ITEM 1FINANCIAL STATEMENTS (UNAUDITED)
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(Dollars in thousands, except per share amounts)
|
|
|
2016
|
|
|
|
2015
|
|
Net sales
|
|
$
|
100,257
|
|
|
$
|
99,233
|
|
Cost of products sold
|
|
|
77,360
|
|
|
|
75,318
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
22,897
|
|
|
|
23,915
|
|
Selling, general and administrative expenses
|
|
|
13,669
|
|
|
|
13,312
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
9,228
|
|
|
|
10,603
|
|
Other income
|
|
|
94
|
|
|
|
331
|
|
Other expense
|
|
|
(63
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
9,259
|
|
|
|
10,913
|
|
Income taxes
|
|
|
2,977
|
|
|
|
3,638
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,282
|
|
|
$
|
7,275
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
$
|
0.24
|
|
|
$
|
0.28
|
|
Cash dividends per share
|
|
$
|
0.105
|
|
|
$
|
0.10
|
|
Average number of shares outstanding
|
|
|
26,083,623
|
|
|
|
26,260,543
|
|
See notes to condensed consolidated financial statements.
3
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
Net income
|
|
$
|
6,282
|
|
|
$
|
7,275
|
|
Cumulative translation adjustments
|
|
|
1,500
|
|
|
|
(2,836
|
)
|
Pension and postretirement medical liability adjustments, net of tax
|
|
|
250
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
1,750
|
|
|
|
(2,610
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
8,032
|
|
|
$
|
4,665
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
4
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
40,191
|
|
|
$
|
23,724
|
|
Accounts receivable net
|
|
|
78,059
|
|
|
|
76,758
|
|
Inventories net
|
|
|
77,293
|
|
|
|
82,818
|
|
Other current assets
|
|
|
3,354
|
|
|
|
6,091
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
198,897
|
|
|
|
189,391
|
|
Property, plant and equipment
|
|
|
272,231
|
|
|
|
271,739
|
|
Less accumulated depreciation
|
|
|
(144,662
|
)
|
|
|
(141,852
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment net
|
|
|
127,569
|
|
|
|
129,887
|
|
Other assets
|
|
|
3,981
|
|
|
|
3,860
|
|
Goodwill and other intangible assets net
|
|
|
40,876
|
|
|
|
41,063
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
371,323
|
|
|
$
|
364,201
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
17,476
|
|
|
$
|
14,529
|
|
Payroll and employee related liabilities
|
|
|
9,426
|
|
|
|
10,871
|
|
Commissions payable
|
|
|
9,373
|
|
|
|
7,950
|
|
Deferred revenue
|
|
|
1,638
|
|
|
|
1,741
|
|
Accrued expenses
|
|
|
8,466
|
|
|
|
8,369
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
46,379
|
|
|
|
43,460
|
|
Pension benefits
|
|
|
7,697
|
|
|
|
9,309
|
|
Postretirement benefits
|
|
|
20,970
|
|
|
|
20,784
|
|
Deferred and other income taxes
|
|
|
3,962
|
|
|
|
3,627
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
79,008
|
|
|
|
77,180
|
|
Equity:
|
|
|
|
|
|
|
|
|
Outstanding common shares: 26,083,623 at March 31, 2016 and December 31, 2015 (net of
treasury shares of 965,173, respectively), at stated capital amounts
|
|
|
5,095
|
|
|
|
5,095
|
|
Retained earnings
|
|
|
307,885
|
|
|
|
304,341
|
|
Accumulated other comprehensive loss
|
|
|
(20,665
|
)
|
|
|
(22,415
|
)
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
292,315
|
|
|
|
287,021
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
371,323
|
|
|
$
|
364,201
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
5
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Three Month Ended
March 31,
|
|
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,282
|
|
|
$
|
7,275
|
|
Adjustments to reconcile net income attributable to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,872
|
|
|
|
3,752
|
|
Pension expense
|
|
|
913
|
|
|
|
913
|
|
Contributions to pension plan
|
|
|
(2,000
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable net
|
|
|
(1,301
|
)
|
|
|
(860
|
)
|
Inventories net
|
|
|
5,525
|
|
|
|
(2,442
|
)
|
Accounts payable
|
|
|
2,947
|
|
|
|
2,453
|
|
Commissions payable
|
|
|
1,424
|
|
|
|
1,024
|
|
Deferred revenue
|
|
|
(104
|
)
|
|
|
(777
|
)
|
Accrued expenses
|
|
|
(1,279
|
)
|
|
|
(322
|
)
|
Benefit obligations and other
|
|
|
3,831
|
|
|
|
(2,053
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
20,110
|
|
|
|
8,963
|
|
Cash flows used for investing activities:
|
|
|
|
|
|
|
|
|
Capital additions net
|
|
|
(1,212
|
)
|
|
|
(1,397
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Cash dividends
|
|
|
(2,739
|
)
|
|
|
(2,626
|
)
|
Payments to bank for borrowings
|
|
|
|
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(2,739
|
)
|
|
|
(5,626
|
)
|
Effect of exchange rate changes on cash
|
|
|
308
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
16,467
|
|
|
|
2,810
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
23,724
|
|
|
|
24,491
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
40,191
|
|
|
$
|
27,301
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
6
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 U.S. generally
accepted accounting principles (U.S. GAAP) for interim financial information and in accordance with the instructions to
Form 10-Q
and do not include all of the information and footnotes
required by U.S. GAAP for complete financial statements. The consolidated financial statements include the accounts of The Gorman-Rupp Company (the Company or Gorman-Rupp) and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. In the opinion of management of the Company, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results
for the three months ended March 31, 2016 are not necessarily indicative of results that may be expected for the year ending December 31, 2016. 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, 2015, from which related information herein has been derived.
NOTE B - RECENTLY ISSUED ACCOUNTING STANDARDS
The
Company considers the applicability and impact of all Accounting Standard Updates (ASUs). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Companys
consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of
Deferred Taxes
which amended accounting guidance related to the presentation of deferred tax liabilities and assets. The amended guidance requires that all deferred tax liabilities and assets be classified as noncurrent on the balance
sheet. This guidance is effective for reporting periods beginning after December 15, 2016; however, early adoption is permitted. The Company adopted ASU 2015-17 during the quarter ended December 31, 2015. No prior periods were
retrospectively adjusted.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606),
which
supersedes most current revenue recognition guidance, including industry-specific guidance, and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016; however, in July 2015,
the FASB approved a one year deferral of this standard, with a new effective date for fiscal years beginning after December 15, 2017. The Company currently does not expect the adoption of ASU 2014-09 to have a material impact on its
consolidated financial statements.
NOTE C - INVENTORIES
Inventories are stated at the lower of cost or market. The costs for approximately 72% of inventories at March 31, 2016 and 73% of inventories at
December 31, 2015 are determined using the last-in, first-out (LIFO) method, with the remainder determined using the first-in, first-out (FIFO) method applied on a consistent basis. 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 of $59.8 million and $59.1 million at March 31, 2016 and
December 31, 2015, respectively):
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
Raw materials and in-process
|
|
$
|
22,122
|
|
|
$
|
25,652
|
|
Finished parts
|
|
|
45,472
|
|
|
|
46,270
|
|
Finished products
|
|
|
9,699
|
|
|
|
10,896
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
77,293
|
|
|
$
|
82,818
|
|
|
|
|
|
|
|
|
|
|
7
PART I CONTINUED
ITEM 1.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
|
NOTE D - PRODUCT WARRANTIES
A liability is established for estimated future warranty and service claims based on historical claims experience and specific product failures. The Company
expenses warranty costs directly to cost of products sold. Changes in the Companys product warranty liability are:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
Balance at beginning of year
|
|
$
|
1,380
|
|
|
$
|
1,166
|
|
Provision
|
|
|
269
|
|
|
|
185
|
|
Claims
|
|
|
(402
|
)
|
|
|
(280
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
1,247
|
|
|
$
|
1,071
|
|
|
|
|
|
|
|
|
|
|
NOTE E - PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors a defined benefit pension plan (Plan) covering certain domestic employees. Benefits are based on each covered employees
years of service and compensation. The Plan is funded in conformity with the funding requirements of applicable U.S. regulations. The Plan was closed to new participants effective January 1, 2008. Employees hired after that date, in eligible
locations, are eligible to participate in an enhanced 401(k) plan instead of the defined benefit pension plan. Employees hired prior to January 1, 2008 continue to accrue benefits under the Plan.
Additionally, the Company sponsors defined contribution pension plans made available to all domestic and Canadian employees. The Company funds the cost of
these benefits as incurred.
The following tables present the components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Postretirement Benefits
|
|
|
|
Three Months Ended
March 31,
|
|
|
Three Months Ended
March 31,
|
|
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Service cost
|
|
$
|
709
|
|
|
$
|
784
|
|
|
$
|
298
|
|
|
$
|
299
|
|
Interest cost
|
|
|
661
|
|
|
|
659
|
|
|
|
210
|
|
|
|
198
|
|
Expected return on plan assets
|
|
|
(982
|
)
|
|
|
(1,067
|
)
|
|
|
|
|
|
|
|
|
Recognized actuarial loss (gain)
|
|
|
525
|
|
|
|
537
|
|
|
|
(174
|
)
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
913
|
|
|
$
|
913
|
|
|
$
|
334
|
|
|
$
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
PART I CONTINUED
ITEM 1.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED
|
NOTE F ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes reclassifications out of accumulated other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
Pension and other postretirement benefits:
|
|
|
|
|
|
|
|
|
Recognized actuarial loss (a)
|
|
$
|
351
|
|
|
$
|
355
|
|
Income tax
|
|
|
(101
|
)
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
Net of income tax
|
|
$
|
250
|
|
|
$
|
226
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The recognized actuarial loss is included in the computation of net periodic benefit cost. See Note E for additional details.
|
The following tables summarize changes in accumulated balances for each component of other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Currency
Translation
Adjustments
|
|
|
Pension and
Other
Postretirement
Benefits
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance at January 1, 2016
|
|
$
|
(9,057
|
)
|
|
$
|
(13,358
|
)
|
|
$
|
(22,415
|
)
|
Reclassification adjustments
|
|
|
|
|
|
|
351
|
|
|
|
351
|
|
Current period charge
|
|
|
1,500
|
|
|
|
42
|
|
|
|
1,542
|
|
Income tax expense
|
|
|
|
|
|
|
(143
|
)
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2016
|
|
$
|
(7,557
|
)
|
|
$
|
(13,108
|
)
|
|
$
|
(20,665
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Currency
Translation
Adjustments
|
|
|
Pension and
Other
Postretirement
Benefits
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance at January 1, 2015
|
|
$
|
(4,338
|
)
|
|
$
|
(12,988
|
)
|
|
$
|
(17,326
|
)
|
Reclassification adjustments
|
|
|
|
|
|
|
355
|
|
|
|
355
|
|
Current period charge
|
|
|
(2,836
|
)
|
|
|
|
|
|
|
(2,836
|
)
|
Income tax expense
|
|
|
|
|
|
|
(129
|
)
|
|
|
(129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2015
|
|
$
|
(7,174
|
)
|
|
$
|
(12,762
|
)
|
|
$
|
(19,936
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
PART I CONTINUED
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 pump systems for use in diverse water,
wastewater, construction, dewatering, 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
long-term product quality, applications and performance combined with timely delivery and service, and continually develops initiatives to improve performance in these key areas.
Gorman-Rupp actively pursues growth opportunities through organic growth, international business expansion and acquisitions.
We continually invest in training for our employees, in new product development and in modern manufacturing equipment, technology and facilities all designed
to increase production efficiency and capacity and drive growth by delivering innovative solutions to our customers. We believe that the diversity of our markets is a major contributor to the generally stable financial growth we have produced over
the past 80 plus years.
The Company places a strong emphasis on cash flow generation and having excellent liquidity and financial flexibility. This focus
has afforded us the continuing ability to reinvest our cash resources and preserve a strong balance sheet to position us for future opportunities. The Company had no bank debt as of March 31, 2016.
The Company is very proud to have been recognized for the fifth consecutive year as one of the 100 Most Trustworthy Companies in America by Forbes. To
create this list, the years public filings for more than 2,500 publicly-traded non-financial American companies with market capitalizations of $250 million or more were reviewed and evaluated in depth to identify the 100 that most
consistently demonstrated transparent accounting practices and solid corporate governance. Among the 47 small cap honorees, Gorman-Rupp was tied with three other companies for the highest annual rating, and was tied with one other
company for the highest rating over the past four quarters.
Net sales during the first quarter of 2015 were $100.3 million compared to $99.2 million
during the first quarter of 2015, an increase of 1.0%. Gross profit was $22.9 million for the first quarter of 2016, resulting in gross margin of 22.8%, compared to $23.9 million gross profit and 24.1% gross margin for the same period in 2015.
Operating income was $9.2 million, resulting in operating margin of 9.2% for the first quarter of 2016, compared to $10.6 million operating income and 10.7% operating margin for the same period in 2015. Net income was $6.3 million during the first
quarter of 2016 compared to $7.3 million in the first quarter of 2015 and earnings per share were $0.24 and $0.28 for the respective periods. The quarters gross profit margin decline was due principally to major market sales mix changes
resulting from consolidated contributions of increased sales in the fire protection and agricultural markets. The operating margin decline also included higher professional fees during the first quarter of 2016.
The Companys backlog of orders was $111.0 million at March 31, 2016 compared to $158.9 million a year ago and $117.1 million at December 31,
2015. The decrease in backlog from a year ago is due primarily to approximately $34.2 million of shipments related to the Permanent Canal Closures & Pumps (PCCP) project in the last twelve months along with lower orders in the
construction and industrial markets. Encouragingly, we did experience an increase of $16.3 million in incoming orders in the first quarter of 2016 compared to the fourth quarter of 2015 across most of the major markets the Company serves.
Approximately $5.2 million of orders related to the PCCP project remain in the March 31, 2016 backlog total and are expected to ship by the end of the third quarter of 2016. When completed, this flood control project will be one of the largest
such projects in the world.
On April 28, 2016, the Board of Directors of the Company declared a quarterly cash dividend of $0.105 per share on the
common stock of the Company, payable June 10, 2016, to shareholders of record May 13, 2016. This marks the 265th consecutive quarterly dividend paid by The Gorman-Rupp Company. During 2015, the Company again paid increased dividends and
thereby attained its forty-third consecutive year of increased dividends. These consecutive years place Gorman-Rupp in the top 50 of all U.S. public companies with respect to number of consecutive years of increased dividend payments. The dividend
yield at March 31, 2016 was 1.6%.
The Company currently expects to continue its exceptional history of paying regular quarterly dividends and
increased annual dividends. However, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent on our assessment of the Companys financial condition and business outlook at the
applicable time.
10
PART I CONTINUED
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
|
Outlook
Domestic and foreign uncertainties, including turmoil related to the production and price of oil, extensive foreign currency translation impacts and low
commodity prices, made 2015 a very challenging year. These uncertainties continue to be a negative influence on capital goods investment, and may continue to do so through most of 2016. Although the Company normally operates in a very lean
environment, we have reduced spending where practical in the short-term to address these headwinds and will continue to evaluate our cost structure and make further adjustments as required.
Generally we believe that the Company is well positioned to grow organically at a reasonably comparable sales pace and operating margin over the long term by
expanding our customer base, both domestically and globally, and through new product offerings. We expect that the increasing need for water and wastewater infrastructure rehabilitation within the United States, and similar needs internationally,
including in emerging economies, along with increasing demand for pumps and pump systems for industrial and agricultural applications, will provide strong growth opportunities for Gorman-Rupp in the future.
First Quarter 2016 Compared to First Quarter 2015
Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
$ Change
|
|
|
% Change
|
|
Net sales
|
|
$
|
100,257
|
|
|
$
|
99,233
|
|
|
$
|
1,024
|
|
|
|
1.0
|
%
|
Sales in our larger water markets group increased 3.2% between periods. Sales in the municipal market increased $1.2 million
primarily driven by sales of large volume pumps for flood control and wastewater and sales in the fire protection market increased $1.3 million due to domestic sales. These increases were offset by lower construction market sales of $1.5 million
principally due to the severe global decline in the drilling of oil and gas.
The first quarter activity in our non-water markets were comparable between
periods, increasing 0.8%. The activity included increased sales of $1.7 million in the petroleum market due primarily to timing of long-term infrastructure projects related to mid-stream transmission of refined petrochemical products. This increase
was offset by lower industrial market sales of $2.2 million also largely attributable to the downturn in oil and gas production and the related decline in the offloading of oil from barges due to excess inventory.
Domestic sales increased $2.6 million or 3.9% driven by the petroleum, municipal and fire protection markets while international sales decreased $1.5 million
or 4.5% due to lower sales in most major markets.
Cost of Products Sold and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
$ Change
|
|
|
% Change
|
|
Cost of products sold
|
|
$
|
77,360
|
|
|
$
|
75,318
|
|
|
$
|
2,042
|
|
|
|
2.7
|
%
|
% of Net sales
|
|
|
77.2
|
%
|
|
|
75.9
|
%
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
22.8
|
%
|
|
|
24.1
|
%
|
|
|
|
|
|
|
|
|
The decrease in gross margin was due primarily to higher cost of material driven by sales mix changes resulting from
consolidated contributions of increased sales in the fire protection and agricultural markets. Gross margin benefited from lower labor costs of approximately 61 basis points.
11
PART I CONTINUED
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
|
Selling, General and Administrative Expenses (SG&A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
$ Change
|
|
|
% Change
|
|
Selling, general and administrative expenses
|
|
$
|
13,669
|
|
|
$
|
13,312
|
|
|
$
|
357
|
|
|
|
2.7
|
%
|
% of Net sales
|
|
|
13.6
|
%
|
|
|
13.4
|
%
|
|
|
|
|
|
|
|
|
The increase in SG&A expenses as a percentage of net sales was due principally to increased professional services of
approximately 38 basis points related largely to audit fees in connection with recently acquired businesses and profit sharing expense of 17 basis points. Offsetting this increase was lower advertising expense of approximately 23 basis points due to
less trade shows during the first quarter of 2016 and lower compensation expense of approximately 16 basis points due to lower headcount from retirees not yet replaced.
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2016
|
|
|
2015
|
|
|
$ Change
|
|
|
% Change
|
|
Income before income taxes
|
|
$
|
9,259
|
|
|
$
|
10,913
|
|
|
$
|
(1,654
|
)
|
|
|
(15.2)%
|
|
% of Net sales
|
|
|
9.2
|
%
|
|
|
11.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
2,977
|
|
|
$
|
3,638
|
|
|
$
|
(661
|
)
|
|
|
(18.2)%
|
|
Effective tax rate
|
|
|
32.2
|
%
|
|
|
33.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,282
|
|
|
$
|
7,275
|
|
|
$
|
(993
|
)
|
|
|
(13.7)%
|
|
% of Net sales
|
|
|
6.3
|
%
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
$
|
0.24
|
|
|
$
|
0.28
|
|
|
$
|
(0.04
|
)
|
|
|
(14.3)%
|
|
The decreases in net income and earnings per share were due primarily to major market sales mix changes and higher SG&A
expenses as discussed above. The decrease in the effective tax rate between the two periods is due primarily to a research and development tax credit being in effect in first quarter of 2016 but not in first quarter of 2015 and changes in the
estimated domestic production activities deduction.
Liquidity and Capital Resources
|
|
|
|
|
|
|
|
|
|
|
Three Month Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Net cash provided by operating activities
|
|
$
|
20,110
|
|
|
$
|
8,963
|
|
Net cash used for investing activities
|
|
|
(1,212
|
)
|
|
|
(1,397
|
)
|
Net cash used for financing activities
|
|
|
(2,739
|
)
|
|
|
(5,626
|
)
|
Cash and cash equivalents and short-term investments totaled $40.5 million and there was no outstanding bank debt at
March 31, 2016. In addition, the Company had $24.0 million available in bank lines of credit after deducting $7.0 million in outstanding letters of credit primarily related to customer orders. The Company was in compliance with its nominal
restrictive covenants, including limits on additional borrowings and maintenance of certain operating and financial ratios, at March 31, 2016.
Working capital increased $6.6 million from December 31, 2015 to a record $152.5 million at March 31, 2016. The increase was due principally to
higher cash partially offset by lower inventories.
12
PART I CONTINUED
ITEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTINUED
|
The primary drivers of operating cash flows during the first three months of 2016 were reduced inventories,
lower estimated income tax payments and higher accounts payable. During this same period in 2015 operating cash flows were primarily driven by increased accounts payable and commissions due to timing and product mix, respectively.
During the first three months of 2016, investing activities of $1.2 million primarily consisted of capital expenditures for machinery and equipment and
building improvements. Net capital expenditures for 2016, consisting principally of machinery and equipment and building improvements, are estimated to be in the range of $12 to $14 million and are expected to be principally financed through
internally generated funds. During the first three months of 2015, investing activities of $1.4 million consisted primarily of capital expenditures for machinery and equipment and building improvements.
Net cash used for financing activities for the first quarter of 2016 consisted of dividend payments of $2.7 million. During the first quarter of 2015,
financing activities consisted of dividend payments of $2.6 million and re-payment of $3.0 million in short-term debt. The ratio of current assets to current liabilities was 4.3 to 1 at March 31, 2016 and 4.4 to 1 at December 31, 2015.
On April 28, 2016, the Board of Directors of the Company declared a quarterly cash dividend of $0.105 per share on the common stock of the Company,
payable June 10, 2016, to shareholders of record May 13, 2016. This marks the 265th consecutive quarterly dividend paid by The Gorman-Rupp Company.
The Company currently expects to continue its distinguished history of paying regular quarterly dividends and increased annual dividends. However, any future
dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent on our assessment of the 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, 2015 contained in our
Fiscal 2015 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: This Form 10-Q contains various forward-looking statements based on 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 risks and
uncertainties, which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.
Such factors include, but are not limited to: (1) continuation of the current and projected future business environment, including interest rates,
changes in foreign exchange rates, commodity pricing and capital and consumer spending and volatility in domestic oil production activity; (2) competitive factors and competitor responses to initiatives of The Gorman-Rupp Company;
(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; (7) unforeseen delays or disruptions in the PCCP project, including any further revisions to the timing of shipments for the project; (8) continuation of the favorable environment to
make acquisitions, domestic and foreign, including regulatory requirements and market values of potential candidates and our ability to successfully integrate and realize the anticipated benefits of completed acquisitions; and (9) risks
described from time to time in our reports filed with the Securities and Exchange Commission. Except to the extent required by law, we do not undertake and specifically decline any obligation to review or update any forward-looking statements or to
publicly announce the results of any revisions to any of such statements to reflect future events or developments or otherwise.
13
PART I CONTINUED