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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 quarter ended June 30, 2002 Commission File Number 1-6747
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The Gorman-Rupp Company
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(Exact name of registrant as specified in its charter)
Ohio 34-0253990
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
305 Bowman Street, P. O. Box 1217, Mansfield, Ohio 44901
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (419) 755-1011
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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
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Shares outstanding at June 30, 2002
common, without par value, 8,537,553
Page 1 of 11 pages
PART I - FINANCIAL INFORMATION
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands of dollars, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
2002 2001 2002 2001
INCOME ---------- ---------- ---------- ----------
Net sales $52,583 $54,838 $97,882 $104,509
Other income 262 114 398 376
---------- ---------- ---------- ----------
TOTAL INCOME 52,845 54,952 98,280 104,885
DEDUCTIONS FROM INCOME
Cost of products sold 40,336 41,413 76,088 78,738
Selling, general and
administrative expenses 7,531 6,951 13,742 13,695
---------- ---------- ---------- ----------
TOTAL DEDUCTIONS 47,867 48,364 89,830 92,433
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 4,978 6,588 8,450 12,452
Income taxes 1,728 2,590 3,047 4,850
---------- ---------- ---------- ----------
NET INCOME $3,250 $3,998 $5,403 $7,602
========== ========== ========== ==========
Basic And Diluted
Earnings Per Share $0.38 $0.47 $0.63 $0.89
Dividends Paid Per Share $0.16 $0.16 $0.32 $0.32
Avg. Shares Outstanding 8,537,553 8,565,553 8,537,553 8,565,553
2
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands of dollars)
Six Months Ended
June 30
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,403 $7,602
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,475 3,585
Changes in operating assets and liabilities 1,792 (1,851)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 10,670 9,336
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions, net (2,013) (1,766)
Change in short-term investments 998 (2,000)
Payment for acquistions, net of $3,671
cash acquired (18,150) 0
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NET CASH USED FOR INVESTING ACTIVITIES (19,165) (3,766)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends (2,732) (2,741)
Borrowings from bank 10,000
Repayments to bank and note holders (10,450) (3,413)
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NET CASH USED FOR FINANCING ACTIVITIES (3,182) (6,154)
NET (DECREASE) INCREASE IN CASH ---------- ----------
AND CASH EQUIVALENTS (11,677) (584)
CASH AND CASH EQUIVALENTS:
Beginning of year 20,583 7,630
---------- ----------
June 30 $8,906 $7,046
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3
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands of dollars)
June 30 December 31
2002 2001
ASSETS ---------- ----------
CURRENT ASSETS
Cash and cash equivalents $8,906 $20,583
Short-term investments 17 0
Accounts receivable 30,510 28,378
Inventories 38,207 33,889
Other current assets and deferred income taxes 5,095 6,269
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TOTAL CURRENT ASSETS 82,735 89,119
OTHER ASSETS 4,799 2,280
DEFERRED INCOME TAXES 3,349 2,819
PROPERTY, PLANT AND EQUIPMENT 124,299 118,449
Less allowances for depreciation 67,825 64,554
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PROPERTY, PLANT AND EQUIPMENT - NET 56,474 53,895
UNALLOCATED EXCESS PURCHASE PRICE OVER NET ASSETS
OF BUSINESSES ACQUIRED 5,895 0
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TOTAL ASSETS $153,252 $148,113
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $5,162 $5,433
Payrolls and related liabilities 3,520 3,377
Accrued expenses 9,753 8,493
Income taxes 1,307 0
Current Portion of long-term note payable 166 800
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TOTAL CURRENT LIABILITIES 19,908 18,103
LONG TERM NOTE PAYABLE 270 0
POSTRETIREMENT BENEFITS 22,056 22,100
SHAREHOLDERS' EQUITY
Common shares, without par value
at stated capital amount 5,087 5,087
Retained earnings 107,504 104,833
Accumulated other comprehensive income(loss) (1,573) (2,010)
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TOTAL SHAREHOLDERS' EQUITY 111,018 107,910
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $153,252 $148,113
========== ==========
Common shares - authorized 14,000,000 14,000,000
* Common shares - outstanding 8,537,553 8,537,553
Common shares - treasury 327,623 327,623
* After deducting treasury shares
4
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
NOTE A - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
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 do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and six
month periods ended June 30, 2002 are not necessarily indicative of results that
may be expected for the year ending December 31, 2002. For further information,
refer to the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10K for the year ended December 31, 2001.
NOTE B - INVENTORIES
The major components of inventories are as follows:
June 30 December 31
(Thousands of dollars) 2002 2001
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Raw materials and in-process $25,056 $22,224
Finished parts 10,936 9,700
Finished products 2,215 1,965
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$38,207 $33,889
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NOTE C - COMPREHENSIVE INCOME
During the three month periods ended June 30, 2002 and 2001, total comprehensive
income was $3,566,000 and $4,337,000, respectively. During the six month periods
ended June 30, 2002 and 2001, total comprehensive income was $5,840,000 and
$7,594,000, respectively. The reconciling item between net income and
comprehensive income consists of foreign currency translation adjustments.
NOTE D - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB) issued Statement
No. 141, "Business Combinations," and Statement No. 142, Goodwill and Other
Intangible Assets," effective for fiscal years beginning after December 15,
2001. Under the new rules, goodwill will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives. The
Company adopted the new rules on accounting for goodwill and other intangible
assets in the first quarter of 2002. Since the Company had no goodwill or other
intangibles prior to January 1, 2001, there was no effect on the earnings and
financial position of the Company upon adoption.
5
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
NOTE E - ACQUISITIONS
On February 26, 2002, the Company acquired all of the issued and outstanding
stock of American Machine & Tool Co., Inc.("AMT") for a cash purchase price of
approximately $16.0 million. On March 1, 2002, the Company acquired all of the
issued and outstanding stock of Flo-Pak, Inc.("FLO-PAK") for a purchase price of
approximately $6.4 million.($5.5 million in cash and $886,000 in notes) The
acquisitions were financed with cash from the Company's treasury and by a draw
of $10.0 million on an unsecured credit facility established on January 3, 2002.
In addition, the Company executed four non-interest bearing notes payable to
the former shareholders of Flo-Pak in the amount of $886,000. Two of the notes
totaling $450,000 were due and paid in the second quarter of 2002, and the two
remaining notes payable totaling approximately $436,000 are due in three annual
installments commencing March 1, 2003. The Company anticipates that its
borrowings will be repaid by internally generated funds.
AMT, located in Royersford, Pennsylvania, is a developer and manufacturer of
standard centrifugal pumps for industrial and commercial fluid-handling
applications and had revenues of approximately $14.9 million for the fiscal year
ended October 31, 2001. AMT is operating as a subsidiary of the Company.
Flo-Pak, located in Atlanta, Georgia, is a manufacturer of designed pumping
systems for the heating, ventilation, and air-conditioning (HVAC) market and had
revenues of approximately $11.0 million for the year ended December 31, 2001.
Flo-Pak's operations were merged into Patterson Pump Company, a subsidiary of
Gorman-Rupp. The results of operations for the acquired entities are included in
the Registrant's condensed consolidated statement of income beginning on the
date of acquisition. The allocation of the purchase price has not been completed
pending the finalization of the third party appraisals regarding goodwill and
other intangibles.
The following unaudited pro forma data summarizes the results of operations for
the periods indicated as if the fiscal 2002 acquisitions had been completed as
of the beginning of the periods presented. The pro forma data shows the effect
on actual operating results prior to the acquisitions. Effects on cost
reductions and operating synergies are not presented. These pro forma amounts
are not indicative of the results that would have actually been achieved if the
acquisitions had occurred at the beginning of the periods presented or that may
be achieved in the future.
For the Quarter Ended Six Months Ended
June 30 June 30
(in millions, except for ---------------------------------------- ----------------------------------------
per share data) 2002 2001 2002 2001
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TOTAL REVENUE $52,583 $61,725 $100,978 $117,632
NET INCOME 3,250 4,493 4,693 8,631
BASIC & DILUTED EARNINGS
PER COMMON SHARE 0.38 0.52 0.55 1.00
6
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Second Quarter 2002 vs Second Quarter 2001
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Net sales were $52,583,000 in 2002 compared to $54,838,000 in 2001, a decrease
of 4.1%. The sales decrease is primarily a result of continued slow economic
conditions in the capital goods and industrial sectors. Sales in the power
generation business continued to weaken due to rescheduling and cancellation of
orders by G.E. Power Systems. The total backlog of unfilled orders currently
stands at $73,245,000 compared to $91,650,000 last year. Incoming orders usually
lag increased economic activity by a period of several months.
Cost of products sold in 2002 was $40,336,000 compared to $41,413,000 in 2001, a
decrease of 2.6%. As a percentage of net sales, cost of products sold was 76.7%
in 2002 compared to 75.5% in 2001. Decreased manufacturing production activity
resulted in decreased absorption of costs which accounted for a majority of the
increase in cost of product sold as a percent of sales. Increased casualty and
liability and health insurance costs were more than offset by reduced hours
worked and reduced workforce levels.
Selling, general and administrative expenses increased from $6,951,000 in 2001
to $7,531,000 in 2002 primarily as a result of the inclusion of a full quarter
of expenses of the recent acquisitions of AMT and Flo-Pak.
Income before income taxes was $4,978,000 in 2002 compared to $6,588,000 in
2001, a decrease of $1,610,000. The decrease in income tax expense from
$2,590,000 in 2001 to $1,728,000 in 2002, resulted principally from the
reduction in taxable income, and to a lesser degree the recognition of an
investment tax credit associated with previous capital investment in machinery
and equipment. The effective tax rate decreased from 39% in 2001 to 35% in 2002
primarily as a result of the recognition of the investment tax credit.
Net income in 2002 was $3,250,000 which resulted in a decrease of $748,000 from
$3,998,000 in 2001, a decrease of 18.7%. As a percent of net sales, net income
was 6.2% in 2002 and 7.3% in 2001. Net income per share was $.38 in 2002, a
decrease of $.09 from the $.47 in 2001.
7
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Six Months 2002 vs Six Months 2001
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Net sales were $97,882,000 in 2002, a decrease of $6,627,000 or 6.3% from
$104,509,000 in 2001. A majority of the decrease is related to continued
weakness across all markets, particularly the power generation business with
G.E. Power Systems.
Cost of products sold in 2002 was $76,088,000 compared to $78,738,000 in 2001.
As a percentage of net sales, the cost of products sold was 77.7% in 2002
compared to 75.3% in 2001. Decreased manufacturing production activity resulted
in decreased absorption of costs which accounted for a majority of the increase
in cost of product sold as a percent of sales. Increased casualty and liability
and health insurance costs were more than offset by reduced hours worked,
reduced workforce levels, and cost control programs.
Selling, general and administrative expenses were flat at $13,742,000 in 2002
compared to $13,695,000 in 2001. Expenses in 2002 included four months of the
recent acquisitions of AMT and Flo-Pak. Partially offsetting these expenses were
continued gains from previously implemented cost control programs.
Income before income taxes was $8,450,000 in 2002 compared to $12,452,000 in
2001,a decrease of $4,002,000. Income tax expense decreased from $4,850,000 to
$3,047,000 in 2002. The effective income tax rate was 36.1% in 2002 compared to
38.9% in 2001. The lower effective rate was primarily the result of
non-recurring investment tax credits.
Net income of $5,403,000 in 2002 decreased $2,199,000 from $7,602,000 in 2001, a
decrease of 28.9%. As a percent of net sales, net income was 5.5% in 2002 and
7.3% in 2001. Net income per share was $.63 in 2002, a decrease of $.26 from the
$.89 in 2001.
On February 26, 2002, the Company acquired all of the issued and outstanding
stock of American Machine & Tool Co., Inc.("AMT") for a cash purchase price of
approximately $16.0 million. On March 1, 2002, the Company acquired all of the
issued and outstanding stock of Flo-Pak, Inc.("FLO-PAK") for a cash purchase
price of approximately $6.4 million.($5.5 million in cash and $886,000 in notes)
The acquisitions were financed with cash from the Company's treasury and by a
draw of $10.0 million on an unsecured credit facility established on January 3,
2002. In addition, the Company executed four non-interest bearing notes payable
to the former shareholders of Flo-Pak in the amount of $886,000. Two of the
notes totaling $450,000 were due and paid in the second quarter of 2002, and the
two remaining notes payable totaling approximately $436,000 are due in three
annual installments commencing March 1,2003. The Company anticipates that its
borrowings will be repaid by internally generated funds.
The Company expects increased sales of AMT products to be achieved through the
Company's existing outlets to domestic and international markets currently not
available to AMT. In addition, Gorman-Rupp has the opportunity to market some of
its pumps through catalogs that it has had minimal exposure with in the past.
AMT's primary sales channel is comprised of large-scale distributors of
industrial supplies promoted through third-party distributor catalogs. Many of
the small "off the shelf" pumps represent commodity type products that the
Company does not currently manufacture. A significant portion of AMT's sales are
through a catalog house under the "TEEL" brand, which has leading recognition in
the market place. This will offer the Company an opportunity to gain increased
market exposure.
8
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Flo-Pak offered the Company a "ready business" opportunity to diversify its
product line and increase market share without the cost or time to perform the
necessary research and development activities to enter the market. Gorman-Rupp
has a distribution network and market strength to offer growth opportunities to
Flo-Pak eliminating the need for additional capital investment to gain market
share.
LIQUIDITY AND SOURCES OF CAPITAL
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The Company continues to finance most of its capital expenditures and working
capital requirements through internally generated funds and bank financing. The
ratio of current assets to current liabilities was 4.2 to 1 at June 30, 2002 and
4.9 to 1 at December 31, 2001.
The Company presently has adequate working capital, adequate borrowing capacity
and a healthy liquidity position.
NEW ACCOUNTING PRONOUNCEMENTS
- ------------------------------
In June 2001, the Financial Accounting Standards Board ("FASB) issued Statement
No. 141, "Business Combinations", and Statement No. 142, "Goodwill and Other
Intangible Assets", effective for fiscal years beginning after December 15,
2001. Under the new rules, goodwill will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their useful lives. The
Company adopted the new rules on accounting for goodwill and other intangible
assets in the first quarter of 2002. Since the Company had no goodwill or other
intangibles prior to January 1, 2001, there was no effect on the earnings and
financial position of the Company upon adoption.
9
PART II - OTHER INFORMATION
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 99 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
(b) Reports filed on Form 8-K during the Quarter Ended
June 30, 2002
Pursuant to items 2 AND 7, the Company filed a report on Form 8-K dated March
11, 2002 to announce the acquisition of American Machine & Tool Co., Inc. The
financial and pro forma information required to be filed pursuant to item 7 of
Form 8-K was not available at the time of the filing and was subsequently filed
on Form 8-K/A dated May 10, 2002.
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.
The Gorman-Rupp Company
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(Registrant)
Date August 14, 2002
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By:/S/Robert E. Kirkendall
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Robert E. Kirkendall
Senior Vice President
(Principal Financial and
Accounting Officer)
10