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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 March 31, 2003 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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Common shares, without par value, outstanding at March 31, 2003. 8,540,553
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Page 1 of 16 pages
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 2003 AND 2002
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
-Three months ended March 31, 2003 and 2002
Condensed Consolidated Balance Sheets
-March 31, 2003 and December 31, 2002
Condensed Consolidated Statements of Cash Flows
-Three months ended March 31, 2003 and 2002
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures of Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on 8-K
2
PART I. FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS(UNAUDITED)
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Thousands of dollars, except per share amounts) Three Months Ended
March 31,
2003 2002
--------- ----------
Net sales $43,793 $45,299
Cost of products sold 35,355 35,752
------- -------
Gross Profit 8,438 9,547
Selling, general and
administrative expenses 6,763 6,079
------- -------
Operating Income 1,675 3,468
Other income 362 136
Other expense (101) (132)
------- -------
Income Before Income Taxes 1,936 3,472
Income taxes 734 1,319
------- -------
Net Income $1,202 $2,153
======= =======
Basic And Diluted
Earnings Per Share $0.14 $0.25
Dividends Paid Per Share $0.17 $0.16
Average Shares Outstanding 8,540,553 8,537,553
3
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Thousands of dollars)
March 31, December 31,
2003 2002
----------- -----------
Assets
Current Assets:
Cash and cash equivalents $14,052 $13,086
Accounts receivable 28,430 29,234
Inventories 36,902 35,587
Other current assets and deferred income taxes 5,623 5,952
-------- --------
Total Current Assets 85,007 83,859
Property, plant and equipment 130,179 128,853
less allowances for depreciation 73,097 71,096
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Property, Plant and Equipment - Net 57,082 57,757
Other assets 11,439 11,230
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Total Assets $153,528 $152,846
======= ========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $6,386 $6,557
Payrolls and related liabilities 3,583 3,306
Accrued expenses 8,740 8,806
Income taxes 1,177 468
Current portion of long-term notes payable 145 145
-------- --------
Total Current Liabilities 20,031 19,282
Long-term notes payable 145 291
Postretirement benefits 21,954 21,817
Shareholders' Equity Common shares, without par value:
Authorized - 14,000,000 shares;
Outstanding - 8,540,553 shares in 2003 and 2002
(after deducting treasury shares of 324,623
in 2003 and 2002) at stated capital amount 5,089 5,089
Retained earnings 108,059 108,309
Accumulated other comprehensive income (loss) (1,750) (1,942)
-------- --------
Total Shareholders' Equity 111,398 111,456
-------- --------
Total Liabilities and Shareholders' Equity $153,528 $152,846
======== ========
4
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of dollars) Three Months Ended
March 31,
2003 2002
-------- --------
Cash Flows From Operating Activities:
Net income $1,202 $2,153
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,764 1,669
Changes in operating assets and liabilities 686 (651)
======== ========
Net Cash Provided by Operating Activities 3,652 3,171
Cash Flows From Investing Activities:
Capital additions, net (1,089) (1,104)
Change in short-term investments 0 (24)
Payment for acquistions, net of $3,671
cash acquired and related fees 0 (18,287)
======== ========
Net Cash Used For Investing Activities (1,089) (19,415)
Cash Flows From Financing Activities
Cash dividends (1,452) (1,366)
Borrowings from bank 0 10,000
Repayments to bank and note holders (145) 0
======== ========
Net Cash (Used for) Provided by Financing Activities (1,597) 8,634
======== ========
Net Increase (Decrease) in Cash
and Cash Equivalents 966 (7,610)
Cash and Cash Equivalents:
Beginning of year 13,086 20,583
======== ========
March 31, $14,052 $12,973
======== ========
5
PART I--CONTINUED
ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 in accordance 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 month periods ended March 31, 2003 are not necessarily
indicative of results that may be expected for the year ending December 31,
2003. For further information, refer to the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2002.
Certain prior year amounts have been reclassified to conform to the 2002
presentation.
NOTE B -- INVENTORIES
The major components of inventories are as follows:
March 31 Dec 31
(Thousands of dollars) 2003 2002
-------- --------
Raw materials and in-process $ 21,546 $20,778
Finished parts 13,449 12,970
Finished products 1,907 1,839
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$ 36,902 $35,587
======== =======
NOTE C -- COMPREHENSIVE INCOME
During the three month periods ended March 31, 2003 and 2002, total
comprehensive income was $1,394,000 and $2,274,000, respectively. The
reconciling item between net income and comprehensive income consists of foreign
currency translation adjustments.
NOTE D -- ACQUISITIONS
On February 28, 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 $12.6 million net of $3.7 million cash acquired. AMT's "off the
shelf" pumps give the Company the opportunity to market commodity type products.
AMT, located in Royersford, Pennsylvania, is a developer and manufacturer of
standard centrifugal pumps for industrial and commercial fluid-handling
applications. The acquisition of AMT offers the Company the opportunity to
increase sales of AMT's products through the Company's existing outlets to
domestic and international markets. AMT's primary sales channel is comprised of
large-scale distributors of industrial supplies promoted through third-party
distributor catalogs. AMT operates as a subsidiary of the Company.
6
PART I--CONTINUED
ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--CONTINUED
NOTE D--ACQUISITIONS--CONTINUED
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 $6.5 million,
of which $5.6 million was cash and $900,000 was a note payable, a portion of
which was subsequently paid in 2002. The acquisition of Flo-Pak offers 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. Flo-Pak,
located in Atlanta, Georgia, is a manufacturer of designed pumping systems for
the heating, ventilation and air-conditioning (HVAC) market. The results of
operations of Flo-Pak are part of Patterson Pump Company, a subsidiary of the
Company.
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 of 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.
Three Months Ended
March 31, 2002
(Thousands of dollars, except per share amounts) ------------------------
Total Revenue $48,395
Net Income 1,443
Basic and Diluted Earnings
Per Common Share $0.17
7
PART I--CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements in this section and elsewhere herein contain various
forward-looking statements and includes assumptions concerning The Gorman-Rupp
Company's operations, future results and prospects. These forward-looking
statements are based on current expectations and are subject to risk and
uncertainties. In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, The Gorman-Rupp Company provides the
following cautionary statement identifying important economic, political, and
technological factors, among others, the absence of which could cause the actual
results or events to differ materially from those set forth in or implied by the
forward-looking statements and related assumptions.
Such factors include the following: (1) continuation of the current and
projected future business environment, including interest rates and capital and
consumer spending; (2) competitive factors and competitor responses to
Gorman-Rupp initiatives; (3) successful development and market introductions of
anticipated new products; (4) stability of government laws and regulation,
including taxes; (5) stable governments and business conditions in emerging
economies; (6) successful penetration of emerging economies and (7) continuation
of the favorable environment to make acquisitions, domestic and foreign,
including regulatory requirements and market values of candidates.
FIRST QUARTER 2003 COMPARED TO FIRST QUARTER 2002
Net sales for the first quarter were $43,793,000 in 2003 compared to $45,299,000
in 2002, a reduction of $1,506,000 or 3.3 percent. Economic uncertainty
continued to place pressure on the Company's products sold in the capital goods
sector. Revenue from sales of the Company's pump products increased 12.7%
compared to the first quarter 2002; 3.2% after excluding the impact of
acquisitions made during 2002. This growth was more than offset by a 78%
reduction in shipments of fabricated products for the power generation market.
The reduction resulted from postponement and cancellation of orders due to lack
of need for additional capacity in the power generation market and is projected
to continue through 2004.
Cost of products sold in the first quarter 2003 was $35,355,000 compared to
$35,752,000 during 2002, a decrease of 1.1 percent. As a percentage of sales,
cost of products sold was 80.7% in 2003 compared to 78.9 % in 2002. The increase
in cost of goods sold as a percent of sales was principally the effect of volume
related costs and the further reduction in manufacturing fabricated products for
the power generation market, reduced by benefits from cost reduction programs.
Manufacturing cost increases in pension and postretirement expense along with
property and liability insurance premiums also contributed to the higher
percentage.
Selling, general, and administrative expenses were $6,763,000 in 2003 compared
to $6,079,000 in 2002, an increase of $684,000 or 11.3 percent. The increase
principally resulted from the inclusion for the full quarter in 2003 of selling,
general, and administrative expenses from the Company's acquisitions made in
2002, somewhat reduced by benefits from cost control programs . Higher employee
pension and postretirement costs and increases in property and liability
insurance premiums also added to the increased expense.
Other income was $362,000 in 2003 compared to $136,000 in 2002, an increase of
$226,000 or 166.2 percent. This was principally the result of the change in the
foreign currency exchange rates.
Other expense was $101,000 in 2003 compared to $132,000 in 2002, a decrease of
$31,000 or 23.5 percent. This was primarily the result of the decrease in
interest expense for 2003.
8
PART I--CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS--CONTINUED
Income before income taxes was $1,936,000 in 2003 compared to $3,472,000 in
2002, a decrease of $1,536,000 or 44.2 percent. Reduced sales along with the
increased effect of volume related expenses and increased selling , general, and
administrative expense were the principle reasons for the decrease in income
before income taxes. The effective tax rate was 37.9% in 2003 and 38.0% in 2002.
Net income was $1,202,000 in 2003 compared to $2,153,000 in 2002, a decrease of
$951,000 or 44.2 percent. As a percent of sales, net income was 2.7% in 2003
compared to 4.8% in 2002. Earnings per share were $0.14 in 2003 compared to
$0.25 in 2002, a reduction of $0.11 per share.
On February 28, 2002, the Company acquired all of the issued and outstanding
stock of American Machine & Tool Co., Inc. ("AMT") for a net cash purchase price
of approximately $12.6 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 $5.6 million. The acquisitions were financed
with cash from the Company's treasury, $900,000 of notes payable and by a draw
of $10.0 million on an unsecured credit facility. The Company paid back the bank
borrowings in 2002. AMT, located in Royersford, Pennsylvania, is a developer and
manufacturer of standard centrifugal pumps for industrial and commercial
fluid-handling applications. AMT operates as a subsidiary of the Company.
Flo-Pak, located in Atlanta, Georgia, is a manufacturer of designed pumping
systems for the HVAC market. Flo-Pak's operations have been merged into
Patterson Pump Company, a subsidiary of the Company.
In March 2002, Patterson Pump Company, acquired the remaining interest in its
subsidiary Patterson Pump Ireland Limited. Patterson Pump Company now owns 100%
of Patterson Pump Ireland Limited. Pump assembly at Patterson Pump Ireland
Limited will continue to serve the European market.
LIQUIDITY AND SOURCES OF CAPITAL
Cash flows from operating activities increased $481,000 from $3,171,000 in the
three months ended March 31, 2002 to $3,652,000 in the three months ended March
31, 2003. The increase was primarily related to decreased working capital
requirements partially offset by decreased net income.
Investing activities included payments for normal capital additions of
$1,089,000 and $1,104,000 for the three months ended March 31, 2003 and 2002,
respectively. For the quarter ended March 31, 2002, cash used for the business
acquisitions was $18,287,000.
Financing activities consisted of payments primarily for dividends which were
$1,452,000 and $1,366,000 for the three months ended March 31, 2003 and 2002,
respectively. For the quarter ended March 31, 2002, $10,000,000 was borrowed to
finance the acquisitions. Later in 2002, this amount was repaid to the banks
from internally generated funds.
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 March 31, 2003
and 4.3 to 1 at December 31, 2002.
The Company presently has adequate working capital and borrowing capacity and a
strong liquidity position.
9
PART I--CONTINUED
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
The Company's foreign operations do not involve any material risks due to their
small size, both individually and collectively. The Company is not exposed to
material market risks as a result of its export sales or operations outside of
the United States. Export sales are denominated predominately in U.S. dollars
and made on open account or letter of credit.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of
the Company's management, including the Principal Executive Officer and
Principal Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures within 90 days before the
filing of this quarterly report. Based on that evaluation, the Company's
management, including the Principal Executive Officer and Principal Financial
Officer, concluded that the Company's disclosure controls and procedures were
effective. There have been no significant changes in the Company's internal
controls, or in other factors that could significantly affect those internal
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses, subsequent to the date of the evaluations.
****************************
10
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORT 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 March 31, 2003
None
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
-----------------------
(Registrant)
Date: April 30, 2003
By: /S/Judith L. Sovine
-----------------------------------------
Judith L. Sovine
Corporate Treasurer
By: /S/Robert E. Kirkendall
-----------------------------------------
Robert E. Kirkendall
Senior Vice President and
Chief Financial Officer
11
CERTIFICATIONS
I, Jeffrey S. Gorman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The
Gorman-Rupp Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures(as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report(the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
12
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 30, 2003 /S/Jeffrey S. Gorman
--------------------
Jeffrey S. Gorman
President and Chief Executive Officer
The Gorman-Rupp Company
(Principal Executive Officer)
13
CERTIFICATIONS
I, Robert E. Kirkendall, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The
Gorman-Rupp Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures(as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report(the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
14
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: April 30, 2003 /S/Robert E. Kirkendall
-----------------------
Robert E. Kirkendall
Senior Vice President and
Chief Financial Officer
The Gorman-Rupp Company
15