the third quarter of 2004.
The Company generated cash from continuing operations of $22.2 million
for the six-month period ended June 30, 2004. Net cash generated by continuing
operating activities was primarily the result of net earnings, plus non-cash
expenses such as depreciation expense, increases in accounts payable and income
taxes payable, accrued liabilities, and decreases in prepaid expenses. This cash
generated was partially offset by increases in accounts receivable and
inventories. The increases in accounts receivable, inventory and accounts
payable of $19.6 million, $1.4 million, and $19.7 million, respectively, for the
six-month period ended June 30, 2004, are related primarily to the newly
launched production programs as well as increased volume in current programs and
the acquisition in January 2004 of LWI. Income taxes payable includes income
taxes payable and refundable and during the first six months of 2004; the
Company received a tax refund of $6.1 million and accrued income tax expense
increased by $3.2 million.
The Company used cash in investing activities of $13.1 million for the
six-month period ended June 30, 2004. This was primarily the result of the
purchase of fixed assets of $5.5 million, the acquisition of LWI for $13.6
million offset by $5.5 million received in cash from the sale of the
distribution business and $0.5 million received from Notes Receivable.
The Company used $2.4 million in cash flow from financing activities for
the six-month period ended June 30, 2004, primarily from the payment of
financing fees ($1.8 million), the mandatory retirement payment on the 1998
Debentures ($0.8 million), and the payment of cash dividends ($1.8 million)
offset by the receipt of cash related to the issuance of common stock ($2.2
million), primarily pursuant to the exercise of stock options.
As of June 30, 2004 the Company maintained a $35.0 million secured
Credit Facility with Comerica Bank N.A. ("Comerica") with an expiration date of
April 2009. During the second quarter of 2004 the Credit Facility was amended
to, among other things, extend the maturity to April 2009, reduce the number of
participating banks from three to one, and adjust several financial and other
covenants. The Credit Facility consists of a $35.0 million revolving loan with
no borrowing base formula. The term loan portion of the credit facility was paid
off using the proceeds of the issuance of the $40.0 million 4% convertible
subordinated notes. There were no outstanding borrowings on the revolving loan
at June 30, 2004. Availability under the line of credit was approximately $34.6
million, net of approximately $0.4 million in outstanding letters of credit. The
Credit Facility is secured by assets of the Company and its
17
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 facility
bore interest at an average effective rate of 4.4% for the six-month period
ended June 30, 2004. As a result of the repayment of the term loan portion of
the credit facility, the Company recorded a write-off of approximately $0.4
million in deferred financing fees in the first quarter of 2004. The unamortized
balance of origination costs is $0.6 million at June 30, 2004 and is included in
other assets. The Credit Facility is subject to customary financial and other
covenants including, but not limited to, limitations on consolidations, mergers,
and sales of assets, and bank approval on acquisitions over $15.0 million.
The Company has from time to time in prior years been in violation of
certain of its financial debt ratio covenants and covenants relating to the
issuance of preferred stock and the payment of preferred and common stock
dividends, requiring it to obtain waivers of default from its lenders. At June
30, 2004, the Company was in compliance with all of its financial covenants
under the Credit Facility.
The liquidity provided by the Company's Credit Facility combined with
cash flow from continuing operations is expected to be sufficient to meet
currently anticipated working capital and capital expenditure needs and for
existing debt service for at least 12 months. There can be no assurance,
however, that the funds will not be expended due to changes in economic
conditions or other unforeseen circumstances, requiring the Company to obtain
additional financing prior to the end of such twelve-month period. In addition,
as part of its business strategy, the Company continues to evaluate and may
pursue future growth through opportunistic acquisitions of assets or companies
involved in the automotive component industry, which acquisitions may involve
the expenditure of significant funds. Depending upon the nature, size, and
timing of future acquisitions, the Company may be required to obtain additional
debt or equity financing. There can be no assurance, however, that additional
financing will be available to the Company, when and if needed, on acceptable
terms or at all.
For the six-month period ended June 30, 2004, the Company guaranteed
$3.0 million of SET Enterprises, Inc. ("SET") senior debt in connection with its
sale of businesses to SET. The Company would be required to perform under the
guarantee if SET was unable to repay or renegotiate its credit facility. The
maximum amount the Company would be required to pay is $3.0 million. The Company
does not currently carry a liability for this guarantee. The guarantee is
unsecured and the Company would be entitled to the proceeds from any liquidation
after the senior debt lender had been paid in full. As of June 30, 2004, the
Company had not been notified by SET or SET's lender of any default that would
require performance under the guarantee. As of June 30, 2004, SET was in
violation of certain of its financial covenants pursuant to its credit
agreement. SET and its lender are negotiating a renewal of SET's credit
facility, including the establishment of new financial covenants. The Company
has agreed to extend its guarantee of SET's senior debt in the amount of $3.0
million for one year.
INFLATION
Inflation generally affects the Company by increasing the interest
expense of floating rate indebtedness and by increasing the cost of labor,
equipment and raw materials. The Company does not believe that inflation has had
a material effect on its business over the past two years.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of foreign currency fluctuations.
International revenues from the Company's foreign subsidiaries were
approximately 21% of total revenues for the six-month period ended June 30,
2004. The Company's primary foreign currency exposure is to the Canadian Dollar.
During the first quarter of 2004, the Company started an operation in Australia.
The Company manages its exposure to foreign currency assets and earnings
primarily by funding certain foreign currency denominated assets with
liabilities in the same currency and, as such, certain balance sheet exposures
are naturally offset.
18
As of June 30, 2004 8% of the Company's long-lived assets were based in
its foreign subsidiaries. These assets are translated into U.S. dollars at
foreign currency exchange rates in effect as of the end of each period, with the
effect of such translation reflected as a separate component of stockholders'
equity. Accordingly, the Company's consolidated stockholders' equity will
fluctuate depending on the weakening or strengthening of the U.S. dollar against
the respective foreign currency.
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). There has
been no material change to the Company's exposure to market risk since December
31, 2003.
ITEM 4: CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. The Company's President and Chief
Executive Officer and the Chief Financial Officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures, as defined in
the Securities Exchange Act Rules 13a-15(e) and 15d-15(e) as of June 30, 2004,
have concluded that as of June 30, 2004, the Company's disclosure controls and
procedures were adequate and effective to ensure that material information
relating to the Company and its subsidiaries required to be disclosed by the
Company in the reports it files with the SEC under the Securities Exchange Act
of 1934 would be made known to them by others within the Company, particularly
during the period in which this Form 10-Q Quarterly Report was being prepared.
Changes in Internal Controls over Financial Reporting. There have been
no changes in the Company's internal control over financial reporting during the
quarter ended June 30, 2004 that have materially affected, or are reasonably
likely to materially affect, the Company's internal controls over financial
reporting.
19
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Not applicable.
ITEM 2: CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
Not applicable.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our annual meeting of stockholders was held on May 12, 2004. At the meeting
the following matters were submitted to a vote of the stockholders:
(1) The election of Class II Directors to serve for a three year term
expiring at the Annual Meeting of Stockholders to be held in 2007 or
until their successors have been duly elected and qualified. The
results of the vote were as follows:
For Against Abstain
--------- ------- -------
Daniel J. McEnroe 6,542,879 834,078 --
Stuart I. Greenbaum 7,359,204 17,753 --
Thomas L. Saeli 7,359,204 17,753 --
(2) Ratification of Deloitte & Touche LLP as independent public
accountants of the Company. The results of the vote were as follows:
For Against Abstain
--------- --------- -------
Deloitte & Touche LLP 5,929,132 1,236,865 12,273
ITEM 5: OTHER INFORMATION
Not applicable.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
31.1 Certification by the President and Chief Executive Officer
pursuant to Rule 13a-14 (a) of the Securities and Exchange
Act of 1934, as amended.
31.2 Certification by the Chief Financial Officer pursuant to Rule
13a-14 (a) of the Securities and Exchange Act of 1934, as
amended.
32.1 Certification of Periodic Financial Report by the President
and Chief Executive Officer and the Chief Financial Officer
pursuant to 18 USC ss. 1350, as created by Section 906 of
Sarbanes-Oxley Act of 2002.
(b) The following reports on Form 8-K were filed during the three month period
ended June 30, 2004:
(i) Report on Form 8-K filed on April 9, 2004, concerning the disclosure
of a change in the date of the 2004 Annual Meeting for stockholders.
(ii) Report on Form 8-K filed on April 22, 2004, concerning the financial
results of the Company for the quarter ended March 31, 2004.
20
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 13, 2004 By: /s/ Jay J. Hansen
---------------------------------------
Jay J. Hansen,
Chief Financial Officer
21
Exhibit Index
Exhibit No. Description
- ----------- -----------
31.1 Certification by the President and Chief Executive Officer
pursuant to Rule 13a-14 (a) of the Securities and Exchange
Act of 1934, as amended.
31.2 Certification by the Chief Financial Officer pursuant to Rule
13a-14 (a) of the Securities and Exchange Act of 1934, as
amended.
32.1 Certification of Periodic Financial Report by the President
and Chief Executive Officer and the Chief Financial Officer
pursuant to 18 USC ss. 1350, as created by Section 906 of
Sarbanes-Oxley Act of 2002.