Attached files
| file | filename |
|---|---|
| EX-32 - EX-32 SECTION 1350 CERTIFICATIONS - GORMAN RUPP CO | c91426exv32.htm |
| EX-31.1 - EX-31.1 302 PRINCIPAL EXECUTIVE OFFICER (PEO) CERTIFICATION - GORMAN RUPP CO | c91426exv31w1.htm |
| EX-31.2 - EX-31.2 302 PRINCIPAL FINANCIAL OFFICER (PFO) CERTIFICATION - GORMAN RUPP CO | c91426exv31w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2009
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
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 and post such files). Yes
o No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
Common shares, without par value, outstanding at September 30, 2009. 16,710,535
*********************
The Gorman-Rupp Company and Subsidiaries
Three and Nine Months Ended September 30, 2009 and 2008
Three and Nine Months Ended September 30, 2009 and 2008
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| 10 | ||||||||
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| 16 | ||||||||
| 16 | ||||||||
| 17 | ||||||||
| EX-31.1 302 Principal Executive Officer (PEO) Certification | ||||||||
| EX-31.2 302 Principal Financial Officer (PFO) Certification | ||||||||
| EX-32 Section 1350 Certifications | ||||||||
2
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS (UNAUDITED)
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (Thousands of dollars, except per share amounts) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Net sales |
$ | 64,096 | $ | 84,188 | $ | 204,039 | $ | 249,653 | ||||||||
Cost of products sold |
47,996 | 64,016 | 156,804 | 189,231 | ||||||||||||
Gross profit |
16,100 | 20,172 | 47,235 | 60,422 | ||||||||||||
Selling, general and
administrative expenses |
8,373 | 9,140 | 26,151 | 27,995 | ||||||||||||
Operating income |
7,727 | 11,032 | 21,084 | 32,427 | ||||||||||||
Other income |
142 | 440 | 1,051 | 2,003 | ||||||||||||
Other expense |
(64 | ) | (63 | ) | (260 | ) | (200 | ) | ||||||||
Income before income taxes |
7,805 | 11,409 | 21,875 | 34,230 | ||||||||||||
Income taxes |
2,628 | 4,024 | 7,325 | 11,798 | ||||||||||||
Net income |
$ | 5,177 | $ | 7,385 | $ | 14,550 | $ | 22,432 | ||||||||
Basic and diluted
earnings per share |
$ | 0.31 | $ | 0.44 | $ | 0.87 | $ | 1.34 | ||||||||
Dividends paid per share |
$ | 0.10 | $ | 0.10 | $ | 0.30 | $ | 0.30 | ||||||||
Average shares outstanding |
16,710,535 | 16,707,187 | 16,708,546 | 16,704,429 | ||||||||||||
See notes to condensed consolidated financial statements.
3
Table of Contents
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| Unaudited | ||||||||
| September 30, | December 31, | |||||||
| (Thousands of dollars) | 2009 | 2008 | ||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 54,236 | $ | 23,793 | ||||
Short-term investments |
1,500 | — | ||||||
Accounts receivable — net |
39,371 | 48,200 | ||||||
Inventories — net |
43,961 | 56,881 | ||||||
Deferred income taxes and other current assets |
4,423 | 5,392 | ||||||
Total current assets |
143,491 | 134,266 | ||||||
Property, plant and equipment |
211,970 | 178,030 | ||||||
Less allowances for depreciation |
103,482 | 97,624 | ||||||
Property, plant and equipment — net |
108,488 | 80,406 | ||||||
Deferred income taxes and other assets |
15,562 | 16,866 | ||||||
Total assets |
$ | 267,541 | $ | 231,538 | ||||
Liabilities and shareholders’ equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 10,981 | $ | 15,878 | ||||
Short-term debt |
24,806 | — | ||||||
Payrolls and related liabilities |
9,265 | 7,442 | ||||||
Accrued expenses |
14,937 | 12,249 | ||||||
Total current liabilities |
59,989 | 35,569 | ||||||
Income taxes payable |
863 | 863 | ||||||
Retirement benefits |
9,186 | 11,421 | ||||||
Postretirement benefits |
24,994 | 24,020 | ||||||
Deferred income taxes |
466 | 459 | ||||||
Total liabilities |
95,498 | 72,332 | ||||||
The Gorman-Rupp Company shareholders’ equity |
||||||||
Common shares, without par value: |
||||||||
Authorized — 35,000,000 shares |
||||||||
Outstanding — 16,710,535 shares in 2009 and
16,707,535 in 2008 (after deducting treasury
shares of 601,683 in 2009 and 604,683 in
2008)
at stated capital amount |
5,100 | 5,099 | ||||||
Retained earnings |
180,911 | 171,312 | ||||||
Accumulated other comprehensive loss |
(14,671 | ) | (17,823 | ) | ||||
The Gorman-Rupp Company shareholders’ equity |
171,340 | 158,588 | ||||||
Noncontrolling interest |
703 | 618 | ||||||
Total shareholders’ equity |
172,043 | 159,206 | ||||||
Total liabilities and shareholders’ equity |
$ | 267,541 | $ | 231,538 | ||||
See notes to condensed consolidated financial statements.
4
Table of Contents
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| (Thousands of dollars) | 2009 | 2008 | ||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 14,550 | $ | 22,432 | ||||
Adjustments to reconcile net income attributable to
net cash provided by operating activities: |
||||||||
Depreciation and amortization |
6,288 | 5,888 | ||||||
Changes in operating assets and liabilities |
23,038 | (922 | ) | |||||
Net cash provided by operating activities |
43,876 | 27,398 | ||||||
Cash flows from investing activities: |
||||||||
Capital additions, net |
(33,838 | ) | (11,890 | ) | ||||
Proceeds from sale of product line assets |
1,315 | — | ||||||
Change in short-term investments |
(1,500 | ) | 5,585 | |||||
Net cash used for investing activities |
(34,023 | ) | (6,305 | ) | ||||
Cash flows from financing activities: |
||||||||
Cash dividends |
(5,011 | ) | (5,010 | ) | ||||
Proceeds from unsecured loan agreement |
24,806 | — | ||||||
Net cash provided (used) for financing activities |
19,795 | (5,010 | ) | |||||
Effect of exchange rate changes on cash |
795 | (852 | ) | |||||
Net increase in cash
and cash equivalents |
30,443 | 15,231 | ||||||
Cash and cash equivalents: |
||||||||
Beginning of year |
23,793 | 24,604 | ||||||
September 30, |
$ | 54,236 | $ | 39,835 | ||||
See notes to condensed consolidated financial statements.
5
Table of Contents
PART I
| ITEM 1. | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
NOTE A — BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete financial statements.
The consolidated financial statements include the accounts of the Company and its wholly and
majority-owned subsidiaries. All significant intercompany accounts and transactions have been
eliminated. In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. Operating results for
the three and nine months ended September 30, 2009 are not necessarily indicative of results that
may be expected for the year ending December 31, 2009. For further information, refer to the
consolidated financial statements and notes thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2008. The Company has evaluated subsequent events through
October 27, 2009, the date these financial statements were issued.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued new guidance that changes the accounting and reporting for
minority interests. The new guidance requires minority interest to be recharacterized as
noncontrolling interests and classified as a component of equity. The new requirements are
effective for fiscal years beginning after December 15, 2008. The Company has a 10 percent
noncontrolling interest in its investment in Gorman-Rupp Europe B.V. For the Company, the new
requirements were effective January 1, 2009. Income attributable to noncontrolling interest is not
material and is therefore not presented separately in the condensed consolidated statement of
income, but rather is included in other expense.
In December 2008, the FASB issued new guidance which requires employers to disclose information
about fair value measurements of employee benefit plan assets. Specifically, employers will be
required to disclose information about how investment allocation decisions are made, the fair value
of each major category of employee benefit plan assets and information about the inputs and
valuation techniques used to develop the fair value measurements of employee benefit plan assets.
The new requirements are effective for fiscal years ending after December 15, 2009. The Company
does not expect the adoption of the new guidance to have a material impact on its consolidated
financial statements.
In May 2009, the FASB issued new guidance that sets forth general standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are
issued or are available to be issued. The Company adopted this new guidance as of June 30, 2009.
In June 2009, the FASB issued FAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 (FAS
168), which establishes the FASB Accounting Standards Codification (ASC) as the source of
authoritative accounting principles recognized by the FASB to be applied in the preparation of
financial statements in conformity with generally accepted accounting principles. FAS 168
explicitly recognizes rules and interpretive releases of the Securities and Exchange Commission
(SEC) under federal securities laws as authoritative GAAP for SEC registrants. The Company adopted this
statement as of September 30, 2009.
6
Table of Contents
PART I
| ITEM 1. | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED |
NOTE B — INVENTORIES
Inventories are stated at the lower of cost or market. The costs for substantially all inventories
are determined using the last-in, first-out (LIFO) method, with the remainder determined using the
first-in, first-out (FIFO) method. 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.
Inventory quantities were reduced during the first nine months of 2009 resulting in a partial
liquidation of LIFO quantities carried at lower costs from earlier years compared to current year
costs. The related effect increased net income by $1.2 million or $0.07 per share.
The major components of inventories are as follows (net of LIFO reserves):
| September 30, | December 31, | |||||||
| (Thousands of dollars) | 2009 | 2008 | ||||||
Raw materials and in-process |
$ | 23,645 | $ | 32,996 | ||||
Finished parts |
17,936 | 20,288 | ||||||
Finished products |
2,380 | 3,597 | ||||||
Total inventories |
$ | 43,961 | $ | 56,881 | ||||
NOTE C — FINANCING ARRANGEMENTS
The Company has an unsecured credit agreement dated November, 2008. Under the agreement, which
matures in November 2009, subject to extension, the Company may borrow up to $25.0 million with
interest at LIBOR plus 75 basis points, adjustable and payable monthly. Proceeds from this
borrowing are used to partially finance the expansion of the Company’s Mansfield, Ohio
manufacturing and office facilities. At September 30, 2009, there was $194,000 borrowing capacity
available under the agreement.
7
Table of Contents
PART I — CONTINUED
| ITEM 1. | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED |
NOTE D — PRODUCT WARRANTIES
A liability is established for estimated future warranty and service claims based on historical
claims experience, specific product failures and sales volume. The Company expenses warranty costs
directly to cost of products sold. Changes in the Company’s product warranty liability are as
follows:
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| (Thousands of dollars) | 2009 | 2008 | ||||||
Balance at beginning of year |
$ | 2,048 | $ | 1,682 | ||||
Warranty costs |
1,503 | 2,357 | ||||||
Settlements |
(1,643 | ) | (2,112 | ) | ||||
Balance at end of quarter |
$ | 1,908 | $ | 1,927 | ||||
NOTE E — COMPREHENSIVE INCOME
Comprehensive income and its components, net of tax, are as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (Thousands of dollars) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Net income |
$ | 5,177 | $ | 7,385 | $ | 14,550 | $ | 22,432 | ||||||||
Changes in cumulative
foreign currency
translation adjustments |
1,242 | (1,379 | ) | 1,740 | (1,489 | ) | ||||||||||
Pension and OPEB adjustments |
471 | 169 | 1,412 | 145 | ||||||||||||
Total comprehensive income |
$ | 6,890 | $ | 6,175 | $ | 17,702 | $ | 21,088 | ||||||||
NOTE F — INCOME TAXES
The Company follows the provisions of ASC 740 — Income Taxes. Accordingly, the Company recognizes
the financial statement benefit of a tax position only after determining that the relevant tax
authority would more likely than not sustain the position following an audit.
The amount of unrecognized tax benefits as of January 1, 2009 of $870,000 includes $685,000 which,
if ultimately recognized, will reduce the Company’s annual effective tax rate.
At September 30, 2009 the balance of unrecognized tax benefits had decreased to approximately
$846,000. The decrease in the current year is primarily related to a $70,000 increase in current
year tax positions, a $2,000 increase in prior period tax positions, and a reduction as a result of
a lapse of the applicable statute of limitations of $95,000. The September 30, 2009 balance of
unrecognized tax benefits includes $594,000 which, if ultimately realized, will reduce the
Company’s annual effective tax rate.
The statute of limitations in several jurisdictions will expire in the next 12 months. The Company
has unrecognized tax benefits of $86,000 which would be recognized if the statute of limitations
expires without the relevant taxing authority examining the applicable returns.
8
Table of Contents
PART I — CONTINUED
| ITEM 1. | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED |
NOTE F — INCOME TAXES — CONTINUED
The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and
foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation
of the related tax laws and regulations and require significant judgment to apply. Except as noted
below, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax
examinations by tax authorities for the years before 2005.
The Company was examined by the Canadian Revenue Agency for tax years ending 2004 — 2006 related to
inter-company royalty payments. The Company received a final assessment during the first quarter
2009 and has filed a Competent Authority Appeal with both US and Canadian Competent Authorities to
eliminate double tax treatment. Under the most recent US-Canadian tax protocol, Competent
Authority assessments should achieve symmetry under binding arbitration. Any adjustment resulting
from Competent Authority resolution of the examination is not expected to have a material impact on
the financial position or future results of operations of the Company.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax
expense for all periods presented. The Company had accrued approximately $201,000 for the payment
of interest and penalties at January 1, 2009. An additional accrual of interest and penalties of
approximately $40,000 was recorded for the nine months ended September 30, 2009.
NOTE G — PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors a defined benefit pension plan covering substantially all employees hired
prior to January 1, 2008. Additionally, the Company sponsors a defined contribution pension plan
at one location not participating in the defined benefit pension plan. A 401(k) plan that includes
a graduated Company match is also available. The Company also sponsors a non-contributory defined
benefit health care plan that provides health benefits to substantially all retirees and their
spouses. (See Note F — Pensions and Other Postretirement Benefits for the year ended December 31,
2008 included in the Company’s Form 10-K.)
For substantially all United States employees hired after January 1, 2008, an enhanced 401(k) plan
is available instead of the Company’s defined benefit pension plan. Benefits are based on age and
years of service with the Company. Employees hired prior to January 1, 2008 are not affected by
the change.
9
Table of Contents
PART I — CONTINUED
| ITEM 1. | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED |
NOTE G — PENSION AND OTHER POSTRETIREMENT BENEFITS — CONTINUED
The following table presents the components of net periodic benefit cost:
| Pension Benefits | Postretirement Benefits | |||||||||||||||
| Nine Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| (Thousands of dollars) | 2009 | 2008 | 2009 | 2008 | ||||||||||||
Service cost |
$ | 2,064 | $ | 1,975 | $ | 907 | $ | 894 | ||||||||
Interest cost |
2,553 | 2,293 | 1,181 | 1,247 | ||||||||||||
Expected return on plan assets |
(2,652 | ) | (3,145 | ) | — | — | ||||||||||
Amortization of loss |
1,580 | 511 | (169 | ) | — | |||||||||||
Benefit cost |
$ | 3,545 | $ | 1,634 | $ | 1,919 | $ | 2,141 | ||||||||
NOTE H — FLOOD INSURANCE RECOVERIES
In September 2009, the Company’s Patterson Pump Company subsidiary was damaged by flooding. The
Company maintains insurance coverage, including flood insurance, which provides for reimbursement
of losses resulting from property damage, loss of product and business interruption. As of
September 30, 2009, the Company recorded a liability for estimated costs and damages related to the
flood of $1.5 million for which a receivable also has been recorded, less a $50,000 deductible.
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of
1995, The Gorman-Rupp Company provides the following cautionary statement: Certain statements in
this section and elsewhere herein contain various forward-looking statements and include
assumptions concerning The Gorman-Rupp Company’s operations, future results and prospects. These
forward-looking statements are based on current expectations about important economic, political,
and technological factors, among others, and are subject to risk and uncertainties, the absence of
which could cause the actual results or events to differ materially from those set forth in or
implied by the forward-looking statements and related assumptions.
Such factors include the following: (1) continuation of the current and projected future business
environment, including interest rates and capital and consumer spending; (2) competitive factors
and competitor responses to Gorman-Rupp initiatives; (3) successful development and market
introductions of anticipated new products; (4) stability of government laws and regulations,
including taxes; (5) stable governments and business conditions in emerging economies; (6) successful
penetration of emerging economies; and (7) continuation of the favorable environment to make
acquisitions, domestic and foreign, including regulatory requirements and market values of
candidates.
10
Table of Contents
PART I — CONTINUED
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED |
Third Quarter 2009 Compared to Third Quarter 2008
Net Sales
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (Thousands of dollars) | 2009 | 2008 | $ Change | % Change | ||||||||||||
Net sales |
$ | 64,096 | $ | 84,188 | $ | (20,092 | ) | (23.9 | )% | |||||||
The global economic downturn continues to have a negative impact on the Company’s business,
resulting in the decline in sales for the quarter across most of the markets the Company serves.
The largest declines were in the fire protection market of $6.9 million, the construction and
rental markets of $4.9 million, the OEM market of $2.6 million, wastewater of $2.5 million and the
industrial market of $2.2 million. Partially offsetting these decreases was an increase in custom
pump sales of $2.3 million.
Cost of Products Sold
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (Thousands of dollars) | 2009 | 2008 | $ Change | % Change | ||||||||||||
Cost of products sold |
$ | 47,996 | $ | 64,016 | $ | (16,020 | ) | (25.0 | )% | |||||||
% of Net sales |
74.9 | % | 76.0 | % | ||||||||||||
The decrease in cost of products sold was primarily due to lower sales volume which resulted
in decreased material costs of $12.1 million, including a $2.4 million decrease in LIFO expense due
to reduced inventory levels resulting in partial liquidation of LIFO quantities and lower inflation
expectations for the remainder of 2009. Primarily due to lower production levels, manufacturing
costs included decreases in compensation and payroll taxes of $2.0 million and supplies, patterns
and tooling of $544,000. In addition, warranty expense decreased $655,000 due to estimates related
to lower sales volume and claims experience. Partially offsetting these decreases was increased
pension expense of $451,000 resulting from the significant market value declines in the worldwide
equity markets in 2008. The overall decrease in cost of products sold as a percent of net sales
was due primarily to decreased LIFO expense as mentioned above.
Selling, General, and Administrative Expenses (SG&A)
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (Thousands of dollars) | 2009 | 2008 | $ Change | % Change | ||||||||||||
Selling, general, and
administrative expenses
(SG&A) |
$ | 8,373 | $ | 9,140 | $ | (767 | ) | (8.4 | )% | |||||||
% of Net sales |
13.1 | % | 10.9 | % | ||||||||||||
11
Table of Contents
PART I — CONTINUED
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED |
The decrease in SG&A expenses is principally due to lower advertising and travel expenses of
$309,000 as the previous year included expenses related to trade shows. In addition, the level of these types of expenses has been curtailed in 2009 due to the economic downturn. Also, compensation and
payroll taxes decreased $295,000 principally due to reduced headcount and temporary salary
reductions, and profit sharing expense decreased $112,000 related to lower operating income.
Other Income
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (Thousands of dollars) | 2009 | 2008 | $ Change | % Change | ||||||||||||
Other income |
$ | 142 | $ | 440 | $ | (298 | ) | (67.7 | )% | |||||||
% of Net sales |
.2 | % | 0.5 | % | ||||||||||||
The decrease in other income is primarily due to lower interest income due to a decline in
interest rates.
Net Income
| Three Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (Thousands of dollars) | 2009 | 2008 | $ Change | % Change | ||||||||||||
Income before income taxes |
$ | 7,805 | $ | 11,409 | $ | (3,604 | ) | (31.6 | )% | |||||||
% of Net sales |
12.2 | % | 13.6 | % | ||||||||||||
Income taxes |
$ | 2,628 | $ | 4,024 | $ | (1,396 | ) | (34.7 | )% | |||||||
Effective tax rate |
33.7 | % | 35.3 | % | ||||||||||||
Net income |
$ | 5,177 | $ | 7,385 | $ | (2,208 | ) | (29.9 | )% | |||||||
% of Net sales |
8.1 | % | 8.8 | % | ||||||||||||
Earnings per share |
$ | 0.31 | $ | 0.44 | $ | (0.13 | ) | (29.5 | )% | |||||||
Nine Months 2009 Compared to Nine Months 2008
Net Sales
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (Thousands of Dollars) | 2009 | 2008 | $ Change | % Change | ||||||||||||
Net sales |
$ | 204,039 | $ | 249,653 | $ | (45,614 | ) | (18.3 | )% | |||||||
The global economic downturn continues to have a negative impact on the Company’s business, as
declines in sales in the first nine months of 2009 were across most of the markets the Company
serves.
12
Table of Contents
PART I — CONTINUED
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED |
The largest declines were in the construction and rental markets of $13.4 million, the fire
protection market of $11.2 million, the OEM market of $6.4 million, wastewater of $5.0 million and
the industrial market of $4.9 million.
The backlog at September 30, 2009 was $85.2 million compared to $128.3 million at September 30,
2008, representing a 34% decrease primarily due to a lessening of orders in the fire protection and
original equipment markets.
Cost of Products Sold
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (Thousands of Dollars) | 2009 | 2008 | $ Change | % Change | ||||||||||||
Cost of products sold |
$ | 156,804 | $ | 189,231 | $ | (32,427 | ) | (17.1 | )% | |||||||
% of Net sales |
76.9 | % | 75.8 | % | ||||||||||||
The decrease in cost of products sold was primarily due to lower sales volume, which resulted
in decreased material costs of $24.6 million, including a $3.8 million decrease in LIFO expense due
to reduced inventory levels resulting in partial liquidation of LIFO quantities and lower inflation
expectations for the remainder of 2009. Manufacturing costs included decreases in compensation and
payroll taxes of $4.9 million and supplies, patterns and tooling of $1.4 million primarily due to
lower production levels. Also, warranty expense decreased $854,000 due to estimates related to
lower sales volume and claims experience and profit sharing expense decreased $705,000 related to
lower operating income. Partially offsetting these decreases is increased pension expense of $1.4
million resulting from the significant market value declines in the worldwide equity markets in
2008. The overall increase in cost of products sold as a percent of net sales was due primarily to
decreased operating leverage on lower sales volume.
Selling, General, and Administrative Expenses (SG&A)
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (Thousands of Dollars) | 2009 | 2008 | $ Change | % Change | ||||||||||||
Selling, general, and
administrative expenses
(SG&A) |
$ | 26,151 | $ | 27,995 | $ | (1,844 | ) | (6.6 | )% | |||||||
% of Net sales |
12.8 | % | 11.2 | % | ||||||||||||
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Table of Contents
PART I — CONTINUED
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED |
The decrease in SG&A expenses is principally due to lower advertising and travel expenses of $1.1
million and supplies of $303,000 as the previous year included expenses related to the Construction
Expo and IFAT trade shows held every three years. In addition, the level of these types of expenses has been
curtailed in 2009 due to the economic downturn. Profit sharing expense decreased $428,000 related
to lower operating income and business taxes decreased $229,000 due to amended franchise tax returns
and reduced income. Compensation and payroll taxes decreased $199,000 principally due to reduced
headcount and temporary salary reductions. Professional services decreased $182,000 primarily due
to expenses in 2008 relating to computer system upgrades. Partially offsetting these decreases are
increases in pension expense of $537,000 resulting from the significant market value declines in
the worldwide equity markets in 2008 and in healthcare expense of $420,000 due to increased medical
claims and higher medical costs.
Other Income
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (Thousands of Dollars) | 2009 | 2008 | $ Change | % Change | ||||||||||||
Other income |
$ | 1,051 | $ | 2,003 | $ | (952 | ) | (47.5 | )% | |||||||
% of Net sales |
0.5 | % | 0.8 | % | ||||||||||||
The decrease in other income is primarily due to lower interest income due to a decline in
interest rates.
Net Income
| Nine Months Ended | ||||||||||||||||
| September 30, | ||||||||||||||||
| (Thousands of Dollars) | 2009 | 2008 | $ Change | % Change | ||||||||||||
Income before income taxes |
$ | 21,875 | $ | 34,230 | $ | (12,355 | ) | (36.1 | )% | |||||||
% of Net sales |
10.7 | % | 13.7 | % | ||||||||||||
Income taxes |
$ | 7,325 | $ | 11,798 | $ | (4,473 | ) | (37.9 | )% | |||||||
Effective tax rate |
33.5 | % | 34.5 | % | ||||||||||||
Net income |
$ | 14,550 | $ | 22,432 | $ | (7,882 | ) | (35.1 | )% | |||||||
% of Net sales |
7.1 | % | 9.0 | % | ||||||||||||
Earnings per share |
$ | 0.87 | $ | 1.34 | $ | (0.47 | ) | (35.1 | )% | |||||||
Liquidity and Sources of Capital
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| (Thousands of dollars) | 2009 | 2008 | $ Change | |||||||||
Net cash provided by operating activities |
$ | 43,876 | $ | 27,398 | $ | 16,478 | ||||||
Net cash used for investing activities |
34,023 | 6,305 | 27,718 | |||||||||
Net cash provided by (used for)
financing activities |
19,795 | (5,010 | ) | 24,805 | ||||||||
14
Table of Contents
PART I — CONTINUED
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED |
Cash provided by operating activities resulted primarily from cash being made available due to
reduced inventory levels of $11.5 million and lower accounts receivable balances of $8.9 million
due to lower sales volume. Also, cash of $2.4 million was provided by the reduction of prepaid
income taxes applied to the Company’s current tax liability. Partially offsetting these increases
to cash was a decrease in accounts payable of $4.9 million.
Investing activities for the nine months ended September 30, 2009 primarily consisted of capital
expenditures related to the consolidation and expansion of the Mansfield, Ohio facilities of $28.3
million and machinery and equipment additions of $6.1 million. Total capital expenditures for the
previously announced expansion of the Mansfield, Ohio facilities (facilities) of $51.7 million have
been incurred as of September 30, 2009.
Financing activities for the nine months ended September 30, 2009 consisted of short-term
borrowings of $24.8 million at LIBOR plus 75 basis points to partially finance the above mentioned
facilities. Also included were payments for dividends of $5.0 million. The ratio of current
assets to current liabilities was 2.4 to 1 at September 30, 2009 and 4.0 to 1 at September 30,
2008.
The Company has been negatively impacted by the severe global recession during the fourth quarter
2008 and the nine months ended September 30, 2009. It is expected that the Company’s operations
and financial results will continue to be negatively impacted in similar fashion during the balance
of 2009.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK |
The Company’s foreign operations do not involve material risks due to their relative size, both
individually and collectively. The Company is not exposed to material market risks as a result of
its
export sales or operations outside of the United States. Export sales generally are denominated in U.S. Dollars and made on open account or under letters of credit.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures designed to ensure that
information required to be disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms. An evaluation was carried
out under the supervision and with the participation of the Company’s Management, including the
principal executive officer and the principal financial officer, of the effectiveness of the design
and operation of the Company’s disclosure controls and procedures as of the end of the period
covered by this report on Form 10-Q. Based on that evaluation, the principal executive officer and
the principal financial officer have concluded that the Company’s disclosure controls and
procedures did maintain effective internal control over financial reporting as of September 30,
2009.
15
Table of Contents
PART I — CONTINUED
| ITEM 4. | CONTROLS AND PROCEDURES — CONTINUED |
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s disclosure controls and procedures that occurred during the
most recent fiscal quarter that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial reporting. Subsequent to the date of the
evaluation, there have been no significant changes in the Company’s disclosure controls and
procedures that could significantly affect the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
There are no material changes from the legal proceedings previously reported in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2008.
| ITEM 1A. | RISK FACTORS |
There are no material changes from the risk factors previously reported in the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2008.
16
Table of Contents
| ITEM 6. | EXHIBITS |
| (a) | Exhibits |
| Exhibits 3 and 4 | (articles of incorporation) are incorporated herein
by this reference from Exhibits (3) and (4) of the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2007. |
|
| Exhibits 3, 4 and 10 | (by-laws; instruments defining the rights of
security holders, including indentures; and material contracts)
are incorporated herein by this reference from Exhibits (3), (4)
and (10) of the Company’s Annual Report on Form 10-K for the year
ended December 31, 2005. |
|
| Exhibit 31.1 | Certification of Jeffrey S. Gorman, Chief Executive
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. |
|
| Exhibit 31.2 | Certification of Wayne L. Knabel, Chief Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
| Exhibit 32 | Certification pursuant to 18 U.S.C Section 1350, as
adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
| The Gorman-Rupp Company (Registrant) |
||||
| Date: October 27, 2009 | By: | /s/ Wayne L. Knabel | ||
| Wayne L. Knabel | ||||
| Chief Financial Officer | ||||
17