Exhibit (13)
The Gorman-Rupp Company
2004 Report of Ernst & Young LLP, Independent
Registered Public Accounting Firm
Board of Directors and Shareholders
The Gorman-Rupp Company
We have audited the consolidated balance sheets of The Gorman-Rupp Company and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (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 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, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.
As discussed in Note A to the consolidated financial statements, the Company restated its financial statements for the years ended December 31, 2002 and 2003.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2005 expressed an unqualified opinion on management’s assessment and an adverse opinion on the effectiveness of internal control over financial reporting.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
February 24, 2005
The Gorman-Rupp Company 2004 Annual Report
12
The Gorman-Rupp Company
2004 Consolidated Statements of Income
| | | | | | | | | | | | |
(Thousands of dollars, except per share amounts) | | Year ended December 31, | |
| | 2004 | | | 2003 | | | 2002 | |
| | | | | | | | | | | | |
Net sales | | $ | 203,554 | | | $ | 195,826 | | | $ | 195,081 | |
Cost of products sold | | | 161,129 | | | | 153,975 | | | | 153,630 | |
| | | | | | | | | |
Gross Profit | | | 42,425 | | | | 41,851 | | | | 41,451 | |
Selling, general and administrative expenses | | | 28,999 | | | | 27,988 | | | | 27,921 | |
| | | | | | | | | |
Operating Income | | | 13,426 | | | | 13,863 | | | | 13,530 | |
Other income | | | 1,005 | | | | 701 | | | | 797 | |
Other expense | | | (79 | ) | | | (164 | ) | | | (124 | ) |
| | | | | | | | | |
Income Before Income Taxes | | | 14,352 | | | | 14,400 | | | | 14,203 | |
Income taxes | | | 5,075 | | | | 4,613 | | | | 5,267 | |
| | | | | | | | | |
Net Income | | $ | 9,277 | | | $ | 9,787 | | | $ | 8,936 | |
| | | | | | | | | |
Basic and Diluted Earnings Per Share | | $ | 0.87 | | | $ | 0.92 | | | $ | 0.84 | |
| | | | | | | | | |
Average number of shares outstanding | | | 10,680,832 | | | | 10,677,087 | | | | 10,673,337 | |
Shares outstanding and per share data reflect the 5 for 4 stock split effective September 10, 2004.
See notes to consolidated financial statements.
The Gorman-Rupp Company 2004 Annual Report
13
The Gorman-Rupp Company
2004 Consolidated Balance Sheets
| | | | | | | | |
(Thousands of dollars) | | December 31, | |
| | 2004 | | | 2003 | |
| | | | | | | | |
Assets | | | | | | | | |
Current Assets: | | | | | | | | |
Cash and cash equivalents | | $ | 16,202 | | | $ | 16,272 | |
Short-term investments | | | 2,696 | | | | 1,174 | |
Accounts receivable | | | 32,988 | | | | 32,148 | |
Inventories: | | | | | | | | |
Raw materials and in-process | | | 20,348 | | | | 21,488 | |
Finished parts | | | 16,602 | | | | 15,194 | |
Finished products | | | 1,284 | | | | 1,380 | |
| | | | | | |
| | | 38,234 | | | | 38,062 | |
Deferred income taxes | | | 4,865 | | | | 6,369 | |
Prepaid and other | | | 1,660 | | | | 1,693 | |
| | | | | | |
Total Current Assets | | | 96,645 | | | | 95,718 | |
Property, Plant and Equipment | | | | | | | | |
Land | | | 1,959 | | | | 1,959 | |
Buildings | | | 48,077 | | | | 47,761 | |
Machinery and equipment | | | 85,624 | | | | 82,897 | |
| | | | | | |
| | | 135,660 | | | | 132,617 | |
Less accumulated depreciation | | | 80,848 | | | | 78,279 | |
| | | | | | |
Property, Plant and Equipment — Net | | | 54,812 | | | | 54,338 | |
Other | | | 13,887 | | | | 12,339 | |
| | | | | | |
| | $ | 165,344 | | | $ | 162,395 | |
| | | | | | |
See notes to consolidated financial statements.
The Gorman-Rupp Company 2004 Annual Report
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| | | | | | | | |
| | December 31, | |
| | 2004 | | | 2003 | |
Liabilities and Shareholders’ Equity | | | | | | | | |
Current Liabilities: | | | | | | | | |
Accounts payable | | $ | 6,615 | | | $ | 6,163 | |
Payrolls and related liabilities | | | 3,412 | | | | 3,162 | |
Commissions payable | | | 2,809 | | | | 3,438 | |
Accrued expenses | | | 3,629 | | | | 3,406 | |
Accrued property and sales tax | | | 1,719 | | | | 1,322 | |
Income taxes | | | 571 | | | | 2,542 | |
Accrued postretirement and medical benefits | | | 2,357 | | | | 1,875 | |
| | | | | | |
Total Current Liabilities | | | 21,112 | | | | 21,908 | |
Postretirement Benefits | | | 22,334 | | | | 22,569 | |
Shareholders’ Equity | | | | | | | | |
Common Shares, without par value: | | | | | | | | |
Authorized - 14,000,000 shares; | | | | | | | | |
Outstanding* -10,682,697 shares in 2004 and 10,678,947 shares in 2003 (after deducting treasury shares of 398,278 in 2004 and 402,028 in 2003) at stated capital amount | | | 5,093 | | | | 5,091 | |
Retained earnings | | | 117,261 | | | | 113,813 | |
Accumulated other comprehensive loss (translation adjustments) | | | (456 | ) | | | (986 | ) |
| | | | | | |
Total Shareholders’ Equity | | | 121,898 | | | | 117,918 | |
| | | | | | |
| | $ | 165,344 | | | $ | 162,395 | |
| | | | | | |
*Shares outstanding reflect the 5 for 4 stock split effective September 10, 2004.
The Gorman-Rupp Company 2004 Annual Report
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The Gorman-Rupp Company
2004 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, 2002, as reported | | $ | 5,087 | | | $ | 104,833 | | | $ | (2,010 | ) | | $ | 107,910 | |
Restatement of prior period retained earnings | | | | | | | 1,456 | | | | | | | | 1,456 | |
| | | | | | | | | | | | |
Balances January 1, 2002, as restated | | | 5,087 | | | | 106,289 | | | | (2,010 | ) | | | 109,366 | |
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 — $.52 a share | | | | | | | (5,550 | ) | | | | | | | (5,550 | ) |
| | | | | | | | | | | | |
Balances December 31, 2002, as restated | | | 5,089 | | | | 109,765 | | | | (1,942 | ) | | | 112,912 | |
Comprehensive income: | | | | | | | | | | | | | | | | |
Net income | | | | | | | 9,787 | | | | | | | | 9,787 | |
Foreign currency translation adjustments | | | | | | | | | | | 956 | | | | 956 | |
| | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | 10,743 | |
Issuance of 3,000 common shares from treasury | | | 2 | | | | 70 | | | | | | | | 72 | |
Cash dividends — $.54 a share | | | | | | | (5,809 | ) | | | | | | | (5,809 | ) |
| | | | | | | | | | | | |
Balances December 31, 2003, as restated | | | 5,091 | | | | 113,813 | | | | (986 | ) | | | 117,918 | |
Comprehensive income: | | | | | | | | | | | | | | | | |
Net income | | | | | | | 9,277 | | | | | | | | 9,277 | |
Foreign currency translation adjustments | | | | | | | | | | | 530 | | | | 530 | |
| | | | | | | | | | | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | 9,807 | |
Issuance of 3,000 common shares from treasury | | | 2 | | | | 78 | | | | | | | | 80 | |
Cash dividends — $.55 a share | | | | | | | (5,907 | ) | | | | | | | (5,907 | ) |
| | | | | | | | | | | | |
Balances December 31, 2004 | | $ | 5,093 | | | $ | 117,261 | | | $ | (456 | ) | | $ | 121,898 | |
| | | | | | | | | | | | |
Shares outstanding and per share data reflect the 5 for 4 stock split effective September 10, 2004.
See notes to consolidated financial statements.
The Gorman-Rupp Company 2004 Annual Report
16
The Gorman-Rupp Company
2004 Consolidated Statements of Cash Flows
| | | | | | | | | | | | |
| | Year Ended December 31, | |
(Thousands of dollars) | | 2004 | | | 2003 | | | 2002 | |
| | | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | | |
Net income | | $ | 9,277 | | | $ | 9,787 | | | $ | 8,936 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 7,179 | | | | 7,274 | | | | 7,035 | |
Deferred income taxes | | | 1,504 | | | | (619 | ) | | | 791 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
Accounts receivable | | | (840 | ) | | | (2,914 | ) | | | 2,517 | |
Inventories | | | (172 | ) | | | (2,475 | ) | | | 4,862 | |
Accounts payable | | | 452 | | | | (394 | ) | | | (294 | ) |
Commissions payable | | | (629 | ) | | | 1,091 | | | | (1,042 | ) |
Income taxes | | | (1,971 | ) | | | 2,074 | | | | 468 | |
Postretirement benefits | | | 287 | | | | (556 | ) | | | (2,156 | ) |
Other | | | (589 | ) | | | 283 | | | | 239 | |
| | | | | | | | | |
Net cash provided by operating activities | | | 14,498 | | | | 13,551 | | | | 21,356 | |
Cash flows from investing activities: | | | | | | | | | | | | |
Capital additions, net | | | (7,500 | ) | | | (3,698 | ) | | | (5,765 | ) |
Purchases of short-term investments | | | (1,522 | ) | | | (1,174 | ) | | | — | |
Proceeds from short-term investments | | | — | | | | — | | | | 1,039 | |
Payment for acquisitions, net of $3,671 cash acquired | | | — | | | | — | | | | (18,150 | ) |
| | | | | | | | | |
Net cash used for investing activities | | | (9,022 | ) | | | (4,872 | ) | | | (22,876 | ) |
Cash flows from financing activities: | | | | | | | | | | | | |
Cash dividends | | | (5,907 | ) | | | (5,809 | ) | | | (5,550 | ) |
Proceeds from bank borrowings | | | — | | | | — | | | | 10,000 | |
Payments to bank and note holders for borrowings | | | — | | | | (145 | ) | | | (10,450 | ) |
| | | | | | | | | |
Net cash used for financing activities | | | (5,907 | ) | | | (5,954 | ) | | | (6,000 | ) |
Effect of exchange rate changes on cash | | | 361 | | | | 461 | | | | 23 | |
| | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | (70 | ) | | | 3,186 | | | | (7,497 | ) |
Cash and cash equivalents: | | | | | | | | | | | | |
Beginning of year | | | 16,272 | | | | 13,086 | | | | 20,583 | |
| | | | | | | | | |
End of year | | $ | 16,202 | | | $ | 16,272 | | | $ | 13,086 | |
| | | | | | | | | |
See notes to consolidated financial statements.
The Gorman-Rupp Company 2004 Annual Report
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The Gorman-Rupp Company
2004 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.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at the historical carrying amount net of allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses from the failure of its customers to make required payments for products delivered. The Company estimates this allowance based on knowledge of the financial condition of customers, review of historical receivables and reserve trends and other pertinent information.
Inventories
Inventories are stated at the lower of cost or market. The cost for approximately 94% and 95% of inventories at December 31, 2004 and 2003, respectively, is determined using the last-in, first-out (LIFO) method, with the remainder determined using the first-in, first-out method. Cost is comprised of materials, labor and an appropriate proportion of fixed and variable overheads, on an absorption costing basis.
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. Impairment losses are recorded when the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts.
Goodwill and Intangibles
Goodwill and intangible assets relate to acquisitions that occurred in 2002. The value of goodwill and intangible assets are tested for impairment as of October 1 of each year, or more frequently if events or circumstances change that would likely reduce the fair value below carrying value. The Company uses the fair market value approach to test for impairment. The fair market valuations used for the impairment tests can be affected by changes in the estimates of revenue multiples and the discount rate used in the calculations. Losses, if any, resulting from impairment tests will be reflected in operating income in the Company’s income statement. No impairment resulted from the annual reviews performed in 2004 or 2003.
Amortization of other intangible assets is calculated on the straight-line basis using the following lives:
| | | | |
Sales contracts | | 18 years |
Drawings | | 15 years |
Program logic | | 10 years |
Revenue Recognition
Revenue from product sales is recognized when title passes which generally occurs upon shipment to the customer.
Concentration of Credit Risk
The Company does not require collateral from its customers and has generally had a good collection history. There were no sales to a customer that exceeded 10% of total net sales for the years ended December 31, 2004 and December 31, 2003. Sales to one customer represented 11.6% of total sales in 2002.
Shipping and Handling Costs
The Company reflects shipping and handling costs in cost of products sold.
Advertising
The Company expenses all advertising costs as incurred which, for the years ended December 31, 2004, 2003, and 2002, totaled $2,953,000, $2,767,000 and $2,958,000, respectively.
Product Warranties
A liability is established for estimated future warranty and service claims based on historical claim experience and specific product failures. The Company expenses warranty costs directly to cost of products sold. Changes in the Company’s product warranty liability are as follows:
| | | | | | | | |
(Thousands of dollars) | | 2004 | | | 2003 | |
Balance at beginning of year | | $ | 599 | | | $ | 660 | |
Warranty costs | | | 2,014 | | | | 1,335 | |
Settlements | | | (1,784 | ) | | | (1,396 | ) |
| | | | | | |
Balance at end of year | | $ | 829 | | | $ | 599 | |
| | | | | | |
Foreign Currency Translation
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
The Gorman-Rupp Company 2004 Annual Report
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The Gorman-Rupp Company
2004 Notes to Consolidated Financial Statements
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.
Common Stock Split
On July 22, 2004, the Company announced a 5 for 4 common stock split effective September 10, 2004 to shareholders of record as of August 13, 2004.
Reclassification
Certain amounts for 2003 have been reclassified to conform to the 2004 presentation.
Restatement
The Company identified a prior period error relating to the overstatement of a deferred income tax liability. The correction of the error, recognizing an increase to shareholders’ equity and a reduction to deferred tax liability, resulted in a restatement of 2002 and 2003 financial statements.
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
Effective December 31, 2003, the Company adopted SFAS No. 132 (revised) “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” SFAS No. 132 requires additional disclosures relating to pensions and other postretirement benefits. The Company has made the required disclosures in these financial statements (Note F).
In November 2004, the FASB issued SFAS No. 151 “Inventory Costs — an amendment of ARB No. 43, Chapter 4.” This Statement amends the guidance in ARB No. 43 to require idle facility expense, freight, handling costs, and wasted material (spoilage) be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is currently evaluating the impact of this statement on the financial statements of the Company.
Financial Accounting Standards Board (FASB) Staff Position (FSP) 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S. Based Manufacturers by the American Job Creation Act of 2004, and FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provisions within the American Jobs Creation Act of 2004 were enacted on October 22, 2004.
FSP No. 109-1 clarifies how to apply SFAS No. 109 to the new law’s tax deduction for income attributable to “domestic production activities.” The fully phased-in deduction is up to nine percent of the lesser of taxable income or “qualified production activities income.” The staff proposal would require that the deduction be accounted for as a special deduction in the period earned, not as a tax-rate reduction.
FSP No. 109-2 provides guidance under FASB Statement No. 109, “Accounting for Income Taxes,” with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the “Jobs Act”) on enterprises’ income tax expense and deferred tax liability. FSP 109-2 states that an enterprise is permitted time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. The Company has not yet completed evaluating the impact of the repatriation provisions. Accordingly, as provided for in FSP 109-2, the Company has not adjusted its tax expense or deferred tax liability to reflect the repatriation provisions of the Jobs Act.
Note B — Allowance for Doubtful Accounts
The allowance for doubtful accounts was $581,000 and $472,000 at December 31, 2004 and 2003, respectively.
Note C — Inventories
The excess of replacement cost over LIFO cost is approximately $28,718,000 and $26,717,000 at December 31, 2004 and 2003, respectively. Replacement cost approximates current cost.
Note D — Financing Arrangements
Under an unsecured demand line of credit which matures in June, 2005, 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, 2004, $10.0 million was available for borrowing.
The Company has a $4.0 million unsecured revolving loan agreement which matures in May, 2005. At December 31, 2004, $1.7 million was available for borrowing after deducting $2.3 million for letters of credit. Interest is payable quarterly at LIBOR plus .55% or at alternative rates as selected by the Company.
The Gorman-Rupp Company 2004 Annual Report
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The Gorman-Rupp Company
2004 Notes to Consolidated Financial Statements
The Company has a $1.0 million unsecured line of credit that matures in May, 2005. As of December 31, 2004, $924,000 was available after deducting $76,000 for letters of credit.
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, 2004, the Company was in compliance with such requirements.
Interest expense, which approximates interest paid, was $40,000, $56,000 and $72,000 in 2004, 2003 and 2002, respectively.
The Company has operating leases for certain offices, manufacturing buildings, land, office equipment and automobiles. Rental expense relating to operating leases was $670,000, $709,000 and $664,000 in 2004, 2003 and 2002, respectively. The future minimum lease payments due under these operating leases are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | | 2005 | | | 2006 | | | 2007 | | | 2008 | | | 2009 | | | Thereafter | |
Minimum lease payments | | $ | 360 | | | $ | 337 | | | $ | 282 | | | $ | 220 | | | $ | 183 | | | $ | 238 | |
Note E – Income Taxes
The components of income before income taxes are:
| | | | | | | | | | | | |
(Thousands of dollars) | | 2004 | | | 2003 | | | 2002 | |
United States | | $ | 13,011 | | | $ | 13,522 | | | $ | 14,089 | |
Foreign | | | 1,341 | | | | 878 | | | | 114 | |
| | | | | | | | | |
| | $ | 14,352 | | | $ | 14,400 | | | $ | 14,203 | |
| | | | | | | | | |
The components of income tax expense are as follows:
| | | | | | | | | | | | |
(Thousands of dollars) | | 2004 | | | 2003 | | | 2002 | |
Current expense: | | | | | | | | | | | | |
Federal | | $ | 2,702 | | | $ | 4,390 | | | $ | 3,894 | |
Canadian | | | 248 | | | | 285 | | | | 159 | |
State and local | | | 621 | | | | 557 | | | | 423 | |
| | | | | | | | | |
| | | 3,571 | | | | 5,232 | | | | 4,476 | |
Deferred expense (credit): | | | | | | | | | | | | |
Federal | | | 1,240 | | | | (429 | ) | | | 753 | |
Canadian | | | (87 | ) | | | (98 | ) | | | (35 | ) |
State and local | | | 351 | | | | (92 | ) | | | 73 | |
| | | | | | | | | |
| | | 1,504 | | | | (619 | ) | | | 791 | |
| | | | | | | | | |
| | $ | 5,075 | | | $ | 4,613 | | | $ | 5,267 | |
| | | | | | | | | |
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) | | 2004 | | | 2003 | | | 2002 | |
Income taxes at statutory rate | | $ | 5,023 | | | $ | 5,040 | | | $ | 4,971 | |
State and local income taxes, net of federal tax benefit | | | 632 | | | | 328 | | | | 265 | |
Tax credits | | | – | | | | (536 | ) | | | – | |
Other | | | (580 | ) | | | (219 | ) | | | 31 | |
| | | | | | | | | |
| | $ | 5,075 | | | $ | 4,613 | | | $ | 5,267 | |
| | | | | | | | | |
Deferred tax assets and liabilities consist of the following:
| | | | | | | | | | | | |
(Thousands of dollars) | | 2004 | | | 2003 | | | 2002 | |
Deferred tax assets | | | | | | | | | | | | |
Inventories | | $ | 2,181 | | | $ | 2,239 | | | $ | 1,817 | |
Accrued liabilities | | | 2,835 | | | | 2,966 | | | | 2,584 | |
Postretirement health benefits obligation | | | 8,718 | | | | 8,799 | | | | 8,607 | |
| | | | | | | | | |
Total deferred tax assets | | | 13,734 | | | | 14,004 | | | | 13,008 | |
Deferred tax liabilities | | | | | | | | | | | | |
Depreciation and amortization | | | 7,021 | | | | 6,445 | | | | 6,545 | |
Other | | | 1,848 | | | | 1,190 | | | | 713 | |
| | | | | | | | | |
Total deferred tax liabilities | | | 8,869 | | | | 7,635 | | | | 7,258 | |
| | | | | | | | | |
Net deferred tax assets | | $ | 4,865 | | | $ | 6,369 | | | $ | 5,750 | |
| | | | | | | | | |
The Company made income tax payments of $5,930,000, $3,235,000 and $3,985,000 in 2004, 2003 and 2002, respectively.
Note F – 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. Additionally, the Company sponsors a defined contribution plan at two locations not participating in the defined benefit pension plan. A 401-k plan that includes a partial Company match is also available. Contributions in 2004, 2003 and 2002 were $573,000, $563,000 and $551,000, respectively for the defined contribution and 401-k plans. 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 approximate allocation of plan assets
The Gorman-Rupp Company 2004 Annual Report
20
The Gorman-Rupp Company
2004 Notes to Consolidated Financial Statements
for the defined benefit plan as of the measurement date of October 31 is as follows:
| | | | | | | | | | | | |
| | 2004 | | | 2003 | | | Target | |
Cash & Cash Equivalents | | | 8 | % | | | 10 | % | | | 0 - 10 | % |
Fixed Income | | | 38 | % | | | 36 | % | | | 35 - 45 | % |
Equities | | | 54 | % | | | 54 | % | | | 50 - 60 | % |
The expected rate of return on plan assets is based on historical rates of return, the weighting of plan assets by investment group, targeted weighting of assets and the current return trends. The Company has a diversified investment strategy of investing in fixed income instruments and common equities through mutual funds.
The following table presents the plans’ funded status as of the measurement date reconciled with amounts recognized in the Company’s balance sheets:
| | | | | | | | | | | | | | | | |
| | Pension | | | Postretirement | |
| | Benefits | | | Benefits | |
(Thousands of dollars) | | 2004 | | | 2003 | | | 2004 | | | 2003 | |
Change in benefit obligation | | | | | | | | | | | | | | | | |
Benefit obligation at beginning of year | | $ | 35,792 | | | $ | 32,990 | | | $ | 28,052 | | | $ | 24,132 | |
Service cost | | | 1,870 | | | | 1,660 | | | | 1,050 | | | | 963 | |
Interest cost | | | 2,143 | | | | 2,164 | | | | 1,731 | | | | 1,640 | |
Actuarial loss | | | 3,499 | | | | 3,914 | | | | 1,895 | | | | 2,662 | |
Benefits paid | | | (3,434 | ) | | | (4,936 | ) | | | (1,981 | ) | | | (1,345 | ) |
| | | | | | | | | | | | |
Benefit obligation at end of year | | | 39,870 | | | | 35,792 | | | | 30,747 | | | | 28,052 | |
Change in plan assets | | | | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | | | 29,078 | | | | 25,541 | | | | – | | | | – | |
Actual return on plan assets | | | 2,320 | | | | 3,857 | | | | – | | | | – | |
Company contributions | | | 3,774 | | | | 4,616 | | | | 1,981 | | | | 1,345 | |
Benefits paid | | | (3,434 | ) | | | (4,936 | ) | | | (1,981 | ) | | | (1,345 | ) |
| | | | | | | | | | | | |
Fair value of plan assets at end of year | | | 31,738 | | | | 29,078 | | | | – | | | | – | |
| | | | | | | | | | | | |
Funded status of the plan (under) funded | | | (8,132 | ) | | | (6,714 | ) | | | (30,747 | ) | | | (28,052 | ) |
Unrecognized net actuarial loss | | | 13,676 | | | | 10,804 | | | | 6,545 | | | | 4,877 | |
Unrecognized prior service cost | | | – | | | | – | | | | – | | | | (739 | ) |
| | | | | | | | | | | | |
Prepaid/(accrued) benefit cost | | $ | 5,544 | | | $ | 4,090 | | | $ | (24,202 | ) | | $ | (23,914 | ) |
| | | | | | | | | | | | |
Weighted-average assumptions | | | | | | | | | | | | | | | | |
Discount rate | | | 5.89 | % | | | 6.34 | % | | | 5.89 | % | | | 6.34 | % |
Expected rate of return on plan assets | | | 8.00 | % | | | 8.00 | % | | | – | | | | – | |
Rate of compensation increase | | | 3.50 | % | | | 3.75 | % | | | – | | | | – | |
The accumulated pension benefit obligation is $30,642,000 and $26,999,000 at October 31, 2004 and 2003, respectively. The estimated Company contribution to the pension plan in 2005 is $1,754,000, while estimated expenditures for postretirement benefits are $1,879,000.
The following table presents the expected future pension benefits to be paid:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | |
(Thousands of dollars) | | 2005 | | | 2006 | | | 2007 | | | 2008 | | | 2009 | | | 2010-2014 | |
Expected future payments | | $ | 4,140 | | | $ | 2,646 | | | $ | 2,718 | | | $ | 3,948 | | | $ | 4,275 | | | $ | 26,433 | |
For measurement purposes, a 7.9% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2005. The rate was assumed to decrease gradually to 5.0% by 2008 and remain at that level thereafter.
The following table presents the components of net periodic benefit cost:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | | Postretirement | |
| | Benefits | | | Benefits | |
(Thousands of dollars) | | 2004 | | | 2003 | | | 2002 | | | 2004 | | | 2003 | | | 2002 | |
Service cost | | $ | 1,870 | | | $ | 1,660 | | | $ | 1,510 | | | $ | 1,050 | | | $ | 963 | | | $ | 724 | |
Interest cost | | | 2,143 | | | | 2,164 | | | | 2,137 | | | | 1,731 | | | | 1,640 | | | | 1,357 | |
Expected return on plan assets | | | (2,237 | ) | | | (1,969 | ) | | | (2,137 | ) | | | – | | | | – | | | | – | |
Amortization of prior service cost and unrecognized gain/(loss) | | | 544 | | | | 531 | | | | 81 | | | | (739 | ) | | | (756 | ) | | | (756 | ) |
Recognized net actuarial gain/(loss) | | | – | | | | – | | | | (174 | ) | | | 201 | | | | 26 | | | | (91 | ) |
Loss recognized due to settlement | | | – | | | | 1,110 | | | | – | | | | – | | | | – | | | | – | |
| | | | | | | | | | | | | | | | | | |
Benefit cost | | $ | 2,320 | | | $ | 3,496 | | | $ | 1,417 | | | $ | 2,243 | | | $ | 1,873 | | | $ | 1,234 | |
| | | | | | | | | | | | | | | | | | |
During 2003, the Company’s accumulated distributions to retirees exceeded pension service and interest costs requiring a portion of previously unrecognized pension losses associated with the distribution to be expensed. The additional pension cost of $1,110,000 represented a settlement loss resulting in an allocation of $777,000 to manufacturing expense and $333,000 to selling, general and administrative expense.
The Gorman-Rupp Company 2004 Annual Report
21
The Gorman-Rupp Company
2004 Notes to Consolidated Financial Statements
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 2004 | | $ | 265 | | | $ | (237 | ) |
Effect on accumulated postretirement benefit obligation as of December 31, 2004 | | $ | 2,350 | | | $ | (2,086 | ) |
In March 2004, the FASB issued Staff Position No. FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” (“FSP No. 106-2”) in response to a new law regarding prescription drug benefits under Medicare (“Medicare Part D”) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. Currently, Statement of Financial Accounting Standard No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (“No. 106”) requires that changes in relevant law be considered in current measurement of postretirement benefit costs. FSP No. 106-2 became effective beginning in the third quarter of 2004. However, the Company’s measures of the accumulated postretirement benefit obligation and the net periodic postretirement benefit cost do not reflect the effects of the subsidy, because it has not yet been concluded whether the benefits under the Company’s plan are actuarially equivalent to Medicare Part D.
Note G — 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, determined based on the location of customers, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
(Thousands of dollars) | | 2004 | | | % | | | 2003 | | | % | | | 2002 | | | % | |
United States | | $ | 161,374 | | | | 79 | | | $ | 157,645 | | | | 81 | | | $ | 160,915 | | | | 82 | |
Exports to foreign countries | | | 42,180 | | | | 21 | | | | 38,181 | | | | 19 | | | | 34,166 | | | | 18 | |
| | | | | | | | | | | | | | | | | | |
Total | | $ | 203,554 | | | | 100 | | | $ | 195,826 | | | | 100 | | | $ | 195,081 | | | | 100 | |
| | | | | | | | | | | | | | | | | | |
Note H — 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, located in Royersford, Pennsylvania, is a developer and manufacturer of centrifugal pumps for industrial and commercial fluid-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 the opportunity to increase sales of AMT’s products through the Company’s existing outlets to domestic and international markets. AMT’s “off the shelf” pumps give the Company the opportunity to market commodity type products. 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 the note was paid in 2002 and 2003 and the balance of $291,000 cancelled in 2003 in a mutual agreement between the Company and the note holders. Flo-Pak, located in Buford, Georgia, is a manufacturer of designed pumping systems for the heating, ventilation and air conditioning (HVAC) market. The acquisition of Flo-Pak offers the Company a
The Gorman-Rupp Company 2004 Annual Report
22
The Gorman-Rupp Company
2004 Notes to Consolidated Financial Statements
“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. The results of operations of Flo-Pak are part of Patterson Pump Company, a subsidiary of the Company.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition of AMT and Flo-Pak:
| | | | |
| | AMT | |
| | February 28, | |
(Thousands of dollars) | | 2002 | |
Current assets | | $ | 8,416 | |
Property, plant & equipment | | | 4,942 | |
Intangible assets | | | 327 | |
Other assets | | | 104 | |
| | | |
Total assets acquired | | | 13,789 | |
Liabilities | | | (1,212 | ) |
| | | |
Net assets acquired | | $ | 12,577 | |
| | | |
| | | | |
| | Flo-Pak | |
| | March 1, | |
| | 2002 | |
Current assets | | $ | 2,717 | |
Property, plant & equipment | | | 190 | |
Intangible assets | | | 2,780 | |
Goodwill | | | 4,053 | |
| | | |
Total assets acquired | | | 9,740 | |
Liabilities | | | (3,282 | ) |
| | | |
Net assets acquired | | $ | 6,458 | |
| | | |
Of the $327,000 of acquired intangible assets for AMT, $140,000 was assigned to trade names and is not subject to amortization. The remaining $187,000 is a sales contract that is being 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 trade names and is not subject to amortization. The remaining intangible assets are being 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.
Amortization expense was $153,000, $157,000 and $125,000 in 2004, 2003, and 2002, respectively.
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 in 2002. The note payable was repaid with the exception of $291,000 that was cancelled in a mutual agreement between the Company and the note holders in the fourth quarter of 2003.
The acquired businesses’ results have been included in the Company’s financial statements since the dates of acquisition. 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 | |
(Thousands of dollars) | | December 31, 2002 | |
Net sales | | $ | 198,177 | |
Net income | | | 8,074 | |
Basic and diluted earnings per common share | | $ | 0.76 | |
Note I – Other Assets
The major components of other assets are as follows:
| | | | | | | | |
| | December 31, | |
(Thousands of dollars) | | 2004 | | | 2003 | |
Goodwill | | $ | 4,053 | | | $ | 4,053 | |
Intangibles: | | | | | | | | |
Trade names | | | 1,020 | | | | 1,020 | |
Drawings | | | 1,400 | | | | 1,400 | |
Other intangibles | | | 687 | | | | 687 | |
Prepaid pension cost | | | 5,544 | | | | 4,090 | |
Other assets | | | 1,618 | | | | 1,371 | |
| | | | | | |
| | | 14,322 | | | | 12,621 | |
Less — accumulated amortization | | | (435 | ) | | | (282 | ) |
| | | | | | |
Total | | $ | 13,887 | | | $ | 12,339 | |
| | | | | | |
The Gorman-Rupp Company 2004 Annual Report
23
The Gorman-Rupp Company
2004 Management’s Discussion and Analysis of Financial
Condition and Results of Operation
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.
Results of Operations
2004 Compared to 2003
The Company recorded record net sales of $203.6 million in 2004 compared to $195.8 million in 2003, an increase of 3.9%. The 2004 sales reflected positive signs of recovery in the general economic environment and capital goods markets during the year, resulting from increased pump sales principally in the industrial, construction and international markets. Annual price increases on products ranged from 4.0% to 5.0% in 2004 and reflected a mid-year surcharge approximating 2.0%. The surcharge was imposed by several of the Company’s divisions in response to higher costs for steel and energy.
Export shipments to foreign countries amounted to $42.2 million in 2004 compared to $38.2 million in 2003, an increase of $4.0 million or 10.5%. These shipments represented 21% of net sales in 2004 compared to 19% in 2003.
The backlog of orders at December 31, 2004 was $69.0 million compared to $58.4 million at December 31, 2003, an increase of $10.6 million or 18.2%.
Cost of products sold in 2004 was $161.1 million compared to $154.0 million in 2003, an increase of $7.1 million or 4.6%. As a percent of sales, cost of products sold was 79.2% in 2004 compared to 78.6% in 2003. The increase in cost of goods sold was primarily due to higher sales volume. In addition, higher costs for steel and energy from suppliers impacted the cost of goods sold by approximately 1.0 to 1.5% and the unfavorable impact from volume-related costs and product mix partially offset the benefit of lower pension expense of $1.0 million. As a percent of sales, gross margins were 20.8% in 2004 and 21.4% in 2003.
Selling, general and administrative (SG&A) expenses in 2004 were $29.0 million compared to $28.0 million in 2003. As a percent of net sales SG&A expenses were 14.2% during 2004 and 14.3% in 2003. In 2004, expenses associated with the requirements of the Sarbanes-Oxley Act of 2002 were approximately $807,000, an increase of $605,000 compared to 2003. Additional increases in healthcare costs and advertising and travel expenses of $826,000 were partially offset by a reduction in pension expense of $400,000.
Pension expense decreased $1.4 million in 2004 compared to 2003, principally due to a transaction in the third quarter 2003 when the Company’s accumulated distributions to retirees exceeded pension service and interest costs requiring a portion of previously unrecognized pension losses associated with the distribution to retirees to be expensed. The expense of $1.1 million associated with the settlement loss transaction in 2003 was not required in 2004.
Other income in 2004 was $1,005,000 compared to $701,000 in 2003, an increase of $304,000 or 43.4%. The increase principally resulted from increased interest income.
Other expense was $79,000 and $164,000 in 2004 and 2003, respectively.
The effective income tax rate was 35.4% in 2004, compared to 32.0% in 2003. In 2004, the Company did not benefit from foreign tax credits generated in the fourth quarter of 2003 of approximately $536,000 or $0.05 per share.
Net income for 2004 was $9.3 million compared to $9.8 million in 2003, a decrease of $500,000 or 5.2%. As a percent of net sales, net income was 4.6% and 5.0% in 2004 and 2003, respectively. Earnings per share was $0.87 in 2004 compared to $0.92 in 2003.
Cash dividends paid on common shares increased during 2004 to $0.55 per share and marked the 32nd consecutive year of increased cash dividends. The dividend yield at December 31, 2004 was 2.4%.
On July 22, 2004, the Company announced a 5 for 4 common stock split effective September 10, 2004 to shareholders of record as of August 13, 2004. The outstanding common stock was increased from 8,546,553 shares without par value to 10,682,697 shares without par value. Share and per share data for all periods presented have been restated to reflect the stock split.
Results of Operations
2003 Compared to 2002
Net sales recorded by the Company amounted to $195.8 million in 2003, a slight improvement when compared to $195.1 million in 2002. Net sales reflected a 9.5% increase in pump and pump related sales principally resulting from improved business in the municipal and international markets, and the first full year of results from the pump businesses acquired in 2002. Offsetting the overall increase of pump sales was the impact of a stalled capital goods economy and the further decline in sales of fabricated components used in the turbine power generation industry. Price increases on products marketed in a price conscious environment ranged up to 2.5%.
Export shipments in 2003 amounted to $38.2 million, an increase of $4.0 million, and represented 19% of net sales compared to $34.2 million and 18% of net sales in 2002.
The Gorman-Rupp Company 2004 Annual Report
24
The Gorman-Rupp Company
2004 Management’s Discussion and Analysis of Financial
Condition and Results of Operation
Cost of products sold in 2003 was $154.0 million compared to $153.7 million in 2002. As a percent of sales, gross margins were 21.4% in 2003 and 21.2% in 2002. The favorable effect of cost containment programs and productivity improvements during the year were offset by volume-related costs and increased pension cost over 2002 amounting to $1.5 million.
Selling, general and administrative (SG&A) expenses in 2003 were $28.0 million compared to $27.9 million in 2002. As a percent of net sales SG&A expenses were 14.3% during 2003 and 2002. The impact of favorable cost containment efforts were offset by pro-rated pension cost increases over 2002 to SG&A expense amounting to approximately $600,000.
Other income in 2003 was $701,000 and consisted principally of the favorable effect of foreign currency exchange gains from the Company’s foreign subsidiaries, interest income and income from the rental of the Company’s unused facility. Other income in 2002 totaled $797,000 and was principally the result of interest income on invested funds and income from the rental of the Company’s unused facility. Interest income during 2003 was reduced due to lower available rates of return.
Other expense was $164,000 and $124,000 in 2003 and 2002, respectively.
The effective income tax rate was 32.0% in 2003, compared to 37.1% in 2002. The Company benefited primarily from foreign tax credits generated in the fourth quarter of 2003. The tax benefit was approximately $536,000 or $0.05 per share.
Net income for 2003 was $9.8 million compared to $8.9 million in 2002. As a percent of net sales, net income was 5.0% and 4.6% in 2003 and 2002, respectively. Earnings per share was $0.92 in 2003 compared to $0.84 in 2002. The increase in each of these performance measurements resulted from the reasons discussed above. All of the Company’s subsidiaries and divisions were profitable during 2003.
Cash dividends paid on common shares increased during 2003 to $0.54 per share and marked the 31st consecutive year of increased cash dividends. The dividend yield at December 31, 2003 was 2.6%.
On February 28, 2002, the Company acquired all of the issued and outstanding stock of American Machine & Tool Co., Inc. (“AMT”) for a net cash purchase price of approximately $12.6 million. On March 1, 2002, the Company acquired all of the issued and outstanding stock of Flo-Pak, Inc. (“Flo-Pak”) for a cash purchase price of approximately $5.6 million. The acquisitions were financed with cash from the Company’s treasury, $900,000 of notes payable and by a draw of $10.0 million on an unsecured credit facility. The Company has subsequently retired all debt obligations related to these acquisitions. 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 Buford, 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.
Trends
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.
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.
The Gorman-Rupp Company 2004 Annual Report
25
The Gorman-Rupp Company
2004 Management’s Discussion and Analysis of Financial
Condition and Results of Operation
Liquidity and Sources of Capital
Cash equivalents and short-term investments totaled $18.9 million and there was no debt at December 31, 2004. In addition, the Company had $12.6 million available in bank lines of credit after deducting $2.4 million in out-standing letters of credit. The Company was in compliance with all restrictive covenants, including limits on additional borrowings and maintenance of certain operating and financial ratios at December 31, 2004.
During 2002, the Company financed its business acquisitions, including the repayment of a $10.0 million draw, principally through internally generated funds, including inventory reductions. Capital expenditures for 2005, estimated to be $3.0 to $5.0 million, are expected to be financed through internally generated funds and existing credit arrangements. During 2004, 2003 and 2002, 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 $14.5 million, $13.6 million and $21.4 million in 2004, 2003 and 2002, respectively. The decrease in 2003 was primarily due to increased levels of receivables and inventories. The improvement in 2004 was primarily attributable to favorable variances in receivables, inventories and deferred income taxes. These variances reflect improved timing of collections and inventory management, and accelerated tax depreciation on fixed assets purchased in 2004. The improvement in cash provided by operating activities was partially offset by reductions in income taxes payable and commissions payable.
Cash used for investing activities was $9.0 million, $4.9 million and $22.9 million for 2004, 2003 and 2002, respectively, and normally consists of investments in machinery and equipment. The Company’s 2004 net capital expenditures were $7.5 million compared to $3.7 million in 2003, an increase of $3.8 million. The increase in net capital expenditures resulted primarily from the purchase of a new Company aircraft. In 2002, the Company spent $18.2 million for the acquisitions of AMT and Flo-Pak and related costs.
Cash used for financing activities was $5.9 million in 2004 and $6.0 million in 2003 and 2002. Cash dividends constituted the major portion of cash outflows.
The change in value of the Canadian dollar and Euro against the U.S. dollar increased cash $361,000, $461,000 and $23,000 in 2004, 2003 and 2002, respectively.
The ratio of current assets to current liabilities was 4.6 to 1 and 4.4 to 1 at December 31, 2004 and 2003, respectively.
Management believes that the Company has adequate working capital and a healthy liquidity position.
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. 104, “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. 104.
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, etc.), 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.
The Gorman-Rupp Company 2004 Annual Report
26
The Gorman-Rupp Company
2004 Management’s Discussion and Analysis of Financial
Condition and Results of Operation
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. Historically, the Company has not experienced large write-offs due to obsolescence. The Company uses the last-in, first-out (LIFO) method for primarily all of its inventories.
Pension Plans and Other Postretirement Benefit Plans
The measurement of liabilities related to pension plans and other postretirement 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 31 for benefit plan determinations. The discount rates used to determine the present value of future benefits are based on effective yields of investment grade fixed income investments. The discount rate used to value pension plan and postretirement obligations was 5.89% at October 31, 2004, compared to 6.34% at October 31, 2003. Annual expense amounts are determined based on the discount rate at October 31 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 2004 and 2003 was 8.0%. During 2004, the fair market value of pension assets increased. Actual pension plan asset performance will either reduce or increase unamortized losses which will ultimately affect net income. The rate of compensation increase was 3.5% and 3.75% in 2004 and 2003, respectively. The assumption used for the rate of increase in medical costs over the next five years was essentially unchanged from 2003 to 2004. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, 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 2004 | | $ | 265 | | | | | | | $ | (237 | ) |
Effect on accumulated postretirement benefit obligation as of December 31, 2004 | | $ | 2,350 | | | | | | | $ | (2,086 | ) |
The overall effect of changes noted in the above assumptions will increase pension and postretirement expenses.
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. The value of goodwill and intangible assets are tested for impairment as of October 1 of each year, or more frequently if events or circumstances change that would likely reduce the fair value below carrying value. The Company uses the fair market value approach to test for impairment. The fair market valuations used for the impairment tests can be affected by changes in the estimates of the revenue multiples and the discount rate used in the calculations. Losses, if any, resulting from impairment tests will be reflected in operating income in the Company’s income statement. No impairment resulted from the annual reviews performed in 2004 or 2003.
Amortization of other intangible assets is calculated on the straight-line basis using the following lives:
| | | | | | |
Sales contracts | | | 18 years | | | |
Drawings | | | 15 years | | | |
Program logic | | | 10 years | | | |
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 any off-balance sheet arrangements, financings or other relationships with unconsolidated “special purpose entities.” Gorman-Rupp is also not a party to any long-term debt agreements, or any material capital leases, operating leases or purchase obligations.
The Gorman-Rupp Company 2004 Annual Report
27
The Gorman-Rupp Company
2004 Report of Management on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of Management and Directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
During the course of the Company’s 2004 financial statements close process, one material weakness in the Company’s internal control over financial reporting was identified. The material weakness related to the inadequacy of accounting personnel and certain communication procedures at Patterson Pump Company, a wholly-owned subsidiary, which resulted in an untimely recognition of a decrease in inventory and net income at Patterson Pump Company.
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework inInternal Control – Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, Management concluded the Company did not maintain effective internal control over financial reporting as of December 31, 2004. Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their attestation report which is included herein.
/s/ JEFFREY S. GORMAN
Jeffrey S. Gorman
President and Chief Executive Officer
/s/ ROBERT E. KIRKENDALL
Robert E. Kirkendall
Senior Vice President and Chief Financial Officer
February 24, 2005
The Gorman-Rupp Company 2004 Annual Report
28
The Gorman-Rupp Company
2004 Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
The Gorman-Rupp Company
We have audited management’s assessment, included in the accompanying Report of Management on Internal Control Over Financial Reporting, that The Gorman-Rupp Company did not maintain effective internal control over financial reporting as of December 31, 2004, because of the effect of the material weakness identified in management’s assessment, based on criteria established inInternal Control – Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Gorman-Rupp Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s assessment: During the course of the Company’s 2004 financial statements close process, one material weakness in the Company’s internal control over financial reporting was identified. The material weakness related to the inadequacy of accounting personnel and certain communication procedures at Patterson Pump Company, a wholly-owned subsidiary, which resulted in an untimely recognition of a decrease in inventory and net income at Patterson Pump Company.
This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 financial statements, and this report does not affect our report dated February 24, 2005 on those financial statements.
In our opinion, management’s assessment that The Gorman-Rupp Company did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO control criteria. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, The Gorman-Rupp Company has not maintained effective internal control over financial reporting as of December 31, 2004, based on the COSO control criteria.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
February 24, 2005
The Gorman-Rupp Company 2004 Annual Report
29
The Gorman-Rupp Company
2004 Eleven-Year Summary of Selected Financial Data
(Thousands of dollars, except per share amounts)
| | | | | | | | | | | | | | | | |
| | 2004 | | | 2003 | | | 2002 | | | 2001 | |
Operating Results: | | | | | | | | | | | | | | | | |
Net sales | | $ | 203,554 | | | $ | 195,826 | | | $ | 195,081 | | | $ | 203,169 | |
Gross profit(1) | | | 42,425 | | | | 41,851 | | | | 41,451 | | | | 48,108 | |
Income taxes | | | 5,075 | | | | 4,613 | | | | 5,267 | | | | 8,450 | |
Net income | | | 9,277 | | | | 9,787 | | | | 8,936 | | | | 14,585 | |
Depreciation and amortization(1) | | | 7,179 | | | | 7,274 | | | | 7,035 | | | | 7,128 | |
Interest expense | | | 40 | | | | 56 | | | | 72 | | | | 116 | |
Return on net sales (%) | | | 4.6 | | | | 5.0 | | | | 4.6 | | | | 7.2 | |
Sales dollars per employee | | | 211.4 | | | | 196.4 | | | | 185.1 | | | | 195.2 | |
Income dollars per employee | | | 9.6 | | | | 9.8 | | | | 8.5 | | | | 14.0 | |
|
Financial Position: | | | | | | | | | | | | | | | | |
Current assets | | $ | 96,645 | | | $ | 95,718 | | | $ | 85,315 | | | $ | 90,575 | |
Current liabilities | | | 21,112 | | | | 21,908 | | | | 19,282 | | | | 18,103 | |
Working capital | | | 75,533 | | | | 73,810 | | | | 66,033 | | | | 72,472 | |
Current ratio | | | 4.6 | | | | 4.4 | | | | 4.4 | | | | 5.0 | |
Property, plant and equipment – net | | | 54,812 | | | | 54,338 | | | | 57,757 | | | | 53,895 | |
Capital additions | | | 7,500 | | | | 3,698 | | | | 5,765 | | | | 3,139 | |
Total assets | | | 165,344 | | | | 162,395 | | | | 154,302 | | | | 149,569 | |
Long-term debt | | | – | | | | – | | | | 291 | | | | – | |
Shareholders’ equity | | | 121,898 | | | | 117,918 | | | | 112,912 | | | | 109,366 | |
Dividends paid | | | 5,907 | | | | 5,809 | | | | 5,550 | | | | 5,475 | |
Average number of employees | | | 963 | | | | 997 | | | | 1,054 | | | | 1,041 | |
|
Shareholder Information:(2) | | | | | | | | | | | | | | | | |
Basic and diluted earnings per share | | $ | 0.87 | | | $ | 0.92 | | | $ | 0.84 | | | $ | 1.36 | |
Cash dividends per share | | | .552 | | | | .544 | | | | .520 | | | | .512 | |
Shareholders’ equity per share at December 31 | | | 11.41 | | | | 11.04 | | | | 10.58 | | | | 10.25 | |
Average number of shares outstanding | | | 10,680,832 | | | | 10,677,087 | | | | 10,673,337 | | | | 10,694,292 | |
(1) | | Prior period amounts have been reclassified for amortization expense to conform to the 2004 presentation. |
|
(2) | | Shares outstanding and per share data reflect the 5 for 4 stock split effective September 10, 2004. |
Summary of Quarterly Results of Operations
The following is a summary of unaudited quarterly results of operations for the years ended December 31, 2004 and 2003:
(Thousands of dollars, except per share amounts)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Basic and Diluted | |
Quarter Ended 2004 | | Net Sales | | | Gross Profit(1) | | | Net Income | | | Earnings per Share(2) | |
First Quarter | | $ | 49,431 | | | $ | 10,094 | | | $ | 2,207 | | | $ | 0.21 | |
Second Quarter | | | 50,804 | | | | 10,822 | | | | 2,449 | | | | 0.23 | |
Third Quarter | | | 52,392 | | | | 10,860 | | | | 2,056 | | | | 0.19 | |
Fourth Quarter | | | 50,927 | | | | 10,649 | | | | 2,565 | | | | 0.24 | |
| | | | | | | | | | | | |
Total | | $ | 203,554 | | | $ | 42,425 | | | $ | 9,277 | | | $ | 0.87 | |
| | | | | | | | | | | | |
(1) | | Prior period amounts have been reclassified for amortization expense to conform to the 2004 presentation. |
|
(2) | | Per share data reflect the 5 for 4 stock split effective September 10, 2004. |
The Gorman-Rupp Company 2004 Annual Report
30
| | | | | | | | | | | | | | | | | | | | | | | | |
2000 | | 1999 | | | 1998 | | | 1997 | | | 1996 | | | 1995 | | | 1994 | |
$190,384 | | $ | 182,239 | | | $ | 174,162 | | | $ | 167,723 | | | $ | 157,733 | | | $ | 152,007 | | | $ | 139,795 | |
48,430 | | | 46,347 | | | | 43,713 | | | | 40,964 | | | | 39,127 | | | | 36,516 | | | | 35,763 | |
8,400 | | | 8,460 | | | | 7,400 | | | | 6,340 | | | | 5,735 | | | | 5,590 | | | | 5,625 | |
13,796 | | | 13,081 | | | | 11,752 | | | | 10,612 | | | | 9,928 | | | | 9,461 | | | | 9,327 | |
6,863 | | | 6,489 | | | | 6,330 | | | | 5,959 | | | | 5,675 | | | | 5,173 | | | | 4,534 | |
183 | | | 55 | | | | 188 | | | | 238 | | | | 330 | | | | 602 | | | | 195 | |
7.2 | | | 7.2 | | | | 6.7 | | | | 6.3 | | | | 6.3 | | | | 6.2 | | | | 6.7 | |
186.5 | | | 177.6 | | | | 170.4 | | | | 163.8 | | | | 161.9 | | | | 156.4 | | | | 140.8 | |
13.5 | | | 12.7 | | | | 11.5 | | | | 10.4 | | | | 10.2 | | | | 9.7 | | | | 9.4 | |
|
$83,745 | | $ | 79,641 | | | $ | 80,012 | | | $ | 83,151 | | | $ | 71,926 | | | $ | 71,401 | | | $ | 60,070 | |
19,079 | | | 17,439 | | | | 17,431 | | | | 17,036 | | | | 15,199 | | | | 19,727 | | | | 16,391 | |
64,666 | | | 62,202 | | | | 62,581 | | | | 66,115 | | | | 56,727 | | | | 51,674 | | | | 43,679 | |
4.4 | | | 4.6 | | | | 4.6 | | | | 4.9 | | | | 4.7 | | | | 3.6 | | | | 3.7 | |
57,885 | | | 53,609 | | | | 43,916 | | | | 40,919 | | | | 40,549 | | | | 42,163 | | | | 40,879 | |
11,439 | | | 16,182 | | | | 9,327 | | | | 6,329 | | | | 4,036 | | | | 8,229 | | | | 8,553 | |
147,337 | | | 138,331 | | | | 128,933 | | | | 129,321 | | | | 117,650 | | | | 119,816 | | | | 107,100 | |
3,413 | | | 3,107 | | | | 783 | | | | 6,689 | | | | 3,796 | | | | 7,188 | | | | 4,715 | |
101,455 | | | 93,751 | | | | 85,162 | | | | 79,516 | | | | 72,737 | | | | 67,240 | | | | 61,608 | |
5,322 | | | 5,152 | | | | 4,983 | | | | 4,821 | | | | 4,567 | | | | 4,466 | | | | 4,209 | |
1,021 | | | 1,026 | | | | 1,022 | | | | 1,024 | | | | 974 | | | | 972 | | | | 993 | |
|
$1.29 | | $ | 1.22 | | | $ | 1.09 | | | $ | 0.99 | | | $ | 0.92 | | | $ | 0.88 | | | $ | 0.87 | |
.496 | | | .480 | | | | .464 | | | | .448 | | | | .424 | | | | .416 | | | | .392 | |
9.48 | | | 8.73 | | | | 7.94 | | | | 7.39 | | | | 6.75 | | | | 6.25 | | | | 5.74 | |
10,728,482 | | | 10,731,849 | | | | 10,749,144 | | | | 10,761,351 | | | | 10,770,961 | | | | 10,733,836 | | | | 10,724,045 | |
|
(Thousands of dollars, except per share amounts)
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Basic and Diluted | |
Quarter Ended 2003 | | Net Sales | | | Gross Profit(1) | | | Net Income | | | Earnings per Share(2) | |
First Quarter | | $ | 43,903 | | | $ | 8,402 | | | $ | 1,202 | | | $ | 0.11 | |
Second Quarter | | | 49,264 | | | | 11,233 | | | | 2,567 | | | | 0.24 | |
Third Quarter | | | 53,500 | | | | 11,228 | | | | 2,555 | | | | 0.24 | |
Fourth Quarter | | | 49,159 | | | | 10,988 | | | | 3,463 | | | | 0.33 | |
| | | | | | | | | | | | |
Total | | $ | 195,826 | | | $ | 41,851 | | | $ | 9,787 | | | $ | 0.92 | |
| | | | | | | | | | | | |
(1) | | Prior period amounts have been reclassified for amortization expense to conform to the 2004 presentation. |
|
(2) | | Per share data reflect the 5 for 4 stock split effective September 10, 2004. |
The Gorman-Rupp Company 2004 Annual Report
31
The Gorman-Rupp Company
2004 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 | |
| | 2004 | | | 2003 | | | 2004 | | | 2003 | |
| | High | | | Low | | | High | | | Low | | | | | | | |
First Quarter | | $ | 21.79 | | | $ | 18.64 | | | $ | 19.36 | | | $ | 14.56 | | | $ | .136 | | | $ | .136 | |
Second Quarter | | | 23.24 | | | | 19.32 | | | | 21.78 | | | | 15.68 | | | | .136 | | | | .136 | |
Third Quarter | | | 22.12 | | | | 15.99 | | | | 20.10 | | | | 17.60 | | | | .140 | | | | .136 | |
Fourth Quarter | | | 24.59 | | | | 20.46 | | | | 21.65 | | | | 17.48 | | | | .140 | | | | .136 | |
Per share data and sales price per share data reflect the 5 for 4 stock split effective September 10, 2004.
Shareholder information reported by Transfer Agent and Registrar, National City Bank, February 7, 2005.
| | | | | | | | |
| | Holders | | | Shares | |
Individuals | | | 1,237 | | | | 2,846,712 | |
Nominees, brokers and others | | | 17 | | | | 7,835,985 | |
| | | | | | |
Total | | | 1,254 | | | | 10,682,697 | |
| | | | | | |
An additional 398,278 common shares are held in Treasury.
Shares reflect the 5 for 4 stock split effective September 10, 2004.
The Gorman-Rupp Company 2004 Annual Report
34
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.
The Gorman-Rupp Company 2004 Annual Report
35