Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - GORMAN RUPP CO | Financial_Report.xls |
| EX-32 - EX-32 - GORMAN RUPP CO | c20621exv32.htm |
| EX-31.1 - EXHIBIT 31.1 - GORMAN RUPP CO | c20621exv31w1.htm |
| EX-31.2 - EXHIBIT 31.2 - GORMAN RUPP CO | c20621exv31w2.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, 2011
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
þ 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 “accelerated filer,”
“large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
| Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
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 29, 2011. 20,987,893
*********************
The Gorman-Rupp Company and Subsidiaries
Three and Six Months Ended June 30, 2011 and 2010
Three and Six Months Ended June 30, 2011 and 2010
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) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net sales |
$ | 92,159 | $ | 72,380 | $ | 176,233 | $ | 138,166 | ||||||||
Cost of products sold |
67,910 | 55,094 | 130,598 | 105,431 | ||||||||||||
Gross profit |
24,249 | 17,286 | 45,635 | 32,735 | ||||||||||||
Selling, general and
administrative expenses |
10,768 | 8,375 | 21,495 | 17,134 | ||||||||||||
Operating income |
13,481 | 8,911 | 24,140 | 15,601 | ||||||||||||
Other income |
110 | 12 | 221 | 137 | ||||||||||||
Other expense |
(176 | ) | (412 | ) | (318 | ) | (528 | ) | ||||||||
Income before income taxes |
13,415 | 8,511 | 24,043 | 15,210 | ||||||||||||
Income taxes |
4,490 | 2,855 | 7,999 | 5,057 | ||||||||||||
Net income |
$ | 8,925 | $ | 5,656 | $ | 16,044 | $ | 10,153 | ||||||||
Earnings per share |
$ | 0.42 | $ | 0.27 | $ | 0.76 | $ | 0.49 | ||||||||
Cash dividends paid per share |
$ | 0.090 | $ | 0.084 | $ | 0.174 | $ | 0.168 | ||||||||
Weighted average shares outstanding |
20,984,893 | 20,887,825 | 20,984,893 | 20,887,996 | ||||||||||||
Shares outstanding and per share data reflect the 5 for 4 stock split effective June 10, 2011.
See notes to condensed consolidated financial statements.
See notes to condensed consolidated financial statements.
3
Table of Contents
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNADUITED)
| June 30, | December 31, | |||||||
| (Thousands of dollars) | 2011 | 2010 | ||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 25,718 | $ | 32,229 | ||||
Short-term investments |
1,759 | 2,017 | ||||||
Accounts receivable — net |
61,267 | 51,996 | ||||||
Inventories — net |
64,971 | 51,449 | ||||||
Deferred income taxes and other current assets |
4,443 | 5,503 | ||||||
Total current assets |
158,158 | 143,194 | ||||||
Property, plant and equipment |
222,353 | 216,239 | ||||||
Less accumulated depreciation |
108,040 | 102,713 | ||||||
Property, plant and equipment — net |
114,313 | 113,526 | ||||||
Prepaid pension and other assets |
6,685 | 3,545 | ||||||
Goodwill and other intangible assets |
25,953 | 26,442 | ||||||
Total assets |
$ | 305,109 | $ | 286,707 | ||||
Liabilities and shareholders’ equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 17,770 | $ | 12,042 | ||||
Short-term debt |
20,000 | 25,000 | ||||||
Payroll and related liabilities |
9,742 | 7,794 | ||||||
Commissions payable |
6,881 | 6,591 | ||||||
Accrued expenses |
9,149 | 8,251 | ||||||
Total current liabilities |
63,542 | 59,678 | ||||||
Postretirement benefits |
22,554 | 22,241 | ||||||
Deferred and other income taxes |
4,954 | 4,954 | ||||||
Total liabilities |
91,050 | 86,873 | ||||||
Shareholders’ equity |
||||||||
Common shares, without par value: |
||||||||
Authorized - 35,000,000 shares |
||||||||
Outstanding - 20,984,893 shares in 2011
and 2010 (after deducting treasury shares
of 654,603 in 2011 and 2010) at stated
capital amount |
5,127 | 5,127 | ||||||
Additional paid-in capital |
2,373 | 2,400 | ||||||
Retained earnings |
214,127 | 201,735 | ||||||
Accumulated other comprehensive loss |
(7,568 | ) | (9,428 | ) | ||||
Total shareholders’ equity |
214,059 | 199,834 | ||||||
Total liabilities and shareholders’ equity |
$ | 305,109 | $ | 286,707 | ||||
Shares outstanding reflect the 5 for 4 stock split effective June 10, 2011.
See notes to condensed consolidated financial statements.
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) | 2011 | 2010 | ||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 16,044 | $ | 10,153 | ||||
Adjustments to reconcile net income attributable to
net cash provided by operating activities: |
||||||||
Depreciation and amortization |
5,629 | 5,205 | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(9,271 | ) | (12,075 | ) | ||||
Inventories |
(13,523 | ) | 2,795 | |||||
Accounts payable |
5,728 | 4,697 | ||||||
Commissions payable |
290 | 3,315 | ||||||
Accrued expenses and other |
2,431 | 2,421 | ||||||
Net cash provided by operating activities |
7,328 | 16,511 | ||||||
Cash flows from investing activities: |
||||||||
Capital additions — net |
(5,924 | ) | (3,966 | ) | ||||
Change in short-term investments |
259 | (8 | ) | |||||
Net cash used for investing activities |
(5,665 | ) | (3,974 | ) | ||||
Cash flows from financing activities: |
||||||||
Cash dividends |
(3,651 | ) | (3,509 | ) | ||||
Payments to bank for borrowings |
(5,000 | ) | (15,000 | ) | ||||
Purchase of common shares for treasury |
— | (648 | ) | |||||
Other |
(28 | ) | — | |||||
Net cash used for financing activities |
(8,679 | ) | (19,157 | ) | ||||
Effect of exchange rate changes on cash |
505 | (567 | ) | |||||
Net decrease in cash and cash equivalents |
(6,511 | ) | (7,187 | ) | ||||
Cash and cash equivalents: |
||||||||
Beginning of year |
32,229 | 44,403 | ||||||
June 30, |
$ | 25,718 | $ | 37,216 | ||||
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, 2011 are not necessarily indicative of results that may be
expected for the year ending December 31, 2011. 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, 2010. The Company has evaluated the existence of subsequent events through
the filing date of this Form 10-Q.
On April 28, 2011, the Company declared a five-for-four split of its Common Shares in the form of a
distribution of one additional Common Share for each four Common Shares previously issued. The
distribution was made on June 10, 2011. Accordingly, all number of shares outstanding and per
share data throughout this Quarterly Report on Form 10-Q have been adjusted retroactively to
reflect the stock split.
NEW ACCOUNTING PRONOUNCEMENTS
Accounting Standards Update No. 2011-05 — “Comprehensive Income (Topic 220): Presentation of
Comprehensive Income” (“ASU No. 2011-05”)
ASU No. 2011-05 amends existing guidance by allowing only two options for presenting the components
of net income and other comprehensive income: (1) in a single continuous financial statement,
statement of comprehensive income or (2) in two separate but consecutive financial statements,
consisting of an income statement followed by a separate statement of other comprehensive income.
Also, items that are reclassified from other comprehensive income to net income must be presented
on the face of the financial statements. ASU No. 2011-05 requires retrospective application, and is
effective for fiscal years, and interim periods within those years, beginning after December 15,
2011, with early adoption permitted. The Company plans to adopt ASU No. 2011-05 in the first
quarter of fiscal 2012. The Company believes the adoption of this update will change the order in
which certain financial statements are presented and provide additional detail on those financial
statements when applicable, but will not have any other impact on its consolidated financial
statements.
NOTE B — INVENTORIES
Inventories are stated at the lower of cost or market. The costs for approximately 81% of
inventories at June 30, 2011 and 82% at December 31, 2010 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.
6
Table of Contents
PART I — CONTINUED
| ITEM 1. | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — CONTINUED |
NOTE B — INVENTORIES — CONTINUED
The major components of inventories are as follows (net of LIFO reserves):
| June 30, | December 31, | |||||||
| (Thousands of dollars) | 2011 | 2010 | ||||||
Raw materials and in-process |
$ | 28,181 | $ | 20,128 | ||||
Finished parts |
32,632 | 27,005 | ||||||
Finished products |
4,158 | 4,316 | ||||||
Total inventories |
$ | 64,971 | $ | 51,449 | ||||
NOTE C — 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) | 2011 | 2010 | ||||||
Balance at beginning of year |
$ | 1,543 | $ | 1,863 | ||||
Provision |
610 | 486 | ||||||
Claims |
(717 | ) | (944 | ) | ||||
Balance at end of period |
$ | 1,436 | $ | 1,405 | ||||
NOTE D — 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) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net income |
$ | 8,925 | $ | 5,656 | $ | 16,044 | $ | 10,153 | ||||||||
Changes in cumulative
foreign currency
translation adjustments |
342 | (1,401 | ) | 1,285 | (1,509 | ) | ||||||||||
Pension and OPEB adjustments |
732 | 246 | 575 | 515 | ||||||||||||
Total comprehensive income |
$ | 9,999 | $ | 4,501 | $ | 17,904 | $ | 9,159 | ||||||||
7
Table of Contents
PART I — CONTINUED
| ITEM 1. | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — CONTINUED |
NOTE E — 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 were not affected by
the change.
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) | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Service cost |
$ | 1,428 | $ | 1,361 | $ | 526 | $ | 553 | ||||||||
Interest cost |
1,534 | 1,577 | 554 | 628 | ||||||||||||
Expected return on plan assets |
(2,256 | ) | (2,214 | ) | — | — | ||||||||||
Recognized actuarial (gain) loss |
838 | 788 | (328 | ) | (287 | ) | ||||||||||
Benefit cost |
$ | 1,544 | $ | 1,512 | $ | 752 | $ | 894 | ||||||||
| 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 international 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 product quality, application and performance combined with delivery and service, and
attempts to continually develop initiatives to improve performance in these key areas. Gorman-Rupp
actively pursues growth opportunities through organic growth, international business opportunities
and acquisitions.
During the second quarter 2011, the Company continued to experience improved incoming orders and
ended the quarter with a record backlog of $154.2 million. Financial results during the quarter
and first half continued to improve compared to the same period a year ago, with earnings largely
driven by strong North American sales growth and improved operating leverage. Sales and earnings
also benefited from the inclusion of National Pump Company acquired on October 1, 2010.
8
Table of Contents
PART I — CONTINUED
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED |
Second Quarter 2011 Compared to Second Quarter 2010
Net Sales
| Three Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of dollars) | 2011 | 2010 | $ Change | % Change | ||||||||||||
Net sales |
$ | 92,159 | $ | 72,380 | $ | 19,779 | 27.3 | % | ||||||||
The increase in net sales during the quarter was due principally to increases in the industrial
market of $8.2 million, the agricultural market of $6.0 million, the construction market of $3.4
million and the rental market of $2.1 million. In addition, sales of custom pumps for flood
control projects increased $4.6 million. Partially offsetting these increases was a decrease in
fire protection market sales of $4.3 million.
Strong incoming orders in the original equipment market along with increased orders in the
aforementioned markets during the quarter resulted in a record backlog of $154.2 million at June
30, 2011, a 46.9% increase from a year ago and 43.6% higher than the backlog of $107.4 million at
December 31, 2010.
Cost of Products Sold
| Three Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of dollars) | 2011 | 2010 | $ Change | % Change | ||||||||||||
Cost of products sold |
$ | 67,910 | $ | 55,094 | $ | 12,816 | 23.3 | % | ||||||||
% of Net sales |
73.7 | % | 76.1 | % | ||||||||||||
The increase in cost of products sold was primarily due to higher sales volume which resulted
in additional material costs of $10.4 million. Manufacturing costs include increased compensation
and payroll taxes of $1.4 million principally due to increased headcount and overtime compensation
associated with meeting increased customer demand for our products.
Selling, General and Administrative Expenses (SG&A)
| Three Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of dollars) | 2011 | 2010 | $ Change | % Change | ||||||||||||
Selling, general and
administrative expenses
(SG&A) |
$ | 10,768 | $ | 8,375 | $ | 2,393 | 28.6 | % | ||||||||
% of Net sales |
11.7 | % | 11.6 | % | ||||||||||||
9
Table of Contents
PART I — CONTINUED
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED |
The increase in SG&A expenses is principally due to the business acquisition of National Pump
Company on October 1, 2010. In addition, profit sharing increased $290,000 related to higher
operating income and professional fees increased $182,000 primarily due to software consulting,
legal and accounting fees.
Net Income
| Three Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of dollars) | 2011 | 2010 | $ Change | % Change | ||||||||||||
Income before income taxes |
$ | 13,415 | $ | 8,511 | $ | 4,904 | 57.6 | % | ||||||||
% of Net sales |
14.6 | % | 11.8 | % | ||||||||||||
Income taxes |
$ | 4,490 | $ | 2,855 | $ | 1,635 | 57.3 | % | ||||||||
Effective tax rate |
33.5 | % | 33.5 | % | ||||||||||||
Net income |
$ | 8,925 | $ | 5,656 | $ | 3,269 | 57.8 | % | ||||||||
% of Net sales |
9.7 | % | 7.8 | % | ||||||||||||
Earnings per share |
$ | 0.42 | $ | 0.27 | $ | 0.15 | 55.6 | % | ||||||||
The increase in net income was primarily due to the factors described above, with earnings largely
driven by improved sales and operating leverage.
Six Months 2011 Compared to Six Months 2010
Net Sales
| Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of Dollars) | 2011 | 2010 | $ Change | % Change | ||||||||||||
Net sales |
$ | 176,233 | $ | 138,166 | $ | 38,067 | 27.6 | % | ||||||||
The increase in sales in the first six months of 2011 compared to the same period last year was due
principally to increases in the industrial market of $13.4 million, the agricultural market of
$10.1 million, the construction market of $6.6 million and the rental market of $3.8 million. In
addition, sales of custom pumps increased $9.6 million over 2010 as a result of pumps supplied for
flood control projects. These increases were partially offset by decreases in sales to the fire
protection market of $5.5 million and the original equipment market of $5.0 million.
10
Table of Contents
PART I — CONTINUED
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED |
Cost of Products Sold
| Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of Dollars) | 2011 | 2010 | $ Change | % Change | ||||||||||||
Cost of products sold |
$ | 130,598 | $ | 105,431 | $ | 25,167 | 23.9 | % | ||||||||
% of Net sales |
74.1 | % | 76.3 | % | ||||||||||||
The increase in cost of products sold was primarily due to higher sales volume which resulted
in additional material costs of $19.6 million, including higher LIFO expense of $1.5 million mainly
due to increases in price indexes. Manufacturing costs include increases in compensation and
payroll taxes of $3.2 million principally due to increased headcount and overtime compensation
associated with meeting increased customer demand for our products. Also, supplies, patterns and
tooling expenses increased $853,000 due to increased business activity and profit sharing increased
$772,000 related to higher operating income.
Selling, General, and Administrative Expenses (SG&A)
| Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of Dollars) | 2011 | 2010 | $ Change | % Change | ||||||||||||
Selling, general, and
administrative expenses
(SG&A) |
$ | 21,495 | $ | 17,134 | $ | 4,361 | 25.5 | % | ||||||||
% of Net sales |
12.2 | % | 12.4 | % | ||||||||||||
The increase in SG&A expenses is principally due to the business acquisition of National Pump
Company on October 1, 2010. In addition, profit sharing increased $406,000 related to higher
operating income and professional fees increased $282,000 primarily due to software consulting,
legal and accounting fees.
11
Table of Contents
PART I — CONTINUED
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED |
Net Income
| Six Months Ended | ||||||||||||||||
| June 30, | ||||||||||||||||
| (Thousands of Dollars) | 2011 | 2010 | $ Change | % Change | ||||||||||||
Income before income taxes |
$ | 24,043 | $ | 15,210 | $ | 8,833 | 58.1 | % | ||||||||
% of Net sales |
13.6 | % | 11.0 | % | ||||||||||||
Income taxes |
$ | 7,999 | $ | 5,057 | $ | 2,942 | 58.2 | % | ||||||||
Effective tax rate |
33.3 | % | 33.2 | % | ||||||||||||
Net income |
$ | 16,044 | $ | 10,153 | $ | 5,891 | 58.0 | % | ||||||||
% of Net sales |
9.1 | % | 7.4 | % | ||||||||||||
Earnings per share |
$ | 0.76 | $ | 0.49 | $ | 0.27 | 55.1 | % | ||||||||
The increase in net income was primarily due to the factors described above, with earnings largely
driven by improved North American sales and operating leverage.
Liquidity and Capital Resources
| Six Months Ended | ||||||||
| June 30, | ||||||||
| (Thousands of dollars) | 2011 | 2010 | ||||||
Net cash provided by operating activities |
$ | 7,328 | $ | 16,511 | ||||
Net cash used for investing activities |
(5,665 | ) | (3,974 | ) | ||||
Net cash used for financing activities |
(8,679 | ) | (19,157 | ) | ||||
The Company’s principal funding source generally is its cash generated from operations. Cash and
cash equivalents and short-term investments totaled $27.5 million and there was $20.0 million in
outstanding bank debt at June 30, 2011. In addition, the Company had $25.5 million available in
bank lines of credit after deducting $4.5 million in outstanding letters of credit primarily
related to customer orders. The Company was in compliance with all restrictive covenants,
including limits on additional borrowings and maintenance of certain operating and financial
ratios, at June 30, 2011.
As operations continued to improve over the last two years, higher sales resulted in increased
inventory balances, accounts receivable and accounts payable during the first six months of 2011.
The lower cash provided by operations compared to the same period in 2010 was primarily due to increased
inventory balances.
Investing activities for the six months ended June 30, 2011 primarily consisted of capital
expenditures for machinery and equipment of $4.5 million and building improvements of $1.2 million.
Capital expenditures for the full year 2011, consisting principally of machinery and equipment,
are estimated to be $10 to $12 million and are expected to be financed through internally generated
funds and existing lines of credit.
12
Table of Contents
PART I — CONTINUED
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS — CONTINUED |
Financing activities for the six months ended June 30, 2011 consisted of the re-payment of $5.0
million on short-term debt used to partially finance the acquisition of National Pump Company, and
payments for dividends of $3.7 million. The ratio of current assets to current liabilities was 2.5
to 1 at June 30, 2011 and 2.4 to 1 at December 31, 2010.
Management believes that cash on hand, combined with cash provided by operations and existing
financing capabilities, will be sufficient to meet cash requirements, including capital
expenditures and the payment of quarterly dividends, for the next 12 months. On June 10, 2011 the
Company paid a quarterly dividend of $0.09 per share, representing the 245th consecutive
quarterly dividend paid by the Company. While the Company currently expects to continue its
history of paying regular quarterly dividends, any future dividends will be reviewed individually
and declared by our Board of Directors at its discretion, dependent on our assessment of the
Company’s financial condition and business outlook at the applicable time.
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, 2010 contained in our Fiscal 2010 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 Condensed 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.
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.
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PART I — CONTINUED
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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. The increase in comprehensive income during the six
months ended June 30, 2011 was primarily due to the increase in value of the Euro and Canadian
dollar in relation to the U.S. dollar when translating balance sheets from foreign currencies to
U.S. dollars.
| 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, 2011.
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, 2010.
| 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, 2010.
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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
Annual Report on Form 10-K for the year ended December 31, 2010. |
|
| 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, 2010. |
|
| 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: August 1, 2011 | By: | /s/Wayne L. Knabel | ||
| Wayne L. Knabel | ||||
| Chief Financial Officer | ||||
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