The Gorman-Rupp Company 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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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 June 30, 2008
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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305 Bowman Street, 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 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. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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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 June 30, 2008. 16,703,035
*****************
The Gorman-Rupp Company and Subsidiaries
Three and Six Months Ended June 30, 2008 and 2007
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-Three months ended June 30, 2008 and 2007 |
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-Six months ended June 30, 2008 and 2007 |
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-June 30, 2008 and December 31, 2007 |
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-Six months ended June 30, 2008 and 2007 |
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EX-3 Articles of Incorporation and By-laws |
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EX-4 Instruments Defining the Rights of Security Holders, including Indentures |
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EX-10 Material Contracts |
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EX-31.1 302 CEO Certification |
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EX-31.2 302 CFO Certification |
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EX-32 Section 1350 CEO and CFO Certifications |
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EX-31.1 |
EX-31.2 |
EX-32 |
2
PART I. FINANCIAL INFORMATION
ITEM 1FINANCIAL 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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Six Months Ended |
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June 30, |
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June 30, |
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(Thousands of dollars, except per share amounts) |
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2008 |
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2007 |
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2008 |
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2007 |
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Net sales |
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$ |
84,031 |
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$ |
79,647 |
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$ |
165,465 |
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$ |
154,108 |
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Cost of products sold |
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63,625 |
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61,548 |
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125,215 |
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119,944 |
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Gross profit |
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20,406 |
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18,099 |
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40,250 |
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34,164 |
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Selling, general and
administrative expenses |
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9,356 |
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8,286 |
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18,855 |
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16,726 |
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Operating income |
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11,050 |
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9,813 |
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21,395 |
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17,438 |
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Other income |
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947 |
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639 |
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1,563 |
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1,068 |
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Other expense |
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(64 |
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(14 |
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(137 |
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(25 |
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Income before income taxes |
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11,933 |
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10,438 |
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22,821 |
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18,481 |
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Income taxes |
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4,038 |
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3,900 |
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7,774 |
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6,851 |
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Net income |
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$ |
7,895 |
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$ |
6,538 |
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$ |
15,047 |
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$ |
11,630 |
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Basic and diluted
earnings per share |
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$ |
0.47 |
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$ |
0.39 |
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$ |
0.90 |
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$ |
0.69 |
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Dividends paid per share |
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$ |
0.100 |
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$ |
0.096 |
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$ |
0.200 |
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$ |
0.192 |
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Average shares outstanding |
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16,703,035 |
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16,699,285 |
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16,703,035 |
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16,699,285 |
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Shares outstanding and per share data reflect the 5 for 4 stock split effective December 10, 2007.
See notes to condensed consolidated financial statements.
3
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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Unaudited |
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June 30, |
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December 31, |
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(Thousands of dollars) |
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2008 |
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2007 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
30,660 |
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$ |
24,604 |
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Short-term investments |
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6,423 |
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5,586 |
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Accounts receivable net |
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46,503 |
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47,256 |
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Inventories net |
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54,971 |
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53,223 |
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Deferred income taxes and other current assets |
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2,550 |
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4,619 |
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Total current assets |
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141,107 |
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135,288 |
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Property, plant and equipment |
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158,085 |
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155,379 |
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Less allowances for depreciation |
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96,434 |
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95,409 |
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Property, plant and equipment net |
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61,651 |
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59,970 |
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Deferred income taxes and other assets |
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19,309 |
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16,276 |
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Total assets |
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$ |
222,067 |
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$ |
211,534 |
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Liabilities and shareholders equity |
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Current liabilities: |
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Accounts payable |
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$ |
11,101 |
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$ |
14,162 |
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Payrolls and related liabilities |
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8,835 |
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7,122 |
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Accrued expenses |
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11,839 |
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12,197 |
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Total current liabilities |
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31,775 |
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33,481 |
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Income taxes payable |
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823 |
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823 |
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Postretirement benefits |
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27,387 |
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26,661 |
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Deferred income taxes |
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436 |
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609 |
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Total liabilities |
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60,421 |
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61,574 |
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Minority interest |
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632 |
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520 |
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Shareholders equity |
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Common shares, without par value: |
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Authorized - 35,000,000 shares
Outstanding - 16,703,035 shares in 2008 and
2007 (after deducting treasury shares
of 609,183 in 2008 and 2007) at
stated capital amount |
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5,098 |
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5,098 |
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Retained earnings |
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163,175 |
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151,467 |
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Accumulated other comprehensive loss |
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(7,259 |
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(7,125 |
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Total shareholders equity |
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161,014 |
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149,440 |
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Total liabilities and shareholders equity |
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$ |
222,067 |
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$ |
211,534 |
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Shares outstanding reflect the 5 for 4 stock split effective December 10, 2007.
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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Six Months Ended |
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June 30, |
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(Thousands of dollars) |
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2008 |
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2007 |
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Cash flows from operating activities: |
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Net income |
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$ |
15,047 |
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$ |
11,630 |
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Adjustments to reconcile net income to net
cash provided by operating activities: |
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Depreciation and amortization |
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3,882 |
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3,583 |
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Changes in operating assets and liabilities |
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(3,411 |
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4,588 |
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Net cash provided by operating activities |
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15,518 |
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19,801 |
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Cash flows from investing activities: |
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Capital additions, net |
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(5,232 |
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(4,894 |
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Change in short-term investments |
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(838 |
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(581 |
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Payments for acquisition, net of cash acquired |
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(3,412 |
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Net cash used for investing activities |
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(6,070 |
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(8,887 |
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Cash flows from financing activities: |
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Net cash used for financing activities, cash dividends |
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(3,341 |
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(3,206 |
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Effect of exchange rate changes on cash |
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(51 |
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(514 |
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Net increase in cash
and cash equivalents |
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6,056 |
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7,194 |
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Cash and cash equivalents: |
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Beginning of year |
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24,604 |
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12,654 |
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June 30, |
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$ |
30,660 |
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$ |
19,848 |
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See notes to condensed consolidated financial statements.
5
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, 2008 are not necessarily indicative of results that may be
expected for the year ending December 31, 2008. 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, 2007.
NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes-An
Interpretation of FASB Statement No. 109 (FIN 48) January 1, 2007. FIN 48 prescribes a recognition
threshold and measurement attribute for financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return, and also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition.
In September, 2006 the FASB issued FAS No. 158, Employers Accounting for Defined Benefit Pension
and Other Postretirement Plans (FAS 158), which was adopted for the fiscal year ending December 31,
2006. FAS 158 requires employers to fully recognize the obligations associated with
single-employer defined benefit pension, retiree healthcare and other postretirement plans in their
consolidated financial statements.
In September, 2006 the FASB issued FAS No. 157, Fair Value Measurements (FAS 157) which provides
guidance for using fair value to measure assets and liabilities. FAS 157 applies whenever other
standards require (or permit) assets or liabilities to be measured at fair value, and does not
expand the use of fair value in any new circumstances. FAS 157, as originally issued, was
effective for fiscal years beginning after November 15, 2007 and was adopted by the Company on
January 1, 2008 with no impact on its consolidated financial position or results of operations.
In February, 2007 the FASB issued SFAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities-Including an Amendment of SFAS 115, which permits entities to choose to
measure many financial instruments and certain other items at fair value that are not currently
required to be measured at fair value. Unrealized gains and losses arising subsequent to adoption
are reported in earnings. SFAS 159 is effective for the Company in fiscal 2008. The Company
adopted this statement as of January 1, 2008 and elected not to apply the fair value to any of its
financial instruments.
6
PART I CONTINUED
ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
NOTE A BASIS OF PRESENTATION OF FINANCIAL STATEMENTS CONTINUED
In December, 2007 the FASB issued FAS No. 141(R), Business Combinations (FAS 141(R)). FAS 141(R)
establishes principles and requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling
interest in the acquired company and the goodwill acquired. This statement also establishes
disclosure requirements which will enable users to evaluate the nature and financial effects of the
business combination. FAS 141(R) is effective for business combinations for which the acquisition
date is on or after the first annual reporting period beginning on or after December 15, 2008. The
Company does not expect the impact to be material on its consolidated financial position or results
of operations.
In December, 2007 the FASB issued FAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements (FAS 160) an amendment of Accounting Research Bulletin No. 51, Consolidated Financial
Statements (ARB 51). FAS 160 changes the accounting and reporting for minority interests, which
will be recharacterized as non-controlling interests and classified as a component of equity. This
new consolidation method significantly changes the accounting for transactions with minority
interest holders. FAS 160 is effective for fiscal years beginning after December 15, 2008. The
Company plans to adopt FAS 160 beginning in the first quarter of fiscal 2009. The Company does not
expect the impact to be material on its consolidated financial position or results of operations.
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 managements estimate of expected year-end inventory levels and costs.
The major components of inventories are as follows (net of LIFO reserves):
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June 30, |
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December 31, |
(Thousands of dollars) |
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2008 |
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2007 |
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Raw materials and in-process |
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$ |
29,278 |
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$ |
27,917 |
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Finished parts |
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21,941 |
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21,348 |
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Finished products |
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3,752 |
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3,958 |
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Total inventories |
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$ |
54,971 |
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$ |
53,223 |
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7
PART I CONTINUED
ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
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:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
(Thousands of dollars) |
|
2008 |
|
2007 |
|
Balance at beginning of year |
|
$ |
1,682 |
|
|
$ |
1,216 |
|
Warranty costs |
|
|
1,522 |
|
|
|
1,495 |
|
Settlements |
|
|
(1,374 |
) |
|
|
(1,204 |
) |
|
Balance at end of quarter |
|
$ |
1,830 |
|
|
$ |
1,507 |
|
|
NOTE D COMPREHENSIVE INCOME
Comprehensive income and its components, net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
(Thousands of dollars) |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
Net income |
|
$ |
7,895 |
|
|
$ |
6,538 |
|
|
$ |
15,047 |
|
|
$ |
11,630 |
|
Changes in cumulative
foreign currency
translation adjustment |
|
|
38 |
|
|
|
898 |
|
|
|
(110 |
) |
|
|
953 |
|
Pension benefit adjustments |
|
|
170 |
|
|
|
282 |
|
|
|
(24 |
) |
|
|
281 |
|
|
Total comprehensive income |
|
$ |
8,103 |
|
|
$ |
7,718 |
|
|
$ |
14,913 |
|
|
$ |
12,864 |
|
|
NOTE E
INCOME TAXES
The Company adopted the provisions of FASB Interpretation 48, Accounting for Uncertainty in Income
Taxes, on January 1, 2007. Previously, the Company had accounted for tax contingencies in
accordance with Statement of Financial Accounting Standards 5, Accounting for Contingencies. As
required by Interpretation 48, which clarifies Statement 109, Accounting for Income Taxes, 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. For
tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than 50 percent likelihood of being realized
upon ultimate settlement with the relevant tax authority. At the adoption date, the Company
applied Interpretation 48 to all tax positions for which the statute of limitations remained open.
As a result of the implementation of Interpretation 48, the Company recognized an increase of
approximately $260,000 in the liability for unrecognized tax benefits, which was accounted for as a
reduction to the January 1, 2007 balance of retained earnings.
8
PART I
CONTINUED
ITEM 1.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
NOTE E
INCOME TAXES CONTINUED
The amount of unrecognized tax benefits as of January 1, 2008 was $997,000. That amount includes
$794,000 of unrecognized tax benefits which, if ultimately recognized, will reduce the Companys
annual effective tax rate.
At June 30, 2008 the balance of unrecognized tax benefits had increased to approximately $1.0
million. The increase in the current quarter is related primarily to a $27,000 settlement with
state taxing authorities and a $69,000 increase in prior period tax positions. The June 30, 2008
balance of unrecognized tax benefits includes $825,000 of unrecognized tax benefits which, if
ultimately realized, will reduce the Companys 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 $65,000 which would be recognized if the statute of limitations
expires without the relevant taxing authority examining the applicable returns.
The effective tax rate for the six months ending June 30, 2008 was 34.1% compared to 37.1% in 2007.
This decline was due to a deferred tax benefit of $170,000 recorded in 2008, and a lower effective
foreign tax rate primarily due to the inclusion in 2008 of Gorman-Rupp Europe B.V. acquired in the
second quarter of 2007.
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. With few
exceptions, 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 2004.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax
expense for all periods presented. The Company had accrued approximately $154,000 for the payment
of interest and penalties at January 1, 2008. An additional accrual of interest and penalties of
approximately $41,000 was recorded for the six months ended June 30, 2008.
NOTE F PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors a defined benefit pension plan covering substantially all employees.
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 partial 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. (See Note F
Pensions and Other Postretirement Benefits for the year ended December 31, 2007 included in the
Form 10-K.)
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. Employees hired prior to January 1, 2008 are not affected by the change.
9
PART I
CONTINUED
ITEM 1.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
NOTE F 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) |
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
Service cost |
|
$ |
1,317 |
|
|
$ |
1,239 |
|
|
$ |
596 |
|
|
$ |
625 |
|
Interest cost |
|
|
1,529 |
|
|
|
1,341 |
|
|
|
831 |
|
|
|
805 |
|
Expected return on plan assets |
|
|
(2,097 |
) |
|
|
(1,709 |
) |
|
|
|
|
|
|
|
|
Amortization of loss |
|
|
340 |
|
|
|
461 |
|
|
|
|
|
|
|
|
|
|
Benefit cost |
|
$ |
1,089 |
|
|
$ |
1,332 |
|
|
$ |
1,427 |
|
|
$ |
1,430 |
|
|
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 and are subject to
risk and uncertainties. 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
identifying important economic, political, and technological factors, among others, 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 regulation,
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.
Second Quarter 2008 Compared to Second Quarter 2007
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
|
Net sales |
|
$ |
84,031 |
|
|
$ |
79,647 |
|
|
$ |
4,384 |
|
|
|
5.5 |
% |
|
The increase in net sales was primarily due to increased international sales which included
Gorman-Rupp Europe B.V. that was acquired in the second quarter of 2007.
10
PART I
CONTINUED
ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
Additional strength in sales was due to increased fire protection pump sales and fabricated
component sales from the Companys Patterson Pump Company subsidiary totaling $8.1 million, which
more than offset the reduction of $6.8 million in custom pump revenues for a flood control project
shipped in 2007. Also, increased product sales of $1.6 million in the municipal market contributed
to the record quarter.
Cost of Products Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
|
Cost of products sold |
|
$ |
63,625 |
|
|
$ |
61,548 |
|
|
$ |
2,077 |
|
|
|
3.4 |
% |
% of Net sales |
|
|
75.7 |
% |
|
|
77.3 |
% |
|
|
|
|
|
|
|
|
|
The 3.4% increase in cost of products sold in the second quarter of 2008 compared to 2007 was
partially due to $623,000 of higher LIFO expense related to increased inventory levels and
inflation. Manufacturing costs included increases in labor of $576,000 due to increased production
levels and normal wage increases, and supplies, patterns and tooling of $398,000 due to higher
sales volume. As a percent of net sales, cost of sales were 75.7% in 2008 and 77.3% in 2007, with
the reduction in cost of sales as a percent of net sales due primarily to product mix and increased
operating leverage on sales volume, partially offset by the addition of Gorman-Rupp Europe B.V. in
the current quarter.
Selling, General, and Administrative Expenses (SG&A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
|
Selling, general, and
administrative
expenses (SG&A) |
|
$ |
9,356 |
|
|
$ |
8,286 |
|
|
$ |
1,070 |
|
|
|
12.9 |
% |
% of Net sales |
|
|
11.1 |
% |
|
|
10.4 |
% |
|
|
|
|
|
|
|
|
|
The 12.9% increase in SG&A expenses is partially due to increased advertising costs of $297,000
related to the Construction Expo trade show and the International Trade Fair for Water Sewage
Refuse Recycling, both of which are held every three years. Salaries and payroll taxes increased
$280,000 principally as a result of normal compensation increases and profit sharing expense based
on increased operating income rose by $224,000.
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
|
Other income |
|
$ |
947 |
|
|
$ |
639 |
|
|
$ |
308 |
|
|
|
48.2 |
% |
% of Net sales |
|
|
1.1 |
% |
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
11
PART I
CONTINUED
ITEM
2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
The 48.2% increase in other income is principally due to the final accounting for insurance
proceeds related to property damage caused by flooding of a facility at the Companys Mansfield
Division in August 2007.
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
|
Income before income taxes |
|
$ |
11,933 |
|
|
$ |
10,438 |
|
|
$ |
1,495 |
|
|
|
14.3 |
% |
% of Net sales |
|
|
14.2 |
% |
|
|
13.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
4,038 |
|
|
$ |
3,900 |
|
|
$ |
138 |
|
|
|
3.5 |
% |
Effective tax rate |
|
|
33.8 |
% |
|
|
37.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,895 |
|
|
$ |
6,538 |
|
|
$ |
1,357 |
|
|
|
20.8 |
% |
% of Net sales |
|
|
9.4 |
% |
|
|
8.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
$ |
0.47 |
|
|
$ |
0.39 |
|
|
$ |
0.08 |
|
|
|
20.5 |
% |
|
The decline in the effective tax rate to 33.8% in 2008 from 37.4% in 2007 was primarily due to a
lower effective foreign tax rate as a result of the inclusion in 2008 of Gorman-Rupp Europe B.V.
that was acquired in the second quarter of 2007.
Earnings per share reflect the five-for-four stock split distributed December 10, 2007.
Six Months 2008 Compared to Six Months 2007
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
|
Net sales |
|
$ |
165,465 |
|
|
$ |
154,108 |
|
|
$ |
11,357 |
|
|
|
7.4 |
% |
|
12
PART I CONTINUED
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
The record sales for the six months were principally due to increased international sales of $8.0
million, which included Gorman-Rupp Europe B.V. acquired in the second quarter of 2007. Additional
strength in sales was due to increased fire protection pump sales and increased fabricated
component sales from the Companys Patterson Pump Company subsidiary totaling $11.8 million, which
more than replaced the $11.1 million in custom pump revenues for a flood control project shipped in
2007.
The backlog at June 30, 2008 was $119.6 million compared to $98.0 million at June 30, 2007,
representing a 22% increase primarily due to orders in the fire protection and original equipment
markets.
Cost of Products Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
|
Cost of products sold |
|
$ |
125,215 |
|
|
$ |
119,944 |
|
|
$ |
5,271 |
|
|
|
4.4 |
% |
% of Net sales |
|
|
75.7 |
% |
|
|
77.8 |
% |
|
|
|
|
|
|
|
|
|
The increase in cost of products sold was primarily due to higher sales volume, which resulted in
increased material costs of $3.1 million. Manufacturing costs increased $2.2 million primarily due
to the addition of Gorman-Rupp Europe B.V. purchased in the second quarter of 2007, and supplies,
patterns and tooling due to higher sales volume. Partially offsetting these increases are reduced
healthcare costs of $567,000 due to reduced claims experience and a subrogation settlement of
$300,000 received from a third-party carrier. The reduction in cost of sales as a percent of net
sales was due primarily to product mix, increased operating leverage on added sales volume and the
inclusion of Gorman-Rupp Europe B.V.
Selling, General, and Administrative Expenses (SG&A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
|
Selling, general, and
administrative
expenses (SG&A) |
|
$ |
18,855 |
|
|
$ |
16,726 |
|
|
$ |
2,129 |
|
|
|
12.7 |
% |
% of Net sales |
|
|
11.4 |
% |
|
|
10.9 |
% |
|
|
|
|
|
|
|
|
|
The increase in SG&A expenses is principally due to increases in advertising costs of $506,000 and
travel and supplies of $269,000 related to the Construction Expo trade show held every three years.
Also, profit sharing based on increased operating income rose by $477,000, and salaries and
payroll taxes increased $476,000 primarily as a result of normal compensation increases.
13
PART I CONTINUED
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
|
Other income |
|
$ |
1,563 |
|
|
$ |
1,068 |
|
|
$ |
495 |
|
|
|
46.3 |
% |
% of Net sales |
|
|
0.9 |
% |
|
|
0.7 |
% |
|
|
|
|
|
|
|
|
|
The increase in other income is primarily due to the final accounting for insurance proceeds
related to property damage caused by flooding of a facility at the Companys Mansfield Division in
August 2007.
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
|
|
June 30, |
|
|
|
|
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
$ Change |
|
% Change |
|
Income before income taxes |
|
$ |
22,821 |
|
|
$ |
18,481 |
|
|
$ |
4,340 |
|
|
|
23.5 |
% |
% of Net sales |
|
|
13.8 |
% |
|
|
12.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
7,774 |
|
|
$ |
6,851 |
|
|
$ |
923 |
|
|
|
13.5 |
% |
Effective tax rate |
|
|
34.1 |
% |
|
|
37.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,047 |
|
|
$ |
11,630 |
|
|
$ |
3,417 |
|
|
|
29.4 |
% |
% of Net sales |
|
|
9.1 |
% |
|
|
7.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
$ |
0.90 |
|
|
$ |
0.69 |
|
|
$ |
0.21 |
|
|
|
30.4 |
% |
|
The decline in the effective tax rate was due to a deferred tax benefit of $170,000 recorded in
2008, and a lower effective foreign tax rate due to the inclusion in 2008 of Gorman-Rupp Europe
B.V. acquired in the second quarter of 2007.
Earnings per share reflect the five-for-four stock split distributed December 10, 2007.
14
PART I CONTINUED
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONTINUED
Liquidity and Sources of Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
June 30, |
|
|
(Thousands of Dollars) |
|
2008 |
|
2007 |
|
$ Change |
|
Net cash provided by operating activities |
|
$ |
15,518 |
|
|
$ |
19,801 |
|
|
$ |
(4,283 |
) |
Net cash used for investing activities |
|
|
6,070 |
|
|
|
8,887 |
|
|
|
(2,817 |
) |
Net cash used for financing activities |
|
|
3,341 |
|
|
|
3,206 |
|
|
|
135 |
|
|
The decrease in cash provided by operating activities is principally due to reducing accounts
payable by $7.6 million and reducing prepaid income taxes by $4.3 million for the six months ended
June 30, 2008 compared to the same period last year; these amounts were partially offset by reduced
accounts receivable of $6.8 million.
Investing activities for the six months ended June 30, 2008 primarily consisted of capital
expenditures related to the consolidation and expansion of the Mansfield, Ohio facilities of $2.7
million and machinery and equipment additions of $2.9 million. Total capital expenditures of $5.0
million have been incurred as of June 30, 2008 related to the consolidation and expansion of the
Mansfield, Ohio facilities.
Financing activities consisted of payments for dividends, which were $3.3 million and $3.2 million
for the six months ended June 30, 2008 and 2007, respectively.
The Company continues to finance its capital expenditures and working capital requirements
principally through internally generated funds, available unsecured lines of credit and proceeds
from short-term investments. The ratio of current assets to current liabilities was 4.4 to 1 at
June 30, 2008 and 3.6 to 1 at June 30, 2007.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF 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
export sales or operations outside of the United States. Export sales are denominated predominately
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. 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
15
PART I CONTINUED
ITEM 4. CONTROLS AND PROCEDURES CONTINUED
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
did maintain effective internal control over financial reporting as of June 30, 2008.
Changes
in Internal Control Over Financial Reporting
There were 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
ITEM 1. 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, 2007.
ITEM 1A. RISK FACTORS
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, 2007.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on April 24, 2008. At this meeting
the shareholders approved the following management proposals:
1. |
|
Fix the number of Directors of the Company at seven and elect seven Directors to hold office
until the next annual meeting of shareholders and until their successors are elected and
qualified. |
|
|
|
|
|
|
|
|
|
Number of votes |
|
|
|
For |
|
|
|
Abstain/Withheld |
|
|
James C. Gorman |
|
|
14,508,343 |
|
|
|
90,530 |
|
Jeffrey S. Gorman |
|
|
14,514,839 |
|
|
|
84,034 |
|
Thomas E. Hoaglin |
|
|
14,449,573 |
|
|
|
149,300 |
|
Christopher H. Lake |
|
|
14,284,865 |
|
|
|
314,008 |
|
Dr. Peter B. Lake |
|
|
14,479,673 |
|
|
|
119,200 |
|
Rick R. Taylor |
|
|
14,481,817 |
|
|
|
117,056 |
|
W. Wayne Walston |
|
|
14,517,064 |
|
|
|
81,809 |
|
16
PART II OTHER INFORMATION CONTINUED
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS CONTINUED
2. |
|
Ratify the appointment by the Audit Review Committee of the Board of Directors of Ernst &
Young LLP as independent public accountants for the Company during
the year ending December 31, 2008. |
|
|
|
|
|
|
|
|
|
Number of votes |
For |
|
Against |
|
Abstain/Withheld |
|
14,477,126 |
|
|
101,188 |
|
|
|
20,559 |
|
17
ITEM 6. EXHIBITS
Exhibits 3 and 4 (articles of incorporation) are incorporated herein
by this reference from Exhibits (3) and (4) of the Companys
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 Companys 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 Robert E. Kirkendall, 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.
|
|
|
|
|
Date: July 25, 2008 |
|
The Gorman-Rupp
Company
(Registrant) |
|
|
By: |
/s/Judith L. Sovine
|
|
|
|
Judith L. Sovine |
|
|
|
Corporate Treasurer |
|
|
|
|
|
|
|
|
|
|
|
By: |
/s/Robert E. Kirkendall
|
|
|
|
Robert E. Kirkendall |
|
|
|
Senior Vice President and
Chief Financial Officer |
|
18