Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2011
OR
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o |
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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)
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Ohio
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34-0253990 |
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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600 South Airport Road, Mansfield, Ohio
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44903 |
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(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code (419) 755-1011
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
þ No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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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 October 28, 2011. 20,990,893
The Gorman-Rupp Company and Subsidiaries
Three and Nine Months Ended September 30, 2011 and 2010
2
PART I. FINANCIAL INFORMATION
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ITEM 1 |
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FINANCIAL STATEMENTS (UNAUDITED) |
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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(Thousands of dollars, except per share amounts) |
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2011 |
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2010 |
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2011 |
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2010 |
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Net sales |
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$ |
90,215 |
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$ |
73,953 |
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$ |
266,448 |
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$ |
212,119 |
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Cost of products sold |
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67,748 |
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55,298 |
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198,346 |
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160,729 |
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Gross profit |
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22,467 |
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18,655 |
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68,102 |
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51,390 |
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Selling, general and
administrative expenses |
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10,941 |
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9,401 |
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32,436 |
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26,535 |
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Operating income |
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11,526 |
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9,254 |
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35,666 |
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24,855 |
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Other income |
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78 |
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115 |
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299 |
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252 |
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Other expense |
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(402 |
) |
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(112 |
) |
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(720 |
) |
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(640 |
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Income before income taxes |
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11,202 |
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9,257 |
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35,245 |
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24,467 |
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Income taxes |
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3,547 |
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3,102 |
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11,546 |
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8,159 |
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Net income |
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$ |
7,655 |
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$ |
6,155 |
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$ |
23,699 |
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$ |
16,308 |
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Earnings per share |
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$ |
0.37 |
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$ |
0.29 |
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$ |
1.13 |
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$ |
0.78 |
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Cash dividends paid per share |
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$ |
0.090 |
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$ |
0.084 |
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$ |
0.264 |
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$ |
0.252 |
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Weighted average shares
outstanding |
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20,989,882 |
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20,860,669 |
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20,986,574 |
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20,878,788 |
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Weighted average shares outstanding and per share data reflect the 5 for 4 stock split effective
June 10, 2011.
See notes to condensed consolidated financial statements.
3
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNADUITED)
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September 30, |
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December 31, |
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(Thousands of dollars) |
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2011 |
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2010 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
26,329 |
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$ |
32,229 |
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Short-term investments |
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1,445 |
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2,017 |
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Accounts receivable net |
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54,841 |
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51,996 |
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Inventories net |
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72,003 |
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51,449 |
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Deferred income taxes and other current assets |
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4,424 |
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5,503 |
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Total current assets |
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159,042 |
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143,194 |
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Property, plant and equipment |
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223,906 |
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216,239 |
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Less accumulated depreciation |
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109,584 |
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102,713 |
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Property, plant and equipment net |
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114,322 |
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113,526 |
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Prepaid pension and other assets |
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7,368 |
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3,545 |
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Goodwill and other intangible assets |
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25,717 |
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26,442 |
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Total assets |
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$ |
306,449 |
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$ |
286,707 |
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Liabilities and shareholders equity |
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Current liabilities: |
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Accounts payable |
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$ |
16,321 |
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$ |
12,042 |
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Short-term debt |
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15,000 |
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25,000 |
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Payroll and related liabilities |
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11,992 |
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7,794 |
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Commissions payable |
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6,430 |
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6,591 |
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Accrued expenses |
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10,997 |
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8,251 |
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Total current liabilities |
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60,740 |
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59,678 |
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Postretirement benefits |
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22,502 |
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22,241 |
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Deferred and other income taxes |
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4,952 |
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4,954 |
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Total liabilities |
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88,194 |
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86,873 |
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Shareholders equity |
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Common shares, without par value: |
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Authorized 35,000,000 shares |
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Outstanding 20,990,893 shares in 2011
and 20,984,893 in 2010 (after deducting
treasury shares of 648,603 in 2011 and
654,603 in 2010) at stated capital amount |
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5,128 |
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5,127 |
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Additional paid-in capital |
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2,544 |
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2,400 |
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Retained earnings |
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219,920 |
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201,735 |
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Accumulated other comprehensive loss |
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(9,337 |
) |
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(9,428 |
) |
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Total shareholders equity |
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218,255 |
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199,834 |
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Total liabilities and shareholders equity |
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$ |
306,449 |
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$ |
286,707 |
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Shares outstanding reflect the 5 for 4 stock split effective June 10, 2011.
See notes to condensed consolidated financial statements.
4
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Nine Months Ended |
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September 30, |
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(Thousands of dollars) |
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2011 |
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2010 |
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Cash flows from operating activities: |
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Net income |
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$ |
23,699 |
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$ |
16,308 |
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Adjustments to reconcile net income attributable to
net cash provided by operating activities: |
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Depreciation and amortization |
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8,516 |
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7,751 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(2,845 |
) |
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(12,405 |
) |
Inventories |
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(20,554 |
) |
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1,219 |
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Accounts payable |
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4,278 |
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3,328 |
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Commissions payable |
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(161 |
) |
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3,628 |
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Accrued expenses and other |
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5,372 |
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2,796 |
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Net cash provided by operating activities |
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18,305 |
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22,625 |
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Cash flows from investing activities: |
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Capital additions |
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(8,547 |
) |
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(5,607 |
) |
Change in short-term investments |
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572 |
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(8 |
) |
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Net cash used for investing activities |
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(7,975 |
) |
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(5,615 |
) |
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Cash flows from financing activities: |
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Cash dividends |
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(5,541 |
) |
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(5,261 |
) |
Payments to bank for borrowings |
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(10,000 |
) |
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(15,000 |
) |
Purchase of common shares for treasury |
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(574 |
) |
Other |
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(27 |
) |
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Net cash used for financing activities |
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(15,568 |
) |
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(20,835 |
) |
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Effect of exchange rate changes on cash |
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(662 |
) |
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29 |
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Net decrease in cash and cash equivalents |
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(5,900 |
) |
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(3,796 |
) |
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Cash and cash equivalents: |
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Beginning of year |
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32,229 |
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|
44,403 |
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September 30, |
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$ |
26,329 |
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$ |
40,607 |
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See notes to condensed consolidated financial statements.
5
PART I
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ITEM 1. |
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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
(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 GAAP for complete financial statements.
The consolidated financial statements include the accounts of the Company and its wholly and
majority-owned subsidiaries. All significant intercompany accounts and transactions have been
eliminated. In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. Operating results for
the three and nine months ended September 30, 2011 are not necessarily indicative of results that
may be expected for the year ending December 31, 2011. For further information, refer to the
consolidated financial statements and notes thereto included in the Companys Annual Report on Form
10-K for the year ended December 31, 2010. The Company has evaluated the existence of subsequent
events through the filing date of this Form 10-Q.
On April 28, 2011, the Company declared a five-for-four split of its Common Shares in the form of a
distribution of one additional Common Share for each four Common Shares previously issued. The
distribution was made on June 10, 2011. Accordingly, all number of shares outstanding and per
share data throughout this Quarterly Report on Form 10-Q have been adjusted retroactively to
reflect the stock split.
NEW ACCOUNTING PRONOUNCEMENTS
In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2011-08, Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for
Impairment. ASU 2011-08 is intended to simplify goodwill impairment testing by allowing a
qualitative review step to assess whether the required quantitative impairment analysis that exists
under current accounting standards is necessary. Under the amended rule, a company will not be
required to calculate the fair value of a business that contains recorded goodwill unless it
concludes, based on the qualitative assessment, that it is more likely than not that the fair value
of that business is less than its book value. If such a decline in fair value is deemed more
likely than not to have occurred, then the quantitative goodwill impairment test that exists under
current GAAP must be completed; otherwise, goodwill is deemed to be not impaired and no further
testing is required until the next annual test date (or sooner if conditions or events before that
date raise concerns of potential impairment in the business). The amended goodwill impairment
guidance does not affect the manner in which a company estimates fair value. The new standard is
effective for annual and interim goodwill impairment tests performed for fiscal years beginning
after December 15, 2011, with early adoption permitted. The Company is planning on adopting this
new standard in the fourth quarter 2011.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of
Comprehensive Income. ASU No. 2011-05 amends existing guidance by allowing only two options for
presenting the components of net income and other comprehensive income: (1) in a single continuous
financial statement, statement of comprehensive income or (2) in two separate but consecutive
financial statements, consisting of an income statement followed by a separate statement of other
comprehensive income.
6
PART I CONTINUED
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ITEM 1. |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED |
Also, items that are reclassified from other comprehensive income to net income must be presented on the face of the financial statements. ASU No. 2011-05 requires
retrospective application, and is effective for fiscal years, and interim periods within those
years, beginning after December 15, 2011, with early adoption permitted. The Company plans to adopt
ASU No. 2011-05 in the first quarter of fiscal 2012. The Company believes the adoption of ASU No.
2011-05 will change the order in which certain financial statements are presented and provide
additional detail on those financial statements when applicable, but will not have any other impact
on its consolidated financial statements.
NOTE B INVENTORIES
Inventories are stated at the lower of cost or market. The costs for approximately 81% of
inventories at September 30, 2011 and 82% at December 31, 2010 are determined using the last-in,
first-out (LIFO) method, with the remainder determined using the first-in, first-out (FIFO) method.
An actual valuation of inventory under the LIFO method is made at the end of each year based on
the inventory levels and costs at that time. Interim LIFO calculations are based on managements
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):
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September 30, |
|
|
December 31, |
|
(Thousands of dollars) |
|
2011 |
|
|
2010 |
|
Raw materials and in-process |
|
$ |
31,004 |
|
|
$ |
20,128 |
|
Finished parts |
|
|
35,789 |
|
|
|
27,005 |
|
Finished products |
|
|
5,210 |
|
|
|
4,316 |
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
72,003 |
|
|
$ |
51,449 |
|
|
|
|
|
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NOTE C PRODUCT WARRANTIES
A liability is established for estimated future warranty and service claims based on historical
claims experience, specific product failures and sales volume. The Company expenses warranty costs
directly to cost of products sold. Changes in the Companys product warranty liability are as
follows:
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|
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|
|
September 30, |
|
(Thousands of dollars) |
|
2011 |
|
|
2010 |
|
Balance at beginning of year |
|
$ |
1,543 |
|
|
$ |
1,863 |
|
Provision |
|
|
848 |
|
|
|
754 |
|
Claims |
|
|
(1,034 |
) |
|
|
(1,173 |
) |
|
|
|
|
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|
|
Balance at end of period |
|
$ |
1,357 |
|
|
$ |
1,444 |
|
|
|
|
|
|
|
|
7
PART I CONTINUED
|
|
|
ITEM 1. |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED |
NOTE D COMPREHENSIVE INCOME
Comprehensive income and its components are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(Thousands of dollars) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Net income |
|
$ |
7,655 |
|
|
$ |
6,155 |
|
|
$ |
23,699 |
|
|
$ |
16,308 |
|
Changes in cumulative
foreign currency
translation adjustments |
|
|
(2,172 |
) |
|
|
1,370 |
|
|
|
(887 |
) |
|
|
(139 |
) |
Pension and OPEB adjustments |
|
|
403 |
|
|
|
254 |
|
|
|
978 |
|
|
|
769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
5,886 |
|
|
$ |
7,779 |
|
|
$ |
23,790 |
|
|
$ |
16,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE E PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors a defined benefit pension plan covering substantially all employees hired
prior to January 1, 2008. Additionally, the Company sponsors a defined contribution pension plan
at one location not participating in the defined benefit pension plan. A 401(k) plan that includes
a graduated Company match is also available. The Company also sponsors a non-contributory defined
benefit health care plan that provides certain 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 Companys defined benefit pension plan. Benefits are based on age and
years of service with the Company. Employees hired prior to January 1, 2008 were not affected by
the change.
The following tables present the components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(Thousands of dollars) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Service cost |
|
$ |
714 |
|
|
$ |
680 |
|
|
$ |
263 |
|
|
$ |
276 |
|
Interest cost |
|
|
767 |
|
|
|
789 |
|
|
|
277 |
|
|
|
315 |
|
Expected return on plan assets |
|
|
(1,127 |
) |
|
|
(1,107 |
) |
|
|
|
|
|
|
|
|
Recognized actuarial loss (gain) |
|
|
418 |
|
|
|
394 |
|
|
|
(164 |
) |
|
|
(143 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit cost |
|
$ |
772 |
|
|
$ |
756 |
|
|
$ |
376 |
|
|
$ |
448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
PART I CONTINUED
|
|
|
ITEM 1. |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED |
NOTE E PENSION AND OTHER POSTRETIREMENT BENEFITS CONTINUED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits |
|
|
Postretirement Benefits |
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(Thousands of dollars) |
|
2011 |
|
|
2010 |
|
|
2011 |
|
|
2010 |
|
Service cost |
|
$ |
2,142 |
|
|
$ |
2,041 |
|
|
$ |
789 |
|
|
$ |
829 |
|
Interest cost |
|
|
2,301 |
|
|
|
2,366 |
|
|
|
831 |
|
|
|
943 |
|
Expected return on plan assets |
|
|
(3,383 |
) |
|
|
(3,321 |
) |
|
|
|
|
|
|
|
|
Recognized actuarial loss (gain) |
|
|
1,256 |
|
|
|
1,182 |
|
|
|
(492 |
) |
|
|
(430 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit cost |
|
$ |
2,316 |
|
|
$ |
2,268 |
|
|
$ |
1,128 |
|
|
$ |
1,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Executive Overview
The Gorman-Rupp Company is a leading designer, manufacturer and international marketer of pumps and
related equipment (pump and motor controls) for use in diverse water, wastewater, construction,
industrial, petroleum, original equipment, agriculture, fire protection, heating, ventilating and
air conditioning (HVAC), military and other liquid-handling applications. The Company attributes
its success to product quality, application and performance combined with delivery and service, and
attempts to continually develop initiatives to improve performance in these key areas. Gorman-Rupp
actively pursues growth opportunities through organic growth, international business opportunities
and acquisitions.
During the third quarter 2011, incoming orders, including some for flood control projects in the
municipal market, resulted in another record backlog of $157.9 million at September 30, 2011, a
50.9% increase from a year ago and 47.0% higher than the backlog of $107.4 million at December 31,
2010. Financial results during the quarter and nine months continued to improve compared to the
same period a year ago, with earnings largely driven by solid North American sales growth and
improved operating leverage. Sales and earnings also benefited from the inclusion of National Pump
Company acquired on October 1, 2010.
During October 2011, the
Companys defined benefit pension plan administrator confirmed that the actuarial payment
threshold relating to retirees receiving lump-sum distributions was exceeded. As a result, a
pension settlement loss estimated to be $3 million (approximately $0.09 to $0.10 per share)
will be required by GAAP to be recorded during the fourth quarter 2011.
Third Quarter 2011 Compared to Third Quarter 2010
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
(Thousands of dollars) |
|
2011 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
Net sales |
|
$ |
90,215 |
|
|
$ |
73,953 |
|
|
$ |
16,262 |
|
|
|
22.0 |
% |
The increase in net sales during the quarter was due principally to increases in the industrial
market of $5.9 million, the agricultural market of $4.8 million and the construction market of $3.6
million. Partially offsetting these increases was a decrease in fire protection market sales of
$2.4 million.
9
PART I CONTINUED
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED |
Incoming orders, including some for flood control projects in the municipal market, resulted in
another record backlog of $157.9 million at September 30, 2011, a 50.9% increase from a year ago
and 47.0% higher than the backlog of $107.4 million at December 31, 2010. Flood control projects
generally require longer lead times than other Company pumps.
Cost of Products Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
(Thousands of dollars) |
|
2011 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
Cost of products sold |
|
$ |
67,748 |
|
|
$ |
55,298 |
|
|
$ |
12,450 |
|
|
|
22.5 |
% |
% of Net sales |
|
|
75.1 |
% |
|
|
74.8 |
% |
|
|
|
|
|
|
|
|
The increase in cost of products sold was primarily due to higher sales volume which resulted
in additional material costs of $10.0 million. Manufacturing costs include increased compensation
and payroll taxes of $1.4 million principally due to increased headcount associated with meeting
increased customer demand for our products.
Selling, General and Administrative Expenses (SG&A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
(Thousands of dollars) |
|
2011 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
Selling, general and
administrative expenses
(SG&A) |
|
$ |
10,941 |
|
|
$ |
9,401 |
|
|
$ |
1,540 |
|
|
|
16.4 |
% |
% of Net sales |
|
|
12.1 |
% |
|
|
12.7 |
% |
|
|
|
|
|
|
|
|
The increase in SG&A expenses is principally due to the business acquisition of National Pump
Company on October 1, 2010.
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
(Thousands of dollars) |
|
2011 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
Income before income taxes |
|
$ |
11,202 |
|
|
$ |
9,257 |
|
|
$ |
1,945 |
|
|
|
21.0 |
% |
% of Net sales |
|
|
12.4 |
% |
|
|
12.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
3,547 |
|
|
$ |
3,102 |
|
|
$ |
445 |
|
|
|
14.4 |
% |
Effective tax rate |
|
|
31.7 |
% |
|
|
33.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,655 |
|
|
$ |
6,155 |
|
|
$ |
1,500 |
|
|
|
24.4 |
% |
% of Net sales |
|
|
8.5 |
% |
|
|
8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
$ |
0.37 |
|
|
$ |
0.29 |
|
|
$ |
0.08 |
|
|
|
27.6 |
% |
10
PART I CONTINUED
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED |
The decrease in the effective tax rate for the third quarter 2011 compared with the prior year
comparable period was primarily due to favorable provision-to-return adjustments of certain tax
estimates related to the completion of the 2010 federal tax return.
The increase in net income was primarily due to the factors described above, with earnings largely
driven by improved sales and operating leverage.
Nine Months 2011 Compared to Nine Months 2010
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
(Thousands of Dollars) |
|
2011 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
Net sales |
|
$ |
266,448 |
|
|
$ |
212,119 |
|
|
$ |
54,329 |
|
|
|
25.6 |
% |
The increase in sales in the first nine months of 2011 compared to the same period last year was
due principally to increases in the industrial market of $16.8 million, the agricultural market of
$14.9 million, the construction market of $14.1 million and the municipal market of $10.7 million.
These increases were partially offset by decreases in sales to the fire protection market of $7.9
million and the government/original equipment market of $3.3 million.
Cost of Products Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
(Thousands of Dollars) |
|
2011 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
Cost of products sold |
|
$ |
198,346 |
|
|
$ |
160,729 |
|
|
$ |
37,617 |
|
|
|
23.4 |
% |
% of Net sales |
|
|
74.4 |
% |
|
|
75.8 |
% |
|
|
|
|
|
|
|
|
The increase in cost of products sold was primarily due to higher sales volume which resulted
in additional material costs of $29.6 million, including higher LIFO expense of $2.0 million due to
increases in inventory quantities and price indexes. Manufacturing costs include increases in
compensation and payroll taxes of $4.6 million principally due to increased headcount and overtime
compensation associated with meeting increased customer demand for our products. Also, supplies,
patterns and tooling expenses increased $1.2 million due to increased business activity and profit
sharing increased $968,000 related to higher operating income.
Selling, General, and Administrative Expenses (SG&A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
(Thousands of Dollars) |
|
2011 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
Selling, general, and
administrative expenses
(SG&A) |
|
$ |
32,436 |
|
|
$ |
26,535 |
|
|
$ |
5,901 |
|
|
|
22.2 |
% |
% of Net sales |
|
|
12.2 |
% |
|
|
12.5 |
% |
|
|
|
|
|
|
|
|
11
PART I CONTINUED
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED |
The increase in SG&A expenses is principally due to the business acquisition of National Pump
Company on October 1, 2010. In addition, profit sharing increased $426,000 related to higher
operating income.
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
(Thousands of Dollars) |
|
2011 |
|
|
2010 |
|
|
$ Change |
|
|
% Change |
|
Income before income taxes |
|
$ |
35,245 |
|
|
$ |
24,467 |
|
|
$ |
10,778 |
|
|
|
44.1 |
% |
% of Net sales |
|
|
13.2 |
% |
|
|
11.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
11,546 |
|
|
$ |
8,159 |
|
|
$ |
3,387 |
|
|
|
41.5 |
% |
Effective tax rate |
|
|
32.8 |
% |
|
|
33.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
23,699 |
|
|
$ |
16,308 |
|
|
$ |
7,391 |
|
|
|
45.3 |
% |
% of Net sales |
|
|
8.9 |
% |
|
|
7.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
$ |
1.13 |
|
|
$ |
0.78 |
|
|
$ |
0.35 |
|
|
|
44.9 |
% |
The increase in net income was due primarily to the factors described above, with earnings largely
driven by improved North American sales and operating leverage.
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
September 30, |
|
(Thousands of dollars) |
|
2011 |
|
|
2010 |
|
Net cash provided by operating activities |
|
$ |
18,305 |
|
|
$ |
22,625 |
|
Net cash used for investing activities |
|
|
(7,975 |
) |
|
|
(5,615 |
) |
Net cash used for financing activities |
|
|
(15,568 |
) |
|
|
(20,835 |
) |
The Companys principal funding source generally is its cash generated from operations. Cash and
cash equivalents and short-term investments totaled $27.8 million and there was $15.0 million in
outstanding bank debt at September 30, 2011. In addition, the Company had $25.3 million available
in bank lines of credit after deducting $4.7 million in outstanding letters of credit primarily
related to customer orders. The Company was in compliance with all restrictive covenants,
including limits on additional borrowings and maintenance of certain operating and financial
ratios, at September 30, 2011.
As operations continued to improve over the last two years, higher sales resulted in increased
inventory balances, accounts receivable, accounts payable and income taxes payable during the first
nine months of 2011. The lower cash provided by operations compared to the same period in 2010 was
primarily due to increased inventory balances.
12
PART I CONTINUED
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED |
Investing activities for the nine months ended September 30, 2011 primarily consisted of capital
expenditures for machinery and equipment of $7.0 million and building improvements of $1.5 million.
Capital expenditures for the full year 2011, consisting principally of machinery and equipment,
are estimated to be $10 to $12 million and are expected to be financed through internally generated
funds and existing lines of credit.
Financing activities for the nine months ended September 30, 2011 consisted of the re-payment of
$10.0 million on short-term debt used to partially finance the acquisition of National Pump
Company, and payments for dividends of $5.5 million. The ratio of current assets to current
liabilities was 2.6 to 1 at September 30, 2011 and 2.4 to 1 at December 31, 2010.
Management believes that cash on hand, combined with cash provided by operations and existing
financing capabilities, will be sufficient to meet cash requirements, including capital
expenditures and the payment of quarterly dividends, for the next 12 months. On September 9, 2011
the Company paid a quarterly dividend of $0.09 per share, representing the 246th consecutive
quarterly dividend paid by the Company. While the Company currently expects to continue its
history of paying regular quarterly dividends, any future dividends will be reviewed individually
and declared by our Board of Directors at its discretion, dependent on our assessment of the
Companys financial condition and business outlook at the applicable time.
Critical Accounting Policies
Our critical accounting policies are described in Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations, and in the notes to our Consolidated Financial
Statements for the year ended December 31, 2010 contained in our Fiscal 2010 Annual Report on Form
10-K. Any new accounting policies or updates to existing accounting policies as a result of new
accounting pronouncements have been discussed in the notes to our Condensed Consolidated Financial
Statements in this Quarterly Report on Form 10-Q. The application of our critical accounting
policies may require management to make judgments and estimates about the amounts reflected in the
Consolidated Financial Statements. Management uses historical experience and all available
information to make these estimates and judgments, and different amounts could be reported using
different assumptions and estimates.
Safe Harbor Statement
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of
1995, The Gorman-Rupp Company provides the following cautionary statement: Certain statements in
this section and elsewhere herein contain various forward-looking statements and include
assumptions concerning The Gorman-Rupp Companys 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.
13
PART I CONTINUED
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED |
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 ABOUT MARKET RISK |
The Companys 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.
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ITEM 4. |
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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 Companys 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
Companys 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 Companys
Management, including the principal executive officer and the principal financial officer, of the
effectiveness of the design and operation of the Companys 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 Companys disclosure
controls and procedures were effective as of September 30, 2011.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Companys disclosure controls and procedures that occurred during
the most recent fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over financial reporting. Subsequent to the date
of the evaluation, there have been no significant changes in the Companys disclosure controls and
procedures that could significantly affect the Companys internal control over financial reporting.
PART II OTHER INFORMATION
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ITEM 1. |
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LEGAL PROCEEDINGS |
There are no material changes from the legal proceedings previously reported in the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
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PART II OTHER INFORMATION CONTINUED
There are no material changes from the risk factors previously reported in the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 2010.
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Exhibits 3 and 4
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(articles of incorporation) are incorporated herein
by this reference from Exhibits (3) and (4) of the Companys
Annual Report on Form 10-K for the year ended December 31, 2010. |
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Exhibits 3, 4 and 10
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(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 Companys Annual Report on Form 10-K for the year
ended December 31, 2010. |
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Exhibit 31.1
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Certification of Jeffrey S. Gorman, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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Exhibit 31.2
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Certification of Wayne L. Knabel, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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Exhibit 32
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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.
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The Gorman-Rupp Company
(Registrant)
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Date: October 31, 2011 |
By: |
/s/ Wayne L. Knabel
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Wayne L. Knabel |
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Chief Financial Officer |
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