SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
Commission File No.: 001-13581
NOBLE INTERNATIONAL, LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 38-3139487
(State of incorporation) (I.R.S. Employer
Identification No.)
28213 VAN DYKE AVENUE
WARREN, MICHIGAN 48093
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (586) 751-5600
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, $.001 PAR VALUE NASDAQ NATIONAL MARKET
-------------------
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes [ ] No [X]
The aggregate market value of the shares of common stock, $.001 par
value ("Common Stock") held by non-affiliates of the registrant as of June 30,
2003 was approximately $41.1 million based upon the closing price for the Common
Stock on the NASDAQ on such date.
The number of shares of the registrant's Common Stock outstanding as of
March 5, 2004 was 8,940,467.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference
information (to the extent specific sections are referred to herein) from the
Registrant's Proxy Statement for its 2004 Annual Meeting to be held May 5, 2004
(the "2004 Proxy Statement").
The matters discussed in this Annual Report on Form 10-K contain
certain forward-looking statements. For this purpose, any statements contained
in this Report that are not statements of historical fact may be deemed to be
forward-looking statements. Without limiting the foregoing, words such as "may,"
"will," expect," "believe," "anticipate," "estimate," or "continue," the
negative or other variations thereof, or comparable terminology, are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, and actual results may differ materially
depending on a variety of factors, including continued market demand for the
types of products and services produced and sold by the Company, change in
worldwide economic and political conditions and associated impact on interest
and foreign exchange rates, the level of sales by original equipment
manufacturers of vehicles for which the Company supplies parts, the successful
integration of companies acquired by the Company, and changes in consumer debt
levels.
TABLE OF CONTENTS
PART I........................................................................................................... 3
Item 1. Business...................................................................................... 3
Item 2. Properties.................................................................................... 13
Item 3. Legal Proceedings............................................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders........................................... 14
PART II.......................................................................................................... 14
Item 5. Market for the Company's Common Equity and Related Stockholder Matters........................ 14
Item 6. Selected Financial Data....................................................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................................... 25
Item 8. Financial Statements and Supplementary Data................................................... 26
Noble International, Ltd. and Subsidiaries Notes to Consolidated Financial Statements
Fiscal Years 2001, 2002 and 2003................................................................. 33
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 60
Item 9A. Controls and Procedures...................................................................... 60
PART III......................................................................................................... 61
Item 10. Directors and Executive Officers of the Registrant........................................... 61
Item 11. Executive Compensation....................................................................... 61
Item 12. Security Ownership of Certain Beneficial Owners and Management............................... 61
Item 13. Certain Relationships and Related Transactions............................................... 61
Item 14. Principal Accountant's Fees and Services..................................................... 61
PART IV.......................................................................................................... 62
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 62
Schedule II - Valuation and Qualifying Accounts......................................................... 62
SIGNATURES.............................................................................................. 65
2
PART I
ITEM 1. BUSINESS
GENERAL
Noble International Ltd., through its subsidiaries, is a full-service
provider of tailored laser welded blanks 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 or their suppliers in automobile
body components such as doors, fenders, bodyside panels, and pillars.
Noble operates four locations in Michigan, Kentucky and Canada. During
the first quarter of 2004, the Company opened a facility in Australia. Executive
offices are located at 28213 Van Dyke Ave, Warren, MI 48093, tel. (586)
751-5600. Noble's common stock is traded on the NASDAQ National Market under the
symbol NOBL. Additional information about the company, including SEC filings,
can be found on its web site, www.nobleintl.com.
Noble's fiscal year is the same as the calendar year. Thus any
reference to a fiscal year in this Report should be understood to mean the
period from January 1 to December 31 of that year.
HISTORY AND BUSINESS DEVELOPMENT
Noble International, Ltd. ("Noble") was incorporated on October 3, 1993
in the State of Michigan. On June 29, 1999 Noble reincorporated in the State of
Delaware. Since its formation in 1993, Noble has completed over two dozen
significant acquisitions and divestitures (the "Acquisitions"). As used in this
Annual Report (the "Report"), the term "Company" refers to Noble and its
subsidiaries and their combined operations, after consummation of all the
Acquisitions.
In 1996, the Company completed the acquisitions of Noble Component
Technologies, Inc. ("NCT"), Monroe Engineering Products, Inc. ("Monroe"), and
Cass River Coatings, Inc. ("Vassar").
In 1997, the Company completed the acquisitions of Skandy Corp.
("Skandy"), Utilase Production Processing, Inc. ("UPP"), Noble Metal Forming,
Inc. ("NMF"), and Noble Metal Processing, Inc. ("NMP"). In November 1997, the
Company completed an initial public offering of 3.3 million shares of common
stock resulting in gross proceeds of $29.7 million (the "Offering").
In 1998, the Company completed the acquisitions of Tiercon Plastics,
Inc. ("TPI"), Tiercon Coatings, Inc. ("TCI"), and Noble Metal
Processing-Midwest, Inc. ("NMPM").
In 1999, TPI and TCI were combined with and into Tiercon Industries,
Inc. ("Tiercon"). TPI and TCI continued to operate as separate divisions of
Tiercon. On August 31, 1999 the Company purchased certain assets of Jebco
Manufacturing, Inc. ("Jebco").
In 2000, the Company completed the sale of Noble Canada, Inc. ("Noble
Canada") including Tiercon (the "Tiercon Sale"). As part of the Tiercon Sale the
Company sold Vassar and NCT. The Tiercon Sale comprised all of the operating
companies classified as the Company's plastics and coatings division.
In 2000, the Company completed the acquisition of Noble Logistics
Services, Inc. ("NLS-TX"), (formerly known as DSI Holdings, Inc. ("DSI")). In
addition, in 2000, the Company completed the acquisition of Noble Logistic
Services, Inc. ("NLS-CA"), (formerly known as Assured Transportation & Delivery,
Inc. ("ATD") and its affiliate, Central Transportation & Delivery, Inc.
("CTD")).
In 2000, the Company completed the acquisition of Pro Motorcar
Products, Inc. ("PMP") and its affiliated distribution company, Pro Motorcar
Distribution, Inc. ("PMD").
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On February 16, 2001, the Company acquired a 49% interest in S.E.T.
Steel, Inc. ("SET") for $3.0 million (the "SET Acquisition"). SET is a Qualified
Minority Business Enterprise, providing metal processing services to original
equipment manufacturers ("OEMs"). Contemporaneously with the SET Acquisition,
the Company, through its wholly owned subsidiary Noble Manufacturing Group, Inc.
("NMG") (formerly known as Noble Technologies, Inc.), sold all of the capital
stock of NMPM and NMF to SET for $27.2 million (the "SET Sale"). On February 16,
2001, the Company received a note for $27.2 million due June 14, 2001. On June
28, 2001, SET completed bank financing of its purchase of NMF and NMPM and
repaid the $27.2 million note to the Company with $24.7 million in cash and a
$4.0 million, 12% subordinated note due in 2003. In addition, the Company
guaranteed $10.0 million of SET's senior debt. During the quarter ended
September 30, 2001, SET repurchased the Company's 49% interest for $3.0 million.
The Company received a $3.0 million, 12% subordinated note due in 2003. On April
1, 2002, the Company converted its $7.6 million note receivable, including
interest, from SET Enterprises, Inc. ("SET") into preferred stock of SET. The
preferred stock was non-voting and was redeemable at the Company's option in
2007. The Company agreed to convert the subordinated promissory note to
preferred stock in order to assist SET in obtaining capital without appreciably
decreasing the Company's repayment rights or jeopardize SET's minority status.
Management believes that continued support of SET furthers the joint strategic
objectives of the two companies. On August 1, 2003 SET completed its acquisition
of Michigan Steel Processing, Inc. ("MSP"), a subsidiary of Sumitomo Corporation
of America ("SCOA"). As part of the transaction, SCOA contributed 100% of the
common stock of MSP in exchange for 45% of the common stock of SET. In addition,
the Company reduced its guarantee of SET's senior debt from $10.0 million to
$3.0 million for a period of one year, after which the guarantee may be
eliminated. The Company exchanged its $7.6 million non-convertible, non-voting
redeemable preferred stock investment in SET for $7.6 million in Series A
non-convertible, non-voting preferred stock which provides an 8% annual
dividend, and is non-redeemable by the Company. The Series A preferred stock is
redeemable by SET at its option. In connection with the transaction, the Company
was issued 4% of the outstanding common stock of SET. The excess of the
estimated fair values of the preferred and common stock received over the
carrying value of the redeemable preferred stock has been recorded on the
Company's books as a component of other income in the statement of operations
for approximately $0.3 million.
On June 8, 2001, the Company acquired a 51% interest in SCO Logistics,
Inc. ("SCOL"). SCOL is a provider of logistics management services to the bulk
chemical industry. On October 1, 2001 the Company sold its interest in SCOL to
the management of SCOL for $0.35 million.
On December 18, 2001, the Company, through its wholly owned subsidiary
NMG, purchased 81% of the outstanding capital stock of Noble Construction
Equipment, Inc. ("NCE") (formerly known as Construction Equipment Direct, Inc.
("CED")), for $0.35 million in cash and stock valued at $0.35 million along with
a call right to purchase the balance of the stock. On December 19, 2001, NCE
purchased certain assets and assumed certain liabilities of Eagle-Picher
Industries, Inc.'s construction equipment division for approximately $6.1
million in cash. On December 21, 2001, NMG exercised its call option and
acquired the balance of the stock of NCE.
On October 4, 2002, the Company completed a secondary offering of
925,000 shares of its $0.001 par value common stock. The net proceeds of $8.6
million were used to reduce the Company's long-term debt.
On December 31, 2002, the Company, through its wholly-owned subsidiary
NMG, completed the sale of NCE for $14.0 million in cash. The transaction
resulted in a gain of $0.174 million, net of tax. The proceeds were used to
reduce the Company's long-term debt. The Company completed the transaction with
an entity in which the Company's Chairman and certain other officers have an
interest. An independent committee of the board of directors of the Company was
established to evaluate, negotiate, and completed the transaction. In addition,
an independent fairness opinion regarding the transaction was obtained.
4
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. On
August 14, 2003 the Company and the buyer 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%.
On October 17, 2003, the Company acquired substantially all of the
assets of Prototube, LLC ("Prototube") from Weil Engineering GmbH ("Weil") and
Global Business Support, LLC ("GBS") for $0.1 million in cash plus the
assumption of $1.2 million in liabilities. Prototube manufactures a variety of
products with applications in the aerospace, automotive, housing, oil and other
industries. Its products are roll formed or stamped from flat steel or a laser
welded blank, then, utilizing a proprietary technology, they are formed into a
tube and laser welded. Prototube's production process allows parts to be
produced in several different shapes including round, rectangular and oval from
various types and thicknesses of steel, as well as aluminum. In addition to
multiple thicknesses of metal, Prototube can create multi-diameter products and
join curved surfaces together by adjusting the output power of the laser.
The Company made the decision to exit the distribution (Monroe, PMP,
PMD and Peco Manufacturing, Inc. "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 fairness opinion regarding the transaction was
obtained.
As of December 31, 2003 the Company's continuing operating subsidiaries
are organized into a single reporting segment operating in the automotive supply
business. This segment includes NMP, Noble Metal Processing - Kentucky, LLC
("NMPK"), Noble Metal Processing - Canada, Inc. ("NMPC") and Prototube.
On January 21, 2004, the Company completed the acquisition of Prototech
Laser Welding, Inc. ("LWI") for approximately $14.0 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 (LWB) to General Motors.
NARRATIVE DESCRIPTION OF INDUSTRY SEGMENTS
CONTINUING OPERATIONS
Automotive
As of December 31, 2003, the Company's continuing operations conduct
business in a single industry segment through NMP, Prototube, NMPC and NMPK,
(and subsequent to December 31, 2003, LWI). The Company is a supplier of
automotive components and value-added services to the automotive industry.
Customers include Original Equipment Manufacturers ("OEMs"), such as General
Motors ("GM"), DaimlerChrysler AG ("DCX"), Ford Motor Company ("Ford"), BMW of
North America LLC ("BMW"), Toyota Motor Corporation ("Toyota"), American Honda
Motor Company, Inc. ("Honda") and Nissan North America, Inc. ("Nissan"), as well
as other companies which are suppliers to OEMs ("Tier I suppliers"), such as
Tower Automotive, Inc., AK Steel, and Thyssen Steel Group Automotive, among
5
others. The Company, as a Tier I and Tier II supplier, provides prototype
design, engineering, laser welding of tailored blanks, tailor welded tubes and
other laser welding and cutting services of automotive components. The
Company's manufacturing facilities have been awarded both QS-9000 and ISO 14001
certifications.
The process of laser welding involves the concentration of a beam of
light, producing energy densities of 16 to 20 million watts per square inch, at
the point where two metal pieces are to be joined. Laser welding allows rapid
weld speeds with low heat input, thus minimizing topical distortion of the metal
and resulting in ductile and formable welds that have mechanical properties
comparable to, or in some cases superior to, the metal being welded. Laser welds
provide improved performance as well as visual aesthetics and allow significant
automation of the welding process.
Laser welding of blanks offers significant advantages over other blank
welding technologies, including cost, weight and safety benefits. The Company
has developed a technology and production process that the Company believes
permits it to produce laser welded blanks more quickly and with higher quality
and tolerance levels than its competitors. In 1995 and 2000, the UltraLight
Steel Auto Body Consortium, a worldwide industry association of steel producers,
commissioned a study which concluded that laser welded tailored blanks will play
a significant role in car manufacturing in the next decade as the automotive
industry is further challenged to produce lighter cars for better fuel economy,
with enhanced safety features and lower manufacturing costs. In addition, the
studies identified 21 potential applications for laser welding of tailored
blanks per vehicle. The Company has identified nine additional potential
applications.
DISCONTINUED OPERATIONS
Heavy Equipment
NCE designed, engineered, manufactured and assembled all terrain fork
trucks, truck mounted fork trucks, wheeled tractor scrapers and pull scrapers.
These products are then sold to an established system of dealers throughout the
United States, or are contract-built for customers like Caterpillar Inc. and
Terex Corporation. All of the products are made to order based on the customer's
specifications.
The Company made the strategic decision to exit this segment in the
fourth quarter of 2002 in order to focus on its core automotive operations. NCE
was sold in December 2002 for $14.0 million in cash. The Company completed the
transaction with an entity in which the Company's Chairman and another officer
have an interest. An independent committee of the board of directors of the
Company was established to evaluate, negotiate, and complete the transaction. An
independent fairness opinion regarding the transaction was obtained.
Logistics
NLS provided same day package delivery solutions to a wide variety of
industries. Services included both dedicated contract services and scheduled
routed services.
In the fourth quarter of 2002, the Company made the strategic decision
to exit the logistics business segment in order to focus on its core automotive
segment and has classified this operation as discontinued. On March 21, 2003 the
Company completed the sale of the logistics segment for approximately $11.1
million in cash and notes. The Company obtained an independent fairness opinion
regarding the transaction.
Distribution
The Company, through Monroe, PMP and PMD, distributes tooling
components, including adjustable handles, hand wheels, plastic knobs, levers,
handles, hydraulic clamps, drills, jigs and permanent magnets to various
customers. Monroe's primary tooling component product line is Kipp(R)
6
brand standard and heavy duty adjustable handles, representing approximately
one-half of its tooling component sales. Monroe also distributes Elesa(R) brand
high tensile plastic hand wheels, knobs, handles and levers, representing
approximately one-quarter of tooling component sales. Although most tooling
component products are sold off the shelf, Monroe does perform some light
machining of parts for custom orders.
Monroe is a distributor for Kipp(R) products and holds the U.S. patent
rights to Kipp(R) adjustable handles. Monroe also holds non-exclusive rights to
distribute Elesa(R), Boutet and Brauer products throughout North America.
PMP and PMD manufacture and distribute products used in the paint and
coatings industry as well as proprietary products such as paint measurement
gauges, portable tint meter gauges, and UV curing lamps.
In the fourth quarter of 2003, the Company made the strategic decision
to exit the distribution business segment in order to focus on its core
automotive segment and has classified this operation as discontinued. On January
28, 2004, the Company completed the sale of the distribution business (Monroe,
PMP, PMD, and Peco) for approximately $5.5 million in cash. The Company sold the
business to an entity in which the Company's Chairman and another officer have
an interest. An independent committee of the board of directors was formed to
evaluate, negotiate and complete the sale of this business. In addition, an
independent fairness opinion regarding the fairness of the transaction was
obtained.
DESIGN AND ENGINEERING
The development of new automobile models or the redesign of existing
models generally begins two to five years prior to the marketing of such models
to the public. The Company's engineering staff typically works with OEM and Tier
I engineers early in the development phase to design specific automotive body
components for the new or redesigned models. The Company also provides other
value-added services, such as prototyping, to its automotive customers.
Internally, the Company's engineering and research staff designs and
integrates proprietary laser welding systems using latest design techniques.
These systems are for exclusive use by the Company and are not marketed or sold
to third parties. Continued strategic investment in process technology is
essential for the Company to remain competitive in the markets it serves, and
the Company plans to continue to make appropriate levels of research and
development expenditures.
MARKETING
The Company's sales and engineering staff is located in direct
proximity to major customers. Typically, OEMs and Tier I suppliers conduct a
competitive bid process to select laser welders for the parts that they will
include in their end products. The Company's direct sales force, marketing and
technical personnel work closely with OEM engineers to satisfy the OEMs'
specific requirements. In addition, the Company's technical personnel will spend
a significant amount of time assisting OEM engineers in product planning and
integration of laser welded components in future automotive models.
RAW MATERIALS
The raw materials required for the Company's automotive operations
include rolled and coated steel and gases such as carbon dioxide and argon. The
Company obtains its raw materials and purchased parts from a variety of
suppliers. The Company does not believe that it is dependent upon any of its
suppliers, despite concentration of purchasing of certain materials from a few
sources, as other suppliers of the same or similar materials are readily
available. The Company typically purchases its raw materials on a purchase order
basis as needed and has generally been able to obtain adequate supplies of raw
materials for its operations. The majority of the steel is purchased through
OEMs' steel buying programs. Under these programs the Company purchases the
steel from specific suppliers at the steel
7
price the customers negotiated with the steel suppliers. Although the Company
does take ownership of the steel, the steel price risk is borne by the customer.
Further, a portion of the automotive operations involves the toll processing of
materials supplied by another Tier I customer, typically a steel manufacturer.
Under these arrangements the Company charges a specified fee for operations
performed without acquiring ownership of the steel.
PATENTS AND TRADEMARKS
The Company owns a number of patents and trademarks related to its
products and methods of manufacturing. The loss of any single patent or group of
patents would not have a material adverse effect on the Company's business. The
Company also has proprietary technology and equipment that constitute trade
secrets, which it has chosen not to register in order to avoid public disclosure
thereof. The Company relies upon patent and trademark law, trade secret
protection and confidentiality or license agreements with its employees,
customers and third parties to protect its proprietary rights.
SEASONALITY
The Company's automotive operations business is largely dependent upon
the automotive industry, which is highly cyclical and is dependent on consumer
spending. In addition, the automotive component supply industry is somewhat
seasonal. Increased revenues and operating income are generally experienced
during the second calendar quarter as a result of the automotive industry's
spring selling season, the peak sales and production period of the year. Revenue
and operating income generally decreases during July and December of each year
as a result of changeovers in production lines for new model years as well as
scheduled OEM plant shutdowns for vacations and holidays.
The Company's historical results of operations have generally not
reflected typical cyclical or seasonal fluctuations in revenues and operating
income. The acquisitions and dispositions completed by the Company have resulted
in a growth trend which may have masked the effect of typical seasonal
fluctuations. There can be no assurance that the Company's business will
continue its historical growth trend, or that it will conform to industry norms
for seasonality in future periods.
CUSTOMERS
In 2003, automotive industry customers accounted for substantially all
of the Company's consolidated net sales from continuing operations. Three
customers accounted for 37%, 18% and 17% of consolidated net sales from
continuing operations, respectively, in 2003. For the year ended December 31,
2002 two customers accounted for 41% and 25%, respectively, of net sales from
continuing operations. For the year ended December 31, 2001 one customer
accounted for 19% of net sales from continuing operations.
COMPETITION
The automotive component supply and tooling component industries are
highly competitive. In the automotive segment the Company's primary competitors
are TWB Company, Shiloh Industries Inc. and PowerLasers Ltd. Competition in this
segment is based on many factors, including engineering, product design, process
capability, quality, cost, delivery and responsiveness. The Company believes
that its performance record places it in a strong competitive position, although
there can be no assurance that it can continue to compete successfully against
existing or future competitors in each of the markets in which it competes.
ENVIRONMENTAL MATTERS
Within the automotive component supply operations, the Company is
subject to environmental laws and regulations concerning emissions to the air,
discharges to waterways, and generation, handling, storage, transportation,
treatment and disposal of waste materials. The Company is also subject to other
Federal and state laws and regulations regarding health and safety matters. Each
of the Company's
8
production facilities has permits and licenses allowing and regulating air
emissions and water discharges. The Company believes that it is currently in
compliance with applicable environmental and health and safety laws and
regulations.
EMPLOYEES
As of December 31, 2003, the Company employed 578 people in its
continuing operations. This total included 416 production employees,
approximately 50 independent production contractors, and 112 managerial,
research and administrative personnel. The Company believes that its relations
with its employees are satisfactory. One NMP plant elected to be represented by
the International Union, United Automobile, Aerospace, and Agricultural
Implement Workers of America ("UAW") in 1999 and a collective bargaining
agreement was entered into in September 2000 which expired in December 2003. In
January, 2004, the Company entered into a new five year collective bargaining
agreement with the UAW which expires in December 2008. The plant has not been
subject to a strike, lockout or other major work stoppage.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
International operations are subject to certain additional risks
inherent in conducting business outside the United States, such as changes in
currency exchange rates, price and currency exchange controls, import
restrictions, nationalization, expropriation and other governmental action.
RISK FACTORS
The following factors are important and should be considered carefully
in connection with any evaluation of the Company's business, financial
condition, results of operations and prospects. Additionally, the following
factors could cause the Company's actual results to differ materially from those
reflected in any forward-looking statements of the Company. The factors
identified here do not represent an exhaustive list of potential risks involved
in our business that are beyond the Company's control.
Outstanding Indebtedness. In order to finance its operations, including
costs related to the consummation of various acquisitions, the Company has
incurred substantial indebtedness. The Company's credit facilities are secured
by substantially all of its assets as well as the assets of its subsidiaries. In
addition to certain financial covenants, the Company's credit facilities
restrict its ability to incur additional indebtedness or pledge assets. As of
the date of this report, the Company is in compliance with all of the terms of
its credit facilities. There can be no assurance, however, that the Company will
be able to comply with the terms of its credit facilities in the future. At
December 31, 2003, the Company has a $54 million credit facility (the "Credit
Facility") with a syndicate of banks led by Comerica Bank N.A. as agent,
expiring in July 2006. In January 2004, the credit facility was increased to $74
million primarily to facilitate the acquisition of LWI (refer to Note F).
On March 26 2004, the Company issued $40 million in 4% unsecured
convertible subordinated notes (the "Note") in a private placement. The Note has
a three year term, maturing on March 31, 2007 and may be extended another three
years at the holder's option. The Note is convertible at the holder's 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 Note is 4% and is fixed for the entire term. Proceeds from the Note
are being used to reduce the Company's current bank borrowings, including paying
off the term loan balance and reducing amounts outstanding under the $35 million
revolving credit facility, which remains in place.
Debt Service Obligations. The Company's business is subject to all of
the risks associated with substantial leverage, including the risk that
available cash may not be adequate to make required payments. The Company's
ability to satisfy outstanding debt obligations from cash flow will be dependent
upon its future performance and will be subject to financial, business and other
factors, many of which may be beyond its control. In the event that the Company
does not have sufficient cash
9
resources to satisfy its repayment obligations, it would be in default, which
would have a material adverse effect on its business. To the extent that the
Company is required to use cash resources to satisfy interest payments to the
holders of outstanding debt obligations, it will have fewer resources available
for other purposes.
Reliance on Major Customers. Sales to the automotive industry accounted
for all of the Company's sales from continuing operations in 2003. In addition,
the Company's automotive sales are highly concentrated among a few major OEMs
and automotive suppliers. Thus, the loss of any significant customer could have
a material adverse effect on the Company's business. As is typical in the
automotive supply industry, the Company has no long-term contracts with any of
its customers. The Company's customers provide annual estimates of their
requirements; however, sales are made on a short-term purchase order basis.
There is substantial and continuing pressure from the major OEMs and Tier I
suppliers to reduce costs, including the cost of products purchased from outside
suppliers. If in the future the Company is unable to generate sufficient
production cost savings to offset price reductions, its gross margins could be
adversely affected.
Risks Relating to Acquisitions. The automotive component supply
industry is undergoing consolidation as OEMs seek to reduce both their costs and
their supplier base. Future acquisitions may be made in order to enable the
Company to expand into new geographic markets, add new customers, provide new
products, expand manufacturing and service capabilities and increase automotive
model penetration with existing customers. There can be no assurance that the
Company will be successful in identifying appropriate acquisition candidates or
in successfully combining operations with such candidates if they are
identified. It should be noted that any acquisitions could involve the dilutive
issuance of equity securities or the incurrence of debt. In addition,
acquisitions involve numerous other risks, including difficulties in
assimilation of the acquired company's operations following consummation of the
acquisition, the diversion of management's attention from other business
concerns, risks of producing products we have limited experience with, the
potential loss of key customers of the acquired company, and the ability of
pre-acquisition due diligence to identify all possible issues that may arise
with respect to products of the acquired company. All these acquisition risks
could materially and adversely affect the financial performance of the Company.
Failure to Obtain Business on New and Redesigned Model Introductions.
The Company's automotive product lines are subject to change as its customers,
including both OEMs and Tier I suppliers, introduce new or redesigned products.
The Company competes for new business both at the beginning of the development
phase of new vehicle models, which generally begins two to five years prior to
the marketing of such models to the public, and upon the redesign of existing
models. The Company's sales would be adversely affected if the Company fails to
obtain business on new models, or fails to retain or increase business on
redesigned existing models, or if the Company's customers do not successfully
introduce new products incorporating the Company's products, or if market demand
for these new products does not develop as anticipated.
Dependence on Continuous Improvement of Production Technologies. The
Company's ability to continue to meet customer demands within its automotive
operations with respect to performance, cost, quality and service will depend,
in part, upon its ability to remain technologically competitive with its
production processes. New automotive products are increasingly complex, require
increased welding precision, use of various materials and have to be run at
higher production speeds and with lower scrap ratios in order to reduce costs.
The investment of significant additional capital or other resources may be
required to meet this continuing challenge. If the Company is unable to improve
its production technologies, it will lose business and possibly be forced to
exit from the particular market.
Design and Engineering Resources. Within the automotive industry, OEMs
and Tier I suppliers require their suppliers to provide design and engineering
input during the product development process. The direct costs of design and
engineering are generally borne by the Company's customers. However, the Company
bears the indirect cost associated with the allocation of limited design and
engineering
10
resources to such product development projects. Despite the Company's up-front
dedication of design and engineering resources, its customers are under no
obligation to order the subject components or systems from the Company following
their development. In addition, when the Company deems it strategically
advisable, it may also bear the direct up-front design and engineering costs as
well. There can be no assurance that the Company's dedication of design and
engineering resources, or up-front design and engineering expenditures, will not
have a material adverse effect on the Company's financial condition or results
of operations.
Industry Cyclicality and Seasonality. The automotive industry is highly
cyclical and dependent on consumer spending. Economic factors adversely
affecting automotive production and consumer spending could adversely impact the
Company's business. In addition, the automotive component supply industry is
somewhat seasonal. The Company's need for continued significant expenditures for
capital equipment purchases, equipment development and ongoing manufacturing
improvement and support, among other factors, make it difficult for us to reduce
operating expenses in a particular period if our net sales forecasts for such
period are not met, because a substantial component of our operating expenses
are fixed costs. Generally, revenue and operating income increase during the
second calendar quarter of each year as a result of the automotive industry's
spring selling season, which is the peak sales and production period of the
year. Revenue and operating income generally decrease during July and December
of each year as a result of changeovers in production lines for new model years
as well as scheduled OEM plant shutdowns for vacations and holidays.
The Company's historical results of operations have generally not
reflected typical cyclical or seasonal fluctuations in revenues and operating
income. The acquisitions and divestitures completed by the Company have resulted
in a growth trend through successive periods which has masked the effect of
typical seasonal fluctuations. There can be no assurance that the Company's
business will continue its historical growth trend, that it will continue to be
profitable or that it will conform to industry norms for seasonality in future
periods.
Risk of Labor Interruptions. Within the automotive supply industry
substantially all of the hourly employees of the OEMs and many Tier I suppliers
are represented by labor unions, and work pursuant to collective bargaining
agreements. The failure of any of the Company's significant customers to reach
agreement with a labor union on a timely basis, resulting in either a work
stoppage or strike, could have a material adverse effect on the Company's
business. During 1999, production workers at the Company's NMP facility in
Michigan elected to be represented by the UAW. A three year collective
bargaining agreement was entered into in September 2000 and expired in December
2003. In January 2004, the Company entered into a new five year collective
bargaining agreement, which expires in December 2008, with the UAW at its NMP
facility in Michigan. Although this plant has never been subject to a strike,
lockout or other major work stoppage, any such incident would have a material
adverse effect on the Company's operating income.
Product Liability Exposure. Within the automotive operations, the
Company faces an inherent business risk of exposure to product liability claims
if the failure of one of its products results in personal injury or death. There
can be no assurance that material product liability losses will not occur in the
future. In addition, if any of the Company's products prove to be defective, the
Company may be required to participate in a recall involving such products. The
Company maintains insurance against product liability claims, but there can be
no assurance that such coverage will be adequate or will continue to be
available to the Company on acceptable terms or at all. A successful claim
brought against the Company in excess of available insurance coverage or a
requirement to participate in any product recall could have a material adverse
effect on its business.
Impact of Environmental Regulation. The Company is subject to the
requirements of federal, state and local environmental and occupational health
and safety laws and regulations. Although the Company has made and will continue
to make expenditures to comply with environmental requirements, these
requirements are constantly evolving, and it is impossible to predict whether
compliance with these laws and regulations may have a material adverse effect on
the Company in the future. If a release of
11
hazardous substances occurs on or from the Company's properties or from any of
its disposals at offsite disposal locations, or if contamination is discovered
at any of the Company's current or former properties, it may be held liable, and
the amount of such liability could be material.
Dependence on Key Personnel. The Company's operations are dependent
upon its ability to attract and retain qualified employees in the areas of
engineering, operations and management, and are greatly influenced by the
efforts and abilities of Robert J. Skandalaris, Chairman and Christopher L.
Morin, President and Chief Executive Officer, as well as its other executive
officers. The Company has employment agreements with Mr. Skandalaris, Mr. Morin
and several other officers. The Company does not maintain key-person life
insurance on its executives.
Control by Existing Stockholders. Robert J. Skandalaris owns and/or
controls approximately 24% of the outstanding Common Stock. As a result, Mr.
Skandalaris is able to exert significant influence over the outcome of all
matters submitted to a vote of the Company's stockholders, including the
election of directors, amendments to the Company's Certificates of Incorporation
and approval of significant corporate transactions. Such consolidation of voting
power could also have the effect of delaying, deterring or preventing a change
in control that might be beneficial to other stockholders.
Anti-Takeover Provisions. Certain provisions of the Company's
Certificate of Incorporation and Bylaws may inhibit changes in control of the
Company not approved by the Board of Directors. These provisions include: (i) a
prohibition on stockholder action through written consents; (ii) a requirement
that special meetings of stockholders be called only by the Board of Directors;
(iii) advance notice requirements for stockholder proposals and nominations;
(iv) limitations on the ability of stockholders to amend, alter or repeal the
Bylaws; and (v) the authority of the Board of Directors to issue, without
stockholder approval, preferred stock with such terms as the Board of Directors
may determine. The Company will also be afforded the protections of Section 203
of the Delaware General Corporation Law, which could have similar effects.
Risks Associated With International Operations. The Company operates a
production facility in Ontario, Canada, and has opened a facility during the
first quarter of 2004 in Australia. The Company's business strategy may include
the continued expansion of international operations. As the Company expands its
international operations, it will increasingly be subject to the risks
associated with such operations, including: (i) fluctuations in currency
exchange rates; (ii) compliance with local laws and other regulatory
requirements; (iii) restrictions on the repatriation of funds; (iv) inflationary
conditions; (v) political and economic instability; (vi) war or other
hostilities; (vii) overlap of tax structures; and (viii) expropriation or
nationalization of assets. The inability to effectively manage these and other
risks could adversely affect the Company's business.
Shares Eligible for Future Sale. The Company cannot predict the effect
that future sales of Common Stock will have on the market price of the Common
Stock. Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect the market price of the Common Stock.
Approximately 22,233 of the shares of Common Stock currently issued and
outstanding are "restricted securities" as that term is defined under Rule 144
under the Securities Act of 1933 and may not be sold unless they are registered
or unless an exemption from registration, such as the exemption provided by Rule
144, is available. All of these restricted securities are currently eligible for
resale pursuant to Rule 144, subject in most cases to the volume and manner of
sale limitations prescribed by Rule 144.
Possible Volatility of Trading Price. The trading price of the Common
Stock could be subject to significant fluctuations in response to, among other
factors, variations in operating results, developments in the automotive
industry, general economic conditions, fluctuations in interest rates and
changes in securities analysts' recommendations regarding the Company's
securities. Such volatility may adversely affect the market price of our Common
Stock.
12
The Failure of SET could materially adversely affect our financial
condition. In February 2001, the Company sold two of its non-core subsidiaries
to SET Enterprises, Inc., a qualified minority business enterprise providing
metal processing services to the automotive OEMs. The Company currently holds
$7.6 million in face value of 8% Series A non-convertible, non-voting preferred
stock of SET. The Company provides a guarantee of $3.0 million of SET's senior
debt, which is scheduled to mature in August 2004, incurred in connection with
its purchase of the Company's subsidiaries, and the Company holds approximately
4% of SET's common stock. Due to the amounts invested in the Company's
relationship with SET, the failure of SET's business could materially adversely
affect the Company's financial condition if it resulted in its inability to
recover its investment in preferred stock and common stock, and SET's inability
to pay dividends, the Company's accounts receivable, and to pay its senior debt
resulting in our requirement to perform under our guarantee.
ITEM 2. PROPERTIES
As of December 31, 2003, the Company's continuing operations consisted
of its automotive business, which operated four production facilities in the
United States and one facility in Canada. These facilities are used for multiple
purposes and range in size from 5,000 square feet to 524,000 square feet, with
an aggregate of approximately 743,000 square feet. These production facilities
are leased under operating leases with expiration dates ranging from 2005 to
2016.
The Company owns two properties totaling approximately 240,000 square
feet that it has classified as held for sale.
None of the Company's facilities, other than those that are currently
held for sale, is materially underutilized. Management believes that all of the
Company's property and equipment, owned or leased, is in good, working
condition, is well maintained and provides sufficient capacity to meet the
Company's current and expected manufacturing and distribution needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings, other than routine
litigation incidental to its business, none of which is material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted for a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
13
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market
under the symbol NOBL. Prior to June 30, 1998 the common stock traded on AMEX
under the symbol NIL. The following table sets forth the range of high and low
sales prices for the common stock for each period indicated:
HIGH LOW
------ ------
2002
First Quarter $14.50 $ 7.91
Second Quarter 16.00 10.45
Third Quarter 11.69 8.65
Fourth Quarter 11.10 6.41
2003
First Quarter $ 8.89 $ 5.61
Second Quarter 8.78 5.84
Third Quarter 12.14 8.60
Fourth Quarter 23.22 11.11
As of March 15, 2004 there were approximately 74 record holders and
approximately 2,350 beneficial owners of the Company's common stock.
The information required to be furnished pursuant to this item with
respect to compensation plans under which equity securities of the Company are
authorized for issuance will be set forth under the caption "Executive
Compensation and Other Information" in the 2004 Proxy Statement, and is
incorporated herein by reference.
Dividends
During the fiscal years ending December 31, 2002 and 2003, the Company
paid $2.247 million and $2.501 million in dividends, respectively. The dividend
payments were made pursuant to resolutions of the Board of Directors in February
2002, May 2002, and May 2003 to pay regular quarterly cash dividends of $0.08
per share. In February 2004, the Company's Board of Directors approved a
resolution to increase the quarterly cash dividend to $0.10 per share. There
are currently no restrictions on the Company's ability to pay its regular
quarterly cash dividends.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data as of and for each of the five
fiscal years in the period ended December 31, 2003 is derived from the audited
financial statements of the Company and should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere herein or
in prior filings. See "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations." Numbers from the following
consolidated statement of operations are in millions and are subject to
rounding.
14
1999 2000 2001 2002 2003
-----------------------------------------------------------------------------
(Dollars in millions, except share and per share data)
CONSOLIDATED STATEMENTS OF OPERATIONS:
Net sales $ 81.3 $ 83.7 $ 70.8 $ 120.8 $ 183.8
Cost of sales 54.8 62.8 55.6 102.9 156.9
------------- ------------- ------------- ------------- -------------
Gross Margin 26.5 20.9 15.2 17.9 26.9
Selling, general and administrative 14.6 17.3 7.6 10.3 12.3
------------- ------------- ------------- ------------- -------------
Operating profit 11.9 3.6 7.6 7.6 14.6
Interest income - - 1.6 0.9 0.6
Interest expense (1.6) (1.7) (2.1) (0.8) (2.4)
Litigation settlement - - - (1.1) 0.1
Other, net 0.3 0.3 1.6 (0.9) 0.9
------------- ------------- ------------- ------------- -------------
Earnings from continuing operations before
income taxes and extraordinary items 10.6 2.2 8.7 5.7 13.8
Income tax expense 4.0 0.9 2.7 1.6 4.7
------------- ------------- ------------- ------------- -------------
Earnings from continuing operations before
extraordinary items 6.6 1.3 6.0 4.1 9.1
Earnings (loss) from discontinued operations 0.2 (0.2) (1.9) (17.4) (3.2)
Gain (loss) on sale of discontinued operations - 10.0 - 0.1 (0.7)
------------- ------------- ------------- ------------- -------------
Earnings(loss) before extraordinary items 6.8 11.1 4.1 (13.2) 5.2
Extraordinary items (1) (2) (3) - (0.3) 1.5 0.3 -
------------- ------------- ------------- ------------- -------------
Net earnings (loss) $ 6.8 $ 10.8 $ 5.6 $ (12.9) $ 5.2
============= ============= ============= ============= =============
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Earnings per common share from continuing
operations before extraordinary items $ 0.92 $ 0.18 $ 0.90 $ 0.57 $ 1.17
Earnings (loss) per common share from
discontinued operations before extraordinary
items 0.03 1.39 (0.28) (2.46) (0.50)
Extraordinary items (1) (2) (3) - (0.04) 0.24 0.05 -
------------- ------------- ------------- ------------- -------------
Basic earnings (loss) per common share $ 0.94 $ 1.52 $ 0.85 $ (1.84) $ 0.67
============= ============= ============= ============= =============
Basic weighted average common shares outstanding 7,192,328 7,112,311 6,626,212 6,995,153 7,779,472
============= ============= ============= ============= =============
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Earnings per common share from continuing
operations before extraordinary items $ 0.84 $ 0.17 $ 0.86 $ 0.57 $ 1.09
Earnings (loss) per common share from
discontinued operations before extraordinary
items 0.03 1.37 (0.24) (2.41) (0.43)
Extraordinary items (1) (2) (3) - (0.04) 0.20 0.04 -
------------- ------------- ------------- ------------- -------------
Diluted earnings (loss) per common share $ 0.87 $ 1.49 $ 0.82 $ (1.80) $ 0.66
------------- ------------- ------------- ------------- -------------
Diluted weighted average shares outstanding 8,530,981 7,234,786 7,776,451 7,158,982 9,044,376
============= ============= ============= ============= =============
OTHER FINANCIAL INFORMATION
CASH FLOW PROVIDED BY (USED IN):
Continuing operations $ 9.4 $ 11.2 $ (0.0) $ 8.1 $ 9.2
Discontinued operations (22.3) (2.3) 0.4 (4.1) (2.5)
Investing activities (16.1) 47.6 9.6 5.3 (3.6)
Financing activities 28.8 (56.1) (9.9) (8.9) (3.8)
CONSOLIDATED BALANCE SHEET:
Total assets 174.8 145.1 156.9 130.0 143.0
Net assets held for sale 71.9 38.3 45.1 18.1 9.3
Working capital (deficiency) 70.4 9.1 (38.7) 6.0 16.4
Total debt 118.1 73.7 71.3 57.6 53.0
Stockholders' equity 39.9 43.8 47.4 42.1 50.8
RECONCILATION OF EBITDA TO EARNINGS FROM
CONTINUING OPERATIONS (4):
Net Income from Continuing Operations $ 6.6 $ 1.3 $ 6.0 $ 4.1 $ 9.1
Income tax expense 4.0 0.9 2.7 1.6 4.7
Interest expense 1.6 1.7 2.1 0.8 2.4
Depreciation 4.7 5.5 4.5 5.7 7.0
Amortization 1.0 1.4 0.9 0.2 0.2
------------- ------------- ------------- ------------- -------------
EBITDA from Continuing Operations $ 17.9 $ 10.8 $ 16.2 $ 12.3 $ 23.4
============= ============= ============= ============= =============
15
(1) In 2000, an extraordinary loss was recorded as a result of the buyback of
6% convertible debentures. The convertible debentures had a face amount of
$6.376 million and were repaid at an agreed amount of $6.411 million. In
addition, approximately $0.3 million in financing costs relating to the
convertible debentures were written off.
(2) An after-tax extraordinary gain of $1.6 million was recorded in 2001 in
connection with the Company's acquisition by NCE of certain assets of
Eagle-Picher, Inc.'s construction equipment division. This gain was the
result of the implementation of Financial Accounting Standards Board
("FASB") Statement No. 141, "Business Combinations" which requires the
excess of the fair value of acquired net assets over the cost associated
with an acquisition be recognized as an extraordinary gain in the period
in which the transaction occurs. In December 2002 this segment was sold
for $14.0 million.
(3) In 2002, the Company closed the purchase price allocation period regarding
the acquisition of NCE and recognized a $0.315 million after-tax
extraordinary gain on the transaction resulting from certain post-closing
working capital adjustments that reduced the purchase price.
(4) EBITDA from continuing operations represents income from continuing
operations before income taxes, plus interest expense and depreciation and
amortization expense. EBITDA is not presented as, and should not be
considered, an alternative measure of operating results or cash flows from
operations (as determined in accordance with generally accepted accounting
principles), but is presented because it is a widely accepted financial
indicator of a company's ability to incur and service debt. While commonly
used, however, EBITDA is not identically calculated by companies
presenting EBITDA and is, therefore, not necessarily an accurate means of
comparison, and may not be comparable to similarly titled measures
disclosed by the Company's competitors. Management believes that EBITDA is
useful to both management and investors in their analysis of the Company's
ability to service and repay its debt. Further, management uses EBITDA for
planning and forecasting in future periods.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following management's discussion and analysis of financial
condition and results of continuing operations should be read in conjunction
with the Company's consolidated financial statements and notes, and other
information thereto included elsewhere in this Report.
GENERAL
Noble International Ltd., through its subsidiaries, is a full-service
provider of tailored laser welded blanks for the automotive industry. On
December 31, 2002 the Company completed the sale of its heavy equipment segment
for $14.0 million in cash to a related party. This segment has been classified
as discontinued for fiscal years 2002 and prior. In the fourth quarter of 2002
the Company made the strategic decision to exit the logistics business and has
classified this segment as discontinued for fiscal years 2003 and prior. 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 in fiscal years 2003 and prior. The sale of the
distribution business was completed in January 2004 for approximately $5.5
million in cash to a related party. The Company's fiscal year is equivalent to
the calendar year. The following discussion relates to the Company's continuing
operations.
The Company is a leading supplier of automotive components and
value-added services to the automotive industry. Customers include Original
Equipment Manufacturers ("OEMs"), such as General Motors Corporation ("GM"),
DaimlerChrysler AG ("DCX"), Ford Motor Company ("Ford"), BMW of North America
LLC ("BMW"), Toyota Motor Corporation ("Toyota"), American Honda Motor Company,
Inc. ("Honda") and Nissan North America, Inc. ("Nissan"), as well as other
companies which are suppliers to OEMs ("Tier I suppliers"), such as Tower
Automotive, Inc., AK Steel, and Thyssen Steel Group Automotive, among others.
The Company, as a Tier I and Tier II supplier, provides prototype design,
16
engineering, laser welding of tailored blanks and other laser welding and
cutting services of automotive components. The Company's manufacturing
facilities have been awarded both QS-9000 and ISO 14001 certifications.
RESULTS OF OPERATIONS
To facilitate analysis, the following table sets forth certain
financial data for the Company:
(In thousands of dollars)
-------------------------------------------------------------------------
2001 2002 2003
-------------------------------------------------------------------------
Net sales $ 70,769 $120,800 $ 183,759
Cost of sales 55,608 102,904 156,909
-------- -------- ---------
Gross margin 15,161 17,896 26,850
Selling, general and
administrative expenses 7,527 10,268 12,235
-------- -------- ---------
Operating profit 7,634 7,628 14,615
Interest income 1,586 978 596
Interest expense (2,157) (836) (2,419)
Litigation settlement - (1,098) 73
Other, net 1,617 (935) 942
-------- -------- ---------
Earnings from continuing
operations before taxes 8,680 5,737 13,807
Income tax expense 2,698 1,666 4,673
-------- -------- ---------
Earnings from operations
before extraordinary items 5,982 4,071 9,134
(Loss) from discontinued
operations (1,887) (17,405) (3,221)
Gain (loss) on sale of - 174 (677)
discontinued operations
-------- -------- ---------
Earnings (loss) before 4,095 (13,160) 5,236
extraordinary items
Extraordinary items 1,567 315 -
-------- -------- ---------
Net earnings (loss) 5,662 (12,845) 5,236
Preferred stock dividends 27 10 -
-------- -------- ---------
Net earnings (loss) on common
shares $ 5,635 $(12,855) $ 5,236
-------- -------- ---------
As a percentage of sales:
Gross margin from
continuing operations 21.4% 14.8% 14.6%
Operating profit from
continuing operations 10.8% 6.3% 8.0%
Fiscal 2003 vs. Fiscal 2002
Net Sales. Net sales from continuing operations increased by $63.0
million, or 52.1%, to $183.8 million for the year ended December 31, 2003 from
$120.8 million for the year ended December 31, 2002. The increase in sales is
attributable to increased revenue from the automotive laser welded flat blank
business. These increases were primarily the result of the increased volumes on
several of the automotive platforms on which the Company has business as well as
sales from new business launched during 2003, the full year impact of business
launched during 2002 and the utilization of laser-welded components on more
vehicle models and platforms. In addition, revenue was positively impacted by an
increase in steel sales as the number of programs for which the Company
purchases and sells the steel used in the laser welding process increased in
2003 compared to 2002.
Cost of Sales. Cost of sales from continuing operations increased by
$54.0 million, or 52.5%, to $156.9 million for the year ended December 31, 2003
from $102.9 million for the year ended December 31, 2002. This increase in cost
of sales was primarily attributable to increased production volume related to
the increased sales in 2003 compared to 2002. As a percentage of net sales, cost
of sales increased slightly to 85.4% in fiscal 2003 from 85.2% in 2002. This
increase as a percentage of sales is primarily
17
attributable to the increase in the purchase of steel as a percentage of overall
cost of sales and is related to the increase in steel sales as a percentage of
total sales as the Company continued its transition to a full service supplier
from a toll processor. This increase in costs was partially offset by
productivity improvements in the Company's manufacturing operations.
Gross Margin. Gross margin from continuing operations increased $9.0
million, or 50.0%, to $26.9 million for the year ended December 31, 2003 from
$17.9 million for the year ended December 31, 2002. As a percentage of sales,
gross margin declined slightly to 14.6% in fiscal 2003 compared to 14.8% in
2002. This decline is primarily attributable to the increase in steel sales as a
percentage of overall sales as a result of the increase in the mix of products
and programs for which the Company is required to buy the steel in addition to
providing value-added laser welding and related services compared to products
and programs for which value-added laser welding and related services only are
provided. The steel portion of sales are made at a significantly lower margin
than value-added laser welding and other related value-added services. The
impact of the lower margin from increased steel sales was partially offset by
productivity improvements in the manufacturing operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) from continuing operations increased by $2.0
million, or 19.2%, to $12.2 million for the year ended December 31, 2003 from
$10.3 million for the year ended December 31, 2002. As a percentage of sales,
SG&A declined from 8.5% in fiscal 2002 to 6.7% in 2003. The decrease as a
percent of sales was primarily due to expense containment, leveraging of fixed
costs in SG&A, as well as the increase in steel sales without a corresponding
increase in SG&A expense. In fiscal 2001, the Company recorded $0.1 million for
bad debt expense. In fiscal 2002, the bankruptcy of National Steel resulted in
the Company recording bad debt expense of approximately $1.2 million related to
accounts receivable with National Steel and in fiscal 2003, the Company recorded
bad debt expense of $0.5 million primarily as a result of the bankruptcy of
Rouge Industries and its subsidiaries including Rouge Steel.
Operating Profit. As a result of the foregoing factors, operating
profit from continuing operations increased $7.0 million, or 91.6%, to $14.6
million for the year ended December 31, 2003 from $7.6 million for the year
ended December 31, 2002. As a percentage of sales, operating profit increased to
8.0% in fiscal 2003 from 6.3% in fiscal 2002. The increase, as stated earlier,
was primarily the result of productivity improvements in the manufacturing
operations, expense containment in SG&A, partially offset by lower operating
margin from increased steel sales as a proportion of total sales for fiscal
2003.
Interest Expense. Interest expense from continuing operations increased
$1.6 million to $2.4 million for the year ended December 31, 2003 from $0.8
million for the year ended December 31, 2002. The higher interest expense in
fiscal 2003 was primarily due to approximately $2.4 million of interest expense
associated with discontinued operations classified in the loss from discontinued
operations in 2002. The proceeds from sale of the discontinued operations did
not reduce all of the debt associated with those operations and as a result, a
portion of this interest expense is reflected in interest expense from
continuing operations in 2003. This was partially offset by lower average
borrowings in 2003 compared to 2002.
Interest Income. Interest income from continuing operations decreased
$0.4 million in fiscal 2003 to $0.6 million from $1.0 million in fiscal 2002.
The decrease was due primarily to lower notes receivable balances related to the
sale of NMF and NMPM, partially offset by the interest income from the notes
related to the sale of the logistics business in 2003.
Litigation settlement. In fiscal 2002 the Company recorded a $1.1
million charge related to litigation. The Company recorded a charge as a result
of tax-related litigation associated with the Company's acquisition of its
automotive operations in 1997. Through arbitration, the seller was awarded
approximately $1.1 million. The Company filed an appeal of the decision and
ultimately settled the matter prior to the completion of the appeal process for
$1.0 million, resulting in a $0.1 million recovery in 2003.
18
Other, net. Other income and expense, net increased by $1.8 million,
from an expense of $0.9 million in fiscal 2002 to income of $0.9 million in
fiscal 2003. Other income in 2003 primarily included insurance proceeds ($0.2
million), the recovery of costs previously expensed ($0.4 million), income from
the recording of the Company's receipt of 4% of SET common stock ($0.3 million),
the writedown of other assets ($0.3 million), and dividend income ($0.2
million). Included in other expense for 2002 is the write-down of certain
real-estate assets held for sale of $0.9 million.
Income Tax Expense. Income tax expense related to continuing operations
increased $3.0 million, to $4.7 million for the year ended December 31, 2003
from $1.7 million in 2002. This increase was primarily due to higher earnings
from continuing operations before income taxes. The 2002 income tax expense
amount includes a valuation allowance of $0.5 million against available tax
credit carry forward.
Earning from Continuing Operations before Extraordinary items. As a
result of the foregoing factors, net earnings from continuing operations before
extraordinary item increased $5.1 million, or 124%, to $9.1 million for the year
ended December 31, 2003 from $4.1 million for the year ended December 31, 2002.
Extraordinary Item. In fiscal 2002, the Company closed the purchase
price allocation period regarding the acquisition of NCE and recognized a $0.3
million after-tax extraordinary gain on the transaction resulting from certain
post-closing working capital adjustments. On December 31, 2002 the Company
completed the sale of NCE for $14.0 million.
Fiscal 2002 vs. Fiscal 2001
Net Sales. Net sales from continuing operations increased by $50.0
million, or 70.7%, to $120.8 million for the year ended December 31, 2002 from
$70.8 million for the year ended December 31, 2001. These increases were
primarily the result of the increased volumes on several of the automotive
platforms on which the Company has business as well as sales from new business
launched during the year and the full year impact of new business launched
during 2001 and the utilization of laser-welded components on more vehicle
models and platforms. In addition, revenue was positively impacted by an
increase in steel sales as the number of programs for which the Company
purchases and sells the steel used in the laser welding process increased in
2002 compared to 2001.
Cost of Sales. Cost of sales from continuing operations increased by
$47.3 million, or 85.1%, to $102.9 million for the year ended December 31, 2002
from $55.6 million for the year ended December 31, 2001. This increase in cost
of sales was primarily attributable to increased production volume related to
the increased sales in 2002 compared to 2001. As a percentage of net sales, cost
of sales increased to 85.2% in fiscal 2002 from 78.6% in 2001. This increase as
a percentage of sales is primarily attributable to the increase in the purchase
of steel as a percentage of overall cost of sales and is related to the increase
in steel sales as a percentage of total sales as the Company transitioned to a
full service supplier from a toll processor.
Gross Margin. Gross margin from continuing operations increased $2.7
million, or 18.0%, to $17.9 million for the year ended December 31, 2002 from
$15.2 million for the year ended December 31, 2001. As a percentage of sales,
gross margin decreased from 21.4% in fiscal 2001 to 14.8% in 2002. The increase
in gross margin from continuing operations was primarily the result of higher
net sales. As a percentage of sales, the gross margin decline was primarily the
result of increased steel sales as a proportion of total sales which has
significantly lower margins than the laser welding processing and other related
value-added services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses (SG&A) from continuing operations increased by $2.7
million, or 36.4%, to $10.3 million for the year ended December 31, 2002 from
$7.5 million for the year ended December 31, 2001. As a percentage of sales,
SG&A declined from 10.6% in fiscal 2001 to 8.5% in 2002. The decrease as a
percent of sales was primarily due to expense containment within the operations
as well as the inclusion of approximately
19
$0.7 million of goodwill amortization in 2001. In addition, the Company recorded
$1.2 million of bad debt expense in 2002 related to accounts receivable with
National Steel as a result of the National Steel bankruptcy. In fiscal 2001, the
Company expensed $0.1 million in bad debt expense.
Operating Profit. As a result of the foregoing factors, operating
profit from continuing operations was $7.6 million for the year ended December
31, 2002 compared to a similar amount for the year ended December 31, 2001. As a
percentage of sales, operating profit declined to 6.3% in fiscal 2002 from 10.8%
in fiscal 2001. The decline, as stated earlier, was primarily the result of
lower operating margin from steel sales, the higher proportion of steel sales in
net sales for fiscal 2002 and bad debt expense.
Interest Expense. Interest expense from continuing operations decreased
$1.3 million, or 61.2%, to $0.8 million for the year ended December 31, 2002
from $2.2 million for the year ended December 31, 2001. The higher interest
expense in fiscal 2001 was primarily due to higher interest rates and
borrowings.
Interest Income. Interest income from continuing operations decreased
$0.6 million in fiscal 2002 to $1.0 million from $1.6 million in fiscal 2001.
The decrease was due to lower interest rates as well as lower notes receivable
balances related to the sale of NMF and NMPM.
Litigation Settlement. In fiscal 2002 the Company recorded a $1.1
million charge related to litigation. The Company recorded a charge as a result
of tax-related litigation associated with the Company's acquisition of its
automotive operations in 1997. Through arbitration, the seller was awarded
approximately $1.1 million.
Other, net. Other income and expense from continuing operations
declined by $2.5 million, from $1.6 million income in fiscal 2001 to an expense
of $0.9 million in fiscal 2002. Other income in 2001 was higher due to a
one-time fee related to the arrangement of financing for SET. Included in other
expense for 2002 is the write-down of certain real-estate assets held for sale
of $0.9 million.
Income Tax Expense. Income tax expense related to continuing operations
decreased $1.0 million, or 38.3%, to $1.7 million for the year ended December
31, 2002 from $2.7 million in 2001. This decrease was primarily due to lower
earnings from continuing operations before income taxes and a $1.1 million tax
expense in 2001 related to the sale of assets. The 2002 income tax expense
amount includes a valuation allowance of $0.5 million against available tax
credit carry forwards.
Earnings from Continuing Operations before Extraordinary Items. As a
result of the foregoing factors, net earnings from continuing operations before
extraordinary items decreased $1.9 million, or 31.9%, to $4.1 million for the
year ended December 31, 2002 from $6.0 million for the year ended December 31,
2001.
Extraordinary Item. In fiscal 2002, the Company closed the purchase
price allocation period regarding the acquisition of NCE and recognized a $0.3
million after-tax extraordinary gain on the transaction resulting from certain
post-closing working capital adjustments. An after tax extraordinary gain of
$1.6 million was recorded (representing the excess of the fair value of acquired
net assets over the cost associated with the acquisition) in 2001 in connection
with the Company's acquisition of NCE. On December 31, 2002 the Company
completed the sale of NCE for $14.0 million.
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
and loans from stockholders. 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 as a result of
anticipated growth. 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 a credit facility. As of
December 31, 2003, the Company had a net working capital surplus of
approximately $16.4 million.
20
The Company generated cash from continuing operations of $9.2 million
for the year ended December 31, 2003. Net cash generated from continuing
operating activities was primarily the result of net earnings, plus non-cash
expense such as depreciation expense and increases in accounts payable and
accrued liabilities. This was partially offset by increases in accounts
receivable, inventories and prepaid expenses. The increases in accounts
receivable, inventories, and accounts payable are primarily the result of
increase in sales and related production activities. The significant decrease in
the deferred income taxes of $8.4 million is partially offset by the increase in
refundable income taxes of $5.7 million and is primarily the result of the loss
from the discontinued logistics operations and its subsequent sale. Discontinued
operations used cash in the amount of $2.5 million for fiscal 2003.
The Company used cash from investing activities of $3.6 million for the
year ended December 31, 2003. This was primarily the result of the purchase of
fixed assets of $9.8 million offset by proceeds from the sale of the logistics
business of $6.2 million, including $2 million in cash at closing and $4.2
million in the collection of notes receivable.
The Company used $3.8 million of cash flow in financing activities for
the year ended December 31, 2003, primarily for repayment of subordinated debt
as discussed below. The Company had net borrowings on its credit facility of
$1.6 million, redeemed $3.5 million in junior subordinated debentures; paid
dividends of $2.5 million and received proceeds from the issuance of common
stock of $1.2 million
The Company maintains a secured Credit Facility with a syndicate of
banks led by Comerica Bank N.A. The amount of the facility was $53.9 million on
December 31, 2003, and has an expiration date of July 2006. As of December 31,
2003 the Credit Facility had a balance of $40.0 million. The Credit Facility
consists of two loans. The first is a $25.0 million revolving loan with no
borrowing base formula. Availability under the revolving loan at December 31,
2003 was $13.9 million. The second loan is a term loan of $28.9 million. The
Company made quarterly principal payments of $1.1 million on the term loan. The
Credit Facility is secured by assets of the Company and its subsidiaries and
provides for the issuance of up to $5 million in standby or documentary letters
of credit. The Credit Facility may be utilized for general corporate purposes,
including working capital and acquisition financing, and provides the Company
with borrowing options for multi-currency loans. Borrowing options include a
Eurocurrency rate, or a base rate. Advances under the facility bore interest at
an effective average rate of approximately 4.0% and 4.4% as of December 31, 2002
and 2003, respectively. Costs of originating the Credit Facility of $1.3 million
are being amortized over three years. The unamortized balance of origination
costs is $0.9 million at December 31, 2003 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 million.
The Company has from time to time, 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 December 31, 2003
the Company is in compliance with all of its financial debt covenants under the
Credit Facility.
In January 2004, the Company amended its credit facility to increase
the facility to $74.0 million. The revolving loan was increased to $35.0 million
with no borrowing base formula and the term loan was increased to $39.0 million.
The Company makes quarterly payments of principal under the term loan of $1.4
million. The amendment and increase in the credit facility was primarily to
facilitate the acquisition of LWI. LWI was purchased for $14.0 million in cash
and the assumption of $0.7 million in subordinated notes payable with up to an
additional $1.0 million payable if certain new business is awarded to the
Company within twelve months. Subsequent to the acquisition of LWI, the Company
completed the sale of its distribution business for approximately $5.5 million
in cash and received approximately $6.1 million in a tax refund, both of which
were applied to reduce borrowings under the credit facility.
21
On March 26, 2004, the Company issued $40 million in 4% unsecured
convertible subordinated notes (the "Note") in a private placement. The Note has
a three year term, maturing on March 31, 2007 and may be extended another three
years at the holder's option. The Note is convertible at the holder's 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 Note is 4% and is fixed for the entire term. Proceeds from the Note
are being used to reduce the Company's current bank borrowings, including paying
off the term loan balance and reducing amounts outstanding under the $35 million
revolving credit facility, which remains in place.
The Company guarantees $3.0 million of SET's senior debt in connection
with its sale of NMF and NMPM to SET. The Company would be required to perform
under the guarantee if SET was unable to repay or renegotiate its credit
facility. The Company expects the guarantee to be eliminated upon the maturity
of SET's credit facility in August 2004, provided SET is in compliance with the
terms of its credit facility. As of December 31, 2003, the Company had not been
notified by SET or SET's lender of any default that would require performance
under the guarantee. 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.
On July 31, 1998 and concluding August 10, 1998 the Company closed a
private offering of 6% Convertible Subordinated Debentures (the "Debentures")
for gross proceeds of $20.76 million. The proceeds were used to reduce the
amount of outstanding advances under the Credit Facility. The Debentures mature
on July 31, 2005 and interest is payable on January 31 and July 31 of each year;
provided, however, that for the first three years, in lieu of cash interest,
additional Debentures were issued. During the years ended December 31, 1999,
2000, and 2001 the Company issued $1.2 million, $1.1 million and $1.0 million,
respectively, in additional Debentures as payment of interest. The Debentures
are unsecured obligations of the Company which may be redeemed by the Company
during the twelve months beginning July 31, 2002 at 102.5% of the principal
amount (plus accrued interest) and at 101.5% and 100.5% during each 12 month
period following. Commencing November 30, 1998, the Debentures became
convertible into Common Stock at $14.3125 per share (subject to adjustment).
Beginning January 31, 2004 and on each July 31 and January 31 thereafter, the
Company is required to redeem for cash 25% of the outstanding principal amount
of the Debentures through the maturity date. During 2001, the Company redeemed
$1.1 million of Debentures for $0.35 million in cash and 50,000 shares of the
Company's Common Stock. Offering costs of $1.114 million on the original
issuance are being amortized over seven years. The unamortized balance of
offering costs is $0.2 million at December 31, 2003 and is included in other
assets. During 2003, the holders of approximately $3.5 million in subordinated
Debentures exercised their option to convert their subordinated Debentures into
the Company's common stock. The balance of subordinated Debentures outstanding
at December 31, 2003 was $12.5 million. Subsequent to December 31, 2003 holders
of an additional approximately $9.5 million in subordinated Debentures exercised
their option to convert their subordinated Debentures into the Company's common
stock. On February 2, 2004 the Company made a mandatory retirement payment
pursuant to the terms of the subordinated debenture of $0.8 million. The balance
of subordinated Debentures outstanding after the conversions and the mandatory
retirement payment was approximately $2.2 million.
On December 16, 1998 and concluding December 22, 1998 the Company
closed a private offering of Junior Subordinated Notes (the "Junior Notes"),
together with 105,000 warrants to purchase shares of Common Stock of the Company
at an exercise price of $10.00 per share expiring on the maturity date, for
gross proceeds of $3.5 million with $.141 million, or $1.34 per share,
attributable to the warrants. The proceeds were used to reduce the Credit
Facility. The Junior Notes have not been registered under the Securities Act of
1933 and were sold to qualified investors as part of a private offering pursuant
to Regulation D of a maximum of $10 million in principal amount of Junior Notes.
The Junior Notes are
22
unsecured obligations of the Company, which may be redeemed by the Company upon
five days prior notice without penalty or premium. The Junior Notes matured on
December 16, 2003 and were redeemed in full. The Company has no warrants
outstanding as of December 31, 2003.
On April 22, 2002, the Company completed a sale and leaseback
transaction of its Shelbyville, KY facility to the Company's Chairman. The sale
price was $6.2 million which was equal to the book value of the property. The
proceeds of the transaction were used to reduce the Company's debt under its
current credit facility. The lease has a term of five years and provides for
monthly rent of $0.07 million. The sale price and rent amount were determined by
the estimated fair value of the property and estimated prevailing lease rates
for similar properties. Although the Company did not obtain an independent
valuation of the property or the terms of the transaction, it believes the terms
of the sale and leaseback were at least as favorable to Noble as terms that
could have been obtained from an unaffiliated third party. The Company has
accounted for this lease as an operating lease.
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.
Off Balance Sheet Arrangements
The Company's off balance sheet financing consists primarily of
operating leases for equipment and property. These leases have terms ranging
from a month-to-month basis to thirteen years. In 2003, lease expense was
approximately $3.7 million. From 2003 through 2007 and thereafter the Company
will make contractual minimum lease payments as well as short and long-term debt
payments as follows (in thousands):
FUTURE MATURITIES AND CONTRACTUAL OBLIGATIONS
Less Than Over 5
Total 1 Year 1-3 Years 4-5 Years Years
------- ------ ---------- ---------- -------
Long-term debt (including lines of credit) $52,999 $9,999 $ 43,000 $ - $ -
Operating leases for equipment and property $38,664 $3,843 $ 6,695 $ 5,745 $22,381
Purchase obligations $ 518 $ 518 $ - $ - $ -
Purchase obligations include primarily commitments for capital
expenditures. We have not included information on our recurring purchases of
materials used in our manufacturing operations. These amounts are generally
consistent from year to year, closely reflect our levels of production and are
not long term in nature (less than three months).
The Company also expects to receive minimum rental income of
approximately $1.2 million per year for the period 2004 through 2012 related to
the sublease of a portion of one of the Company's manufacturing facilities to
SET.
Critical Accounting Policies
A summary of the critical accounting policies consistently applied in
the preparation of the accompanying financial statements follow below.
23
Property, Plant and Equipment. The Company's automotive operations are
highly capital intensive. Property, plant and equipment are stated at cost.
Depreciation is provided for using the straight line method over the estimated
useful lives of the assets which range from 5 to 39 years for buildings and
improvements and 3 to 10 years for machinery and equipment. Expenditures for
maintenance and repairs are charged to expense as incurred. The Company
capitalizes interest cost associated with construction in progress. Capitalized
interest costs in 2002 and 2003 were $0.3 million and $0.5 million,
respectively. The Company periodically reviews the realization of long-lived
assets, based on an evaluation of remaining useful lives and the current and
expected future profitability and cash flows related to such assets. Land is
carried at acquisition cost.
Valuation of deferred tax assets. Because the Company operates in
different geographic locations, including several state and local tax
jurisdictions, the nature of the Company's tax provisions and the evaluation of
the Company's ability to use all recognized deferred tax assets are complex. In
assessing the ability to realize such deferred tax assets, the Company reviews
the scheduled reversal of deferred tax liabilities, the projections of taxable
income in future periods and the effectiveness of various tax planning
strategies in making assessments. The consideration of these matters requires
significant management judgment in determining deferred tax asset valuation
allowances. While it is believed that the appropriate valuations of deferred tax
assets has been made, unforeseen changes in tax legislation, regulatory
activities, operating results, financing strategies, organization structure and
other related matters may result in material changes in the Company's deferred
tax asset valuation allowances.
Goodwill. Goodwill is the excess of cost over the fair value of net
assets acquired in business combinations and through December 31, 2001 was
amortized over a 20-year period on the straight-line method. On January 1, 2002
the Company implemented Statement of Financial Accounting Standards ("SFAS") No.
142 "Goodwill and Other Intangible Assets." Under SFAS 142 goodwill and other
intangible assets are no longer amortized. As required under SFAS 142,
management will regularly evaluate the carrying value of businesses and
determine if any impairment exists. As part of the evaluation, the Company
estimates the fair value of the reporting unit to determine whether or not
impairment has occurred. At adoption and at June 2002 and June 2003, the Company
determined that goodwill was not impaired. As of December 31, 2002 and 2003, the
Company had an unamortized goodwill balance from continuing operations of $11.5
million and $11.8 million, respectively. The change in goodwill reflects
approximately $0.3 million in purchased goodwill related to the acquisition of
Prototube. In the fourth quarter of 2002 and 2003, the Company made the
strategic decision to exit its logistics and distribution businesses,
respectively, and as a result their operations have been included in
discontinued operations. In connection therewith, the Company, based upon the
anticipated proceeds from the sale of those businesses, incurred goodwill
impairment charges of approximately $19.9 million and $2.0 million related to
the logistics and distribution businesses, respectively. In March 2003, the
Company completed the sale of the logistics operations for approximately $11.1
million in cash and notes. On January 28, 2004 the Company completed the sale of
the distribution business for approximately $5.5 million in cash.
Allowance for Doubtful Accounts. The Company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. Management makes these estimates based on
an analysis of accounts receivable using available information on our customers'
financial status and payment histories. Historically, with the exception of $1.2
million of bad debt expense recorded in 2002 related to the National Steel
bankruptcy and $0.4 million in 2003 related to the Rouge Steel bankruptcy, bad
debt losses have not been significant or have not differed materially from the
Company's estimates. The balance in the allowance for doubtful accounts at
December 31, 2003 and 2002 was $0.1 million and $0, respectively.
24
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
any material effect on its business over the past three years.
Impact of New Accounting Pronouncements
FASB Statement No. 150. In May 2003, the FASB issued Statement No. 150,
"Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity." FASB Statement No. 150 affects the accounting for
mandatorily redeemable shares, options and forward purchase contracts that
require the issuer to repurchase shares and certain obligations that can be
settled in shares. FASB Statement No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003 and otherwise is
effective at the beginning of the first interim period after June 15, 2003. The
adoption of this statement did not have any material impact on the results of
operations of financial position of the Company at December 31, 2003.
FIN No. 46. In January 2003, FASB issued Interpretation 46,
"Consolidation of Variable Interest Entities, an interpretation of ARB 51." FIN
No. 46 requires that the primary beneficiary of a variable interest entity
consolidate the entity even if the primary beneficiary does not have a majority
voting interest. The adoption of this interpretation did not have any impact on
our results of operations or financial position at December 31, 2003.
ITEM 7A. 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 19% of total revenues from continuing operations for fiscal 2003.
The Company's primary foreign currency exposure is the Canadian Dollar. The
Company manages its exposures to foreign currency assets and earnings primarily
by funding certain foreign currency denominated assets with liabilities in the
same currency and, as such, certain exposures are naturally offset. Refer to
Note N of Notes to the Consolidated Financial Statements.
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. The Company does not hold any other financial
instruments that are subject to market risk (interest rate risk and foreign
exchange rate risk).
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Noble International, Ltd. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Noble
International, Ltd. (a Delaware corporation) and Subsidiaries (the "Company") as
of December 31, 2003 and 2002, and the related consolidated statements of
operations, stockholders' equity, comprehensive income (loss) and cash flows for
each of the three years in the period ended December 31, 2003. Our audits also
included the consolidated financial statement schedule listed in the Index at
Item 15(a). These consolidated financial statements and consolidated financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on the consolidated financial statements
and consolidated financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Noble International, Ltd.
and Subsidiaries as of December 31, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years ended in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note A to the consolidated financial statements, in
2002 the Company changed its method of accounting for the impairment and
disposal of long-lived assets to conform to Statement of Financial Accounting
Standards No. 144. Also, as discussed in Note A to the consolidated financial
statements, in 2002, the Company changed its method of accounting for goodwill
to conform to Statement of Financial Accounting Standards No. 142.
DELOITTE & TOUCHE LLP
Detroit, Michigan
March 29, 2004
26
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
YEARS ENDED DECEMBER 31,
2002 2003
------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,154 $ 715
Accounts receivable, trade, net 22,474 34,030
Note Receivable - 1,799
Inventories 7,119 14,543
Deferred income taxes 6,217 -
Income taxes refundable 250 5,920
Prepaid expenses 2,513 3,909
--------- ---------
Total Current Assets 39,727 60,916
Property, Plant & Equipment, net 47,026 47,119
Other Assets:
Goodwill, net 11,463 11,839
Covenants not to compete, net of accumulated amortization of $1,017 and
$1,217 for 2002 and 2003, respectively 383 183
Other assets, net 10,016 12,890
--------- ---------
Total Other Assets 21,862 24,912
Assets Held for Sale 21,335 10,036
--------- ---------
TOTAL ASSETS $ 129,950 $ 142,983
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 19,677 $ 29,517
Accrued liabilities 5,652 4,967
Current maturities of long-term debt 8,386 9,999
Deferred income taxes - 54
--------- ---------
Total Current Liabilities 33,715 44,537
Long-Term Liabilities:
Deferred income taxes 1,717 3,860
Convertible subordinated debentures 16,037 7,026
Long-term debt, excluding current maturities 33,192 35,974
--------- ---------
Total Long-Term Liabilities 50,946 46,860
Liabilities Held for Sale 3,228 775
Commitments and Contingencies (Note G)
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, authorized 20,000,000 shares, issued
8,576,397 and 9,013,277 shares in 2002 and 2003, respectively 9 9
Additional paid-in capital 32,874 38,161
Retained earnings 9,755 12,490
Accumulated other comprehensive income (loss), net (577) 151
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 42,061 50,811
--------- ---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 129,950 $ 142,983
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
27
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
2001 2002 2003
---------------------------------------------
Net sales $ 70,769 $ 120,800 $ 183,759
Cost of sales 55,608 102,904 156,909
----------- ----------- -----------
Gross margin 15,161 17,896 26,850
Selling, general and administrative expenses 7,527 10,268 12,235
----------- ----------- -----------
Operating profit 7,634 7,628 14,615
Interest income 1,586 978 596
Interest expense (2,157) (836) (2,419)
Litigation settlement - (1,098) 73
Other, net 1,617 (935) 942
----------- ----------- -----------
Earnings from continuing operations before income taxes
and extraordinary items 8,680 5,737 13,807
Income tax expense 2,698 1,666 4,673
----------- ----------- -----------
Earnings from continuing operations before extraordinary items 5,982 4,071 9,134
Preferred stock dividends 27 10 -
----------- ----------- -----------
Earnings on common shares from continuing operations
before extraordinary items 5,955 4,061 9,134
Discontinued Operations:
(Loss) from discontinued operations, net of income taxes of $(554),
$(8,338) and $(571) for 2001, 2002 and 2003, respectively (1,887) (17,405) (3,221)
Gain (loss) on sale of discontinued operations, net of income taxes
of $90 and $(349) for 2002 and 2003, respectively - 174 (677)
----------- ----------- -----------
Earnings (loss) on common shares before extraordinary items 4,068 (13,170) 5,236
Extraordinary item - gain on acquisition, net of income taxes
of $807 and $198 for 2001 and 2002, respectively 1,567 315 -
----------- ----------- -----------
Net earnings (loss) on common shares $ 5,635 $ (12,855) $ 5,236
=========== =========== ===========
BASIC EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations before extraordinary items $ 0.90 $ 0.57 $ 1.17
(Loss) from discontinued operations (0.28) (2.46) (0.50)
Extraordinary items 0.24 0.05 -
----------- ----------- -----------
Basic earnings (loss) per common share $ 0.85 $ (1.84) $ 0.67
=========== =========== ===========
Basic weighted average common shares outstanding 6,626,212 6,995,153 7,779,472
=========== =========== ===========
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
Earnings from continuing operations before extraordinary items $ 0.86 $ 0.57 $ 1.09
(Loss) from discontinued operations (0.24) (2.41) (0.43)
Extraordinary items 0.20 0.04 -
----------- ----------- -----------
Diluted earnings (loss) per common share $ 0.82 $ (1.80) $ 0.66
=========== =========== ===========
Diluted weighted average common shares outstanding and equivalents 7,776,451 7,158,982 9,044,376
=========== =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
28
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
Accumulated
Other
Common Additional Paid- Retained Comprehensive
Stock in Capital Earnings Income (Loss) Total
----------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $ 7 $ 22,971 $ 21,217 $ (354) $ 43,841
Redemption of 197,800 shares of common stock - (1,141) - - (1,141)
Issuance of 53,030 shares of common stock
in connection with NCE acquisition - 350 - - 350
Issuance of 50,000 shares of common stock
in connection with bond retirement - 715 - - 715
Issuance of 13,332 shares of common stock
as director compensation - 90 - - 90
Dividends paid on common stock - - (1,995) - (1,995)
Dividends paid on redeemable preferred stock - - (27) - (27)
Net earnings - - 5,662 - 5,662
Equity adjustment from foreign currency translation, net - - - (114) (114)
------ ---------- --------- ------ ----------
BALANCE AT DECEMBER 31, 2001 7 22,985 24,857 (468) 47,381
Issuance of 10,000 shares of common stock
as payment for services provided - 90 - - 90
Reclassification of 107,452 shares of common stock
in connection with put option expiration - 762 - - 762
Issuance of 62,783 shares of common stock
in connection with options exercise - 181 - - 181
Issuance of 31,646 shares of common stock
in connection with warrant execution 1 (1) - - -
Issuance of 16,041 shares of common stock
in connection with stock incentive program - 115 - - 115
Dividends paid on redeemable preferred stock - - (10) - (10)
Issuance of 13,467 shares of common stock
as director compensation - 175 - - 175
Issuance of 925,000 shares of common stock
in connection with equity offering 1 8,567 - - 8,568
Dividends paid on common stock - - (2,247) - (2,247)
Net (loss) - - (12,845) - (12,845)
Equity adjustment from foreign currency translation, net - - - (109) (109)
------ ---------- --------- ------ ----------
BALANCE AT DECEMBER 31, 2002 9 32,874 9,755 (577) 42,061
Issuance of 125,000 shares of common stock
in connection with options exercise - 1,191 - - 1,191
Issuance of 13,201 shares of common stock
in connection with executive compensation - 150 - - 150
Issuance of 17,688 shares of common stock
in connection with stock incentive program - 153 - - 153
Issuance of 29,362 shares of common stock
as director compensation - 248 - - 248
Issuance of 247,748 shares of common stock
in connection with conversion of subordinated debentures - 3,545 - - 3,545
Dividends paid on common stock - - (2,501) - (2,501)
Net Earnings - - 5,236 - 5,236
Equity adjustment from foreign currency translation, net - - - 728 728
------ ---------- --------- ------ ----------
BALANCE AT DECEMBER 31, 2003 $ 9 $ 38,161 $ 12,490 $ 151 $ 50,811
====== ========== ========= ====== ==========
29
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
2001 2002 2003
-------------------------------------------
Net earnings (loss) on common shares $ 5,635 $ (12,855) $ 5,236
Other comprehensive income (loss), equity adjustment
from foreign currency translation, net of tax (114) (109) 728
--------- ----------- -----------
Comprehensive income (loss), net of tax $ 5,521 $ (12,964) $ 5,964
========= =========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
30
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year
2001 2002 2003
------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings from continuing operations before extraordinary items $ 5,982 $ 4,071 $ 9,134
Adjustments to reconcile net earnings to net cash provided by operations
Interest expense 1,394 37 548
Depreciation of property, plant and equipment 4,509 5,671 6,987
Loss from unconsolidated entity 100 - -
Amortization of intangible assets 922 200 200
Deferred income taxes 357 (6,534) 8,414
Impairment of real estate held for sale - 852 -
Gain on sale of fixed assets (221) (28) -
Stock compensation expense 90 176 427
Changes in operating assets and liabilities, net of effects of acquisitions
Increase in accounts receivable (15,107) (1,257) (11,357)
Increase in inventories (6,178) (286) (7,399)
Increase in prepaid expenses (1,043) (593) (1,272)
Increase in accounts payable 10,784 3,217 9,656
Decrease (increase) in other operating assets (185) 610 32
Increase (decrease) in income taxes payable or refundable (420) 242 (5,671)
Increase (decrease) in accrued liabilities (1,008) 1,681 (497)
-------- -------- --------
Net cash provided by (used in) continuing operations (24) 8,059 9,202
Net cash provided by (used in) discontinued operations 371 (4,137) (2,537)
-------- -------- --------
Net cash provided by operating activities 347 3,922 6,665
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sales of discontinued operations - 14,000 2,000
Purchase of property, plant and equipment (8,543) (14,949) (9,764)
Proceeds from sale of property, plant and equipment 2,460 6,241 -
Other investments (603) (27) -
Proceeds from Notes Receivable on sale of discontinued operations - - 4,243
Proceeds from sale of businesses 23,151 - -
Acquisitions of businesses, net of cash acquired (6,910) - (89)
-------- -------- --------
Net cash provided by (used in) investing activities 9,555 5,265 (3,610)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 1,065 8,750 1,191
Redemption of common stock (1,141) - -
Redemption of putable common stock - (442) -
Redemption of preferred stock (150) (250) -
Redemption of convertible subordinated debentures (1,105) - -
Redemption of junior subordinated debentures - - (3,468)
Dividends paid on preferred stock (27) (10) -
Dividends paid on common stock (1,995) (2,247) (2,501)
Payments on long-term debt (281) (275) (250)
Financing fees - (1,000) (328)
Net borrowings (payments) on credit facility (6,302) (13,393) 1,601
-------- -------- --------
Net cash used in financing activities (9,936) (8,867) (3,755)
Effect of exchange rate changes on cash (114) (109) 261
Net increase (decrease) in cash (148) 211 (439)
Cash and cash equivalents at beginning of period 1,091 943 1,154
-------- -------- --------
Cash and cash equivalents at end of period $ 943 $ 1,154 $ 715
======== ======== ========
31
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
SUPPLEMENTAL CASH FLOW DISCLOSURE
(in thousands)
2001 2002 2003
-----------------------------------
Cash paid for:
Interest $ 2,948 $ 3,306 $ 3,173
Taxes 1,569 510 1,790
Fair value of assets acquired, including goodwill 15,910 - 1,345
Liabilities assumed (9,389) - (453)
Debt issued - - (797)
Stock issued (350) - -
Cash paid 6,171 - 95
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
During 2001, the Company issued $1.0 million of convertible
subordinated Debentures as payment for interest expense.
During 2001, $1.105 million of convertible subordinated Debentures were
repurchased of which part of the purchase price consisted of 50,000 shares of
the Company's Common Stock.
During 2001, 53,030 shares of the Company's Common Stock were issued in
connection with the purchase of NCE.
During 2002, the Company exchanged an account receivable from SET of
$2.0 million for certain equipment with a fair market value of $2.0 million.
During 2002, the market price requirement of 107,452 shares of the
Company's putable common stock that was issued in connection with the
acquisition of DSI in 2000 was met, resulting in the put option expiring.
Therefore, the common stock was reclassified from long-term debt to
stockholders' equity.
During 2003, approximately $3.5 million of convertible subordinated
Debentures were converted into 247,748 shares of the Company's Common Stock.
During 2003, the Company exchanged its $7.6 million non-convertible,
non-voting redeemable preferred stock investment in SET for $7.6 million in
Series A non-convertible, non-voting preferred stock which provides an 8% annual
dividend, and is non-redeemable by the Company. In addition, the Company was
issued 4% of the outstanding common stock of SET. The excess of the estimated
fair values of the preferred and common stock received over the carrying value
of the redeemable preferred stock has been recorded on the Company's books as a
component of other income in the statement of operations for approximately $0.3
million.
During 2003, the Company sold its logistics business for approximately
$11.1 million, including $2.0 million in cash and approximately $9.1 million
in notes.
32
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE A - BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements 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
-------------------------------------------------------------------- --------------- ------
Prototech Laser Welding, Inc. ("LWI") Acquired - 2004 Held
NMP Prototube, LLC ("Prototube") Acquired - 2003 Held
Noble Metal Processing, Inc. ("NMP") Acquired - 1997 Held
Utilase Production Processing, Inc. Acquired - 1997 Dissolved - 2003
Noble Land Holdings, Inc. ("Land Holdings") Formed - 1997 Held
Noble Manufacturing Group, Inc. (formerly Noble Techonologies, Inc.)
("NMG") Formed - 1998 Held
Noble Metal Processing Canada, Inc. ("NMPC") Acquired - 1997 Held
Noble Metal Processing - Kentucky, LLC ("NMPK") Formed - 2001 Held
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 Sold - 2003
Noble Logistic Services Holdings, Inc. (formerly Dedicated Services
Holdings, Inc. ("NLS-TX") Acquired - 2000 Sold - 2003
Skandy Corporation ("Skandy") Acquired - 1997 Dissolved - 2001
Noble Metal Forming, Inc. ("NMF") Acquired - 1997 Sold - 2001
Noble Metal Processing - Midwest, Inc. (formerly H&H Steel Processing
Company, Inc.) ("NMPM") Acquired - 1998 Sold - 2001
Noble Construction Equipment, Inc. (formerly Construction Equipment
Direct, Inc.) ("NCE") Acquired - 2001 Sold - 2002
33
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE A - BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
All significant intercompany balances and transactions have been
eliminated in consolidation. All amounts related to discontinued operations in
fiscal 2002 and 2003 have been reclassified in prior fiscal years' financial
statements in order to conform to the current year presentation.
NATURE OF OPERATIONS
Noble International Ltd., through its subsidiaries, is a full-service
provider and industry leader of tailored laser welded blanks for the automotive
industry. The principal markets for its products and services are the United
States and Canada.
SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows below.
Revenue Recognition and Accounts Receivable
Revenue is recognized when products are shipped and title transfers
under standard commercial terms. Shipping costs associated with the delivery of
products are classified as part of cost of sales in the statement of income. On
a regular basis the Company evaluates the credit risk of customers and
collection risk of outstanding accounts receivable. Based upon its analysis at
December 31, 2003 the Company recorded an allowance for doubtful accounts of
$0.1 million. In 2002, National Steel filed for Bankruptcy protection. As a
result of this event, the Company recorded bad debt expense of approximately
$1.2 million in 2002. In 2003, Rouge Industries and its subsidiary, Rouge Steel,
filed for bankruptcy protection. As a result of this event, the Company recorded
bad debt expense of $0.4 million in the fourth quarter of 2003.
Cash and Cash Equivalents
All highly liquid investments with maturities of less than three months
are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant, and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is determined using the straight line method over the
estimated useful lives of the assets, which range from 5 to 39 years for
buildings and improvements, and 3 to 10 years for machinery and equipment.
Expenditures for maintenance and repairs are expensed as incurred. Leasehold
improvements are amortized over the lives of the leases or estimated useful
lives of the assets, whichever is less. When assets are sold or otherwise
retired, the cost and accumulated depreciation are removed from the books and
the resulting gain or loss is included in other income/(expense). The Company
capitalizes interest costs associated with construction in progress. Capitalized
interest costs in 2000, 2001 and 2003 were $0.4 million, $0.3 million and $0.5
million, respectively.
34
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE A - BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Goodwill and Covenants Not to Compete
Goodwill is the excess of cost over the fair value of net assets
acquired in business combinations and through December 31, 2001 was amortized
over a 20-year period on the straight-line method. On January 1, 2002 the
Company implemented SFAS 142. Under Statement of Financial Accounting Standards
("SFAS") No. 142 goodwill and other intangible assets are no longer amortized;
instead, management will evaluate at least annually the carrying value of its
businesses and determine if any impairment exists. As of December 31, 2002 and
2003 the Company's continuing operations had goodwill (net of accumulated
amortization) of $11.5 million and $11.8 million, respectively. The change in
goodwill during 2003 is a result of the acquisition of Prototube, which resulted
in goodwill of approximately $0.3 million. Previously reported net income and
earnings per share related to the amounts adjusted for the exclusion of goodwill
amortization net of the related income tax effect follows (per share amounts are
subject to rounding):
GOODWILL AND ADOPTION OF STATEMENT NO. 142
(in thousands, except per share amounts) 2001 2002 2003
-------- --------- -------
Earnings from continuing operations before extraordinary items $ 5,955 $ 4,061 $ 9,134
Add: Goodwill amortization, net of tax 466 - -
-------- --------- -------
Adjusted earnings from continuing operations $ 6,421 $ 4,061 $ 9,134
======== ========= =======
Reported basic earnings per share from continuing operations $ 0.90 $ 0.57 $ 1.17
Add: Goodwill amortization, net of tax 0.07 - -
-------- --------- -------
Adjusted basic earnings per share from continuing operations $ 0.97 $ 0.57 $ 1.17
======== ========= =======
Reported diluted earnings per share from continuing operations $ 0.86 $ 0.57 $ 1.09
Add: Goodwill amortization, net of tax 0.06 - -
-------- --------- -------
Adjusted diluted earnings per share from continuing operations $ 0.92 $ 0.57 $ 1.09
======== ========= =======
For fiscal year 2003, no goodwill or other intangible assets related to
continuing operations were impaired or disposed. Refer to Note B for discussion
regarding the impairment of goodwill as it relates to the Company's logistics
and distribution operations which are included in discontinued operations for
2003 and prior years.
Covenants not to compete attributable to continuing operations are
amortized over the life of the agreement, typically three to five years. As of
December 31, 2003 the Company has a balance of covenants not to compete of $0.2
million, net of accumulated amortization of $1.2 million. Annual amortization
expense for fiscal years 2001, 2002 and 2003 was $0.2 million. The Company
expects to fully amortize the existing covenants not to compete by fiscal 2004.
35
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE A - BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Impairment of Long-Lived Assets
On January 1, 2002, the Company adopted SFAS 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". The new standard requires one
model of accounting for long-lived assets to be disposed of and broadens the
definition of discontinued operations. The adoption of this standard had no
impact at January 1, 2002. The Company periodically evaluates the carrying value
of its long-lived assets in accordance with SFAS 144, based on an evaluation of
remaining useful lives and upon the estimated cash flows to be generated by
these assets. The impairment review is generally triggered when such events as a
significant industry downturn, product discontinuance, plant closures, product
dispositions, technological obsolescence or other changes in circumstances
indicate that the carrying amount may not be recoverable. When such events
occur, the Company evaluates the book value against the fair value of the
assets.
During the fourth quarter of 2003, the Company made the decision to
exit the distribution business and after estimating the net proceeds from a sale
of the business, recorded a goodwill impairment charge of $2.0 million.
The Company made the decision to exit the logistics business segment in
the fourth quarter of 2002. The Company began discussions with potential buyers
and determined that the business was impaired. An impairment charge primarily
related to goodwill of $19.9 million was recorded in December 2002. Refer to
Note B for further discussion with respect to the disposition of the logistics
and distribution segments.
In addition, the Company has classified certain real estate holdings as
assets held for sale. The Company has determined that due to current market
conditions the value of these properties is lower than their net book value.
Therefore, the Company has recorded a $0.9 million impairment charge for these
assets in fourth quarter of 2002.
Stock-Based Compensation
In December 2002, FASB issued SFAS 148, Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123. The main objective of SFAS 148 is to provide alternative methods of
transition for a voluntary change to fair value-based method of accounting for
stock-based employee compensation. SFAS 148 also amends the disclosure
requirements of SFAS 123 to require prominent disclosures in both annual and
interim financial statements with respect to the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.
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. 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, Accounting for Stock Based Compensation, 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 years ended December 31, 2001, 2002
and 2003 (in thousands, except per share data):
36
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE A - BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
2001 2002 2003
--------- --------- ---------
Net earnings on common shares from continuing operations
As reported $ 5,955 $ 4,061 $ 9,134
Less: Total employee stock option expense
under the fair value method, net of
related tax effects 491 320 184
--------- --------- ---------
Pro forma $ 5,464 $ 3,741 $ 8,950
Basic earnings per share from continuing operations
As reported $ 0.90 $ 0.57 $ 1.17
Pro forma $ 0.82 $ 0.53 $ 1.15
Diluted earnings per share from continuing operations
As reported $ 0.86 $ 0.57 $ 1.09
Pro forma $ 0.70 $ 0.52 $ 1.07
SFAS 148 did not have any impact on the results of operations or
financial position in 2002 or 2003.
Fair values of options granted were determined using the Black-Scholes
option pricing model based on the assumptions of 3.0%, 2.82% and 2.94% risk-free
interest rate for 2001, 2002 and 2003; dividend yield of 4% for 2001 and 2002,
and 1.7% for 2003; expected life of 5 years and expected volatility of 93.02%,
210.0% and 45% for 2001, 2002 and 2003, respectively. The weighted average fair
value of options granted were $3.91, $6.80 and $3.77 during 2001, 2002 and 2003,
respectively.
Income Taxes
The Company accounts for income taxes using an asset and liability
approach that requires the recognition of deferred tax assets and liabilities,
net of any valuation allowance, for the expected future tax consequences
attributable to deductible temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and the effect of operating loss and tax credit carry forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years when those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that includes
the enactment date.
Fair Value of Financial Instruments
The Company's financial instruments include cash, accounts receivable,
accounts payable, accrued liabilities, notes receivable and long-term debt. The
carrying value of these instruments approximates their estimated fair value.
37
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE A - BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, revenues and expenses, and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
Foreign Currency Translation
Balance sheet accounts of the Company's foreign operations for which
the local currency is the functional currency is translated into U.S. dollars at
period-end exchange rates, while income, expenses and cash flows are translated
at average exchange rates during the period. Translation gains or losses related
to net assets of such operations are shown as accumulated comprehensive loss in
stockholders' equity in the balance sheet and separately as a component of
comprehensive income in the statement of comprehensive income. Gains and losses
resulting from foreign currency transactions, which are transactions denominated
in a currency other than the U.S. dollar, are considered to be realized and are
included as a component of other income in the consolidated statement of
operations.
Earnings (loss) per share
Basic earnings (loss) per share exclude dilution and are computed by
dividing income (loss) available to common stockholders by the weighted-average
common shares outstanding for the period. Diluted earnings (loss) per share
reflects 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 convertible subordinated Debentures equating to approximately 1.1
million shares were not included in the calculation of diluted earnings per
share in 2002 as their inclusion would have been anti-dilutive.
The following tables reconcile the numerator and denominator to
calculate basic and diluted earnings (loss) on common shares before
extraordinary items and discontinued operations for the years ended December 31,
2001, 2002 and 2003 (in thousands, except share and per share amounts). These
figures differ from amounts previously reported due to the discontinuance and
reclassification of certain operations. Refer to Note B.
38
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE A - BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
EARNINGS BEFORE
EXTRAORDINARY ITEM SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
FISCAL YEAR 2001
Basic earnings per common share:
Earnings on common shares from continuing operations
before extraordinary items $5,955 6,626,212 $ 0.90
Effect of dilutive securities:
Contingently issuable shares - 22,987 (0.01)
Convertible debentures 762 1,125,590 (0.03)
Stock options and warrants - 1,662 -
------ --------- -------
Earnings from continuing operations
per common share assuming dilution $6,717 7,776,451 $ 0.86
====== ========= =======
FISCAL YEAR 2002
Basic earnings per common share:
Earnings on common shares from continuing operations
before extraordinary items $4,061 6,995,153 $ 0.58
Effect of dilutive securities:
Contingently issuable shares - 137,245 (0.01)
Convertible debentures - - -
Stock options and warrants - 26,584 -
------ --------- -------
Earnings from continuing operations
per common share assuming dilution $4,061 7,158,982 $ 0.57
====== ========= =======
FISCAL YEAR 2003
Basic earnings per common share:
Earnings on common shares from continuing operations
before extraordinary items $9,134 7,779,472 $ 1.17
Effect of dilutive securities:
Contingently issuable shares - 26,296 -
Convertible debentures 717 1,106,540 (0.06)
Stock options and warrants - 132,068 (0.02)
------ --------- -------
Earnings from continuing operations
per common share assuming dilution $9,851 9,044,376 $ 1.09
====== ========= =======
Comprehensive Income
The Company reports comprehensive income in the financial statements
pursuant to SFAS 130, Reporting of Comprehensive Income. This statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
39
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE A - BASIS OF PRESENTATION, NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 150. In May 2003, the FASB issued Statement No. 150,
"Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity." FASB Statement No. 150 affects the accounting for
mandatorily redeemable shares, options and forward purchase contracts that
require the issuer to repurchase shares and certain obligations that can be
settled in shares. FASB Statement No. 150 is effective for all financial
instruments entered into or modified after May 31, 2003 and otherwise is
effective at the beginning of the first interim period after June 15, 2003. The
adoption of this statement did not have any material impact on the results of
operations of financial position of the Company at December 31, 2003.
FIN No. 46. In January 2003, FASB issued Interpretation 46,
"Consolidation of Variable Interest Entities, an interpretation of ARB 51." FIN
No. 46 requires that the primary beneficiary of a variable interest entity
consolidate the entity even if the primary beneficiary does not have a majority
voting interest. The adoption of this interpretation did not have any impact on
our results of operations or financial position at December 31, 2003.
NOTE B - DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
HEAVY EQUIPMENT
On December 31, 2002 the Company completed the sale of its heavy
equipment segment ("NCE") for $14.0 million in cash to an entity in which the
Company's Chairman and another officer have an interest. Due to the related
party nature of the transaction, an independent committee of the board of
directors was formed to evaluate, negotiate and complete the sale of this
business. In addition, an independent fairness opinion related to the sale was
obtained. The Company sold this segment in order to focus on its core automotive
operations. The sale resulted in a pre-tax extraordinary gain of $0.3 million.
Condensed financial information relating to the discontinued heavy equipment
operations follows (in thousands). It should be noted that the Company purchased
NCE on December 15, 2001 and fiscal year 2001 results of operations cover only
the remaining two weeks of that year.
2001 2002
---- ----
Results of operations:
Net sales $ 2,180 $ 42,548
Gross profit 214 3,592
Operating expenses 92 4,763
Operating income (loss) 122 (1,172)
Interest expense, net - 478
Net income (loss) 71 (1,588)
40
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE B - DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE (CONTINUED)
LOGISTICS
During the fourth quarter of 2002 the Company made the strategic
decision to focus on its core automotive business and exit its logistics
segment. The Company completed the sale of this operation in March 2003. Refer
to Note K. As a result of the decision the Company was required to value the
business at its fair value based on an anticipated sales price in accordance
with SFAS 144. To this end the Company incurred an impairment charge of $19.9
million in the fourth quarter of 2002 primarily related to goodwill. Condensed
financial information relating to the discontinued logistics operations and net
assets of discontinued operations held for sale follows (in thousands):
2001 2002 2003
---- ---- ----
Results of operations:
Net sales $ 60,938 $ 65,795 $ 14,800
Gross profit 12,699 12,530 2,401
Operating expenses 12,774 15,095 3,975
Asset impairment charge - 19,911 -
Operating (loss) (75) (22,476) (1,574)
Interest expense, net 2,308 1,851 409
Net (loss) (2,202) (16,308) (1,355)
2002
----
Net assets of discontinued operations held for sale:
Current assets $ 5,668
Property, plant and equipment, net 234
Other assets 6,112
--------
Total assets $ 12,014
========
Current maturities of long term debt $ 3
Other current liabilities 2,516
Other liabilities 165
--------
Total liabilities 2,684
--------
Net assets of discontinued operations held for sale $ 9,330
========
DISTRIBUTION
During the fourth quarter of 2003, the Company made the decision to
exit the distribution business. The sale of the distribution business was
completed on January 28, 2004 for approximately $5.5 million in cash to an
entity in which the Company's Chairman and another officer have an interest. Due
to the related party nature of the transaction, an independent committee of the
board of directors was formed to evaluate, negotiate, and complete the sale of
this business. In addition, an independent fairness opinion related to the sale
was obtained. In the fourth quarter of 2002, the Company made the strategic
decision to focus on its core automotive business and as a result classified the
distribution business in discontinued operations for fiscal years 2003 and
prior. In accordance with SFAS 144, the Company valued the business based upon
the estimated net proceeds from the anticipated sale. As a result, an impairment
charge of approximately $2.0 million was recorded. Condensed financial
information relating to the discontinued distribution business and net assets of
discontinued operations held for sale follows (in thousands):
41
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE B - DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE (CONTINUED)
2001 2002 2003
---- ---- ----
Results of operations:
Net sales $ 4,341 $ 4,428 $ 4,678
Gross profit 2,681 2,473 2,283
Operating expenses 2,079 1,621 1,853
Asset impairment charge - - 1,978
Operating income (loss) 602 852 (1,548)
Interest expense, net 120 92 271
Net income (loss) 244 490 (1,867)
2002 2003
---- ----
Net assets of discontinued operations held for sale:
Current assets $ 2,804 $ 2,241
Property, plant and equipment, net 736 739
Other assets 4,697 2,729
------- -------
Total assets $ 8,237 $ 5,709
======= =======
Current liabilities $ 213 $ 325
Other liabilities 331 450
------- -------
Total liabilities 544 775
------- -------
Net assets of discontinued operations held for sale $ 7,693 $ 4,934
======= =======
During fiscal year 2002 and 2003, the Company decided to sell certain
real estate assets. As a result, the real estate was reclassified as "Assets
Held for Sale" on the consolidated balance sheet. As of December 31, 2002 and
December 31, 2003 the real estate held for sale had a book value, net of
accumulated depreciation, of $1.1 million and $4.3 million, respectively. The
Company was required to value this property at the anticipated sales price less
costs to dispose. The Company determined that the current market conditions
valued these properties at an amount lower than the current carrying value.
Therefore, the Company recorded a $0.9 million impairment charge in the fourth
quarter of 2002.
NOTE C - INVENTORIES
The major components of inventories were as follows (in thousands):
Fiscal Year
2002 2003
------- -------
Raw materials $ 3,553 $ 5,242
Work in process 2,346 5,067
Finished goods 1,220 4,234
------- -------
Total Inventory $ 7,119 $14,543
======= =======
42
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE D - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in
thousands):
2002 2003
--------- ---------
Buildings and improvements $ 4,670 $ 813
Machinery and equipment 50,640 65,679
Furniture and fixtures 265 1,674
--------- ---------
Total, at cost 55,575 68,166
Less accumulated depreciation and amortization 17,604 22,939
--------- ---------
Total, net 37,971 45,227
Land 218 -
Construction in process 8,837 1,892
--------- ---------
Total net property, plant and equipment $ 47,026 $ 47,119
========= =========
NOTE E - OTHER ASSETS
Other assets consisted of the following (in thousands):
2002 2003
------- -------
Notes receivable - long term - NLS sale $ - $ 3,333
Redeemable Preferred stock - SET Enterprises, Inc. 7,600 -
Series A 8% Preferred stock - SET Enterprises, Inc. - 7,600
Common stock - SET Enterprises, Inc. - 300
Notes Receivable - other 206 -
Deferred financing costs - net 1,350 1,129
Other 860 528
------- -------
Total $10,016 $12,890
======= =======
On April 1, 2002, the Company converted its $7.6 million note
receivable in connection with the sale of certain of the Company's operations
(Refer to Note K), including interest, from SET Enterprises, Inc. ("SET") into
redeemable preferred stock of SET. The preferred stock is non-voting and is
redeemable at the Company's option in 2007. The Company agreed to convert the
subordinated promissory note to redeemable preferred stock in order to assist
SET in obtaining capital without appreciably decreasing the Company's repayment
rights or jeopardize SET's minority status. Management believes that continued
support of SET furthers the joint strategic objectives of the two companies.
43
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE E - OTHER ASSETS (CONTINUED)
On August 1, 2003 SET completed its acquisition of Michigan Steel
Processing, Inc. ("MSP"), a subsidiary of Sumitomo Corporation of America
("SCOA"). As part of the transaction, SCOA contributed 100% of the common stock
of MSP in exchange for 45% of the common stock of SET. In addition, the Company
reduced its guarantee of SET's senior debt from $10.0 million to $3.0 million
for a period of one year, after which the guarantee may be eliminated. The
Company exchanged its $7.6 million non-convertible, non-voting redeemable
preferred stock investment in SET for $7.6 million in Series A non-convertible,
non-voting preferred stock which provides an 8% annual dividend. The Series A
preferred stock is non-redeemable by the Company. The Series A preferred stock
is redeemable by SET at its option. In connection with the transaction, the
Company was issued 4% of the outstanding common stock of SET. The excess of the
estimated fair values of the preferred and common stock received over the
carrying value of the redeemable preferred stock has been recorded on the
Company's books as a component of other income in the statement of operations
for approximately $0.3 million.
On March 21, 2003 the Company completed the sale of its logistics group
(NLS-TX, formerly DSI; NLS-CA, formerly ATD, CTD) 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 interest rate on the three-year and five-year notes is 4.5%. On August 14,
2003 the Company and the buyer 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 December 31, 2003 the balance on the
short term notes was approximately $1.8 million and the balance on the long term
notes was $3.3 million.
NOTE F - LINE OF CREDIT AND LONG-TERM DEBT
The Company maintains a secured Credit Facility with a syndicate of
banks led by Comerica Bank N.A. The amount of the facility was $53.9 million on
December 31, 2003, and has an expiration date of July 2006. As of December 31,
2003 the Credit Facility had a balance of $40.0 million. The Credit Facility
consisted of two loans. The first is a $25.0 million revolving loan with no
borrowing base formula. Availability under the revolving loan at December 31,
2003 was $13.9 million. The second loan is a term loan of $28.9 million. The
Company made quarterly principal payments of $1.1 million on the term loan. The
Credit Facility is secured by assets of the Company and its subsidiaries and
provides for the issuance of up to $5 million in standby or documentary letters
of credit. The Credit Facility may be utilized for general corporate purposes,
including working capital and acquisition financing, and provides the Company
with borrowing options for multi-currency loans. Borrowing options include a
Eurocurrency rate, or a base rate. Advances under the facility bore interest at
an effective average rate of approximately 4.0% and 4.4% as of December 31, 2002
and 2003, respectively. Costs of originating the Credit Facility of $1.3 million
are being amortized over three years. The unamortized balance of origination
costs is $0.9 million at December 31, 2003 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 million.
The Company has, from time to time, 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
44
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE F - LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED)
common stock dividends, requiring it to obtain waivers of default from its
lenders. At December 31, 2003 the Company is in compliance with all of its
financial debt covenants under the Credit Facility.
In January 2004, the Company amended its credit facility to increase
the facility to $74.0 million. The revolving loan was increased to $35.0 million
with no borrowing base formula and the term loan was increased to $39.0 million.
The Company makes quarterly payments of principal under the term loan of $1.4
million. The amendment and increase in the credit facility was primarily to
facilitate the acquisition of LWI. LWI was purchased for $14.0 million in cash
and the assumption of $0.7 million in subordinated notes payable (refer to Note
K). Subsequent to the acquisition of LWI, the Company completed the sale of its
distribution business for approximately $5.5 million in cash and received
approximately $6.1 million in a tax refund, both of which were applied to reduce
borrowings under the credit facility
The Company guarantees $3.0 million of SET's senior debt in connection
with its sale of NMF and NMPM to SET (refer to Note K). The Company would be
required to perform under the guarantee if SET was unable to repay or
renegotiate its credit facility. The Company expects the guarantee to be
eliminated upon the maturity of SET's credit facility in August 2004, provided
SET is in compliance with the terms of its credit facility. As of December 31,
2003, the Company had not been notified by SET or SET's lender of any default
that would require performance under the guarantee. 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.
On July 31, 1998 and concluding August 10, 1998 the Company closed a
private offering of 6% Convertible Subordinated Debentures (the "Debentures")
for gross proceeds of $20.76 million. The proceeds were used to reduce the
amount of outstanding advances under the Credit Facility. The Debentures mature
on July 31, 2005 and interest is payable on January 31 and July 31 of each year;
provided, however, that for the first three years, in lieu of cash interest,
additional Debentures were issued. During the years ended December 31, 2000, and
2001 the Company issued $1.1 million and $1.0 million, respectively, in
additional Debentures as payment of interest. The Debentures are unsecured
obligations of the Company which may be redeemed by the Company during the
twelve months beginning July 31, 2002 at 102.5% of the principal amount (plus
accrued interest) and at 101.5% and 100.5% during each 12 month period
following. Commencing November 30, 1998, the Debentures became convertible into
Common Stock at $14.3125 per share (subject to adjustment). Beginning
January 31, 2004 and on each July 31 and January 31 thereafter, the Company is
required to redeem for cash 25% of the outstanding principal amount of the
Debentures through the maturity date. During 2001, the Company redeemed $1.1
million of Debentures for $0.35 million in cash and 50,000 shares of the
Company's Common Stock. Offering costs of $1.114 million on the original
issuance are being amortized over seven years. The unamortized balance of
offering costs is $0.2 million at December 31, 2003 and is included in other
assets. During 2003, the holders of approximately $3.5 million in subordinated
Debentures exercised their option to convert their subordinated Debentures into
the Company's common stock. The balance of subordinated Debentures outstanding
at December 31, 2003 was $12.5 million. Subsequent to December 31, 2003 holders
of an additional approximately $9.5 million in subordinated Debentures
exercised their option to convert their subordinated Debentures into the
Company's common stock. On February 2, 2004 the Company made a mandatory
retirement payment pursuant to the terms of the subordinated debenture of $0.8
million. The balance of
45
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE F - LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED)
subordinated Debentures outstanding after the conversions and the mandatory
retirement payment was approximately $2.2 million.
On December 16, 1998 and concluding December 22, 1998 the Company
closed a private offering of Junior Subordinated Notes (the "Junior Notes"),
together with 105,000 warrants to purchase shares of Common Stock of the Company
at an exercise price of $10.00 per share expiring on the maturity date, for
gross proceeds of $3.5 million with $.141 million, or $1.34 per share,
attributable to the warrants. The proceeds were used to reduce the Credit
Facility. The Junior Notes have not been registered under the Securities Act of
1933 and were sold to qualified investors as part of a private offering pursuant
to Regulation D of a maximum of $10 million in principal amount of Junior Notes.
The Junior Notes were unsecured obligations of the Company which matured on
December 16, 2003 and were redeemed in full. The Company has no warrants
outstanding as of December 31, 2003.
On March 26 2004, the Company issued $40 million in 4% unsecured
convertible subordinated notes (the "Note") in a private placement. The Note has
a three year term, maturing on March 31, 2007 and may be extended another three
years at the holder's option. The Note is convertible at the holder's 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 Note is 4% and is fixed for the entire term. Proceeds from the Note
are being used to reduce the Company's current bank borrowings, including paying
off the term loan balance and reducing amounts outstanding under the $35 million
revolving credit facility, which remains in place.
Long-term debt consisted of the following (in thousands):
2002 2003
---------- ---------
Credit Facility $ 37,360 $ 40,008
Economic Development Revenue Bonds, City of Lawrence, Indiana:
floating monthly interest rate (approximately 1.8% in 2003)
Principal payments of $125,000 and interest are due
in semi-annual installments through August 2005. 750 500
6% Convertible Subordinated Debentures due in 2005 16,037 12,491
7% Junior Subordinated Debentures due in 2003 3,468 -
---------- ---------
57,615 52,999
Less current maturities 8,386 9,999
---------- ---------
$ 49,229 $ 43,000
========== =========
46
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE F - LINE OF CREDIT AND LONG-TERM DEBT (CONTINUED)
The aggregate maturities of long-term debt by year as of December 31,
2003 are as follows (in thousands):
2004 $ 9,999
2005 11,560
2006 31,440
--------
$ 52,999
========
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company leases buildings and equipment under operating leases with
unexpired terms ranging from a month-to-month basis to thirteen years. Rent
expense for all operating leases related to continuing operations were (in
thousands) approximately $1,406, $3,508 and $3,733 for the years ended December
31, 2001, 2002 and 2003, respectively. Refer to Note I for the lease with a
related party.
The future minimum lease payments under these operating leases are as
follows (in thousands):
2004 $ 3,843
2005 3,569
2006 3,126
2007 2,880
2008 2,865
Thereafter 22,381
--------
$ 38,664
========
The Company expects to receive minimum rent payments of approximately
$1.2 million per year for the period 2004 through 2012 related to the sublease
of a portion of one of the Company's manufacturing facilities to SET.
In the fourth quarter of 2002 the Company recorded a $1.1 million
charge related to litigation. The Company recorded a charge as a result of
tax-related litigation related to the Company's acquisition of its automotive
operations in 1997. Through arbitration, the seller was awarded approximately
$1.1 million. The Company filed an appeal and during 2003 reached an agreement
to settle the litigation, which resulted in recovery of $0.1 million.
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.
47
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE H - INCOME TAXES
The components of earnings from continuing operations before income
taxes and extraordinary items for fiscal years 2001, 2002 and 2003 are as
follows (in thousands):
2001 2002 2003
------- ------- -------
United States $ 7,019 $ 1,910 $ 11,629
Foreign 1,661 3,827 2,178
------- ------- --------
$ 8,680 $ 5,737 $ 13,807
======= ======= ========
Income taxes have been charged to continuing operations as follows (in
thousands):
2001 2002 2003
------- ------- -------
Current
Federal $ 948 $ 1,846 $(3,765)
State and local 31 (157) 24
------ ------- -------
979 1,689 (3,741)
Deferred federal 1,719 (23) 8,414
------ ------- -------
$2,698 $ 1,666 $ 4,673
====== ======= =======
A reconciliation of the actual federal income tax expense to the
expected amounts computed by applying the statutory tax rate to earnings from
continuing operations before income taxes and extraordinary items is as follows
(in thousands):
2001 2002 2003
------- ------- -------
Expected federal income tax $ 2,951 $ 1,951 $ 4,694
Gain(loss) on sale of subsidiaries 1,054 (168) -
Difference in foreign & US statutory rates (1,090) 85 98
Nondeductible items 53 68 64
General business credit - (200) (238)
State taxes (23) (104) -
Other, net (247) 34 55
------- ------- -------
Actual income tax expense $ 2,698 $ 1,666 $ 4,673
======= ======= =======
48
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE H - INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
deferred tax assets and liabilities at December 31, 2002 and 2003 are as follows
(in thousands):
2002 2003
-------------------------------------------------------------
Deferred Deferred Deferred Deferred
Assets Liabilities Assets Liabilities
-------- ----------- -------- -----------
Tax credit carryforwards $ 2,435 $ - $ 1,244 $ -
Depreciation & amortization - 3,652 - 4,615
Accrued expenses - 100 - 43
Investment basis difference 6,317 - 673 -
-------- --------- -------- ----------
8,752 3,752 1,917 4,658
Less: Valuation allowance (500) - (1,173) -
-------- --------- -------- ----------
Total $ 8,252 $ 3,752 $ 744 $ 4,658
======== ========= ======== ==========
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income.
At December 31, 2002 and 2003, the Company reported $2.2 million and
$1.0 million, respectively, of deferred tax assets attributable to foreign tax
credit carry forwards. The foreign tax credit carry forwards at December 31,
2003 can be utilized over a five-year period, but if unused during that period
they will expire in varying amounts in the years 2007 to 2009. Realization of
the foreign tax credit carry forwards is dependent upon generating sufficient
foreign income and United States tax liability during the 5-year carry forward
period. Management believes that there is sufficient risk that some of these
foreign tax credit carry forwards may expire unused and, accordingly, there is
an offsetting valuation allowance as of December 31, 2002 and 2003 of $0.5
million. During 2003, management recorded a $2.0 million goodwill impairment
charge that is related to the Company's distribution business. The goodwill
impairment charge has been reflected in discontinued operations. The tax loss
attributable to the impairment charge was realized during the first quarter of
2004 when the distribution business was sold. The resulting tax loss
attributable to the stock sale will result in a capital loss carryforward, which
management does not expect to utilize during the statutory 5-year carryforward
period. Therefore, the Company has recorded the deferred tax asset of $0.7
million and an offsetting valuation allowance in the same amount. Although not
assured, management expects the Company to earn sufficient future income in
order to realize the deferred tax assets net of the valuation allowance, which
are recorded at December 31, 2003.
At December 31, 2003, the Company recorded net refundable income taxes
of approximately $5.9 million which relate primarily to discontinued operations.
In February 2004, the Company received the tax refund payment.
49
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE I - RELATED PARTY TRANSACTIONS
On February 15, 2001, the Company repurchased 160,000 shares of its
Common Stock from its Chairman for $880,000 in cash.
On April 22, 2002, the Company completed a sale and leaseback
transaction of its Shelbyville, KY facility to the Company's Chairman. The sale
price was $6.2 million which was equal to the book value of the property. The
proceeds of the transaction were used to reduce the Company's debt under its
current credit facility. The lease has a term of five years and provides for
monthly rent of $0.07 million. The sale price and rent amount were determined by
the estimated fair value of the property and estimated prevailing lease rates
for similar properties. Although the Company did not obtain an independent
valuation of the property or the terms of the transaction, it believes the terms
of the sale and leaseback were at least as favorable to Noble as terms that
could have been obtained from an unaffiliated third party. Rent expense for 2002
and 2003 was approximately $0.6 million and $0.8 million, respectively.
On December 31, 2002 the Company completed the sale of NCE for $14.0
million in cash to an entity in which the Company's Chairman and another officer
have an interest. Due to the related party nature of the transaction, an
independent committee of the board of directors was formed to evaluate,
negotiate and complete the sale of this operation. In addition, an independent
opinion regarding the fairness of the transaction was obtained.
On January 28, 2004 the Company completed the sale of its distribution
business (Monroe, Peco, PMP, PMD) for $5.5 million in cash to an entity in which
the Company's Chairman and another officer have an interest. Due to the related
party nature of the transaction, an independent committee of the board of
directors was formed to evaluate, negotiate and complete the sale of this
business. In addition, an independent opinion regarding the fairness of the
transaction was obtained.
NOTE J - SIGNIFICANT CUSTOMERS
For the year ended December 31, 2003 three customers accounted for 37%,
18%, and 17%, respectively, of net sales from continuing operations. For the
year ended December 31, 2002 two customers accounted for 41% and 25%,
respectively, of net sales from continuing operations. For the year ended
December 31, 2001 one customer accounted for 19% of net sales from continuing
operations.
50
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE K - ACQUISITIONS AND DISPOSITIONS
DSI Holdings, Inc.
The Company purchased all of the outstanding stock of DSI (the "DSI
Acquisition") on July 20, 2000 for $20.9 million in cash and 156,114 shares of
the Company's putable Common Stock. The DSI Acquisition was accounted for as a
purchase, and, accordingly, the results of operations of DSI from July 20, 2000
forward are included in the accompanying financial statements.
In connection with the DSI Acquisition, the Company issued 156,114
shares of Common Stock putable to the Company at $13.00 per share in 25%
increments beginning December 31, 2001. During 2001, the Company retired 14,666
shares in exchange for certain assets of DSI. During January 2002, the Company
repurchased 33,996 shares for $0.4 million.
In February 2002, the market price requirement of 107,452 shares of the
Company's putable common stock that was issued in connection with the
acquisition of DSI in 2000 was met, resulting in the put option expiring.
Therefore, the common stock was reclassified from long-term debt to
stockholders' equity.
In the fourth quarter of 2002, the Company made the strategic decision
to exit the logistics business segment in order to focus on its core automotive
operations and has classified the operation as discontinued. This decision
required the evaluation of this business under SFAS 144. Under the guidelines,
this operation must be valued at the fair market value. To this end, the Company
recorded an impairment charge of $15.0 million in the fourth quarter of 2002,
primarily related to goodwill (refer to Note B).
Assured Transportation & Delivery, Inc. and Central Transportation & Delivery,
Inc.
The Company purchased all of the outstanding stock of ATD and CTD on
September 6, 2000 for $8.9 million less assumed liabilities. In fiscal 2002, the
Company made the strategic decision to exit the logistics business segment and
has classified the operation as discontinued. This decision required the
evaluation of this business under SFAS 144. Under the guidelines, this operation
must be valued at the fair market value. To this end the Company recorded an
impairment charge of $4.9 million in the fourth quarter of 2002, primarily
related to goodwill (refer to Note B).
Completion of the sale of the logistics business
On March 21, 2003 the Company completed the sale of its logistics group
(NLS-TX, formerly DSI; NLS-CA, formerly ATD, CTD) 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, short term notes for approximately $5.1 million, a $1.5 million
three-year amortizing note and a $2.5 million five-year amortizing note. The
interest rate on the three-year and five-year notes is 4.5%. On August 14, 2003
the Company and the buyer 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 December 31, 2003 the balance on the
short term notes was approximately $1.8 million and the balance on the long term
notes was $3.3 million.
51
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE K - ACQUISITIONS AND DISPOSITIONS (CONTINUED)
Noble Metal Forming, Inc., Noble Metal Processing - Midwest, Inc. and SET
Enterprises, Inc.
On February 16, 2001, the Company acquired a 49% interest in SET for
$3.0 million (the "SET Acquisition"). SET is a Qualified Minority Business
Enterprise, providing metal processing services to original equipment
manufacturers ("OEMs"). Contemporaneously with the SET Acquisition, the Company,
through its wholly owned subsidiary Noble Manufacturing Group, Inc. ("NMG")
formerly known as Noble Technologies, Inc. sold all of the capital stock of NMPM
and NMF to SET for $27.2 million (the "SET Sale"). On February 16, 2001, the
Company received a note for $27.2 million due June 14, 2001. On June 28, 2001,
SET completed bank financing of its purchase of NMF and NMPM and repaid the
$27.2 million note to the Company with $24.7 million in cash and a $4.0 million,
12% subordinated note due in 2003. In addition, the Company is guarantor of
$10.0 million of SET's senior debt. During the quarter ended September 30, 2001,
SET repurchased the Company's 49% interest for $3.0 million. The Company
received a $3.0 million, 12% subordinated note due in 2003 which was later
converted into preferred stock of SET (refer to Note E).
Construction Equipment Direct, Inc.
The Company purchased 81% of the outstanding capital stock of NCE on
December 18, 2001 for $0.35 million in cash and stock valued at $0.35 million
along with a call option to purchase the remaining capital stock of NCE. The
stock was valued based on the closing price of the Company's Common Stock on
December 12, 2001. On December 19, 2001, NCE purchased certain assets and
assumed certain liabilities of Eagle-Picher Industries, Inc.'s construction
equipment division for $6.1 million in cash plus certain post-closing working
capital adjustments to be determined within 180 days of the purchase. The
Company completed these transactions as a vehicle to leverage its manufacturing
capabilities. In addition, as part of the transaction, the Company has agreed to
purchase approximately $2.3 million of inventory used in the production of NCE's
products from Eagle-Picher Industries, Inc. On December 21, 2001 the Company
exercised its call option and acquired the remaining capital stock of NCE. In
connection with the purchase, the Company recognized an after-tax extraordinary
gain of $1.6 million. This gain was the result of the implementation of SFAS
141, which requires the excess of the fair value of acquired net assets over the
cost associated with an acquisition to be recognized as an extraordinary gain in
the period in which the transaction occurs. In fiscal 2002 the Company closed
the allocation period and recorded an after-tax extraordinary gain of $0.315
million.
On December 31, 2002, the Company sold its heavy equipment segment for
$14.0 million in cash. The Company completed the transaction with an entity in
which the Company's Chairman and another officer have an interest. Due to the
related party nature of the transaction, an independent committee of the board
of directors was formed to evaluate, negotiate and complete the sale of this
operation. In addition, an independent fairness opinion regarding the
transaction was obtained. The transaction resulted in a gain of $0.174 million,
net of tax (refer to Notes B and I).
52
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE K - ACQUISITIONS AND DISPOSITIONS (CONTINUED)
Prototube, LLC
On October 17, 2003, the Company acquired substantially all of the
assets of Prototube, LLC ("Prototube") from Weil Engineering GmbH ("Weil") and
Global Business Support, LLC ("GBS") for $0.1 million in cash plus the
assumption of $1.2 million in liabilities. Prototube manufactures a variety of
products with applications in the aerospace, automotive, housing, oil and other
industries. Its products are roll formed or stamped from flat steel or a laser
welded blank, then, utilizing a patent pending technology, they are formed into
a tube and laser welded. Prototube's production process allows parts to be
produced in several different shapes including round, rectangular and oval from
various types and thicknesses of steel, as well as aluminum. In addition to
multiple thicknesses of metal, Prototube can create multi-diameter products and
join curved surfaces together by adjusting the output power of the laser. The
Prototube acquisition was accounted for as a purchase, and accordingly, the
results of operations of Prototube from October 17, 2003 forward are included in
the accompanying financial statements and the assets and liabilities were
recorded at their estimated fair value.
Prototech Laser Welding, Inc. ("LWI")
On January 21, 2004, the Company completed the acquisition of LWI for
approximately $14.0 million in cash, 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 Corporation and is a leader in curvilinear welding. The Company
believes that curvilinear laser welding will become an increasingly important
technology, providing substantial growth opportunities.
Sale of distribution business
On January 28, 2004 the Company completed the sale of its distribution
business (Monroe, Peco, PMP, PMD) to a private equity fund for $5.5 million in
cash. The Company's Chairman and another officer have an interest in the private
equity fund. Due to the related party nature of the transaction, an independent
committee of the board of directors was formed to evaluate, negotiate and
complete the sale of this operation. In addition, an independent opinion
regarding the fairness of the transaction was obtained.
53
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE L - REDEEMABLE PREFERRED STOCK
On April 1, 1997, the Company authorized 150,000 shares of its Series
A, 10% cumulative Preferred Stock. During 1998, the Company issued 7,375 shares
of its Series A, 10% cumulative Preferred Stock pursuant to the conversion of an
equivalent number of NMF preferred shares. The Preferred Stock is redeemable at
the option of the holder at par value plus accrued dividends. The redeemable
preferred stock was redeemed in full in 2002.
NOTE M - STOCKHOLDERS' EQUITY
In connection with the private offering of Junior Notes, (refer to Note
F), the Company issued 105,000 warrants to purchase shares of Common Stock of
the Company at an exercise price of $10.00 per share or a cashless exercise
pursuant to a formula stipulated which is based on the increase in the market
price of the Company's Common Stock beyond $10.00 per share. The warrants are
valued at $1.34 per share for an aggregate of approximately $141,000. The
warrants were exercisable until expiration on December 16, 2003. During 2003,
15,000 warrants were exercised which resulted in the issuance of 3,048 shares of
common stock. The remaining warrants expired and at December 31, 2003, there are
no further warrants outstanding.
During 1999 the Company issued 152,200 warrants to purchase shares of
Common Stock for the Company at exercise prices from $7.86 to $10.00 per share
or a cashless exercise pursuant to a formula stipulated which is based on the
increase in the market price of the Company's Common Stock beyond the exercise
price per share. At December 31, 2002 there were 15,000 warrants outstanding
with an expiration date of January 4, 2003. As of December 31, 2003, there were
no warrants outstanding.
On January 27, 2000 the Board of Directors approved a stock repurchase
program of up to $5.0 million of the Company's Common Stock which was
subsequently increased on January 31, 2001 by an additional $5.0 million. Common
Stock may be repurchased from time to time in the open market, depending upon
market conditions in accordance with Securities and Exchange Commission Rules.
The Company repurchased 625,823 shares of its Common Stock at a cost of $5.136
million during 2000 and 197,800 shares of its Common Stock at a cost of $1.141
million during 2001.
54
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE M - STOCKHOLDERS' EQUITY (CONTINUED)
In February 2002, the market price requirement of 107,452 shares of the
Company's putable common stock that were issued in connection with the
acquisition of Dedicated Services, Inc. in 2000 was met, resulting in the put
option expiring. Therefore, the common stock was reclassified from long-term
debt to stockholders' equity.
On October 4, 2002 the Company completed the sale of 925,000 shares of
its common stock through a public offering. The transaction provided net
proceeds to the Company of $8.6 million. The Company used the proceeds to reduce
its Credit Facility.
Refer to Note F for the partial conversion of subordinated debentures
into common stock of the Company
NOTE N -- GEOGRAPHIC INFORMATION
The Company classifies continuing operations into one industry segment.
This segment is the automotive industry. The tables below identify the breakdown
of the Company's revenues by country (which are classified based upon country of
production) and long-lived assets by country, which consist primarily of fixed
assets (in thousands).
NET SALES
2001 2002 2003
-------- -------- --------
United States $ 55,222 $ 90,613 $149,544
Canada 15,547 30,187 34,215
-------- -------- --------
$ 70,769 $120,800 $183,759
======== ======== ========
LONG-LIVED ASSETS
2001 2002 2003
-------- -------- --------
United States $ 54,183 $ 56,613 $ 55,225
Canada 1,445 2,261 3,916
-------- -------- --------
$ 55,628 $ 58,874 $ 59,141
======== ======== ========
NOTE O - EMPLOYEE BENEFIT PLANS
The Company has a deferred compensation plan for substantially all
employees of the Company. Company contributions are voluntary and are
established as a percentage of each participant's salary. Company contributions
to the deferred compensation plan were (in thousands) $320, $356 and $146 in
2001, 2002 and 2003, respectively.
In 1997, the Company adopted a stock option plan which provides for the
grant of non-qualified stock options to employees, officers, directors,
consultants and independent contractors; as well as for the grant to employees
of qualified stock options (the "Stock Option Plan"). The Plan has a ten-year
term. Under the 1997 plan, 700,000 shares of the Company's common shares have
been reserved for issuance.
55
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE O - EMPLOYEE BENEFITS PLANS (CONTINUED)
The Stock Option Plan is administered by the Compensation Committee of
the Board of Directors, which has the authority, subject to certain limitations,
to grant options and to establish the terms and conditions for vesting and
exercise thereof. The exercise price of incentive stock options may be no less
than the fair market value of the common stock on the date of grant. The
exercise price of non-qualified options is required to be no less than 85% of
the fair market value of the common stock on the date of grant. The terms of the
options may not exceed ten years from the date of grant.
In 2001, the Board of Directors adopted, and the stockholders approved,
the 2001 Stock Incentive Plan (the "Stock Incentive Plan"). The purpose of the
Stock Incentive Plan is to advance the interests of the Company and its
subsidiaries to attract and retain persons of ability to perform services for
the Company and its subsidiaries by providing an incentive to such individuals
through equity participation in the Company and by rewarding such individuals
who contribute to the achievement by the Company of its economic objectives.
The Stock Incentive Plan is administered by the Board of Directors,
which has the authority to, subject to certain limitations, make grants and
modify the Stock Incentive Plan. Currently, the Stock Incentive Plan allows for
the issuance of up to 400,000 shares of the Company's Common Stock. In
connection with the plan, 16,041 shares of common stock were issued in 2002.
These shares have a two-year trading and vesting restriction. In 2002 the
Company recorded approximately $62,000 in compensation expense. In 2003, 17,688
shares of common stock were issued and the Company recorded $96,000 in
compensation expense.
In 2002, the Company's Board of Directors adopted the 2002 stock
appreciation rights plan ("SAR Plan"). The SAR Plan provided for the issuance of
250,000 stock appreciation rights ("SAR's") to certain employees. Under the SAR
Plan the SAR's vest over a three year period. The SAR Plan stipulates that
employees will be issued common stock in the Company equal to the appreciation
of the Company's common stock over $11.34 per share at the date of exercise. At
December 31, 2002 250,000 SAR's were outstanding. No compensation expense was
recorded in 2002. In 2003, all outstanding SAR's were cancelled. No compensation
expense was recorded in 2003.
56
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE O - EMPLOYEE BENEFIT PLANS (CONTINUED)
A summary of the status of the Stock Option Plan as of December 31,
2003, and the changes during the years ended 2001, 2002 and 2003 is presented
below:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
Outstanding 12/31/00 (152,250 exercisable) 571,500 $ 7.61
Granted 60,500 $ 6.45
Exercised - -
Forfeited (94,500) $ 8.83
--------
Outstanding 12/31/01 (250,500 exercisable) 537,500 $ 7.27
Granted 11,000 $ 9.83
Exercised (103,900) $ 6.57
Forfeited (9,500) $ 6.14
--------
Outstanding 12/31/02 (281,750 exercisable) 435,100 $ 7.81
Granted 160,832 $ 8.38
Exercised (125,000) $ 6.49
Forfeited (14,600) $ 7.12
--------
OUTSTANDING 12/31/03 (306,050 exercisable) 456,332 $ 8.14
Options outstanding at December 31, 2003 have a weighted-average
contractual life of 2.4 years. The following is a summary of the range of
exercise prices for stock options that are outstanding and exercisable at
December 31, 2003.
Range of Exercise Outstanding Weighted Average Number of Stock Weighted Average
Prices Stock Options Exercise Price Options Exercisable Exercise Price
----------------- ------------- ---------------- ------------------- ----------------
$4.78 - $5.39 22,500 $ 5.19 13,500 $ 5.05
$6.00 - $6.64 173,250 6.26 123,300 6.26
$7.35 - $11.00 190,582 8.46 99,250 8.11
$12.63 - $13.55 70,000 12.89 70,000 12.89
------- --------- ------- ---------
Total 456,332 $ 8.14 306,050 $ 8.32
======= ========= ======= =========
57
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE P - RESTRUCTURING CHARGE
During 2001, the Company revised its estimate of the carrying cost and
market value related to certain real estate held for sale. Accordingly, the
Company reduced its restructuring reserve by $0.7 million related to the 2000
restructuring. At December 31, 2001, $1.5 million remained in the restructuring
reserve and related mainly to lease obligations on vacated property, repairs to
vacated property and real estate that was being marketed for sale.
During 2002, the Company closed out the reserve and as of December 31,
2002 the balance was zero. The reductions of the restructuring reserve included
(a) $0.75 million for lease costs incurred on vacated property and losses
incurred in connection with the sale of certain real estate; (b) $0.4 million
related to repair of vacated facilities and $0.1 million related to final rent
obligation of vacated facilities; (c) $0.25 million reduction in the carrying
value of real estate facility marketed for sale.
The Company adopted SFAS 146 on January 1, 2003. SFAS 146, Accounting
for Costs Associated with Exit or Disposal Activities, requires a company to
record a liability for costs associated with an exit activity, at fair value,
only when a liability is incurred. Accordingly, the Company recorded as an
expense in selling, general and administrative and in accrued liabilities a
pre-tax restructuring charge of $0.65 million in March 2003 related to
organizational changes and headcount reductions. As of December 31, 2003
payments related to the reserve totaled $0.43 million; an adjustment to the
accrual was made in the amount of $0.09 million; and as of December 31, 2003 the
outstanding balance of the restructuring reserve was $0.13 million. The Company
expects to complete payments related to the reserve by May 31, 2004.
58
NOBLE INTERNATIONAL, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS 2001, 2002 AND 2003
NOTE Q
UNAUDITED QUARTERLY RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER
SHARE DATA)
FISCAL 2003, QUARTER ENDED DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
------------ ------------ ---------- ----------
Net Sales $ 56,056 $ 48,041 $ 40,037 $ 39,625
Cost of sales 48,463 41,358 33,478 33,610
Gross profit 7,593 6,683 6,559 6,015
------------ ---------- ---------- ----------
Earnings on common shares from continuing
operations before extraordinary items $ 2,072 $ 2,715 $ 2,428 $ 1,919
============ ========== ========== ==========
Basic earnings (loss) per common share
Continuing operations $ 0.26 $ 0.35 $ 0.31 $ 0.25
Discontinued operations (0.29) 0.01 (0.04) (0.18)
------------ ---------- ---------- ----------
$ (0.03) $ 0.36 $ 0.27 $ 0.07
============ ========== ========== ==========
Diluted earnings (loss) per common share
Continuing operations $ 0.24 $ 0.32 $ 0.29 $ 0.24
Discontinued operations (0.25) 0.01 (0.03) (0.15)
------------ ---------- ---------- ----------
$ (0.01) $ 0.33 $ 0.26 $ 0.08
============ ========== ========== ==========
FISCAL 2002, QUARTER ENDED DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
------------ ------------ ---------- ----------
Net Sales $ 33,960 $ 30,558 $ 30,070 $ 26,212
Cost of sales 29,860 25,596 25,086 22,362
Gross profit 4,100 4,962 4,984 3,850
------------ ---------- ---------- ----------
Earnings (loss) on common shares from
continuing operations before
extraordinary items $ (632) $ 1,895 $ 1,556 $ 1,242
============ ========== ========== ==========
Basic earnings (loss) per common share
Continuing operations $ (0.08) $ 0.28 $ 0.23 $ 0.18
Discontinued operations (2.30) (0.04) 0.06 0.05
Extraordinary item - 0.05 - -
------------ ---------- ---------- ----------
$ (2.38) $ 0.29 $ 0.29 $ 0.24
============ ========== ========== ==========
Diluted earnings (loss) per common share
Continuing operations $ (0.08) $ 0.26 $ 0.21 $ 0.18
Discontinued operations (2.30) (0.03) 0.05 0.05
Extraordinary item - 0.04 - -
------------ ---------- ---------- ----------
$ (2.38) $ 0.26 $ 0.26 $ 0.22
============ ========== ========== ==========
Note: Per share calculations are based on actual dollar amounts and may be
subject to rounding
59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
The Chief Executive Officer and Chief Financial Officer, with the
participation of management, have evaluated the effectiveness of the design and
operation of the Company's disclosure controls and procedures, as defined under
Rules 13a-15(e) of the Securities Exchange Act of 1934 as of the end of the
period covered by the report. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the Company's disclosure
controls and procedures were effective in timely alerting them to material
information required to be included in our periodic filings pursuant to the
Securities Exchange Act of 1934.
There have been no significant changes in the Company's internal
control over financial reporting or other factors that occurred during the
fourth fiscal quarter that has materially affected, or is reasonably likely to
affect, our internal control over financial reporting.
60
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the information under the caption "Item
1: Election of Directors" in the 2004 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information under the captions
"Executive Compensation and Other Information," "Report of the Compensation
Committee on Executive Compensation" and "Performance Graph" in the 2004 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
EQUITY COMPENSATION PLAN
(a) (b)
Number of Weighted- (c)
securities to be average exercise Number of securities
issued upon price of remaining available for
exercise of outstanding future issuance under
outstanding options, equity compensation
options, warrants warrants and plans (excluding securities
Plan Category and rights rights reflected in column (a))
-------------------------------------- ----------------- ---------------- ---------------------------
Equity compensation plans approved
by security holders 456,332 $ 8.14 28,218
Equity compensation plans not approved
by security holders - $ - -
------- ---------- ------
Total 456,332 $ 8.14 28,218
======= ========== ======
Incorporated by reference from the information under the captions
"Voting Rights and Requirements" and "Common Stock Ownership of Certain
Beneficial Owners and Management" in the 2004 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the information under the caption
"Certain Transactions" in the 2004 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT'S FEES AND SERVICES
The information required to be furnished pursuant to this item will be
set forth under the caption "Independent Auditor Fees" in the 2004 Proxy
Statement.
61
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements [Filed under Item 8 above.]
Financial Statement Schedule
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions -
Balance at Charged to Deductions - Balance at
Beginning Costs and (see notes End of
of Period Expenses below) Period
---------- ----------- ------------ ----------
Year ended December 31, 2001
Reserve for Doubtful Accounts $ - $ 53 $ - $ 53
Valuation Allowance for Deferred Taxes - - - -
Year ended December 31, 2002
Reserve for Doubtful Accounts 53 1,216 1,269(1) -
Reserve for Doubtful Notes Receivable - 462 - 462
Valuation Allowance for Deferred Taxes - 500 - 500
Year ended December 31, 2003
Reserve for Doubtful Accounts - 94 - 94
Reserve for Doubtful Notes Receivable 462 - 462(1) -
Valuation Allowance for Deferred Taxes 500 673 - 1,173
(1) Uncollectible accounts charged off
Exhibits
4.1** Indenture between Noble International, Ltd. and American Stock
Transfer & Trust Company dated as of July 23, 1998.
10.45* Form of Non-Compete Agreement between Utilase, Inc. and James Bronce
Henderson III.
10.46* Form of Non-Compete Agreement between the Company and Jeffrey A.
Moss.
10.47* Form of Non-Compete Agreement between Utilase, Inc. and DCT, Inc.
10.48* Employment Agreement dated April 7, 1997 between Utilase, Inc. and
John K. Baysore.
10.49* Registration Rights Agreement dated April 7, 1997 among the Company,
Utilase, Inc., James Bronce Henderson III and Jeffrey A. Moss.
10.51** Share Purchase Agreement between Triam Automotive, Inc. and Tiercon
Holdings, Inc. dated July 2, 1998.
10.52** Agreement Amending the Share Purchase Agreement by and between Magna
International, Inc. and Tiercon Holdings, Inc. dated July 24, 1998.
62
10.53** Stock Purchase Agreement among Noble International, Ltd., Noble
Canada, Inc., Tiercon Holdings, Inc. and Wrayter Investments, Inc.
dated July 24, 1998.
10.54** Share Exchange Agreement among Noble International, Ltd., Noble
Canada Holdings, Limited, Noble Canada, Inc., and Wrayter
Investments, Inc. dated July 24, 1998.
10.55** Registration Rights Agreement among Noble International, Ltd. and
Wrayter Investments, Inc. dated July 24, 1998.
10.56** Registration Rights Agreement executed and delivered by Noble
International, Ltd. in favor of the Holders of Debentures and
Registrable Securities dated July 23, 1998.
10.57*** Stock Exchange Agreement by and among Noble Metal Technologies,
Inc., Noble International, Ltd., Utilase, Inc., Noble Metal
Products, Inc. and Utilase Production Process, Inc. effective as of
March 31, 1998.
10.58*** Stock Exchange Agreement by and among Noble Components & Systems,
Inc., Noble International, Ltd., Prestolock International, Ltd.,
Cass River Coatings, Inc. d/b/a Vassar Industries, Monroe
Engineering Products, Inc., and Skandy Corp. effective as of March
31, 1998.
10.59**** Stock Purchase Agreement among Noble International, Ltd., Noble
Canada II, Inc., Centrifugal Coaters, Inc., Wrayter Investments,
Inc., Roynat, Inc., Crosbie & Company, Inc., First Ontario Labour
Sponsored Investment Fund, Ltd., 659730 Ontario, Inc. and Robert J.
Blake, Jr. dated September 8, 1998.
10.60**** Share Exchange Agreement among Noble International, Ltd., Noble
Canada Holdings, II, Limited, Noble Canada II, Inc., Wrayter
Investments, Inc. and Robert Blake, Jr. dated October 1, 1998.
10.61**** First Amendment to Registration Rights Agreement among Noble
International, Ltd., Wrayter Investments, Inc. and Robert Blake, Jr.
dated October 1, 1998.
10.62**** Asset Purchase Agreement by and among Noble International, Ltd.,
Utilase Blank Welding Technologies, Inc., H&H Steel Processing
Company, Inc., Terry Hill and Robert G. Kreiling dated September 30,
1998.
10.63+ Amended and Restated Share Purchase Agreement among Noble
International, Ltd. and Noble Components & Systems, Inc. and 1391295
Ontario Limited and Tiercon Holdings US, Inc. dated December 24,
1999.
10.64++ Stock Purchase Agreement among Noble International Ltd., Noble
Holdings, Inc. and DSI Holdings, Inc., Stephen Ray Savant, Cyril Ray
Yates, Christopher Michael Cassels, James Christopher Delahoussaye,
Kevin DeVaughn, Larry Browne and Herbert H. Fields dated July 21,
2000.
10.65+++ Stock Purchase Agreement among Noble Holdings, Ltd., Assured
Transportation & Delivery, Inc. Central Transportation & Delivery,
Inc., Behnam Haeri & Bart Bement dated September 6, 2000.
63
10.67++++ Asset Purchase Agreement among Monroe Engineering, Products, Inc.,
Pro Motor Products, Inc. and John Pfanstiehl dated December 16,
2000.
10.68 # Stock Purchase Agreement among Noble International, Ltd., S.E.T.
Steel, Inc., and Sid E. Taylor dated February 16, 2001.
10.69# Stock Purchase Agreement among Noble International, Ltd. Noble
Technologies, Inc., Noble Metal Processing, Inc. and S.E.T. Steel,
Inc. dated February 16, 2001.
10.70## Stock Purchase Agreement among Noble Automotive Group, David J.
Langevin and James P. Patton dated December 19, 2001.
10.71## Asset Purchase Agreement among Construction Equipment Direct, Inc.
and Eagle-Picher Industries, Inc. dated December 19, 2001.
10.72### Asset Purchase Agreement among Noble Construction Equipment, Inc.
and Quantum Construction, Inc. dated December 30, 2002.
10.73- Asset Purchase Agreement among SRS California Operations, LLC
and Noble Logistic Services, Inc., a California corporation, Noble
Logistic Services, Inc., a Michigan corporation, and Noble
International dated March 21, 2003.
10.74-- Stock Purchase Agreement among SRS Texas Holdings, LLC and Noble
Logistic Services Holdings, Inc., Noble Logistic Services, Inc., and
Noble International, Ltd., dated March 21, 2003.
10.75--- Stock Purchase Agreement among Noble Metal Processing, Inc. and
The Shareholders of Protech Laser Welding, Inc. (d/b/a Laser Welding
International) dated January 12, 2004.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche, LLP.
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 Section 1350, as created by Section 906 of Sarbanes-Oxley Act
of 2002.
---------------
* Incorporated herein by reference to the Company's Registration
Statement on Form S-1 (Reg. No. 333-27149).
** Incorporated herein by reference to the Company's Current Report on
Form 8-K filed August 10, 1998.
*** Incorporated herein by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998 and filed on May
14, 1998.
64
**** Incorporated herein by reference to the Company's Current Report on
Form 8-K filed October 16, 1998.
+ Incorporated herein by reference to the Company's current report on
Form 8-K filed January 10, 2000.
++ Incorporated herein by reference to the Company's current report on
Form 8-K filed August 1, 2000.
+++ Incorporated herein by reference to the Company's current report on
Form 8-K filed September 6, 2000.
++++ Incorporated herein by reference to the Company's current report on
Form 8-K dated February 23, 2001.
# Incorporated herein by reference to the Company's current report on
Form 8-K filed on March 1, 2001.
## Incorporated herein by reference to the Company's current report on
Form 8K filed January 3, 2002.
### Incorporated herein by reference to the Company's current report on
Form 8K filed January 13, 2003.
- Incorporated herein by reference to the Company's current report on
Form 8k filed April 7, 2003.
-- Incorporated herein by reference to the Company's current report on
Form 8k filed April 7, 2003.
--- Incorporated herein by reference to the Company's current report on
Form 8k filed February 3, 2004.
(b) Reports on Form 8-K.
(i) Report on Form 8-K filed on October 24, 2003, concerning the
financial results for the three months ended September 30,
2003.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 29, 2004
NOBLE INTERNATIONAL, LTD.
By: /S/ CHRISTOPHER L. MORIN By: /S/ JAY J. HANSEN
------------------------------- ---------------------------------
Christopher L. Morin, President Jay J. Hansen, Chief Financial
and Chief Executive Officer Officer
65
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert J. Skandalaris and Michael C.
Azar, his attorneys-in-fact, each with the power of substitution, for him in any
and all capacities, to sign any amendments to this Report on Form 10-K, and to
file the same, with Exhibits thereto and other documents in connection therewith
with the Securities and Exchange Commission, hereby ratifying and confirming all
that each of said attorneys-in-fact, or substitute or substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the persons on behalf of the Registrant in
the capacities and on the dates indicated.
/S/ ROBERT J. SKANDALARIS March 29, 2004
----------------------------------------------
Robert J. Skandalaris, Chairman of the
Board and Director
/S/ CHISTOPHER L. MORIN March 29, 2004
----------------------------------------------
Christopher L. Morin, President and Chief
Executive Officer (Principal Executive Officer)
/S/ MARK T. BEHRMAN March 29, 2004
----------------------------------------------
Mark T. Behrman, Director
/S/ VAN CONWAY March 29, 2004
----------------------------------------------
Van Conway, Director
/S/ LEE M. CANAAN March 29, 2004
----------------------------------------------
Lee M. Canaan, Director
/S/ STUART I. GREENBAUM March 29, 2004
----------------------------------------------
Stuart I. Greenbaum, Director
/S/ DANIEL J. MCENROE March 29, 2004
----------------------------------------------
Daniel J. McEnroe, Director
/S/ JONATHAN P. RYE March 29, 2004
----------------------------------------------
Jonathan Rye, Director
/S/ THOMAS L. SAELI March 29, 2004
----------------------------------------------
Thomas L. Saeli, Director
/S/ ANTHONY R. TERSIGNI March 29, 2004
----------------------------------------------
Anthony R. Tersigni, Director
66
EXHIBIT INDEX
Ex No. Description
21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche, LLP.
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 Securitites and Exchange Act of 1934, as amended.
32.1 Certification of Periodic Financial Report by the President and Chief
Executive