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GORMAN RUPP CO - Quarter Report: 2023 March (Form 10-Q)

grc20230331_10q.htm
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2023

 

or          

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 1-6747

 

The Gorman-Rupp Company

(Exact name of registrant as specified in its charter)

 

Ohio

 

34-0253990

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

   
     

600 South Airport Road, Mansfield, Ohio

 

44903

(Address of principal executive offices)

 

(Zip Code)

 

Registrants telephone number, including area code (419) 755-1011

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, without par value

GRC

New York Stock Exchange

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐

Accelerated filer ☒

Non-accelerated filer ☐

Smaller reporting company ☐

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐   No  ☒

 

On May 1, 2023 there were 26,178,248 common shares, without par value, of The Gorman-Rupp Company outstanding.

 

 

 

 

The Gorman-Rupp Company

Three Months Ended March 31, 2023 and 2022

 

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 
 

Consolidated Statements of Income  - Three months ended March 31, 2023 and 2022

3

     
 

Consolidated Statements of Comprehensive Income  - Three months ended March 31, 2023 and 2022

3

     
 

Consolidated Balance Sheets  - March 31, 2023 and December 31, 2022

4

     
 

Consolidated Statements of Cash Flows - Three months ended March 31, 2023 and 2022

5

     
 

Consolidated Statements of Equity  - Three months ended March 31, 2023 and 2022

6

     
 

Notes to Consolidated Financial Statements (Unaudited)

7

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

18

Item 4.

Controls and Procedures

18

   

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

19

Item 1A.

Risk Factors

19

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

19

Item 3.

Defaults Upon Senior Securities

19

Item 4.

Mine Safety Disclosures

19

Item 5.

Other Information

19

Item 6.

Exhibits

20

EX-31.1

Section 302 Principal Executive Officer (PEO) Certification

 

EX-31.2

Section 302 Principal Financial Officer (PFO) Certification

 

EX-32

Section 1350 Certifications

 

 

 

2

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)

 

 

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

   

Three Months Ended
March 31,

 

(Dollars in thousands, except per share amounts)

 

2023

   

2022

 

Net sales

  $ 160,466     $ 102,167  

Cost of products sold

    114,943       76,670  

Gross profit

    45,523       25,497  

Selling, general and administrative expenses

    23,237       15,878  

Amortization expense

    3,191       161  

Operating income

    19,095       9,458  

Interest expense

    (10,187 )     -  

Other income (expense), net

    (433 )     90  

Income before income taxes

    8,475       9,548  

Provision for income taxes

    1,955       2,005  

Net income

  $ 6,520     $ 7,543  

Earnings per share

  $ 0.25     $ 0.29  

Cash dividends per share

  $ 0.175     $ 0.170  

Average number of shares outstanding

    26,129,878       26,090,963  

 

See notes to consolidated financial statements (unaudited).

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

   

Three Months Ended
March 31,

 

(Dollars in thousands)

 

2023

   

2022

 

Net income

  $ 6,520     $ 7,543  

Other comprehensive (loss) income, net of tax:

               

Cumulative translation adjustments

    254       (36 )

Cash flow hedging activity

    (1,533 )     -  

Pension and postretirement medical liability adjustments

    134       423  

Other comprehensive (loss) income

    (1,145 )     387  

Comprehensive income

  $ 5,375     $ 7,930  

 

See notes to consolidated financial statements (unaudited).

 

3

 

 

THE GORMAN-RUPP COMPANY

CONSOLIDATED BALANCE SHEETS

 

   

(unaudited)

         

(Dollars in thousands)

 

March 31,
2023

   

December 31,
2022

 
Assets                
Current assets:                

Cash and cash equivalents

  $ 12,231     $ 6,783  

Accounts receivable, net

    97,474       93,059  

Inventories, net

    116,758       111,133  

Prepaid and other

    10,960       14,551  

Total current assets

    237,423       225,526  

Property, plant and equipment, net

    132,191       128,640  

Other assets

    11,518       11,579  

Other intangible assets, net

    246,172       249,361  

Goodwill

    257,714       257,724  

Total assets

  $ 885,018     $ 872,830  
Liabilities and equity                
Current liabilities:                

Accounts payable

  $ 31,989     $ 24,697  

Payroll and employee related liabilities

    16,764       17,132  

Commissions payable

    11,167       10,116  

Deferred revenue and customer deposits

    7,599       6,740  

Current portion of long-term debt

    17,500       17,500  

Accrued expenses

    10,315       9,028  

Total current liabilities

    95,334       85,213  

Pension benefits

    9,860       9,352  

Postretirement benefits

    22,237       22,413  

Long-term debt, net of current portion

    418,575       419,327  

Other long-term liabilities

    7,572       5,331  

Total liabilities

    553,578       541,636  
Equity:                
Common shares, without par value:                
Authorized – 35,000,000 shares;                

Outstanding – 26,178,248 shares at March 31, 2023 and 26,094,865 shares at December 31, 2022 (after deducting treasury shares of 870,548 and 953,931, respectively), at stated capital amounts

    5,115       5,097  

Additional paid-in capital

    3,024       3,912  

Retained earnings

    348,919       346,659  

Accumulated other comprehensive (loss)

    (25,618 )     (24,474

)

Total equity

    331,440       331,194  

Total liabilities and equity

  $ 885,018     $ 872,830  

 

See notes to consolidated financial statements (unaudited).

 

4

 

 

 

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

   

Three Months Ended
March 31,

 

(Dollars in thousands)

 

2023

   

2022

 
Cash flows from operating activities:                

Net income

  $ 6,520     $ 7,543  
Adjustments to reconcile net income to net cash provided by operating activities:                

Depreciation and amortization

    7,044       2,933  

LIFO expense

    2,032       1,804  

Pension expense

    808       760  

Stock based compensation

    465       682  

Amortization of debt issuance fees

    740       -  

Other

    14       -  
Changes in operating assets and liabilities:                

Accounts receivable, net

    (4,264 )     (9,211 )

Inventories, net

    (7,533 )     (6,119 )

Accounts payable

    7,236       2,256  

Commissions payable

    961       727  

Deferred revenue and customer deposits

    859       1,253  

Income taxes

    1,534       1,912  

Accrued expenses and other

    2,909       668  

Benefit obligations

    (703 )     957  

Net cash provided by operating activities

    18,622       6,165  
Cash flows from investing activities:                

Capital additions

    (6,450 )     (3,473 )

Other

    426       89  

Net cash used for investing activities

    (6,024 )     (3,384 )
Cash flows from financing activities:                

Cash dividends

    (4,567 )     (4,436 )

Treasury share repurchases

    (1,028 )     (918 )

Proceeds from bank borrowings

    5,000       -  

Payments to banks for borrowings

    (6,375 )     -  

Other

    (34 )     (32 )

Net cash used for financing activities

    (7,004 )     (5,386 )

Effect of exchange rate changes on cash

    (146 )     97  

Net increase (decrease) in cash and cash equivalents

    5,448       (2,508 )
Cash and cash equivalents:                

Beginning of period

    6,783       125,194  

End of period

  $ 12,231     $ 122,686  

 

See notes to consolidated financial statements (unaudited).

 

5

 

 

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

 

   

Three Months Ended March 31, 2023

 

(Dollars in thousands, except share and per share amounts)

 

Common Shares

   

Additional Paid-In Capital

   

Retained

   

Accumulated Other Comprehensive (Loss)

         
   

Shares

   

Dollars

    Capital     Earnings     Income     Total  

Balances December 31, 2022

    26,094,865     $ 5,097     $ 3,912     $ 346,659     $ (24,474 )   $ 331,194  

Net income

                            6,520               6,520  

Other comprehensive income

                                    (1,144 )     (1,144 )

Stock based compensation, net

    119,488       26       1       438               465  

Treasury share repurchases

    (36,105 )     (8 )     (889 )     (131 )             (1,028 )

Cash dividends - $0.175 per share

                            (4,567 )             (4,567 )

Balances March 31, 2023

    26,178,248     $ 5,115     $ 3,024     $ 348,919     $ (25,618 )   $ 331,440  

 

 

   

Three Months Ended March 31, 2022

 

(Dollars in thousands, except share and per share amounts)

  Common Shares    

Additional Paid-In

   

Retained

   

Accumulated Other Comprehensive (Loss)

         
   

Shares

   

Dollars

    Capital     Earnings     Income     Total  

Balances December 31, 2021

    26,103,661     $ 5,099     $ 1,838     $ 353,369     $ (30,330 )   $ 329,976  

Net income

                            7,543               7,543  

Other comprehensive income (loss)

                                    387       387  

Stock based compensation, net

                    682                       682  

Treasury share repurchases

    (24,546 )     (5 )     (822 )     (91 )             (918 )

Cash dividends - $0.17 per share

                            (4,436 )             (4,436 )

Balances March 31, 2022

    26,079,115     $ 5,094     $ 1,698     $ 356,385     $ (29,943 )   $ 333,234  

 

See notes to consolidated financial statements (unaudited).

 

6

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

(Amounts in tables in thousands of dollars, except for per share amounts)

 

 

NOTE 1 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

 

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The Consolidated Financial Statements include the accounts of The Gorman-Rupp Company (the “Company” or “Gorman-Rupp”) and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results. In the opinion of management of the Company, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2023 are not necessarily indicative of results that may be expected for the year ending December 31, 2023. For further information, refer to the Consolidated Financial Statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, from which related information herein has been derived.

 

 

NOTE 2 - ACQUISITIONS

 

On May 31, 2022, the Company acquired the assets of Fill-Rite and Sotera (“Fill-Rite”), a division of Tuthill Corporation, for cash consideration of $528.0 million. The transaction was funded with new debt consisting of $350.0 million from a senior secured term loan, $90.0 million from a subordinated unsecured loan, $5.0 million from the new revolving Credit Facility, and $83.0 million of cash on hand. Refer to “Note 10 – Financing Arrangements” for further details related to the financing completed as part of the transaction.

 

The Company accounted for the Fill-Rite transaction in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”. The results of operations for Fill-Rite are included in the accompanying Consolidated Statements of Income from the acquisition date. Fill-Rite had $40.0 million in net sales and $4.3 million in operating income included in the Company’s consolidated financial statements for the three months ended March 31, 2023. Operating income for the three months ended March 31, 2023 included $0.6 million of acquired customer backlog amortization and $3.0 million in amortization on customer relationships and developed technology.

 

Under the acquisition method of accounting, the assets and liabilities have been recorded at their respective estimated fair values as of the date of completion of the acquisition and reported into the Company’s Consolidated Balance Sheets. These preliminary estimates may be revised during the measurement period as third-party valuations are finalized, additional information becomes available and as additional analyses are performed, and these differences could have a material impact on our results of operations and financial position.

 

The following table presents the preliminary fair value of assets acquired and liabilities assumed and will be finalized pending completion of purchase accounting matters. No adjustments to the preliminary purchase price allocation were made during the first quarter of 2023:

 

Accounts receivable

  $ 21,273  

Inventory

    12,214  

Customer backlog (amortized over 1 year)

    2,600  

Other current assets

    914  

Property, plant, and equipment

    24,505  

Customer relationships (amortized over 20 years)

    200,900  

Technology (amortized over 20 years)

    39,800  

Tradenames (unamortized)

    10,700  

Goodwill

    230,688  

Total assets acquired

  $ 543,594  

Current liabilities assumed

    (15,601 )

Allocated purchase price

  $ 527,993  

 

For tax purposes, the Fill-Rite acquisition was treated as an asset purchase. As such, the Company received a step-up in tax basis of the net Fill-Rite assets, equal to the purchase price, including goodwill which is deductible for tax purposes.

 

7

 

The following is supplemental pro-forma net sales, operating income, net income, and earnings per share had the Fill-Rite acquisition occurred as of January 1, 2021 (in millions):

 

   

Three months ended March 31, 2022

 

Net sales

    $143.4  

Operating income

    $15.2  

Net income

    $1.8  

Earnings per share

    $0.25  

 

The supplemental pro forma information presented above is being provided for information purposes only and may not necessarily reflect the future results of operations of the Company or what the results of operations would have been had the Company owned and operated Fill-Rite since January 1, 2021. There were no material non-recurring pro-forma adjustments present.

 

 

NOTE 3 REVENUE

 

Disaggregation of Revenue

 

The following tables disaggregate total net sales by major product category and geographic location:

 

   

Product Category

 
   

March 31,

 
   

2023

   

2022

 

Pumps and pump systems

  $ 143,056     $ 85,769  

Repair parts for pumps and pump systems and other

    17,410       16,398  

Total net sales

  $ 160,466     $ 102,167  

 

 

    Geographic Location  
    March 31,  
    2023     2022  

United States

  $ 119,750     $ 72,391  

Foreign countries

    40,716       29,776  

Total net sales

  $ 160,466     $ 102,167  

 

International sales represented approximately 25% and 29% of total net sales for the first quarter of 2023 and 2022, respectively, and were made to customers in many different countries around the world.

 

On March 31, 2023, the Company had $270.6 million of remaining performance obligations, also referred to as backlog. The Company expects to recognize as revenue substantially all of its remaining performance obligations within one year.

 

The Company’s contract assets and liabilities as of March 31, 2023 and December 31, 2022 were as follows:

 

   

March 31, 2023

   

December 31, 2022

 

Contract assets

  $ -     $ -  

Contract liabilities

  $ 7,599     $ 6,740  

 

Revenue recognized for the three months ended March 31, 2023 and 2022 that was included in the contract liabilities balance at the beginning of the period was $2.4 million and $5.1 million, respectively.

 

8

 

 

NOTE 4 - INVENTORIES

 

LIFO inventories are stated at the lower of cost or market and all other inventories are stated at the lower of cost or net realizable value. Replacement cost approximates current cost and the excess over LIFO cost is approximately $90.2 million and $88.2 million at March 31, 2023 and December 31, 2022, respectively. Allowances for excess and obsolete inventory totaled $7.3 million at March 31, 2023 and $7.2 million at December 31, 2022. 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.

 

Pre-tax LIFO expense was $2.0 million and $1.8 million for the three months ended March 31, 2023 and 2022, respectively.

 

Inventories are comprised of the following:

 

Inventories, net:

 

March 31, 2023

   

December 31, 2022

 

Raw materials and in-process

  $ 41,964     $ 40,448  

Finished parts

    60,861       57,224  

Finished products

    13,933       13,461  

Total net inventories

  $ 116,758     $ 111,133  

 

 

NOTE 5 PROPERTY, PLANT AND EQUIPMENT

 

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

 

   

March 31, 2023

   

December 31, 2022

 

Land

  $ 6,225     $ 6,215  

Buildings

    119,858       119,197  

Machinery and equipment

    218,395       212,581  

 

    344,478       337,993  

Less accumulated depreciation

    (212,287 )     (209,353

)

Property, plant and equipment, net

  $ 132,191     $ 128,640  

 

 

NOTE 6 - PRODUCT WARRANTIES

 

A liability is established for estimated future warranty and service claims based on historical claims experience and specific product failures. The Company expenses warranty costs directly to Cost of products sold. Changes in the Company’s product warranties liability are:

 

   

March 31,

 
   

2023

   

2022

 

Balance at beginning of year

  $ 1,973     $ 1,637  

Provision

    969       389  

Claims

    (744 )     (313

)

Balance at end of period

  $ 2,198     $ 1,713  

 

 

NOTE 7 - PENSION AND OTHER POSTRETIREMENT BENEFITS

 

The Company sponsors a defined benefit pension plan (“GR Plan”) covering certain domestic employees. Benefits are based on each covered employee’s years of service and compensation. The GR Plan is funded in conformity with the funding requirements of applicable U.S. regulations. The GR Plan was closed to new participants effective January 1, 2008. Employees hired after this date, in eligible locations, participate in an enhanced 401(k) plan instead of the defined benefit pension plan. Employees hired prior to this date continue to accrue benefits.

 

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

 

Additionally, the Company sponsors defined contribution pension plans made available to all domestic and Canadian employees. The Company funds the cost of these benefits as incurred.

 

9

 

The Company also sponsors a non-contributory defined benefit postretirement health care plan that provides health benefits to certain domestic and Canadian retirees and eligible spouses and dependent children. The Company funds the cost of these benefits as incurred.

 

The following tables present the components of net periodic benefit costs:

 

   

Pension Benefits

   

Postretirement Benefits

 
   

Three Months Ended
March 31,

   

Three Months Ended
March 31,

 
   

2023

   

2022

   

2023

   

2022

 

Service cost

  $ 530     $ 664     $ 208     $ 287  

Interest cost

    635       454       299       190  

Expected return on plan assets

    (657 )     (812 )     -       -  

Amortization of prior service cost

    -       -       (248 )     (283 )

Recognized actuarial loss

    301       454       (9 )     92  

Net periodic benefit cost (a)

  $ 809     $ 760     $ 250     $ 286  

 

(a)

The components of net periodic benefit cost other than the service cost component are included in Other income (expense), net in the Consolidated Statements of Income.

 

 

NOTE 8 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

The components of Accumulated other comprehensive income (loss) as reported in the Consolidated Balance Sheets are:

 

   

Currency Translation Adjustments

   

Deferred Gain (Loss) on Cash Flow Hedging

   

Pension and OPEB Adjustments

   

Accumulated Other Comprehensive (Loss) Income

 

Balance at December 31, 2022

  $ (10,619

)

  $ (617

)

  $ (13,238

)

  $ (24,474 )

Reclassification adjustments

    -       (191 )     291       100  

Current period benefit (charge)

    254       (1,819 )     (85 )     (1,650 )

Income tax benefit (charge)

    -       478       (72 )     406  

Balance at March 31, 2023

  $ (10,365 )   $ (2,149 )   $ (13,104 )   $ (25,618 )

 

   

Currency Translation Adjustments

   

Deferred Gain (Loss) on Cash Flow Hedging

   

Pension and OPEB Adjustments

   

Accumulated Other Comprehensive (Loss) Income

 

Balance at December 31, 2021

  $ (7,851 )   $ -     $ (22,479 )   $ (30,330 )

Reclassification adjustments

    -       -       546       546  

Current period benefit (charge)

    (36 )     -       -       (36 )

Income tax benefit (charge)

    -       -       (123 )     (123 )

Balance at March 31, 2022

  $ (7,887 )   $ -     $ (22,056 )   $ (29,943 )

 

 

NOTE 9 COMMON SHARE REPURCHASES

 

The Company has a share repurchase program with the authorization to purchase up to $50.0 million of the Company’s common shares. As of March 31, 2023, the Company had $48.1 million available for repurchase under the share repurchase program. During the three-month period ending March 31, 2023 the Company repurchased 36,105 shares at an average cost per share of $28.51 for a total of $1.0 million in the surrender of common shares to cover taxes in connection with the vesting of stock awards. During the three-month period ending March 31, 2022 the Company repurchased 24,546 shares at an average cost per share of $37.39 for a total of $0.9 million.

 

10

 

 

NOTE 10 FINANCING ARRANGEMENTS

 

Debt consisted of:

 

Senior Secured Credit Agreement

 

March 31, 2023

   

December 31, 2022

 

Senior term loan facility

  $ 336,875     $ 341,250  

Credit facility

    20,000       17,000  

Subordinated Credit Agreement

               

Subordinated credit facility

    90,000       90,000  

Total debt

    446,875       448,250  

Unamortized discount and debt issuance fees

    (10,800 )     (11,423 )

Total debt, net

    436,075       436,827  

Less: current portion of long-term debt

    (17,500 )     (17,500 )

Total long-term debt, net

  $ 418,575     $ 419,327  

 

The carrying value of long term debt, including the current portion, approximates fair value as the variable interest rates approximate rates available to other market participants with comparable credit risk.

 

Senior Secured Credit Agreement

 

On May 31, 2022, the Company entered into a Senior Secured Credit Agreement with several lenders, which provides a term loan of $350.0 million (“Senior Term Loan Facility”) and a revolving credit facility up to $100.0 million (“Credit Facility”). The Credit Facility has a letter of credit sublimit of up to $15.0 million, as a sublimit of the Credit Facility, and a swing line subfacility of up to $20.0 million, as a sublimit of the Credit Facility. The Company borrowed $5.0 million under the Credit Facility, which, along with the Senior Term Loan Facility, and cash-on-hand and the proceeds of the Subordinated Credit Facility described below, was used to purchase the assets of Fill-Rite as described in “Note 2 – Acquisitions”. The Company has agreed to secure all of its obligations under the Senior Secured Credit Agreement by granting a first priority lien on substantially all of its personal property, and each of Patterson Pump Company, AMT Pump Company, National Pump Company and Fill-Rite Company (collectively, the “Guarantors”) has agreed to guarantee the obligations of the Company under the Senior Secured Credit Agreement and to secure the obligations thereunder by granting a first priority lien in substantially all of such Guarantor’s personal property.

 

The Senior Secured Credit Agreement has a maturity date of May 31, 2027, with the Senior Term Loan Facility requiring quarterly installment payments commencing on September 30, 2022 and continuing on the last day of each consecutive December, March, June and September thereafter.

 

At the option of the Company, borrowings under the Senior Term Loan Facility and under the Credit Facility bear interest at either a base rate or at an Adjusted Term SOFR Rate, plus the applicable margin, which ranges from 0.75% to 1.75% for base rate loans and 1.75% to 2.75% for Adjusted Term SOFR Rate loans. The applicable margin is based on the Company’s senior leverage ratio. As of March 31, 2023, the applicable interest rate under the Senior Secured Credit Agreement was Adjusted Term SOFR plus 2.50%.

 

The Senior Secured Credit Agreement includes covenants subject to maximum leverage ratios and a minimum fixed charge coverage ratio. We were in compliance with all of our debt covenants as of March 31, 2023.

 

Subordinated Credit Agreement

 

On May 31, 2022, the Company entered into an unsecured subordinated credit agreement (“Subordinated Credit Agreement”) which provides for a term loan of $90.0 million (the “Subordinated Credit Facility”). Each of the Guarantors has agreed to guarantee the obligations of the Company under the Subordinated Credit Agreement. The proceeds from the Subordinated Credit Facility, along with cash-on-hand and the proceeds of the Senior Term Loan Facility described above, were used to purchase the assets of Fill-Rite as described in “Note 2 – Acquisitions”.

 

The Subordinated Credit Agreement has a maturity date of December 1, 2027. If the Subordinated Credit Facility is prepaid prior to the second anniversary, such prepayment must be accompanied by a make-whole premium. If the Subordinated Credit Facility is prepaid after the second anniversary but prior to the third anniversary, such prepayment requires a prepayment fee of 2%, and if the Subordinated Credit Facility is prepaid after the third anniversary but prior to the fourth anniversary, such prepayment requires a prepayment fee of 1%.

 

At the option of the Company, borrowings under the Subordinated Credit Facility bear interest at either a base rate plus 8.0%, or at an Adjusted Term SOFR Rate plus 9.0%. As of March 31, 2023 borrowings under the Subordinated Credit Facility bear interest at an Adjusted Term SOFR Rate plus 9.1%.

 

The Subordinated Credit Agreement includes covenants subject to maximum leverage ratios. We were in compliance with all of our debt covenants as of March 31, 2023.

 

11

 

Interest Rate Derivatives

 

The Company entered into interest rate swaps that hedge interest payments on its SOFR borrowing during the fourth quarter of 2022. All swaps have been designated as cash flow hedges. The following table summarizes the notional amounts, related rates and remaining terms of interest swap agreements as of March 31:

 

   

Notional Amount

   

Average Fixed Rate

 

 

   

2023

   

2022

   

2023

   

2022

  Term 

Interest rate swaps

  $ 168,437       -       4.1 %     - % Extending to May 2027

 

The fair value of the Company’s interest rate swaps was a payable of $2.8 million as of March 31, 2023. The fair value was based on inputs other than quoted prices in active markets for identical assets that are observable either directly or indirectly and therefore considered level 2. There were no interest rate swaps in place as of March 31, 2022. The mark-to-market effect of interest rate swap agreements that are considered effective as hedges has been included in Accumulated Other Comprehensive Loss. The interest rate swap agreements held by the Company on March 31, 2023 are expected to continue to be effective hedges.

 

The following table summarizes the fair value of derivative instruments as recorded in the Consolidated Balance Sheets:

 

   

March 31 2023

   

December 31, 2022

 
Current Assets:                

Prepaid and Other

  $ 910     $ 1,203  
Long-term liabilities:                

Other long-term liabilities

    (3,730 )     (2,012 )

Total derivatives

  $ (2,820 )   $ (809 )

 

The following table summarizes total gains (losses) recognized on derivatives:

 

Derivatives in Cash Flow Hedging Relationships

 

Location of (Loss) Gain Recognized

in Income on Derivatives

 

Amount of (Loss) Gain

Recognized in Income on Derivatives

 
       

2023

   

2022

 

Interest rate swaps

  Interest Expense   $ 191     $ -  

 

The effects of derivative instruments on the Company’s Consolidated Statements of Results of Operations and Comprehensive Income (Loss) for OCI are as follows:

 

Derivatives in Cash Flow

Hedging Relationships

 

Amount of (Loss) Gain Recognized

in AOCI on Derivatives

 

Location of (Loss) Gain Reclassed

from AOCI into Income

(Effective Portion)

 

Amount of (Loss) Gain Reclassed from AOCI into Income (Effective Portion)

 
   

March 31,

     

March 31,

 
   

2023

   

2022

     

2023

   

2022

 

Interest rate swaps

  $ (1,819 )   $ -   Interest expense   $

(191

)   $ -  

 

12

 

 

 

ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

(Dollars in thousands, except for per share amounts)

 

The following discussion and analysis of the Company’s financial condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements, and notes thereto, and the other financial data included elsewhere in this Quarterly Report on Form 10-Q. The following discussion should also be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in its Annual Report on Form 10-K for the year ended December 31, 2022.

 

Executive Overview

 

On May 31, 2022, the Company acquired the assets of Fill-Rite and Sotera (“Fill-Rite”), a division of Tuthill Corporation, for $528.0 million. When adjusted for approximately $80.0 million in expected tax benefits, the net transaction value was approximately $448.0 million. The Company funded the transaction with cash on-hand and new debt. The Company incurred $7.1 million of one-time acquisition costs during the year ended December 31, 2022 and does not expect to incur material acquisition costs in connection with the transaction going forward. The results of operations for Fill-Rite from the acquisition date are included in the Company’s Consolidated Statements of Income for the three months ended March 31, 2023.

 

The following discussion of Results of Operations includes certain non-GAAP financial data and measures such as adjusted earnings per share and adjusted earnings before interest, taxes, depreciation and amortization. Adjusted earnings per share is earnings per share excluding amortization of customer backlog per share. Adjusted earnings before interest, taxes, depreciation and amortization is net income (loss) excluding interest, taxes, depreciation and amortization, adjusted to exclude amortization of customer backlog, and non-cash LIFO expense. Management utilizes these adjusted financial data and measures to assess comparative operations against those of prior periods without the distortion of non-comparable factors. The inclusion of these adjusted measures should not be construed as an indication that the Company’s future results will be unaffected by unusual or infrequent items or that the items for which the Company has made adjustments are unusual or infrequent or will not recur. Further, the impact of the LIFO inventory costing method can cause results to vary substantially from company to company depending upon whether they elect to utilize LIFO and depending upon which method they may elect. The Gorman-Rupp Company believes that these non-GAAP financial data and measures also will be useful to investors in assessing the strength of the Company’s underlying operations from period to period. These non-GAAP financial measures are not intended to replace GAAP financial measures, and they are not necessarily standardized or comparable to similarly titled measures used by other companies. Provided below is a reconciliation of adjusted earnings per share and adjusted earnings before interest, taxes, depreciation and amortization.

 

   

Three Months Ended

March 31,

 
   

2023

   

2022

 

Adjusted earnings per share:

               

Reported earnings per share – GAAP basis

  $ 0.25     $ 0.29  

Plus amortization of acquired customer backlog

    0.02       -  

Non-GAAP adjusted earnings per share

  $ 0.27     $ 0.29  
                 

Adjusted earnings before interest, taxes, depreciation and amortization:

               

Reported net income–GAAP basis

  $ 6,520     $ 7,543  

Plus interest expense

    10,187       -  

Plus provision for income taxes

    1,955       2,005  

Plus depreciation and amortization

    7,044       2,933  

Non-GAAP earnings before interest, taxes, depreciation and amortization

    25,706       12,481  

Plus amortization of acquired customer backlog

    650       -  

Plus non-cash LIFO expense

    2,032       1,804  

Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization

  $ 28,388     $ 14,285  

 

13

 

The Gorman-Rupp Company (“we”, “our”, “Gorman-Rupp” or the “Company”) is a leading designer, manufacturer and international marketer of pumps and pump systems for use in diverse water, wastewater, construction, dewatering, industrial, petroleum, original equipment, agriculture, fire suppression, heating, ventilating and air conditioning (HVAC), military and other liquid-handling applications. The Company attributes its success to long-term product quality, applications and performance combined with timely delivery and service, and continually seeks to develop initiatives to improve performance in these key areas.

 

We regularly invest in training for our employees, in new product development and in modern manufacturing equipment, technology and facilities all designed to increase production efficiency and capacity and drive growth by delivering innovative solutions to our customers. We believe that the diversity of our markets is a major contributor to the generally stable financial growth we have produced historically.

 

The Company’s backlog of orders was $270.6 million at March 31, 2023 compared to $195.5 million at March 31, 2022 and $267.4 million at December 31, 2022. Fill-Rite added $11.1 million to the backlog at March 31, 2023 when compared to March 31, 2022. Incoming orders during the first quarter of 2023 increased 49.1% when compared to the same period in 2022, and increased 12.3% excluding Fill-Rite.

 

On April 27, 2023, the Board of Directors authorized the payment of a quarterly dividend of $0.175 per share on the common stock of the Company, payable June 9, 2023, to shareholders of record as of May 15, 2023. This will mark the 293rd consecutive quarterly dividend paid by The Gorman-Rupp Company.

 

Outlook

 

Incoming orders continued at a good pace, with total incoming orders during the quarter of $167.0 million, our backlog remains at record levels.    Inventory grew as planned during the quarter to support our order volume and backlog, while we expect a reduction in inventory levels during the second-half of the year.  We are focused on delivering long term sustained growth and continuing to improve margins.

 

Three Months Ended March 31, 2023 vs. Three Months Ended March 31, 2022

 

Net Sales

   

Three Months Ended
March 31,

                 
   

2023

   

2022

   

$ Change

   

% Change

 

Net Sales

  $ 160,466     $ 102,167     $ 58,299       57.1

%

 

Net sales for the first quarter of 2023 were $160.5 million compared to net sales of $102.2 million for the first quarter of 2022, an increase of 57.1% or $58.3 million. Domestic sales increased 65.4% or $47.4 million and international sales increased 36.7% or $10.9 million compared to the same period in 2022. Fill-Rite sales, which are primarily domestic, were $40.0 million for the first quarter of 2023.

 

Excluding Fill-Rite, sales in our water markets increased 20.1% or $14.5 million in the first quarter of 2023 compared to the first quarter of 2022. Sales increased $7.7 million in the fire suppression market, $3.1 million in the municipal market, $2.1 million in the repair market, and $1.9 million in the construction market. Partially offsetting these increases was a sales decrease of $0.3 million in the agriculture market.

 

Excluding Fill-Rite, sales in our non-water markets increased 12.8% or $3.8 million in the first quarter of 2023 compared to the first quarter of 2022. Sales increased $3.1 million in the industrial market, $0.4 million in the petroleum market, and $0.3 million in the OEM market.

 

Cost of Products Sold and Gross Profit

   

Three Months Ended
March 31,

                 
   

2023

   

2022

   

$ Change

   

% Change

 

Cost of products sold

  $ 114,943     $ 76,670     $ 38,273       49.9

%

% of Net sales

    71.6

%

    75.0

%

               

Gross Margin

    28.4

%

    25.0

%

               

 

14

 

Gross profit was $45.5 million for the first quarter of 2023, resulting in gross margin of 28.4%, compared to gross profit of $25.5 million and gross margin of 25.0% for the same period in 2022. The improvement in gross margin was due primarily to leverage from increased sales volume and sales mix which includes Fill-Rite in 2023. The 340 basis point increase in gross margin was driven by a 270 basis point improvement from labor and overhead leverage due to increased sales volume and a 70 basis point improvement in cost of material. Gross margin for the first quarter of 2023 includes 40 basis points of amortization expense related to the Fill-Rite acquired customer backlog. The acquired customer backlog will be fully amortized during the second quarter of 2023.

 

Selling, General and Administrative (SG&A) Expenses

   

Three Months Ended
March 31,

                 
   

2023

   

2022

   

$ Change

   

% Change

 

Selling, general and administrative expenses

  $ 23,237     $ 15,878     $ 7,359       46.3

%

% of Net sales

    14.5

%

    15.5

%

               

 

Selling, general and administrative (“SG&A”) expenses were $23.2 million and 14.5% of net sales for the first quarter of 2023 compared to $15.9 million and 15.5% of net sales for the same period in 2022. The increase in SG&A expenses is primarily due to the inclusion of Fill-Rite. The improvement in SG&A as a percent of sales was due to favorable leverage from increased sales.

 

Amortization Expense

   

Three Months Ended
March 31,

                 
   

2023

   

2022

   

$ Change

   

% Change

 

Amortization expense

  $ 3,191     $ 161     $ 3,030       1,882.0

%

% of Net sales

    2.0

%

    0.2

%

               

 

Amortization expense was $3.2 million for the first quarter of 2023 compared to $0.2 million for the same period in 2022. The increase in amortization expense was due to $3.0 million in amortization attributable to the Fill-Rite acquisition.

 

Operating Income

   

Three Months Ended
March 31,

                 
   

2023

   

2022

   

$ Change

   

% Change

 

Operating income

  $ 19,095     $ 9,458     $ 9,637       101.9

%

% of Net sales

    11.9

%

    9.3

%

               

 

Operating income was $19.1 million for the first quarter of 2023, resulting in an operating margin of 11.9%, compared to operating income of $9.5 million and operating margin of 9.3% for the same period in 2022. Operating margin increased 260 basis points compared to the same period in 2022 due to improved leverage on labor, overhead, and SG&A expenses due to increased sales volumes partially offset by increased amortization expense.

 

Interest Expense

   

Three Months Ended
March 31,

                 
   

2023

   

2022

   

$ Change

   

% Change

 

Interest Expense

  $ 10,187     $ -     $ 10,187       100

%

% of Net sales

    6.3

%

    -

%

               

 

 

Interest expense was $10.2 million for the first quarter of 2023. No interest expense was recorded in the first quarter of 2022. The interest expense was due to debt financing attributable to the Fill-Rite acquisition.

 

Net Income

   

Three Months Ended
March 31,

                 
   

2023

   

2022

   

$ Change

   

% Change

 

Income before income taxes

  $ 8,475     $ 9,548     $ (1,073 )     (11.2

)%

% of Net sales

    5.3

%

    9.3

%

               

Income taxes

  $ 1,955     $ 2,005     $ (50 )     (2.5

)%

Effective tax rate

    23.1

%

    21.0

%

               

Net income

  $ 6,520     $ 7,543     $ (1,023 )     (13.6

)%

% of Net sales

    4.1

%

    7.4

%

               

Earnings per share

  $ 0.25     $ 0.29     $ (0.04 )     (13.8

)%

 

15

 

The Company’s effective tax rate was 23.1% for the first quarter of 2023 compared to 21.0% for the first quarter of 2022 with the increase primarily related to discrete adjustments for the quarter.

 

Net income was $6.5 million, or $0.25 per share, for the first quarter of 2023 compared to net income of $7.5 million, or $0.29 per share, in the first quarter of 2022. Adjusted earnings per share for the first quarter of 2023 were $0.27 per share compared to $0.29 per share for the first quarter of 2022.

 

Liquidity and Capital Resources

 

Our primary sources of liquidity are cash generated from operations and borrowings under our Credit Facility. Cash and cash equivalents totaled $12.2 million at March 31, 2023. The Company had an additional $78.1 million available under the revolving credit facility after deducting $20.0 million drawn and $1.9 million in outstanding letters of credit primarily related to customer orders. We believe we have adequate liquidity from funds on hand and borrowing capacity to execute our financial and operating strategy, as well as comply with debt obligation and financial covenants for at least the next 12 months.

 

As of March 31, 2023, the Company had $446.9 million in total debt outstanding due in 2027. The Company was in compliance with its debt covenants, including limits on additional borrowings and maintenance of certain operating and financial ratios, at March 31, 2023 and December 31, 2022.

 

Capital expenditures for the first three months of 2023 were $6.5 million and consisted primarily of machinery and equipment and building improvements. Capital expenditures for the full-year 2023 are presently planned to be in the range of $18-$20 million primarily for building improvements and machinery and equipment purchases, and are expected to be financed through internally-generated funds.

 

On April 27, 2023, the Board of Directors authorized the payment of a quarterly dividend of $0.175 per share on the common stock of the Company, payable June 9, 2023, to shareholders of record as of May 15, 2023. The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends. However, 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.

 

The Board of Directors has authorized a share repurchase program of up to $50.0 million of the Company’s common shares. The actual number of shares repurchased will depend on prevailing market conditions, alternative uses of capital and other factors, and will be determined at management’s discretion. The Company is not obligated to make any purchases under the program, and the program may be suspended or discontinued at any time. As of March 31, 2023, the Company had $48.1 million available for repurchase under the share repurchase program.

 

Free cash flow, a non-GAAP measure for reporting cash flow, is defined by the Company as adjusted earnings before interest, income taxes and depreciation and amortization, less capital expenditures and dividends. The Company believes free cash flow provides investors with an important perspective on cash available for investments, acquisitions and working capital requirements.

 

The following table reconciles adjusted earnings before interest, income taxes and depreciation and amortization as reconciled above to free cash flow:

 

   

Three Months Ended
March 31,

 
   

2023

   

2022

 

Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization

  $ 28,388     $ 14,285  

Less capital expenditures

    (6,450 )     (3,473 )

Less cash dividends

    (4,567 )     (4,436 )

Non-GAAP free cash flow

  $ 17,371     $ 6,376  

 

16

 

Financial Cash Flow

   

Three Months Ended
March 31,

 
   

2023

   

2022

 

Beginning of period cash and cash equivalents

  $ 6,783     $ 125,194  

Net cash provided by operating activities

    18,622       6,165  

Net cash used for investing activities

    (6,024 )     (3,384 )

Net cash used for financing activities

    (7,004 )     (5,386 )

Effect of exchange rate changes on cash

    (146 )     97  

Net increase in cash and cash equivalents

    5,448       (2,508 )

End of period cash and cash equivalents

  $ 12,231     $ 122,686  

 

The increase in cash provided by operating activities in the first three months of 2023 compared to the same period last year was primarily due to increased earnings before depreciation, amortization, and LIFO expense, and improved cash flow from accounts receivable and accounts payable. Cash outflow for inventory increased when compared to the same period last year due to strong incoming orders and high backlog.

 

During the first three months of 2023, investing activities of $6.0 million consisted of $6.5 million for capital expenditures primarily for machinery and equipment. During the first three months of 2022, investing activities consisted of capital expenditures primarily for machinery and equipment of $3.5 million.

 

Net cash used for financing activities for the first three months of 2023 primarily consisted of net payments on bank borrowings of $1.4 million, dividend payments of $4.6 million, and share repurchases of $1.0 million. Net cash used for financing activities for the first three months of 2022 primarily consisted of dividend payments of $4.4 million and share repurchases of $0.9 million.

 

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, 2022 contained in our Annual Report on Form 10-K for the year ended December 31, 2022. 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.

 

Cautionary Note Regarding Forward-Looking Statements

 

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: This Form 10-Q contains various forward-looking statements based on 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 risks and uncertainties, 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 uncertainties include, but are not limited to, our estimates of future earnings and cash flows, general economic conditions and supply chain conditions and any related impact on costs and availability of materials, integration of the Fill-Rite business in a timely and cost effective manner, retention of supplier and customer relationships and key employees, the ability to achieve synergies and cost savings in the amounts and within the time frames currently anticipated and the ability to service and repay indebtedness incurred in connection with the transaction. Other factors include, but are not limited to: company specific risk factors including (1) loss of key personnel; (2) intellectual property security; (3) acquisition performance and integration; (4) the Company’s indebtedness and how it may impact the Company’s financial condition and the way it operates its business; (5) general risks associated with acquisitions; (6) the anticipated benefits from the Fill-Rite transaction may not be realized; (7) impairment in the value of intangible assets, including goodwill; (8) defined benefit pension plan settlement expense; (9) LIFO inventory method, and (10) family ownership of common equity; and general risk factors including (11) continuation of the current and projected future business environment; (12) highly competitive markets; (13) availability and costs of raw materials and labor; (14) cyber security threats; (15) compliance with, and costs related to, a variety of import and export laws and regulations; (16) environmental compliance costs and liabilities; (17) exposure to fluctuations in foreign currency exchange rates; (18) conditions in foreign countries in which The Gorman-Rupp Company conducts business; (19) changes in our tax rates and exposure to additional income tax liabilities; and (20) risks described from time to time in our reports filed with the Securities and Exchange Commission. Except to the extent required by law, we do not undertake and specifically decline any obligation to review or update any forward-looking statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments or otherwise.

 

17

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates. Exposure to foreign exchange rate risk is due to certain costs and revenue being denominated in currencies other than one of the Company’s subsidiaries functional currency. The Company is also exposed to market risk as the result of changes in interest rates which may affect the cost of financing. We continually monitor these risks and regularly develop appropriate strategies to manage them. Accordingly, from time to time, we may enter into certain derivative or other financial instruments. These financial instruments are used to mitigate market exposure and are not used for trading or speculative purposes.

 

Interest Rate Risk

 

The results of operations are exposed to changes in interest rates primarily with respect to borrowings under the Company’s Senior Term Loan Facility, Credit Facility, and Subordinated Credit Facility. Borrowings under the Senior Term Loan Facility and Credit Facility may be made either at (i) a base rate plus the applicable margin, which ranges from 0.75% to 1.75%, or at (ii) an Adjusted Term SOFR Rate, plus the applicable margin, which ranges from 1.75% to 2.75%. Borrowings under the Subordinated Credit Facility bear interest at (i) either a base rate plus 8.0%, or at (ii) an Adjusted Term SOFR Rate plus 9.1%. At March 31, 2023, the Company had $336.9 million in borrowings under the Senior Term Loan Facility, $20.0 million in borrowing under the Credit Facility, and $90.0 million in borrowings under the Subordinated Credit Facility.

 

To reduce the exposure to changes in the market rate of interest, effective October 31, 2022, the Company entered into interest rate swap agreements for a portion of the Senior term loan facility. Terms of the interest rate swap agreements require the Company to receive a fixed interest rate and pay a variable interest rate. The interest rate swap agreements are expected to be designated as a cash flow hedge, and as a result, the mark-to-market gains or losses will be deferred and included as a component of accumulated other comprehensive income (loss) and reclassified to interest expense in the period during which the hedged transactions affect earnings.

 

The Company estimates that a hypothetical increase of 100 basis points in interest rates would increase interest expense by approximately $2.8 million on an annual basis.

 

Foreign Currency Risk

 

The Company’s foreign currency exchange rate risk is limited primarily to the Euro, Canadian Dollar, South African Rand and British Pound. The Company manages its foreign exchange risk principally through invoicing customers in the same currency as is used in the market of the source of products. The foreign currency transaction gains (losses) for the three month periods ending March 31, 2023 and 2022 were ($0.1) million and $0.1 million, respectively, and are reported within Other (expense) income, net on the Consolidated Statements of Income.

 

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 Securities 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 March 31, 2023.

 

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Changes in Internal Control Over Financial Reporting

 

As of March 31, 2023, we are in the process of integrating the internal controls of the acquired Fill-Rite business into Gorman-Rupp’s existing operations as part of planned integration activities. In addition, we have implemented new processes and internal controls to assist us in the preparation and disclosure of financial information. There were no other changes in Gorman-Rupp’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, Gorman-Rupp’s internal control over financial reporting during the quarter ended March 31, 2023.

 

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, 2022.

 

ITEM 1A.

RISK FACTORS

 

In addition to the information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Issuer purchases of its common shares during the first quarter of 2023 were:

 

Period

 

Total number of shares

purchased

   

Average price paid

per share

   

Approximate dollar value of shares that may yet be purchased under the program

 

January 1 to January 31, 2023

    -     $ -     $ 48,007  

February 1 to February 28, 2023

    -       -     $ 48,067  

March 1 to March 31, 2023

    -       -     $ 48,067  

Total

    -     $ -     $ 48,067  

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

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ITEM 6.

EXHIBITS

 

Exhibit 31.1

 

Certification of Scott A. King, President and Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2

 

Certification of James C. Kerr, Executive Vice President and 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.

Exhibit 101

 

Financial statements from the Quarterly Report on Form 10-Q of The Gorman-Rupp Company for the quarter ended March 31, 2023, formatted in Inline eXtensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity, and (vi) the Notes to Consolidated Financial Statements.

Exhibit 104

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

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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: May 1, 2023

     
   

By:

/s/James C. Kerr

     

James C. Kerr

     

Executive Vice President and Chief Financial Officer

     

(Principal Financial Officer)

 

 

 

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