<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
------------------------------------------------
Commission File Number 333-51355
--------------------------------------------------------
NUMATICS, INCORPORATED
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Michigan 38-2955710
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1450 North Milford Road, Milford, Michigan 48357
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(248)887-4111
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------------ ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock - 21,276.2 shares as of May 10, 1999
<PAGE>
INDEX
NUMATICS, INCORPORATED AND SUBSIDIARIES
Page No. Description
- -------------------------------------------------------------------------------
1 PART I. FINANCIAL INFORMATION
1 Item 1 Financial Statements (Unaudited)
4 Notes to Consolidated Financial Statements (Unaudited)
11 Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
15 PART II. OTHER INFORMATION
15 Item 6 Exhibits and Reports on Form 8-K
15 Signatures
16 Exhibit 27 Financial Data Schedule
ii
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Numatics, Incorporated
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31
------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
Net sales $ 34,367,875 $ 37,822,637
Costs and expenses (credits):
Costs of products sold 21,722,687 23,664,905
Marketing, engineering, general and administrative 7,771,996 7,846,748
Single business tax 138,480 (926,015)
-------------------- --------------------
Operating income 4,734,712 7,236,999
Other expenses
Interest and other financing expenses 3,885,994 4,410,186
Other 937,305 542,064
-------------------- --------------------
Income (loss) before income taxes and extraordinary item (88,587) 2,284,749
Income taxes 183,854 882,530
-------------------- --------------------
Income (loss) before extraordinary item (272,441) 1,402,219
-------------------- --------------------
Extraordinary item, net of $2,534,000 of income taxes
(extinguishment of debt) - (4,918,000)
-------------------- --------------------
Net loss $ (272,441) $ (3,515,781)
==================== ====================
</TABLE>
See accompanying notes.
1
<PAGE>
Numatics, Incorporated
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
March 31 December 31
1999 1998
-------------------- --------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 936,514 $ 1,121,142
Accounts receivable 23,218,576 21,607,221
Inventories 33,019,470 33,064,783
Other current assets 4,246,090 4,489,792
-------------------- --------------------
Total current assets 61,420,650 60,282,938
Other assets:
Goodwill, net of accumulated amortization 6,176,384 6,479,487
Other intangible assets, net of accumulated amortization 5,711,122 5,781,321
Deferred income taxes 2,178,730 2,000,730
Investment in affiliates 2,416,015 2,157,893
Other 471,658 485,398
-------------------- --------------------
16,953,909 16,904,829
Properties:
Land 1,502,424 1,524,383
Buildings and improvements 11,753,004 11,620,518
Machinery and equipment 47,070,682 45,928,301
-------------------- --------------------
60,326,110 59,073,202
Less accumulated depreciation (27,749,901) (27,049,324)
-------------------- --------------------
32,576,209 32,023,878
-------------------- --------------------
$ 110,950,768 $ 109,211,645
==================== ====================
LIABILITIES AND ACCUMULATED DEFICIENCY
Current liabilities:
Accounts payable trade $ 8,763,870 $ 8,498,737
Accrued expenses 7,815,319 5,379,770
Compensation and employee benefits 4,362,489 4,876,073
Taxes, other than income and single business tax 110,323 100,079
Income and single business tax 388,475 246,983
Current portion of long term debt 3,399,670 3,457,072
-------------------- --------------------
Total current liabilities 24,840,146 22,558,714
Long term debt, less current portion 156,156,179 156,917,908
Deferred retirement benefits 4,424,099 4,202,480
Deferred income taxes 233,404 269,399
-------------------- --------------------
160,813,682 161,389,787
Minority interest in subsidiaries (redeemable upon the
happening of certain events outside the control of
the Company: $1,222,953 in 1999 and $1,285,640
in 1998) 586,516 554,822
Common stock $.01 par value, 250,000 shares
authorized; 21,276 shares outstanding and related
additional paid in capital 4,602,151 4,602,151
Accumulated deficiency (79,243,334) (79,098,886)
Equity adjustment from foreign currency translation (648,393) (794,943)
-------------------- --------------------
(75,289,576) (75,291,678)
-------------------- --------------------
$ 110,950,768 $ 109,211,645
==================== ====================
</TABLE>
See accompanying notes.
2
<PAGE>
Numatics, Incorporated
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31
------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
Operating activities
Net loss $ (272,441) $ (3,515,781)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 1,199,167 1,121,103
Amortization 201,788 337,931
Extraordinary item (extinguishment of debt) - 4,918,000
Deferred interest expense - 2,059,894
Minority interest expense 31,694 73,153
Deferred taxes (227,397) 363,180
Deferred retirement benefits 221,619 187,510
Unrealized foreign currency losses 758,911 264,211
Changes in operating assets and liabilities:
Trade receivables (1,892,597) (2,115,452)
Inventories (500,256) (1,056,098)
Other current assets 279,219 (1,020,514)
Accounts payable and accrued expenses 2,913,728 (577,544)
Compensation and employee benefits (483,832) (313,697)
Income and single business taxes 292,458 (1,730,362)
-------------------- --------------------
Net cash provided by (used in) operating activities 2,522,061 (1,004,466)
Investing activities
Capital expenditures (1,999,203) (1,008,330)
Other investments (300,436) -
-------------------- --------------------
Net cash used in investing activities (2,299,639) (1,008,330)
Financing activities
Proceeds from long-term borrowing 108,856 115,029,808
Debt repayments (431,510) (97,181,156)
Debt issuance costs (6,467) (4,630,773)
Dividends - (6,000,001)
Extraordinary item (extinguishment of debt) - (4,194,345)
Issuance of stock - 13
-------------------- --------------------
Net cash (used in) provided by financing activities (329,121) 3,023,546
Effect of exchange rate changes on cash (77,929) (64,490)
-------------------- --------------------
Net increase (decrease) in cash and cash equivalents (184,628) 946,260
Cash and cash equivalents at beginning of period 1,121,142 701,072
-------------------- --------------------
Cash and cash equivalents at end of period $ 936,514 $ 1,647,332
==================== ====================
</TABLE>
See accompanying notes.
3
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Numatics, Incorporated annual report on Form
10-K for the year ended December 31, 1998.
2. COMPREHENSIVE INCOME
The components of comprehensive income for three-month periods ended March 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------------------------------
1999 1998
------------------------ -----------------------
<S> <C> <C>
Net loss $ (272,441) $ (3,515,781)
Foreign currency translation
adjustments 146,550 (12,894)
======================== =======================
$ (125,891) $ (3,528,675)
======================== =======================
</TABLE>
The components of accumulated comprehensive income at March 31, 1999 and
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
3/31/1999 12/31/1998
======================== =======================
<S> <C> <C>
Foreign currency translation $ (648,393) $ (794,943)
adjustments
======================== =======================
</TABLE>
4
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1999
3. SEGMENT AND GEOGRAPHIC INFORMATION
The Company reports its segments based on geographic area. The operating
segments' accounting policies are consistent with those described in Note 1.
Financial information, summarized by geographic area, is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
1999 1998
------------------------------------------------
<S> <C> <C>
Net sales:
North America $ 28,459,998 $ 30,821,707
International 5,907,877 7,000,930
------------------------------------------------
$ 34,367,875 $ 37,822,637
================================================
Three Months Ended March 31
1999 1998
------------------------------------------------
Operating income:
North America $ 4,816,061 $ 6,610,109
International (81,349) 626,890
------------------------------------------------
$ 4,734,712 $ 7,236,999
======================== =======================
</TABLE>
5
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1999
4. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The $115 million of 9 5/8% senior subordinated notes issued by Numatics, Inc. in
1998 are guaranteed by the Company's United States subsidiaries in which it owns
100 % of the voting stock. Each of the Guarantor Subsidiaries has fully and
unconditionally guaranteed, on a joint and several basis, the obligation to pay
principal, premium, if any, and interest on the Notes.
The following supplemental consolidating condensed financial statements present:
1. Consolidating condensed balance sheets as of March 31, 1999 and December 31,
1998, consolidating condensed statements of operations for the three month
periods ended March 31, 1999 and 1998 and consolidated condensed statements of
cash flows for the three months ended March 31, 1999 and 1998.
2. Numatics, Incorporated (the Parent), combined Guarantor Subsidiaries and
combined Non-Guarantor Subsidiaries (consisting of the Company's foreign
subsidiaries).
3. Elimination entries necessary to consolidate the Parent and all of its
subsidiaries.
Management does not believe that separate financial statements of the Guarantor
Subsidiaries are material to investors. Therefore, separate financial statements
and other disclosures concerning the Guarantor Subsidiaries are not presented.
6
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1999
4. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)
BALANCE SHEET
March 31, 1999
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trade receivables $ 12,862,581 $ 2,542,351 $ 7,813,644 - $ 23,218,576
Inventories 18,004,755 4,219,112 12,000,603 (1,205,000) 33,019,470
Other 3,402,631 543,595 1,236,378 - 5,182,604
------------------------------------------------------------------------------
Total current assets 34,269,967 7,305,058 21,050,625 (1,205,000) 61,420,650
Goodwill, net of accumulated
amortization 1,496,970 - 3,362,729 1,316,685 6,176,384
Other 18,660,307 41,707 133,490 - 10,777,525
Intercompany amounts 24,160,934 515,508 4,709,217 (29,385,659) -
Property, plant and equipment, net
of accumulated depreciation 26,927,249 901,375 4,747,585 - 32,576,209
------------------------------------------------------------------------------
$ 105,515,427 $ 8,763,648 $ 34,003,646 $ (37,331,953) $ 110,950,768
==============================================================================
Accounts payable and accrued expenses $ 11,914,526 $ 1,383,031 $ 3,281,632 $ - 16,579,189
Compensation and employee benefits 3,452,656 106,815 803,018 - 4,362,489
Current portion of long-term debt 2,904,825 - 494,845 - 3,399,670
Other 452,622 124,443 (78,267) - 498,798
------------------------------------------------------------------------------
Total current liabilities 18,724,629 1,614,289 4,501,228 - 24,840,146
Long-term debt less current portion 153,416,519 - 7,397,163 - 160,813,682
Other - - - 586,516 586,516
Intercompany amounts 8,183,753 4,747,775 16,454,131 (29,385,659) -
Accumulated deficiency (74,809,474) 2,401,584 5,651,124 (8,532,810) (75,289,576)
------------------------------------------------------------------------------
$ 105,515,427 $ 8,763,648 $ 34,003,646 $ (37,331,953) $ 110,950,768
==============================================================================
</TABLE>
December 31, 1998
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trade receivables $ 11,050,466 $ 2,531,514 $ 8,025,241 $ - $ 21,607,221
Inventories 17,459,136 4,255,940 12,422,707 (1,073,000) 33,064,783
Other 3,848,223 266,581 1,496,130 - 5,610,934
-----------------------------------------------------------------------------
Total current assets 32,357,825 7,054,035 21,944,078 (1,073,000) 60,282,938
Goodwill, net of accumulated
amortization 1,519,533 - 3,594,597 1,365,357 6,479,487
Other 18,286,954 41,707 154,660 (8,057,979) 10,425,342
Intercompany amounts 24,534,213 324,447 4,648,545 (29,509,205) -
Property, plant and equipment, net
of accumulated depreciation 26,239,969 827,492 4,956,417 - 32,023,878
-----------------------------------------------------------------------------
$ 102,938,494 $ 8,249,681 $ 35,298,297 $(37,274,827) $ 109,211,645
=============================================================================
Accounts payable and accrued expenses $ 8,915,518 $ 1,431,386 $ 3,531,603 $ - $ 13,878,507
Compensation and employee benefits 3,897,935 111,927 866,211 - 4,876,073
Current portion of long-term debt 2,955,049 - 502,023 - 3,457,072
Other 219,893 39,344 87,825 - 347,062
-----------------------------------------------------------------------------
Total current liabilities 15,988,395 1,582,657 4,987,662 - 22,558,714
Long-term debt less current portion 149,328,788 - 7,589,120 - 156,917,908
Other 4,202,480 - 269,399 554,822 5,026,701
Intercompany amounts 8,353,841 4,398,682 16,756,682 (29,509,205) -
Accumulated deficiency (74,935,010) 2,268,342 5,695,434 (8,320,444) (75,291,678)
------------------------------------------------------------------------------
$ 102,938,494 $ 8,249,681 $ 35,298,297 $(37,274,827) $ 109,211,645
==============================================================================
</TABLE>
7
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1999
4. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Three Months Ended March 31, 1999
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 23,948,406 $ 3,832,855 $ 12,015,614 $ (5,429,000) $ 34,367,875
Costs and expenses 19,773,599 3,622,678 11,485,214 (5,248,328) 29,633,163
-----------------------------------------------------------------------------
Operating income 4,174,807 210,177 530,400 (180,672) 4,734,712
Interest and other 4,160,441 76,932 738,086 31,694 4,823,299
-----------------------------------------------------------------------------
Net income (loss) $ 14,366 $ 133,245 (207,686) (212,366) (272,441)
=============================================================================
</TABLE>
Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 26,530,002 $ 4,628,295 $ 13,658,340 $ (6,994,000) $ 37,822,637
Costs and expenses 21,086,427 4,018,332 12,379,207 (6,898,328) 30,585,638
-----------------------------------------------------------------------------
Operating income 5,443,575 609,963 1,279,133 (95,672) 7,236,999
Interest and other 9,712,453 209,225 757,949 73,153 10,752,780
-----------------------------------------------------------------------------
Net income (loss) $ (4,268,878) $ 400,738 $ 521,184 $ (168,825) $ (3,515,781)
=============================================================================
</TABLE>
8
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1999
4. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Three Months ended March 31, 1999
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ 2,467,500 $ 210,666 $ (156,105) $ - $ 2,522,061
Cash flows from investing activities:
Capital expenditures (1,693,777) (121,003) (184,423) - (1,999,203)
Other investments (265,000) (42,183) 6,747 - (300,436)
-----------------------------------------------------------------------------
Net cash used in investing activities (1,958,777) (163,186) (177,676) - (2,299,639)
Cash flows from financing activities:
Proceeds from borrowing 44,920 - 63,936 - 108,856
Debt repayments (431,510) - - - (431,510)
Debt issuance costs - - (6,467) - (6,467)
Dividends - - - - -
Extraordinary item
(extinguishment of debt) - - - - -
Issuance of stock - - - - -
Other - - (22,616) (55,313) (77,929)
----------------------------------------------------------------------------
Net cash provided (used) in
financing activities (386,590) - 34,853 (55,313) (407,050)
Intercompany accounts (72,151) 160,030 (143,192) 55,313 -
-----------------------------------------------------------------------------
Net increase (decrease) in cash 49,982 207,510 (442,120) - (184,628)
-----------------------------------------------------------------------------
Cash and cash equivalents at
beginning of year 111,491 68,652 940,999 - 1,121,142
-----------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 161,473 $ 276,162 $ 498,879 - $ 936,514
=============================================================================
</TABLE>
9
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1999
4. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)
<TABLE>
<CAPTION>
Three Months ended March 31, 1998
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash used in operating activities $ (471,552) $ (245,118) $ (287,796) $ - $ (1,004,466)
Cash flows from investing activities:
Capital expenditures (895,693) (38,046) (74,591) - (1,008,330)
Other investments - - - - -
-----------------------------------------------------------------------------
Net cash used in investing activities (895,693) (38,046) (74,591) - (1,008,330)
Cash flows from financing activities:
Proceeds from borrowing 114,850,747 - 179,061 - 115,029,808
Debt repayments (97,021,482) - (159,674) - (97,181,156)
Debt issuance costs (4,609,500) - (21,273) - (4,630,773)
Dividends (6,000,001) - - - (6,000,001)
Extraordinary item
(extinguishment of debt) (4,194,345) - - - (4,194,345)
Issuance of stock 13 - - - 13
Other - - (6,992) (57,498) (64,490)
------------------------------------------------------------------------------
Net cash provided (used) in
financing activities 3,025,432 - (8,878) (57,498) 2,959,056
Intercompany accounts (1,386,754) 359,548 969,708 57,498 -
------------------------------------------------------------------------------
Net increase (decrease) in cash 271,433 76,384 598,443 - 946,260
-----------------------------------------------------------------------------
Cash and cash equivalents at
beginning of year 169,311 102,480 429,281 - 701,072
------------------------------------------------------------------------------
Cash and cash equivalents at end of
year $ 440,744 $ 178,864 $1,027,724 - 1,647,332
==============================================================================
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended March 31, 1999 Compared With Three Months Ended
March 31, 1998
Net Sales. Net sales of $34.4 million for the three months ended March 31, 1999
were 9.1% less than the $37.8 million in the same period of 1998 principally due
to a general decline in the pneumatic market, which started during the second
quarter of 1998. Net sales of traditional valve products declined 7.3% or $1.6
million while net sales of other products decreased 17.0% or $2.0 million and
cylinder sales increased 1.6% or $0.1 million. North American sales decreased
7.7% or $2.4 million and international sales decreased 15.6% or $1.1 million.
Gross Profit. Gross profit was $12.6 million, or 36.8% of net sales, for the
three months ended March 31, 1999 compared with $14.2 million, or 37.4% of net
sales, in the same period of 1998. Lower production volumes at certain locations
due to lower sales levels have contributed to the current period's reduced gross
margins.
Marketing, Engineering, General and Administrative. Marketing, engineering,
general and administrative expenses were $7.8 million for the three months ended
March 31, 1999, substantially equal to the first three months of 1998.
Single Business Tax. Single business tax for the first three months of 1999 was
$0.1 million compared to a credit of $0.9 million in 1998. The credit resulted
from filing amended tax returns in March 1998 for the years 1992 to 1996 due to
a tax ruling which redefined the reported sales which are included in the
calculation of the tax which favorably impacted the Company.
Operating Income. Operating income for the three months ended March 31, 1999 was
$4.7 million compared to $7.2 million in the same period in 1998. This $2.5
million decrease was primarily due to the reduced sales combined with the lower
single business tax in 1998, as described above. Operating income in North
America dropped $1.8 million, or 27.1%, while the International segment's
operating income declined by $0.7 million.
Interest and Other Financing Expenses. Interest expense decreased $0.5 million
to $3.9 million in the first three months of 1999 from $4.4 million in 1998 due
to the improved interest rate resulting from the refinancing of the Company's
previous subordinated debt on March 24, 1998.
Other Expense. Other expense of $0.9 million for the three months ended March
31, 1999 was attributable to unrealized foreign exchange losses, which resulted
from the strengthening of the U.S. dollar against major foreign currencies,
compared to $0.5 million in the three months ended March 31, 1998.
11
<PAGE>
Extraordinary Item. The extraordinary item in the three months ended March 31,
1998 resulted from the write off of unamortized debt financing costs relating to
the refinancing of the Company's debt of $1.6 million, net of taxes, write off
of previous unamortized discount on its previous subordinated debt arrangement
of $2.1 million, net of taxes, and a prepayment penalty of $1.2 million, net of
taxes. The amount is reported net of $2.5 million tax benefit.
Net Loss. Due to the factors discussed above, net loss decreased $3.2 million,
to a loss of $0.3 million during the three months ended March 31, 1999 from a
loss of $3.5 million in the first three months of 1998.
Liquidity and Capital Resources
Historically, the Company has utilized cash from operations and borrowings under
its credit facilities to satisfy its operating and capital needs and to service
its indebtedness.
Cash provided by operating activities was $2.5 million for the three months
ended March 31, 1999 compared to a use of $1.0 million for the same period in
1998. This improvement was primarily due to the extraordinary item related to
the extinguishment of debt recorded in March 1998.
Cash used in investing activities of $2.3 million during the three months ended
March 31, 1999 was $1.3 million more than the $1.0 million used in the first
three months of 1998. This increase was principally the result of higher capital
expenditures during 1999 primarily due to $759,000 expended on construction of a
new 40,000 square foot manufacturing facility in Lapeer, Michigan. The Company
does not have any material commitments for capital expenditures.
Net cash used in financing activities was $0.3 million in 1999 compared to net
cash provided by financing activities of $3.0 million in 1998. The 1998 amount
includes the net results of refinancing the Company's debt together with the
payment of a $6.0 million dividend.
Working capital was $36.6 million at March 31, 1999 compared to $37.7 million at
December 31, 1998. The decrease was primarily attributable to a $1.6 million
increase in accounts receivable, offset by a $2.4 million increase in accrued
expenses for accrued interest on the Company's senior subordinated notes. Total
assets were $110.6 million at March 31, 1999 compared to $109.2 million at
December 31, 1998. This increase includes the accounts receivable mentioned
above, as well as increases in property, plant and equipment related to the
building of a new manufacturing facility in Lapeer, Michigan.
Total debt outstanding was $159.6 million at March 31, 1999 compared to $160.4
million at December 31, 1998. This decrease was a result of the cash generated
by operating activities and normal scheduled debt payments. The Company
estimates that the borrowing base limitations would have limited the Company's
revolving credit availability to approximately $30.6 million as of March 31,
1999.
12
<PAGE>
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company implemented an assessment project to address the Year 2000 Issue
including information technology (IT) and non-IT systems. The Company has
determined that it will be required to modify or replace significant portions of
its software so that its computer systems will properly utilize dates beyond
December 31, 1999. The Company has contracts in place with external resources
and has allocated internal resources to replace or reprogram and test the
software for Year 2000 modifications. The Company has initiated remediation and
testing, and is implementing an action plan to address the Year 2000 Issue, and
estimates that the majority of testing will be completed by the end of the
second quarter of 1999 and that the Year 2000 project will be completed by the
end of the third quarter, 1999. A number of third party audits are being
performed and others are planned. The Company presently believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue can be mitigated. However, if such modifications and conversions are
not made, or not completed timely, the Year 2000 Issue could cause production
interruptions that could have a material impact on the operations of the
Company. The Company is developing contingency plans and will continue to do so
throughout the program.
The Company has initiated formal communications with its significant suppliers
and large customers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate their own Year 2000 Issue. While
the Company expects a successful resolution of all issues, there can be no
guarantee that the systems of other companies on which the Company's systems
rely will be converted in a timely manner, or that a failure to convert by
another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company. The Company
has determined it has no exposure to contingencies related to the Year 2000
Issue for the products it has sold.
The Company plans to complete the Year 2000 project by the end of the third
quarter, 1999. The total cost of the Year 2000 project is estimated to be $4.2
million and is being funded through operating cash flows. Of the total project
cost, approximately $3.0 million is attributable to the purchase of new software
and hardware, which will be capitalized or leased. The remaining $1.2 million
represents maintenance and repair of existing systems and other project costs
and will be expensed as incurred over the next year. As of March 31, 1999 the
Company has expended approximately $3.2 million related to the assessment
activities, the development of a remediation plan and the implementation of the
remediation plan in connection with its Year 2000 project.
13
<PAGE>
The costs of the project and the date on which the Company plans to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
14
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Description
------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K:
On March 23, 1999 the Company filed with the Securities and Exchange
Commission Form 8-K, dated March 19, 1999 reporting preliminary
unaudited financial results for the quarter and year ended December 31,
1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NUMATICS, INCORPORATED
By: /s/ Robert P. Robeson
-----------------------------
Robert P. Robeson
Vice President , Treasurer and
Chief Financial Officer
Date:
---------------------------
15
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<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> MAR-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 936,514 1,121,142
<SECURITIES> 0 0
<RECEIVABLES> 23,276,502 21,665,615
<ALLOWANCES> (57,926) (58,394)
<INVENTORY> 33,019,470 33,064,783
<CURRENT-ASSETS> 61,420,650 60,282,938
<PP&E> 60,326,110 59,073,202
<DEPRECIATION> (27,749,901) (27,049,324)
<TOTAL-ASSETS> 110,950,768 109,211,645
<CURRENT-LIABILITIES> 24,840,146 22,558,714
<BONDS> 156,156,179 156,917,908
0 0
0 0
<COMMON> 4,602,151 4,602,151
<OTHER-SE> (79,891,727) (79,893,829)
<TOTAL-LIABILITY-AND-EQUITY> 110,950,768 109,211,645
<SALES> 34,367,875 139,414,542
<TOTAL-REVENUES> 34,367,875 139,414,542
<CGS> 21,722,687 87,955,957
<TOTAL-COSTS> 7,910,476 30,162,018
<OTHER-EXPENSES> 937,305 236,455
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,885,994 15,926,521
<INCOME-PRETAX> (88,587) 5,133,591
<INCOME-TAX> 183,854 2,282,713
<INCOME-CONTINUING> (272,441) 2,850,878
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (4,918,000)
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