10-Q 1 grc20220331_10q.htm FORM 10-Q grc20220331_10q.htm
0000042682 GORMAN RUPP CO false --12-31 Q1 2022 0 0 35,000,000 35,000,000 26,079,115 26,103,661 969,681 945,135 0.17 0.155 1 The components of net periodic benefit cost other than the service cost component are included in Other income (expense), net in the Consolidated Statements of Income. The recognized actuarial loss and the settlement loss are included in Other income (expense), net in the Consolidated Statements of Income. 00000426822022-01-012022-03-31 xbrli:shares 00000426822022-05-02 iso4217:USD 00000426822021-01-012021-03-31 iso4217:USDxbrli:shares 00000426822022-03-31 00000426822021-12-31 00000426822020-12-31 00000426822021-03-31 0000042682us-gaap:CommonStockMember2021-12-31 0000042682us-gaap:AdditionalPaidInCapitalMember2021-12-31 0000042682us-gaap:RetainedEarningsMember2021-12-31 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-31 0000042682us-gaap:RetainedEarningsMember2022-01-012022-03-31 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-31 0000042682us-gaap:CommonStockMember2022-01-012022-03-31 0000042682us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-31 0000042682us-gaap:CommonStockMember2022-03-31 0000042682us-gaap:AdditionalPaidInCapitalMember2022-03-31 0000042682us-gaap:RetainedEarningsMember2022-03-31 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-31 0000042682us-gaap:CommonStockMember2020-12-31 0000042682us-gaap:AdditionalPaidInCapitalMember2020-12-31 0000042682us-gaap:RetainedEarningsMember2020-12-31 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-31 0000042682us-gaap:RetainedEarningsMember2021-01-012021-03-31 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-31 0000042682us-gaap:CommonStockMember2021-01-012021-03-31 0000042682us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-31 0000042682us-gaap:CommonStockMember2021-03-31 0000042682us-gaap:AdditionalPaidInCapitalMember2021-03-31 0000042682us-gaap:RetainedEarningsMember2021-03-31 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-31 0000042682grc:PumpsAndPumpSystemsMember2022-01-012022-03-31 0000042682grc:PumpsAndPumpSystemsMember2021-01-012021-03-31 0000042682grc:RepairPartsForPumpsAndPumpSystemsAndOtherMember2022-01-012022-03-31 0000042682grc:RepairPartsForPumpsAndPumpSystemsAndOtherMember2021-01-012021-03-31 0000042682country:US2022-01-012022-03-31 0000042682country:US2021-01-012021-03-31 0000042682us-gaap:NonUsMember2022-01-012022-03-31 0000042682us-gaap:NonUsMember2021-01-012021-03-31 xbrli:pure 00000426822022-04-012022-03-31 utr:Y 0000042682us-gaap:LandMember2022-03-31 0000042682us-gaap:LandMember2021-12-31 0000042682us-gaap:BuildingMember2022-03-31 0000042682us-gaap:BuildingMember2021-12-31 0000042682us-gaap:MachineryAndEquipmentMember2022-03-31 0000042682us-gaap:MachineryAndEquipmentMember2021-12-31 0000042682us-gaap:PensionPlansDefinedBenefitMember2022-01-012022-03-31 0000042682us-gaap:PensionPlansDefinedBenefitMember2021-01-012021-03-31 0000042682us-gaap:PostemploymentRetirementBenefitsMember2022-01-012022-03-31 0000042682us-gaap:PostemploymentRetirementBenefitsMember2021-01-012021-03-31 0000042682us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-01-012022-03-31 0000042682us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-01-012021-03-31 0000042682us-gaap:AccumulatedTranslationAdjustmentMember2021-12-31 0000042682us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-12-31 0000042682us-gaap:AccumulatedTranslationAdjustmentMember2022-01-012022-03-31 0000042682us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-01-012022-03-31 0000042682us-gaap:AccumulatedTranslationAdjustmentMember2022-03-31 0000042682us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-03-31 0000042682us-gaap:AccumulatedTranslationAdjustmentMember2020-12-31 0000042682us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-12-31 0000042682us-gaap:AccumulatedTranslationAdjustmentMember2021-01-012021-03-31 0000042682us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-01-012021-03-31 0000042682us-gaap:AccumulatedTranslationAdjustmentMember2021-03-31 0000042682us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-03-31 0000042682grc:TheShareRepurchaseProgramMember2021-10-29 0000042682grc:TheShareRepurchaseProgramMember2022-01-012022-03-31 0000042682grc:TheShareRepurchaseProgramMember2021-01-012021-03-31 0000042682grc:TheShareRepurchaseProgramMember2022-03-31 0000042682grc:FillriteAndSoteraMemberus-gaap:SubsequentEventMember2022-04-262022-04-26
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2022

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 1-6747

 

The Gorman-Rupp Company

(Exact name of registrant as specified in its charter)

 

Ohio

 

34-0253990

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

  
   

600 South Airport Road, Mansfield, Ohio

 

44903

(Address of principal executive offices)

 

(Zip Code)

 

Registrants telephone number, including area code (419) 755-1011

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, without par value

GRC

New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ☒    No   ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes   ☒    No   ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐

Accelerated filer

Non-accelerated filer ☐

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  ☒

 

On May 2, 2022 there were 26,079,115 common shares, without par value, of The Gorman-Rupp Company outstanding.

 

 

 
 
 

The Gorman-Rupp Company

Three Months Ended March 31, 2022 and 2021

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 
 

Consolidated Statements of Income - Three months ended March 31, 2022 and 2021

3

 

Consolidated Statements of Comprehensive Income - Three months ended March 31, 2022 and 2021

3

 

Consolidated Balance Sheets - March 31, 2022 and December 31, 2021

4

 

Consolidated Statements of Cash Flows - Three months ended March 31, 2022 and 2021

5

 

Consolidated Statements of Equity - Three months ended March 31, 2022 and 2021

6

 

Notes to Consolidated Financial Statements (Unaudited)

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

11

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

15

Item 4.

Controls and Procedures

15

   

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

16

Item 1A.

Risk Factors

16

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

16

Item 6.

Exhibits

17

EX-31.1

Section 302 Principal Executive Officer (PEO) Certification

 

EX-31.2

Section 302 Principal Financial Officer (PFO) Certification

 

EX-32

Section 1350 Certifications

 

 

2

 
 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)

 

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

  

Three Months Ended
March 31,

 

(Dollars in thousands, except per share amounts)

 

2022

  

2021

 

Net sales

 $102,167  $89,027 

Cost of products sold

  76,670   65,985 

Gross profit

  25,497   23,042 

Selling, general and administrative expenses

  16,039   14,069 

Operating income

  9,458   8,973 

Other income (expense), net

  90   345 

Income before income taxes

  9,548   9,318 

Income taxes

  2,005   1,889 

Net income

 $7,543  $7,429 

Earnings per share

 $0.29  $0.28 

Cash dividends per share

 $0.170  $0.155 

Average number of shares outstanding

  26,090,963   26,108,810 

 

See notes to consolidated financial statements (unaudited).

 

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

  

Three Months Ended
March 31,

 

(Dollars in thousands)

 

2022

  

2021

 

Net income

 $7,543  $7,429 

Other comprehensive (loss) income, net of tax:

        

Cumulative translation adjustments

  (36)  (1,383)

Pension and postretirement medical liability adjustments

  423   512 

Other comprehensive (loss) income

  387   (871)

Comprehensive income

 $7,930  $6,558 

 

See notes to consolidated financial statements (unaudited).

 

3

 

 

THE GORMAN-RUPP COMPANY

CONSOLIDATED BALANCE SHEETS

 

  

(unaudited)

     

(Dollars in thousands)

 

March 31,
2022

  

December 31,
2021

 

Assets

        

Current assets:

        

Cash and cash equivalents

 $122,686  $125,194 

Accounts receivable, net

  67,711   58,545 

Inventories, net

  89,974   85,648 

Prepaid and other

  8,314   7,795 

Total current assets

  288,685   277,182 

Property, plant and equipment, net

  104,238   104,293 

Other assets

  5,470   6,193 

Goodwill and other intangible assets, net

  32,925   33,086 

Total assets

 $431,318  $420,754 

Liabilities and equity

        

Current liabilities:

        

Accounts payable

 $19,934  $17,633 

Payroll and employee related liabilities

  12,919   11,754 

Commissions payable

  8,821   8,164 

Deferred revenue and customer deposits

  10,434   9,200 

Accrued expenses

  7,401   5,689 

Total current liabilities

  59,509   52,440 

Pension benefits

  9,648   9,342 

Postretirement benefits

  27,218   27,359 

Other long-term liabilities

  1,709   1,637 

Total liabilities

  98,084   90,778 

Equity:

        

Common shares, without par value:

        

Authorized – ‐‐35,000,000 shares;

        

Outstanding – 26,079,115 shares at March 31, 2022 and 26,103,661 shares at December 31, 2021 (after deducting treasury shares of 969,681 and 945,135, respectively), at stated capital amounts

  5,094   5,099 

Additional paid-in capital

  1,698   1,838 

Retained earnings

  356,385   353,369 

Accumulated other comprehensive (loss)

  (29,943

)

  (30,330

)

Total equity

  333,234   329,976 

Total liabilities and equity

 $431,318  $420,754 

 

See notes to consolidated financial statements (unaudited).

 

4

 
 

 

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

  

Three Months Ended
March 31,

 

(Dollars in thousands)

 

2022

  

2021

 

Cash flows from operating activities:

        

Net income

 $7,543  $7,429 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization

  2,933   2,982 

Pension expense

  760   761 

Stock based compensation

  682   836 

Changes in operating assets and liabilities:

        

Accounts receivable, net

  (9,211)  (3,576)

Inventories, net

  (4,315)  3,073 

Accounts payable

  2,256   3,397 

Commissions payable

  727   (771

)

Deferred revenue and customer deposits

  1,253   711 

Income taxes

  1,912   986 

Accrued expenses and other

  668   (1,296

)

Benefit obligations

  957   (850

)

Net cash provided by operating activities

  6,165   13,682 

Cash used for investing activities:

        

Capital additions

  (3,473)  (864

)

Other

  89   516 

Net cash used for investing activities

  (3,384)  (348

)

Cash used for financing activities:

        

Cash dividends

  (4,436)  (4,047

)

Treasury share repurchases

  (918)  (231

)

Other

  (32)  (627

)

Net cash used for financing activities

  (5,386)  (4,905

)

Effect of exchange rate changes on cash

  97   (118

)

Net increase (decrease) in cash and cash equivalents

  (2,508)  8,311 

Cash and cash equivalents:

        

Beginning of period

  125,194   108,203 

End of period

 $122,686  $116,514 

 

See notes to consolidated financial statements (unaudited).

 

5

 

 

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

 

  

Three Months Ended March 31, 2022

 
(Dollars in thousands, except  

Common Shares

  

Additional

Paid-In

  Retained  

Accumulated

Other

Comprehensive

     
share and per share amounts)  

Shares

  

Dollars

  Capital  Earnings  (Loss) Income  Total 

Balances December 31, 2021

  26,103,661  $5,099  $1,838  $353,369  $(30,330) $329,976 

Net income

              7,543       7,543 

Other comprehensive income

                  387   387 

Stock based compensation, net

        682          682 

Treasury share repurchases

  (24,546)  (5)  (822)  (90)      (918)

Cash dividends - $0.17 per share

              (4,436)      (4,436)

Balances March 31, 2022

  26,079,115  $5,094  $1,698  $356,385  $(29,943) $333,234 

 

 

 

  

Three Months Ended March 31, 2021

 

(Dollars in thousands, except

 Common Shares  

Additional

Paid-In

  

Retained

  

Accumulated

Other

Comprehensive

  

Total

 
share and per share amounts)  

Shares

  

Dollars

  Capital  Earnings  (Loss) Income     

Balances December 31, 2020

  26,101,992  $5,099  $693  $340,098  $(30,377) $315,513 

Net income

              7,429       7,429 

Other comprehensive income (loss)

                  (871)  (871)

Stock based compensation, net

  14,148   3   551   52       606 

Cash dividends - $0.155 per share

              (4,047)      (4,047)

Balances March 31, 2021

  26,116,140  $5,102  $1,244  $343,532  $(31,248) $318,630 

 

See notes to consolidated financial statements (unaudited).

 

6

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(Amounts in tables in thousands of dollars, except for per share amounts)

 

 

NOTE 1 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

 

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Consolidated Financial Statements include the accounts of The Gorman-Rupp Company (the “Company” or “Gorman-Rupp”) and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results. In the opinion of management of the Company, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of results that may be expected for the year ending December 31, 2022. For further information, refer to the Consolidated Financial Statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, from which related information herein has been derived.

 

COVID-19 Impact

 

In  March 2020, the World Health Organization categorized the coronavirus (“COVID-19”) as a pandemic. While the near-term effects of the pandemic have negatively impacted our financial results, uncertainty over the economic and operational impacts of COVID-19 means the ultimate related financial impact cannot be reasonably estimated at this time. The Company’s Consolidated Financial Statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and reported amounts of revenue and expenses during the reporting periods presented. Such estimates and assumptions affect, among other things, the Company’s goodwill, long-lived asset and indefinite-lived intangible asset valuation; inventory valuation; the allowance for doubtful accounts; and pension plan assumptions. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of the financial statements included in this Quarterly Report on Form 10-Q. These estimates  may change as new events occur and additional information is obtained.

 

 

NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS

 

The Company considers the applicability and impact of all Accounting Standard Updates (“ASUs”). All recently issued ASUs were assessed and determined to be not applicable or are expected to have minimal impact on the Company’s Consolidated Financial Statements.

 

 

NOTE 3 REVENUE

 

Disaggregation of Revenue

 

The following tables disaggregate total net sales by major product category and geographic location:

 

 

  

Product Category

 
  

March 31,

2022

  

March 31,

2021

 

Pumps and pump systems

 $85,769  $75,301 

Repair parts for pumps and pump systems and other

  16,398   13,726 

Total net sales

 $102,167  $89,027 

 

7

 
  

Geographic Location

 
  

March 31,

2022

  

March 31,

2021

 

United States

 $72,391  $62,619 

Foreign countries

  29,776   26,408 

Total net sales

 $102,167  $89,027 

 

International sales represented approximately 29% and 30% of total net sales for the first quarter of 2022 and 2021, respectively, and were made to customers in many different countries around the world.

 

On March 31, 2022, the Company had $195.5 million of remaining performance obligations, also referred to as backlog. The Company expects to recognize as revenue substantially all of its remaining performance obligations within one year.

 

The Company’s contract assets and liabilities as of March 31, 2022 and December 31, 2021 were as follows:

 

  

March 31,

2022

  

December 31,

2021

 

Contract assets

 $-  $- 

Contract liabilities

 $10,434  $9,200 

 

Revenue recognized for the three months ended March 31, 2022 and 2021 that was included in the contract liabilities balance at the beginning of the period was $5.1 million and $3.8 million, respectively.

 

 

NOTE 4 - INVENTORIES

 

LIFO inventories are stated at the lower of cost or market and all other inventories are stated at the lower of cost or net realizable value. Replacement cost approximates current cost and the excess over LIFO cost is approximately $71.9 million and $70.1 million at March 31, 2022 and December 31, 2021, respectively. Allowances for excess and obsolete inventory totaled $6.1 million and $6.0 million at March 31, 2022 and December 31, 2021, respectively. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time. Interim LIFO calculations are based on management’s estimate of expected year-end inventory levels and costs, and are subject to the final year-end LIFO inventory valuation.

 

Inventories are comprised of the following:

 

Inventories, net:

 

March 31,

2022

  

December 31,

2021

 

Raw materials and in-process

 $26,507  $23,263 

Finished parts

  52,752   52,039 

Finished products

  10,715   10,346 

Total net inventories

 $89,974  $85,648 

 

 

NOTE 5 PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment, net consist of the following:

 

  

March 31,

2022

  

December 31,

2021

 

Land

 $5,812  $5,813 

Buildings

  113,274   112,760 

Machinery and equipment

  188,558   188,123 
   307,644   306,696 

Less accumulated depreciation

  (203,406)  (202,403

)

Property, plant and equipment, net

 $104,238  $104,293 

 

8

 

 

NOTE 6 - PRODUCT WARRANTIES

 

A liability is established for estimated future warranty and service claims based on historical claims experience and specific product failures. The Company expenses warranty costs directly to Cost of products sold. Changes in the Company’s product warranties liability are:

 

  

March 31,

 
  

2022

  

2021

 

Balance at beginning of year

 $1,637  $1,361 

Provision

  389   510 

Claims

  (313)  (395

)

Balance at end of period

 $1,713  $1,476 

 

 

NOTE 7 - PENSION AND OTHER POSTRETIREMENT BENEFITS

 

The Company sponsors a defined benefit pension plan (“Plan”) covering certain domestic employees. Benefits are based on each covered employee’s years of service and compensation. The Plan is funded in conformity with the funding requirements of applicable U.S. regulations. The Plan was closed to new participants effective January 1, 2008. Employees hired after this date, in eligible locations, participate in an enhanced 401(k) plan instead of the defined benefit pension plan. Employees hired prior to this date continue to accrue benefits.

 

Additionally, the Company sponsors defined contribution pension plans made available to all domestic and Canadian employees. The Company funds the cost of these benefits as incurred.

 

The Company also sponsors a non-contributory defined benefit postretirement health care plan that provides health benefits to certain domestic and Canadian retirees and eligible spouses and dependent children. The Company funds the cost of these benefits as incurred.

 

The following tables present the components of net periodic benefit costs:

 

  

Pension Benefits

  

Postretirement Benefits

 
  

Three Months Ended
March 31,

  

Three Months Ended
March 31,

 
  

2022

  

2021

  

2022

  

2021

 

Service cost

 $664  $749  $287  $365 

Interest cost

  454   392   190   163 

Expected return on plan assets

  (812)  (895

)

  -   - 

Amortization of prior service cost

  -   -   (283

)

  (282

)

Recognized actuarial loss

  454   515   92   145 

Net periodic benefit cost (a)

 $760  $761  $286  $391 

 

 (a)

The components of net periodic benefit cost other than the service cost component are included in Other income (expense), net in the Consolidated Statements of Income.

 

 

NOTE 8 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)          

 

The reclassifications out of Accumulated other comprehensive income (loss) as reported in the Consolidated Statements of Income are:

 

  

Three Months Ended
March 31,

 
  

2022

  

2021

 

Pension and other postretirement benefits:

        

Recognized actuarial loss (a)

 $546  $660 

Income tax

  (123)  (148

)

Net of income tax

 $423  $512 

 

 (a)

The recognized actuarial loss is included in Other income (expense), net in the Consolidated Statements of Income.

 

9

 

The components of Accumulated other comprehensive income (loss) as reported in the Consolidated Balance Sheets are:

 

  

Currency
Translation
Adjustments

  

Pension and
Other
Postretirement
Benefits

  

Accumulated
Other
Comprehensive
Income (Loss)

 

Balance at December 31, 2021

 $(7,851) $(22,479

)

 $(30,330

)

Reclassification adjustments

     546   546 

Current period charge

  (36)  -   (36)

Income tax benefit (charge)

     (123)  (123)

Balance at March 31, 2022

 $(7,887)  (22,056) $(29,943)

 

  

Currency
Translation
Adjustments

  

Pension and
Other
Postretirement
Benefits

  

Accumulated
Other
Comprehensive
Income (Loss)

 

Balance at December 31, 2020

 $(5,044

)

 $(25,333

)

 $(30,377

)

Reclassification adjustments

  -   660   660 

Current period charge

  (1,383

)

  -   (1,383

)

Income tax benefit (charge)

  -   (148

)

  (148

)

Balance at March 31, 2021

 $(6,427

)

 $(24,821

)

 $(31,248

)

 

 

NOTE 9 COMMON SHARE REPURCHASES

 

The Company has a share repurchase program with the authorization to purchase up to $50.0 million of the Company’s common shares. During the three-month period ended March 31, 2022 the Company repurchased 24,546 shares for $0.9 million. No shares were repurchased during the three-month period ending March 31, 2021. As of March 31, 2022, the Company had $48.1 million available for repurchase under the share repurchase program.

 

 

NOTE 10 SUBSEQUENT EVENTS

 

On April 26, 2022 the Company entered into a definitive agreement to acquire the assets of Fill-Rite and Sotera (“Fill-Rite”), a division of Tuthill Corporation, for $525 million. When adjusted for approximately $80 million in expected tax benefits, the net transaction value is approximately $445 million. The Company expects to fund the transaction with cash on-hand and new debt. Subject to customary closing conditions and necessary regulatory approvals, the transaction is expected to close in the second quarter of 2022.

10

 

 

ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

(Dollars in thousands, except for per share amounts)

 

The following discussion and analysis of the Company’s financial condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements, and notes thereto, and the other financial data included elsewhere in this Quarterly Report on Form 10-Q. The following discussion should also be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in its Annual Report on Form 10-K for the year ended December 31, 2021. The coronavirus (COVID-19) pandemic had an adverse effect on the Company’s reported results in 2021 and while our supply chains continue to face challenges our reported results have continued to improve. The extent to which the Company’s operations will continue to be impacted by the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the pandemic and actions by government authorities to contain the pandemic or treat its impact, among other things.

 

Executive Overview

 

The following discussion of Results of Operations includes certain non-GAAP financial data and measures such as earnings before interest, taxes, depreciation and amortization. Management utilizes these adjusted financial data and measures to assess comparative operations against those of prior periods without the distortion of non-comparable factors. The Gorman-Rupp Company believes that these non-GAAP financial data and measures also will be useful to investors in assessing the strength of the Company’s underlying operations from period to period. Provided below is a reconciliation of earnings before interest, taxes, depreciation and amortization.

 

   

Three Months Ended

March 31,

 
   

2022

   

2021

 
                 

Adjusted earnings before interest, taxes, depreciation and amortization:

               

Reported net income–GAAP basis

  $ 7,543     $ 7,429  

Plus income taxes

    2,005       1,889  

Plus depreciation and amortization

    2,933       2,982  

Non-GAAP earnings before interest, taxes, depreciation and amortization

  $ 12,481     $ 12,300  

 

The Gorman-Rupp Company (“we”, “our”, “Gorman-Rupp” or the “Company”) is a leading designer, manufacturer and international marketer of pumps and pump systems for use in diverse water, wastewater, construction, dewatering, industrial, petroleum, original equipment, agriculture, fire protection, heating, ventilating and air conditioning (HVAC), military and other liquid-handling applications. The Company attributes its success to long-term product quality, applications and performance combined with timely delivery and service, and continually seeks to develop initiatives to improve performance in these key areas.

 

We regularly invest in training for our employees, in new product development and in modern manufacturing equipment, technology and facilities all designed to increase production efficiency and capacity and drive growth by delivering innovative solutions to our customers. We believe that the diversity of our markets is a major contributor to the generally stable financial growth we have produced historically.

 

The Company places a strong emphasis on cash flow generation and maintaining liquidity. This focus has afforded us the ability to reinvest our cash resources in acquisitions and product development opportunities. The Company’s cash position decreased $2.5 million during the first three months of 2022 to $123.0 million at March 31, 2022 and the Company generated $12.5 million in adjusted earnings before interest, taxes, depreciation and amortization during the same period.

 

Capital expenditures for the first three months of 2022 were $3.5 million and consisted primarily of machinery and equipment and building improvements. Capital expenditures for the full-year 2022 are presently planned to be in the range of $15-$20 million primarily for building improvements and machinery and equipment purchases, and are expected to be financed through internally-generated funds.

 

The Company’s backlog of orders was $195.5 million at March 31, 2022 compared to $125.5 million at March 31, 2021 and $186.0 million at December 31, 2021. Incoming orders increased 9.6% for the first quarter of 2022 compared to the same period in 2021. Incoming orders were up across most markets the Company serves.

 

11

 

On April 28, 2022, the Board of Directors authorized the payment of a quarterly dividend of $0.17 per share on the common stock of the Company, payable June 10, 2022, to shareholders of record as of May 13, 2022. This will mark the 289th consecutive quarterly dividend paid by The Gorman-Rupp Company.

 

On April 26, 2022, the Company entered into a definitive agreement to acquire the assets of Fill-Rite, a division of Tuthill Corporation, for $525 million. When adjusted for approximately $80 million in expected tax benefits, the net transaction value is approximately $445 million.  The Company expects to fund the transaction with cash on-hand and new debt.  Subject to customary closing conditions and necessary regulatory approvals, the transaction is expected to close in the second quarter of 2022.  In connection with the anticipated closing of the transaction, the Company expects to enter into senior secured first lien credit facilities comprised of a $350 million term loan facility and a $100 million revolving credit facility, as well as an unsecured senior subordinated term loan facility in the amount of $90 million, subject to the satisfaction or waiver of customary conditions. The Company expects that it will incur no initial borrowings under the revolving credit facility in connection with anticipated closing of the transaction.

 

The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends. However, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent on our assessment of the Company’s financial condition and business outlook at the applicable time.

 

Outlook

 

We continue to see top line growth across most of our markets and incoming order trends remain positive.  Although backlog is still at a historically high level, our aging is consistent.   While we have leveraged labor and overhead, inflationary pressures on cost of material persist, so we will continue to adjust our pricing to offset these increases.   It appears that global supply chain challenges will extend into the foreseeable future.  We are navigating these challenges and believe we will be able to maintain top line growth.

 

Three Months Ended March 31, 2022 vs. Three Months Ended March 31, 2021

 

Net Sales

 

   

Three Months Ended
March 31,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Net Sales

  $ 102,167     $ 89,027     $ 13,140       14.8

%

 

Net sales for the first quarter of 2022 were $102.2 million compared to net sales of $89.0 million for the first quarter of 2021, an increase of 14.8% or $13.2 million. Domestic sales of $72.4 million increased 15.6% and international sales of $29.8 million increased 12.8% compared to the same period in 2021. Sales have increased across nearly all of our markets and incoming orders for the quarter increased 9.6% compared to the first quarter of 2021 to $112.0 million.

 

Sales in our water markets increased 11.5% or $7.5 million in the first quarter of 2022 compared to the first quarter of 2021. Sales increased $5.9 million in the fire protection market, $2.3 million in the construction market, and $1.6 million in the repair market. Partially offsetting these increases was a decrease of $2.2 million in the municipal market and $0.1 million in the agriculture market. Incoming orders and backlog for the municipal and agriculture markets were up compared to the prior year period.

 

Sales in our non-water markets increased 23.3% or $5.7 million in the first quarter of 2022 compared to the first quarter of 2021. Sales increased $3.7 million in the industrial market, $1.7 million in the OEM market, and $0.3 million in the petroleum market.

 

Cost of Products Sold and Gross Profit

 

   

Three Months Ended
March 31,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Cost of products sold

  $ 76,670     $ 65,985     $ 10,685       16.2

%

% of Net sales

    75.0

%

    74.1

%

               

Gross Margin

    25.0

%

    25.9

%

               

 

Gross profit was $25.5 million for the first quarter of 2022, resulting in gross margin of 25.0%, compared to gross profit of $23.0 million and gross margin of 25.9% for the same period in 2021. The 90 basis point decrease in gross margin was driven by a 200 basis point increase in cost of material, which included an unfavorable LIFO impact of 100 basis points, partially offset by a 110 basis point improvement from labor and overhead leverage due to increased sales volume.

 

12

 

Selling, General and Administrative (SG&A) Expenses

 

   

Three Months Ended
March 31,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Selling, general and administrative expenses

  $ 16,039     $ 14,069     $ 1,970       14.0

%

% of Net sales

    15.7

%

    15.8

%

               

 

Selling, general and administrative (“SG&A”) expenses were $16.0 million and 15.7% of net sales for the first quarter of 2022 compared to $14.1 million and 15.8% of net sales for the same period in 2021. SG&A expenses increased 14.0% or $1.9 million as a result of increased payroll and payroll related costs and increased travel expenses. SG&A expenses as a percentage of sales improved 10 basis points primarily as a result of leverage on fixed costs from increased sales volume.

 

Operating Income

 

   

Three Months Ended
March 31,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Operating income

  $ 9,458     $ 8,973     $ 485       5.4

%

% of Net sales

    9.3

%

    10.1

%

               

 

Operating income was $9.5 million for the first quarter of 2022, resulting in an operating margin of 9.3%, compared to operating income of $9.0 million and operating margin of 10.1% for the same period in 2021. Operating margin decreased 80 basis points primarily as a result of the increased cost of material due to unfavorable LIFO adjustments partially offset by improved leverage on fixed costs from increased sales volume.

 

Net Income

 

   

Three Months Ended
March 31,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Income before income taxes

  $ 9,548     $ 9,318     $ 230       2.5

%

% of Net sales

    9.3

%

    10.5

%

               

Income taxes

  $ 2,005     $ 1,889     $ 116       6.1

%

Effective tax rate

    21.0

%

    20.3

%

               

Net income

  $ 7,543     $ 7,429     $ 114       1.5

%

% of Net sales

    7.4

%

    8.3

%

               

Earnings per share

  $ 0.29     $ 0.28     $ 0.01       3.6

%

 

The Company’s effective tax rate was 21.0% for the first quarter of 2022 compared to 20.3% for the first quarter of 2021.

 

Net income was $7.5 million for the first quarter of 2022 compared to $7.4 million in the first quarter of 2021, and earnings per share were $0.29 and $0.28 for the respective periods. Earnings per share included an unfavorable LIFO impact of $0.05 and $0.02 per share for the first quarter of 2022 and 2021, respectively.

 

Liquidity and Capital Resources

 

Cash and cash equivalents totaled $123.0 million and there was no outstanding bank debt at March 31, 2022. The Company had $24.3 million available in bank lines of credit after deducting $5.2 million in outstanding letters of credit primarily related to customer orders. The Company was in compliance with its debt covenants, including limits on additional borrowings and maintenance of certain operating and financial ratios, at March 31, 2022 and December 31, 2021.

 

On April 26, 2022, the Company entered into a definitive agreement to acquire the assets of Fill-Rite, a division of Tuthill Corporation, for $525 million. The Company expects to fund the transaction with cash on-hand and new debt.  Subject to customary closing conditions and necessary regulatory approvals, the transaction is expected to close in the second quarter of 2022.  In connection with the anticipated closing of the transaction, the Company expects to enter into senior secured first lien credit facilities comprised of a $350 million term loan facility and a $100 million revolving credit facility, as well as an unsecured senior subordinated term loan facility in the amount of $90 million, subject to the satisfaction or waiver of customary conditions. The Company expects that it will incur no initial borrowings under the revolving credit facility in connection with anticipated closing of the transaction.

 

13

 

Free cash flow, a non-GAAP measure for reporting cash flow, is defined by the Company as adjusted earnings before interest, income taxes and depreciation and amortization, less capital expenditures and dividends. The Company believes free cash flow provides investors with an important perspective on cash available for investments, acquisitions and working capital requirements.

 

The following table reconciles adjusted earnings before interest, income taxes and depreciation and amortization as reconciled above to free cash flow:

 

   

Three Months Ended
March 31,

 
   

2022

   

2021

 

Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization

  $ 12,481     $ 12,300  

Less capital expenditures

    (3,473 )     (864

)

Less cash dividends

    (4,436 )     (4,047

)

Non-GAAP free cash flow

  $ 4,572     $ 7,389  

 

 

Financial Cash Flow

 

   

Three Months Ended
March 31,

 
   

2022

   

2021

 

Beginning of period cash and cash equivalents

  $ 125,194     $ 108,203  

Net cash provided by operating activities

    6,165       13,682  

Net cash used for investing activities

    (3,384 )     (348

)

Net cash used for financing activities

    (5,386 )     (4,905

)

Effect of exchange rate changes on cash

    97       (118

)

Net increase in cash and cash equivalents

    (2,508 )     8,311  

End of period cash and cash equivalents

  $ 122,686     $ 116,514  

 

The decrease in cash provided by operating activities in the first three months of 2022 compared to the same period last year was primarily due to increases for the three month period in accounts receivable, inventory, and commissions payable as the result of increased sales and backlog.

 

During the first three months of 2022 and 2021, investing activities consisted of capital expenditures primarily for machinery and equipment of $3.5 million and $0.9 million, respectively.

 

Net cash used for financing activities for the first three months of 2022 and 2021 primarily consisted of dividend payments of $4.4 million and $4.0 million, respectively, and share repurchases of $0.9 million during the first three months of 2022.

 

The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends. However, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent on our assessment of the Company’s financial condition and business outlook at the applicable time.

 

The Board of Directors has authorized a share repurchase program of up to $50.0 million of the Company’s common shares. The actual number of shares repurchased will depend on prevailing market conditions, alternative uses of capital and other factors, and will be determined at management’s discretion. The Company is not obligated to make any purchases under the program, and the program may be suspended or discontinued at any time. As of March 31, 2022, the Company had $48.1 million available for repurchase under the share repurchase program.

 

Critical Accounting Policies

 

Our critical accounting policies are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the notes to our Consolidated Financial Statements for the year ended December 31, 2021 contained in our Annual Report on Form 10-K for the year ended December 31, 2021. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the notes to our Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

 

14

 

Cautionary Note Regarding Forward-Looking Statements

 

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: This Form 10-Q contains various forward-looking statements based on assumptions concerning The Gorman-Rupp Company’s operations, future results and prospects.  These forward-looking statements are based on current expectations about important economic, political, and technological factors, among others, and are subject to risks and uncertainties, 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 uncertainties include, but are not limited to, our estimates of future earnings and cash flows, general economic conditions and supply chain conditions and any related impact on costs and availability of materials, and uncertainties related to our recently announced agreement to acquire the assets of Fill-Rite, including but not limited to expectations as to the closing of the transaction, the ability to obtain regulatory approval without unexpected delays or conditions, integration of the acquired business in a timely and cost effective manner, retention of supplier and customer relationships and key employees, the ability to achieve synergies and cost savings in the amounts and within the time frames currently anticipated and the ability to service and repay indebtedness incurred in connection with the transaction. Other factors include, but are not limited to: company specific risk factors including (1) loss of key personnel; (2) intellectual property security; (3) acquisition performance and integration; (4) impairment in the value of intangible assets, including goodwill; (5) defined benefit pension plan settlement expense; and (6) family ownership of common equity; and general risk factors including (7) continuation of the current and projected future business environment, including the duration and scope of the COVID-19 pandemic, the impact of the pandemic and actions taken in response to the pandemic; (8) highly competitive markets; (9) availability and costs of raw materials and labor; (10) cyber security threats; (11) compliance with, and costs related to, a variety of import and export laws and regulations; (12) environmental compliance costs and liabilities; (13) exposure to fluctuations in foreign currency exchange rates; (14) conditions in foreign countries in which The Gorman-Rupp Company conducts business; (15) changes in our tax rates and exposure to additional income tax liabilities; and (16) risks described from time to time in our reports filed with the Securities and Exchange Commission. Except to the extent required by law, we do not undertake and specifically decline any obligation to review or update any forward-looking statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments or otherwise.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company is subject to market risk associated principally with fluctuations in foreign currency exchange rates. The Company’s foreign currency exchange rate risk is limited primarily to the Euro, Canadian Dollar, South African Rand and British Pound. The Company manages its foreign exchange risk principally through invoicing customers in the same currency as is used in the market of the source of products. The foreign currency transaction gains (losses) for the three month periods ending March 31, 2022 and 2021 were $0.1 million and $0.3 million, respectively, and are reported within Other (expense) income, net on the Consolidated Statements of Income.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure 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. The Company’s disclosure controls and procedures are also designed to ensure that information required to be disclosed in Company reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Based on that evaluation, the principal executive officer and the principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2022.

 

15

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

There are no material changes from the legal proceedings previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

 

ITEM 1A.

RISK FACTORS

 

In addition to the information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.  There have been no material changes from the risk factors disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, except for the following which supplements the Company’s previously disclosed risk factors:

 

The Company expects to incur substantial future indebtedness, which may impact the way the Companys financial condition and the way it operates its business.

 

In connection with the Company’s anticipated acquisition of the assets of Fill-Rite, the Company expects to incur substantial indebtedness. If incurred, such indebtedness is expected to include senior secured first lien credit facilities comprised of a $350 million term loan facility and a $100 million revolving credit facility, and an unsecured senior subordinated term loan facility in an aggregate principal amount of $90 million. The indebtedness could have important negative consequences, including:

 

 

reduced availability of cash for the Company’s operations and other business activities after satisfying interest payments and other requirements under the terms of its debt instruments;

 

 

less flexibility to plan for or react to competitive challenges, and a competitive disadvantage relative to competitors that do not have as much indebtedness;

 

 

difficulty in obtaining additional financing in the future;

 

 

inability to comply with covenants in, and potential for default under, the Company’s debt instruments; and

 

 

challenges to repaying or refinancing any of the Company’s debt.

 

The Company’s ability to satisfy its debt and other obligations will depend principally upon its future operating performance. As a result, prevailing economic conditions and financial, business, legal and regulatory and other factors, many of which are beyond the Company’s control, may affect its ability to make payments on its debt and other obligations.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Issuer purchases of its common shares during the first quarter of 2022 were:

Period

 

Total number

of shares

purchased

   

Average price

paid per share

   

Total number of shares

purchased as part of

publicly announced

program

   

Approximate dollar

value of shares that may

yet be purchased under

the program

 

January 1 to January 31, 2022

    -     $ -       -     $ 48,985  

February 1 to February 28, 2022

    24,546       37.39       24,546       48,067  

March 1 to March 31, 2022

    -       -       -       48,067  

Total

    24,546     $ 37.39       24,546     $ 48,067  

 

16

 

 

ITEM 6.

EXHIBITS

 

Exhibit 2.1 Asset Purchase Agreement, dated as of April 26, 2022, by and between The Gorman-Rupp Company and Tuthill Corporation (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on April 27, 2022).*

Exhibit 10.1

Form of Restricted Stock Unit Grant Agreement under The Gorman-Rupp Company 2015 Omnibus Incentive Plan (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 25, 2022).

Exhibit 31.1

Certification of Scott A. King, President and Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2

Certification of James C. Kerr, Executive Vice President and Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32

Certification pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.

Exhibit 101

Financial statements from the Quarterly Report on Form 10-Q of The Gorman-Rupp Company for the quarter ended March 31, 2022, formatted in Inline eXtensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity, and (vi) the Notes to Consolidated Financial Statements.

Exhibit 104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

* Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish to the U.S. Securities and Exchange Commission a copy of any omitted schedule or exhibit upon request.

 

17

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

The Gorman-Rupp Company

   

(Registrant)

Date: May 2, 2022

   
 

By:

/s/James C. Kerr

   

James C. Kerr

   

Executive Vice President and Chief Financial Officer

   

(Principal Financial Officer)

 

 

18