grc20220630_10q.htm

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 June 30, 2022

☐	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)

Registrant’s 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 August 4, 2022 there were 26,094,865 common shares, without par value, of The Gorman-Rupp Company outstanding.

The Gorman-Rupp Company

Three and Six Months Ended June 30, 2022 and 2021

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income - Three months ended June 30, 2022 and 2021 - Six months ended June 30, 2022 and 2021	3
	Consolidated Statements of Comprehensive Income - Three months ended June 30, 2022 and 2021 - Six months ended June 30, 2022 and 2021	3
	Consolidated Balance Sheets - June 30, 2022 and December 31, 2021	4
	Consolidated Statements of Cash Flows - Six months ended June 30, 2022 and 2021	5
	Consolidated Statements of Equity - Six months ended June 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	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 6.	Exhibits	24
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

PART I. FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended June 30,						Six Months Ended June 30,
(Dollars in thousands, except per share amounts)	2022			2021			2022			2021
Net sales	$	119,067		$	93,015		$	221,234		$	182,042
Cost of products sold		90,828			68,342			167,498			134,326
Gross profit		28,239			24,673			53,736			47,716
Selling, general and administrative expenses		24,114			13,884			39,936			27,779
Amortization expense		1,218			175			1,435			350
Operating income		2,907			10,614			12,365			19,587
Interest expense		(2,322	)		-			(2,322	)		-
Other income (expense), net		(1,846	)		(1,705	)		(1,756	)		(1,360	)
Income (loss) before income taxes		(1,261	)		8,909			8,287			18,227
Provision (benefit) from income taxes		(265	)		1,812			1,740			3,701
Net income (loss)	$	(996	)	$	7,097		$	6,547		$	14,526
Earnings (loss) per share	$	(0.04	)	$	0.27		$	0.25		$	0.56
Cash dividends per share	$	0.170		$	0.155		$	0.340		$	0.310
Average number of shares outstanding		26,079,115			26,116,140			26,085,006			26,112,495

See notes to consolidated financial statements (unaudited).

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended June 30,					Six Months Ended June 30,
(Dollars in thousands)	2022			2021		2022			2021
Net income (loss)	$	(996	)	$	7,097	$	6,547		$	14,526
Other comprehensive (loss) income, net of tax:
Cumulative translation adjustments		(2,828	)		955		(2,864	)		(422	)
Pension and postretirement medical liability adjustments		1,663			1,857		2,086			2,363
Other comprehensive income (loss)		(1,165	)		2,812		(778	)		1,941
Comprehensive income (loss)	$	(2,161	)	$	9,909	$	5,769		$	16,467

See notes to consolidated financial statements (unaudited).

THE GORMAN-RUPP COMPANY

CONSOLIDATED BALANCE SHEETS

	(unaudited)
(Dollars in thousands)	June 30, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	16,828		$	125,194
Accounts receivable, net		90,444			58,545
Inventories, net		101,134			85,648
Prepaid and other		15,057			7,795
Total current assets		223,463			277,182
Property, plant and equipment, net		130,017			104,293
Other assets		9,283			6,193
Goodwill and other intangible assets, net		511,537			33,086
Total assets	$	874,300		$	420,754
Liabilities and equity
Current liabilities:
Accounts payable	$	27,455		$	17,633
Payroll and employee related liabilities		18,157			11,754
Commissions payable		8,231			8,164
Deferred revenue and customer deposits		7,848			9,200
Current portion of long-term debt		17,500			-
Accrued expenses		12,957			5,689
Total current liabilities		92,148			52,440
Pension benefits		10,167			9,342
Postretirement benefits		27,161			27,359
Long-term debt, net of current portion		414,884			-
Other long-term liabilities		2,570			1,637
Total liabilities		546,930			90,778
Equity:
Common shares, without par value:
Authorized – ‐‐35,000,000 shares;
Outstanding – 26,079,115 shares at June 30, 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		2,428			1,838
Retained earnings		350,956			353,369
Accumulated other comprehensive loss		(31,108	)		(30,330	)
Total equity		327,370			329,976
Total liabilities and equity	$	874,300		$	420,754

See notes to consolidated financial statements (unaudited).

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six Months Ended June 30,
(Dollars in thousands)	2022			2021
Cash flows from operating activities:
Net income	$	6,547		$	14,526
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,201			5,951
Pension expense		3,357			3,170
Stock based compensation		1,413			1,301
Changes in operating assets and liabilities:
Accounts receivable, net		(11,713	)		(8,029	)
Inventories, net		(4,683	)		677
Accounts payable		938			7,292
Commissions payable		392			(132	)
Deferred revenue and customer deposits		(1,269	)		2,614
Income taxes		(1,045	)		805
Accrued expenses and other		1,510			(1,477	)
Benefit obligations		4,044			1,413
Net cash provided by operating activities		6,692			28,111
Cash used for investing activities:
Capital additions		(8,445	)		(3,548	)
Payment for acquisitions		(526,301	)		-
Other		208			577
Net cash used for investing activities		(534,538	)		(2,971	)
Cash provided by (used for) financing activities:
Cash dividends		(8,869	)		(8,095	)
Treasury share repurchases		(918	)		(231	)
Proceeds from bank borrowings		445,000			-
Debt issuance fees		(15,165	)		-
Other		(65	)		(658	)
Net cash provided by (used for) financing activities		419,983			(8,984	)
Effect of exchange rate changes on cash		(503	)		(65	)
Net increase (decrease) in cash and cash equivalents		(108,366	)		16,091
Cash and cash equivalents:
Beginning of period		125,194			108,203
End of period	$	16,828		$	124,294

See notes to consolidated financial statements (unaudited).

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

	Six Months Ended June 30, 2022
													Accumulated
							Additional						Other
(Dollars in thousands, except	Common Shares						Paid-In			Retained			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	)		(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
Treasury share repurchases																	-
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

	Six Months Ended June 30, 2021
										Accumulated
					Additional					Other
(Dollars in thousands, except	Common Shares				Paid-In		Retained			Comprehensive
share and per share amounts)	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

See notes to consolidated financial statements (unaudited).

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 six months ended June 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 transaction 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 Transaction 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 $13.5 million in net sales and $0.2 million in operating income that was included in the Company’s consolidated financial statements for the three and six months ended June 30, 2022. Operating income included $1.4 million of inventory step up amortization and $0.2 million of acquired customer backlog amortization in addition to the $1.0 million in amortization on customer relationships and developed technology.

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 reported into 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 these differences could have a material impact on our results of operations and financial position.

The purchase price of Fill-Rite will be allocated to the acquired assets and liabilities at fair value. The following table presents the preliminary assets acquired and liabilities assumed and will be finalized pending completion of purchase accounting matters:

Accounts receivable	$	21,273
Inventory		12,214
Customer backlog (amortized within 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.

The transaction costs related to the acquisition approximated $6.9 million for the three and six months ended June 30, 2022. These costs were expensed as incurred and recorded within selling, general, and administrative expenses.

The following is supplemental 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):

	Six months ended June 30,
	2022		2021
Net sales	$	286.3	$	250.0
Operating income	$	27.7	$	24.2
Net income	$	9.5	$	7.0
Earnings per share	$	0.36	$	0.27

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 six months ended 2021 include $2.7 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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Pumps and pump systems	$	103,337	$	78,935	$	189,106	$	154,236
Repair parts for pumps and pump systems and other		15,730		14,080		32,128		27,806
Total net sales	$	119,067	$	93,015	$	221,234	$	182,042

	Geographic Location
	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
United States	$	85,375	$	64,478	$	157,766	$	127,097
Foreign countries		33,692		28,537		63,468		54,945
Total net sales	$	119,067	$	93,015	$	221,234	$	182,042

International sales represented approximately 28% and 31% of total net sales for the second quarter of 2022 and 2021, respectively, and were made to customers in many different countries around the world.

On June 30, 2022, the Company had $264.7 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 June 30, 2022 and December 31, 2021 were as follows:

	June 30, 2022		December 31, 2021
Contract assets	$	-	$	-
Contract liabilities	$	7,848	$	9,200

Revenue recognized for the six months ended June 30, 2022 and 2021 that was included in the contract liabilities balance at the beginning of the period was $8.2 million and $4.3 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 $76.1 million and $70.1 million at June 30, 2022 and December 31, 2021, respectively. Allowances for excess and obsolete inventory totaled $6.1 million and $6.0 million at June 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:	June 30, 2022		December 31, 2021
Raw materials and in-process	$	35,952	$	23,263
Finished parts		53,786		52,039
Finished products		11,396		10,346
Total net inventories	$	101,134	$	85,648

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

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

	June 30, 2022		December 31, 2021
Land	$	6,193	$	5,813
Buildings		116,882		112,760
Machinery and equipment		210,258

SEC Form 10-Q filed by Gorman-Rupp Company