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, 2003

Commission File Number 333-51355

NUMATICS, INCORPORATED

(Exact name of Registrant as specified in its charter)

Michigan		38-2955710
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock – 2,397,235 shares as of August 13, 2003

INDEX

NUMATICS, INCORPORATED AND SUBSIDIARIES

Page No.	Description
1	PART I.	FINANCIAL INFORMATION
1	Item 1	Consolidated Condensed Financial Statements (Unaudited)
5		Notes to Consolidated Condensed Financial Statements (Unaudited)
12	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations
15	Item 3	Quantitative and Qualitative Disclosures About Market Risk
15	Item 4	Controls and Procedures

16	PART II.	OTHER INFORMATION
16	Item 6	Exhibits and Reports on Form 8-K
16		Signatures

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Numatics, Incorporated

Consolidated Condensed Statements of Operations

	(Unaudited) Three Months Ended June 30						(Unaudited) Six Months Ended June 30
	2003			2002			2003			2002
Net sales	$	29,755,774		$	28,024,085		$	59,287,028		$	54,839,247
Costs and expenses:
Costs of products sold		18,145,926			17,464,544			36,630,861			33,828,005
Marketing, engineering, general and administrative		7,474,124			6,291,429			14,493,914			12,417,598
Single business tax		84,837			76,661			167,499			156,620

Operating income		4,050,887			4,191,451			7,994,754			8,437,024
Other expenses (income)
Interest and other financing expenses		4,275,330			4,627,747			8,442,774			9,184,779
Net gain on early extinguishment of debt and repurchase of notes		—			—			(2,153,049	)		—
Other		(810,344	)		(1,209,854	)		(839,450	)		(528,342	)

Income (loss) before income taxes		585,901			773,558			2,544,479			(219,413	)
Income taxes		486,493			290,315			686,156			111,892

Net income (loss)	$	99,408		$	483,243		$	1,858,323		$	(331,305	)

See accompanying notes.

Numatics, Incorporated

Consolidated Condensed Balance Sheets

	(Unaudited) June 30 2003			December 31 2002
ASSETS
Current assets:
Cash and equivalents	$	2,101,915		$	1,316,250
Accounts receivable		19,097,650			18,537,257
Inventories		32,913,727			32,714,582
Other current assets		2,856,604			3,080,310

Total current assets		56,969,896			55,648,399
Other assets:
Goodwill		5,427,203			5,098,954
Debt issuance costs, net of accumulated amortization		5,140,942			5,745,140
Deferred income taxes		194,548			177,400
Investment in unconsolidated affiliates		2,260,022			2,231,664
Other		654,835			689,333

		13,677,550			13,942,491
Properties:
Land		1,360,067			1,321,309
Buildings and improvements		15,892,424			15,497,297
Machinery and equipment		57,075,867			55,607,088

		74,328,358			72,425,694
Less accumulated depreciation		(47,440,807	)		(44,559,695	)

		26,887,551			27,865,999

	$	97,534,997		$	97,456,889

Numatics, Incorporated

Consolidated Condensed Balance Sheets (continued)

	(Unaudited) June 30 2003			December 31 2002
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current liabilities:
Accounts payable	$	5,833,941		$	5,981,993
Accrued interest		2,921,037			3,293,571
Other accrued expenses		940,045			1,325,700
Compensation and employee benefits		3,178,225			3,452,685
Income and single business tax		1,150,494			880,168
Current portion of long term debt		3,294,055			2,083,842

Total current liabilities		17,317,797			17,017,959

Long term debt, less current portion		153,273,813			156,561,001
Deferred retirement benefits		11,837,117			11,358,111
Deferred income taxes		452,033			743,294

Minority interest in subsidiaries (redeemable at $759,352 in 2003 and $692,993 in 2002 upon the happening of certain events outside the control of the Company)		555,418			487,668

Stockholders’ deficiency:
Common stock $.01 par value, 9,950,000 shares authorized; 2,397,235 shares outstanding and related additional paid in capital		4,602,151			4,602,151
Treasury stock, 262,340 shares		(3,347,280	)		(3,347,280	)
Accumulated deficiency		(84,894,177	)		(86,752,500	)
Accumulated other comprehensive loss		(2,261,875	)		(3,213,515	)

		(85,901,181	)		(88,711,144	)

	$	97,534,997		$	97,456,889

See accompanying notes.

Numatics, Incorporated

Consolidated Condensed Statements of Cash Flows

	(Unaudited) Six Months Ended June 30
	2003			2002
Operating activities
Net income (loss)	$	1,858,323		$	(331,305	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		2,259,802			2,342,045
Amortization		735,619			634,963
Early extinguishment of debt		2,883,619			—
Gain on repurchase of senior subordinated notes		(5,801,668	)		—
Minority interest in subsidiary earnings		67,750			45,128
Deferred taxes		45,741			813,289
Deferred retirement benefits		479,006			487,529
Unrealized foreign currency gains		(216,953	)		(825,402	)
Changes in operating assets and liabilities:
Accounts receivable		228,137			(424,763	)
Inventories		847,862			651,387
Other current assets		(537,308	)		46,927
Accounts payable and accrued expenses		(860,336	)		273,394
Compensation and employee benefits		(232,093	)		323,455
Income and single business taxes		147,461			(1,219,690	)

Net cash provided by operating activities		1,904,962			2,816,957

Investing activities
Capital expenditures		(773,714	)		(431,521	)
Other investments		20,778			—

Net cash used in investing activities		(752,936	)		(431,521	)

Financing activities
Debt proceeds (repayments)		50,106,451			(3,007,315	)
Prior debt repayments		(38,135,595	)		—
Repurchase of senior subordinated notes		(8,870,225	)		—
Debt issuance costs		(3,234,252	)		(309,563	)

Net cash used in financing activities		(133,621	)		(3,316,878	)
Effect of exchange rate changes on cash		(232,740	)		(42,849	)

Net increase (decrease) in cash and equivalents		785,665			(974,291	)
Cash and equivalents at beginning of period		1,316,250			1,895,027

Cash and equivalents at end of period	$	2,101,915		$	920,736

See accompanying notes.

NUMATICS, INCORPORATED

Notes to Consolidated Condensed Financial Statements (Unaudited)

June 30, 2003

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 accounting principles generally accepted in the United States 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, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

The balance sheet at December 31, 2002 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States 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, 2002.

The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its employee stock option plan. Accordingly, no compensation expense has been recognized for the stock option plan. The following table reflects pro-forma financial results, had compensation expense been determined based on the fair value at the grant dates for awards under the plan consistent with the method of SFAS No. 123.

	(Unaudited) Three months ended June 30						(Unaudited) Six months ended June 30
	2003			2002			2003			2002
Net income (loss) as reported	$	99,408		$	483,243		$	1,858,323		$	(331,305	)
Deduct: Total stock-based employee compensation expense determined under the fair-value based method of accounting		(14,000	)		(14,000	)		(28,000	)		(28,000	)

Pro-forma net income (loss)	$	85,408		$	469,243		$	1,830,323		$	(359,305	)

NUMATICS, INCORPORATED

Notes to Consolidated Condensed Financial Statements (Unaudited)

June 30, 2003

2. COMPREHENSIVE INCOME

The components of comprehensive income for the three-month and six-month periods ended June 30, 2003 and 2002 are as follows:

	Three months ended June 30				Six months ended June 30
	2003		2002		2003		2002
Net income (loss)	$	99,408	$	483,243	$	1,858,323	$	(331,305	)
Foreign currency translation adjustments		445,501		466,524		951,640		483,000

	$	544,909	$	949,767	$	2,809,963	$	151,695

The components of accumulated other comprehensive loss at June 30, 2003 and December 31, 2002 are as follows:

	June 30, 2003			December 31, 2002
Foreign currency translation adjustments	$	(100,888	)	$	(1,052,528	)
Minimum pension liability		(2,160,987	)		(2,160,987	)

	$	(2,261,875	)	$	(3,213,515	)

3. LONG-TERM DEBT

Effective January 6, 2003, the Company entered into a new senior loan agreement with a group of lenders for which Foothill Capital Corporation acts as agent. The new loan agreement provides for: (a) $25,000,000 of three-year revolving credit facilities, subject to borrowing base requirements; (b) an additional $7,500,000 of three-year revolving credit facilities, subject to borrowing base requirements and monthly reductions of $125,000 beginning April 1, 2003; (c) $23,500,000 of three-year term loans; and (d) an additional $10,000,000 of term loans that could be made during the next six months, subject to conditions specified in the loan agreement, to provide additional funds in connection with repurchases of the Company’s 9⁵/8% senior subordinated notes. The term loans are payable in monthly installments of $114,583 beginning April 1, 2003. The Company repaid all of the indebtedness outstanding under its former senior credit facilities with LaSalle Business Credit, Inc. and its Canadian affiliate and all of its indebtedness to American Capital Strategies, Ltd. from proceeds of the initial borrowings under the new loan agreement, and as a result recorded net charges related to the write-off of deferred financing costs for its old senior debt and early termination fees of $3,483,619.

NUMATICS, INCORPORATED

Notes to Consolidated Condensed Financial Statements (Unaudited)

June 30, 2003

LONG-TERM DEBT (continued)

The new revolving credit and term loans are secured by liens on substantially all of the assets of Numatics, Incorporated and its U.S., Canadian, and German subsidiaries. The new revolving credit loans bear interest at variable rates based on prime or LIBOR, at the Company’s election. The weighted average of the initial rates for the revolving credit facility is approximately 5.31% per annum. $5,500,000 of the new term loans bear interest at the greater of prime plus 4% per annum or 9% per annum. The remaining $18,000,000 of the new term loans bear interest at the greater of prime plus 6% per annum or 11% per annum, plus 2% per annum which may be paid in kind at the Company’s option. An additional $10,000,000 of term loans that could be made during the next six months, subject to conditions specified in the loan agreement, to provide additional funds in connection with repurchases of the Company’s 9-5/8% senior subordinated notes, bear interest at 13% per annum.

On February 26, 2003, the Company entered into agreements to repurchase $9,730,000 face amount of its 9-5/8% senior subordinated notes for a total purchase price of $5,667,725 and on March 25, 2003, the Company entered into an agreement to repurchase $5,250,000 face amount of its 9-5/8% senior subordinated notes for a total purchase price of $3,202,500, resulting in a net gain of $5,636,668, net of costs and the write-off of deferred financing fees of $473,107.

INCOME TAXES

The Company utilized its net operating losses in the U.S., resulting in no U.S. federal income tax expense and a total income tax expense for the six months ended June 30, 2003 of $686,156. For the six months ended June 30, 2002 the Company recorded a tax benefit on losses at its U.S. locations which, when combined with income tax expense at its foreign locations, resulted in a net expense of $111,892.

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:

	Three Months Ended June 30				Six Months Ended June 30
	2003		2002		2003		2002
Net sales
North America	$	23,929,046	$	23,241,384	$	47,901,129	$	45,514,455
International		5,826,728		4,782,701		11,385,899		9,324,792

	$	29,755,774	$	28,024,085	$	59,287,028	$	54,839,247

NUMATICS, INCORPORATED

Notes to Consolidated Condensed Financial Statements (Unaudited)

June 30, 2003

SEGMENT AND GEOGRAPHIC INFORMATION (continued)

	Three Months Ended June 30				Six Months Ended June 30
	2003		2002		2003		2002
Operating income
North America	$	3,651,520	$	3,737,267	$	7,221,583	$	7,551,823
International		399,367		454,184		773,171		885,201

	$	4,050,887	$	4,191,451	$	7,994,754	$	8,437,024

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:

Consolidating condensed balance sheets as of June 30, 2003 and December 31, 2002 and consolidating condensed statements of operations for the three and six-month periods ended June 30, 2003 and 2002 and consolidating condensed statements of cash flows for the six months ended June 30, 2003 and 2002.

Numatics, Incorporated (the Parent), combined guarantor subsidiaries and combined non-guarantor subsidiaries (consisting of the Parent’s foreign subsidiaries).

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.

NUMATICS, INCORPORATED

Notes to Consolidated Condensed Financial Statements (Unaudited)

June 30, 2003

6. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)

BALANCE SHEET

June 30, 2003

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Trade receivables	$	8,723,865		$	2,081,468		$	8,292,317	$	—		$	19,097,650
Inventories		17,877,330			4,924,209			11,138,188		(1,026,000	)		32,913,727
Other		3,005,341			98,820			1,854,358		—			4,958,519

Total current assets		29,606,536			7,104,497			21,284,863		(1,026,000	)		56,969,896
Goodwill, net of accumulated amortization		1,248,777			—			3,052,581		1,125,845			5,427,203
Other		17,277,662			40,572			1,012,049		(10,079,936	)		8,250,347
Intercompany amounts		15,212,206			2,091,839			5,925,578		(23,229,623	)		—
Property, plant and equipment, net of accumulated depreciation		21,155,240			868,508			4,863,803		—			26,887,551

	$	84,500,421		$	10,105,416		$	36,138,874	$	(33,209,714	)	$	97,534,997

Accounts payable and accrued expenses	$	6,181,384		$	821,685		$	2,691,954	$	—		$	9,695,023
Compensation and employee benefits		1,572,480			191,557			1,414,188		—			3,178,225
Current portion of long-term debt		3,202,861			78,803			12,391		—			3,294,055
Other		83,538			(46,795	)		1,113,751		—			1,150,494

Total current liabilities		11,040,263			1,045,250			5,232,284		—			17,317,797
Long-term debt less current portion		144,760,667			—			8,513,146		—			153,273,813
Other		11,837,117			—			452,033		555,418			12,844,568
Intercompany amounts		6,732,049			4,404,150			12,093,424		(23,229,623	)		—
Stockholders’ deficiency		(89,869,675	)		4,656,016			9,847,987		(10,535,509	)		(85,901,181	)

	$	84,500,421		$	10,105,416		$	36,138,874	$	(33,209,714	)	$	97,534,997

December 31, 2002

	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Trade receivables	$	8,930,549		$	1,660,527		$	7,946,181	$	—		$	18,537,257
Inventories		18,222,807			4,834,926			10,623,849		(967,000	)		32,714,582
Other		2,091,702			171,344			2,133,514		—			4,396,560

Total current assets		29,245,058			6,666,797			20,703,544		(967,000	)		55,648,399
Goodwill, net of accumulated amortization		1,248,777			—			2,724,332		1,125,845			5,098,954
Other		20,270,566			40,572			611,475		(12,079,076	)		8,843,537
Intercompany amounts		18,841,713			1,770,711			8,010,748		(28,623,172	)		—
Property, plant and equipment, net of accumulated depreciation		22,442,827			914,736			4,508,436		—			27,865,999

	$	92,048,941		$	9,392,816		$	36,558,535	$	(40,543,403	)	$	97,456,889

Accounts payable and accrued expenses	$	6,824,958		$	653,508		$	3,122,798	$	—		$	10,601,264
Compensation and employee benefits		1,903,535			208,786			1,340,364		—			3,452,685
Current portion of long-term debt		1,713,401			78,804			291,637		—			2,083,842
Other		384,955			(76,310	)		571,523		—			880,168

Total current liabilities		10,826,849			864,788			5,326,322		—			17,017,959
Long-term debt less current portion		153,545,590			39,401			2,976,010		—			156,561,001
Other		11,358,111			—			743,294		487,668			12,589,073
Intercompany amounts		7,256,719			4,344,375			17,022,078		(28,623,172	)		—
Stockholders’ deficiency		(90,938,328	)		4,144,252			10,490,831		(12,407,899	)		(88,711,144	)

	$	92,048,941		$	9,392,816		$	36,558,535	$	(40,543,403	)	$	97,456,889

NUMATICS, INCORPORATED

Notes to Consolidated Condensed Financial Statements (Unaudited)

June 30, 2003

6. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)

STATEMENT OF OPERATIONS

Three Months Ended June 30, 2003

	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Net sales	$	19,120,415		$	3,917,041	$	12,605,318	$	(5,887,000	)	$	29,755,774
Costs and expenses		16,099,709			3,626,662		11,813,516		(5,835,000	)		25,704,887

Operating income		3,020,709			290,379		791,802		(52,000	)		4,050,887
Interest and other		3,999,492			10,174		112,163		(170,350	)		3,951,479

Net income (loss)	$	(978,786	)	$	280,205	$	679,639	$	118,350		$	99,408

Three Months Ended June 30, 2002

	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	18,624,995		$	3,746,938	$	11,366,152		$	(5,714,000	)	$	28,024,085
Costs and expenses		15,852,964			3,374,488		10,319,182			(5,714,000	)		23,832,634

Operating income		2,772,031			372,450		1,046,970			—			4,191,451
Interest and other		3,710,007			117,375		(145,425	)		26,251			3,708,208

Net income (loss)	$	(937,976	)	$	255,075	$	1,192,395		$	(26,251	)	$	483,243

Six Months Ended June 30, 2003

	Parent		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Net sales	$	38,480,773	$	7,626,944	$	24,917,311	$	(11,738,000	)	$	59,287,028
Costs and expenses		32,557,375		7,086,741		23,327,158		(11,679,000	)		51,292,274

Operating income		5,923,398		540,203		1,590,153		(59,000	)		7,994,754
Interest and other		4,608,167		28,439		377,977		1,121,848			6,136,431

Net income	$	1,315,231	$	511,764	$	1,212,176	$	(1,180,848	)	$	1,858,323

Six Months Ended June 30, 2002

	Parent			Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Net sales	$	37,213,245		$	7,098,376	$	21,896,626	$	(11,369,000	)	$	54,839,247
Costs and expenses		31,255,481			6,554,165		19,974,577		(11,382,000	)		46,402,223

Operating income		5,957,764			544,211		1,922,049		13,000			8,437,024
Interest and other		7,857,642			189,003		676,556		45,128			8,768,329

Net income (loss)	$	(1,899,878	)	$	355,208	$	1,245,493	$	(32,128	)	$	(331,305	)

NUMATICS, INCORPORATED

Notes to Consolidated Condensed Financial Statements (Unaudited)

June 30, 2003

6. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES (continued)

STATEMENT OF CASH FLOWS

Six Months ended June 30, 2003

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities	$	597,360		$	312,307		$	2,011,790		$	(1,016,495	)	$	1,904,962

Cash flows from investing activities:
Capital expenditures		(573,246	)		(64,727	)		(135,741	)		—			(773,714	)
Other investments		1,999,140			—			(2,994,857	)		1,016,495			20,778

Net cash provided by (used in) investing activities		1,425,894			(64,727	)		(3,130,598	)		1,016,495			(752,936	)

Cash flows from financing activities:
Debt proceeds (repayments)		42,427,579			(39,402	)		7,718,274			—			50,106,451
Prior debt repayments		(34,743,042	)		—			(3,392,553	)		—			(38,135,595	)
Repurchase of senior subordinated notes		(8,870,225	)		—			—			—			(8,870,225	)
Debt issuance costs		(2,864,016	)		—			(370,236	)		—			(3,234,252	)

Net cash provided by (used in) financing activities		(4,049,704	)		(39,402	)		3,955,485			—			(133,621	)

Other		—			—			63,996			(296,736	)		(232,740	)
Intercompany accounts		3,139,673			(261,352	)		(3,175,057	)		296,736			—

Net increase (decrease) in cash		1,113,223			(53,174	)		(274,384	)		—			785,665
Cash and equivalents at beginning of year		325,266			104,001			886,983			—			1,316,250

Cash and equivalents at end of period	$	1,438,489		$	50,827		$	612,599		$	—		$	2,101,915

Six Months ended June 30, 2002

	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities	$	1,542,259		$	511,652		$	763,046		$	—		$	2,816,957

Cash flows from investing activities:
Capital expenditures		(405,662	)		(19,946	)		(5,913	)		—			(431,521	)

Net cash used in investing activities		(405,662	)		(19,946	)		(5,913	)		—			(431,521	)

Cash flows from financing activities:
Debt repayments		(1,794,710	)		(39,402	)		(1,173,203	)		—			(3,007,315	)
Debt issuance costs		(310,101	)		—			538			—			(309,563	)

Net cash used in financing activities		(2,104,811	)		(39,402	)		(1,172,665	)		—			(3,316,878	)

Other		—			—			47,793			(90,642	)		(42,849	)
Intercompany accounts		605,847			(542,884	)		(153,605	)		90,642			—

Net decrease in cash		(362,367	)		(90,580	)		(521,344	)		—			(974,291	)
Cash and equivalents at beginning of year		401,062			207,257			1,286,708			—			1,895,027

Cash and equivalents at end of period	$	38,695		$	116,677		$	765,364		$	—		$	920,736

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Three Months Ended June 30, 2003 Compared With Three Months Ended June 30, 2002

Net sales. Net sales of $29.8 million for the three months ended June 30, 2003 were 6.2% higher than the $28.0 million in the same period of 2002. Net sales of traditional valve products increased 3.6% or $0.7 million while net sales of motion control products increased 5.8% or $0.3 million and sales of air preparation products increased 16.9% or $0.8 million. North American sales increased 3.0% or $0.7 million and international sales increased 21.8% or $1.1 million, most of which resulted from changes in currency rates on consolidated foreign subsidiaries.

Gross profit. Gross profit was $11.6 million, or 39.0% of net sales, for the three months ended June 30, 2003 compared with $10.6 million, or 37.7% of net sales, in the same period of 2002. Increased volume and favorable product mix changes were responsible for the improved gross profit.

Marketing, engineering, general and administrative. Marketing, engineering, general and administrative expenses were $7.5 million for the three months ended June 30, 2003, compared to $6.3 million for the same period in 2002. This $1.2 million increase was in response to the increased sales levels, as the Company invested in its marketing and customer service areas and continued filling vacant positions.

Operating income. Operating income for the three months ended June 30, 2003 was $4.1 million compared to $4.2 million in the same period in 2002. This $0.1 million decrease occurred as the increase in marketing and customer service expense more than offset the higher gross profit. Operating income in North America decreased $0.1 million, while the International segment’s operating income remained consistent with the same period in the prior year.

Interest and other financing expenses. Interest expense decreased $0.3 million, from $4.6 million in the second quarter of 2002 to $4.3 million in 2003, primarily as a result of the Company’s more favorable interest rates on its new senior debt facility.

Other. Other income of $0.8 million for the three months ended June 30, 2003 was primarily attributable to realized and unrealized foreign exchange gains, which resulted from the weakening of the U.S. dollar against major foreign currencies, compared to $1.2 million foreign exchange gains in the three months ended June 30, 2002.

Income taxes. During the quarter ended June 30, 2003, the Company recorded a valuation allowance against its tax benefit on losses in the U.S. and a total income tax expense for the quarter of $0.5 million. For the quarter ended June 30, 2002 the Company recorded a tax benefit

on losses at its U.S. locations which, when combined with income tax expense at its foreign locations, resulted in a net expense of $0.3 million.

Net income. Due to the factors discussed above, net income decreased $0.4 million, from $0.5 million during the three months ended June 30, 2002 to end this period at $0.1 million.

Six Months Ended June 30, 2003 Compared With Six Months Ended June 30, 2002

Net sales. Net sales of $59.3 million for the six months ended June 30, 2003 were 8.1% higher than the $54.8 million in the same period of 2002. Net sales of traditional valve products increased 4.6% or $1.7 million while net sales of motion control products increased 11.9% or $1.2 million and sales of air preparation products increased 17.8% or $1.6 million. North American sales increased 5.2% or $2.4 million and international sales increased 22.1% or $2.1 million. This $4.5 million increase in sales was attributed to changes in currency rates on consolidated foreign subsidiaries, new product introductions, programs and focused selling targeting specific customer groups, coupled with the generally improved business climate.

Gross profit. Gross profit was $22.7 million, or 38.2% of net sales, for the six months ended June 30, 2003 compared with $21.0 million, or 38.3% of net sales, in the same period of 2002. Increased volume was responsible for the increased gross profit.

Marketing, engineering, general and administrative. Marketing, engineering, general and administrative expenses were $14.5 million for the six months ended June 30, 2003, compared to $12.4 million for the same period in 2002. This $2.1 million increase was in response to the increased sales levels, as the Company invested in its marketing and customer service areas and continued filling vacant positions.

Operating income. Operating income for the six months ended June 30, 2003 was $8.0 million compared to $8.4 million in the same period in 2002. This $0.4 million decrease occurred as the increase in marketing and customer service expense more than offset the higher gross profit. Operating income in North America decreased $0.3 million, while the International segment’s operating income decreased by $0.1 million compared to the same period in 2002.

Interest and other financing expenses. Interest expense decreased $0.8 million from $9.2 million in the first six months of 2002 to $8.4 million in 2003, primarily as a result of the Company’s more favorable interest rates on its new senior debt facility.

Net gain on early extinguishment of debt and repurchase of notes. During January 2003 the Company refinanced its senior debt, and as a result recorded net charges related to the write-off of deferred financing costs for its old senior debt of $3.4 million. During February and March 2003 the Company repurchased $15.0 million face value of its 9 5/8% senior subordinated notes resulting in a net gain of $5.6 million.

Other. Other income of $0.8 million for the six months ended June 30, 2003 was primarily attributable to realized and unrealized foreign exchange gains, which resulted from the weakening of the U.S. dollar against major foreign currencies, compared to $0.5 million foreign exchange gains in the six months ended June 30, 2002.

Income taxes. The Company utilized its net operating losses in the U.S., resulting in no U.S. federal income tax expense and a total income tax expense for the six months ended June 30, 2003 of $0.7 million. For the six months ended June 30, 2002 the Company recorded a tax benefit on losses at its U.S. locations which, when combined with income tax expense at its foreign locations, resulted in a net expense of $0.1 million.

Net income (loss). Due to the factors discussed above, net income increased $2.2 million, from a loss of $0.3 million during the six months ended June 30, 2002 to end this period at $1.9 million.

Liquidity and Capital Resources

Working capital was $39.7 million at June 30, 2003 compared to $38.6 million at December 31, 2002. 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.

Total debt outstanding was $156.6 million at June 30, 2003 compared to $158.6 million at December 31, 2002. This decrease was primarily a result of the Company’s repurchase of $15.0 million of its 9⁵/8% senior subordinated notes, which was accomplished through additional term loan borrowings of $10.0 million. The Company estimates that borrowing base limitations would have limited the Company’s revolving credit availability to approximately $25.3 million as of June 30, 2003.

Off-Balance Sheet Arrangements

The Company has no “off-balance sheet arrangements” as defined in Item 303(a)(4) of Regulation S-K.

Specified Contractual Obligations

There have been no material changes in the information that would be provided under Item 303(a)(5) of Regulation S-K from March 31, 2003 to June 30, 2003.

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, 2003.

Item 4. Controls and Procedures

The Company’s Chief Executive Officer and its Chief Financial Officer have evaluated the Company’s disclosure controls and procedures as of June 30, 2003 and have concluded that there are no significant deficiencies or material weaknesses. There was no change in the Company’s internal control over financial reporting during the quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits


31.1		Certification of Chief Executive Officer—Section 302 of Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer—Section 302 of Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer—Section 906 of Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer—Section 906 of Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K:

No reports on Form 8-K were filed by the Company during the three months ended June 30, 2003.

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;

on behalf of the registrant and

as its principal financial officer

Date: August 13, 2003

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NUMATICS INC 10-Q