grc20230630_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, 2023

☐	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 July 31, 2023 there were 26,193,998 common shares, without par value, of The Gorman-Rupp Company outstanding.

The Gorman-Rupp Company

Three and Six Months Ended June 30, 2023 and 2022

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income - Three months ended June 30, 2023 and 2022 - Six months ended June 30, 2023 and 2022	3
	Consolidated Statements of Comprehensive Income - Three months ended June 30, 2023 and 2022 - Six months ended June 30, 2023 and 2022	3
	Consolidated Balance Sheets - June 30, 2023 and December 31, 2022	4
	Consolidated Statements of Cash Flows - Six months ended June 30, 2023 and 2022	5
	Consolidated Statements of Equity - Six months ended June 30, 2023 and 2022	6
	Notes to Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	22
Item 4.	Controls and Procedures	23

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 3.	Defaults Upon Senior Securities	24
Item 4.	Mine Safety Information	24
Item 5.	Other Information	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 June 30,						Six Months Ended June 30,
(Dollars in thousands, except per share amounts)	2023			2022			2023			2022
Net sales	$	171,024		$	119,067		$	331,490		$	221,234
Cost of products sold		119,366			90,828			234,309			167,498
Gross profit		51,658			28,239			97,181			53,736
Selling, general and administrative expenses		24,193			24,114			47,430			39,936
Amortization expense		3,182			1,218			6,373			1,435
Operating income		24,283			2,907			43,378			12,365
Interest expense		(10,485	)		(2,322	)		(20,672	)		(2,322	)
Other income (expense), net		(536	)		(1,846	)		(969	)		(1,756	)
Income (loss) before income taxes		13,262			(1,261	)		21,737			8,287
Provision (benefit) from income taxes		2,785			(265	)		4,740			1,740
Net income (loss)	$	10,477		$	(996	)	$	16,997		$	6,547
Earnings (loss) per share	$	0.40		$	(0.04	)	$	0.65		$	0.25
Cash dividends per share	$	0.175		$	0.170		$	0.350		$	0.340
Average number of shares outstanding		26,178,248			26,079,115			26,154,196			26,085,006

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)	2023		2022			2023		2022
Net income (loss)	$	10,477	$	(996	)	$	16,997	$	6,547
Other comprehensive income (loss), net of tax:
Cumulative translation adjustments		23		(2,828	)		278		(2,864	)
Cash flow hedging activity		2,626		-			1,094		-
Pension and postretirement medical liability adjustments		233		1,663			366		2,086
Other comprehensive income (loss)		2,882		(1,165	)		1,738		(778	)
Comprehensive income (loss)	$	13,359	$	(2,161	)	$	18,735	$	5,769

See notes to consolidated financial statements (unaudited).

THE GORMAN-RUPP COMPANY

CONSOLIDATED BALANCE SHEETS

	(unaudited)
(Dollars in thousands)	June 30, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	12,173		$	6,783
Accounts receivable, net		101,875			93,059
Inventories, net		115,816			111,133
Prepaid and other		10,957			14,551
Total current assets		240,821			225,526
Property, plant and equipment, net		136,047			128,640
Other assets		26,133			11,579
Other intangible assets, net		242,989			249,361
Goodwill		257,660			257,724
Total assets	$	903,650		$	872,830
Liabilities and equity
Current liabilities:
Accounts payable	$	29,161		$	24,697
Payroll and employee related liabilities		21,281			17,132
Commissions payable		10,352			10,116
Deferred revenue and customer deposits		9,097			6,740
Current portion of long-term debt		17,500			17,500
Accrued expenses		8,796			9,028
Total current liabilities		96,187			85,213
Pension benefits		10,368			9,352
Postretirement benefits		22,092			22,413
Long-term debt, net of current portion		411,405			419,327
Other long-term liabilities		22,239			5,331
Total liabilities		562,291			541,636
Equity:
Common shares, without par value:
Authorized - 35,000,000 shares;
Outstanding - 26,178,248 shares at June 30, 2023 and 26,094,865 shares at December 31, 2022 (after deducting treasury shares of 870,548 and 953,931, respectively), at stated capital amounts		5,115			5,097
Additional paid-in capital		4,165			3,912
Retained earnings		354,815			346,659
Accumulated other comprehensive (loss)		(22,736	)		(24,474	)
Total equity		341,359			331,194
Total liabilities and equity	$	903,650		$	872,830

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)	2023			2022
Cash flows from operating activities:
Net income	$	16,997		$	6,547
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		14,158			7,201
LIFO expense		4,440			6,004
Pension expense		1,617			3,357
Stock based compensation		1,606			1,413
Amortization of debt issuance fees		1,481			237
Other		30			-
Changes in operating assets and liabilities:
Accounts receivable, net		(8,645	)		(11,713	)
Inventories, net		(8,959	)		(10,687	)
Accounts payable		4,435			938
Commissions payable		142			392
Deferred revenue and customer deposits		2,365			(1,269	)
Income taxes		2,374			(1,045	)
Accrued expenses and other		2,235			1,273
Benefit obligations		3,580			4,044
Net cash provided by operating activities		37,856			6,692
Cash flows from investing activities:
Capital additions		(13,270	)		(8,445	)
Payment for acquisitions		-			(526,301	)
Other		367			208
Net cash used for investing activities		(12,903	)		(534,538	)
Cash flows from financing activities:
Cash dividends		(9,148	)		(8,869	)
Treasury share repurchases		(1,029	)		(918	)
Proceeds from bank borrowings		5,000			445,000
Payments to banks for borrowings		(13,750	)		-
Debt issuance fees		-			(15,165	)
Other		(534	)		(65	)
Net cash provided by (used for) financing activities		(19,461	)		419,983
Effect of exchange rate changes on cash		(102	)		(503	)
Net increase (decrease) in cash and cash equivalents		5,390			(108,366	)
Cash and cash equivalents:
Beginning of period		6,783			125,194
End of period	$	12,173		$	16,828

See notes to consolidated financial statements (unaudited).

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

	Six Months Ended June 30, 2023
(Dollars in thousands, except	Common Shares						Additional Paid-In			Retained			Accumulated Other Comprehensive
share and per share amounts)	Shares			Dollars			Capital			Earnings			(Loss) Income			Total
Balances December 31, 2022		26,094,865		$	5,097		$	3,912		$	346,659		$	(24,474	)	$	331,194
Net income											6,520						6,520
Other comprehensive loss														(1,144	)		(1,144	)
Stock based compensation, net		119,488			26			1			438						465
Treasury share repurchases		(36,105	)		(8	)		(889	)		(131	)					(1,028	)
Cash dividends - $0.175 per share											(4,567	)					(4,567	)
Balances March 31, 2023		26,178,248		$	5,115		$	3,024		$	348,919		$	(25,618	)	$	331,440
Net income											10,477						10,477
Other comprehensive income														2,882			2,882
Stock based compensation, net								1,141									1,141
Treasury share repurchases																	-
Cash dividends - $0.175 per share											(4,581	)					(4,581	)
Balances June 30, 2023		26,178,248		$	5,115		$	4,165		$	354,815		$	(22,736	)	$	341,359

	Six Months Ended June 30, 2022
(Dollars in thousands, except	Common Shares						Additional Paid-In			Retained			Accumulated Other Comprehensive
share and per share amounts)	Shares			Dollars			Capital			Earnings			(Loss) Income			Total
Balances December 31, 2021		26,103,661		$	5,099		$	1,838		$	353,369		$	(30,330	)	$	329,976
Net income											7,543						7,543
Other comprehensive income														387			387
Stock based compensation, net								682									682
Treasury share repurchases		(24,546	)		(5	)		(822	)		(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																	0
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

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 six months ended June 30, 2023 are not necessarily indicative of results that may be expected for the year ending December 31, 2023. 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, 2022, from which related information herein has been derived.

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 $528.0 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 $83.0 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. The following table presents the fair value of assets acquired and liabilities assumed. No adjustments to the preliminary purchase price allocation were made during the second quarter of 2023 and the purchase price allocation is now final:

Account 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		230,688
Total assets acquired	$	543,594
Current liabilities assumed		(15,601	)
Allocated purchase price	$	527,993

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 $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
Net sales	$	286.3
Operating income	$	27.7
Net income	$	9.5
Earnings per share	$	0.36

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.

NOTE 3 – REVENUE

Disaggregation of Revenue

The following tables disaggregate total net sales by end market and geographic location:

	End market
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Industrial	$	22,786	$	18,664	$	43,731	$	36,518
Fire		36,935		27,904		73,074		56,326
Agriculture		5,027		5,195		9,776		10,207
Construction		11,921		10,073		22,949		19,238
Municipal		19,549		16,950		36,973		31,257
Petroleum		3,719		2,631		7,739		6,173
OEM		9,480		9,300		18,490		18,031
Repair parts		18,722		14,809		35,912		29,943
Total net sales excluding Fill-Rite		128,139		105,526		248,644		207,693
Fill-Rite		42,885		13,541		82,846		13,541
Total net sales	$	171,024	$	119,067	$	331,490	$	221,234

	Geographic Location
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
United States	$	128,289	$	85,375	$	248,039	$	157,766
Foreign countries		42,735		33,692		83,451		63,468
Total net sales	$	171,024	$	119,067	$	331,490	$	221,234

International sales represented approximately 25% and 28% of total net sales for the second quarter of 2023 and 2022, respectively, and were made to customers in many different countries around the world.

On June 30, 2023, the Company had $249.8 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, 2023 and December 31, 2022 were as follows:

	June 30, 2023		December 31, 2022
Contract assets	$	-	$	-
Contract liabilities	$	9,097	$	6,740

Revenue recognized for the six months ended June 30, 2023 and 2022 that was included in the contract liabilities balance at the beginning of the period was $3.7 million and $8.2 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 $92.6 million and $88.2 million at June 30, 2023 and December 31, 2022, respectively. Allowances for excess and obsolete inventory totaled $7.2 million at June 30, 2023 and December 31, 2022, 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:

	June 30, 2023		December 31, 2022
Inventories, net:
Raw materials and in-process	$	40,752	$	40,448
Finished parts		61,536		57,224
Finished products		13,528		13,461
Total net inventories	$	115,816	$	111,133

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

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

	June 30, 2023			December 31, 2022
Land	$	6,210		$	6,215
Buildings		120,149			119,197
Machinery and equipment		224,510			212,581
	$	350,869		$	337,993
Less accumulated depreciation		(214,822	)		(209,353	)
Property, plant and equipment, net	$	136,047		$	128,640

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:

	June 30,
	2023			2022
Balance of beginning of year	$	1,973		$	1,637
Provision		2,130			593
Acquired		-			645
Claims		(1,741	)		(665	)
Balance at end of period	$	2,362		$	2,210

NOTE 7 - PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company sponsors a defined benefit pension plan (“GR Plan”) covering certain domestic employees. Benefits are based on each covered employee’s years of service and compensation. The GR Plan is funded in conformity with the funding requirements of applicable U.S. regulations. The GR 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.

The Company established a defined benefit pension plan for certain Fill-Rite employees (“Fill-Rite Plan”) upon the acquisition as of June 1, 2022. The activity is included in the tables within this footnote.

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 June 30,						Three Months Ended June 30,
	2023			2022			2023		2022
Service cost	$	530		$	482		$	209	$	287
Interest cost		635			711			299		190
Expected return on plan assets		(657	)		(692	)		-