10-Q 1 grc20220930_10q.htm FORM 10-Q grc20220930_10q.htm
0000042682 false --12-31 2022 Q3 2 1 0 0 00000426822022-01-012022-09-30 00000426822022-10-31 xbrli:shares iso4217:USD 00000426822022-09-30 00000426822021-01-012021-09-30 00000426822021-07-012021-09-30 00000426822022-07-012022-09-30 00000426822021-12-31 0000042682us-gaap:TradeNamesMember2021-12-31 0000042682us-gaap:TradeNamesMember2022-09-30 0000042682us-gaap:OtherIntangibleAssetsMember2021-12-31 0000042682us-gaap:OtherIntangibleAssetsMember2022-09-30 0000042682grc:TechnologyAndDrawingsMember2021-12-31 0000042682grc:TechnologyAndDrawingsMember2022-09-30 0000042682us-gaap:CustomerRelationshipsMember2021-12-31 0000042682us-gaap:CustomerRelationshipsMember2022-09-30 0000042682us-gaap:TradeNamesMember2022-01-012022-09-30 0000042682us-gaap:OtherIntangibleAssetsMember2022-01-012022-09-30 0000042682grc:TechnologyAndDrawingsMember2022-01-012022-09-30 0000042682us-gaap:CustomerReceiptsMember2022-09-30 0000042682us-gaap:CustomerReceiptsMember2022-01-012022-09-30 0000042682us-gaap:CustomerReceiptsMember2021-12-31 0000042682grc:CreditFacilityMember2022-09-30 0000042682grc:SeniorTermLoanFacilityMember2022-09-30 0000042682grc:SeniorSecuredCreditAgreementAndSubordinatedCreditAgreementMember2022-09-30 0000042682grc:BankGuaranteeMember2022-05-31 0000042682grc:LineOfCreditMaturingMay2024Member2022-05-31 0000042682grc:LineOfCreditMaturingFebruary2024Member2022-05-31 xbrli:pure 0000042682grc:SubordinatedCreditAgreementForPeriodsEndingDecember312023AndAfterMember2022-05-312022-05-31 0000042682grc:SubordinatedCreditAgreementForPeriodsEndingJune302023AndSeptember302023Member2022-05-312022-05-31 0000042682grc:SubordinatedCreditAgreementForPeriodsEndingJune30September30December312022AndMarch312023Member2022-05-312022-05-31 0000042682grc:SubordinatedCreditFacilityMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2022-09-012022-09-30 0000042682grc:SubordinatedCreditFacilityMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2022-05-312022-05-31 0000042682grc:SubordinatedCreditFacilityMemberus-gaap:BaseRateMember2022-05-312022-05-31 0000042682grc:SubordinatedCreditFacilityMembersrt:MinimumMember2022-05-312022-05-31 0000042682grc:SubordinatedCreditFacilityMembersrt:MaximumMember2022-05-312022-05-31 0000042682grc:SubordinatedCreditFacilityMember2022-05-31 0000042682grc:SeniorTermLoanFacilityMember2022-05-312022-05-31 0000042682grc:SeniorSecuredCreditAgreementForPeriodsEndingDecember312023AndAfterMember2022-05-312022-05-31 0000042682grc:SeniorSecuredCreditAgreementForPeriodsEndingJune302023AndSeptember302023Member2022-05-312022-05-31 0000042682grc:SeniorSecuredCreditAgreementForPeriodsEndingJune30September30December312022AndMarch312023Member2022-05-312022-05-31 0000042682grc:SeniorTermLoanFacilityMembergrc:CreditFacilityMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2022-01-012022-09-30 0000042682grc:SeniorTermLoanFacilityMembergrc:CreditFacilityMembersrt:MaximumMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2022-05-312022-05-31 0000042682grc:SeniorTermLoanFacilityMembergrc:CreditFacilityMembersrt:MinimumMemberus-gaap:SecuredOvernightFinancingRateSofrOvernightIndexSwapRateMember2022-05-312022-05-31 0000042682grc:SeniorTermLoanFacilityMembergrc:CreditFacilityMembersrt:MaximumMemberus-gaap:BaseRateMember2022-05-312022-05-31 0000042682grc:SeniorTermLoanFacilityMembergrc:CreditFacilityMembersrt:MinimumMemberus-gaap:BaseRateMember2022-05-312022-05-31 0000042682grc:CreditFacilityMember2022-05-31 0000042682grc:SwingLineSubfacilityMembergrc:CreditFacilityMember2022-05-31 0000042682us-gaap:LetterOfCreditMembergrc:CreditFacilityMember2022-05-31 0000042682us-gaap:RevolvingCreditFacilityMembergrc:CreditFacilityMember2022-05-31 0000042682grc:SeniorTermLoanFacilityMember2022-05-31 0000042682grc:SubordinatedCreditFacilityMember2022-09-30 0000042682grc:CreditFacilityMember2022-09-30 0000042682grc:SeniorTermLoanFacilityMember2022-09-30 0000042682grc:TheShareRepurchaseProgramMember2022-09-30 0000042682grc:TheShareRepurchaseProgramMember2021-01-012021-09-30 0000042682grc:TheShareRepurchaseProgramMember2022-07-012022-09-30 0000042682grc:TheShareRepurchaseProgramMember2022-01-012022-09-30 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-30 0000042682us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-09-30 0000042682us-gaap:AccumulatedTranslationAdjustmentMember2021-09-30 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-09-30 0000042682us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-01-012021-09-30 0000042682us-gaap:AccumulatedTranslationAdjustmentMember2021-01-012021-09-30 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-31 0000042682us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-12-31 0000042682us-gaap:AccumulatedTranslationAdjustmentMember2020-12-31 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-09-30 0000042682us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-01-012022-09-30 0000042682us-gaap:AccumulatedTranslationAdjustmentMember2022-01-012022-09-30 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-31 0000042682us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-12-31 0000042682us-gaap:AccumulatedTranslationAdjustmentMember2021-12-31 0000042682us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-01-012021-09-30 0000042682us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-01-012022-09-30 0000042682us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2021-07-012021-09-30 0000042682us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMemberus-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2022-07-012022-09-30 0000042682us-gaap:PostemploymentRetirementBenefitsMember2021-01-012021-09-30 0000042682us-gaap:PostemploymentRetirementBenefitsMember2022-01-012022-09-30 0000042682us-gaap:PensionPlansDefinedBenefitMember2021-01-012021-09-30 0000042682us-gaap:PensionPlansDefinedBenefitMember2022-01-012022-09-30 0000042682us-gaap:PostemploymentRetirementBenefitsMember2021-07-012021-09-30 0000042682us-gaap:PostemploymentRetirementBenefitsMember2022-07-012022-09-30 0000042682us-gaap:PensionPlansDefinedBenefitMember2021-07-012021-09-30 0000042682us-gaap:PensionPlansDefinedBenefitMember2022-07-012022-09-30 00000426822021-09-30 00000426822020-12-31 0000042682us-gaap:MachineryAndEquipmentMember2021-12-31 0000042682us-gaap:MachineryAndEquipmentMember2022-09-30 0000042682us-gaap:BuildingMember2021-12-31 0000042682us-gaap:BuildingMember2022-09-30 0000042682us-gaap:LandMember2021-12-31 0000042682us-gaap:LandMember2022-09-30 utr:Y 00000426822022-07-012022-09-30 0000042682us-gaap:NonUsMember2021-07-012021-09-30 0000042682us-gaap:NonUsMember2022-07-012022-09-30 0000042682us-gaap:NonUsMember2021-01-012021-09-30 0000042682us-gaap:NonUsMember2022-01-012022-09-30 0000042682country:US2021-01-012021-09-30 0000042682country:US2022-01-012022-09-30 0000042682country:US2021-07-012021-09-30 0000042682country:US2022-07-012022-09-30 0000042682grc:RepairPartsForPumpsAndPumpSystemsAndOtherMember2021-01-012021-09-30 0000042682grc:RepairPartsForPumpsAndPumpSystemsAndOtherMember2022-01-012022-09-30 0000042682grc:RepairPartsForPumpsAndPumpSystemsAndOtherMember2021-07-012021-09-30 0000042682grc:RepairPartsForPumpsAndPumpSystemsAndOtherMember2022-07-012022-09-30 0000042682grc:PumpsAndPumpSystemsMember2021-01-012021-09-30 0000042682grc:PumpsAndPumpSystemsMember2022-01-012022-09-30 0000042682grc:PumpsAndPumpSystemsMember2021-07-012021-09-30 0000042682grc:PumpsAndPumpSystemsMember2022-07-012022-09-30 0000042682grc:TuthillCorporationMemberus-gaap:AcquisitionRelatedCostsMember2021-01-012021-09-30 iso4217:USDxbrli:shares 0000042682grc:TuthillCorporationMember2022-01-012022-09-30 0000042682grc:TuthillCorporationMember2022-07-012022-09-30 0000042682grc:TuthillCorporationMember2022-09-30 0000042682grc:TuthillCorporationMemberus-gaap:TradeNamesMember2022-09-30 0000042682grc:TuthillCorporationMemberus-gaap:TechnologyBasedIntangibleAssetsMember2022-09-30 0000042682grc:TuthillCorporationMemberus-gaap:CustomerRelationshipsMember2022-09-30 0000042682grc:TuthillCorporationMembergrc:CustomerBacklogMember2022-09-30 0000042682grc:TuthillCorporationMemberus-gaap:CustomerRelationshipsMember2022-01-012022-09-30 0000042682grc:TuthillCorporationMembergrc:CustomerBacklogMember2022-01-012022-09-30 0000042682grc:TuthillCorporationMembergrc:InventoryStepUpMember2022-01-012022-09-30 0000042682grc:TuthillCorporationMemberus-gaap:CustomerRelationshipsMember2022-07-012022-09-30 0000042682grc:TuthillCorporationMembergrc:CustomerBacklogMember2022-07-012022-09-30 0000042682grc:TuthillCorporationMember2022-05-312022-05-31 0000042682grc:TuthillCorporationMembergrc:CreditFacilityMember2022-05-312022-05-31 0000042682grc:TuthillCorporationMembergrc:SubordinatedCreditFacilityMember2022-05-312022-05-31 0000042682grc:TuthillCorporationMembergrc:SeniorTermLoanFacilityMember2022-05-312022-05-31 0000042682us-gaap:RetainedEarningsMember2021-09-30 0000042682us-gaap:AdditionalPaidInCapitalMember2021-09-30 0000042682us-gaap:CommonStockMember2021-09-30 0000042682us-gaap:RetainedEarningsMember2021-07-012021-09-30 0000042682us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-30 0000042682us-gaap:CommonStockMember2021-07-012021-09-30 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-012021-09-30 00000426822021-06-30 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-30 0000042682us-gaap:RetainedEarningsMember2021-06-30 0000042682us-gaap:AdditionalPaidInCapitalMember2021-06-30 0000042682us-gaap:CommonStockMember2021-06-30 00000426822021-04-012021-06-30 0000042682us-gaap:RetainedEarningsMember2021-04-012021-06-30 0000042682us-gaap:AdditionalPaidInCapitalMember2021-04-012021-06-30 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-012021-06-30 00000426822021-03-31 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-31 0000042682us-gaap:RetainedEarningsMember2021-03-31 0000042682us-gaap:AdditionalPaidInCapitalMember2021-03-31 0000042682us-gaap:CommonStockMember2021-03-31 00000426822021-01-012021-03-31 0000042682us-gaap:RetainedEarningsMember2021-01-012021-03-31 0000042682us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-31 0000042682us-gaap:CommonStockMember2021-01-012021-03-31 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-31 0000042682us-gaap:RetainedEarningsMember2020-12-31 0000042682us-gaap:AdditionalPaidInCapitalMember2020-12-31 0000042682us-gaap:CommonStockMember2020-12-31 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-09-30 0000042682us-gaap:RetainedEarningsMember2022-09-30 0000042682us-gaap:AdditionalPaidInCapitalMember2022-09-30 0000042682us-gaap:CommonStockMember2022-09-30 0000042682us-gaap:RetainedEarningsMember2022-07-012022-09-30 0000042682us-gaap:AdditionalPaidInCapitalMember2022-07-012022-09-30 0000042682us-gaap:CommonStockMember2022-07-012022-09-30 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-07-012022-09-30 00000426822022-06-30 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-06-30 0000042682us-gaap:RetainedEarningsMember2022-06-30 0000042682us-gaap:AdditionalPaidInCapitalMember2022-06-30 0000042682us-gaap:CommonStockMember2022-06-30 00000426822022-04-012022-06-30 0000042682us-gaap:RetainedEarningsMember2022-04-012022-06-30 0000042682us-gaap:AdditionalPaidInCapitalMember2022-04-012022-06-30 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-04-012022-06-30 00000426822022-03-31 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-31 0000042682us-gaap:RetainedEarningsMember2022-03-31 0000042682us-gaap:AdditionalPaidInCapitalMember2022-03-31 0000042682us-gaap:CommonStockMember2022-03-31 00000426822022-01-012022-03-31 0000042682us-gaap:RetainedEarningsMember2022-01-012022-03-31 0000042682us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-31 0000042682us-gaap:CommonStockMember2022-01-012022-03-31 0000042682us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-31 0000042682us-gaap:RetainedEarningsMember2021-12-31 0000042682us-gaap:AdditionalPaidInCapitalMember2021-12-31 0000042682us-gaap:CommonStockMember2021-12-31
 

 

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 September 30, 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 October 31, 2022 there were 26,094,865 common shares, without par value, of The Gorman-Rupp Company outstanding.

 

 

 

 

 

The Gorman-Rupp Company

Three and Nine Months Ended September 30, 2022 and 2021

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 
 

Consolidated Statements of Income

- Three months ended September 30, 2022 and 2021

- Nine months ended September 30, 2022 and 2021

3

 

Consolidated Statements of Comprehensive Income

- Three months ended September 30, 2022 and 2021

- Nine months ended September 30, 2022 and 2021

3

 

Consolidated Balance Sheets
- September 30, 2022 and December 31, 2021

4

 

Consolidated Statements of Cash Flows
- Nine months ended September 30, 2022 and 2021

5

 

Consolidated Statements of Equity

- Nine months ended September 30, 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

15

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

22

Item 4.

Controls and Procedures

22

   

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 6.

Exhibits

25

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
September 30,

   

Nine Months Ended
September

 

(Dollars in thousands, except per share amounts)

 

2022

   

2021

   

2022

   

2021

 

Net sales

  $ 153,792     $ 102,110     $ 375,026     $ 284,152  

Cost of products sold

    113,229       76,277       280,727       210,604  

Gross profit

    40,563       25,833       94,299       73,548  

Selling, general and administrative expenses

    22,076       14,173       62,125       42,064  

Amortization expense

    3,176       118       4,498       356  

Operating income

    15,311       11,542       27,676       31,128  

Interest expense

    (7,556 )     -       (9,878 )     -  

Other income (expense), net

    (5,323 )     (486

)

    (7,079 )     (1,846 )

Income before income taxes

    2,432       11,056       10,719       29,282  

Provision from income taxes

    211       2,274       1,951       5,974  

Net income

  $ 2,221     $ 8,782     $ 8,768     $ 23,308  

Earnings per share

  $ 0.09     $ 0.34     $ 0.34     $ 0.89  

Cash dividends per share

  $ 0.170     $ 0.155     $ 0.510     $ 0.465  

Average number of shares outstanding

    26,094,865       26,126,640       26,088,329       26,117,262  

 

See notes to consolidated financial statements (unaudited).

 

 

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 

(Dollars in thousands, except per share amounts)

 

2022

   

2021

   

2022

   

2021

 

Net income

  $ 2,221     $ 8,782     $ 8,768     $ 23,308  

Other comprehensive (loss) income, net of tax:

                               

Cumulative translation adjustments

    (2,855 )     (1,427

)

    (5,719 )    

(1,849

 

Pension and postretirement medical liability adjustments

    3,981       726       6,067       3,089  

Other comprehensive (loss) income

    1,126       (701

)

    348       1,240  

Comprehensive income

  $ 3,347     $ 8,081     $ 9,116     $ 24,548  

 

See notes to consolidated financial statements (unaudited).

 

3

 

 

THE GORMAN-RUPP COMPANY

CONSOLIDATED BALANCE SHEETS

 

   

(unaudited)

         

(Dollars in thousands)

 

September 30,
2022

   

December 31,
2021

 

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 10,288     $ 125,194  

Accounts receivable, net

    91,314       58,545  

Inventories, net

    105,850       85,648  

Prepaid and other

    18,123       7,795  

Total current assets

    225,575       277,182  

Property, plant and equipment, net

    127,798       104,293  

Other assets

    9,398       6,193  

Goodwill and other intangible assets, net

    508,053       33,086  

Total assets

  $ 870,824     $ 420,754  

Liabilities and equity

               

Current liabilities:

               

Accounts payable

  $ 29,364     $ 17,633  

Payroll and employee related liabilities

    21,508       11,754  

Commissions payable

    7,945       8,164  

Deferred revenue and customer deposits

    6,504       9,200  

Current portion of long-term debt

    17,500       -  

Accrued expenses

    12,075       5,689  

Total current liabilities

    94,896       52,440  

Pension benefits

    8,636       9,342  

Postretirement benefits

    26,897       27,359  

Long-term debt, net of current portion

    411,080       -  

Other long-term liabilities

    2,339       1,637  

Total liabilities

    543,848       90,778  

Equity:

               

Common shares, without par value:

               

Authorized – 35,000,000 shares;

               

Outstanding – 26,094,865 shares at September 30, 2022 and 26,103,661 shares at December 31, 2021 (after deducting treasury shares of 953,931 and 945,135, respectively), at stated capital amounts

    5,097       5,099  

Additional paid-in capital

    3,062       1,838  

Retained earnings

    348,799       353,369  

Accumulated other comprehensive (loss)

    (29,982 )     (30,330

)

Total equity

    326,976       329,976  

Total liabilities and equity

  $ 870,824     $ 420,754  

 

See notes to consolidated financial statements (unaudited).

 

4

 

 

 

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

   

Nine Months Ended
September 30,

 

(Dollars in thousands)

 

2022

   

2021

 
Cash flows from operating activities:                

Net income

  $ 8,768     $ 23,308  
Adjustments to reconcile net income to net cash provided by operating activities:                

Depreciation and amortization

    14,161       8,908  

Pension expense

    8,963       4,177  

Stock based compensation

    2,107       1,790  

Contributions to pension plan

    (2,000 )     (2,000

)

Changes in operating assets and liabilities:                

Accounts receivable, net

    (13,514 )     (8,644

)

Inventories, net

    (10,994 )     342  

Accounts payable

    3,437       6,692  

Commissions payable

    319       1,099  

Deferred revenue and customer deposits

    (2,526 )     1,646  

Income taxes

    206       1,341  

Accrued expenses and other

    (3,042 )     (1,089

)

Benefit obligations

    6,623       3,965  

Net cash provided by operating activities

    12,508       41,535  
Cash used for investing activities:                

Capital additions

    (11,268 )     (5,617

)

Payment for acquisitions

    (526,301 )     -  

Other

    327       572  

Net cash used for investing activities

    (537,242 )     (5,045

)

Cash provided by (used for) financing activities:                

Cash dividends

    (13,306 )     (12,145

)

Treasury share repurchases

    (918 )     (231

)

Proceeds from bank borrowings

    445,000       -  

Payments to banks for borrowings

    (4,375 )     -  

Debt issuance fees

    (15,217 )     -  

Other

    (97 )     (689

)

Net cash provided by (used for) financing activities

    411,087       (13,065

)

Effect of exchange rate changes on cash

    (1,259 )     (508

)

Net increase (decrease) in cash and cash equivalents

    (114,906 )     22,917  
Cash and cash equivalents:                

Beginning of period

    125,194       108,203  

End of period

  $ 10,288     $ 131,120  

 

See notes to consolidated financial statements (unaudited).

 

5

 

 

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

 

   

Nine Months Ended September 30, 2022

 
                       

Accumulated

         
    Common Shares     Additional             Other          
(Dollars in thousands, except share and per share amounts)           Paid-In     Retained     Comprehensive          
 

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 )     (882 )     (91 )             (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  

Net income (loss)

                            (996 )             (996 )

Other comprehensive loss

                                    (1,165 )     (1,165 )

Stock based compensation, net

                    730                       730  

Cash dividends - $0.17 per share

                            (4,433 )             (4,433 )

Balances June 30, 2022

    26,079,115     $ 5,094     $ 2,428     $ 350,956     $ (31,108 )   $ 327,370  

Net income

                            2,221               2,221  

Other comprehensive loss

                                    1,126       1,126  

Stock based compensation, net

    15,750       3       634       59               696  

Cash dividends - $0.17 per share

                            (4,437 )             (4,437 )

Balances September 30, 2022

    26,094,865     $ 5,097     $ 3,062     $ 348,799     $ (29,982 )   $ 326,976  

 

 

   

Nine Months Ended September 30, 2021

 
                   

 

           

Accumulated

         
    Common Shares     Additional           Other          
(Dollars in thousands, except share and per share amounts)  

 

    Paid-In     Retained     Comprehensive          
 

Shares

   

Dollars

    Capital     Earnings     (Loss) Income     Total  

Balances December 31, 2020

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

Net income

                            7,429               7,429  

Other comprehensive 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  

Net income

                            7,097               7,097  

Other comprehensive income

                                    2,812       2,812  

Stock based compensation, net

                    465                       465  

Cash dividends - $0.155 per share

                            (4,048 )             (4,048 )

Balances June 30, 2021

    26,116,140     $ 5,102     $ 1,709     $ 346,581     $ (28,436 )   $ 324,956  

Net income

                            8,782               8,782  

Other comprehensive loss

                                    (701 )     (701 )

Stock based compensation, net

    10,500       2       448       39               489  

Cash dividends - $0.155 per share

                            (4,050 )             (4,050 )

Balances September 30, 2021

    26,126,640     $ 5,104     $ 2,157     $ 351,352     $ (29,137 )   $ 329,476  

 

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 and nine months ended September 30, 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.

 

Acquisitions

 

The Company allocates the purchase price of its acquisitions to the assets acquired, liabilities assumed, and noncontrolling interests based upon their respective fair values at the acquisition date. The Company utilizes management estimates and inputs from an independent third-party valuation firm to assist in determining these fair values.

 

The Company uses the income, market or cost approach (or a combination thereof) for the valuation as appropriate. The valuation inputs in these models and analyses are based on market participant assumptions. Management values property, plant and equipment using the cost approach supported where available by observable market data, which includes consideration of obsolescence. Management values acquired intangible assets using the relief from royalty method or excess earnings method, which are forms of the income approach supported by observable market data for peer companies. The significant assumptions used to estimate the value of the acquired intangible assets include discount rates and certain assumptions that form the basis of future cash flows (such as revenue growth rates, customer attrition rates, and royalty rates), which are considered Level 3 assets as the assumptions are unobservable inputs developed by the Company. Acquired inventories are recorded at fair value. For certain items, the carrying value is determined to be a reasonable approximation of fair value based on information available to the Company.

 

The excess of the acquisition price over estimated fair values is recorded as goodwill. Goodwill is adjusted for any changes to acquisition date fair value amounts made within the measurement period. Acquisition-related transaction costs are recognized separately from the business combination and expensed as incurred. Refer to “Note 2 – Acquisitions” for additional details.

 

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 2 - ACQUISITIONS

 

On May 31, 2022, the Company acquired the assets of Fill-Rite and Sotera (“Fill-Rite”), a division of Tuthill Corporation, for cash consideration of $526.3 million. The acquisition was funded with new debt consisting of $350.0 million from a senior secured term loan, $90.0 million from a subordinated unsecured loan, $5.0 million from the new revolving Credit Facility, and $81.3 million of cash on hand. Refer to “Note 10 – Financing Arrangements” for further details related to the financing completed as part of the transaction.

 

The Company accounted for the Fill-Rite acquisition in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”. The results of operations for Fill-Rite are included in the accompanying Consolidated Statements of Income from the acquisition date. Fill-Rite had $40.1 million in net sales and $3.6 million in operating income and $53.7 million in net sales and $3.7 million in operating income included in the Company’s consolidated financial statements for the three and nine months ended September 30, 2022, respectively. Operating income for the three months ended September 30, 2022 included $0.6 million of acquired customer backlog amortization and $3.0 million in amortization on customer relationships and developed technology. Operating income for the nine months ended September 30, 2022 included $1.4 million of inventory step-up amortization, $0.8 million of acquired customer backlog amortization, and $4.0 million in amortization on customer relationships and developed technology.

 

7

 

Under the acquisition method of accounting, the assets and liabilities have been recorded at their respective estimated fair values as of the date of completion of the acquisition and included in the Company’s Consolidated Balance Sheets. These preliminary estimates may be revised during the measurement period as third-party valuations are finalized, additional information becomes available and as additional analyses are performed, and any such revisions could have a material impact on our results of operations and financial position.

 

The following table presents the preliminary fair value of assets acquired and liabilities assumed and will be finalized upon completion of purchase accounting matters:

 

Accounts receivable

  $ 21,273  

Inventory

    12,214  

Customer backlog (amortized over 1 year)

    2,600  

Other current assets

    914  

Property, plant, and equipment

    24,505  

Customer relationships (amortized over 20 years)

    200,900  

Technology (amortized over 20 years)

    39,800  

Tradenames (unamortized)

    10,700  

Goodwill

    228,725  

Total assets acquired

  $ 541,631  

Current liabilities assumed

    (15,330 )

Allocated purchase price

  $ 526,301  

 

For tax purposes, the Fill-Rite acquisition was treated as an asset purchase. As such, the Company received a step-up in tax basis of the net Fill-Rite assets, equal to the purchase price, including goodwill which is deductible for tax purposes.

 

The transaction costs related to the acquisition approximated $0.1 million and $7.0 million for the three and nine months ended September 30, 2022. These costs were expensed as incurred and recorded within selling, general, and administrative expenses

 

The following is a supplemental presentation of our pro-forma net sales, operating income, net income, and earnings per share had the Fill-Rite acquisition occurred as of January 1, 2021 (in millions):

 

   

Nine months ended September 30,

 
   

2022

   

2021

 

Net sales

  $ 440.1     $ 384.9  

Operating income

  $ 43.9     $ 37.7  

Net income

  $ 12.1     $ 11.8  

Earnings per share

  $ 0.46     $ 0.45  

 

The supplemental pro forma information presented above is being provided for information purposes only and may not necessarily reflect the future results of operations of the Company or what the results of operations would have been had the Company owned and operated Fill-Rite since January 1, 2021. The proforma results for the nine months ended 2021 include $3.4 million in non-recurring costs related to inventory step up amortization and customer backlog amortization.

 

 

NOTE 3 REVENUE

 

Disaggregation of Revenue

 

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

 

   

Product Category

 
   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Pumps and pump systems

  $ 138,522     $ 86,770     $ 327,883     $ 241,038  

Repair parts for pumps and pump systems and other

    15,270       15,340       47,143       43,114  

Total net sales

  $ 153,792     $ 102,110     $ 375,026     $ 284,152  

 

8

 

   

Geographic Location

 
   

Three Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2022

   

2021

   

2022

   

2021

 

United States

  $ 115,478     $ 68,726     $ 272,943     $ 195,823  

Foreign countries

    38,314       33,384       102,083       88,329  

Total net sales

  $ 153,792     $ 102,110     $ 375,026     $ 284,152  

 

 

International sales represented approximately 25% and 33% of total net sales for the third quarters of 2022 and 2021, respectively, and were made to customers in many different countries around the world.

 

On September 30, 2022, the Company had $266.7 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 September 30, 2022 and December 31, 2021 were as follows:

 

   

September 30,
2022

   

December 31,

2021

 

Contract assets

  $ -     $ -  

Contract liabilities

  $ 6,504     $ 9,200  

 

Revenue recognized for the nine months ended September 30, 2022 and 2021 that was included in the contract liabilities balance at the beginning of the periods was $8.9 million and $6.0 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 was approximately $79.9 million and $70.1 million at September 30, 2022 and December 31, 2021, respectively. Allowances for excess and obsolete inventory totaled $6.3 million and $6.0 million as of September 30, 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:

 

September 30,
2022

   

December 31,

2021

 

Raw materials and in-process

  $ 35,030     $ 23,263  

Finished parts

    57,811       52,039  

Finished products

    13,009       10,346  

Total net inventories

  $ 105,850     $ 85,648  

 

 

NOTE 5 PROPERTY, PLANT AND EQUIPMENT

 

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

 

   

September 30,
2022

   

December 31,

2021

 

Land

  $ 6,072     $ 5,813  

Buildings

    117,909       112,760  

Machinery and equipment

    208,997       188,123  
      332,978       306,696  

Less accumulated depreciation

    (205,180 )     (202,403

)

Property, plant and equipment, net

  $ 127,798     $ 104,293  

 

9

 

 

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:

 

   

September 30,

 
   

2022

   

2021

 

Balance at beginning of year

  $ 1,637     $ 1,361  

Provision

    1,085       1,317  

Acquired

    645       -  

Claims

    (1,238 )     (1,248

)

Balance at end of period

  $ 2,129     $ 1,430  

 

 

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
September 30,

   

Three Months Ended
September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Service cost

  $ 496     $ 636     $ 287     $ 365  

Interest cost

    580       467       190       163  

Expected return on plan assets

    (665

)

    (907

)

    -       -  

Amortization of prior service cost

    -       -       (282

)

    (282

)

Recognized actuarial loss

    379       423       92       145  

Settlement loss

    4,759       388       -       -  

Net periodic benefit cost (a)

  $ 5,549     $ 1,007     $ 287     $ 391  

 

 

   

Pension Benefits

   

Postretirement Benefits

 
   

Nine Months Ended
September 30,

   

Nine Months Ended
September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Service cost

  $ 1,642     $ 2,034     $ 860     $ 1,096  

Interest cost

    1,745       1,252       570       490  

Expected return on plan assets

    (2,169 )     (2,707

)

    -       -  

Amortization of prior service cost

    -       -       (847

)

    (847

)

Recognized actuarial loss

    1,314       1,482       276       435  

Settlement loss

    6,355       2,116       -       -  

Net periodic benefit cost (a)

  $ 8,887     $ 4,177     $ 859     $ 1,174  

 

   (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.

 

10

 

During the three and nine months ended September 30, 2022, the Company recorded a settlement loss relating to retirees that received lump-sum distributions from the Company’s defined benefit pension plan totaling $4.8 million and $6.4 million, respectively. The Company recorded settlement losses of $0.4 million and $2.1 million for the three and nine month periods ended September 30, 2021, respectively. These charges were the result of lump-sum distributions to retirees exceeding the Plan’s actuarial service and interest cost thresholds.

 

As part of the agreement to purchase the assets of Fill-Rite, the Company is required to establish a defined benefit pension plan for certain Fill-Rite employees as of June 1, 2022. No pension or other postretirement benefit plan liabilities existing as of the acquisition date were assumed as part of the transaction. The obligation under the new plan as of September 30, 2022 is not material.

 

 

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
September 30,

   

Nine Months Ended

September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Pension and other postretirement benefits:

                               

Recognized actuarial loss (a)

  $ 471     $ 568     $ 1,590     $ 1,917  

Settlement loss (a)

    4,759       388       6,355       2,116  

Total before income tax

  $ 5,230     $ 956     $ 7,945     $ 4,033  

Income tax

    (1,249 )     (230

)

    (1,878 )     (944

)

Net of income tax

  $ 3,981     $ 726     $ 6,067     $ 3,089  

 

 

(a)

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

 

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

    -       7,945       7,945  

Current period charge

    (5,719 )     -       (5,719 )

Income tax benefit (charge)

    -       (1,878 )     (1,878 )

Balance at September 30, 2022

  $ (13,570 )   $ (16,412 )   $ (29,982 )

 

   

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

    -       4,033       4,033  

Current period charge

    (1,849

)

    -       (1,849

)

Income tax benefit (charge)

    -       (944

)

    (944

)

Balance at September 30, 2021

  $ (6,893

)

  $ (22,244

)

  $ (29,137

)

 

11

 

 

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 nine-month period ended September 30, 2022 the Company repurchased 24,546 shares for $0.9 million. No shares were repurchased during the three-month period ending September 30, 2022 nor the nine-month period ended September 30, 2021. As of September 30, 2022, the Company had $48.1 million available for repurchase under the share repurchase program.

 

 

NOTE 10 – FINANCING ARRANGEMENTS

 

Debt consisted of:

Senior Secured Credit Agreement

 

September 30, 2022

 

Senior term loan facility

  $ 345,625  

Credit facility

    5,000  

Subordinated Credit Agreement

       

Subordinated credit facility

    90,000  

Total debt

    440,625  

Unamortized discount and debt issuance fees

    (12,045 )

Total debt, net

    428,580  

Less: current portion of long-term debt

    17,500  

Total long-term debt, net

  $ 411,080  

 

Maturities of long-term debt in the next five fiscal years, and the remaining years thereafter, are as follows:

 

2022

(three months)

   

2023

   

2024

   

2025

   

2026

   

2027

   

Total

 
$ 4,375     $ 17,500     $ 21,875     $ 30,625     $ 35,000     $ 331,250     $ 440,625  

 

Senior Secured Credit Agreement

 

On May 31, 2022, the Company entered into a Senior Secured Credit Agreement with several lenders, which provides a term loan of $350.0 million (“Senior Term Loan Facility”) and a revolving credit facility up to $100.0 million (“Credit Facility”). The Credit Facility has a letter of credit sublimit of up to $15.0 million, as a sublimit of the Credit Facility, and a swing line subfacility of up to $20.0 million, as a sublimit of the Credit Facility. The Company borrowed $5.0 million under the Credit Facility, which, along with the Senior Term Loan Facility, and cash-on-hand and the proceeds of the Subordinated Credit Facility described below, was used to purchase the assets of Fill-Rite as described in “Note 2 – Acquisitions”. The Company has agreed to secure all of its obligations under the Senior Secured Credit Agreement by granting a first priority lien on substantially all of its personal property, and each of Patterson Pump Company, AMT Pump Company, National Pump Company and Fill-Rite Company (collectively, the “Guarantors”) has agreed to guarantee the obligations of the Company under the Senior Secured Credit Agreement and to secure the obligations thereunder by granting a first priority lien in substantially all of such Guarantor’s personal property.

 

The Senior Secured Credit Agreement has a maturity date of May 31, 2027, with the Senior Term Loan Facility requiring quarterly installment payments commencing on September 30, 2022 and continuing on the last day of each consecutive December, March, June and September thereafter.

 

At the option of the Company, borrowings under the Senior Term Loan Facility and under the Credit Facility bear interest at either a base rate or at an Adjusted Term SOFR Rate, plus the applicable margin, which ranges from 0.75% to 1.75% for base rate loans and 1.75% to 2.75% for Adjusted Term SOFR Rate loans. The applicable margin is based on the Company’s senior leverage ratio. As of September 30, 2022, the applicable interest rate under the Senior Secured Credit Agreement was Adjusted Term SOFR plus 2.75%.

 

The Senior Secured Credit Agreement requires the Company to maintain a consolidated senior secured net leverage ratio not to exceed 4.50 to 1.00 for each of the four consecutive fiscal quarter periods ending June 30, 2022, September 30, 2022, December 31, 2022 and March 31, 2023, decreasing to 4.00 to 1.00 for each of the four consecutive fiscal quarter periods ending June 30, 2023 and September 30, 2023, and decreasing to 3.50 to 1.00 for the four consecutive fiscal quarter period ending December 31, 2023 and each of the four consecutive fiscal quarter periods ending thereafter.

 

12

 

The Senior Secured Credit Agreement requires the Company to maintain a consolidated total net leverage ratio not to exceed 5.75 to 1.00 for each of the four consecutive fiscal quarter periods ending June 30, 2022, September 30, 2022, December 31, 2022 and March 31, 2023, decreasing to 5.25 to 1.00 for each of the four consecutive fiscal quarter periods ending June 30, 2023 and September 30, 2023, and decreasing to 4.75 to 1.00 for the four consecutive fiscal quarter period ending December 31, 2023 and each of the four consecutive fiscal quarter periods ending thereafter.

 

The Senior Secured Credit Agreement requires the Company to maintain a fixed charge coverage ratio (commencing with the fiscal quarter ending June 30, 2022) of not less than 1.20 to 1.00 for any four consecutive fiscal quarter period.

 

The Senior Secured Credit Agreement contains customary affirmative and negative covenants, including among others, limitations on the Company and its subsidiaries with respect to incurrence of liens and indebtedness, disposition of assets, mergers, transactions with affiliates, and the ability to make or pay dividends in excess of certain thresholds.

 

The Senior Credit Agreement also contains customary provisions requiring mandatory prepayments, including among others, annual prepayments (beginning with the fiscal year ending December 31, 2023) of a percentage of excess cash flow, prepayments of the net cash proceeds from any non-ordinary course sale of assets, and net cash proceeds of any non-permitted indebtedness.

 

To reduce the exposure to changes in the market rate of interest, effective October 31, 2022, the Company entered into interest rate swap agreements for a portion of the Senior term loan facility. Terms of the interest rate swap agreements require the Company to receive a fixed interest rate and pay a variable interest rate. The interest rate swap agreements are expected to be designated as a cash flow hedge, and as a result, the mark-to-market gains or losses will be deferred and included as a component of accumulated other comprehensive income (loss) and reclassified to interest expense in the period during which the hedged transactions affect earnings. 

 

Subordinated Credit Agreement

 

On May 31, 2022, the Company entered into an unsecured subordinated credit agreement (“Subordinated Credit Agreement”) with one lender, which provides for a term loan of $90.0 million (the “Subordinated Credit Facility”). Each of the Guarantors has agreed to guarantee the obligations of the Company under the Subordinated Credit Agreement. The proceeds from the Subordinated Credit Facility, along with cash-on-hand and the proceeds of the Senior Term Loan Facility described above, were used to purchase the assets of Fill-Rite as described in “Note 2 – Acquisitions”.

 

The Subordinated Credit Agreement has a maturity date of December 1, 2027. If the Subordinated Credit Facility is prepaid prior to the second anniversary, such prepayment must be accompanied by a make-whole premium. If the Subordinated Credit Facility is prepaid after the second anniversary but prior to the third anniversary, such prepayment requires a prepayment fee of 2%, and if the Subordinated Credit Facility is prepaid after the third anniversary but prior to the fourth anniversary, such prepayment requires a prepayment fee of 1%.

 

At the option of the Company, borrowings under the Subordinated Credit Facility bear interest at either a base rate plus 8.0%, or at an Adjusted Term SOFR Rate plus 9.1%. As of September 30, 2022 borrowings under the Subordinated Credit Facility bear interest at an Adjusted Term SOFR Rate plus 9.1%.

 

The Subordinated Credit Agreement requires the Company to maintain a consolidated senior secured net leverage ratio not to exceed 5.40 to 1.00 for each of the four consecutive fiscal quarter periods ending June 30, 2022, September 30, 2022, December 31, 2022 and March 31, 2023, decreasing to 4.80 to 1.00 for each of the four consecutive fiscal quarter periods ending June 30, 2023 and September 30, 2023, and decreasing to 4.20 to 1.00 for the four consecutive fiscal quarter period ending December 31, 2023 and each of the four consecutive fiscal quarter periods ending thereafter.

 

The Subordinated Credit Agreement requires the Company to maintain a consolidated total net leverage ratio not to exceed 6.90 to 1.00 for each of the four consecutive fiscal quarter periods ending June 30, 2022, September 30, 2022, December 31, 2022 and March 31, 2023, decreasing to 6.30 to 1.00 for each of the four consecutive fiscal quarter periods ending June 30, 2023 and September 30, 2023, and decreasing to 5.70 to 1.00 for the four consecutive fiscal quarter period ending December 31, 2023 and each of the four consecutive fiscal quarter periods ending thereafter.

 

The Subordinated Credit Agreement contains customary affirmative and negative covenants, including among others, limitations on the Company and its subsidiaries with respect to incurrence of liens and indebtedness, disposition of assets, mergers, transactions with affiliates, and the ability to make or pay dividends in excess of certain thresholds.

 

The Subordinated Credit Agreement also contains customary provisions requiring mandatory prepayments, including among others, annual prepayments (beginning with the fiscal year ending December 31, 2023) of a percentage of excess cash flow, prepayments of the net cash proceeds from any non-ordinary course sale of assets, and net cash proceeds of any non-permitted indebtedness.

 

13

 

Credit Facilities

 

With the opening of the Senior Term Loan Facility, which included the revolving Credit Facility, the Company terminated as of May 31, 2022 its previously existing $20.0 million line of credit maturing in February 2024, $6.5 million unsecured bank line of credit maturing in May 2024, and $3.0 million bank guarantee dated June 2016.

 

The Company incurred total issuance costs of approximately $15.2 million related to the Senior Secured Credit Agreement and Subordinated Credit Agreement. Of this amount, the Company determined that $12.8 million related to the Senior Term Loan facility and the Subordinated Credit Facility and $2.4 million related to the Credit Facility. The portion of the issuance costs related to the Credit Facility is included in Other assets in the Consolidated Balance Sheet. These costs are being amortized to interest expense over the respective terms.

 

The Company was in compliance with all debt covenants as of September 30, 2022.

 

 

NOTE 11 – GOODWILL AND OTHER INTANGIBLE ASSETS

 

Changes in the carrying value of goodwill and other intangible asset during the nine months ended September 30, 2022:

 

Historical Cost of Intangible Assets

 

December 31,

2021

   

Acquisitions

   

Foreign

Currency

   

September 30,

2022

 

Customer relationships

  $ 7,769     $ 200,900     $ (165 )   $ 208,504  

Technology and drawings

    6,750       39,800       (17 )     46,533  

Other intangibles

    1,997       -       -       1,997  

Total finite-lived intangible assets

    16,516       240,700       (182 )     257,034  

Trade names

    2,528       10,700       (3 )     13,225  

Goodwill

    27,243       228,725       (460 )     255,508  

Total

  $ 46,287     $ 480,125     $ (645 )   $ 525,767  

 

The major components of Goodwill and other intangible assets are:

 

   

September 30, 2022

   

December 31, 2021

 
   

Historical

Cost

   

Accumulated Amortization

   

Historical

Cost

   

Accumulated Amortization

 

Finite-lived intangible assets:

                               

Customer relationships

  $ 208,504     $ 10,721     $ 7,769     $ 7,255  

Technology and drawings

    46,533       5,179       6,750       4,305  

Other intangibles

    1,997       1,814       1,997       1,641  

Total finite-lived intangible assets

    257,034       17,714       16,516       13,201  

Trade names and trademarks

    13,225       -       2,528       -  

Goodwill

    255,508       -       27,243       -  

Total

  $ 525,767     $ 17,714     $ 46,287     $ 13,201  

 

Amortization expense was $3.1 million and $0.1 million for the third quarter of 2022 and 2021, respectively. Amortization expense was $4.5 million and $0.4 million for the nine months ended 2022 and 2021, respectively. The following table summarizes the future estimated amortization expense relating to our intangible assets as of September 30, 2022 (in thousands):

 

2022

(three months)

   

2023

   

2024

   

2025

   

2026

   

2027

   

Thereafter

   

Total

 
$ 3,208     $ 12,520     $ 12,394     $ 12,363     $ 12,318     $ 12,281     $ 174,236     $ 239,320  

 

14

 

 

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

 

On May 31, 2022, the Company completed its acquisition of Fill-Rite and Sotera (“Fill-Rite”), a division of Tuthill Corporation, for $526.3 million. When adjusted for approximately $80.0 million in expected tax benefits, the net acquisition value is approximately $446.3 million.  The Company funded the acquisition with cash on-hand and new debt.  The Company incurred $7.0 million of one-time acquisition costs during the nine months ended September 30, 2022 and does not expect to incur material acquisition costs going forward. The results of operations for Fill-Rite from the acquisition date are included in the Company’s Consolidated Statements of Income for the three and nine months ended September 30, 2022. 

 

The following discussion of Results of Operations includes certain non-GAAP financial data and measures such as (1) adjusted earnings per share, which is earnings per share excluding non-cash pension settlement charges per share, one-time acquisition costs per share, amortization of step-up in value of acquired inventories per share and amortization of customer backlog per share and (2) adjusted earnings before interest, taxes, depreciation and amortization, which is net income (loss) excluding interest, taxes, depreciation and amortization, adjusted to exclude non-cash pension settlement charges, one-time acquisition costs, amortization of step up in value of acquired inventories, and amortization of customer backlog. 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 inclusion of these adjusted measures should not be construed as an indication that the Company’s future results will be unaffected by unusual or infrequent items or that the items for which the Company has made adjustments are unusual or infrequent or will not recur. The 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. These non-GAAP financial measures are not intended to replace GAAP financial measures, and they are not necessarily standardized or comparable to similarly titled measures used by other companies. Provided below is a reconciliation of adjusted earnings per share and adjusted earnings before interest, taxes, depreciation and amortization.

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
   

2022

   

2021

   

2022

   

2021

 

Adjusted earnings per share:

                               

Reported earnings per share – GAAP basis

  $ 0.09     $ 0.34     $ 0.34     $ 0.89  

Plus pension settlement charge

    0.14       0.01       0.19       0.06  

Plus one-time acquisition costs

    -       -       0.21       -  

Plus amortization of step up in value of acquired inventories

    -       -       0.04       -  

Plus amortization of acquired customer backlog

    0.02       -       0.03       -  

Non-GAAP adjusted earnings per share

  $ 0.25     $ 0.35     $ 0.81     $ 0.95  
                                 

Adjusted earnings before interest, taxes, depreciation

and amortization:

                               

Reported net income–GAAP basis

  $ 2,221     $ 8,782     $ 8,768     $ 23,308  

Plus interest expense

    7,556       -       9,878       -  

Plus provision for income taxes

    211       2,274       1,951       5,974  

Plus depreciation and amortization

    6,960       2,957       14,161       8,908  

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

    16,948       14,013       34,758       38,190  

Plus pension settlement charge

    4,759       388       6,355       2,116  

Plus one-time acquisition costs

    154       -       7,048       -  

Plus amortization of step up in value of acquired inventories

    -       -       1,406       -  

Plus amortization of acquired customer backlog

    651       -       868       -  

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

  $ 22,512     $ 14,401     $ 50,435     $ 40,306  

 

15

 

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.

 

As a result of the Fill-Rite acquisition, the Company’s cash position decreased $114.9 million during the first nine months of 2022 to $10.3 million. The Company generated $50.4 million in adjusted earnings before interest, taxes, depreciation and amortization during the same period.

 

Capital expenditures for the first nine months of 2022 were $11.3 million and consisted primarily of machinery and equipment. Capital expenditures for the full-year 2022 are presently planned to be in the range of $15-$18 million primarily for machinery and equipment purchases, and are expected to be financed through internally-generated funds.

 

The Company’s backlog of orders was $266.7 million at September 30, 2022 compared to $156.5 million at September 30, 2021 and $186.0 million at December 31, 2021. Fill-Rite added $14.6 million to the backlog at September 30, 2022. Incoming orders during the third quarter of 2022 increased 50.2% when compared to the same period last year, and 10.4% excluding Fill-Rite. Incoming orders increased 35.5% for the first nine months of 2022 compared to the same period in 2021, and 18.7% excluding Fill-Rite. The increase in backlog for the first nine months of 2022 was primarily driven by strong incoming orders during the first nine months, large municipal orders which are longer term in nature, and the acquisition of Fill-Rite. The backlog aging has remained consistent with historical levels.

 

On October 27, 2022, the Board of Directors authorized the payment of a quarterly dividend of $0.175 per share on the common stock of the Company, payable December 9, 2022, to shareholders of record as of November 15, 2022. This will mark the 291st consecutive quarterly dividend paid by The Gorman-Rupp Company.

 

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

 

The Company looks for additional improvement in gross margin as the pricing actions that have taken place during the year are realized and leverage on fixed costs continues.  The Company is well positioned for both the fourth quarter and 2023 with strong backlog and continued integration and synergies from Fill-Rite.

 

Three Months Ended September 30, 2022 vs. Three Months Ended September 30, 2021

 

Net Sales

   

Three Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Net Sales

  $ 153,792     $ 102,110     $ 51,682       50.6

%

 

Net sales for the third quarter of 2022 were $153.8 million compared to net sales of $102.1 million for the third quarter of 2021, an increase of 50.6% or $51.7 million. Domestic sales increased 68.0% or $46.8 million and international sales increased 14.8% or $4.9 million compared to the same period in 2021. Fill-Rite sales, which are primarily domestic, were $40.1 million for the third quarter of 2022.

 

16

 

Excluding Fill-Rite, sales in our water markets increased 12.2% or $9.0 million in the third quarter of 2022 compared to the third quarter of 2021. Sales increased $6.2 million in the municipal market, $1.6 million in the fire protection market, $1.5 million in the repair market, and $0.5 million in the construction market. Partially offsetting these increases was a sales decrease of $0.8 million in the agriculture market.

 

Excluding Fill-Rite, sales in our non-water markets increased 9.0% or $2.6 million in the third quarter of 2022 compared to the third quarter of 2021. Sales increased $4.1 million in the industrial market. Partially offsetting this increase were sales decreases of $0.8 million in the OEM market and $0.7 million in the petroleum market.

 

Cost of Products Sold and Gross Profit

   

Three Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Cost of products sold

  $ 113,229     $ 76,277     $ 36,952       48.4

%

% of Net sales

    73.6

%

    74.7

%

               

Gross Margin

    26.4

%

    25.3

%

               

 

 

Gross profit was $40.6 million for the third quarter of 2022, resulting in gross margin of 26.4%, compared to gross profit of $25.8 million and gross margin of 25.3% for the same period in 2021. The improvement in gross margin was due primarily to leverage from increased sales volume and sales mix which includes a full quarter of Fill-Rite results. The 110 basis point increase in gross margin was driven by a 250 basis point improvement from labor and overhead leverage due to increased sales volume. The increase was partially offset by a 140 basis point increase in cost of material, which included an unfavorable impact of 40 basis points related to the amortization of acquired Fill-Rite customer backlog. The Fill-Rite customer backlog will be amortized within the next three quarters.

 

Selling, General and Administrative (SG&A) Expenses

 

   

Three Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Selling, general and administrative expenses

  $ 22,076     $ 14,173     $ 7,903       55.8

%

% of Net sales

    14.4

%

    13.9

%

               

 

Selling, general and administrative (“SG&A”) expenses were $22.1 million and 14.4% of net sales for the third quarter of 2022 compared to $14.2 million and 13.9% of net sales for the same period in 2021. The increase in SG&A expenses and as a percentage of sales is primarily due to a $6.4 million increase in SG&A expenses related to a full quarter of Fill-Rite results.

 

Amortization Expense

   

Three Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Amortization expense

  $ 3,176     $ 118     $ 3,058       2,591.5

%

% of Net sales

    2.1

%

    0.1

%

               

 

Amortization expense was $3.2 million for the third quarter of 2022 compared to $0.1 million for the same period in 2021. The increase in amortization expense was due to $3.0 million in amortization attributable to the Fill-Rite acquisition.

 

Operating Income

 

   

Three Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Operating income

  $ 15,311     $ 11,542     $ 3,769       32.7

%

% of Net sales

    10.0

%

    11.3

%

               

 

Operating income was $15.3 million for the third quarter of 2022, resulting in an operating margin of 10.0%, compared to operating income of $11.5 million and operating margin of 11.3% for the same period in 2021. Operating margin decreased 130 basis points primarily due to increased amortization expense, increase in cost of material, and increased SG&A, but was partially offset by improvement from labor and overhead leverage.

 

17

 

Other Income (Expense), net

   

Three Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Other income (expense), net

  $ (5,323 )   $ (486 )   $ (4,837 )     (995.3

 

)%

% of Net sales

    3.5

%

    0.5

%

               

 

Other income (expense), net was $5.3 million of expense for the third quarter of 2022 compared to expense of $0.5 million for the same period in 2021. The increase in expense was due primarily to increased non-cash pension settlement charges of $4.8 million in the third quarter of 2022 compared to $0.4 million in the third quarter of 2021. The pension settlement charge is the result of retirees who elect the lump sum payment upon retirement.

 

Net Income

   

Three Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Income before income taxes

  $ 2,432     $ 11,056     $ (8,624 )     (78.0

)%

% of Net sales

    1.6

%

    10.8

%

               

Income taxes

  $ 211     $ 2,274     $ (2,063 )     (90.7

)%

Effective tax rate

    8.7

%

    20.6

%

               

Net income

  $ 2,221     $ 8,782     $ (6,561 )     (74.7

)%

% of Net sales

    1.4

%

    8.6

%

               

Earnings per share

  $ 0.09     $ 0.34     $ (0.25 )     (73.5

)%

 

The Company’s effective tax rate was 8.7% for the third quarter of 2022 compared to 20.6% for the third quarter of 2021.

 

Net income was $2.2 million, or $0.09 per share, for the third quarter of 2022 compared to net income of $8.8 million in the third quarter of 2021, or $0.34 per share. Adjusted earnings per share for the third quarter of 2022 were $0.25 per share compared to $0.35 per share for the third quarter of 2021. Adjusted earnings per share for the third quarter of 2022 included an unfavorable LIFO impact of $0.11 per share compared to an unfavorable LIFO impact of $0.08 per share in the third quarter of 2021. Adjusted earnings also included incremental non-cash amortization expense related to Fill-Rite of $0.09 per share.

 

Nine Months Ended September 30, 2022 vs. Nine Months Ended September 30, 2021

 

Net Sales

   

Nine Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Net Sales

  $ 375,026     $ 284,152     $ 90,874       32.0

%

 

Net sales for the first nine months of 2022 were $375.0 million compared to net sales of $284.2 million for the first nine months of 2021, an increase of 32.0% or $90.9 million. Domestic sales increased 39.4% or $77.1 million and international sales increased 15.6% or $13.8 million compared to the same period in 2021. Fill-Rite sales, which are primarily domestic, were $53.7 million from the acquisition date of May 31, 2022 to September 30, 2022.

 

Excluding Fill-Rite, sales in our water markets increased 13.4% or $27.1 million in the first nine months of 2022 compared to the first nine months of 2021. Sales increased $10.3 million in the fire market, $9.3 million in the municipal market, $4.7 million in the construction market, and $4.2 million in the repair markets. Partially offsetting these increases was a decrease of $1.4 million in the agriculture market.

 

Excluding Fill-Rite, sales in our non-water markets increased 12.4% or $10.1 million in the first nine months of 2022 compared to the first nine months of 2021. Sales increased $10.5 million in the industrial market and $2.3 million in the OEM market. Partially offsetting these increases was a decrease of $2.7 million in the petroleum market.

 

18

 

Cost of Products Sold and Gross Profit

   

Nine Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Cost of products sold

  $ 280,727     $ 210,604     $ 70,123       33.3 %

% of Net sales

    74.9

%

    74.1

%

               

Gross Margin

    25.1

%

    25.9

%

               

 

Gross profit was $94.3 million for the first nine months of 2022, resulting in gross margin of 25.1%, compared to gross profit of $73.5 million and gross margin of 25.9% for the same period in 2021. The 80 basis point decrease in gross margin was driven by a 280 basis point increase in cost of material, which included an unfavorable LIFO impact of 120 basis points, an unfavorable impact of 40 basis points related to Fill-Rite inventory recorded at fair value and recognized during the second quarter, and an unfavorable impact of 20 basis points related to the amortization of acquired Fill-Rite customer backlog. The full amount of the step-up to record Fill-Rite inventory at fair value was recognized during the second quarter and will not recur, while the Fill-Rite customer backlog will be amortized within the next three quarters. The decrease in gross margin was partially offset by a 200 basis point improvement from labor and overhead leverage due to increased sales volume.

 

Selling, General and Administrative (SG&A) Expenses

   

Nine Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Selling, general and administrative expenses

  $ 62,125     $ 42,064     $ 20,061       47.7

%

% of Net sales

    16.6

%

    14.8

%

               

 

Selling, general and administrative (“SG&A”) expenses were $62.1 million for the first nine months of 2022, which included $7.0 million of one-time acquisition costs. Excluding acquisition costs, SG&A expenses were $55.1 million and 14.7% of net sales for the first nine months of 2022 compared to $42.1 million and 14.8% of net sales for the same period in 2021. The decrease in SG&A expenses as a percentage of sales, excluding acquisition costs, is due to increased sales volume.

 

Amortization expense

   

Nine Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Amortization expense

  $ 4,498     $ 356     $ 4,142       1,163.5

%

% of Net sales

    1.2

%

    0.1

%

               

 

Amortization expense was $4.5 million for the first nine months of 2022 compared to $0.4 million for the same period in 2021. The increase in amortization expense was due to $4.0 million in amortization attributable to the Fill-Rite acquisition.

 

Operating Income

   

Nine Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Operating income

  $ 27,676     $ 31,128     $ (3,452 )     (11.1

)%

% of Net sales

    7.4

%

    11.0

%

               

 

Operating income was $27.7 million for the first nine months of 2022, which included $7.0 million in one-time acquisition costs, $1.4 million of inventory step up amortization, and $0.9 million of acquired customer backlog amortization. Excluding acquisition costs, inventory step-up and backlog amortization, operating income was $37.0 million for the first nine months of 2022, resulting in an operating margin of 9.9%, compared to operating income of $31.1 million and operating margin of 11.0% for the same period in 2021. The decrease of 110 basis points in operating margin was primarily the result of an unfavorable LIFO impact.

 

19

 

Other Income (Expense), net

   

Nine Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Other income (expense), net

  $ (7,079 )   $ (1,846 )   $ (5,233 )     (283.5

)%

% of Net sales

    1.9

%

    0.6

%

               

 

Other income (expense), net was $7.1 million of expense for the first nine months of 2022 compared to expense of $1.8 million for the same period in 2021. The increase in expense was due primarily to increased non-cash pension settlement charges of $6.4 million for the first nine months of 2022 compared to $2.1 million for the first nine months of 2021.

 

Net Income

   

Nine Months Ended
September 30,

                 
   

2022

   

2021

   

$ Change

   

% Change

 

Income before income taxes

  $ 10,719     $ 29,282     $ (18,563 )     (63.4

)%

% of Net sales

    2.9

%

    10.3

%

               

Income taxes

  $ 1,951       5974     $ (4,023 )     (67.3 )%

Effective tax rate

    18.2

%

    20.4

%

               

Net income

  $ 8,768     $ 23,308     $ (14,540 )     (62.4

)%

% of Net sales

    2.3

%

    8.2

%

               

Earnings per share

  $ 0.34     $ 0.89     $ (0.55 )     (61.8

)%

 

The Company’s effective tax rate was 18.2% for the first nine months of 2022 compared to 20.4% for the first nine months of 2021 with the decrease primarily related to the effect of permanent items on lower income before tax.

 

Net income was $8.8 million, or $0.34 per share, for the first nine months of 2022 compared to $23.3 million for the first nine months of 2021, or $0.89 per share. Adjusted earnings per share for the first nine months of 2022 were $0.81 per share compared to $0.95 per share for the first nine months of 2021. Adjusted earnings per share for the first nine months of 2022 included an unfavorable LIFO impact of $0.30 per share compared to an unfavorable LIFO impact of $0.12 per share for the first nine months of 2021. Adjusted earnings also included incremental non-cash amortization expense related to Fill-Rite of $0.12 per share.

 

Liquidity and Capital Resources

 

Our primary sources of liquidity are cash generated from operations and borrowings under our Credit Facility. Cash and cash equivalents totaled $10.3 million at September 30, 2022. The Company had an additional $93.1million available under the revolving credit facility after deducting $5.0 million drawn and $1.9 million in outstanding letters of credit primarily related to customer orders. During the nine months ended September 30, 2022, our debt obligations increased by $440.6 million as a result of the Senior Term Loan Facility, revolving Credit Facility and Subordinated Credit Facility entered into in connection with the Fill-Rite acquisition. See Note 10 “Financing Arrangements” in the Notes to our Consolidated Financial Statements.

 

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:

   

Nine Months Ended
September 30,

 
   

2022

   

2021

 

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

  $ 50,435     $ 40,306  

Less capital expenditures

    (11,268 )     (5,617 )

Less cash dividends

    (13,306 )     (12,145 )

Non-GAAP free cash flow

  $ 25,861     $ 22,544  

 

20

 

Financial Cash Flow

   

Nine Months Ended
September 30,

 
   

2022

   

2021

 

Beginning of period cash and cash equivalents

  $ 125,194     $ 108,203  

Net cash provided by operating activities

    12,508       41,535  

Net cash used for investing activities

    (537,242 )     (5,045 )

Net cash provided by financing activities

    411,087       (13,065 )

Effect of exchange rate changes on cash

    (1,259 )     (508 )

Net increase (decrease) in cash and cash equivalents

    (114,906 )     22,917