-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HvQu4uIOlqzhw9L1gnkLWrmbt05gUt3hngzfqq17mC6L+QiCZHIEx7u16b2AEnCd mIyS//iU/49ASKGY71TMZw== 0000950152-03-003360.txt : 20030325 0000950152-03-003360.hdr.sgml : 20030325 20030325164237 ACCESSION NUMBER: 0000950152-03-003360 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GORMAN RUPP CO CENTRAL INDEX KEY: 0000042682 STANDARD INDUSTRIAL CLASSIFICATION: PUMPS & PUMPING EQUIPMENT [3561] IRS NUMBER: 340253990 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06747 FILM NUMBER: 03616137 BUSINESS ADDRESS: STREET 1: 305 BOWMAN ST STREET 2: PO BOX 1217 CITY: MANSFIELD STATE: OH ZIP: 44901 BUSINESS PHONE: 4197551011 MAIL ADDRESS: STREET 1: 305 BOWMAN STREET STREET 2: P.O. BOX 1217 CITY: MANSFIELD STATE: OH ZIP: 44901 10-K 1 l99118ae10vk.txt THE GORMAN-RUPP COMPANY 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2002 Commission file number 1-6747 ----------------- ------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 Identification No.) incorporation or organization) 305 Bowman St., Mansfield, Ohio 44903 - ------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (419) 755-1011 -------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered Common Shares, without par value American Stock Exchange - -------------------------------- ----------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in the definitive proxy statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X - ---- Indicate by check mark whether the Registrant is an accelerated filer. Yes X No --- --- State the aggregate market value of the voting stock held by non-affiliates of the Registrant. The aggregate market value is computed by reference to the price at which the stock was sold as of March 17, 2003. $89,408,380. ----------- Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of March 17, 2003. -------------- Common Shares, without par value--8,540,553 ------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of the 2002 Annual Report to Shareholders incorporated by reference into Part II (Items 5-8). Portions of Notice of 2003 Annual Meeting of Shareholders and related Proxy Statement incorporated by reference into Part III (Items 10-12). ************** The Exhibit Index is located at Page 19 PART I ITEM 1. BUSINESS Registrant ("Gorman-Rupp" or the "Company") designs, manufactures and sells pumps and related equipment (pump and motor controls) for use in water, wastewater, construction, industrial, petroleum, original equipment, agricultural, fire protection, heating, ventilating and air conditioning (HVAC), military and other liquid-handling applications. PRODUCTS The principal products of the Company are pumps and fluid control products. (The Company operates principally in one business segment, the manufacture and sale of pumps and related fluid control equipment.) The following table sets forth, for the years 2000 through 2002, the total net sales, income before income taxes and identifiable assets ($000 omitted) of the Company. 2002 2001 2000 -------- -------- -------- Net Sales $194,075 $202,927 $190,144 Income Before Income Taxes 14,203 23,035 22,196 Identifiable Assets 152,846 148,113 145,881 The Company's product line is composed of pump models ranging in size from 1/4" to 84" and ranging in rated capacity from less than one gallon per minute up to 500,000 gallons per minute. The types of pumps which the Company produces include self priming centrifugal, standard centrifugal, magnetic drive centrifugal, axial and mixed flow, rotary gear, diaphragm, bellows and oscillating. The pumps have drives that range from 1/35 horsepower electric motors up to much larger electric motors or internal combustion engines. Many of the larger units comprise encased, fully integrated sewage pumping stations. In certain cases, units are designed for the inclusion of customer-supplied drives. The Company's larger pumps are sold principally for use in the construction, industrial, sewage and waste handling fields; for boosting low residential water pressure; for pumping refined petroleum products, including the ground refueling of aircraft; for agricultural applications; and for fire fighting. Many of the Company's smallest pumps are sold to customers for incorporation into such products as X-ray processing equipment; gas air conditioning equipment; office copy machines; chemical feeding, instrumentation and ice cube making machinery; photographic processing and soft drink dispensing equipment; laser cooling applications; graphic arts equipment; and floor cleaning equipment. On February 28, 2002, the Company acquired all of the issued and outstanding stock of American Machine and Tool Co., Inc. of Pennsylvania ("AMT"). Located in Royersford, Pennsylvania, AMT is a developer and manufacturer of standard centrifugal pumps for industrial and commercial fluid- 2 PART I--CONTINUED ITEM 1. BUSINESS--CONTINUED handling applications. AMT's primary sales channel is comprised of large-scale distributors of industrial supplies promoted through third-party distributor catalogs. The acquisition of AMT offers the Company an opportunity to market commodity-type products and increase sales of AMT's products through the Company's existing outlets to domestic and international customers. AMT operates as a wholly owned subsidiary of Gorman-Rupp. On March 1, 2002, the Company acquired all of the issued and outstanding stock of Flo-Pak, Inc. ("Flo-Pak"). Located in Chamblee, Georgia, Flo-Pak is a manufacturer of designed pumping systems for the HVAC and fire protection markets. The acquisition of Flo-Pak offers the Company an opportunity to diversify its sales into the HVAC product line and to increase its market share in fire protection products. Flo-Pak has been merged into Patterson Pump Company, a wholly owned subsidiary of the Company. Gorman-Rupp continues to emphasize product development. Several of the Company's existing products have been re-designed with added features to enable them to be employed in various new applications. MARKETING Except for government and export sales, the Company's pumps are marketed in the United States and Canada through a network of about 1,000 distributors, through manufacturers' representatives (for sales to many original equipment manufacturers), through third-party distributor catalogs, and by direct sales. The Company is seeking alliances to further enhance marketing opportunities. Government sales are handled directly by the Company; and export sales are made through the Company's wholly owned subsidiary, The Gorman-Rupp International Company, as well as through foreign distributors and representatives. During 2002, shipments to one customer approximated 11.6% of total net sales; and at December 31, 2002, less than one percent of total accounts receivable were due from this one customer. In recent years, Gorman-Rupp has actively pursued international business opportunities by, among other efforts, opening facilities outside North America. In 1996, the Company established an office in Greece to improve access to Middle East and European markets. In 1998, Patterson Pump Company's majority-owned subsidiary, Patterson Pump Ireland Limited, started the assembly of pumps in Ireland to further serve the European market. (In March 2002, Patterson Pump Company acquired the balance of the equity interest in Patterson Pump Ireland Limited.) In 1999, the Mansfield Division opened a warehouse in Grindstead, Denmark to further enhance marketing opportunities in Europe and the Middle East. This warehouse was closed in 2001 and a warehouse near Amsterdam, The Netherlands was opened in January 2002 to better serve these purposes. The Company's foreign operations do not involve any material risks due to their small size, both individually and collectively. 3 PART I--CONTINUED ITEM 1. BUSINESS--CONTINUED Approximately 14% of all 2002 sales were made to customers outside the United States (as compared to 16% in 2001 and 19% in 2000). The Company continues its efforts to penetrate international markets principally by its aggressive response to worldwide pump needs. COMPETITION During the 1990's, a number of consolidations occurred within the highly competitive pump industry. Gorman-Rupp estimates that 80 other companies selling pumps and pump units compete in one or more of the lines of business and applications in which comparable products of the Company are utilized. Many pumps are specifically designed and engineered for a particular customer's application. The Company believes that proper application, product performance and service are the principal methods of competition, and attributes its success to its emphasis in these areas. PURCHASING AND PRODUCTION Virtually all materials, supplies, components and accessories used by the Company in the fabrication of its products, including all castings (for which the patterns are made and owned by the Company), structural steel, bar stock, motors, solenoids, engines, seals, and plastic and elastomeric components, are purchased by the Company from other suppliers and manufacturers. No purchases are made under long-term contracts and the Company is not dependent upon a single source for any materials, supplies, components or accessories which are of material importance to its business. The Company purchases motors, for its polypropylene bellows pumps and magnetic drive pumps from several alternative vendors, and motor components for its large submersible pumps from a limited number of suppliers. Small motor requirements are also currently sourced from alternative suppliers. The other production operations of the Company consist of the machining of castings, the cutting and shaping of bar stock and structural members, the manufacture of a few minor components, and the assembling, painting and testing of its products. Virtually all of the Company's products are tested prior to shipment. OTHER ASPECTS As of December 31, 2002, the Company employed approximately 1,033 persons, of whom approximately 611 were hourly employees. The Company has no collective bargaining agreements, has never experienced a strike and considers its labor relations to be satisfactory. Although the Company owns a number of patents, and several of them are important to its business, Gorman-Rupp believes that the business of the Company is not materially dependent upon any one or more patents. 4 PART I--CONTINUED ITEM 1. BUSINESS--CONTINUED As of December 31, 2002, the value of the Company's backlog of unfilled orders was approximately $70,185,410, of which $46,055,463 was for the unfilled orders of Patterson Pump Company. Approximately 94% of the Company's backlog of unfilled orders, including the unfilled orders of Patterson Pump Company, is scheduled to be shipped during 2003, with the remainder scheduled to be shipped during 2004. As of December 31, 2001, the value of the backlog of unfilled orders was approximately $74,674,000, of which $55,925,000 was for the unfilled orders of Patterson Pump Company. AVAILABLE INFORMATION The Company maintains a website accessible through its Internet address of www.gormanrupp.com. Gorman-Rupp makes available free of charge on or through www.gormanrupp.com its annual, quarterly and current reports, and any amendments thereto, as soon as reasonably practicable after those reports (and any amendments) are electronically filed with or furnished to the Securities and Exchange Commission. (As noted in Gorman-Rupp's Annual Report to Shareholders, a paper copy of the Company's Form 10-K is also available free of charge upon written request to the Company's Corporate Secretary.) However, the information contained on the Company's website is not a part of this Form 10-K or any other report filed with or furnished to the Commission. ITEM 2. PROPERTIES All of the production operations of the Company are conducted at its plants located in Mansfield and Bellville, Ohio; Sand Springs, Oklahoma; Toccoa and Chamblee, Georgia; St.Thomas, Ontario; County Westmeath, Ireland; and Royersford, Pennsylvania. The Company owns an approximately 26,000 square foot facility in Sparks, Nevada comprising a training center and warehouse. In addition, the Company leases an approximately 10,000 square foot warehouse facility near Amsterdam, The Netherlands to house pumps and pump parts. All of the Company's properties, except the leased facilities in Ireland, The Netherlands and Chamblee, Georgia, are owned in fee without any material encumbrance. The Company's eight production facilities are described below in more detail.
Square Operation Location Footage Start Date Description of Production Activity -------- ------- ---------- ---------------------------------- Mansfield, Ohio 238,000 1947 Assembly, Warehousing and Office(1) 134,200 1968 Assembly, Warehousing and Office(2) 173,775 1975 Machining Operations(3) 11,500 1979 Training, Personnel and Advertising 83,500 1983 Warehousing(4) 360,000 2000 Machining, Assembly and Warehousing(5) Bellville, Ohio 93,200 1953 Assembly, Warehousing and Office(6) Sand Springs, Oklahoma 28,200 1977 Manufacturing, Warehousing and Office(7)
5 PART I--CONTINUED ITEM 2. PROPERTIES--CONTINUED
Toccoa, Georgia 171,750 1988 Manufacturing, Warehousing and Office(8) Chamblee, Georgia 26,260 2002 Manufacturing, Warehousing and Office(9) 7,658 2002 Warehousing (10) St. Thomas, Ontario, Canada 52,600 1960 Manufacturing, Warehousing and Office(11) County Westmeath, Ireland 4,500 1998 Manufacturing(12) Royersford, Pennsylvania 78,400 2002 Manufacturing, Warehousing and Office (13) 43,100 2002 Warehousing (14)
- ---------------- (1) The original production plant, located on a 26 acre site, was built in 1917 and has been expanded on several occasions, the latest in 1973. (2) This facility, also situated on the foregoing 26 acre site, has been frequently expanded, most recently in 1994 and includes a modern testing facility. (3) This plant, located on a 5-1/2 acre site and purchased in 1975, has been used mainly for machining operations and storage of raw materials. The latest addition was made in 1978. This facility is currently on the market for sale. (4) This facility was built in 1920 and is located on 3.4 acres adjacent to the Company's 26 acre site. This facility was renovated in 1983. (5) In 1997, the Company purchased 90 acres of undeveloped land near the Mansfield Lahm Airport for future expansion and consolidation of facilities for the Mansfield Division and the Corporate Office. In 1998, design work and site preparation began on the new consolidated facilities project. In 2000, the first phase of the manufacturing and warehousing facility was completed, and the machining, weld and fabrication operations of the Mansfield Division were relocated to this facility. (6) This facility is situated on an 8.5 acre site. The initial portion of this plant was built in 1953 and has been expanded on several occasions, most recently in 1973-74. (7) The Oklahoma facility is located on 4.5 acres of land. Originally built in 1973, the facility was expanded four times between 1978 and 1991. In 1980, a contiguous parcel of two acres of undeveloped land was purchased for future needs. (8) This facility, which supports Patterson Pump Company, is situated on a 31 acre site. Between 1989 and 2000, the facility has been expanded on several occasions, including the addition of a modern 400,000 gallon testing facility and office. (9) This facility supports the operations of the Flo-Pak business unit of Patterson Pump Company. It is leased to Patterson Pump Company by a limited liability corporation owned by the two former owners of Flo-Pak, Inc. for a term of 86 months (beginning March 1, 2001). (10) This facility supports the operations of the Flo-Pak business unit of Patterson Pump Company. It is leased to Patterson Pump Company by an unrelated company for a term of 12 months ending May 1, 2003. 6 PART I--CONTINUED ITEM 2. PROPERTIES--CONTINUED (11) The plant in St. Thomas, Ontario is operated by Gorman-Rupp of Canada, Ltd. It is situated on an 11 acre site and has undergone a number of expansions since it was established in 1960, the latest being completed in 1998. (12) The manufacturing facilities occupied by Patterson Pump Ireland Limited consist of 4,500 square feet of leased manufacturing space. Office space is shared with another occupant in the building. (13) This facility supports the operations of American Machine and Tool Co., Inc. of Pennsylvania. It is located on a 3.25 acre site and has undergone a number of expansions since it was established in 1962. (14) This facility also supports the operations of American Machine and Tool Co., Inc. of Pennsylvania. It is located on a 2.2 acre site and has undergone two expansions since it was established in 1982. Ten thousand square feet of this facility have been leased to an unrelated company under a 60 month agreement (beginning March 15, 1999), with an option to renew for an additional 60 month term (beginning March 15, 2004). The Company considers its plants, machinery and equipment to be well maintained, in good operating condition and adequate for the present uses and business requirements of the Company. ITEM 3. LEGAL PROCEEDINGS Numerous business entities in the pump and fluid-handling industries, as well as a multitude of companies in many other industries, have been targeted in a series of lawsuits in several jurisdictions by various individuals seeking redress to claimed injury as a result of the entities' alleged use of asbestos in their products. The Company and three of its subsidiaries have been drawn into this mass-scaled litigation, typically as one of hundreds of co-defendants in a particular proceeding. (The vast majority of these cases are against Patterson Pump Company.) The allegations in the lawsuits involving the Company and/or its subsidiaries are vague, general and speculative, and most cases have not advanced beyond the early stage of discovery. In certain situations, the plaintiffs have voluntarily dismissed the Company and/or its subsidiaries from some of the lawsuits after the plaintiffs have acknowledged that there is no basis for their claims. Insurers of the Company have engaged legal counsel to represent the Company and its subsidiaries and to protect their interests. In addition, the Company and/or its subsidiaries are parties in a small number of legal proceedings arising out of the ordinary course of business. Management does not currently believe that these proceedings, or the industry-wide asbestos litigation, will materially impact the Company's results of operations, liquidity or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this Form 10-K, no matter was submitted to a vote of the Company's shareholders, through the solicitation of proxies or otherwise. ******************** 7 PART I--CONTINUED EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3), the information regarding executive officers called for by Item 401 of Regulation S-K and by Item 10 of this Form 10-K is set forth below.
Date Elected to Name Age Office Position - ---------------------------------------------------------------------------------------------- James C. Gorman 78 Chairman 1989 Jeffrey S. Gorman 50 President and Chief Executive Officer; General Manager, Mansfield Division 1998/1989 Robert E. Kirkendall 60 Senior Vice President and Assistant Corporate Secretary 2002 William D. Danuloff 55 Vice President Information Technology 1991 (formerly Information Services) Judith L. Sovine 58 Treasurer 2001 David P. Emmens 54 Corporate Counsel and Corporate Secretary 1997/2002
Except as noted, each of the above-named officers has held his or her executive position with the Company for the past five years. Mr. J. C. Gorman served as the Company's President from 1964 until 1989, and as Chief Executive Officer from 1964 until 1996. (He has served as a Director of the Company continuously since 1946.) Mr. J. S. Gorman was elected President and Chief Executive Officer effective May 1, 1998, after having served as Senior Vice President since 1996. Mr. J. S. Gorman has held the position of General Manager of the Mansfield Division since 1989. He served as Assistant General Manager from 1986 to 1988; and he held the office of Corporate Secretary from 1982 to 1990. (He has served as a Director of the Company continuously since 1989.) Mr. Kirkendall was elected as Senior Vice President and Assistant Corporate Secretary in 2002. He served as Vice President Corporate Development from 1999 to 2002, Corporate Secretary from 1990 to 2002 and Assistant Treasurer from 1982 to 1999. Mr. Danuloff was elected Vice President Information Technology (formerly Vice President Information Services) in 1991, after having served as Director of Information Services from 1981 to 1991. Ms. Sovine was elected Treasurer in 2001. She served as Assistant Treasurer from 1999 to 2001 and prior to 1999 held a variety of financial management positions within the Company. Mr. Emmens joined the Company as Corporate Counsel in 1997, and was elected as Corporate Secretary in 2002. He served as Assistant Corporate Secretary from 1999 to 2002. 8 PART I--CONTINUED Mr. J. S. Gorman is the son of Mr. J. C. Gorman. Mr. Christopher H. Lake, a Director of the Company, is the son of Dr. Peter B. Lake, also a Director. There are no other family relationships among any of the Executive Officers and Directors of the Company. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Attention is directed to the section "Ranges of Stock Prices" and the data immediately below pertaining to the shareholder information reported by the Transfer Agent and Registrar on page 26 in the Company's 2002 Annual Report to Shareholders, which are incorporated herein by this reference. ITEM 6. SELECTED FINANCIAL DATA Attention is directed to the section "Eleven Year Summary of Selected Financial Data" on pages 22 and 23 in the Company's 2002 Annual Report to Shareholders, which is incorporated herein by this reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Attention is directed to the section "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 19-21, and to page 27, in the Company's 2002 Annual Report to Shareholders, which are incorporated herein by this reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Attention is directed to the section "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 19-21, and to page 27, in the Company's 2002 Annual Report to Shareholders, which are incorporated herein by this reference. The Company's foreign operations do not involve any material risks due to their small size, both individually and collectively. Other than as indicated in paragraph 5 on page 19 referenced above, the Company has no material market risk exposures required to be reported by Item 305 of Regulation S-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Attention is directed to the Company's consolidated financial statements, the notes thereto and the report of independent auditors thereon on pages 10-19, and to the section "Summary of Quarterly Results of Operations" on pages 22 and 23, in the Company's 2002 Annual Report to Shareholders, which are incorporated herein by this reference. 9 PART II--CONTINUED ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has not changed its independent public accountants and there have been no reportable disagreements with such accountants regarding accounting principles or practices or financial disclosure matters. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT With respect to Directors, attention is directed to the section "Election of Directors" in the Company's definitive Notice of 2003 Annual Meeting of Shareholders and related Proxy Statement (filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K), which is incorporated herein by this reference. With respect to executive officers, attention is directed to Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Attention is directed to the sections "Board of Directors and Directors' Committees", "Executive Compensation", "Pension and Retirement Benefits", "Salary Committee Report on Executive Compensation" and "Shareholder Return Performance Presentation" in the Company's definitive Notice of 2003 Annual Meeting of Shareholders and related Proxy Statement (filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K), which are incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Attention is directed to the sections "Principal Shareholders", "Election of Directors" and "Shareholdings by Executive Officers" in the Company's definitive Notice of 2003 Annual Meeting of Shareholders and related Proxy Statement (filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K), which are incorporated herein by this reference. On May 22, 1997, the Company's Board of Directors adopted a Non-Employee Directors' Compensation Plan. This Plan became effective without shareholder approval and constitutes the Company's only equity compensation plan. The Plan provides for share compensation for regular services performed by each of the Company's non-employee Directors. In addition to cash compensation, non-employee Directors receive an automatic award of 500 Common Shares (from the Company's treasury) on each July 1 (through 2006). The number of Common Shares which may be 10 PART III--CONTINUED ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS--CONTINUED awarded under the Plan cannot exceed 50,000. As of December 31, 2002, 16,500 Common Shares had been issued to non-employee Directors and 33,500 Common Shares remained available for future issuance. No options, warrants or rights are available for issuance under the Plan. Attention is directed to the section "Board of Directors and Directors' Committees" in the Company's definitive Notice of 2003 Annual Meeting of Shareholders and related Proxy Statement (filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K), which is incorporated herein by this reference. EQUITY COMPENSATION PLAN INFORMATION
Number of securities to be issued upon Weighted average exercise of outstanding exercise price of Number of securities options, warrants and outstanding options, remaining available Plan Category rights warrants and rights for future issuance - ----------------------- ---------------------------- ------------------------ -------------------------- Non-Employee -0- $ -0- 33,500 Directors' Com- pensation Plan (not approved by shareholders) Equity compensation - - - plans approved by shareholders Total -0- $ -0- 33,500
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has no relationships or transactions required to be reported by Item 404 of Regulation S-K. ITEM 14. CONTROLS AND PROCEDURES The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including the principal executive officer and principal 11 PART III--CONTINUED ITEM 14. CONTROLS AND PROCEDURES--CONTINUED financial officer, of the effectiveness of the Company's disclosure controls and procedures. Based on that evaluation, the principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures are effective. Subsequent to the date of their evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and material weaknesses. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements With respect to the consolidated financial statements of the Registrant and its subsidiaries, the following documents have been incorporated by reference into this report: (i) Consolidated balance sheets--December 31, 2002 and 2001 (ii) Consolidated statements of income--Years ended December 31, 2002, 2001 and 2000 (iii) Consolidated statements of shareholders' equity--Years ended December 31, 2002, 2001 and 2000 (iv) Consolidated statements of cash flows--Years ended December 31, 2002, 2001 and 2000 (v) Notes to consolidated financial statements (vi) Report of independent auditors 2. Financial Statement Schedules All financial statement schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. 3. Exhibits The exhibits listed below are submitted in a separate section of this report immediately following the Exhibit Index. 12 PART IV--CONTINUED ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K--CONTINUED (3) (i) Articles of incorporation and (ii) By-laws (4) Instruments defining the rights of security holders, including indentures (10) Material contracts (13) Annual report to security holders (21) Subsidiaries of the registrant (23) Consent of independent auditors (24) Powers of attorney (99) Additional exhibits (b) No reports on Form 8-K were filed during the last quarter of the period covered by this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 *By David P. Emmens --------------- David P. Emmens Attorney-In-Fact Date: March 25, 2003 13 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. *Jeffrey S. Gorman President, Principal Executive -------------------------- Officer and Director Jeffrey S. Gorman *Robert E. Kirkendall Senior Vice President and Principal Financial -------------------------- and Accounting Officer Robert E. Kirkendall *James C. Gorman Director -------------------------- James C. Gorman *William A. Calhoun Director -------------------------- William A. Calhoun *Thomas E. Hoaglin Director -------------------------- Thomas E. Hoaglin *Christopher H. Lake Director -------------------------- Christopher H. Lake *Peter B. Lake Director -------------------------- Peter B. Lake *W. Wayne Walston Director -------------------------- W. Wayne Walston *John A. Walter Director -------------------------- John A. Walter *The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K on behalf of The Gorman-Rupp Company and on behalf of each of the above-named Officers and Directors of The Gorman-Rupp Company pursuant to Powers of Attorney executed by The Gorman-Rupp Company and by each such Officer and Director and filed with the Securities and Exchange Commission. March 25, 2003 By: /s/ David P. Emmens ------------------- David P. Emmens Attorney-In-Fact 14 CERTIFICATIONS I, Jeffrey S. Gorman, certify that: 1 I have reviewed this annual report on Form 10-K of The Gorman-Rupp Company; 2 Based on my knowledge, this annual 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 annual report; 3 Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 with those entities, particularly during the period in which this annual 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 annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 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 15 6. The registrant's other certifying officers and I have indicated in this annual report whether 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: March 25, 2003 /s/ Jeffrey S. Gorman ----------------------- Jeffrey S. Gorman President and Chief Executive Officer The Gorman-Rupp Company (Principal Executive Officer) 16 CERTIFICATIONS I, Robert E. Kirkendall, certify that: 1 I have reviewed this annual report on Form 10-K of The Gorman-Rupp Company; 2 Based on my knowledge, this annual 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 annual report; 3 Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual 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 with those entities, particularly during the period in which this annual 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 annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 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 17 6. The registrant's other certifying officers and I have indicated in this annual report whether 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: March 25, 2003 /s/ Robert E. Kirkendall ------------------------ Robert E. Kirkendall Senior Vice President The Gorman-Rupp Company (Principal Financial Officer) 18 ANNUAL REPORT ON FORM 10-K THE GORMAN-RUPP COMPANY For the Year Ended December 31, 2002 EXHIBIT INDEX EXHIBIT (3) (4) Amended Articles of Incorporation, as amended * (3) (4) Regulations * (10)(a) Form of Indemnification Agreement between the Company and its Directors and Officers ** (10)(b) Non-Employee Directors' Compensation Plan 20 (13) Incorporated Portions of 2002 Annual Report to Shareholders 22 (21) Subsidiaries of the Company 38 (23) Consent of Independent Auditors 39 (24) Powers of Attorney 40 (99) Certification Pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley 43 Act of 2002.
- ------------------------------------- * Incorporated herein by this reference from Exhibits (3) (4) of the Company's Annual Report on Form 10-K for the year ended December 31, 2000. ** Incorporated herein by this reference from Exhibit (10) of the Company's Annual Report on Form 10-K for the year ended December 31, 2000. 19 EX-10.B 3 l99118aexv10wb.txt EXHIBIT 10(B) Exhibit (10)(b) THE GORMAN-RUPP COMPANY NON-EMPLOYEE DIRECTORS' COMPENSATION PLAN 1. PURPOSE The purpose of The Gorman-Rupp Company Non-Employee Directors' Compensation Plan (the "Plan") is to promote the interests of The Gorman-Rupp Company (the "Company") and its shareholders by attracting and retaining Non-Employee Directors capable of furthering the future success of the Company and by aligning their economic interests more closely with those of the Company's shareholders. "Non-Employee Director" means a member of the Board of Directors of the Company (the "Board") who is not employed by the Company or any of its subsidiaries. 2. EFFECTIVE DATE, TERM AND ADMINISTRATION OF THE PLAN The effective date of the Plan is May 22, 1997 (the "Effective Date"). The term during which Common Shares, without par value, of the Company ("Common Shares") may be awarded under the Plan shall expire on May 21, 2007, unless earlier terminated by action of the Board. The Plan will be administered by the Board. 3. COMMON SHARES AVAILABLE FOR AWARDS The number of Common Shares which may be awarded to Non-Employee Directors shall not exceed 50,000 Common Shares in the aggregate. The Company will file a registration statement on Form S-8 covering 50,000 Common Shares available for award to Non-Employee Directors. 4. AWARDS OF COMMON SHARES As compensation for regular services to be performed as a Non-Employee Director, an automatic award of 500 Common Shares will be made on each July 1 to each Non-Employee Director then serving on the Board (or as of the date of initial election, as the case may be), commencing after the Effective Date. In addition, each Non-Employee Director will receive $1,000 per Board meeting attended from the date of election to the expiration of his or her term of office. No Common Shares awarded under the Plan shall be subject to forfeiture upon the termination of a Non-Employee Director's service prior to completion of his or her term. Common Shares awarded under the Plan shall be treasury shares. The obligation of the Company to deliver Common Shares shall be subject to all applicable laws, rules and regulations, and to such approvals by governmental agencies as may be deemed necessary or advisable by the Company. In particular, upon advice from counsel for the Company, the Company shall take such steps as deemed necessary or advisable to comply with all requirements of the relevant securities laws, including the placement of a "restricted securities" legend on 20 certificates representing Common Shares and the application of a one-year holding period to Common Shares awarded. In addition, the Non-Employee Directors shall remain subject to the following requirements; (i) Common Shares received can only be sold in brokers' transactions and in accordance with the standard volume limitations of Rule 144 of the Securities Act of 1933, and (ii) Common Shares cannot be sold in violation of the insider trading rules and policies of the American Stock Exchange. 5. ADJUSTMENTS The number and kind of Common Shares which will be awarded to each Non-Employee Director under Section 4 of the Plan will be automatically adjusted to prevent dilution or enlargement of the rights of Non-Employee Directors in the event of any changes in the number or kind of outstanding Common Shares resulting from a merger, recapitalization, stock exchange, stock split, stock dividend, other extraordinary dividend or distribution, corporate division or other change in the Company's corporate or capital structure; provided, however, that no such adjustment will be made if the adjustment would cause the Plan to fail to comply with an exemption pursuant to Section 16 of the Securities Exchange Act of 1934 (the "1934 Act"). 6. AMENDMENT, SUSPENSION AND TERMINATION The Board may at any time amend, suspend or terminate the Plan. 7. COMPLIANCE WITH RULE 16b-3 The Company intends that the Plan and all transactions hereunder meet or will meet all of the requirements of Rule 16b-3 under the 1934 Act. 8. RETENTION OF POWERS Nothing contained in the Plan shall prevent the Board from exercising those powers granted to it by law, the Company's Amended Articles of Incorporation, as amended, the Company's Code of Regulations, or otherwise to set the compensation of directors from time to time. 9. GOVERNING LAW The Plan shall be construed in accordance with and governed by the laws of the State of Ohio and applicable Federal laws. 21 EX-13 4 l99118aexv13.txt EXHIBIT 13 Exhibit (13) The Gorman-Rupp Company Report of Ernst & Young LLP, Independent Auditors Board of Directors and Shareholders The Gorman-Rupp Company We have audited the accompanying consolidated balance sheets of The Gorman-Rupp Company and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2002, appearing on pages 11 through 19. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Gorman-Rupp Company and subsidiaries at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Ernst & Young LLP Cleveland, Ohio January 31, 2003 10 The Gorman-Rupp Company Consolidated Statements of Income
(Thousands of dollars, except per share amounts) Year ended December 31, 2002 2001 2000 ----------- ----------- ----------- Net sales $ 194,075 $ 202,927 $ 190,144 Cost of products sold 152,624 154,819 141,714 ----------- ----------- ----------- Gross Profit 41,451 48,108 48,430 Selling, general and administrative expenses 27,921 25,640 25,807 Non-recurring expense - plant relocation -- -- 1,143 ----------- ----------- ----------- Operating Income 13,530 22,468 21,480 Other income 797 886 1,340 Other expense (124) (319) (624) ----------- ----------- ----------- Income Before Income Taxes 14,203 23,035 22,196 Income taxes 5,267 8,450 8,400 ----------- ----------- ----------- Net Income $ 8,936 $ 14,585 $ 13,796 =========== =========== =========== Basic and Diluted Earnings Per Share $ 1.05 $ 1.70 $ 1.61 =========== =========== =========== Average number of shares outstanding 8,539,065 8,555,830 8,583,183
See notes to consolidated financial statements. 11 The Gorman-Rupp Company Consolidated Balance Sheets (Thousands of dollars) December 31, Assets 2002 2001 -------- -------- Current Assets: Cash and cash equivalents $ 13,086 $ 20,583 Accounts receivable 29,234 28,378 Inventories: Raw materials and in-process 20,778 22,224 Finished parts 12,970 9,700 Finished products 1,839 1,965 -------- -------- 35,587 33,889 Deferred income taxes 4,294 4,249 Prepaid and other 1,658 2,020 -------- -------- Total Current Assets 83,859 89,119 Property, Plant and Equipment Land 2,004 1,592 Buildings 47,258 43,070 Machinery and equipment 79,591 73,787 -------- -------- 128,853 118,449 Less accumulated depreciation 71,096 64,554 -------- -------- Property, Plant and Equipment - Net 57,757 53,895 Deferred Income Taxes -- 2,819 Other 11,230 2,280 -------- -------- $152,846 $148,113 ======== ======== See notes to consolidated financial statements. 12 December 31, Liabilities and Shareholders' Equity 2002 2001 ---- ---- Current Liabilities: Accounts payable $ 6,557 $ 5,433 Payrolls and related liabilities 3,306 3,377 Commissions payable 2,347 3,389 Accrued expenses 1,950 1,355 Accrued property and sales tax 1,740 1,600 Income taxes 468 -- Accrued medical benefits 2,769 2,949 Current portion of long-term notes payable 145 -- --------- --------- Total Current Liabilities 19,282 18,103 Long-Term Notes Payable 291 -- Postretirement Benefits 21,817 22,100 Shareholders' Equity Common Shares, without par value: Authorized - 14,000,000 shares; Outstanding - 8,540,553 shares in 2002 and 8,537,553 shares in 2001 (after deducting treasury shares of 324,623 in 2002 and 327,623 in 2001) at stated capital amount 5,089 5,087 Retained earnings 108,309 104,833 Accumulated other comprehensive loss (translation adjustments) (1,942) (2,010) --------- --------- Total Shareholders' Equity 111,456 107,910 --------- --------- $ 152,846 $ 148,113 ========= =========
13 The Gorman-Rupp Company Consolidated Statements of Shareholders' Equity
ACCUMULATED OTHER COMMON RETAINED COMPREHENSIVE (Thousands of dollars, except per share amounts) SHARES EARNINGS INCOME (LOSS) TOTAL ------ -------- ------------- ----- BALANCES JANUARY 1, 2000 $5,123 $88,409 $(1,237) $92,295 Comprehensive income: Net income 13,796 13,796 Foreign currency translation adjustments (287) (287) ------- Total comprehensive income 13,509 Issuance of 3,000 common shares from treasury 2 45 47 Purchase of 29,496 common shares for treasury (19) (511) (530) Cash dividends - $.62 a share (5,322) (5,322) ------ -------- ------- -------- BALANCES DECEMBER 31, 2000 5,106 96,417 (1,524) 99,999 Comprehensive income: Net income 14,585 14,585 Foreign currency translation adjustments (486) (486) ------- Total comprehensive income 14,099 Issuance of 3,000 common shares from treasury 2 71 73 Purchase of 31,000 common shares for treasury (21) (765) (786) Cash dividends - $.64 a share (5,475) (5,475) ------ -------- ------- -------- BALANCES DECEMBER 31, 2001 5,087 104,833 (2,010) 107,910 Comprehensive income: Net income 8,936 8,936 Foreign currency translation adjustments 68 68 ------- Total comprehensive income 9,004 Issuance of 3,000 common shares from treasury 2 90 92 Cash dividends - $.65 a share (5,550) (5,550) ------ -------- ------- -------- BALANCES DECEMBER 31, 2002 $5,089 $108,309 $(1,942) $111,456 ====== ======== ======= ========
See notes to consolidated financial statements. 14 The Gorman-Rupp Company Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31, (Thousands of dollars) 2002 2001 2000 -------- -------- -------- Cash flows from operating activities: Net income $ 8,936 $ 14,585 $ 13,796 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,035 7,128 6,863 Deferred income taxes 791 1,835 661 Changes in operating assets and liabilities: Accounts receivable 2,517 473 (953) Inventories 4,862 5,871 (3,571) Accounts payable (294) (1,958) 1,586 Postretirement benefits (2,156) (1,490) (1,057) Other (312) (78) (949) -------- -------- -------- Net cash provided by operating activities 21,379 26,366 16,376 Cash flows from investing activities: Capital additions, net (5,765) (3,139) (11,439) Purchases of short-term investments -- (2,000) (7,204) Proceeds from short-term investments 1,039 2,000 10,429 Payment for acquisitions, net of $3,671 cash acquired (18,150) -- -- Other -- -- 300 -------- -------- -------- Net cash used for investing activities (22,876) (3,139) (7,914) Cash flows from financing activities: Cash dividends (5,550) (5,475) (5,322) Proceeds from bank borrowings 10,000 2,495 17,119 Payments to bank and note holders for borrowings (10,450) (6,508) (16,213) Purchase of common shares for treasury -- (786) (530) -------- -------- -------- Net cash used for financing activities (6,000) (10,274) (4,946) -------- -------- -------- Net (decrease) increase in cash and cash equivalents (7,497) 12,953 3,516 Cash and cash equivalents: Beginning of year 20,583 7, 630 4,114 -------- -------- -------- End of year $ 13,086 $ 20,583 $ 7,630 ======== ======== ========
See notes to consolidated financial statements. 15 The Gorman-Rupp Company Notes To Consolidated Financial Statements NOTE A - SUMMARY OF MAJOR ACCOUNTING POLICIES CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: The Company considers highly liquid instruments with maturities of 90 days or less to be cash equivalents. The Company periodically makes short term investments for which cost approximates market value. INVENTORIES: Inventories are stated at the lower of cost or market. The cost for approximately 97% and 96% of inventories at December 31, 2002 and 2001, respectively, is determined using the last-in, first-out (LIFO) method, with the remainder determined using the first-in, first-out method. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated on the basis of cost. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. The estimated useful life ranges from 20 to 50 years for buildings and 5 to 10 years for machinery and equipment. Long-lived assets are reviewed for impairment losses whenever events or changes in circumstances indicate the carrying amount may not be recovered through future net cash flows generated by the assets. CONCENTRATION OF CREDIT RISK: The Company does not require collateral from its customers and has generally had a good collection history. Sales to one customer were approximately 11.6% and 16.7% of total net sales for the year ended December 31, 2002 and 2001, respectively. In 2000 there were no sales to any customer greater than 10% of net sales. FREIGHT COSTS: The Company reflects the cost for shipping its products to customers in cost of products sold. REVENUE RECOGNITION: Revenue from product sales is generally recognized when shipment to the customer has been made, which is when title passes. ADVERTISING: The Company expenses all advertising costs as incurred which, for the years ended December 31, 2002, 2001, and 2000 totaled $2,532,000, $2,519,000 and $2,968,000 respectively. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NEW ACCOUNTING PRONOUNCEMENTS: The Company adopted SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002, as required. The evaluation of goodwill under SFAS 142 requires valuations of each applicable underlying business. These valuations can be significantly affected by estimates of future performance and discount rates over a relatively long period of time, market price valuation multiples and marketplace transactions in related markets. These estimates will likely change over time. The Company was not required to conduct the transitional business valuation reviews required by SFAS 142 as the Company had no goodwill or significant intangible assets as of January 1, 2002. Upon adoption of SFAS 142, goodwill is not amortized, but it is required to be evaluated annually. If this annual review indicates impairment of goodwill balances, that entire impairment will be recorded immediately and reported as a component of current operations. The Company performed its annual review as of October 1, 2002, which did not indicate impairment. At December 31, 2002, the Company had $4.1 million of goodwill included in other assets. Effective January 1, 2002, the Company adopted FASB Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"which supersedes Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."Statement No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company determined there was no effect on earnings or financial position upon adoption. In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."Statement No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Statement No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. TRANSLATION OF FOREIGN CURRENCY: Assets and liabilities of the Company's operations outside the United States which are accounted for in a functional currency other than U.S. dollars are translated into U.S. dollars using year-end exchange rates. Revenues and expenses are translated at average exchange rates effective during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive (loss) income within shareholders' equity. Gains and losses resulting from foreign currency transactions, the amounts of which are not material, are included in net income. RECLASSIFICATION: Certain prior year amounts have been reclassified to conform to the 2002 presentation. NOTE B - INVENTORIES: The excess of replacement cost over LIFO cost is approximately $26,128,000 and $25,113,000 at December 31, 2002 and 2001, respectively. Replacement cost approximates current cost. NOTE C - FINANCING ARRANGEMENTS: Under unsecured demand lines of credit with banks, the Company may borrow up to $10.0 million with interest at LIBOR plus ..75% or at alternative rates as selected by the Company. At December 31, 2002, $10.0 million was available for borrowing. On January 3, 2002, the Company negotiated an unsecured $16.0 million credit facility with interest at LIBOR plus .75% or at alternate rates as selected by the Company. The Company borrowed $10.0 million during the year. The Company paid the outstanding balance of the term loan and subsequently terminated the loan. The Company had an $8.0 million unsecured revolving loan agreement that matured in May 2001 and was renewed as a $4.0 million unsecured revolving loan agreement which matures in May 2005. At December 31, 2002, $3.0 million was available for borrowing after deducting $1.0 million for letters of credit. Interest is payable quarterly at LIBOR plus .55% or at alternative rates as selected by the Company (interest rate of 1.93% and 2.70% at December 31, 2002 and 2001, respectively.) The $10.0 million demand line of credit and the $4.0 million revolving loan agreements contain restrictive covenants including limits on additional borrowings and maintenance of certain operating and financial ratios. At December 31, 2002, the Company was in compliance with such requirements. At December 31, 2002, the Company had a note payable of $436,000 resulting from one of its acquisitions. The note is due in installments on March 1, 2003, 2004 and 2005. Interest expense which approximates interest paid, was $72,000, $116,000 and $183,000 (net of $25,000 capitalized interest) in 2002, 2001, and 2000, respectively. 16 The Gorman-Rupp Company Notes To Consolidated Financial Statements NOTE D - INCOME TAXES: The components of income before income taxes are: (Thousands of dollars) 2002 2001 2000 ------- ------- ------- United States $14,089 $22,456 $22,002 Foreign 114 579 194 ------- ------- ------- $14,203 $23,035 $22,196 ======= ======= ======= The components of income tax expense are as follows: (Thousands of dollars) 2002 2001 2000 ------- ------- ------- Current expense: Federal $ 3,894 $ 5,306 $ 6,484 Canadian 159 306 332 State and local 423 1,003 923 ------- ------- ------- 4,476 6,615 7,739 Deferred expense (credit): Federal 753 1,723 640 Canadian (35) (123) (67) State and local 73 235 88 ------- ------- ------- 791 1,835 661 ------- ------- ------- $ 5,267 $ 8,450 $ 8,400 ======= ======= ======= The reconciliation between income tax expense and the amount computed by applying the statutory federal income tax rate of 35% to income before income taxes is as follows: (Thousands of dollars) 2002 2001 2000 ------- ------- ------- Income taxes at statutory rate $ 4,971 $ 8,062 $ 7,769 State and local income taxes, net of federal tax benefit 265 773 694 Other 31 (385) (63) ------- ------- ------- $ 5,267 $ 8,450 $ 8,400 ======= ======= ======= Deferred tax assets and liabilities consist of the following: (Thousands of dollars) 2002 2001 2000 ------- ------- ------- Deferred tax assets Inventories $ 1,817 $ 1,430 $ 2,089 Accrued liabilities 2,477 2,819 2,700 Postretirement health benefits obligation 8,607 8,725 9,718 ------- ------- ------- Total deferred tax assets 12,901 12,974 14,507 Deferred tax liabilities Depreciation and amortization 8,034 5,651 5,501 Other 573 255 103 ------- ------- ------- Total deferred tax liabilities 8,607 5,906 5,604 ------- ------- ------- Net deferred tax assets $ 4,294 $ 7,068 $ 8,903 ======= ======= ======= The Company made income tax payments of $3,985,000, $7,223,000, and $8,849,000 in 2002, 2001 and 2000, respectively. NOTE E - PENSIONS AND OTHER POSTRETIREMENT BENEFITS: The Company sponsors a defined benefit pension plan covering substantially all employees. The Company's policy is to fund the maximum tax-deductible contribution. The Company also sponsors a non-contributory defined benefit health care plan that provides health benefits to retirees and their spouses. The Company funds the cost of these benefits as incurred. The following table presents the plans' funded status reconciled with amounts recognized in the Company's balance sheets:
PENSION POSTRETIREMENT BENEFITS BENEFITS ----------------------- ------------------------ (Thousands of dollars) 2002 2001 2002 2001 CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 29,917 $ 26,343 $ 18,649 $ 16,280 Service cost 1,510 1,339 724 602 Interest cost 2,137 2,071 1,357 1,262 Actuarial loss/(gain) 2,931 2,804 4,928 2,042 Benefits paid (3,505) (2,640) (1,526) (1,537) -------- -------- -------- -------- BENEFIT OBLIGATION AT END OF YEAR 32,990 29,917 24,132 18,649 CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 27,099 30,670 -- -- Actual return on plan assets (1,329) (2,351) -- -- Company contributions 3,276 1,420 1,526 1,537 Benefits paid (3,505) (2,640) (1,526) (1,537) -------- -------- -------- -------- Fair value of plan assets at end of year 25,541 27,099 -- -- -------- -------- -------- -------- Funded status of the plan (under) funded (7,449) (2,818) (24,132) (18,649) Unrecognized net actuarial loss/(gain) 10,419 4,103 2,284 (2,734) Unrecognized net transition asset -- (174) -- -- Unrecognized prior service cost -- -- (1,495) (2,252) -------- -------- -------- -------- PREPAID (ACCRUED) BENEFIT COST $ 2,970 $ 1,111 $(23,343) $(23,635) ======== ======== ======== ======== WEIGHTED-AVERAGE ASSUMPTIONS Discount rate 6.96% 7.50% 6.96% 7.50% Expected rate of return on plan assets 8.00% 8.00% -- -- Rate of compensation increase 3.75% 4.00% -- --
17 The Gorman-Rupp Company Notes To Consolidated Financial Statements Approximately $1,500,000 of the post-retirement benefit obligation has been classified as a current liability at December 31, 2002 and 2001. For measurement purposes, an 9.8 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2003. The rate was assumed to decrease gradually to 5.0 percent by 2008 and remain at that level thereafter. The plan's assets consist of equity and fixed-income mutual funds in approximately equal proportion. The following table presents the components of net periodic benefit cost:
PENSION BENEFITS POSTRETIREMENT BENEFITS ----------------------------------- ----------------------------------- (Thousands of dollars) 2002 2001 2000 2002 2001 2000 ------- ------- ------- ------- ------- ------- Service cost $ 1,510 $ 1,339 $ 1,251 $ 724 $ 602 $ 582 Interest cost 2,137 2,071 1,739 1,357 1,262 1,232 Expected return on plan assets (2,137) (2,477) (2,104) -- -- -- Amortization of prior service cost and unrecognized gain 81 (36) (42) (756) (756) (756) Recognized net actuarial loss (174) (174) (174) (91) (351) (340) ------- ------- ------- ------- ------- ------- BENEFIT COST $ 1,417 $ 723 $ 670 $ 1,234 $ 757 $ 718 ======= ======= ======= ======= ======= =======
The assumed health care trend rate has a significant effect on the amounts reported for postretirement benefits. A one-percentage point change in the assumed health care cost trend rate would have the following effects:
ONE-PERCENTAGE POINT -------------------- (Thousands of dollars) INCREASE DECREASE -------- -------- Effect on total of service and interest cost components in 2002 $ 173 $ (159) Effect on accumulated postretirement benefit obligation as of December 31, 2002 $1,954 $(1,761)
NOTE F - BUSINESS SEGMENT INFORMATION: The Company operates principally in one business segment, the manufacture and sale of pumps and related fluid control equipment for water, wastewater, construction, industrial, petroleum, original equipment, agricultural, fire protection, heating, ventilating and air conditioning (HVAC), and military applications. The Company's pumps are marketed in the United States and Canada through a network of about 1,000 distributors, through manufacturers' representatives (for sales to many original equipment manufacturers) and by direct sales. Export sales are principally made through foreign distributors and manufacturers' representatives. The Company exports to more than 75 countries around the world. The components of customer sales, based on the location of customers, are as follows:
(Thousands of dollars) 2002 % 2001 % 2000 % -------- --- -------- --- -------- --- United States $167,160 86 $170,250 84 $153,104 81 Exports to foreign countries 26,915 14 32,677 16 37,040 19 -------- --- -------- --- -------- --- TOTAL $194,075 100 $202,927 100 $190,144 100 ======== === ======== === ======== ===
NOTE G - 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. 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 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 tables summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition of AMT and Flo-Pak: AMT FLO-PAK FEBRUARY 28, MARCH 1, (Thousands of dollars) 2002 2002 ------- ------- Current Assets $ 8,416 Current Assets $2,717 Property, plant Property, plant & equipment 4,942 & equipment 190 Intangible assets 327 Intangible assets 2,780 Other assets 104 Goodwill 4,053 ------- ------- Total assets acquired 13,789 Total assets acquired 9,740 Liabilities (1,212) Liabilities (3,282) ------- ------- Net assets acquired $12,577 Net assets acquired $6,458 ======= ====== 18 Notes Cont'd Of the $327,000 of acquired intangible assets for AMT, $140,000 was assigned to tradenames and is not subject to amortization. The remaining $187,000 is a sales contract that will be amortized over a weighted-average useful life of approximately 18 years. Of the $2.8 million of acquired intangible assets for Flo-Pak, $880,000 was assigned to tradenames and is not subject to amortization. The remaining intangible assets will be amortized. The amortizable intangible assets are comprised of drawings of $1.4 million (15 year weighted-average useful life) and program logic of $500,000 (10 year weighted-average useful life). The $4.1 million of goodwill is recorded in other assets and is not expected to be deductible for income tax purposes. Annual amortization expense for all intangibles is expected to be $150,000 for the next 5 years. Amortization expense was $125,000 in 2002. The acquisitions were financed with cash from the Company's treasury, a $900,000 note payable and by a draw of $10.0 million on an unsecured credit facility established on January 3, 2002. The Company paid back the credit facility borrowings and $450,000 of the note payable in 2002. The acquired businesses' results have been included in the Company's financial statements since the date of acquisitions. The following unaudited pro forma data summarizes the results of operations of the Company 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. YEAR ENDED DECEMBER 31, (Thousands of dollars) 2002 2001 -------- -------- Net sales $197,171 $230,147 Net income 8,074 15,249 Basic and diluted earnings per common share $ 0.95 $ 1.78 Note H - Other Assets: The major components of other assets are as follows: DECEMBER 31, (Thousands of dollars) 2002 2001 -------- -------- Goodwill $ 4,053 $ -- Intangibles: Flo-Pak tradenames 880 -- Drawings 1,400 -- Other intangibles 827 -- Prepaid pension cost 2,970 1,111 Other assets 1,225 1,169 -------- -------- 11,355 2,280 Less - accumulated amortization (125) -- -------- -------- $ 11,230 $ 2,280 ======== ======== The Gorman-Rupp Company Management's Discussion and Analysis of Financial Condition and Results of Operations The Company operates in one business segment, the manufacture and sale of pumps and related fluid control equipment for water, wastewater, construction, industrial, petroleum, original equipment, agriculture, fire protection, heating, ventilating and air conditioning (HVAC), and military applications. 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.O n 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 these 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. RESULTS OF OPERATIONS 2002 COMPARED TO 2001: The Company recorded net sales of $194.1 million in 2002 compared to $202.9 million in 2001, a decline of $8.8 million or 4.4 percent. The decline in sales principally resulted from the impact of a stalled economy for our customers in the capital goods markets and weaker industrial and municipal sales. The newly acquired businesses contributed approximately $20.3 million to sales in 2002, offsetting the decline in basic pump sales. Significant to the overall reduction of sales was a 31.0% decline in sales of fabricated components used in the gas turbine power generation industry, a market that contributed to the Company's record performance in 2001. Price increases on products marketed in a more price conscious environment ranged from 0-3 percent. Export shipments decreased 17.6% in 2002, and represented 14% of net sales compared to 16% in 2001. 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 with a letter of credit. Cost of products sold in 2002 amounted to $152.6 million compared to $154.8 million in 2001. As a percent of net sales, gross profit margins were 21.4% in 2002 and 23.7% in 2001. The decrease in gross margins resulted principally from the impact of slowed capital spending creating lower volume-related margins, continued increases in employee medical and healthcare expenses and higher cost of property and liability insurance. All of the Company's subsidiaries and divisions felt the impact of volume-related costs. The implementation of cost-reduction programs and strategies along with ongoing manufacturing efficiency improvements resulting from continued capital investments somewhat offset this marginal decline during 2002. Selling, general and administrative (SG&A) expenses in 2002 were $27.9 million compared to $25.6 million in 2001, an increase of $2.3 million or 8.9 percent. As a percent of net sales, during 2002 and 2001, SG&A expenses were 14.4% and 12.6%, respectively. SG&A expenses resulting from the acquisitions accounted for approximately $3.4 million. Cost control efforts resulting in reductions in employee related costs offset a portion of the SG&A increase. Other income in 2002 was $797,000 and consisted principally of interest income and income from the rental of one of the Company's vacated facilities. Other income in 2001 totaled $886,000 and was principally the result of interest income on invested funds. Interest income during 2002 was reduced due to lower available rates of return. Other expense was $124,000 and $319,000 in 2002 and 2001, respectively. Other expenses consisted principally of interest expense and loss on the disposal of assets. 19 The Gorman-Rupp Company Management's Discussion and Analysis of Financial Condition and Results of Operations The effective income tax rate was 37.1% in 2002, compared to 36.7% in 2001. Net income for 2002 was $8.9 million compared to $14.6 million in 2001. As a percent of net sales, net income was 4.6% and 7.2% in 2002 and 2001, respectively. Earnings per share was $1.05 in 2002 compared to $1.70 in 2001. The decrease in each of these performance measures resulted from the reasons discussed above. All of the Company's subsidiaries and divisions were profitable during 2002. Cash dividends paid on common shares increased during 2002 to 65 cents per share and marked the 30th consecutive year of increased cash dividends. The dividend yield at December 31, 2002 was 2.8 percent. 2001 COMPARED TO 2000: The Company recorded net sales of $202.9 million in 2001, a record that marked the 15th consecutive year of increased sales, and exceeded 2000 net sales of $190.1 million by 6.7 percent. Highlighting sales growth was the substantial increase in demand for fabricated components used in the gas turbine power generation industry combined with continued strong demand for pumps in the fire protection, fresh water and wastewater markets. Growth in these markets, together with price increases on products ranging from 2-3%, were partially offset by the economic downturn in 2001, reducing demand for small pumps made for the original equipment market and establishing flat demand for pumps distributed to other domestic commercial markets. In addition, international business declined as export shipments decreased nearly 12% in 2001, representing 16% of total net sales as compared to 19% in 2000. However, the Company is not exposed to material market risks as a result of its export sales or its operations outside of the United States. Payment terms for export sales transacted by the Company consist of revocable and irrevocable letters of credit and open accounts; and payment terms regarding export shipments are made solely in U.S. Dollars. The Company's operations outside of the United States are small, both individually and collectively. Cost of products sold in 2001 equaled 76.3% of net sales and amounted to $154.8 million compared to 74.5% and $141.7 million in 2000. As a percent of net sales, gross profit margins were 23.7% in 2001 and 25.5% in 2000. Decreased gross margins resulted principally from the economic impact of higher energy costs, increased medical and healthcare expense and underutilized capacity primarily occurring after the September 11th terrorist attack and extending through the fourth quarter. The last half of 2001 presented different capacity utilization issues for the Company. While the Company's subsidiary in Georgia was responding to substantial increases in demand, two facilities in Ohio were experiencing order reductions and budget cutbacks. Cost control measures, and on-going manufacturing efficiencies from prior investments assisted in maintaining the performance results for 2001. Selling, general and administrative (SG&A) expenses in 2001 were $25.6 million compared to $25.8 million in 2000, a decrease of 0.6 percent. As a percent of net sales, SG&A expenses were 12.6% and 13.6% in 2001 and 2000, respectively. Cost control reductions, principally in advertising and product promotion in the fourth quarter contributed to lower SG&A expense for the year. Other income in 2001 totaled $886,000 and was principally the result of interest income on invested funds. Interest income was constrained, however, due to lower rates of return. Other income in 2000 was $1.3 million and included interest income and a gain from the sale of unutilized machinery and equipment recorded in the fourth quarter. Other expense was $319,000 in 2001 and consisted principally of interest expense and loss on the disposal of assets. In 2000 other expense was $624,000 and consisted of interest expense, change in the dollar exchange and loss on the disposal of assets. The effective income tax rate was 36.7% in 2001, compared to 37.8% in 2000. Record net income for the 15th consecutive year increased 5.7% in 2001 to $14.6 million compared to $13.8 million in 2000. As a percent of net sales, net income was 7.2% and 7.3% in 2001 and 2000, respectively. Earnings per share increased nine cents to $1.70 in 2001 compared to $1.61 in 2000. Cash dividends paid on common shares equaled 64 cents per share and marked the 29th consecutive year of increased cash dividends. The dividend yield at December 31, 2001 was 2.4 percent. TRENDS: Numerous business entities in the pump and fluid-handling industries, as well as a multitude of companies in many other industries, have been targeted in a series of lawsuits in several jurisdictions by various individuals seeking redress to claimed injury as a result of the entities' alleged use of asbestos in their products. The Company and three of its subsidiaries have been drawn into this mass-scaled litigation, typically as one of hundreds of co-defendants in a particular proceeding. (The vast majority of these cases are against Patterson Pump Company.) The allegations in the lawsuits involving the Company and/or its subsidiaries are vague, general and speculative, and most cases have not advanced beyond the early stage of discovery. In certain situations, the plaintiffs have voluntarily dismissed the Company and/or its subsidiaries from some of the lawsuits after the plaintiffs have acknowledged that there is no basis for their claims. Insurers of the Company have engaged legal counsel to represent the Company and its subsidiaries and to protect their interests. In addition, the Company and/or its subsidiaries are parties in a small number of legal proceedings arising out of the ordinary course of business. Management does not currently believe that these proceedings, or the industry-wide asbestos litigation, will materially impact the Company's results of operations, liquidity or financial condition. LIQUIDITY AND SOURCES OF CAPITAL: Cash and cash equivalents totaled $13.1 million and there was no bank debt at December 31, 2002. In addition, the Company has $10.0 million available in bank short-term lines of credit and $3.0 million available under a $4.0 million unsecured revolving credit facility that matures in May 2005. As of December 31, 2002, $1.0 million of the revolving facility covered outstanding letters of credit. Although the $10.0 million credit facility and the $4.0 million revolving facility contain restrictive covenants, including limits on additional borrowings and maintenance of certain operating and financial ratios, the Company was in compliance with all requirements at December 31, 2002. At December 31, 2002, the Company had a note payable of $436,000 resulting from one of its acquisitions. The note is due in installments on March 1, 2003, 2004, and 2005. During 2002, the Company financed its business acquisitions, including the repayment of a $10.0 million draw, capital improvements and working capital requirements principally through internally generated funds, including inventory reductions. Capital expenditures for 2003, estimated to be $3.0 to $5.0 million, are expected to be financed through internally generated funds and existing credit arrangements. During 2001 and 2000, the Company financed its capital improvements and working capital requirements principally through internally generated funds, proceeds from short-term investments and line of credit arrangements with banks. Cash flows from operating activities were $21.4 million, $26.4 million and $16.4 million in 2002, 2001 and 2000, respectively. The decrease in 2002 was primarily due to decreased operating results. The increase in 2001 as compared to 2000 was the result of improved operating results and inventory reductions. Cash used for investing activities was $22.9 million, $3.1 million and $7.9 million for 2002, 2001 and 2000, respectively. In 2002, the Company spent $18.2 million for the acquisitions of AMT and Flo-Pak and related costs. The major capital expenditure in 2000 related to the Company's new manufacturing facility for the Mansfield Division. Cash used for financing activities was $6.0 million, $10.3 million and $4.9 million in 2002, 2001 and 2000, respectively. Cash dividends were the major reason for the cash outflows. The ratio of current assets to current liabilities was 4.3 to 1 at December 31, 2002, compared to 4.9 to 1 at December 31, 2001. Management believes that the Company has adequate working capital and a healthy liquidity position. 20 NEW ACCOUNTING PRONOUNCEMENTS: In the first quarter of 2002, the Company adopted the Financial Accounting Standards Board ("FASB") issued Statement No. 141, "Business Combinations, "and Statement No. 142, "Goodwill and Other Intangible Assets." Goodwill and indefinite-lived intangibles will no longer be amortized but will be subject to annual impairment review in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. Since the Company had no goodwill and intangible assets were insignificant at January 1, 2002, the adoption of these statements had no effect on the earnings and financial position of the Company. As a result of the 2002 acquisitions of AMT and Flo-Pak, goodwill and indefinite lived intangibles totaling $4.1 million and $1.0 million respectively, were recorded. The Company performed its annual impairment review as of October 1, 2002, which did not indicate impairment. In 2002, the Company adopted FASB Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" which supersedes Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Statement No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The effect of adopting this statement had no effect on the Company's financial statements. In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." Statement No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Statement No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. CRITICAL ACCOUNTING POLICIES: The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. When more than one accounting principle, or the method of its application, is generally accepted, Management selects the principle or method that is appropriate in Gorman-Rupp's specific circumstances. Application of these accounting principles requires Management to make estimates about the future resolution of existing uncertainties; as a result, actual results could differ from these estimates. In preparing these financial statements, Management has made its best estimates and judgments of the amounts and disclosures included in the financial statements, giving due regard to materiality. The Company does not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions pertaining to the accounting policies described below. REVENUE RECOGNITION: Substantially all of Gorman-Rupp's revenues are recognized when products are shipped to unaffiliated customers. The Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition"provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The Company has concluded that its revenue recognition policy is appropriate and in accordance with generally accepted accounting principles and SAB No. 101. ALLOWANCE FOR DOUBTFUL ACCOUNTS: The Company evaluates the collectibility of its accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer's inability to meet its financial obligations to Gorman-Rupp (e.g., bankruptcy filings, substantial down-grading of credit scores), the Company records a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes reserves for bad debts based on the length of time the receivables are past due. If circumstances change (e.g., an unexpected material adverse change in a major customer's ability to meet its financial obligations), the Company's estimates of the recoverability of amounts due could be reduced by a material amount. Historically the Company's collection history has been good. INVENTORIES AND RELATED ALLOWANCE: Inventories are valued at the lower of cost or market value and have been reduced by an allowance for excess and obsolete inventories. The estimated allowance is based on a variety of factors, including historical inventory usage and management evaluations. The Company uses the last-in, first-out method for primarily all of its inventories. Historically the Company has not experienced large write-offs due to obsolescence. PENSION PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS: The measurement of liabilities related to pension plans and other post-retirement benefit plans is based on management's assumptions related to future events including interest rates, return on pension plan assets, compensation increases and health care cost trend rates. The Company uses a measurement date of October 31st for the benefit plan determination. The discount rates used to determine the present value of future benefits are based on effective yields of AA quality or better fixed income investments. The discount rate used to value pension plan and postretirement obligations was 6.96% at October 31, 2002, compared to 7.5% at October 31, 2001. Annual expense amounts are determined based on the discount rate at October 31st of the prior year. The expected rate of return on pension assets is designed to be a long-term assumption that will be subject to year-to-year variability. The rate for 2002 and 2001 was 8.0%.During 2002, the fair market value of pension assets decreased. Actual pension plan asset performance will either reduce or increase unamortized losses which will ultimately affect net income. The rate of compensation increases was reduced from 4.0% in 2001 to 3.75% in 2002 to reflect actual experience. The rate of increase in medical costs over the next five years was increased to reflect actual experience. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, a one percentage increase in the assumed health care cost trend rate would result in a $173,000 increase in total service and interest costs in 2002, and a one percent decrease would result in a $159,000 decrease in these costs. A one percent increase in the assumed health care cost trend rate would also increase the accumulated postretirement benefit obligation as of December 31, 2002 by $2.0 million and a one percent decrease would decrease it by $1.8 million. The overall effect of the assumption changes above will be to increase pension and postretirement expenses in fiscal 2003. INCOME TAXES: The Company accounts for income taxes in accordance with Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Realization of the Company's deferred tax assets is principally dependent upon the Company's achievement of projected future taxable income, which Management believes is sufficient to fully utilize the deferred tax assets recorded. GOODWILL AND OTHER INTANGIBLES: The Company accounts for goodwill in a purchase business combination as the excess of the cost over the fair value of net assets acquired. Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over their estimated useful lives. SFAS 142 establishes a new two-step method for testing goodwill for impairment on an annual basis (or an interim basis if an event occurs that might reduce the fair value of a reporting unit below its carrying value). SFAS 142 also requires that an identifiable intangible asset that is determined to have an indefinite useful economic life not be amortized, but separately tested for impairment using a one-step fair value based approach. Gorman-Rupp conducts this review for all of its reporting units during the fourth quarter of the fiscal year. No impairment resulted from the annual reviews performed in 2002. OTHER MATTERS: Transactions with related parties are in the ordinary course of business and are not material to Gorman-Rupp's financial position, net income or cash flows. Gorman-Rupp does not have off-balance sheet arrangements, financings or other relationships with unconsolidated "special purpose entities." 21 The Gorman-Rupp Company Eleven Year Summary of Selected Financial Data
(Thousands of dollars,except per share amounts) 2002 2001 2000 1999 ---------- ---------- ---------- ---------- OPERATING RESULTS: Net sales $ 194,075 $ 202,927 $ 190,144 $ 181,945 Gross profit 41,451 48,108 48,430 46,347 Income taxes 5,267 8,450 8,400 8,460 Income (1) 8,936 14,585 13,796 13,081 Depreciation and amortization 7,035 7,128 6,863 6,489 Interest expense 72 116 183 55 Return on net sales (%) 4.6 7.2 7.3 7.2 Sales dollars per employee 184.1 194.9 186.2 177.3 Income dollars per employee 8.5 14.0 13.5 12.7 FINANCIAL POSITION: Current assets $ 83,859 $ 89,119 $ 82,289 $ 78,185 Current liabilities 19,282 18,103 19,079 17,439 Working capital 64,577 71,016 63,210 60,746 Current ratio 4.3 4.9 4.3 4.5 Property,plant and equipment - net 57,757 53,895 57,885 53,609 Capital additions 5,765 3,139 11,439 16,182 Total assets 152,846 148,113 145,881 136,875 Long-term notes payable 291 -- 3,413 3,107 Shareholders' equity 111,456 107,910 99,999 92,295 Dividends paid 5,550 5,475 5,322 5,152 Average number of employees 1,054 1,041 1,021 1,026 SHAREHOLDER INFORMATION: Basic and diluted earnings per share (1) $ 1.05 $ 1.70 $ 1.61 $ 1.52 Cash dividends per share .65 .64 .62 .60 Shareholders' equity per share at December 31 13.05 12.64 11.67 10.74 Average number of shares outstanding 8,539,065 8,555,830 8,583,183 8,585,877
(1) Income in 1992 is before the cumulative effect of a change in accounting principle which reduced income by $11,886 or $1.38 per share. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS The following is a summary of unaudited quarterly results of operations for the years ended December 31, 2002 and 2001:
(Thousands of dollars, except per share amounts) BASIC AND DILUTED QUARTER ENDED 2002 NET SALES GROSS PROFIT NET INCOME EARNINGS PER SHARE -------- ------- ------ ----- First Quarter $ 45,299 $ 9,547 $2,153 $ .25 Second Quarter 52,583 12,247 3,250 .38 Third Quarter 49,139 9,920 1,905 .23 Fourth Quarter 47,054 9,737 1,628 .19 -------- ------- ------ ----- Total $194,075 $41,451 $8,936 $1.05 ======== ======= ====== =====
22
1998 1997 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ---- ---- $ 173,864 $ 167,426 $ 157,549 $ 151,765 $ 139,601 $ 133,537 $ 127,937 43,713 40,964 39,127 36,516 35,763 32,699 30,975 7,400 6,340 5,735 5,590 5,625 5,063 4,693 11,752 10,612 9,928 9,461 9,327 8,795 7,966 6,330 5,959 5,675 5,173 4,534 4,274 4,025 188 238 330 602 195 58 213 6.8 6.3 6.3 6.2 6.7 6.6 6.2 170.1 163.5 161.8 156.1 140.6 136.0 127.6 11.5 10.4 10.2 9.7 9.4 9.0 7.9 $ 78,556 $ 81,695 $ 71,926 $ 71,401 $ 60,070 $ 55,746 $ 50,152 17,431 17,036 15,199 19,727 16,391 14,382 12,380 61,125 64,659 56,727 51,674 43,679 41,364 37,772 4.5 4.8 4.7 3.6 3.7 3.9 4.1 43,916 40,919 40,549 42,163 40,879 36,835 30,807 9,327 6,329 4,036 8,229 8,553 10,277 4,496 127,477 127,865 117,650 119,816 107,100 98,706 86,434 783 6,689 3,796 7,188 4,715 5,338 668 83,706 78,060 72,737 67,240 61,608 56,911 52,759 4,983 4,821 4,567 4,466 4,209 4,122 3,923 1,022 1,024 974 972 993 982 1,003 $ 1.37 $ 1.23 $ 1.15 $ 1.10 $ 1.09 $ 1.02 $ .92 .58 .56 .53 .52 .49 .48 .46 9.75 9.07 8.44 7.81 7.18 6.63 6.14 8,599,713 8,609,479 8,617,168 8,587,466 8,579,633 8,588,493 8,594,255
BASIC AND DILUTED QUARTER ENDED 2001 NET SALES GROSS PROFIT NET INCOME EARNINGS PER SHARE -------- -------- -------- ----- First Quarter $ 49,671 $ 12,346 $ 3,604 $ .42 Second Quarter 54,838 13,425 3,998 .47 Third Quarter 51,430 11,959 3,637 .42 Fourth Quarter 46,988 10,378 3,346 .39 -------- -------- -------- ----- Total $202,927 $ 48,108 $ 14,585 $1.70 ======== ======== ======== =====
23 The Gorman-Rupp Company Shareholder Information RANGES OF STOCK PRICES The high and low sales price and dividends per share for common shares traded on the American Stock Exchange were:
SALES PRICE OF COMMON SHARES DIVIDENDS PER SHARE 2002 2001 2002 2001 ------------------ ------------------- ---- ---- HIGH LOW HIGH LOW First Quarter $27.5000 $23.5100 $18.5000 $17.3750 $.16 $.16 Second Quarter 31.5000 25.6500 28.7500 18.0000 .16 .16 Third Quarter 31.0000 21.5000 26.3000 18.8000 .16 .16 Fourth Quarter 27.2900 20.4000 27.2500 19.2000 .17 .16
Shareholder information reported by Transfer Agent and Registrar, National City Bank, February 6, 2003. HOLDERS SHARES ------- --------- Individuals 1,296 2,313,612 Nominees, brokers and others 25 6,226,941 ----- --------- Total 1,321 8,540,553 ===== ========= An additional 324,623 common shares are held in Treasury. 26 SAFE HARBOR STATEMENT This Annual Report contains 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 regulations, 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. 27 EX-21 5 l99118aexv21.txt EXHIBIT 21 EXHIBIT (21) SUBSIDIARIES OF THE COMPANY The Company has four wholly owned subsidiaries: (i) Gorman-Rupp of Canada Limited, organized under the laws of the Province of Ontario; (ii) The Gorman-Rupp International Company, organized under the laws of the State of Ohio, (iii) Patterson Pump Company, organized under the laws of the State of Ohio; and (iv) American Machine and Tool Co., Inc. of Pennsylvania, organized under the laws of the State of Delaware. The Company has one indirect, wholly owned subsidiary: Patterson Pump Ireland Limited, a wholly owned subsidiary of Patterson Pump Company, organized under the laws of the Republic of Ireland. The consolidated financial statements of the Company, filed as a part of this Form 10-K, include the accounts of each such subsidiary. 38 EX-23 6 l99118aexv23.txt EXHIBIT 23 EXHIBIT (23) Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of The Gorman-Rupp Company of our report dated January 31, 2003, included in the 2002 Annual Report to Shareholders of The Gorman-Rupp Company. We also consent to the incorporation by reference in the Registration Statement and in the related Prospectus (Form S-8 No. 333-85982) pertaining to the Employee Stock Purchase Plan of The Gorman-Rupp Company, in the Registration Statement and in the related Prospectus (Form S-8 No. 333-92793) pertaining to the 401(k) Plan of The Gorman-Rupp Company, in the Registration Statement and in the related Prospectus (Form S-8 No. 333-30159) pertaining to the Non-Employee Directors' Compensation Plan of The Gorman-Rupp Company, and in the Registration Statement and in the related Prospectus (Form S-3 No. 333-58108) pertaining to the J.C. Gorman and R.B. Gorman Trusts of our report dated January 31, 2003, with respect to the consolidated financial statements of The Gorman-Rupp Company incorporated herein by reference in this Annual Report (Form 10-K) of The Gorman-Rupp Company. /s/ Ernst &Young LLP Cleveland, Ohio March 25, 2003 EX-24 7 l99118aexv24.txt EXHIBIT 24 EXHIBIT (24) THE GORMAN-RUPP COMPANY CERTIFICATE OF THE SECRETARY The undersigned hereby certifies that he is the duly elected, qualified and acting Corporate Secretary of The Gorman-Rupp Company, an Ohio corporation (the "Company"), and that the following resolutions were duly adopted by the Company's Board of Directors at a duly noticed and called meeting held on February 27, 2003 at which a quorum was present and acting throughout, which resolutions have not been amended, rescinded or modified and are in full force and effect on the date hereof. RESOLVED, that the executive officers of the Company, and each of them, hereby are authorized, for and on behalf of the Company, to prepare, sign and file, or cause to be prepared, signed and filed, with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, as amended, the Company's 2002 Annual Report on Form 10-K, and any and all amendments thereto, and to do or cause to be done all things necessary or advisable in connection therewith. FURTHER RESOLVED, that Jeffrey S. Gorman, David P. Emmens and Anthony R. Moore, and each of them, hereby are appointed attorneys for the Company, with full power of substitution and resubstitution, for and in the name, place and stead of the Company, to sign and file the Company's 2002 Annual Report on Form 10-K and any and all amendments thereto, and any and all other documents in connection therewith, with full power and authority to do and perform any and all acts necessary or advisable. FURTHER RESOLVED, that the executive officers of the Company and each of them, hereby are authorized, for and on behalf of the Company, to execute a power of attorney evidencing the foregoing appointments. IN WITNESS WHEREOF, I have hereunto signed this Certificate this 25th day of March, 2003. /s/ David P. Emmens ------------------ David P. Emmens Corporate Secretary 40 EXHIBIT (24) POWER OF ATTORNEY The undersigned, The Gorman-Rupp Company (the "Company"), by the undersigned executive officer of the Company hereunto duly authorized, hereby appoints Jeffrey S. Gorman, David P. Emmens and Anthony R. Moore, and each of them, as attorneys for the Company, with full power of substitution and resubstitution, for and in its name, place and stead, to sign and file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, the Company's 2002 Annual Report on Form 10-K and any and all amendments thereto, and any and all other documents to be filed with the Securities and Exchange Commission or otherwise in connection therewith, with full power and authority to do and perform any and all acts whatsoever necessary or advisable. Executed this 25th day of March 2003. THE GORMAN-RUPP COMPANY BY: /s/ David P. Emmens ------------------ David P. Emmens Corporate Secretary 41 EXHIBIT (24) POWER OF ATTORNEY The undersigned Directors and Officers of The Gorman-Rupp Company (the "Company") hereby appoint Jeffrey S. Gorman, David P. Emmens, and Anthony R. Moore, and each of them, as attorneys for each of the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of each of the undersigned, to sign and file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, the Company's 2002 Annual Report on Form 10-K and any and all amendments thereto, and any and all other documents to be filed with the Securities and Exchange Commission or otherwise in connection therewith, with full power and authority to do and perform any and all acts whatsoever necessary or advisable. Executed this 27th day of February, 2003 /s/ Jeffrey S. Gorman President, Principal Executive ---------------------------------- Officer and Director Jeffrey S. Gorman /s/ Robert E. Kirkendall Senior Vice President and Principal ---------------------------------- Financial and Accounting Officer Robert E. Kirkendall /s/ James C. Gorman Director ---------------------------------- James C. Gorman /s/ William A. Calhoun Director ---------------------------------- William A. Calhoun /s/ Thomas E. Hoaglin Director ---------------------------------- Thomas E. Hoaglin /s/ Christopher H. Lake Director ---------------------------------- Christopher H. Lake /s/ Peter B. Lake Director ---------------------------------- Peter B. Lake /s/ W. Wayne Walston Director ---------------------------------- W. Wayne Walston /s/ John A. Walter Director ---------------------------------- John A. Walter 42 EX-99 8 l99118aexv99.txt EXHIBIT 99 EXHIBIT (99) Certification Pursuant to 18 U. S. C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report of The Gorman-Rupp Company on Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, pursuant to 18 U. S. C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge: (1) The Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. Date: March 25, 2003 /s/ Jeffrey S. Gorman --------------------- Jeffrey S. Gorman President and Chief Executive Officer (Principal Executive Officer) /s/ Robert E. Kirkendall ------------------------ Robert E. Kirkendall Senior Vice President (Principal Financial Officer) The foregoing certification is being furnished solely pursuant to 18 U. S. C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. 43 -----END PRIVACY-ENHANCED MESSAGE-----