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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 September 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
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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
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Common shares, without par value, outstanding at September 30, 2003. 8,543,553
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Page 1 of 17 pages
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
-Three months ended September 30, 2003 and 2002
-Nine months ended September 30, 2003 and 2002
Condensed Consolidated Balance Sheets
-September 30, 2003 and December 31, 2002
Condensed Consolidated Statements of Cash Flows
-Nine months ended September 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 Nine Months Ended
Sept 30, Sept 30,
2003 2002 2003 2002
--------- --------- --------- ---------
Net sales $53,336 $49,139 $146,212 $147,021
Cost of products sold 42,072 39,219 115,241 115,307
--------- --------- --------- ---------
Gross Profit 11,264 9,920 30,971 31,714
Selling, general and
administrative expenses 7,379 7,067 21,337 20,515
--------- --------- --------- ---------
Operating Income 3,885 2,853 9,634 11,199
Other income 304 406 815 804
Other expense (75) (124) (248) (418)
--------- --------- --------- ---------
Income Before Income Taxes 4,114 3,135 10,201 11,585
Income taxes 1,559 1,230 3,877 4,277
--------- --------- --------- ---------
Net Income $2,555 $1,905 $6,324 $7,308
========= ========= ========= =========
Basic And Diluted
Earnings Per Share $0.30 $0.23 $0.74 $0.86
Dividends Paid Per Share $0.17 $0.16 $0.51 $0.48
Average Shares Outstanding 8,543,553 8,540,553 8,541,564 8,538,564
3
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Thousands of dollars)
September 30, December 31,
2003 2002
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Assets
Current Assets:
Cash and cash equivalents $ 15,201 $ 13,086
Short-term investments 1,500 0
Accounts receivable 36,512 29,234
Inventories 35,538 35,587
Other current assets and deferred income taxes 6,444 5,952
--------- ---------
Total Current Assets 95,195 83,859
Property, plant and equipment 131,702 128,853
less allowances for depreciation 76,390 71,096
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Property, Plant and Equipment - Net 55,312 57,757
Other assets 9,985 11,230
--------- ---------
Total Assets $ 160,492 $ 152,846
========= =========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 6,596 $ 6,557
Payrolls and related liabilities 3,811 3,306
Accrued expenses 10,775 8,806
Income taxes 2,627 468
Current portion of long-term notes payable 145 145
--------- ---------
Total Current Liabilities 23,954 19,282
Long-term notes payable 145 291
Postretirement benefits 22,225 21,817
Shareholders' Equity Common shares, without par value:
Authorized - 14,000,000 shares;
Outstanding - 8,543,553 shares in 2003 and 8,540,553 in 2002 (after
deducting treasury shares of 321,623 in 2003 and
324,553 in 2002) at stated capital amount 5,091 5,089
Retained earnings 110,346 108,309
Accumulated other comprehensive income (loss) (1,269) (1,942)
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Total Shareholders' Equity 114,168 111,456
--------- ---------
Total Liabilities and Shareholders' Equity $ 160,492 $ 152,846
========= =========
4
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of dollars) Nine Months Ended
September 30,
2003 2002
-------- --------
Cash Flows From Operating Activities:
Net income $ 6,324 $ 7,308
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,359 5,194
Changes in operating assets and liabilities (652) 4,251
-------- --------
Net Cash Provided by Operating Activities 11,031 16,753
Cash Flows From Investing Activities:
Capital additions, net (2,915) (3,612)
Change in short-term investments (1,500) 998
Payment for acquisitions, net of $3,671
cash acquired and related fees 0 (18,150)
-------- --------
Net Cash Used For Investing Activities (4,415) (20,764)
Cash Flows From Financing Activities
Cash dividends (4,356) (4,098)
Borrowings from bank 0 10,000
Repayments to bank and note holders (145) (10,450)
-------- --------
Net Cash Used for Financing Activities (4,501) (4,548)
-------- --------
Net Increase/(Decrease) in Cash
and Cash Equivalents 2,115 (8,559)
Cash and Cash Equivalents:
Beginning of year 13,086 20,583
-------- --------
September 30, $ 15,201 $ 12,024
======== ========
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 nine month periods ended September 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.
The accompanying balance sheet, dated September 30, 2003, of The Gorman-Rupp
Company differs from and supersedes the balance sheet furnished with the Form
8-K filed October 17, 2003. The Company's cash and accounts payable have been
adjusted to reflect an additional elimination of an inter-company transaction.
Certain prior year amounts have been reclassified to conform to the 2003
presentation.
NOTE B -- INVENTORIES
The major components of inventories are as follows:
September 30, December 31,
Thousands of dollars) 2003 2002
------------- ------------
Raw materials and in-process $20,748 $20,778
Finished parts 12,945 12,970
Finished products 1,845 1,839
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$35,538 $35,587
======= =======
NOTE C -- COMPREHENSIVE INCOME
During the three-month periods ended September 30, 2003 and 2002, total
comprehensive income was $2,534,000 and $1,488,000, respectively. During the
nine-month periods ended September 30, 2003 and 2002, total comprehensive income
was $6,997,000 and $7,329,000, 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
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PART I-- CONTINUED
ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)--CONTINUED
NOTE D -- ACQUISITIONS--CONTINUED
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.
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 and 2003. Flo-Pak, located in Atlanta,
Georgia, is a manufacturer of designed pumping systems for the heating,
ventilation and air-conditioning (HVAC) market. 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 reducing the need for capital investment to gain market share. 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 nine months ended September 2002 as if the acquisitions had been completed
as of the beginning of the period. 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.
Nine Months Ended
September 30, 2002
Thousands of dollars, except per share amounts) ------------------
Total Revenue $150,117
Net Income 6,598
Basic and Diluted Earnings
Per Common Share $0.77
NOTE E--PENSION
During the third quarter 2003, the Company's accumulated lump sum pension
distributions to retirees exceeded an accounting threshold requiring a portion
of previously unrecognized pension losses associated with the distribution be
expensed. The additional pension cost of $1,250,000 was allocated between
manufacturing expense and selling, general and administrative expense.
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 include 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.
THIRD QUARTER 2003 COMPARED TO THIRD QUARTER 2002
Net sales for the third quarter were $53,336,000 in 2003 compared to $49,139,000
in 2002, an increase of $4,197,000 or 8.5 percent. Revenues from pump products
increased approximately 16.7 percent. The increase in net sales was primarily
attributable to timing of customer releases for shipment of product during the
quarter rather than the result of an upturn in business. The Company's backlog ,
currently at $58.5 million, declined $13.6 million or 18.9% from the third
quarter 2002. The lack of any significant improvement in spending in the capital
sector continues to place pressure on the Company selling products into these
markets. The decline in business of fabricated product to the power generation
market of $2.1 million during the current quarter as compared to the third
quarter 2002 continues to impact the Company.
Cost of products sold in the third quarter 2003 was $42,072,000 compared to
$39,219,000 during 2002, an increase of $2,853,000 or 7.3 percent. As a
percentage of sales, cost of products sold was 78.9 percent in 2003 compared to
79.8 percent in 2002. Margins improved mainly because the fixed cost component
of cost of goods sold did not increase proportionately with increased sales
volume. This positive effect of the Company's operating leverage on increased
shipments and the benefit from continuing cost containment programs, was
partially offset by increased pension costs resulting from the recognition of an
allocation of previously unrecognized pension losses associated with lump sum
distributions to retirees, discussed below.
Selling, general, and administrative expenses were $7,379,000 in 2003 compared
to $7,067,000 in 2002, an increase of $312,000 or 4.4 percent. The current
quarter increase principally resulted from an allocation of increased pension
cost associated with lump sum distributions to retirees, discussed below,
somewhat offset by a reduction in product advertising expense spending.
During the third quarter 2003, the Company's accumulated lump sum pension
distributions to retirees exceeded an accounting threshold requiring a portion
of previously unrecognized pension losses associated with the distribution be
expensed. The additional pension cost of $1,250,000 was allocated between
manufacturing expense and selling, general and administrative expense.
8
PART I -- CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-- CONTINUED
Other income was $304,000 in 2003 compared to $406,000 in 2002, a decrease of
$102,000 or 25.1 percent. The change principally resulted from a reduction in
interest income.
Other expense was $75,000 in 2003 compared to $124,000 in 2002, a decrease of
$49,000 or 39.5 percent and resulted principally from the effect of foreign
exchange transactions being more favorable than in the comparable period of
2002.
Income before income taxes was $4,114,000 in 2003 compared to $3,135,000 in
2002, an increase of $979,000 or 31.2 percent. The effective income tax rate was
37.9 percent in 2003 and 39.2 percent in 2002.
Net income was $2,555,000 in 2003 compared to $1,905,000 in 2002, an increase of
$650,000 or 34.1 percent. As a percent of sales, net income was 4.8 percent in
2003 compared to 3.9 percent in 2002. Earnings per share were $0.30 in 2003
compared to $0.23 in 2002, an increase of $0.07 per share.
NINE MONTHS 2003 COMPARED TO NINE MONTHS 2002
Net sales for the first nine months 2003 were $146,212,000 compared to
$147,021,000 in 2002, a reduction of $809,000 or less than 1.0 percent. Revenue
from the Company's pump products increased 10.1 percent compared to the nine
months 2002; 7.1 percent after excluding the impact of the acquisitions made
during first quarter 2002. However, the stagnant economic climate for industrial
manufacturers selling into the capital goods sector continues to place pressure
on Company sales.
Cost of products sold for the nine months of 2003 was $115,241,000 comparable to
the nine months of 2002 at $115,307,000. As a percentage of sales, cost of
products sold was 78.8 percent in 2003 compared to 78.4 percent in 2002. As a
percent of net sales, the increase in cost of goods sold in 2003 reflects the
effect of product mix and reduced manufacturing activity on volume related
costs. Increases in pension and postretirement expense along with property and
liability insurance premiums, somewhat offset by cost containment programs,
contributed to the increased percentage.
Selling, general, and administrative expenses were $21,337,000 in 2003 compared
to $20,515,000 in 2002, an increase of $822,000 or 4.0 percent. The increase
principally resulted from a full period of selling and administrative expenses
related to the acquisitions in March 2002, higher employee pension and
postretirement costs and increases in property and liability insurance premiums.
Increases in selling, general, and administrative expenses were somewhat offset
by reduced spending for product advertising and lower costs from other
management cost containment programs.
Other income of $815,000 in 2003 was consistent with $804,000 in 2002.
Other expense was $248,000 in 2003 compared to $418,000 in 2002, a decrease of
$170,000 or 40.7 percent and resulted principally from the effect of foreign
exchange transactions being more favorable than in the comparable period of
2002.
Income before income taxes was $10,201,000 in 2003 compared to $11,585,000 in
2002, a decrease of $1,384,000 or 11.9 percent. Slight reductions in sales,
increased post retirement costs, 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 containment programs resulted in lower
income before income taxes. In addition, the Company's accumulated lump sum
pension distributions to retirees exceeded an accounting threshold, requiring a
portion of previously unrecognized pension losses associated with the
distribution be expensed.
9
PART I--CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS-- CONTINUED
The effective tax rate was 38.0 percent in 2003 and 36.9 percent in 2002. The
2002 effective rate reflected the benefit of a non-recurring investment tax
credit.
Net income was $6,324,000 in 2003 compared to $7,308,000 in 2002, a decrease of
$984,000 or 13.5 percent. As a percent of sales, net income was 4.3 percent in
2003 compared to 5.0 percent in 2002. Earnings per share were $0.74 in 2003
compared to $0.86 in 2002, a reduction of $0.12 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 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. 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 $5,722,000 from $16,753,000 in
the nine months ended September 30, 2002 to $11,031,000 in the nine months ended
September 30, 2003. The decrease was primarily related to increased receivables
resulting from higher sales in the third quarter compared to 2002.
Investing activities included payments for normal capital additions of
$2,915,000 and $3,612,000 for the nine months ended September 30, 2003 and 2002,
respectively. The Company purchased $1,500,000 in short-term investments during
the nine months ended September 30, 2003. For the nine months ended September
30, 2002, cash used for the business acquisitions was $18,150,000.
Financing activities consisted of payments primarily for dividends which were
$4,356,000 and $4,098,000 for the nine months ended September 30, 2003 and 2002,
respectively. For the nine months ended September 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 4.0 to 1 at September 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.
10
PART 1--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 under letters of credit.
ITEM 4. CONTROLS AND PROCEDURES
The Company carried out an evaluation under the supervision and participation of
the Company's management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon that evaluation, which
disclosed no significant deficiencies or material weaknesses, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective as of the end the period
covered by this quarterly report. There were no changes in the Company's
internal control over financial reporting that occurred during the most recent
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Company's internal controls over financial reporting.
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11
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits
Exhibit 31.1 Certification by Jeffrey S. Gorman,
Chief Executive Officer, pursuant to 18
U.S.C Section 1350, as adopted pursuant
to Section 302 of the Sarbanes-Oxley
Act of 2002
Exhibit 31.2 Certification by Robert E. Kirkendall,
Chief Financial Officer, 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 September
30, 2003 A Form 8-K related to an earnings release was filed
on October 17, 2003.
The accompanying Form 10-Q balance sheet, dated September 30,
2003, of The Gorman-Rupp Company differs from and supersedes
the balance sheet furnished with the Form 8-K filed October
17, 2003. The Company's cash and accounts payable have been
adjusted to reflect an additional elimination of an
inter-company transaction.
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: November 7, 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
12