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, 2002 Commission File Number 1-6747 ------------------ ------ The Gorman-Rupp Company - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-0253990 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 305 Bowman Street, P. O. Box 1217, Mansfield, Ohio 44901 - ------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (419) 755-1011 --------------------- 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 ----- ----- Shares outstanding at March 31, 2002 ----- common, without par value, 8,537,553 Page 1 of 9 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) <TABLE> <CAPTION> Three Months Ended March 31 2002 2001 INCOME ---------- ---------- <S> <C> <C> Net sales $ 45,299 $ 49,671 Other income 136 262 ---------- ---------- TOTAL INCOME 45,435 49,933 DEDUCTIONS FROM INCOME Cost of products sold 35,752 37,325 Selling, general and administrative expenses 6,211 6,744 ---------- ---------- TOTAL DEDUCTIONS 41,963 44,069 ---------- ---------- INCOME BEFORE INCOME TAXES 3,472 5,864 Income taxes 1,319 2,260 ---------- ---------- NET INCOME $ 2,153 $ 3,604 ========== ========== Basic And Diluted Earnings Per Share $ 0.25 $ 0.42 Dividends Paid Per Share $ 0.16 $ 0.16 Average Shares Outstanding 8,537,553 8,565,553 </TABLE> 2
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands of dollars) <TABLE> <CAPTION> Three Months Ended March 31 2002 2001 ---------- ---------- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,153 $ 3,604 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,669 1,813 Changes in operating assets and liabilities (651) 588 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,171 6,005 CASH FLOWS FROM INVESTING ACTIVITIES: Capital additions, net (1,104) (1,191) Change in short-term investments (24) 0 Payment for acquisitions, net of cash acquired (18,287) 0 -------- -------- NET CASH USED FOR INVESTING ACTIVITIES (19,415) (1,191) CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends (1,366) (1,370) Borrowings from bank 10,000 0 Repayments to bank 0 (6) -------- -------- NET CASH PROVIDED (USED) FOR FINANCING ACTIVITIES 8,634 (1,376) NET (DECREASE) INCREASE IN CASH ---------- ---------- AND CASH EQUIVALENTS (7,610) 3,438 CASH AND CASH EQUIVALENTS: Beginning of year 20,583 7,630 -------- -------- March 31 $ 12,973 $ 11,068 ======== ======== </TABLE> 3
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands of dollars) <TABLE> <CAPTION> March 31 December 31 2002 2001 ASSETS ------------ ------------ <S> <C> <C> CURRENT ASSETS Cash and cash equivalents $ 12,973 $ 20,583 Short-term investments 1,039 0 Accounts receivable 31,031 28,378 Inventories 40,197 33,889 Other current assets and deferred income taxes 5,420 6,269 ------------ ------------ TOTAL CURRENT ASSETS 90,660 89,119 OTHER ASSETS 3,487 2,280 DEFERRED INCOME TAXES 3,352 2,819 PROPERTY, PLANT AND EQUIPMENT 121,114 118,449 Less allowances for depreciation 65,939 64,554 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT - NET 55,175 53,895 UNALLOCATED EXCESS PURCHASE PRICE OVER NET ASSETS OF BUSINESSES ACQUIRED 8,091 0 ------------ ------------ TOTAL ASSETS $ 160,765 $ 148,113 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 6,183 $ 5,433 Payrolls and related liabilities 3,188 3,377 Notes Payable 616 800 Accrued expenses 9,492 8,493 Income taxes 64 0 ------------ ------------ TOTAL CURRENT LIABILITIES 19,543 18,103 LONG TERM DEBT 10,332 0 POSTRETIREMENT BENEFITS 22,072 22,100 SHAREHOLDERS' EQUITY Common shares, without par value at stated capital amount 5,087 5,087 Retained earnings 105,620 104,833 Accumulated other comprehensive income (1,889) (2,010) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 108,818 107,910 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 160,765 $ 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 </TABLE> 4
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 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 month period ended March 31, 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: <TABLE> <CAPTION> March 31 December 31 (Thousands of dollars) 2002 2001 --------- ----------- <S> <C> <C> Raw materials and in-process $26,361 $22,224 Finished parts 11,506 9,700 Finished products 2,330 1,965 ------- ------- $40,197 $33,889 ======= ======= </TABLE> NOTE C - COMPREHENSIVE INCOME During the three month periods ended March 31, 2002 and 2001, total comprehensive income was $2,274,000 and $3,257,000, respectively. The difference between net income and comprehensive income represents 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. The Company determined 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) MARCH 31, 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 cash purchase price of approximately $6.5 million. 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 $948,000. Two of the notes totaling $450,000 were due on April 1, 2002, and the two remaining notes payable totaling approximately $498,000 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 to the businesses acquired is preliminary and will be finalized when the third party appraisals are completed. 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. <TABLE> <CAPTION> For the Quarter Ended March 31 ------------------------ (in millions, except for per share data) 2002 2001 - ---------------------------------------- ---------- ---------- <S> <C> <C> TOTAL REVENUE $48,395 $55,907 NET INCOME 1,443 4,138 BASIC & DILUTED EARNINGS PER COMMON SHARE 0.17 0.48 </TABLE> 6
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS First Quarter 2002 vs First Quarter 2001 - ------------------------------------------ Net sales were $45,299,000 in 2002, a decrease of $4,372,000 or 8.8% from the $49,671,000 in 2001. Most of this decrease was due to lower sales of rental, industrial, wastewater, and construction pumps compared to an extraordinarily strong quarter last year. This decrease is primarily the result of slower economic conditions. Other income was $136,000 in 2002 compared to $262,000 in 2001. Most of this decrease was a result of lower currency exchange gains. Cost of products sold in 2002 was $35,752,000 compared to $37,325,000 in 2001. The decrease was primarily due to lower sales levels. As a percent of net sales, cost of products sold in 2002 was 78.9% compared to 75.1% in 2001. The increased percentage is due to lower absorption of fixed expenses due to decreased manufacturing activity, partially offset by expense control programs. Selling, general and administrative expenses decreased to $6,211,000 in 2002 from $6,744,000 in 2001 principally due to expense control programs resulting in lower travel and advertising expenses. Income before income taxes was $3,472,000 in 2002 compared to $5,864,000 in 2001, a decrease of $2,392,000. Income tax expense decreased from $2,260,000 in 2001 to $1,319,000 in 2002, primarily as a result of the decrease in profit. The effective income tax rate was 38.0% in 2002 and 38.5% in 2001. Net income in 2002 of $2,153,000 decreased $1,451,000 from $3,604,000 in 2001. As a percent of net sales, net income was 4.8% in 2002 and 7.3% in 2001. Net income per share was $.25 in 2002, a decrease of $.17 from $.42 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 $6.5 million. 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 $948,000. Two of the notes totaling $450,000 were due on April 1, 2002, and the two remaining notes payable totaling approximately $498,000 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 industial supplies promoted through third-party distributor catalogs. Many of the small "off the shelf" pumps represent commodity type products that the Registrant 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 Registrant an opportunity to gain increased market exposure. Flo-Pak offered the Registrant 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. 7
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND SOURCES OF CAPITAL - -------------------------------- The Company continues to finance most of its capital expenditures and working capital requirements through bank financing and internally generated funds, including accounts receivable reductions. The ratio of current assets to current liablities was 4.6 to 1 at March 31, 2002 and 4.9 to 1 at December 31, 2001. On January 3, 2002, the Company negotiated an additional unsecured $16.0 million credit facility from a bank with interest at LIBOR plus .75% or at alternate rates as selected by the Company. The Company drew $10.0 million on this facility to partially finance its two acquisitions in the first quarter of 2002. The change in operating assets and liabilities shown on the Statement of Cash Flows was caused primarily an increase in prepaid pension and an increase in deferred income taxes. The Company paid $18.3 million, net of cash acquired for their two acquisitions. 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, "Good- will 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 amor- tized over their useful lives. The Company adopted the new rules on accounting for goodwill and other intangible assets in the first quarter of 2002. The Company determined there was no effect on the earnings and financial position of the Company upon adoption. 8
PART II - OTHER INFORMATION THE GORMAN-RUPP COMPANY AND SUBSIDIARIES Item 6. EXHIBITS AND REPORTS ON FORM 8-K (b) Reports filed on Form 8-K during the Quarter Ended March 31, 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 ------------------------------ (Registrant) Date 5/14/02 ---------------------- By:/S/Judith L. Sovine ------------------------------ Judith L. Sovine Treasurer & Principal Financial Officer 9