<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 June 30, 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 August 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
16 PART II. OTHER INFORMATION
16 Item 6 Exhibits and Reports on Form 8-K
16 Signatures
17 Exhibit 27 Financial Data Schedule
ii
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Numatics, Incorporated
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 34,076,759 $ 35,391,579 $ 68,444,634 $ 73,214,216
Costs and expenses (credits):
Costs of products sold 20,697,113 22,386,984 42,419,800 46,051,889
Marketing, engineering, general
and administrative 7,998,925 7,888,178 15,770,921 15,734,926
Single business tax 128,580 92,017 267,060 (833,998)
------------ ------------ ------------ ------------
Operating income 5,252,141 5,024,400 9,986,853 12,261,399
Other expenses
Interest and other financing
expenses 4,117,599 3,740,810 8,003,593 8,151,297
Other 402,819 (152,684) 1,340,124 389,079
------------ ------------ ------------ ------------
Income before income taxes and
extraordinary item 731,723 1,436,274 643,136 3,721,023
Income taxes 398,435 408,980 582,289 1,291,510
------------ ------------ ------------ ------------
Income before extraordinary item 333,288 1,027,294 60,847 2,429,513
Extraordinary item, net of $2,534,000
of income taxes (extinguishment of
debt) -- -- -- (4,918,000)
------------ ------------ ------------ ------------
Net earnings (loss) $ 333,288 $ 1,027,294 $ 60,847 $ (2,488,487)
============ ============ ============ ============
</TABLE>
See accompanying notes.
1
<PAGE>
Numatics, Incorporated
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
June 30 December 31
1999 1998
-------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 884,160 $ 1,121,142
Accounts receivable 23,591,862 21,607,221
Inventories 33,971,810 33,064,783
Other current assets 4,578,355 4,489,792
------------- -------------
Total current assets 63,026,187 60,282,938
Other assets:
Goodwill, net of accumulated amortization 6,420,849 6,479,487
Other intangible assets, net of accumulated amortization 5,477,067 5,781,321
Deferred income taxes 2,213,730 2,000,730
Investment in affiliates 2,315,462 2,157,893
Other 389,873 485,398
------------- -------------
16,816,981 16,904,829
Properties:
Land 1,493,603 1,524,383
Buildings and improvements 11,792,405 11,620,518
Machinery and equipment 48,805,090 45,928,301
------------- -------------
62,091,098 59,073,202
Less accumulated depreciation (28,819,358) (27,049,324)
------------- -------------
33,271,740 32,023,878
------------- -------------
$ 113,114,908 $ 109,211,645
============= =============
LIABILITIES AND ACCUMULATED DEFICIENCY
Current liabilities:
Accounts payable trade $ 9,874,708 $ 8,498,737
Accrued expenses 5,019,883 5,379,770
Compensation and employee benefits 4,221,012 4,876,073
Taxes, other than income and single business tax 237,586 100,079
Income and single business tax 1,285,813 246,983
Current portion of long term debt 3,515,617 3,457,072
------------- -------------
Total current liabilities 24,154,619 22,558,714
Long term debt, less current portion 158,359,666 156,917,908
Deferred retirement benefits 4,647,075 4,202,480
Deferred income taxes 169,968 269,399
------------- -------------
163,176,709 161,389,787
Minority interest in subsidiaries (redeemable upon the
happening of certain events outside the control of
the Company: $1,166,816 in 1999 and $1,285,640
in 1998) 634,959 554,822
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 (79,043,093) (79,098,886)
Equity adjustment from foreign currency translation (410,437) (794,943)
------------- -------------
(74,851,379) (75,291,678)
------------- -------------
$ 113,114,908 $ 109,211,645
============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
Numatics, Incorporated
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
June 30
------------------------------------------
1999 1998
------------- --------------
<S> <C> <C>
Operating activities
Net income (loss) $ 60,839 $ (2,488,487)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 2,265,979 2,281,538
Amortization 566,104 580,209
Extraordinary item (extinguishment of debt) -- 4,918,000
Deferred interest expense -- 2,059,894
Minority interest expense 80,137 123,243
Deferred taxes (320,509) 126,383
Deferred retirement benefits 444,594 375,021
Unrealized foreign currency losses 1,134,926 117,020
Changes in operating assets and liabilities:
Trade receivables (2,084,735) (793,924)
Inventories (1,370,435) (2,494,399)
Other current assets 30,023 (799,098)
Accounts payable and accrued expenses 983,785 2,607,360
Compensation and employee benefits (615,977) 79,012
Income and single business taxes 1,074,475 (1,404,717)
------------- -------------
Net cash provided by operating activities 2,249,206 5,287,055
Investing activities
Capital expenditures (3,850,448) (2,547,596)
Other investments (402,838) --
------------- -------------
Net cash used in investing activities (4,253,286) (2,547,596)
Financing activities
Proceeds from long-term borrowing 2,144,860 151,394,868
Debt repayments (338,072) (138,471,530)
Debt issuance costs 62,783 (4,905,850)
Dividends -- (6,000,001)
Extraordinary item (extinguishment of debt) -- (4,194,345)
Issuance of stock -- 13
------------- -------------
Net cash (used in) provided by financing activities 1,869,571 (2,176,845)
Effect of exchange rate changes on cash (167,413) (120,265)
------------- -------------
Net increase (decrease) in cash and cash equivalents (301,922) 442,349
Cash and cash equivalents at beginning of period 1,186,082 701,072
------------- -------------
Cash and cash equivalents at end of period $ 884,160 $ 1,143,421
============= =============
</TABLE>
See accompanying notes.
3
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
June 30, 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 six-month period ended June 30, 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 and six-month periods
ended June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings (loss) $ 333,288 $ 1,027,294 $ 60,847 $(2,488,487)
Foreign currency
translation
adjustments 237,956 (220,981) 384,506 (233,875)
----------- ----------- ----------- -----------
$ 571,244 $ 806,313 $ 445,353 $(2,722,362)
</TABLE>
The components of accumulated comprehensive income at June 30, 1999 and December
31, 1998 are as follows:
6/30/1999 12/31/1998
--------- ----------
Foreign currency translation
adjustments $(410,437) $(794,943)
========= =========
4
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
June 30, 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 Six Months Ended
June 30 June 30
-------------------------------- --------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales
North America $28,987,267 $28,402,721 $57,447,265 $59,224,428
International
5,089,492 6,988,858 10,997,369 13,989,788
----------- ----------- ----------- -----------
$34,076,759 $35,391,579 $68,444,634 $73,214,216
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------------- --------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Income
North America $ 5,331,013 $ 4,538,150 $10,147,074 $11,148,259
International (78,872) 486,250 (160,221) 1,113,140
----------- ----------- ----------- -----------
$ 5,252,141 $ 5,024,400 $ 9,986,853 $12,261,399
</TABLE>
5
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
June 30, 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 June 30, 1999 and December 31,
1998, consolidating condensed statements of operations for the three and six
month periods ended June 30, 1999 and 1998 and consolidated condensed statements
of cash flows for the six months ended June 30, 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)
June 30, 1999
4. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)
<TABLE>
<CAPTION>
BALANCE SHEET
June 30, 1999
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Trade receivables $ 12,666,190 $ 2,799,132 $ 8,126,540 $ -- $ 23,591,862
Inventories 18,503,751 4,756,563 11,954,496 (1,243,000) 33,971,810
Other 3,872,786 359,975 1,229,754 -- 5,462,515
------------- ------------- ------------- ------------- -------------
Total current assets 35,042,727 7,915,670 21,310,790 (1,243,000) 63,026,187
Goodwill, net of accumulated
amortization 1,474,408 -- 3,253,444 1,692,997 6,420,849
Other 18,794,939 40,172 44,984 (8,483,963) 10,396,132
Intercompany amounts 22,898,818 687,186 4,159,074 (27,745,078) --
Property, plant and equipment, net
of accumulated depreciation 27,544,002 1,007,482 4,720,256 -- 33,271,740
------------- ------------- ------------- ------------- -------------
$ 105,754,894 $ 9,650,510 $ 33,488,548 $ (35,779,044) $ 113,114,908
============= ============= ============= ============= =============
Accounts payable and accrued expenses $ 10,330,161 $ 1,606,592 $ 2,957,838 $ -- 14,894,591
Compensation and employee benefits 3,350,758 86,444 783,810 -- 4,221,012
Current portion of long-term debt 2,917,478 -- 598,139 -- 3,515,617
Other 842,617 250,072 430,710 -- 1,523,399
------------- ------------- ------------- ------------- -------------
Total current liabilities 17,441,014 1,943,108 4,770,497 -- 24,154,619
Long-term debt less current portion 155,587,782 394,016 7,194,911 -- 163,176,709
Other -- -- -- 634,959 634,959
Intercompany amounts 7,349,474 4,604,146 15,791,457 (27,745,077) --
Accumulated deficiency (74,623,376) 2,709,240 5,731,683 (8,668,926) (74,851,379)
------------- ------------- ------------- ------------- -------------
$ 105,754,894 $ 9,650,510 $ 33,488,548 $ (35,779,044) $ 113,114,908
============= ============= ============= ============= =============
<CAPTION>
December 31, 1998
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)
June 30, 1999
4. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)
STATEMENT OF OPERATIONS
Three Months Ended June 30, 1999
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 24,474,859 $ 5,273,787 $ 12,058,113 $ (7,730,000) $ 34,076,759
Costs and expenses 20,179,887 4,798,797 11,489,262 (7,643,328) 28,824,618
------------ ------------ ------------ ------------ ------------
Operating income 4,294,972 474,990 568,851 (86,672) 5,252,141
Interest and other 4,108,877 179,642 581,891 48,443 4,918,853
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 186,095 $ 295,348 $ (13,040) $ (135,115) $ 333,288
============ ============ ============ ============ ============
<CAPTION>
Three Months Ended June 30, 1998
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 24,269,835 $ 4,097,068 $ 13,104,676 $ (6,080,000) $ 35,391,579
Costs and expenses 20,529,328 3,701,135 12,223,044 (6,086,328) 30,367,179
------------ ------------ ------------ ------------ ------------
Operating income 3,740,507 395,933 881,632 6,328 5,024,400
Interest and other 3,565,358 134,106 247,552 50,090 3,997,106
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 175,149 $ 261,827 $ 634,080 $ (43,762) $ 1,027,294
============ ============ ============ ============ ============
<CAPTION>
Six Months Ended June 30, 1999
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 48,423,265 $ 9,106,642 $ 24,073,727 $(13,159,000) $ 68,444,634
Costs and expenses 39,953,486 8,421,475 22,974,476 (12,891,656) 58,457,781
------------ ------------ ------------ ------------ ------------
Operating income 8,469,779 685,167 1,099,251 (267,344) 9,986,853
Interest and other 8,269,318 256,574 1,319,977 80,137 9,926,006
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 200,461 $ 428,593 $ (220,726) $ (347,481) $ 60,847
============ ============ ============ ============ ============
<CAPTION>
Six Months Ended June 30, 1998
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 50,799,837 $ 8,725,363 $ 26,763,016 $(13,074,000) $ 73,214,216
Costs and expenses 41,615,755 7,719,467 24,602,251 (12,984,656) 60,952,817
------------ ------------ ------------ ------------ ------------
Operating income 9,184,082 1,005,896 2,160,765 (89,344) 12,261,399
Interest and other 13,277,811 343,331 1,005,501 123,243 14,749,886
------------ ------------ ------------ ------------ ------------
Net income (loss) $ (4,093,729) $ 662,565 $ 1,155,264 $ (212,587) $ (2,488,487)
============ ============ ============ ============ ============
</TABLE>
8
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
June 30, 1999
4. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)
STATEMENT OF CASH FLOWS
Six Months ended June 30, 1999
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
----------- ------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ 1,952,476 $ 436,419 $ (139,689) $ -- $ 2,249,206
Cash flows from investing activities:
Capital expenditures (3,167,026) (279,725) (403,697) -- (3,850,448)
Other investments (490,984) 73,417 14,729 -- (402,838)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (3,658,010) (206,308) (388,968) -- (4,253,286)
Cash flows from financing activities:
Proceeds from borrowing 1,912,420 -- 232,440 -- 2,144,860
Debt repayments (338,072) -- -- -- (338,072)
Debt issuance costs -- -- 62,783 -- 62,783
Dividends -- -- -- -- --
Extraordinary item
(extinguishment of debt) -- -- -- -- --
Issuance of stock -- -- -- -- --
Other -- -- (32,667) (134,746) (167,413)
----------- ----------- ----------- ----------- -----------
Net cash provided (used) in
financing activities 1,574,348 -- 262,556 (134,746) 1,702,158
Intercompany accounts 152,672 (155,274) (132,144) 134,746 --
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash 21,486 74,837 (398,245) -- (301,922)
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at
beginning of year 111,491 133,589 941,002 -- 1,186,082
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period $ 132,977 $ 208,426 $ 542,757 $ -- $ 884,160
=========== =========== =========== =========== ===========
</TABLE>
9
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
June 30, 1999
4. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)
Six Months ended June 30, 1998
<TABLE>
<CAPTION>
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net cash used in operating activities $ 5,506,272 $ (446,008) $ 226,791 $ -- $ 5,287,055
Cash flows from investing activities:
Capital expenditures (2,137,554) (174,544) (235,498) -- (2,547,596)
Other investments -- -- -- -- --
------------- ------------- ------------- ------------- -------------
Net cash used in investing activities (2,137,554) (174,544) (235,498) -- (2,547,596)
Cash flows from financing activities:
Proceeds from borrowing 151,169,554 -- 225,314 -- 151,394,868
Debt repayments (138,311,856) -- (159,674) -- (138,471,530)
Debt issuance costs (4,878,129) -- (27,721) -- (4,905,850)
Dividends (6,000,001) -- -- -- (6,000,001)
Extraordinary item
(extinguishment of debt) (4,194,345) -- -- -- (4,194,345)
Issuance of stock 13 -- -- -- 13
Other -- -- (17,277) (102,988) (120,265)
------------- ------------- ------------- ------------- -------------
Net cash provided (used) in
financing activities (2,214,764) -- 20,642 (102,988) (2,297,110)
Intercompany accounts (1,192,372) 647,059 442,325 102,988 --
------------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash (38,418) 26,507 454,260 -- 442,349
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents at
beginning of year 169,315 102,477 429,280 -- 701,072
------------- ------------- ------------- ------------- -------------
Cash and cash equivalents at end of
year $ 130,897 $ 128,984 $ 883,540 $ -- $ 1,143,421
============= ============= ============= ============= =============
</TABLE>
10
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended June 30, 1999 Compared With Three Months Ended
June 30, 1998
Net Sales. Net sales of $34.1 million for the three months ended June 30, 1999
were 3.7% less than the $35.4 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 8.6% or $1.7
million while net sales of cylinder products decreased 2.7% or $0.1 million and
other sales increased 5.2% or $0.5 million. North American sales increased 2.1%
or $0.6 million and international sales decreased 27.2% or $1.9 million.
Gross Profit. Gross profit was $13.4 million, or 39.3% of net sales, for the
three months ended June 30, 1999 compared with $13.0 million, or 36.7% of net
sales, in the same period of 1998. Cost savings implemented in response to the
reduced sales levels have contributed to the current period's improved gross
margins.
Marketing, Engineering, General and Administrative. Marketing, engineering,
general and administrative expenses were $8.0 million for the three months ended
June 30, 1999, $0.1 million higher than the same period in 1998.
Single Business Tax. Single business tax for the second quarter of 1999 was $0.1
million, substantially equal to the same period in 1998.
Operating Income. Operating income for the three months ended June 30, 1999 was
$5.3 million compared to $5.0 million in the same period in 1998. This $0.3
million increase was primarily due to the improved gross margins, offsetting the
reduced sales for the period. Operating income in North America increased $0.8
million, or 17.5%, while the international segment's operating income declined
by $0.6 million.
Interest and Other Financing Expenses. Interest expense increased $0.4 million
to $4.1 million in the second quarter of 1999 from $3.7 million in 1998 due to
the favorable effect of interest rate swap agreements which were terminated at a
profit during the second quarter of 1998 in connection with the refinancing of
the Company's debt.
11
<PAGE>
Other Expense. Other expense of $0.4 million for the three months ended June 30,
1999 was attributable to unrealized foreign exchange losses, which resulted from
the strengthening of the U.S. dollar against major foreign currencies, compared
to a gain of $0.2 million in the three months ended June 30, 1998.
Net Earnings. Due to the factors discussed above, net earnings decreased $0.7
million, to $0.3 million during the three months ended June 30, 1999 from $1.0
million in the second quarter of 1998.
Six Months Ended June 30, 1999 Compared With Six Months Ended
June 30, 1998
Net Sales. Net sales of $68.4 million for the six months ended June 30, 1999
were 6.5% less than the $73.2 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 7.9% or $3.3
million while net sales of other products decreased 6.3% or $1.4 million and
cylinder sales decreased 0.8% or $0.1 million. North American sales decreased
3.0% or $1.8 million and international sales decreased 21.4% or $3.0 million.
Gross Profit. Gross profit was $26.0 million, or 38.0% of net sales, for the six
months ended June 30, 1999 compared with $27.2 million, or 37.1% of net sales,
in the same period of 1998. Cost savings implemented in response to the reduced
sales levels have contributed to the current period's improved gross margins.
Marketing, Engineering, General and Administrative. Marketing, engineering,
general and administrative expenses were $15.8 million for the six months ended
June 30, 1999, substantially equal to the first six months of 1998.
Single Business Tax. Single business tax for the first six months of 1999 was
$0.3 million compared to a credit of $0.8 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 six months ended June 30, 1999 was
$10.0 million compared to $12.3 million in the same period in 1998. This $2.3
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 $1.0 million, or 9.0%, while the international segment's
operating income declined by $1.3 million.
Interest and Other Financing Expenses. Interest expense decreased $0.1 million
to $8.0 million in the first six months of 1999 from $8.1 million in 1998 due to
the improved interest rate
12
<PAGE>
resulting from the refinancing of the Company's previous subordinated debt on
March 24, 1998.
Other Expense. Other expense of $1.3 million for the six months ended June 30,
1999 was attributable to unrealized foreign exchange losses, which resulted from
the strengthening of the U.S. dollar against major foreign currencies, compared
to $0.4 million in the six months ended June 30, 1998.
Extraordinary Item. The extraordinary item in the six months ended June 30, 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 Earnings (Loss). Due to the factors discussed above, net earnings increased
$2.5 million, to $0.1 million during the six months ended June 30, 1999 from a
loss of $2.5 million in the first six 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 $2.2 million for the six months ended
June 30, 1999 compared to $5.3 million for the same period in 1998. This
decrease was primarily a result of the deferred interest expense on the
Company's Old Subordinated Note in 1998 and the increase in accounts receivable
in North America due to the timing of certain sales activities.
Cash used in investing activities of $4.3 million during the six months ended
June 30, 1999 was $1.7 million more than the $2.5 million used in the first six
months of 1998. This increase was principally the result of higher capital
expenditures during 1999 primarily due to $825,000 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 provided by financing activities was $1.9 million in 1999 compared to
net cash used in financing activities of $2.2 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 $38.9 million at June 30, 1999 compared to $37.7 million at
December 31, 1998. The increase was primarily attributable to a $2.0 million
increase in accounts receivable and a $0.9 million increase in inventories,
offset by a $1.0 million increase in accounts payable and accrued expenses and a
$1.0 million increase in income and single business tax. Total assets were
$113.1 million at June 30, 1999 compared to $109.2 million at December 31, 1998.
This increase includes the accounts receivable and inventory mentioned above, as
well as increases in property,
13
<PAGE>
plant and equipment related to the building of a new manufacturing facility in
Lapeer, Michigan.
Total debt outstanding was $161.9 million at June 30, 1999 compared to $160.4
million at December 31, 1998. This increase was primarily a result of the
increases in property, plant and equipment. The Company estimates that the
borrowing base limitations would have limited the Company's revolving credit
availability to approximately $30.8 million as of June 30, 1999.
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 August
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
14
<PAGE>
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 June 30, 1999 the Company had expended
approximately $3.8 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.
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.
15
<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:
No reports on Form 8-K were filed by the Company during the three
months ended June 30, 1999.
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: August 12, 1999
-------------------------------
16
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<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> JUN-30-1999 DEC-31-1998
<CASH> 884,160 1,121,142
<SECURITIES> 0 0
<RECEIVABLES> 23,650,393 21,665,615
<ALLOWANCES> (58,531) (58,394)
<INVENTORY> 33,971,810 33,064,783
<CURRENT-ASSETS> 63,026,187 60,282,938
<PP&E> 62,091,098 59,073,202
<DEPRECIATION> (28,819,358) (27,049,324)
<TOTAL-ASSETS> 113,114,908 109,211,645
<CURRENT-LIABILITIES> 24,154,619 22,558,714
<BONDS> 158,359,666 156,917,908
0 0
0 0
<COMMON> 4,602,151 4,602,151
<OTHER-SE> (79,453,530) (79,893,829)
<TOTAL-LIABILITY-AND-EQUITY> 113,114,908 109,211,645
<SALES> 68,444,634 139,414,542
<TOTAL-REVENUES> 68,444,634 139,414,542
<CGS> 42,419,800 87,955,957
<TOTAL-COSTS> 16,037,981 30,162,018
<OTHER-EXPENSES> 1,340,124 236,455
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,003,593 15,926,521
<INCOME-PRETAX> 643,136 5,133,591
<INCOME-TAX> 582,289 2,282,713
<INCOME-CONTINUING> 60,847 2,850,878
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (4,918,000)
<CHANGES> 0 0
<NET-INCOME> 60,847 (2,067,122)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
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