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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, 2004 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 March 31, 2004. 8,543,553
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Page 1 of 15 pages
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
THREE MONTHS ENDED MARCH 31, 2004 AND 2003
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
-Three months ended March 31, 2004 and 2003
Condensed Consolidated Balance Sheets
-March 31, 2004 and December 31, 2003
Condensed Consolidated Statements of Cash Flows -Three months
ended March 31, 2004 and 2003
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 5. 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,
2004 2003
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Net sales $ 49,431 $ 43,903
Cost of products sold 39,301 35,465
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Gross Profit 10,130 8,438
Selling, general and
administrative expenses 6,859 6,763
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Operating Income 3,271 1,675
Other income 290 362
Other expense (58) (101)
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Income Before Income Taxes 3,503 1,936
Income taxes 1,296 734
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Net Income $ 2,207 $ 1,202
=========== ===========
Basic And Diluted
Earnings Per Share $ 0.26 $ 0.14
Dividends Paid Per Share $ 0.17 $ 0.17
Average Shares Outstanding 8,543,553 8,540,553
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THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Thousands of dollars)
March 31, December 31,
2004 2003
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Assets
Current Assets:
Cash and cash equivalents $ 18,033 $ 16,272
Short-term investments 1,542 1,174
Accounts receivable 36,404 32,148
Inventories 34,902 38,062
Other current assets and deferred income taxes 6,541 6,606
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Total Current Assets 97,422 94,262
Property, plant and equipment 132,873 132,617
less allowances for depreciation 79,316 78,279
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Property, Plant and Equipment - Net 53,557 54,338
Other assets 12,126 12,339
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Total Assets $ 163,105 $ 160,939
========= =========
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 6,479 $ 6,163
Payrolls and related liabilities 3,413 3,162
Accrued expenses 9,814 10,041
Income taxes 3,711 2,542
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Total Current Liabilities 23,417 21,908
Postretirement benefits 22,717 22,569
Shareholders' Equity
Common shares, without par value:
Authorized - 14,000,000 shares;
Outstanding - 8,543,553 shares in 2004 and 2003
(after deducting treasury shares of 321,623 in 2004 and
2003) at stated capital amount 5,091 5,091
Retained earnings 113,111 112,357
Accumulated other comprehensive income (loss) (1,231) (986)
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Total Shareholders' Equity 116,971 116,462
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Total Liabilities and Shareholders' Equity $ 163,105 $ 160,939
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THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Thousands of dollars) Three Months Ended
March 31,
2004 2003
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Cash Flows From Operating Activities:
Net income $ 2,207 $ 1,202
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,790 1,764
Changes in operating assets and liabilities 554 686
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Net Cash Provided by Operating Activities 4,551 3,652
Cash Flows From Investing Activities:
Capital additions, net (970) (1,089)
Change in short-term investments (368) 0
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Net Cash Used For Investing Activities (1,338) (1,089)
Cash Flows From Financing Activities
Cash dividends (1,452) (1,452)
Repayments to bank and note holders 0 (145)
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Net Cash Used for Financing Activities (1,452) (1,597)
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Net Increase/(Decrease) in Cash
and Cash Equivalents 1,761 966
Cash and Cash Equivalents:
Beginning of year 16,272 13,086
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March 31, $ 18,033 $ 14,052
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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 period ended March 31, 2004 are not necessarily
indicative of results that may be expected for the year ending December 31,
2004. 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, 2003.
Certain prior year amounts have been reclassified to conform to the 2004
presentation.
NOTE B -- INVENTORIES
The major components of inventories are as follows:
March 31, December 31,
(Thousands of dollars) 2004 2003
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Raw materials and in-process $19,705 $21,488
Finished parts 13,932 15,194
Finished products 1,265 1,380
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$34,902 $38,062
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NOTE C -- COMPREHENSIVE INCOME
During the three-month periods ended March 31, 2004 and 2003, total
comprehensive income was $1,962,000 and $1,394,000, respectively. The
reconciling item between net income and comprehensive income consists of foreign
currency translation adjustments.
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PART I--CONTINUED
NOTE D--PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors a defined benefit pension plan covering substantially all
employees. The Company also sponsors a non-contributory defined benefit health
care plan that provides health benefits to retirees and their spouses. (See Note
E - Pensions and Other Postretirement Benefits for the year ended December 31,
2003 included in the Form 10-K.)
The following table presents the components of net periodic benefit cost:
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Pension Benefits Postretirement Benefits
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(Thousands of dollars) Three Months Ended Three Months Ended
March 31, March 31,
2004 2003 2004 2003
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Service cost $ 468 $ 415 $ 262 $ 239
Interest cost 535 541 431 409
Expected return on plan assets (559) (492) -- --
Amortization of prior service cost
and unrecognized (gain)/loss 136 133 (185) (189)
Recognized net actuarial (gain)/loss -- -- 50 6
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Benefit cost $ 580 $ 597 $ 558 $ 465
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The impact of the Medicare Prescription Drug Improvement and Modernization Act
of 2003, "the Act," is not reflected in the postretirement benefit costs in
these statements. Authoritative guidance on accounting for the federal subsidy
provided by "the Act" is pending and that guidance, when issued, could require
the Company to change previously reported information.
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
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PART I--CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--CONTINUED
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 2004 COMPARED TO FIRST QUARTER 2003
Net sales for the first quarter 2004 were $49,431,000 compared to $43,903,000
for the same period 2003, an increase of $5,528,000 or 12.6%. The increase in
net sales was primarily attributable to higher product sales in the industrial
and construction markets. While these markets showed signs of economic recovery,
sluggish spending in the capital goods sector continues to place pressure on the
Company selling products into these markets. Revenues from the Company's pump
products increased 11.2% compared to the three months 2003. The sales of
fabricated products to the power generation market increased $796,000 during the
current quarter as compared to the first quarter 2003. The backlog of orders at
the end of the first quarter was $56.4 million compared to $69.5 million a year
ago, a decline of $13.1 million, or 18.8%. The change in backlog was principally
the result of decline in business of fabricated products which appears to have
leveled off.
Cost of products sold in the first quarter 2004 was $39,301,000 compared to
$35,465,000 during 2003, an increase of $3,836,000 or 10.8%. As a percentage of
sales, cost of products sold was 79.5% in 2004 compared to 80.8% in 2003. The
favorable impact from the rate reduction resulted from the effect of the
Company's operating leverage on increased shipments and the benefit from
continuing cost containment programs.
Selling, general, and administrative ("S,G&A") expenses were $6,859,000 in 2004
compared to $6,763,000 in 2003, an increase of $96,000 or 1.4%. As a percent of
net sales, S,G&A expenses were 13.9% in 2004 compared to 15.4% in 2003. The
improvement in rate was principally the effect of relatively stable expenses on
increased sales.
Other income was $290,000 in 2004 compared to $362,000 in 2003, a decrease of
$72,000 or 19.9%. The change principally resulted from foreign exchange
valuation on inter-company transactions being less favorable than in the
comparable period of 2003.
Income before income taxes was $3,503,000 in 2004 compared to $1,936,000 in
2003, an increase of $1,567,000 or 80.9%. The effective income tax rate was
37.0% in 2004 and 37.9% in 2003.
Net income was $2,207,000 in 2004 compared to $1,202,000 in 2003, an increase of
$1,005,000 or 83.6%. As a percent of net sales, net income was 4.5% in 2004
compared to 2.7% in 2003. Earnings per share were $0.26 in 2004 compared to
$0.14 in 2003, an increase of $0.12 per share.
LIQUIDITY AND SOURCES OF CAPITAL
Cash flows from operating activities increased $899,000 to $4,551,000 in the
three months ended March 31, 2004 from $3,652,000 in the three months ended
March 31, 2003. The increase was primarily related to increased receivables
resulting from higher sales in the first quarter of 2004 compared to first
quarter of 2003.
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PART I--CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS--CONTINUED
Investing activities included payments for normal capital additions of $970,000
and $1,089,000 for the three months ended March 31, 2004 and 2003, respectively.
The Company purchased $368,000 in short-term investments during the three months
ended March 31, 2004.
Financing activities consisted of payments primarily for dividends, which were
$1,452,000, and $1,452,000 for the three months ended March 31, 2004 and 2003,
respectively.
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, 2004
and 4.3 to 1 at March 31, 2003.
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 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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9
PART II--OTHER INFORMATION
ITEM 5. 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 March 31,
2004 A Form 8-K related to earnings release was filed on
February 06, 2004.
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: April 29, 2004
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
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