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Gorman-Rupp Company 10-Q 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5. Ex-32
Form 10-Q
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2010
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-6747
The Gorman-Rupp Company
(Exact name of registrant as specified in its charter)
     
Ohio   34-0253990
     
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
600 South Airport Road, Mansfield, Ohio   44903
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code (419) 755-1011
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Common shares, without par value, outstanding at July 27, 2010. 16,685,535
*********************
 
 

 

 


 

The Gorman-Rupp Company and Subsidiaries
Three and Six Months June 30, 2010 and 2009
         
       
 
       
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 EX-31.1 302 Principal Executive Officer (PEO) Certification
 EX-31.2 302 Principal Financial Officer (PFO) Certification
 EX-32 Section 1350 Certifications

 

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Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1—FINANCIAL STATEMENTS (UNAUDITED)
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                                 
             
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(Thousands of dollars, except per share amounts)   2010     2009     2010     2009  
 
                               
Net sales
  $ 72,380     $ 68,345     $ 138,166     $ 139,943  
Cost of products sold
    55,094       52,555       105,431       108,808  
 
                       
 
                               
Gross profit
    17,286       15,790       32,735       31,135  
 
                               
Selling, general and administrative expenses
    8,375       8,790       17,134       17,778  
 
                       
 
                               
Operating income
    8,911       7,000       15,601       13,357  
 
                               
Other income
    12       144       137       909  
 
                               
Other expense
    (412 )     58       (528 )     (196 )
 
                       
 
                               
Income before income taxes
    8,511       7,202       15,210       14,070  
 
                               
Income taxes
    2,855       2,335       5,057       4,697  
 
                       
 
                               
Net income
  $ 5,656     $ 4,867     $ 10,153     $ 9,373  
 
                       
 
                               
Earnings per share
  $ 0.34     $ 0.29     $ 0.61     $ 0.56  
 
                               
Cash dividends paid per share
  $ 0.105     $ 0.100     $ 0.210     $ 0.200  
 
                               
Weighted average shares outstanding
    16,710,260       16,707,535       16,710,397       16,707,535  
See notes to condensed consolidated financial statements.

 

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Table of Contents

THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
                 
    Unaudited        
    June 30,     December 31,  
(Thousands of dollars)   2010     2009  
Assets
               
 
               
Current assets:
               
 
               
Cash and cash equivalents
  $ 37,216     $ 44,403  
Short-term investments
    1,513       1,505  
Accounts receivable — net
    49,315       37,239  
Inventories — net
    37,711       40,506  
Deferred income taxes and other current assets
    4,538       7,747  
 
           
 
               
Total current assets
    130,293       131,400  
 
               
Property, plant and equipment
    209,265       208,571  
Less accumulated depreciation
    100,884       100,048  
 
           
 
               
Property, plant and equipment — net
    108,381       108,523  
 
               
Deferred income taxes and other assets
    9,816       9,149  
 
           
 
               
Total assets
  $ 248,490     $ 249,072  
 
           
 
               
Liabilities and shareholders’ equity
               
 
               
Current liabilities:
               
 
               
Accounts payable
  $ 13,669     $ 8,972  
Short-term debt
          15,000  
Payroll and related liabilities
    7,806       6,909  
Accrued expenses
    17,960       12,294  
 
           
 
               
Total current liabilities
    39,435       43,175  
 
               
Income taxes payable
    971       971  
Retirement benefits
    2,768       5,044  
Postretirement benefits
    22,752       22,270  
 
           
 
               
Total liabilities
    65,926       71,460  
 
               
The Gorman-Rupp Company shareholders’ equity
               
Common shares, without par value:
               
Authorized - 35,000,000 shares
               
Outstanding - 16,685,535 shares in 2010 and 16,710,535 in 2009 (after deducting treasury shares of 626,683 in 2010 and 601,683 in 2009) at stated capital amount
    5,092       5,100  
 
               
Retained earnings
    188,879       182,875  
Accumulated other comprehensive loss
    (12,064 )     (11,070 )
 
           
 
               
The Gorman-Rupp Company shareholders’ equity
    181,907       176,905  
 
               
Noncontrolling interest
    657       707  
 
           
 
               
Total shareholders’ equity
    182,564       177,612  
 
           
 
               
Total liabilities and shareholders’ equity
  $ 248,490     $ 249,072  
 
           
See notes to condensed consolidated financial statements.

 

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Table of Contents

THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
    Six Months Ended  
    June 30,  
(Thousands of dollars)   2010     2009  
 
               
Cash flows from operating activities:
               
 
               
Net income
  $ 10,153     $ 9,373  
Adjustments to reconcile net income attributable to net cash provided by operating activities:
               
Depreciation and amortization
    5,205       4,236  
Changes in operating assets and liabilities:
               
Accounts receivable
    (12,075 )     7,102  
Inventories
    2,795       8,986  
Accounts payable
    4,697       (6,343 )
Accrued expenses and other
    5,736       3,793  
 
           
 
               
Net cash provided by operating activities
    16,511       27,147  
 
               
Cash flows from investing activities:
               
 
               
Capital additions — net
    (3,966 )     (23,204 )
Proceeds from sale of product line
          1,210  
Change in short-term investments
    (8 )      
 
           
 
               
Net cash used for investing activities
    (3,974 )     (21,994 )
 
               
Cash flows from financing activities:
               
 
               
Cash dividends
    (3,509 )     (3,342 )
Proceeds from bank borrowings
          16,834  
Payments to bank for borrowings
    (15,000 )      
Purchase of common shares for treasury
    (648 )      
 
           
 
               
Net cash (used for) provided by financing activities
    (19,157 )     13,492  
 
               
Effect of exchange rate changes on cash
    (567 )     271  
 
           
 
               
Net (decrease) increase in cash and cash equivalents
    (7,187 )     18,916  
 
               
Cash and cash equivalents:
               
Beginning of year
    44,403       23,793  
 
           
 
               
June 30,
  $ 37,216     $ 42,709  
 
           
See notes to condensed consolidated financial statements.

 

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Table of Contents

PART I
ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A — BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements include the accounts of the Company and its wholly and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2010 are not necessarily indicative of results that may be expected for the year ending December 31, 2010. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The Company has evaluated the existence of subsequent events through the filing date of this Form 10-Q.
NEW ACCOUNTING PRONOUNCEMENTS
There have been no recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2010, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, that are of significance or potential significance to the Company.
NOTE B — INVENTORIES
Inventories are stated at the lower of cost or market. The costs for substantially all inventories are determined using the last-in, first-out (LIFO) method, with the remainder determined using the first-in, first-out (FIFO) method. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time. Interim LIFO calculations are based on management’s estimate of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation.
The major components of inventories are as follows (net of LIFO reserves):
                 
    June 30,     December 31,  
(Thousands of dollars)   2010     2009  
Raw materials and in-process
  $ 19,744     $ 22,087  
Finished parts
    15,237       16,026  
Finished products
    2,730       2,393  
 
           
Total inventories
  $ 37,711     $ 40,506  
 
           

 

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Table of Contents

PART I — CONTINUED
ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
NOTE C — FINANCING ARRANGEMENTS
During the three months ended June 30, 2010, the Company re-paid the outstanding balance of $10.0 million related to an unsecured bank loan agreement which was scheduled to mature in November 2010. The proceeds from this agreement were used to partially finance the consolidation and expansion of the Company’s Mansfield, Ohio manufacturing and office facilities which were substantially completed in 2009.
NOTE D — PRODUCT WARRANTIES
A liability is established for estimated future warranty and service claims based on historical claims experience, specific product failures and sales volume. The Company expenses warranty costs directly to cost of products sold. Changes in the Company’s product warranty liability are as follows:
                 
    June 30,  
(Thousands of dollars)   2010     2009  
Balance at beginning of year
  $ 1,863     $ 2,048  
Warranty costs accrued
    486       1,323  
Expenses
    (944 )     (1,299 )
 
           
Balance at end of period
  $ 1,405     $ 2,072  
 
           
NOTE E — COMPREHENSIVE INCOME
Comprehensive income and its components, net of tax, are as follows:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
(Thousands of dollars)   2010     2009     2010     2009  
Net income
  $ 5,656     $ 4,867     $ 10,153     $ 9,373  
Changes in cumulative foreign currency translation adjustments
    (1,401 )     1,179       (1,509 )     498  
Pension and OPEB adjustments
    246       470       515       941  
 
                       
Total comprehensive income attributable to The Gorman-Rupp Company
  $ 4,501     $ 6,516     $ 9,159     $ 10,812  
 
                       
NOTE F — INCOME TAXES
The Company follows the provisions of ASC 740 — Income Taxes. Accordingly, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit.

 

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Table of Contents

PART I — CONTINUED
ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
NOTE F — INCOME TAXES — CONTINUED
The amount of unrecognized tax benefits as of January 1, 2010 of $1.5 million includes $876,000 which, if ultimately recognized, will reduce the Company’s annual effective tax rate.
At June 30, 2010, the balance of unrecognized tax benefits remained at approximately $1.5 million. The activity in the current year is primarily related to a $93,000 increase in current year tax positions and a $12,000 decrease related to settlements with taxing authorities. The June 30, 2010 balance of unrecognized tax benefits includes $978,000 which, if ultimately realized, will reduce the Company’s annual effective tax rate.
The statute of limitations in several jurisdictions will expire in the next 12 months. The Company has unrecognized tax benefits of $64,000 which would be recognized if the statute of limitations expires without the relevant taxing authority examining the applicable returns.
The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. Except as noted below, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before 2006.
The Company was examined by the Canadian Revenue Agency for tax years ending 2004 — 2006 related to inter-company royalty payments. The Company received a final assessment during the first quarter 2009 and has filed a Competent Authority Appeal with both U.S. and Canadian Competent Authorities to eliminate double tax treatment. Under the most recent U.S.-Canadian tax protocol, Competent Authority assessments should achieve symmetry under binding arbitration. Any adjustment resulting from Competent Authority resolution of the examination is not expected to have a material impact on the consolidated financial position or future consolidated results of operations of the Company.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense for all periods presented. The Company had accrued approximately $391,000 for the payment of interest and penalties at January 1, 2010. An additional accrual of interest and penalties of approximately $37,000 and $61,000 was recorded for the three and six months ended June 30, 2010, respectively.
NOTE G — PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors a defined benefit pension plan covering substantially all employees hired prior to January 1, 2008. Additionally, the Company sponsors a defined contribution pension plan at one location not participating in the defined benefit pension plan. A 401(k) plan that includes a graduated Company match is also available. The Company also sponsors a non-contributory defined benefit health care plan that provides health benefits to substantially all retirees and their spouses.
For substantially all United States employees hired after January 1, 2008, an enhanced 401(k) plan is available instead of the Company’s defined benefit pension plan. Benefits are based on age and years of service with the Company. Employees hired prior to January 1, 2008 are not affected by the change.

 

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Table of Contents

PART I — CONTINUED
ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
NOTE G — PENSION AND OTHER POSTRETIREMENT BENEFITS — CONTINUED
The following table presents the components of net periodic benefit cost:
                                 
    Pension Benefits     Postretirement Benefits  
    Six Months Ended     Six Months Ended  
    June 30,     June 30,  
(Thousands of dollars)   2010     2009     2010     2009  
Service cost
  $ 1,361     $ 1,376     $ 553     $ 605  
Interest cost
    1,577       1,702       628       787  
Expected return on plan assets
    (2,214 )     (1,768 )            
Unrecognized actuarial (gain) loss
    788       1,053       (286 )     (113 )
Recognized actuarial (gain) loss
                (1 )      
 
                       
Benefit cost
  $ 1,512     $ 2,363     $ 894     $ 1,279  
 
                       
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
The Gorman-Rupp Company is a leading designer, manufacturer and marketer of pumps and related equipment (pump and motor controls) for use in water, wastewater, construction, industrial, petroleum, original equipment, agriculture, fire protection, heating, ventilating and air conditioning (“HVAC”), military and other liquid-handling applications. The Company attributes its success to exceptional product quality, application and performance combined with delivery and service, and attempts to continually develop initiatives to improve performance in these key areas.
Since the fourth quarter of 2008, demand for most of our products slowed due to the global economic recession. The Company responded to these challenging business conditions by adjusting cost structures to current operating levels and realigning production plans to match current demand. During the three and six months ended June 30, 2010, the Company experienced improved financial results with earnings largely driven by solid operating performance in what is still an unpredictable environment. Customer order growth continues to be encouraging, but the Company remains cautious as full economic recovery remains uncertain.

 

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PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Second Quarter 2010 Compared to Second Quarter 2009
Net Sales
                                 
    Three Months Ended              
    June 30,              
(Thousands of dollars)   2010     2009     $ Change     % Change  
Net sales
  $ 72,380     $ 68,345     $ 4,035       5.9 %
The increase in net sales during the quarter was positively impacted by the early stages of economic recovery and is due primarily to increases in the international fire protection market of $4.1 million, custom pump applications of $2.7 million and the construction and rental market of $2.3 million. Partially offsetting these increases were decreased sales in the OEM market of $2.9 million and the domestic fire protection market of $1.8 million.
Cost of Products Sold
                                 
    Three Months Ended              
    June 30,              
(Thousands of dollars)   2010     2009     $ Change     % Change  
Cost of products sold
  $ 55,094     $ 52,555     $ 2,539       4.8 %
% of Net sales
    76.1 %     76.9 %                
The increase in cost of products sold was primarily due to higher sales volume which resulted in additional material costs of $3.3 million, including higher LIFO expense of $1.6 million versus the second quarter 2009 which benefited from a $1.1 million liquidation of LIFO quantities due to reduced inventory levels. Partially offsetting the increases was lower healthcare expense of $864,000 due to reduced medical costs.
Selling, General and Administrative Expenses (SG&A)
                                 
    Three Months Ended              
    June 30,            
(Thousands of dollars)   2010     2009     $ Change     % Change  
Selling, general and administrative expenses (SG&A)
  $ 8,375     $ 8,790     $ (415 )     (4.7 )%
% of Net sales
    11.6 %     12.9 %                
The decrease in SG&A expenses is principally due to lower professional fees of $258,000 resulting from reduced legal fees, and lower healthcare expense of $231,000 due to reduced medical costs.

 

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PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Other Expense
                                 
    Three Months Ended              
    June 30,              
(Thousands of dollars)   2010     2009     $ Change     % Change  
Other expense
  $ 412     $ (58 )   $ 470       810.3 %
% of Net sales
    0.6 %     0.1 %                
The increase in other expense is due to higher foreign currency exchange rate losses of $257,000 related primarily to the decrease in the value of the Euro, and to losses on disposal of assets of $246,000 primarily related to the former Mansfield Division facilities and the write-down in value of the portion of the former facilities which is currently available for sale.
Net Income
                                 
    Three Months Ended              
    June 30,              
(Thousands of dollars)   2010     2009     $ Change     % Change  
Income before income taxes
  $ 8,511     $ 7,202     $ 1,309       18.2 %
% of Net sales
    11.8 %     10.5 %                
 
                               
Income taxes
  $ 2,855     $ 2,335     $ 520       22.3 %
Effective tax rate
    33.5 %     32.4 %                
 
                               
Net income
  $ 5,656     $ 4,867     $ 789       16.2 %
% of Net sales
    7.8 %     7.1 %                
 
                               
Earnings per share
  $ 0.34     $ 0.29     $ 0.05       17.2 %
The increase in the effective tax rate of 1.1 percentage points during the second quarter of 2010 compared to the same period in 2009 was due primarily to the inclusion of the research and development tax credit in the 2009 provision. This credit has not yet been extended for 2010.
Six Months 2010 Compared to Six Months 2009
Net Sales
                                 
    Six Months Ended              
    June 30,              
(Thousands of Dollars)   2010     2009     $ Change     % Change  
Net sales
  $ 138,166     $ 139,943     $ (1,777 )     (1.3 )%

 

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PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
The decrease in sales in the first six months of 2010 compared to the same period last year was due principally to declines in the OEM market of $2.9 million, the domestic fire protection market of $2.8 million, the government market of $1.9 million and the municipal market of $1.6 million. Partially offsetting these decreases were increases in the international fire protection market of $3.3 million, the rental market of $2.4 million and the industrial market of $1.7 million.
The backlog at June 30, 2010 was $105.0 million compared to $82.9 million at June 30, 2009, representing a 27% increase primarily due to an increase of orders in custom pump applications, the municipal market, the rental market and the international fire protection market, partially offset by a decline in orders for the OEM market.
Cost of Products Sold
                                 
    Six Months Ended              
    June 30,              
(Thousands of Dollars)   2010     2009     $ Change     % Change  
Cost of products sold
  $ 105,431     $ 108,808     $ (3,377 )     (3.1 )%
% of Net sales
    76.3 %     77.8 %                
The decrease in cost of products sold was due in part to lower sales volume which resulted in lower material cost of $1.0 million. This decrease is net of higher LIFO expense of $777,000 versus the first six months of 2009 which benefited from a $1.1 million liquidation of LIFO quantities due to reduced inventory levels. Manufacturing costs included decreases in warranty expense of $837,000 due to estimates related to lower sales volume and improved claims experience, compensation and payroll taxes of $742,000 due to slightly lower employment levels, and pension expense of $699,000 as a result of lower amortization expense due to the rebound in equity markets during 2009. In addition, healthcare expense decreased $661,000 due to reduced medical costs for active employees, and postretirement expense decreased $203,000 due to reduced medical costs for retired employees. Partially offsetting these decreases was increased depreciation expense of $968,000 primarily due to the consolidation and expansion of the Mansfield, Ohio facilities (the Mansfield facilities).
Selling, General, and Administrative Expenses (SG&A)
                                 
    Six Months Ended              
    June 30,              
(Thousands of Dollars)   2010     2009     $ Change     % Change  
Selling, general, and administrative expenses (SG&A)
  $ 17,134     $ 17,778     $ (644 )     (3.6 )%
% of Net sales
    12.4 %     12.7 %                
The decrease in SG&A expenses is principally due to lower professional fees of $493,000 resulting from reduced legal fees, and lower healthcare expense of $267,000 due to reduced medical costs.

 

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Table of Contents

PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Other Income
                                 
    Six Months Ended              
    June 30,              
(Thousands of Dollars)   2010     2009     $ Change     % Change  
Other income
  $ 137     $ 909     $ (772 )     (84.9 )%
% of Net sales
    0.1 %     0.7 %                
The decrease in other income is primarily due to gain recognized on the sale of a product line in 2009 of $435,000 and reduced gain on disposal of assets of $224,000.
Other Expense
                                 
    Six Months Ended              
    June 30,              
(Thousands of Dollars)   2010     2009     $ Change     % Change  
Other expense
  $ 528     $ 196     $ 332       169.4 %
% of Net sales
    0.4 %     0.1 %                
The increase in other expense is due to higher foreign currency exchange rate losses of $139,000 related primarily to the decrease in the value of the Euro, and to losses on disposal of assets of $246,000 primarily related to the former Mansfield Division facilities.
Net Income
                                 
    Six Months Ended              
    June 30,              
(Thousands of Dollars)   2010     2009     $ Change     % Change  
Income before income taxes
  $ 15,210     $ 14,070     $ 1,140       8.1 %
% of Net sales
    11.0 %     10.1 %                
 
                               
Income taxes
  $ 5,057     $ 4,697     $ 360       7.7 %
Effective tax rate
    33.2 %     33.4 %                
 
                               
Net income
  $ 10,153     $ 9,373     $ 780       8.3 %
% of Net sales
    7.3 %     6.7 %                
 
                               
Earnings per share
  $ 0.61     $ 0.56     $ 0.05       8.9 %

 

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Table of Contents

PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Liquidity and Capital Resources
                 
    Six Months Ended  
    June 30,  
(Thousands of dollars)   2010     2009  
Net cash provided by operating activities
  $ 16,511     $ 27,147  
Net cash used for investing activities
    3,974       21,994  
Net cash (used for) provided by financing activities
    (19,157 )     13,492  
The Company’s principal funding source generally is its cash generated from operations. As operations continued to improve from last year’s severe recession, higher sales resulted in increased accounts receivable, accounts payable and commissions payable during the first six months of 2010. Inventories did not yet increase in line with sales due to lead times required for replenishment.
Investing activities for the six months ended June 30, 2010 primarily consisted of remaining capital expenditures related to the Mansfield facilities of $2.5 million and machinery and equipment additions of $1.9 million, a decrease of $19.2 million compared to the same period last year. Total capital expenditures of approximately $57.2 million for the Mansfield facilities, substantially completed in 2009, have been incurred as of June 30, 2010. Non-building capital expenditures are expected to be approximately $4 to $6 million for each of 2010 and 2011.
Financing activities for the six months ended June 30, 2010 consisted principally of the re-payment of the outstanding balance of $15.0 million on short-term debt used to partially finance the Mansfield facilities, and payments for dividends of $3.5 million. The ratio of current assets to current liabilities was 3.3 to 1 at June 30, 2010 and 3.0 to 1 at December 31, 2009.
The Company believes that cash on hand, combined with cash provided by operations and line of credit arrangements with banks, will continue to be sufficient to meet cash requirements, including capital expenditures and the payment of quarterly dividends.
Critical Accounting Policies
Our critical accounting policies are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the notes to our Consolidated Financial Statements for the year ended December 31, 2009 contained in our Fiscal 2009 Annual Report on Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the notes to our Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

 

14


Table of Contents

PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Safe Harbor Statement
In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, The Gorman-Rupp Company provides the following cautionary statement: Certain statements in this section and elsewhere herein contain various forward-looking statements and include assumptions concerning The Gorman-Rupp Company’s operations, future results and prospects. These forward-looking statements are based on current expectations about important economic, political, and technological factors, among others, and are subject to risk and uncertainties, the absence of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.
Such factors include the following: (1) continuation of the current and projected future business environment, including interest rates and capital and consumer spending; (2) competitive factors and competitor responses to Gorman-Rupp initiatives; (3) successful development and market introductions of anticipated new products; (4) stability of government laws and regulations, including taxes; (5) stable governments and business conditions in emerging economies; (6) successful penetration of emerging economies; and (7) continuation of the favorable environment to make acquisitions, domestic and foreign, including regulatory requirements and market values of candidates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
The Company’s foreign operations do not involve material risks due to their relative size, both individually and collectively. The Company is not exposed to material market risks as a result of its diversified export sales. Export sales generally are denominated in U.S. Dollars and made on open account or under letters of credit.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. The Company’s disclosure controls and procedures are also designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act of 1934 is accumulated and communicated to the Company’s Management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
An evaluation was carried out under the supervision and with the participation of the Company’s Management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Based on that evaluation, the principal executive officer and the principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2010.

 

15


Table of Contents

PART I — CONTINUED
ITEM 4. CONTROLS AND PROCEDURES — CONTINUED
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s disclosure controls and procedures that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Subsequent to the date of the evaluation, there have been no significant changes in the Company’s disclosure controls and procedures that could significantly affect the Company’s internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material changes from the legal proceedings previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.
ITEM 1A. RISK FACTORS
There are no material changes from the risk factors previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

 

16


Table of Contents

ITEM 6. EXHIBITS
(a) Exhibits
     
Exhibits 3 and 4  
(articles of incorporation) are incorporated herein by this reference from Exhibits (3) and (4) of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007.
   
 
Exhibits 3, 4 and 10  
(by-laws; instruments defining the rights of security holders, including indentures; and material contracts) are incorporated herein by this reference from Exhibits (3), (4) and (10) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.
   
 
Exhibit 31.1  
Certification of Jeffrey S. Gorman, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
 
Exhibit 31.2  
Certification of Wayne L. Knabel, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
 
Exhibit 32  
Certification pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  The Gorman-Rupp Company   
  (Registrant)    
       
Date: July 29, 2010      
       
  By:   /s/ Wayne L. Knabel    
    Wayne L. Knabel   
    Chief Financial Officer   

 

17

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