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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, 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
-- --
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12-b-2 of the Exchange Act). Yes X No
-- --
Common shares, without par value, outstanding at June 30, 2003. 8,540,553
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Page 1 of 17 pages
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
-Three months ended June 30, 2003 and 2002
-Six months ended June 30, 2003 and 2002
Condensed Consolidated Balance Sheets
-June 30, 2003 and December 31, 2002
Condensed Consolidated Statements of Cash Flows
-Six months ended June 30, 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 Six Months Ended
June 30, June 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net sales $ 49,083 $ 52,583 $ 92,876 $ 97,882
Cost of products sold 37,814 40,336 73,169 76,088
----------- ----------- ----------- -----------
Gross Profit 11,269 12,247 19,707 21,794
Selling, general and
administrative expenses 7,195 7,369 13,958 13,448
----------- ----------- ----------- -----------
Operating Income 4,074 4,878 5,749 8,346
Other income 149 262 511 398
Other expense (72) (162) (173) (294)
----------- ----------- ----------- -----------
Income Before Income Taxes 4,151 4,978 6,087 8,450
Income taxes 1,584 1,728 2,318 3,047
----------- ----------- ----------- -----------
Net Income $ 2,567 $ 3,250 $ 3,769 $ 5,403
=========== =========== =========== ===========
Basic And Diluted
Earnings Per Share $ 0.30 $ 0.38 $ 0.44 $ 0.63
Dividends Paid Per Share $ 0.17 $ 0.16 $ 0.34 $ 0.32
Average Shares Outstanding 8,540,553 8,537,553 8,540,553 8,537,553
3
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Thousands of dollars)
June 30, December 31,
2003 2002
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Assets
Current Assets:
Cash and cash equivalents $ 12,548 $ 13,086
Accounts receivable 32,529 29,234
Inventories 38,422 35,587
Other current assets and deferred income taxes 5,096 5,952
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Total Current Assets 88,595 83,859
Property, plant and equipment 131,596 128,853
less allowances for depreciation 75,225 71,096
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Property, Plant and Equipment - Net 56,371 57,757
Other assets 11,682 11,230
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Total Assets $ 156,648 $ 152,846
========= =========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 5,620 $ 6,557
Payrolls and related liabilities 3,752 3,306
Accrued expenses 9,672 8,806
Income taxes 2,199 468
Current portion of long-term notes payable 145 145
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Total Current Liabilities 21,388 19,282
Long-term notes payable 145 291
Postretirement benefits 22,100 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 109,173 108,309
Accumulated other comprehensive income (loss) (1,247) (1,942)
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Total Shareholders' Equity 113,015 111,456
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Total Liabilities and Shareholders' Equity $ 156,648 $ 152,846
========= =========
4
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of dollars) Six Months Ended
June 30,
2003 2002
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Cash Flows From Operating Activities:
Net income $ 3,769 $ 5,403
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,531 3,475
Changes in operating assets and liabilities (2,644) 1,792
-------- --------
Net Cash Provided by Operating Activities 4,656 10,670
Cash Flows From Investing Activities:
Capital additions, net (2,145) (2,013)
Change in short-term investments 0 998
Payment for acquisitions, net of $3,671
cash acquired and related fees 0 (18,150)
-------- --------
Net Cash Used For Investing Activities (2,145) (19,165)
Cash Flows From Financing Activities
Cash dividends (2,904) (2,732)
Borrowings from bank 0 10,000
Repayments to bank and note holders (145) (10,450)
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Net Cash Used for Financing Activities (3,049) (3,182)
-------- --------
Net Decrease in Cash
and Cash Equivalents (538) (11,677)
Cash and Cash Equivalents:
Beginning of year 13,086 20,583
-------- --------
June 30, $ 12,548 $ 8,906
======== ========
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 and six month periods ended June 30, 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 2003
presentation.
NOTE B -- INVENTORIES
The major components of inventories are as follows:
June 30, December 31,
(Thousands of dollars) 2003 2002
------- -------
Raw materials and in-process $22,433 $20,778
Finished parts 14,003 12,970
Finished products 1,986 1,839
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$38,422 $35,587
======= =======
NOTE C -- COMPREHENSIVE INCOME
During the three month periods ended June 30, 2003 and 2002, total comprehensive
income was $3,069,000 and $3,566,000, respectively. During the six month periods
ended June 30, 2003 and 2002, total comprehensive income was $4,463,000 and
$5,840,000, 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.
For the Quarter Ended Six Months Ended
June 30, 2002 June 30, 2002
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(Thousands of dollars, except per share amounts)
Total Revenue $ 52,583 $100,978
Net Income 3,250 4,693
Basic and Diluted Earnings
Per Common Share $ 0.38 $ 0.55
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.
SECOND QUARTER 2003 COMPARED TO SECOND QUARTER
2002 Net sales for the second quarter were $49,083,000 in 2003 compared to
$52,583,000 in 2002, a reduction of $3,500,000 or 6.7 percent. Revenues from
pump products increased approximately 1.7 percent, even though total net sales
for the quarter were down compared to a year ago. The prior period postponement
and cancellation of orders from the power generation market and the lack of any
significant improvement in capital spending continued to place pressure on the
Company's products sold in the capital goods sector.
Cost of products sold in the second quarter 2003 was $37,814,000 compared to
$40,336,000 during 2002, a reduction of $2,522,000 or 6.3 percent. As a
percentage of sales, cost of products sold was 77.0 percent in 2003 compared to
76.7 percent in 2002. The effect of volume related costs and the continued
reduction in the manufacture of fabricated products for the power generation
market contributed to the percentage increase. Other factors consisting of
increases in pension and postretirement expense along with property and
liability insurance premiums were partially offset by reductions resulting from
cost containment programs.
Selling, general, and administrative expenses were $7,195,000 in 2003 compared
to $7,369,000 in 2002, a decrease of $174,000 or 2.4 percent. The decrease
principally resulted from a reduction in advertising expense.
Other income was $149,000 in 2003 compared to $262,000 in 2002, a decrease of
$113,000 or 43.1 percent. The change principally resulted from a reduction in
the foreign currency exchange rates and interest income.
Other expense was $72,000 in 2003 compared to $162,000 in 2002, a decrease of
$90,000 or 55.6 percent and resulted principally from a 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 $4,151,000 in 2003 compared to $4,978,000 in
2002, a decrease of $827,000 or 16.6 percent. The effective tax rate was 38.2
percent in 2003 and 34.7 percent in 2002. The lower effective tax rate in the
prior period was primarily the result of the benefit from non-recurring
investment tax credits.
Net income was $2,567,000 in 2003 compared to $3,250,000 in 2002, a decrease of
$683,000 or 21.0 percent. As a percent of sales, net income was 5.2 percent in
2003 compared to 6.2 percent in 2002. Earnings per share were $0.30 in 2003
compared to $0.38 in 2002, a reduction of $0.08 per share.
SIX MONTHS 2003 COMPARED TO SIX MONTHS 2002
Net Sales for the first six months were $92,876,000 in 2003 compared to
$97,882,000 in 2002, a reduction of $5,006,000 or 5.1 percent. The stalled
economy continued to place pressure on the Company's products sold in the
capital goods sector. Revenue from the Company's pump products increased 6.7
percent compared to the six months 2002; 2.4 percent after excluding the impact
of the acquisitions made during first quarter 2002. The growth in pump business
was more than offset by the 73.6 percent reduction in shipments of fabricated
products for the power generation business.
Cost of products sold in the first six months of 2003 was $73,169,000 compared
to $76,088,000 in 2002, a reduction of $2,919,000 or 3.8 percent. As a
percentage of sales, cost of products sold was 78.8 percent in 2003 compared to
77.7 percent in 2002. Cost of goods sold, as a percentage of sales, reflected
the effect of reduced manufacturing activity and volume related costs. Increases
in pension and postretirement expense along with property and liability
insurance premiums, somewhat offset by cost containment programs, also
contributed to the higher percentage.
Selling, general, and administrative expenses were $13,958,000 in 2003 compared
to $13,448,000 in 2002, an increase of $510,000 or 3.8 percent. The increase
principally resulted from the inclusion for six months in 2003 of selling,
general, and administrative expenses from the Company's acquisitions made during
the first quarter of 2002. Higher employee pension and postretirement costs and
increases in property and liability insurance premiums added to the increased
expense. Selling, general, and administrative expenses were somewhat offset by
cost control programs.
Other income was $511,000 in 2003 compared to $398,000 in 2002, an increase of
$113,000 or 28.4 percent. This was principally the result of the change in the
foreign exchange rates.
Other expense was $173,000 in 2003 compared to $294,000 in 2002, a decrease of
$121,000 or 41.2 percent. This was primarily the result of the decrease in
interest expense in 2003.
Income before income taxes was $6,087,000 in 2003 compared to $8,450,000 in
2002, a decrease of $2,363,000 or 28.0 percent. Reduced sales, the effect of
volume related expenses and a full period of selling and administrative expenses
related to the acquisitions in March 2002 partially offset by cost control
programs resulted in the decrease in income before income taxes. The effective
tax rate was 38.1 percent in 2003 and 36.1 percent in 2002. The 2002 effective
rate reflected the benefit from a non-recurring investment tax credit.
Net income was $3,769,000 in 2003 compared to $5,403,000 in 2002, a decrease of
$1,634,000 or 30.2 percent. As a percent of sales, net income was 4.1 percent in
2003 compared to 5.5 percent in 2002. Earnings per share were $0.44 in 2003
compared to $0.63 in 2002, a reduction of $0.19 per share.
9
PART I--CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-- CONTINUED
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 bank 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
percent 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 decreased $6,014,000 from $10,670,000 in
the six months ended June 30, 2002 to $4,656,000 in the six months ended June
30, 2003. The decrease was primarily related to increased working capital
requirements and decreased net income.
Investing activities included payments for normal capital additions of
$2,145,000 and $2,013,000 for the six months ended June 30, 2003 and 2002,
respectively. For the six months ended June 30, 2002, cash used for the business
acquisitions was $18,150,000.
Financing activities consisted of payments primarily for dividends which were
$2,904,000 and $2,732,000 for the six months ended June 30, 2003 and 2002,
respectively. For the six months ended June 30, 2002, $10,000,000 was borrowed
to finance the acquisitions and paid back by 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 4.1 to 1 at June 30, 2003 and
4.4 to 1 at December 31, 2002.
The Company presently has adequate working capital and borrowing capacity and a
strong liquidity position.
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.
10
PART I--CONTINUED
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.
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11
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits
Exhibit 31 Certification Pursuant to 18 U.S.C
Section 1350, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act
of 2002
Exhibit 32 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, 2003
A Form 8-K related to an earnings release was filed on April 17,
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.
The Gorman-Rupp Company
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(Registrant)
Date: August 5, 2003
By: /s/ Judith L. Sovine
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Judith L. Sovine
Corporate Treasurer
By: /s/ Robert E. Kirkendall
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Robert E. Kirkendall
Senior Vice President and
Chief Financial Officer
12