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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 MARCH 31, 2005
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)
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[X] No[ ]
The number of shares of the registrant's common stock, $.001 par value,
outstanding as of April 29, 2005 was 9,302,954.
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, 2004 and
other filings with the Securities and Exchange Commission ("SEC"). 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
Condensed Consolidated Balance Sheets as of December 31, 2004 and March 31, 2005 (unaudited)........... 3
Condensed Consolidated Statements of Income (unaudited) for the Three Month Period Ended
March 31, 2004 and 2005............................................................................. 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Month Period Ended
March 31, 2004 and 2005............................................................................. 5
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three Month Period
Ended March 31, 2004 and 2005....................................................................... 6
Notes to Consolidated Financial Statements (unaudited)................................................. 7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 12
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................... 15
ITEM 4: CONTROLS AND PROCEDURES.......................................................................... 15
PART II - OTHER INFORMATION.................................................................................. 16
ITEM 1: LEGAL PROCEEDINGS................................................................................ 16
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS...................................... 16
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.................................................................. 16
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................. 16
ITEM 5: OTHER INFORMATION................................................................................ 16
ITEM 6: EXHIBITS......................................................................................... 16
2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
UNAUDITED
DECEMBER 31 MARCH 31
2004 2005
----------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 17,551 $ 10,742
Accounts receivable, trade, net 51,895 56,785
Note receivable 1,000 1,000
Inventories, net 20,588 19,758
Deferred income taxes 101 145
Prepaid expenses and other 3,973 3,954
--------- ---------
Total Current Assets 95,108 92,384
Property, plant & equipment 81,588 83,050
Accumulated depreciation (31,829) (33,561)
--------- ---------
Property, Plant & Equipment, net 49,759 49,489
Other Assets:
Goodwill 20,287 23,064
Other intangible assets, net 1,967 1,922
Other assets, net 11,597 11,078
--------- ---------
Total Other Assets 33,851 36,064
Assets Held for Sale 3,760 3,760
--------- ---------
TOTAL ASSETS $ 182,478 $ 181,697
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 52,736 $ 47,529
Accrued liabilities 3,229 4,206
Income taxes payable 2,311 2,761
Current maturities of long-term debt 254 126
--------- ---------
Total Current Liabilities 58,530 54,622
Long-Term Liabilities:
Deferred income taxes 5,994 5,865
Convertible subordinated debentures, net of discount 38,371 38,552
--------- ---------
Total Long-Term Liabilities 44,365 44,417
STOCKHOLDERS' EQUITY
Common stock 9 9
Additional paid-in capital 53,782 53,979
Retained earnings 24,184 27,046
Accumulated other comprehensive income, net 1,608 1,624
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 79,583 82,658
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 182,478 $ 181,697
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS
3
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except share and per share data)
THREE MONTHS ENDED
MARCH 31
2004 2005
----------- -----------
Net sales $ 81,604 $ 86,750
Cost of sales 71,449 77,064
----------- -----------
Gross margin 10,155 9,686
Selling, general and administrative expenses 4,252 3,177
----------- -----------
Operating profit 5,903 6,509
Interest income 96 108
Interest expense (1,117) (678)
Other, net 128 294
----------- -----------
Earnings from continuing operations before income taxes 5,010 6,233
Income tax expense 1,702 2,441
----------- -----------
Earnings on common shares from continuing operations 3,308 3,792
Discontinued operations:
(Loss) from discontinued operations (121) -
Gain on sale of discontinued operations 121 -
----------- -----------
Net earnings on common shares $ 3,308 $ 3,792
=========== ===========
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Earnings per share from continuing operations $ 0.37 $ 0.41
(Loss) from discontinued operations (0.01) -
Gain on sale of discontinued operations 0.01 -
----------- -----------
Basic earnings per common share $ 0.37 $ 0.41
=========== ===========
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Earnings per share from continuing operations $ 0.36 $ 0.41
(Loss) from discontinued operations (0.01) -
Gain on sale of discontinued operations 0.01 -
----------- -----------
Diluted earnings per common share $ 0.36 $ 0.41
=========== ===========
Dividends declared and paid $ 0.10 $ 0.10
=========== ===========
Basic weighted average common shares outstanding 8,915,350 9,262,927
Diluted weighted average common shares outstanding 9,491,177 9,357,849
THE ACCOMPANYING NOTES ARE INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
4
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
THREE MONTHS ENDED
MARCH 31
----------------------
2004 2005
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Earnings on common shares from continuing operations $ 3,308 $ 3,792
Adjustments to reconcile earnings
to net cash provided by (used in) operations
Interest expense 587 350
Depreciation of property, plant and equipment 2,307 2,488
Amortization of intangible assets 50 52
Deferred income taxes (2) 297
Gain on sale of property and equipment - (19)
Stock compensation expense 18 107
Changes in assets and liabilities
Increase in accounts receivable (15,969) (3,493)
(Increase) decrease in inventories (3,540) 813
Decrease in prepaid expenses 2,572 412
Decrease in other operating assets 21 10
Increase (decrease) in accounts payable 16,320 (5,240)
Increase in income taxes payable 7,436 523
Decrease (increase) in accrued liabilities (330) 6
-------- --------
Net cash provided by continuing operations 12,778 98
Net cash (used in) discontinued operations (567) -
-------- --------
Net cash provided by operating activities 12,211 98
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sale of discontinued operations 5,500 -
Purchases of property, plant and equipment (1,253) (1,792)
Proceeds from sale of property, plant and equipment - 1,462
Proceeds from Notes Receivable on sale of discontinued 250 335
operations
Acquisition of business, net of cash acquired (13,605) (5,864)
-------- --------
Net cash (used in) investing activities (9,108) (5,859)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 893 90
Financing fees (1,735) -
Proceeds from issuance of convertible subordinated 40,000 -
debentures
Dividends paid on common stock (896) (930)
Redemption of convertible subordinated debentures (827) -
Payments on long-term debt (125) (128)
Net payments on credit facility (39,316) -
-------- --------
Net cash (used in) financing activities (2,006) (968)
Effect of exchange rate changes on cash (42) (80)
-------- --------
Net(decrease) in cash 1,055 (6,809)
Cash and cash equivalents at beginning of period 715 17,551
-------- --------
Cash and cash equivalents at end of period $ 1,770 $ 10,742
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Cash paid for:
Interest $ 737 $ 392
Taxes 224 1,503
Fair value of assets acquired, including goodwill 20,112 6,998
Liabilities assumed (6,507) (1,134)
Cash paid, net 13,605 5,864
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS
5
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited, in thousands)
THREE MONTHS ENDED
MARCH 31
--------------------
2004 2005
------- -------
Net earnings on common shares $ 3,308 $ 3,792
Other comprehensive income (loss), equity adjustment
from foreign currency translation, net of taxes (77) 16
------- -------
Comprehensive income, net $ 3,231 $ 3,808
======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS
6
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED 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, 2004 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
SEC for the period ended December 31, 2004.
The accompanying consolidated financial statements as of March 31, 2005
and for the year ended December 31, 2004 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 Silao de Mexico, S. de R.L. de C.V. Formed - 2005 Active
Noble Metal Processing de Mexico, S. de R.L. de C.V. Formed - 2005 Active
NMP Holding de Mexico, S. de R.L. de C.V. Formed - 2005 Active
Noble Metal Processing - Australia Pty. Formed - 2004 Active
Prototech Laser Welding, Inc. ("LWI") Acquired - 2004 Active
Noble Tubular Products, Inc. ("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 Construction Equipment, Inc. (formerly Construction Equipment
Direct, Inc.) ("NCE") Acquired - 2001 Inactive
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.
In January 2005, the Company completed the acquisition of the assets of
Oxford Automotive Inc.'s steel processing facility ("Mexico") in Silao, Mexico
for $5.9 million plus the assumption of certain operating liabilities of
approximately $1.1 million. The facility supplies component blanks on a toll
processing basis to the Mexican automotive industry. Results of operations for
Mexico are included in the Company's financial statements beginning January
2005. The Company intends to sell a minority interest in this business by
entering into a joint venture with an international steel processing company
with operations in Mexico. The Company anticipates that the joint venture will
operate the Silao facility with the Company retaining a majority interest in the
venture. Management expects to reach a definitive agreement with its prospective
joint venture partner in the second quarter 2005. The unaudited pro forma
combined historical results for the three months ended March 31, 2004, as if the
Company had acquired Mexico at the beginning of 2004, are estimated to be (in
thousands, except per share amounts):
PRO FORMA INFORMATION
FIRST QUARTER 2004
------------------
Net Sales $ 83,495
Earnings on common shares from continuing operations 4,050
Basic earnings per share of continuing operations 0.45
Diluted earnings per share from continuing operations 0.44
This pro forma information is not necessarily indicative of future
operating results.
As of March 31, 2005, the Company has not completed the allocation of the
purchase price for Mexico pursuant to purchase accounting requirements. The
table below summarizes the preliminary purchase price allocation as of March 31,
2005 (in thousands):
Current Assets $ 1,878
Fixed Assets, net 1,881
Goodwill 3,239
Current Liabilities (1,134)
-----------
Purchase Price, net of cash acquired $ 5,864
===========
Basic earnings per share exclude dilution and are computed by dividing
income available to common stockholders by the weighted-average common shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised and converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. The following table
reconciles the numerator and denominator to calculate basic and diluted earnings
on common shares before extraordinary items and discontinued operations for the
three months ended March 31, 2004 and 2005 (in thousands, except share and per
share amounts). The impact of the convertible debentures (1,250,000 shares) was
excluded in the calculation of diluted earnings per share in the first quarter
2005 because their inclusion was anti-dilutive.
8
THREE MONTHS ENDED MARCH 31
--------------------------------------------------------------------------------------
2004 2005
------------------------------------------- ----------------------------------------
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 $ 3,308 8,915,350 $ 0.37 $ 3,792 9,262,927 $ 0.41
Effect of dilutive securities:
Contingently issuable shares - 17,686 - - 35,516 -
Convertible debentures 78 409,573 (0.01) - - -
Stock Options - 148,568 - - 59,406 -
------------ --------- ------- ------------ --------- --------
Earnings on common shares from continuing
operations assuming dilution $ 3,386 9,491,177 $ 0.36 $ 3,792 9,357,849 $ 0.41
============ ========= ======= ============ ========= ========
In December 2004, the FASB issued SFAS 123R (revised 2004), "Share-Based
Payment" ("SFAS 123R") which revises SFAS 123, "Accounting for Stock-Based
Compensation." SFAS 123R also supersedes Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and amends SFAS 95, "Statement
of Cash Flows." Under SFAS 123 companies could either recognize the fair value
of stock options as a period expense or disclose the pro forma impact of the
fair value of stock options in the notes to the financial statements. Under SFAS
123, the Company has disclosed the pro forma impact of the fair value of stock
options. SFAS 123R requires that the fair value of all share-based payments to
employees, including the fair value of grants of employee stock options, to be
recognized as a period expense, generally over the option vesting period. SFAS
123R will be effective for the Company beginning in the first quarter of 2006.
The Company is currently evaluating its transition alternatives and the effect
of this Statement on the Company, which will be dependent in large part upon
future equity-based grants.
As permitted under SFAS 123, the Company accounts for its Stock Option and
Stock Incentive Plans (the "Plans") under APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. Accordingly, no
compensation cost has been recognized under the Plans. No stock options were
granted by the Company in the first quarter of 2005. Had compensation cost been
determined based on the fair value at the grant dates for awards under the Plan
consistent with the method of SFAS 123, the Company's net earnings and earnings
per share would have been reduced to the pro forma amounts indicated in the
following table for the three months ended March 31, 2004 and 2005 (in
thousands, except per share data):
THREE MONTHS
ENDED MARCH 31
------------------------
2004 2005
---------- ---------
Net earnings on common shares from continuing operations
as reported $ 3,308 $ 3,792
Less: Total employee stock option expense under the
fair value method, net of related tax effects 42 29
---------- ---------
Pro forma 3,266 3,763
Basic earnings per share from continuing operations
As reported $ 0.37 $ 0.41
Pro forma 0.37 0.41
Diluted earnings per share from continuing operations
As reported $ 0.36 $ 0.41
Pro forma 0.35 0.40
9
NOTE B -- GOODWILL AND OTHER INTANGIBLE ASSETS
Components of Goodwill at December 31, 2004 and March 31, 2005 are as
follows (in thousands):
NMP PROTOTUBE LWI MEXICO TOTAL
PURCHASE PURCHASE PURCHASE PURCHASE GOODWILL
-------- --------- -------- -------- --------
Goodwill, December 31, 2004 $ 11,463 $ 376 $ 8,448 $ - $ 20,287
Purchase of Mexico - - - 3,245 3,245
LWI Purchase Allocation Adjustment - - (468) - (468)
-------- --------- -------- ------- --------
Goodwill, March 31, 2005 $ 11,463 $ 376 $ 7,980 $ 3,245 $ 23,064
======== ========= ======== ======= ========
The adjustment to Goodwill in the first quarter of 2005 was related to a
reversal of a valuation allowance and the recognition of a deferred tax asset
pursuant to the completion of tax planning related to acquisition of LWI. 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. 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 based upon the lives of the acquired
contracts and follow-on contracts expected to be awarded on the same business.
Accordingly, annual amortization expense is expected to be $0.2 million. This
amortization is not deductible for tax purposes unless the entity is sold.
Total amortization expense for all intangible assets was $0.05 million for
each of the three month periods ending March 31, 2004 and 2005. Components of
other intangible assets, net (in thousands) are as follows:
DECEMBER 31, 2004 MARCH 31, 2005
-------------------------- ------------------------
GROSS ACCUM GROSS ACCUM
VALUE AMORT NET VALUE VALUE AMORT NET VALUE
------ ------ --------- ------ ----- ---------
Value of customer contracts - LWI acquisition $2,073 $ (155) $ 1,918 $2,073 $(207) $ 1,866
Legal costs related to patent filing 49 - 49 56 - 56
------ ------ --------- ------ ----- ---------
Other Intangible Assets, net $2,122 $ (155) $ 1,967 $2,129 $(207) $ 1,922
====== ====== ========= ====== ===== =========
NOTE C -- INVENTORIES, NET
The major components of inventories are as follows (in thousands):
DEC 31 MAR 31
2004 2005
---------- --------
Raw materials $ 6,621 $ 6,045
Work in process 8,668 8,585
Finished goods 5,416 5,173
Reserve for obsolete inventory (117) (45)
---------- --------
Total Inventories, net $ 20,588 $ 19,758
========== ========
10
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
MARCH 31
------------------------
NET SALES 2004 2005
- --------- --------- --------
United States $ 66,668 $ 60,648
Canada 14,864 24,845
Australia 72 112
Mexico - 1,145
--------- --------
$ 81,604 $ 86,750
========= ========
DECEMBER 31 MARCH 31
LONG-LIVED ASSETS 2004 2005
- ----------------- ----------- ----------
United States $ 67,085 $ 64,870
Canada 4,445 4,533
Australia 483 508
Mexico - 5,072
----------- ----------
$ 72,013 $ 74,475
=========== ==========
NOTE E - - COMMITMENTS AND CONTINGENCIES
The Company is not a party to any legal proceedings other than routine
litigation incidental to its business, none of which is likely to have a
material adverse impact on the Company's financial position or results from
operations.
11
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Noble International, Ltd. ("Noble" or the "Company"), through its
subsidiaries, is a full-service provider of tailored laser welded blanks and
tubes for the automotive industry. Noble's laser-welded blanks are manufactured
from two or more blanks of varying thickness and sizes welded together utilizing
automated laser assemblies, and are used by original equipment manufacturers
("OEMs") or their suppliers in automobile body components such as doors,
fenders, body side panels, and pillars.
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 Noble within the
twenty-four month period following the acquisition. LWI, based in Clinton
Township, Michigan, was a supplier of laser-welded blanks to General Motors.
In January 2005, the Company completed the acquisition of the assets of
Oxford Automotive Inc.'s steel processing facility in Silao, Mexico for
approximately $5.9 million plus the assumption of approximately $1.1 million in
certain operating liabilities. The facility supplies component blanks on a toll
processing basis to the Mexican automotive industry. The Company intends to
begin laser welding at the facility in the latter half of 2005. The Company
intends to sell a minority interest in this business by entering into a joint
venture with an international steel processing company with operations in
Mexico. The Company anticipates that the joint venture will operate the Silao
facility with the Company retaining a majority interest in the venture.
Management expects to reach a definitive agreement with its prospective joint
venture partner in the second quarter 2005.
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 SEC, for
the year ended December 31, 2004.
Net Sales. Net sales for the first quarter of 2005 were $86.8 million, an
increase of $5.2 million or 6% compared to the first quarter of 2004. This
increase is attributable primarily to increased steel content in sales as a
percentage of total sales as well as sales from new programs launched, offset by
lower production volumes, particularly on certain older vehicle lines.
Cost of Sales. Cost of sales for the first quarter of 2005 was $77.1
million, an increase of $5.6 million or 8% compared to the first quarter of
2004. Cost of sales as a percentage of sales increased to 88.8% in the first
quarter of 2005 from 87.6% in the first quarter of 2004. This increase is
consistent with the increased sales, including increased steel content in cost
of sales as well as additional costs in the first quarter of 2005 compared to
the first quarter of 2004 to support future sales growth.
Gross Margin. Gross margin for the first quarter of 2005 was $9.7 million,
a decrease of $0.5 million or 5% compared to the first quarter of 2004. Gross
margin as a percentage of sales in the first quarter of 2005 was 11.2% compared
to 12.4% in the first quarter of 2004. This decrease in gross margin as a
percentage of sales was primarily the result of the increase in the purchase of
steel as a percentage of overall cost of sales, lower production volume on
certain older vehicle lines and additional costs to support future sales growth.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") for the first quarter of 2005 were $3.2
million, a decrease of $1.1 million or 25% compared to
12
the first quarter of 2004. SG&A as a percentage of sales in the first quarter
of 2005 was 3.7% compared to 5.2% in the first quarter of 2004. The decrease was
driven by a reduction in professional fees related to the implementation of
Sarbanes-Oxley as well as the recovery of $0.3 million in the first quarter of
2005 of a receivable previously written off compared to bad debt expense of $0.3
million in the first quarter of 2004.
Operating Profit. As a result of the foregoing factors, operating profit
for the first quarter of 2005 was $6.5 million, an increase of $0.6 million or
10% compared to the first quarter of 2004. Operating profit as a percentage of
sales in the first quarter of 2005 was 7.5% compared to 7.2% in the first
quarter of 2004.
Interest Income. Interest income for the first quarter of 2005 and 2004
was approximately $0.1 million.
Interest Expense. Interest expense for the first quarter of 2005 was $0.7
million, a decrease of $0.4 million compared to the first quarter of 2004.
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.
Other, net. Other, net for the first quarter of 2005 was $0.3 million.
Other, net for the first quarter of 2004 was $0.1 million. Included in Other,
net for the first quarter of 2005 was $0.2 million of dividend income and $0.1
million for the recovery of assets previously written-off. Included in Other,
net for the first quarter of 2004 was $0.2 million of dividend income offset by
a $0.1 million loss on disposal of assets.
Income Tax Expense. Income tax expense for the first quarter of 2005 was
$2.4 million, an increase of $0.7 million compared to the first quarter of 2004.
The effective tax rate for the first quarter of 2005 was 39% compared to 34% for
the first quarter of 2004. The higher effective tax rate in the first quarter of
2005 was driven primarily by a change in state tax law in Kentucky during the
first quarter of 2005. The Company expects its full year effective tax rate to
be approximately 36.5% based upon this change.
Earnings on Common Shares from Continuing Operations. As a result of the
foregoing factors, earnings on common shares from continuing operations for the
first quarter of 2005 was $3.8 million, an increase of $0.5 million or 15%
compared to $3.3 million in the first quarter of 2004.
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 and borrowings under the Company's credit facility. As of March 31,
2005, the Company had net working capital of $37.8 million. Availability under
the Company's revolving credit facility was approximately $34.9 million as of
March 31, 2005.
The Company generated cash from continuing operations of $0.1 million for
the three month period ended March 31, 2005. The cash required for working
capital in the first quarter was driven by an increase in accounts receivables
of $3.5 million related to an increase in sales and a decrease in accounts
payable of $5.2 million, primarily due to the timing of payments at March 2005
and December 2004. These cash requirements were offset by positive cash flow
driven by a reduction in inventory of $0.8 million, a reduction of prepaid
expenses of $0.4 million and an increase in taxes payable of $0.5 million.
13
The Company used cash in investing activities of $5.9 million for the
three month period ended March 31, 2005. This use of cash was primarily the
result of the purchase of fixed assets of $1.8 million, the acquisition of the
Silao, Mexico facility of approximately $5.9 million, offset by the sale of
fixed assets of $1.5 million and cash received from notes receivable related to
the sale of the logistics business of $0.3 million.
The Company used cash for financing activities of $1.0 million for the
three month period ended March 31, 2005, primarily for the payment of cash
dividends of $0.9 million and payments of long-term debt of $0.1 million, offset
by the receipt of cash related to the issuance of common stock of $0.1 million,
primarily pursuant to the exercise of stock options.
In March 2004, the Company issued $40 million in convertible subordinated
notes (the "Notes") in a private placement. The Notes have a three year term,
maturing on March 31, 2007 and my be extended another three years at the
holder's option. The Notes are convertible at the holder's option 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 Notes). The interest rate on the
Notes is 4% and is fixed for the entire term. In addition, there is a covenant
restricting the Company from paying dividends or distributions on its common
stock in excess of $0.48 per share in any twelve month period until March 2007.
As of March 31, 2005 the Company maintained a $35.0 million secured credit
facility with Comerica Bank N.A. ("Comerica") with a maturity date of April 2009
("Credit Facility"). The Credit Facility consists of a $35.0 million revolving
loan with no borrowing base formula. There were no outstanding borrowings on the
revolving loan at March 31, 2005. Availability under the Credit Facility was
approximately $34.9 million, net of approximately $0.1 million in outstanding
letters of credit at March 31, 2005. The Credit Facility is secured by assets of
the Company and its subsidiaries and provides for the issuance of up to $5.0
million in standby or documentary letters of credit.
At March 31, 2005 the Company is in compliance with all of its financial
debt covenants under the Credit Facility.
The liquidity provided by the Company's existing and anticipated credit
facilities, combined with cash flow from continuing operations is expected to be
sufficient to meet currently anticipated working capital and capital expenditure
needs and for existing debt service for at least 12 months. There can be no
assurance, however, that such funds will not be expended prior thereto due to
changes in economic conditions or other unforeseen circumstances, requiring the
Company to obtain additional financing prior to the end of such twelve-month
period. In addition, the Company continues to evaluate, as part of its business
strategy, and may pursue future growth through opportunistic acquisitions of
assets or companies which 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.
As of March 31, 2005, the Company guaranteed $3.0 million of SET
Enterprises, Inc. ("SET") senior debt in connection with its sale of businesses
to SET. During the third quarter of 2004, the Company agreed to extend its
guarantee for one year. 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 March 31, 2005, the
Company had not been notified by SET or SET's lender of any default that would
require performance under the guarantee.
INFLATION
Inflation generally affects the Company by increasing the interest expense
of floating rate indebtedness and by increasing the cost of labor, fuel,
equipment and raw materials. The Company does not believe that inflation has had
a material effect on its business over the past two years.
14
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 30% of total revenues from continuing operations for fiscal 2004.
The Company's primary foreign currency exposures are the Canadian Dollar,
Australian Dollar and Mexican Peso. The Company manages its exposures to foreign
currency assets and earnings primarily by funding certain foreign currency
denominated assets with liabilities in the same currency and matching revenues
with expenses in the same currency to the extent possible; as such, certain
exposures are naturally offset.
The Company's financial results are affected by changes in U.S. and
foreign interest rates due primarily to the Company's Credit Facility containing
a variable interest rate when it borrows under the credit facility. The Company
invests its excess cash balances in overnight and other short term investments
which may be impacted by changes in interest rates. The Company does not hold
any other financial instruments that are subject to market risk (interest rate
risk and foreign exchange rate risk).
ITEM 4: CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. The Company maintains disclosure controls
and procedures designed to ensure that information that is required to be
disclosed in its filings with the SEC is recorded, processed, summarized and
reported on a timely basis. The Company's management, with the participation of
the President and Chief Executive Officer and the Chief Financial Officer, has
reviewed and evaluated 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 March 31, 2005, and have concluded that as of March 31, 2005,
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, as amended would be made known to
them by others within the Company, particularly during the period in which this
Quarterly Report on Form 10-Q 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 March 31, 2005 that have materially affected, or are reasonably
likely to materially affect, the Company's internal controls over financial
reporting.
15
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Not applicable.
ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Pursuant to the terms of the Company's $40.0 million 4% Convertible
Subordinated Notes entered into in November 2004, the Company is
restricted from paying dividends in excess of $0.48 per share in any
twelve month period until March 2007.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5: OTHER INFORMATION
Not applicable.
ITEM 6: EXHIBITS
(a) Exhibits
Exhibit No. Description
- ----------- -----------
31.1 Certification by the President and Chief Executive
Officer pursuant to Rule 13a-14(a) or 15d-14(d) of the
Securities and Exchange Act of 1934, as amended.
31.2 Certification by the Chief Financial Officer pursuant
to Rule 13a-14(a) or 15d-14(d) 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 Section 1350, as created by Section 906
of Sarbanes-Oxley Act of 2002.
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 6, 2005 By: /s/ Jay J. Hansen
-------------------------
Jay J. Hansen,
Chief Financial Officer
16
Exhibit Index
Exhibit No. Description
- ----------- -----------
31.1 Certification by the President and Chief Executive Officer
pursuant to Rule 13a-14(a) or 15d-14(d) of the Securities and
Exchange Act of 1934, as amended.
31.2 Certification by the Chief Financial Officer pursuant to
Rule 13a-14(a) or 15d-14(d) 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 Section 1350, as created by Section 906 of
Sarbanes-Oxley Act of 2002.