Attached files
| file | filename |
|---|---|
| EX-32 - EX-32 SECTION 1350 CERTIFICATIONS - GORMAN RUPP CO | c03784exv32.htm |
| EX-31.2 - EX-31.2 302 PRINCIPAL FINANCIAL OFFICER (PFO) CERTIFICATION - GORMAN RUPP CO | c03784exv31w2.htm |
| EX-31.1 - EX-31.1 302 PRINCIPAL EXECUTIVE OFFICER (PEO) CERTIFICATION - GORMAN RUPP CO | c03784exv31w1.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 June 30, 2010
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 July 27, 2010. 16,685,535
*********************
The Gorman-Rupp Company and Subsidiaries
Three and Six Months June 30, 2010 and 2009
Three and Six Months June 30, 2010 and 2009
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| 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 | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (Thousands of dollars, except per share amounts) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Net sales |
$ | 72,380 | $ | 68,345 | $ | 138,166 | $ | 139,943 | ||||||||
Cost of products sold |
55,094 | 52,555 | 105,431 | 108,808 | ||||||||||||
Gross profit |
17,286 | 15,790 | 32,735 | 31,135 | ||||||||||||
Selling, general and
administrative expenses |
8,375 | 8,790 | 17,134 | 17,778 | ||||||||||||
Operating income |
8,911 | 7,000 | 15,601 | 13,357 | ||||||||||||
Other income |
12 | 144 | 137 | 909 | ||||||||||||
Other expense |
(412 | ) | 58 | (528 | ) | (196 | ) | |||||||||
Income before income taxes |
8,511 | 7,202 | 15,210 | 14,070 | ||||||||||||
Income taxes |
2,855 | 2,335 | 5,057 | 4,697 | ||||||||||||
Net income |
$ | 5,656 | $ | 4,867 | $ | 10,153 | $ | 9,373 | ||||||||
Earnings per share |
$ | 0.34 | $ | 0.29 | $ | 0.61 | $ | 0.56 | ||||||||
Cash dividends paid per share |
$ | 0.105 | $ | 0.100 | $ | 0.210 | $ | 0.200 | ||||||||
Weighted average shares outstanding |
16,710,260 | 16,707,535 | 16,710,397 | 16,707,535 | ||||||||||||
See notes to condensed consolidated financial statements.
3
Table of Contents
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| Unaudited | ||||||||
| June 30, | December 31, | |||||||
| (Thousands of dollars) | 2010 | 2009 | ||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 37,216 | $ | 44,403 | ||||
Short-term investments |
1,513 | 1,505 | ||||||
Accounts receivable — net |
49,315 | 37,239 | ||||||
Inventories — net |
37,711 | 40,506 | ||||||
Deferred income taxes and other current assets |
4,538 | 7,747 | ||||||
Total current assets |
130,293 | 131,400 | ||||||
Property, plant and equipment |
209,265 | 208,571 | ||||||
Less accumulated depreciation |
100,884 | 100,048 | ||||||
Property, plant and equipment — net |
108,381 | 108,523 | ||||||
Deferred income taxes and other assets |
9,816 | 9,149 | ||||||
Total assets |
$ | 248,490 | $ | 249,072 | ||||
Liabilities and shareholders’ equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 13,669 | $ | 8,972 | ||||
Short-term debt |
— | 15,000 | ||||||
Payroll and related liabilities |
7,806 | 6,909 | ||||||
Accrued expenses |
17,960 | 12,294 | ||||||
Total current liabilities |
39,435 | 43,175 | ||||||
Income taxes payable |
971 | 971 | ||||||
Retirement benefits |
2,768 | 5,044 | ||||||
Postretirement benefits |
22,752 | 22,270 | ||||||
Total liabilities |
65,926 | 71,460 | ||||||
The Gorman-Rupp Company shareholders’ equity |
||||||||
Common shares, without par value: |
||||||||
Authorized - 35,000,000 shares |
||||||||
Outstanding - 16,685,535 shares in 2010
and 16,710,535 in 2009 (after deducting
treasury shares of 626,683 in 2010 and
601,683 in 2009) at stated capital amount |
5,092 | 5,100 | ||||||
Retained earnings |
188,879 | 182,875 | ||||||
Accumulated other comprehensive loss |
(12,064 | ) | (11,070 | ) | ||||
The Gorman-Rupp Company shareholders’ equity |
181,907 | 176,905 | ||||||
Noncontrolling interest |
657 | 707 | ||||||
Total shareholders’ equity |
182,564 | 177,612 | ||||||
Total liabilities and shareholders’ equity |
$ | 248,490 | $ | 249,072 | ||||
See notes to condensed consolidated financial statements.
4
Table of Contents
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| (Thousands of dollars) | 2010 | 2009 | ||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 10,153 | $ | 9,373 | ||||
Adjustments to reconcile net income attributable to
net cash provided by operating activities: |
||||||||
Depreciation and amortization |
5,205 | 4,236 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(12,075 | ) | 7,102 | |||||
Inventories |
2,795 | 8,986 | ||||||
Accounts payable |
4,697 | (6,343 | ) | |||||
Accrued expenses and other |
5,736 | 3,793 | ||||||
Net cash provided by operating activities |
16,511 | 27,147 | ||||||
Cash flows from investing activities: |
||||||||
Capital additions — net |
(3,966 | ) | (23,204 | ) | ||||
Proceeds from sale of product line |
— | 1,210 | ||||||
Change in short-term investments |
(8 | ) | — | |||||
Net cash used for investing activities |
(3,974 | ) | (21,994 | ) | ||||
Cash flows from financing activities: |
||||||||
Cash dividends |
(3,509 | ) | (3,342 | ) | ||||
Proceeds from bank borrowings |
— | 16,834 | ||||||
Payments to bank for borrowings |
(15,000 | ) | — | |||||
Purchase of common shares for treasury |
(648 | ) | — | |||||
Net cash (used for) provided by financing activities |
(19,157 | ) | 13,492 | |||||
Effect of exchange rate changes on cash |
(567 | ) | 271 | |||||
Net (decrease) increase in cash
and cash equivalents |
(7,187 | ) | 18,916 | |||||
Cash and cash equivalents: |
||||||||
Beginning of year |
44,403 | 23,793 | ||||||
June 30, |
$ | 37,216 | $ | 42,709 | ||||
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 six months ended June 30, 2010 are not necessarily indicative of results that may be
expected for the year ending December 31, 2010. 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, 2009. The Company has evaluated the existence of subsequent events through
the filing date of this Form 10-Q.
NEW ACCOUNTING PRONOUNCEMENTS
There have been no recent accounting pronouncements or changes in accounting pronouncements during
the six months ended June 30, 2010, as compared to the recent accounting pronouncements described
in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, that are of
significance or potential significance to the Company.
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 and
are subject to the final year-end LIFO inventory valuation.
The major components of inventories are as follows (net of LIFO reserves):
| June 30, | December 31, | |||||||
| (Thousands of dollars) | 2010 | 2009 | ||||||
Raw materials and in-process |
$ | 19,744 | $ | 22,087 | ||||
Finished parts |
15,237 | 16,026 | ||||||
Finished products |
2,730 | 2,393 | ||||||
Total inventories |
$ | 37,711 | $ | 40,506 | ||||
6
Table of Contents
PART I — CONTINUED
ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
NOTE C — FINANCING ARRANGEMENTS
During the three months ended June 30, 2010, the Company re-paid the outstanding balance of $10.0
million related to an unsecured bank loan agreement which was scheduled to mature in November 2010.
The proceeds from this agreement were used to partially finance the consolidation and expansion of
the Company’s Mansfield, Ohio manufacturing and office facilities which were substantially
completed in 2009.
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:
| June 30, | ||||||||
| (Thousands of dollars) | 2010 | 2009 | ||||||
Balance at beginning of year |
$ | 1,863 | $ | 2,048 | ||||
Warranty costs accrued |
486 | 1,323 | ||||||
Expenses |
(944 | ) | (1,299 | ) | ||||
Balance at end of period |
$ | 1,405 | $ | 2,072 | ||||
NOTE E — COMPREHENSIVE INCOME
Comprehensive income and its components, net of tax, are as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (Thousands of dollars) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Net income |
$ | 5,656 | $ | 4,867 | $ | 10,153 | $ | 9,373 | ||||||||
Changes in cumulative
foreign currency
translation adjustments |
(1,401 | ) | 1,179 | (1,509 | ) | 498 | ||||||||||
Pension and OPEB adjustments |
246 | 470 | 515 | 941 | ||||||||||||
Total comprehensive income
attributable to The
Gorman-Rupp Company |
$ | 4,501 | $ | 6,516 | $ | 9,159 | $ | 10,812 | ||||||||
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.
7
Table of Contents
PART I — CONTINUED
ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
NOTE F — INCOME TAXES — CONTINUED
The amount of unrecognized tax benefits as of January 1, 2010 of $1.5 million includes $876,000
which, if ultimately recognized, will reduce the Company’s annual effective tax rate.
At June 30, 2010, the balance of unrecognized tax benefits remained at approximately $1.5 million.
The activity in the current year is primarily related to a $93,000 increase in current year tax
positions and a $12,000 decrease related to settlements with taxing authorities. The June 30, 2010
balance of unrecognized tax benefits includes $978,000 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 $64,000 which would be recognized if the statute of limitations
expires without the relevant taxing authority examining the applicable returns.
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 2006.
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 U.S. and Canadian Competent Authorities
to eliminate double tax treatment. Under the most recent U.S.-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 consolidated financial position or future consolidated 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 $391,000 for the payment
of interest and penalties at January 1, 2010. An additional accrual of interest and penalties of
approximately $37,000 and $61,000 was recorded for the three and six months ended June 30, 2010,
respectively.
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.
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.
8
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 | |||||||||||||||
| Six Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (Thousands of dollars) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Service cost |
$ | 1,361 | $ | 1,376 | $ | 553 | $ | 605 | ||||||||
Interest cost |
1,577 | 1,702 | 628 | 787 | ||||||||||||
Expected return on plan assets |
(2,214 | ) | (1,768 | ) | — | — | ||||||||||
Unrecognized actuarial (gain) loss |
788 | 1,053 | (286 | ) | (113 | ) | ||||||||||
Recognized actuarial (gain) loss |
— | — | (1 | ) | — | |||||||||||
Benefit cost |
$ | 1,512 | $ | 2,363 | $ | 894 | $ | 1,279 | ||||||||
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Executive Overview
The Gorman-Rupp Company is a leading designer, manufacturer and marketer of pumps and related
equipment (pump and motor controls) for use in water, wastewater, construction, industrial,
petroleum, original equipment, agriculture, fire protection, heating, ventilating and air
conditioning (“HVAC”), military and other liquid-handling applications. The Company attributes its
success to exceptional product quality, application and performance combined with delivery and
service, and attempts to continually develop initiatives to improve performance in these key areas.
Since the fourth quarter of 2008, demand for most of our products slowed due to the global economic
recession. The Company responded to these challenging business conditions by adjusting cost
structures to current operating levels and realigning production plans to match current demand.
During the three and six months ended June 30, 2010, the Company experienced improved financial
results with earnings largely driven by solid operating performance in what is still an
unpredictable environment. Customer order growth continues to be encouraging, but the Company
remains cautious as full economic recovery remains uncertain.
9
Table of Contents
PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
Second Quarter 2010 Compared to Second Quarter 2009
Net Sales
| Three Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of dollars) | 2010 | 2009 | $ Change | % Change | ||||||||||||
Net sales |
$ | 72,380 | $ | 68,345 | $ | 4,035 | 5.9 | % | ||||||||
The increase in net sales during the quarter was positively impacted by the early stages of
economic recovery and is due primarily to increases in the international fire protection market of
$4.1 million, custom pump applications of $2.7 million and the construction and rental market of
$2.3 million. Partially offsetting these increases were decreased
sales in the OEM market of $2.9 million and the domestic fire protection market of $1.8 million.
Cost of Products Sold
| Three Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of dollars) | 2010 | 2009 | $ Change | % Change | ||||||||||||
Cost of products sold |
$ | 55,094 | $ | 52,555 | $ | 2,539 | 4.8 | % | ||||||||
% of Net sales |
76.1 | % | 76.9 | % | ||||||||||||
The increase in cost of products sold was primarily due to higher sales volume which resulted in
additional material costs of $3.3 million, including higher LIFO expense of $1.6 million versus the
second quarter 2009 which benefited from a $1.1 million liquidation of LIFO quantities due to
reduced inventory levels. Partially offsetting the increases was lower healthcare expense of
$864,000 due to reduced medical costs.
Selling, General and Administrative Expenses (SG&A)
| Three Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of dollars) | 2010 | 2009 | $ Change | % Change | ||||||||||||
Selling, general and
administrative
expenses (SG&A) |
$ | 8,375 | $ | 8,790 | $ | (415 | ) | (4.7 | )% | |||||||
% of Net sales |
11.6 | % | 12.9 | % | ||||||||||||
The decrease in SG&A expenses is principally due to lower professional fees of $258,000 resulting
from reduced legal fees, and lower healthcare expense of $231,000 due to reduced medical costs.
10
Table of Contents
PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
Other Expense
| Three Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of dollars) | 2010 | 2009 | $ Change | % Change | ||||||||||||
Other expense |
$ | 412 | $ | (58 | ) | $ | 470 | 810.3 | % | |||||||
% of Net sales |
0.6 | % | 0.1 | % | ||||||||||||
The increase in other expense is due to higher foreign currency exchange rate losses of $257,000
related primarily to the decrease in the value of the Euro, and to losses on disposal of assets of
$246,000 primarily related to the former Mansfield Division facilities and the write-down in value
of the portion of the former facilities which is currently available for sale.
Net Income
| Three Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of dollars) | 2010 | 2009 | $ Change | % Change | ||||||||||||
Income before income taxes |
$ | 8,511 | $ | 7,202 | $ | 1,309 | 18.2 | % | ||||||||
% of Net sales |
11.8 | % | 10.5 | % | ||||||||||||
Income taxes |
$ | 2,855 | $ | 2,335 | $ | 520 | 22.3 | % | ||||||||
Effective tax rate |
33.5 | % | 32.4 | % | ||||||||||||
Net income |
$ | 5,656 | $ | 4,867 | $ | 789 | 16.2 | % | ||||||||
% of Net sales |
7.8 | % | 7.1 | % | ||||||||||||
Earnings per share |
$ | 0.34 | $ | 0.29 | $ | 0.05 | 17.2 | % | ||||||||
The increase in the effective tax rate of 1.1 percentage points during the second quarter of 2010
compared to the same period in 2009 was due primarily to the inclusion of the research and
development tax credit in the 2009 provision. This credit has not yet been extended for 2010.
Six Months 2010 Compared to Six Months 2009
Net Sales
| Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of Dollars) | 2010 | 2009 | $ Change | % Change | ||||||||||||
Net sales |
$ | 138,166 | $ | 139,943 | $ | (1,777 | ) | (1.3 | )% | |||||||
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 sales in the first six months of 2010 compared to the same period last year was due
principally to declines in the OEM market of $2.9 million, the domestic fire protection market of
$2.8 million, the government market of $1.9 million and the municipal market of $1.6 million.
Partially offsetting these decreases were increases in the international fire protection market of
$3.3 million, the rental market of $2.4 million and the industrial market of $1.7 million.
The backlog at June 30, 2010 was $105.0 million compared to $82.9 million at June 30, 2009,
representing a 27% increase primarily due to an increase of orders in custom pump applications, the
municipal market, the rental market and the international fire protection market, partially offset
by a decline in orders for the OEM market.
Cost of Products Sold
| Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of Dollars) | 2010 | 2009 | $ Change | % Change | ||||||||||||
Cost of products sold |
$ | 105,431 | $ | 108,808 | $ | (3,377 | ) | (3.1 | )% | |||||||
% of Net sales |
76.3 | % | 77.8 | % | ||||||||||||
The decrease in cost of products sold was due in part to lower sales volume which resulted in lower
material cost of $1.0 million. This decrease is net of higher LIFO expense of $777,000 versus the
first six months of 2009 which benefited from a $1.1 million liquidation of LIFO quantities due to
reduced inventory levels. Manufacturing costs included decreases in warranty expense of $837,000
due to estimates related to lower sales volume and improved claims experience, compensation and
payroll taxes of $742,000 due to slightly lower employment levels, and pension expense of $699,000
as a result of lower amortization expense due to the rebound in equity markets during 2009. In
addition, healthcare expense decreased $661,000 due to reduced medical costs for active employees,
and postretirement expense decreased $203,000 due to reduced medical costs for retired employees.
Partially offsetting these decreases was increased
depreciation expense of $968,000 primarily due to the consolidation and expansion of the Mansfield,
Ohio facilities (the Mansfield facilities).
Selling, General, and Administrative Expenses (SG&A)
| Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of Dollars) | 2010 | 2009 | $ Change | % Change | ||||||||||||
Selling, general, and
administrative expenses
(SG&A) |
$ | 17,134 | $ | 17,778 | $ | (644 | ) | (3.6 | )% | |||||||
% of Net sales |
12.4 | % | 12.7 | % | ||||||||||||
The decrease in SG&A expenses is principally due to lower professional fees of $493,000 resulting
from reduced legal fees, and lower healthcare expense of $267,000 due to reduced medical costs.
12
Table of Contents
PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
Other Income
| Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of Dollars) | 2010 | 2009 | $ Change | % Change | ||||||||||||
Other income |
$ | 137 | $ | 909 | $ | (772 | ) | (84.9 | )% | |||||||
% of Net sales |
0.1 | % | 0.7 | % | ||||||||||||
The decrease in other income is primarily due to gain recognized on the sale of a product line in
2009 of $435,000 and reduced gain on disposal of assets of $224,000.
Other Expense
| Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of Dollars) | 2010 | 2009 | $ Change | % Change | ||||||||||||
Other expense |
$ | 528 | $ | 196 | $ | 332 | 169.4 | % | ||||||||
% of Net sales |
0.4 | % | 0.1 | % | ||||||||||||
The increase in other expense is due to higher foreign currency exchange rate losses of $139,000
related primarily to the decrease in the value of the Euro, and to losses on disposal of assets of
$246,000 primarily related to the former Mansfield Division facilities.
Net Income
| Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of Dollars) | 2010 | 2009 | $ Change | % Change | ||||||||||||
Income before income taxes |
$ | 15,210 | $ | 14,070 | $ | 1,140 | 8.1 | % | ||||||||
% of Net sales |
11.0 | % | 10.1 | % | ||||||||||||
Income taxes |
$ | 5,057 | $ | 4,697 | $ | 360 | 7.7 | % | ||||||||
Effective tax rate |
33.2 | % | 33.4 | % | ||||||||||||
Net income |
$ | 10,153 | $ | 9,373 | $ | 780 | 8.3 | % | ||||||||
% of Net sales |
7.3 | % | 6.7 | % | ||||||||||||
Earnings per share |
$ | 0.61 | $ | 0.56 | $ | 0.05 | 8.9 | % | ||||||||
13
Table of Contents
PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED
Liquidity and Capital Resources
| Six Months Ended | ||||||||
| June 30, | ||||||||
| (Thousands of dollars) | 2010 | 2009 | ||||||
Net cash provided by operating activities |
$ | 16,511 | $ | 27,147 | ||||
Net cash used for investing activities |
3,974 | 21,994 | ||||||
Net cash (used for) provided by financing activities |
(19,157 | ) | 13,492 | |||||
The Company’s principal funding source generally is its cash generated from operations. As
operations continued to improve from last year’s severe recession, higher sales resulted in
increased accounts receivable, accounts payable and commissions payable during the first six months
of 2010. Inventories did not yet increase in line with sales due to lead times required for
replenishment.
Investing activities for the six months ended June 30, 2010 primarily consisted of remaining
capital expenditures related to the Mansfield facilities of $2.5 million and machinery and
equipment additions of $1.9 million, a decrease of $19.2 million
compared to the same period last year. Total capital expenditures of approximately $57.2 million
for the Mansfield facilities, substantially completed in 2009, have been incurred as of June 30,
2010. Non-building capital expenditures are expected to be approximately $4 to $6 million for each
of 2010 and 2011.
Financing activities for the six months ended June 30, 2010 consisted principally of the re-payment
of the outstanding balance of $15.0 million on short-term debt used to partially finance the
Mansfield facilities, and payments for dividends of $3.5 million. The ratio of current assets to
current liabilities was 3.3 to 1 at June 30, 2010 and 3.0 to 1 at December 31, 2009.
The Company believes that cash on hand, combined with cash provided by operations and line of
credit arrangements with banks, will continue to be sufficient to meet cash requirements, including
capital expenditures and the payment of quarterly dividends.
Critical Accounting Policies
Our critical accounting policies are described in Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, and in the notes to our Consolidated Financial
Statements for the year ended December 31, 2009 contained in our Fiscal 2009 Annual Report on Form
10-K. Any new accounting policies or updates to existing accounting policies as a result of new
accounting pronouncements have been discussed in the notes to our Consolidated Financial Statements
in this Quarterly Report on Form 10-Q. The application of our critical accounting policies may
require management to make judgments and estimates about the amounts reflected in the Consolidated
Financial Statements. Management uses historical experience and all available information to make
these estimates and judgments, and different amounts could be reported using different assumptions
and estimates.
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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
Safe Harbor Statement
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.
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 diversified export sales. 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. The Company’s disclosure
controls and procedures are also designed to ensure that information required to be disclosed in
Company reports filed under the Exchange Act of 1934 is accumulated and communicated to the
Company’s Management, including the principal executive officer and the principal financial
officer, as appropriate, to allow timely decisions regarding required disclosure.
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 were effective as of June 30, 2010.
15
Table of Contents
PART I — CONTINUED
ITEM 4. CONTROLS AND PROCEDURES — CONTINUED
Changes in Internal Control Over Financial Reporting
There have been 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, 2009.
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, 2009.
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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: July 29, 2010 | |||||
| By: | /s/ Wayne L. Knabel | ||||
| Wayne L. Knabel | |||||
| Chief Financial Officer | |||||
17