<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, 2000
-------------------------------------------------
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 - 2,659,575 shares as of August 8, 2000
<PAGE>
INDEX
NUMATICS, INCORPORATED AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page No. Description
--------------------------------------------------------------------------------
<S> <C>
1 PART I. FINANCIAL INFORMATION
1 Item 1 Consolidated Financial Statements (Unaudited)
4 Notes to Consolidated Financial Statements (Unaudited)
10 Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
12 Item 3 Quantitative and Qualitative Disclosures About Market Risk
13 PART II. OTHER INFORMATION
13 Item 6 Exhibits and Reports on Form 8-K
13 Signatures
14 Exhibit 27 Financial Data Schedule
</TABLE>
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
---------------------------------- ---------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 39,573,749 $ 34,076,759 $ 76,703,540 $ 68,444,634
Costs and expenses:
Costs of products sold 24,896,640 20,697,113 47,352,820 42,419,800
Marketing, engineering, general
and administrative 8,859,812 7,998,925 17,400,135 15,770,921
Single business tax 114,600 128,580 228,700 267,060
------------- ------------- ------------- -------------
Operating income 5,702,697 5,252,141 11,721,885 9,986,853
Other expenses
Interest and other financing
expenses 4,192,186 4,117,599 8,372,764 8,003,593
Other 444,075 402,819 1,043,177 1,340,124
------------- ------------- ------------- -------------
Income before income taxes 1,066,436 731,723 2,305,944 643,136
Income taxes 558,708 398,435 1,119,490 582,289
------------- ------------- ------------- -------------
Net income $ 507,728 $ 333,288 $ 1,186,454 $ 60,847
============= ============= ============= =============
</TABLE>
See accompanying notes.
1
<PAGE>
Numatics, Incorporated
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
June 30 December 31
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 1,092,608 $ 1,552,063
Accounts receivable 26,670,077 23,964,195
Inventories 37,632,932 35,377,585
Other current assets 3,942,906 3,816,348
------------- -------------
Total current assets 69,338,523 64,710,191
Other assets:
Goodwill, net of accumulated amortization 5,743,783 6,123,496
Other intangible assets, net of accumulated amortization 4,729,610 5,217,320
Deferred income taxes 3,051,290 2,609,032
Investment in affiliates 2,182,820 2,294,454
Other 255,588 386,002
------------- -------------
15,963,091 16,630,304
Properties:
Land 1,372,269 1,489,357
Buildings and improvements 14,302,122 14,099,546
Machinery and equipment 50,663,223 48,190,493
------------- -------------
66,337,614 63,779,396
Less accumulated depreciation (33,125,514) (30,567,303)
------------- -------------
33,212,100 33,212,093
------------- -------------
$ 118,513,714 $ 114,552,588
============= =============
LIABILITIES AND ACCUMULATED DEFICIENCY
Current liabilities:
Accounts payable trade $ 9,709,919 $ 10,370,630
Accrued expenses 5,169,892 4,568,094
Compensation and employee benefits 4,556,298 4,614,723
Income and single business tax 1,197,867 580,713
Current portion of long term debt 3,361,401 3,414,651
------------- -------------
Total current liabilities 23,995,377 23,548,811
Long term debt, less current portion 160,837,734 158,977,572
Deferred retirement benefits 5,680,652 5,173,025
Deferred income taxes -- 63,594
Minority interest in subsidiaries (redeemable upon the
happening of certain events outside the control of
the Company: $657,436 in 2000 and $1,015,818
in 1999) 719,992 683,987
Common stock $.01 par value, 9,950,000 shares
authorized; 2,659,575 shares outstanding and
related additional paid in capital 4,602,151 4,602,151
Accumulated deficiency (77,026,804) (78,213,258)
Equity adjustment from foreign currency translation (295,388) (283,294)
------------- -------------
(72,720,041) (73,894,401)
------------- -------------
$ 118,513,714 $ 114,552,588
============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
Numatics, Incorporated
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
June 30
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Operating activities
Net income $ 1,186,454 $ 60,847
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,683,648 2,265,979
Amortization 688,005 566,104
Minority interest expense 36,005 80,137
Deferred taxes (452,745) (320,509)
Deferred retirement benefits 507,626 444,594
Unrealized foreign currency losses 1,006,654 1,134,926
Changes in operating assets and liabilities:
Trade receivables (3,015,110) (2,084,743)
Inventories (2,766,993) (1,370,435)
Other current assets 533,570 30,023
Accounts payable and accrued expenses 34,065 983,785
Compensation and employee benefits (113,305) (615,977)
Income and single business taxes 285,134 1,074,475
----------- -----------
Net cash provided by operating activities 613,008 2,249,206
Investing activities
Capital expenditures (2,982,615) (3,850,448)
Other investments 227,206 (402,838)
----------- -----------
Net cash used in investing activities (2,755,409) (4,253,286)
Financing activities
Proceeds from long-term borrowing 2,685,000 2,144,860
Debt repayments (781,793) (338,072)
Debt issuance costs -- 62,783
----------- -----------
Net cash provided by financing activities 1,903,207 1,869,571
Effect of exchange rate changes on cash (220,261) (167,413)
----------- -----------
Net decrease in cash and equivalents (459,455) (301,922)
Cash and equivalents at beginning of period 1,552,063 1,186,082
----------- -----------
Cash and equivalents at end of period $ 1,092,608 $ 884,160
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2000
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, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
The balance sheet at December 31, 1999 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, 1999.
2. COMPREHENSIVE INCOME
The components of comprehensive income for three-month and six-month periods
ended June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------------------------- ---------------------------------------
2000 1999 2000 1999
----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Net earnings $ 507,728 $ 333,288 $ 1,186,454 $ 60,847
Foreign currency
translation adjustments (142,462) 237,956 (12,094) 384,506
----------- ----------- ----------- -----------
$ 365,266 $ 571,244 $ 1,174,360 $ 445,353
</TABLE>
The components of accumulated comprehensive income at June 30, 2000 and December
31, 1999 are as follows:
<TABLE>
<CAPTION>
6/30/2000 12/31/1999
----------------- -----------------
<S> <C> <C>
Foreign currency translation
adjustments $ (295,388) $ (283,294)
================= =================
</TABLE>
4
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2000
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
------------------------------------------- ------------------------------------------
2000 1999 2000 1999
-------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Net sales
North America $ 34,127,898 $ 28,987,267 $ 65,319,182 $ 57,447,265
International 5,445,851 5,089,492 11,384,358 10,997,369
------------- ------------- ------------- -------------
$ 39,573,749 $ 34,076,759 $ 76,703,540 $ 68,444,634
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------------------------- ------------------------------------------
2000 1999 2000 1999
-------------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Operating income (loss)
North America $ 5,499,615 $ 5,331,013 $ 11,121,888 $ 10,147,074
International 203,082 (78,872) 599,997 (160,221)
------------- ------------- ------------- -------------
$ 5,702,697 $ 5,252,141 $ 11,721,885 $ 9,986,853
</TABLE>
5
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2000
4. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
The $115 million of 9 5/8% senior subordinated notes issued by Numatics,
Incorporated 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, 2000 and December 31,
1999, consolidating condensed statements of operations for the three and six
month periods ended June 30, 2000 and 1999 and consolidating condensed
statements of cash flows for the six months ended June 30, 2000 and 1999.
2. Numatics, Incorporated (the Parent), combined Guarantor Subsidiaries and
combined Non-Guarantor Subsidiaries (consisting of the Parent'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, 2000
4. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)
<TABLE>
<CAPTION>
BALANCE SHEET
June 30, 2000
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trade receivables $ 14,642,374 $ 2,599,910 $ 9,427,793 $ -- $ 26,670,077
Inventories 21,372,825 4,919,179 12,567,928 (1,227,000) 37,632,932
Other 3,411,957 422,340 1,201,217 -- 5,035,514
--------------------------------------------------------------------------------
Total current assets 39,427,156 7,941,429 23,196,938 (1,227,000) 69,338,523
Goodwill, net of accumulated amortization 1,384,155 -- 2,900,387 1,459,241 5,743,783
Other 21,078,330 40,572 706,015 (11,605,609) 10,219,308
Intercompany amounts 26,151,087 518,521 4,520,647 (31,190,255) --
Property, plant and equipment, net of
accumulated depreciation 27,661,689 1,030,865 4,519,546 -- 33,212,100
--------------------------------------------------------------------------------
$ 115,702,417 $ 9,531,387 $ 35,843,533 $ (42,563,623) $ 118,513,714
================================================================================
Accounts payable and accrued expenses $ 9,695,496 $ 1,047,366 $ 4,136,949 $ -- $ 14,879,811
Compensation and employee benefits 3,008,222 159,902 1,388,174 -- 4,556,298
Current portion of long-term debt 2,789,380 -- 572,021 -- 3,361,401
Other 539,904 109,434 548,529 -- 1,197,867
--------------------------------------------------------------------------------
Total current liabilities 16,033,002 1,316,702 6,645,673 -- 23,995,377
Long-term debt less current portion 154,644,894 316,426 5,876,414 -- 160,837,734
Other 5,680,652 -- -- 719,992 6,400,644
Intercompany amounts 12,410,462 4,505,628 14,274,165 (31,190,255) --
Accumulated earnings (deficiency) (73,066,593) 3,392,631 9,047,281 (12,093,360) (72,720,041)
--------------------------------------------------------------------------------
$ 115,702,417 $ 9,531,387 $ 35,843,533 $ (42,563,623) $ 118,513,714
================================================================================
<CAPTION>
December 31, 1999
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trade receivables $ 12,880,427 $ 2,837,294 $ 8,246,474 $ -- $ 23,964,195
Inventories 19,558,547 4,752,589 12,404,449 (1,338,000) 35,377,585
Other 3,237,081 620,917 1,510,413 -- 5,368,411
--------------------------------------------------------------------------------
Total current assets 35,676,055 8,210,800 22,161,336 (1,338,000) 64,710,191
Goodwill, net of accumulated amortization 1,429,281 -- 3,123,842 1,570,373 6,123,496
Other 19,611,630 40,172 178,188 (9,323,182) 10,506,808
Intercompany amounts 25,530,618 466,158 4,234,758 (30,231,534) --
Property, plant and equipment, net of
accumulated depreciation 27,343,326 959,693 4,909,074 -- 33,212,093
--------------------------------------------------------------------------------
$ 109,590,910 $ 9,676,823 $ 34,607,198 $ (39,322,343) $ 114,552,588
================================================================================
Accounts payable and accrued expenses $ 10,313,402 $ 1,287,689 $ 3,337,633 $ -- $ 14,938,724
Compensation and employee benefits 3,072,524 158,014 1,384,185 -- 4,614,723
Current portion of long-term debt 2,843,227 -- 571,424 -- 3,414,651
Other 392,003 80,034 108,676 -- 580,713
--------------------------------------------------------------------------------
Total current liabilities 16,621,156 1,525,737 5,401,918 -- 23,548,811
Long-term debt less current portion 152,003,109 354,414 6,620,049 -- 158,977,572
Other 5,173,025 -- 63,595 683,986 5,920,606
Intercompany amounts 9,460,130 4,628,788 16,142,616 (30,231,534) --
Accumulated earnings (deficiency) (73,666,510) 3,167,884 6,379,020 (9,774,795) (73,894,401)
--------------------------------------------------------------------------------
$ 109,590,910 $ 9,676,823 $ 34,607,198 $ (39,322,343) $ 114,552,588
================================================================================
</TABLE>
7
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2000
4. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Three Months Ended June 30, 2000
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $28,888,758 $ 5,174,270 $13,051,721 $(7,541,000) $ 39,573,749
Costs and expenses 24,143,822 4,957,014 12,097,650 (7,327,434) 33,871,052
------------------------------------------------------------------------------
Operating income 4,744,936 217,256 954,071 (213,566) 5,702,697
Interest and other 4,341,371 91,030 753,221 9,347 5,194,969
------------------------------------------------------------------------------
Net income $ 403,565 $ 126,226 $ 200,850 $ (222,913) $ 507,728
==============================================================================
<CAPTION>
Three Months Ended June 30, 1999
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>
Six Months Ended June 30, 2000
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 55,655,911 $ 9,848,541 $ 26,270,088 $(15,071,000) $ 76,703,540
Costs and expenses 46,375,860 9,444,878 24,231,785 (15,070,868) 64,981,655
------------------------------------------------------------------------------
Operating income 9,280,051 403,663 2,038,303 (132) 11,721,885
Interest and other 8,688,889 178,915 1,631,622 36,005 10,535,431
------------------------------------------------------------------------------
Net income $ 591,162 $ 224,748 $ 406,681 $ (36,137) $ 1,186,454
==============================================================================
<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
==============================================================================
</TABLE>
8
<PAGE>
NUMATICS, INCORPORATED
Notes to Consolidated Financial Statements (Unaudited)
June 30, 2000
4. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Six Months ended June 30, 2000
Non-
Guarantor Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating activities $ 102,577 $ 132,325 $ 378,106 $ -- $ 613,008
Cash flows from investing activities:
Capital expenditures (2,539,982) (205,488) (237,145) -- (2,982,615)
Other investments 227,596 (400) 10 -- 227,206
----------------------------------------------------------------------------
Net cash used in investing activities (2,312,386) (205,888) (237,135) -- (2,755,409)
Cash flows from financing activities:
Proceeds from borrowing 2,685,000 -- -- -- 2,685,000
Debt repayments (340,647) (37,988) (403,158) -- (781,793)
Other -- -- (36,065) (184,196) (220,261)
----------------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,344,353 (37,988) (439,223) (184,196) 1,682,946
Intercompany accounts (37,436) (175,524) 28,764 184,196 --
----------------------------------------------------------------------------
Net increase (decrease) in cash 97,108 (287,075) (269,488) -- (459,455)
----------------------------------------------------------------------------
Cash and equivalents at beginning of year 116,240 531,357 904,466 -- 1,552,063
----------------------------------------------------------------------------
Cash and equivalents at end of period $ 213,348 $ 244,282 $ 634,978 $ -- $ 1,092,608
============================================================================
<CAPTION>
Six Months ended June 30, 1999
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
Other -- -- (32,667) (134,746) (167,413)
------------------------------------------------------------------------------
Net cash provided by (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 equivalents at beginning of year 111,491 133,589 941,002 -- 1,186,082
------------------------------------------------------------------------------
Cash and equivalents at end of period $ 132,977 $ 208,426 $ 542,757 $ -- $ 884,160
==============================================================================
</TABLE>
9
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended June 30, 2000 Compared With Three Months Ended
June 30, 1999
Net Sales. Net sales of $39.6 million for the three months ended June 30, 2000
were 16.1% higher than the $34.1 million in the same period of 1999. Net sales
of traditional valve products increased 11.3% or $2.1 million while net sales of
cylinder products increased 26.3% or $1.2 million and other sales increased
19.9% or $2.2 million. North American sales increased 17.7% or $5.1 million and
international sales increased 7.0% or $0.4 million.
Gross Profit. Gross profit was $14.7 million, or 37.1% of net sales, for the
three months ended June 30, 2000 compared with $13.4 million, or 39.3% of net
sales, in the same period of 1999. This decline in gross profit percentage is
due primarily to product mix changes and costs related to new product
introductions and manufacturing equipment and tooling.
Marketing, Engineering, General and Administrative. Marketing, engineering,
general and administrative expenses were $8.9 million for the three months ended
June 30, 2000, $0.9 million higher than the same period in 1999. The
implementation of a new enterprise-wide computer system at the U.S. Valves and
FRL divisions in the first quarter, 2000 accounted for the majority of the
increase. Incremental on-going costs related to this implementation were
approximately $0.3 million per quarter. Additionally, the Company incurred
approximately $0.3 million in one-time costs related to the implementation and
enhancements to the system this quarter.
Operating Income. Operating income for the three months ended June 30, 2000 was
$5.7 million compared to $5.3 million in the same period in 1999. This $0.4
million increase was primarily due to the increased sales for the period.
Operating income in North America increased $0.2 million, or 3.2%, and the
international segment's operating income increased $0.2 million.
Interest and Other Financing Expenses. Interest expense increased $0.1 million
to $4.2 million in the second quarter of 2000 from $4.1 million in 1999.
Other Expense. Other expense of $0.4 million for the three months ended June 30,
2000 was attributable to unrealized foreign exchange losses, which resulted from
the strengthening of the U.S. dollar against major foreign currencies,
substantially the same as the unrealized foreign exchange losses reported in the
three months ended June 30, 1999.
Net Income. Due to the factors discussed above, net income increased $0.2
million, to $0.5 million during the three months ended June 30, 2000 from $0.3
million in the second quarter of 1999.
10
<PAGE>
Six Months Ended June 30, 2000 Compared With Six Months Ended
June 30, 1999
Net Sales. Net sales of $76.7 million for the six months ended June 30, 2000
were 12.1% higher than the $68.4 million in the same period of 1999 principally
due to the rebound of the pneumatic market. Net sales of traditional valve
products increased 5.6% or $2.2 million while net sales of other products
increased 14.7% or $3.0 million and cylinder sales increased 32.5% or $3.1
million. North American sales increased 13.7% or $7.9 million and international
sales increased 3.5% or $0.4 million.
Gross Profit. Gross profit was $29.4 million, or 38.3% of net sales, for the six
months ended June 30, 2000 compared with $26.0 million, or 38.0% of net sales,
in the same period of 1999. Efficiencies related to the increased sales level
contributed to this improvement in gross margin.
Marketing, Engineering, General and Administrative. Marketing, engineering,
general and administrative expenses were $17.4 million for the six months ended
June 30, 2000, $1.6 million higher than the $15.8 million in the same period of
1999. This increase was primarily attributable to expanded marketing programs,
professional fees, and costs associated with the implementation of a new
enterprise-wide computer system at the U.S. Valves and FRL divisions in the
first quarter, 2000. Incremental ongoing costs related to the computer system
were $0.7 million while incremental one-time costs for implementation and
enhancements to the system were $0.5 million
Operating Income. Operating income for the six months ended June 30, 2000 was
$11.7 million compared to $10.0 million in the same period in 1999. This $1.7
million increase was primarily due to the increased sales levels. Operating
income in North America increased $1.0 million, or 9.6%, while the international
segment's operating income increased $0.7 million.
Interest and Other Financing Expenses. Interest expense increased $0.4 million
to $8.4 million in the first six months of 2000 from $8.0 million in 1999 as a
result of the general increase in interest rates.
Other Expense. Other expense of $1.0 million for the six months ended June 30,
2000 was attributable to unrealized foreign exchange losses, which resulted from
the strengthening of the U.S. dollar against major foreign currencies, compared
to $1.3 million in the six months ended June 30, 1999.
Net Income. Due to the factors discussed above, net income increased $1.1
million, to $1.2 million during the six months ended June 30, 2000 from $0.1
million in the first six months of 1999.
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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.
Working capital was $45.3 million at June 30, 2000 compared to $41.2 million at
December 31, 1999. The increase was primarily attributable to a $2.7 million
increase in accounts receivable and a $2.3 million increase in inventories,
offset by a $0.6 million increase in the liability for income and single
business tax. Total assets were $118.5 million at June 30, 2000 compared to
$114.6 million at December 31, 1999. This increase was mainly due to the changes
in accounts receivable and inventory mentioned above.
Total debt outstanding was $164.2 million at June 30, 2000 compared to $162.4
million at December 31, 1999. This increase was used primarily to fund the
increases in the Company's working capital. The Company estimates that the
borrowing base limitations would have limited the Company's revolving credit
availability to approximately $34.9 million as of June 30, 2000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the information that would be provided
under Item 305 of Regulation S-K from the end of the preceding fiscal year to
June 30, 2000.
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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, 2000.
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 8, 2000
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