grc20220930_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 September 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 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

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).

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).

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).

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).

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.

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

SEC Form 10-Q filed by Gorman-Rupp Company