# Gorman Rupp Co: Form 10-Q for the period ended Sep 30, 2023

- Company: [Gorman Rupp Co](/companies/grc.md) (CIK 42682)
- Form: 10-Q
- Filed: 2023-10-30
- Accepted by EDGAR: Oct 30, 2023, 11:36 ET
- Period: 2023-09-30
- Accession: 0001437749-23-029344
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/42682/000143774923029344/grc20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/42682/000143774923029344/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $167.5m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $498.9m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $119.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $353.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $48.1m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $145.3m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $23.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $70.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $21.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $65.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $10.5m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $31.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $2.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $6.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $9.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $26.0m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.34 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.99 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $71.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $16.9m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2023-09-30 | $18.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $233.1m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $891.4m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $102.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $544.6m | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $390.5m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $19.7m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $346.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,543 characters.

### (Dollars in thousands, except for per share amounts)

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

### Executive Overview

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

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

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

The Company’s backlog of orders was $237.5 million at September 30, 2023 compared to $266.7 million at September 30, 2022 and $267.4 million at December 31, 2022. Incoming orders for the first nine months of 2023 were $476.7 million, or an increase of 6.9% compared to the same period in 2022.

On October 26, 2023, the Board of Directors authorized the payment of a quarterly dividend of $0.18 per share on the common stock of the Company, payable December 8, 2023, to shareholders of record as of November 15, 2023. This will mark the 295th consecutive quarterly dividend paid by The Gorman-Rupp Company.

The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends. However, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent on our assessment of the Company’s financial condition and business outlook at the applicable time.

### Outlook

The Company’s backlog is down from the record levels earlier in the year, but it remains strong at elevated levels. The relocated and expanded Fill-Rite’s manufacturing facility in Lenexa, Kansas nearly tripled the size of the prior facility and provides additional capacity for Fill-Rite’s continued growth. We remain optimistic about our outlook and will continue to focus on delivering long-term sustained growth and shareholder value.

### Three Months Ended September 30, 2023 vs. Three Months Ended September 30, 2022

### Net Sales

The following table presents the Company’s disaggregated net sales by its end markets for the three months ended September 30, 2023 and September 30, 2022:

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Industrial | $34,777 | $32,093 | $2,684 | 8.4% |
| Fire | 35,986 | 31,785 | 4,201 | 13.2% |
| Agriculture | 21,235 | 21,518 | (283) | -1.3% |
| Construction | 23,388 | 19,886 | 3,502 | 17.6% |
| Municipal | 18,841 | 20,661 | (1,820) | -8.8% |
| Petroleum | 5,801 | 4,832 | 969 | 20.1% |
| OEM | 9,730 | 7,767 | 1,963 | 25.3% |
| Repair parts | 17,698 | 15,250 | 2,448 | 16.1% |
| Total net sales | $167,456 | $153,792 | $13,664 | 8.9% |

Net sales for the third quarter of 2023 were $167.5 million compared to net sales of $153.8 million for the third quarter of 2022, an increase of 8.9% or $13.7 million. The increase in sales was due to an increase in volume as well as the impact of pricing increases taken in 2022 and an annual price increase in January 2023. The Company’s two price increases in 2022, as well as the price increase in 2023 averaged between 4.0% - 5.0%. Domestic sales increased 10.1% or $11.7 million and international sales increased 5.2% or $2.0 million compared to the same period in 2022.

Sales increased $4.2 million in the fire suppression market primarily from increased domestic commercial construction, $3.5 million in the construction market due to overall strong conditions including infrastructure related projects, $2.7 million in the industrial market and $2.4 million in the repair market due to strengthening in the broader industrial economy, $2.0 million in the OEM market, and $1.0 million in the petroleum market due to increased demand for larger petroleum transfer pumps. Partially offsetting these increases was a sales decrease of $1.8 million in the municipal market due to the timing of domestic flood control and wastewater projects, and a decrease of $0.3 million in the agriculture market primarily driven by weather conditions that have slowed demand.

### Cost of Products Sold and Gross Profit

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of products sold | $119,322 | $113,229 | $6,093 | 5.4% |
| % of Net sales | 71.3% | 73.6% |  |  |
| Gross Margin | 28.7% | 26.4% |  |  |

Gross profit was $48.1 million for the third quarter of 2023, resulting in gross margin of 28.7%, compared to gross profit of $40.6 million and gross margin of 26.4% for the same period in 2022. The 230 basis point increase in gross margin included a 320 basis point improvement in cost of material, which consisted of a reduction in LIFO expense of 130 basis points, a favorable impact of 40 basis points related to the amortization of acquired Fill-Rite customer backlog which occurred in the third quarter of 2022 and did not reoccur in the third quarter of 2023, and a 150 basis point improvement from the realization of selling price increases. The increase in gross margin was partially offset by a 90 basis point increase in labor and overhead expenses, which included approximately 60 basis points of one-time expenses related to the relocation and expansion of Fill-Rite’s manufacturing facility in Lenexa, Kansas.

### Selling, General and Administrative (SG&A) Expenses

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative expenses | $23,233 | $22,076 | $1,157 | 5.2% |
| % of Net sales | 13.9% | 14.4% |  |  |

Selling, general and administrative (“SG&A”) expenses were $23.2 million and 13.9% of net sales for the third quarter of 2023 compared to $22.1 million and 14.4% of net sales for the same period in 2022. The increase in SG&A expenses, was due to increased expenses to support sales growth. The improvement in SG&A as a percent of sales was primarily due to favorable leverage from increased sales.

### Amortization expense

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Amortization expense | $3,026 | $3,176 | $(150) | -4.7% |
| % of Net sales | 1.8% | 2.1% |  |  |

Amortization expense was $3.0 million for the third quarter of 2023 compared to $3.2 million for the same period in 2022.

### Operating Income

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Operating Income | $21,875 | $15,311 | $6,564 | 42.9% |
| % of Net sales | 13.1% | 10.0% |  |  |

Operating income was $21.9 million for the third quarter of 2023, resulting in an operating margin of 13.1%, compared to operating income of $15.3 million and operating margin of 10.0% for the same period in 2022. Operating margin in the third quarter of 2023 increased 310 basis points compared to the same period in 2022 due to improved margin on material costs, and improved leverage on SG&A and amortization expenses due to increased sales volumes.

### Interest Expense

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest Expense | $10,475 | $7,556 | $2,919 | 38.6% |
| % of Net sales | 6.3% | 4.9% |  |  |

Interest expense was $10.5 million for the third quarter of 2023 compared to $7.6 million for the same period in 2022 due to increased interest rates.

### Other income (expense), net

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other Income (expense), net | $(416) | $(5,323) | $4,907 | -92.2% |
| % of Net sales | 0.2% | 3.5% |  |  |

Other income (expense), net was $0.4 million of expense for the third quarter of 2023 compared to expense of $5.3 million of expense for the same period in 2022. The $5.3 million expense for the third quarter of 2022 included non-cash pension settlement charges of $4.8 million. The pension settlement charge resulted from retirees electing to receive the lump sum payments upon retirement.

### Net Income (loss)

|  | Three Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Income before income taxes | $10,984 | $2,432 | $8,552 | 351.6% |
| % of Net sales | 6.6% | 1.6% |  |  |
| Income taxes | $2,006 | $211 | $1,795 | 850.7% |
| Effective tax rate | 18.3% | 8.7% |  |  |
| Net income | $8,978 | $2,221 | $6,757 | 304.2% |
| % of Net sales | 5.4% | 1.4% |  |  |
| Earnings per share | $0.34 | $0.09 | $0.25 | 277.8% |

The Company’s effective tax rate was 18.3% for the third quarter of 2023 compared to 8.7% for the third quarter of 2022.

Net income was $9.0 million, or $0.34 per share, for the third quarter of 2023 compared to net income of $2.2 million, or $0.09 per share, in the third quarter of 2022. Adjusted earnings per share for the third quarter of 2022 were $0.25 per share. Adjusted earnings per share for the third quarter of 2023 included an unfavorable LIFO impact of $0.06 per share compared to an unfavorable LIFO impact of $0.11 per share in the third quarter of 2022. See “Non-GAAP Financial Information” for reconciliation of Reported earnings per share to Adjusted earnings per share.

### Nine Months Ended September 30, 2023 vs. Nine Months Ended September 30, 2022

### Net Sales

The following table presents the Company’s disaggregated net sales by its end markets for the nine months ended September 30, 2023 and September 30, 2022:

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Industrial | $103,886 | $72,452 | $31,434 | 43.4% |
| Fire | 109,211 | 88,237 | 20,974 | 23.8% |
| Agriculture | 65,292 | 37,571 | 27,721 | 73.8% |
| Construction | 66,723 | 42,581 | 24,142 | 56.7% |
| Municipal | 55,831 | 51,940 | 3,891 | 7.5% |
| Petroleum | 16,440 | 11,506 | 4,934 | 42.9% |
| OEM | 28,223 | 25,802 | 2,421 | 9.4% |
| Repair parts | 53,340 | 44,937 | 8,403 | 18.7% |
| Total net sales | $498,946 | $375,026 | $123,920 | 33.0% |

Net sales for the first nine months of 2023 of $498.9 million increased 33.0% or $123.9 million compared to 2022 net sales of $375.0 million for the same period. The increase in sales was due to the inclusion of a full nine months of Fill-Rite sales compared to four months of sales included in the prior year as well as an increase in volume and the impact of pricing increases taken in 2022 and an annual price increase in January 2023. The Company’s two price increases in 2022, as well as the price increase in 2023 averaged between 4.0% - 5.0%. Domestic sales increased 37.5% or $102.2 million and international sales increased 21.3% or $21.7 million compared to the same period in 2022.

Sales increased $31.4 million in the industrial market primarily due to the inclusion of a full nine months of Fill-Rite sales compared to four months of sales included in the same period of the prior year. In addition to the increase from Fill-Rite, industrial sales increased $10.0 million due to the strengthening in the broader industrial economy. Sales increased $27.7 million in the agriculture market due entirely to the inclusion of a full nine months of Fill-Rite sales compared to four months of sales in the prior year period. Sales increased $24.1 million in the construction market primarily due to the inclusion of a full nine months of Fill-Rite sales compared to four months of sales included in the prior year period. In addition to the increase from fill-Rite, construction sales increased $7.2 million due to overall strong conditions including infrastructure related projects. Sales increased $21.0 million in the fire market primarily from increased domestic commercial construction, $8.4 million in the repair market due to strengthening in the broader industrial economy, $3.9 million in the municipal market due to domestic flood control and wastewater projects related to increased infrastructure investment, and $2.4 million in the OEM market. Sales in the petroleum market increased $4.9 million primarily due to the inclusion of a full nine months of Fill-Rite sales compared to four months of sales included in the prior year period as well as increased demand for larger petroleum transfer pumps.

### Cost of Products Sold and Gross Profit

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cost of products sold | $353,631 | $280,727 | $72,904 | 26.0% |
| % of Net sales | 70.9% | 74.9% |  |  |
| Gross Margin | 29.1% | 25.1% |  |  |

18

Gross profit was $145.3 million for the first nine months of 2023, resulting in gross margin of 29.1%, compared to gross profit of $94.3 million and gross margin of 25.1% for the same period in 2022. The 400 basis point increase in gross margin included a 300 basis point improvement in cost of material, which consisted of a favorable LIFO impact of 130 basis points, a favorable impact of 30 basis points related to the Fill-Rite inventory step-up that was recognized in 2022 that did not recur in 2023 and a 140 basis point improvement from the realization of selling price increases. The increase in gross margin also included a 100 basis point improvement on labor and overhead leverage due to increased sales volume and sales mix which includes nine months of Fill-Rite sales for 2023 compared to four months for the same period in 2022.

### Selling, General and Administrative (SG&A) Expenses

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Selling, general and administrative expenses | $70,664 | $62,125 | $8,539 | 13.7% |
| % of Net sales | 14.2% | 16.6% |  |  |

Selling, general and administrative (“SG&A”) expenses were $70.7 million and 14.2% of net sales for the first nine months of 2023 compared to $62.1 million and 16.6% of net sales for the same period in 2022. SG&A expenses for the first nine months of 2022 included $7.0 million of one-time acquisition costs. Excluding acquisition costs of $7.0 million, SG&A expenses were $55.1 million and 14.7% of net sales for the first nine months of 2022. The increase in SG&A expenses, excluding acquisition costs, was due to the inclusion of Fill-Rite expenses for the full nine month period in 2023 as compared to four months in the same period in 2022, as well as increased expenses to support sales growth. The improvement in SG&A as a percent of sales was primarily due to favorable leverage from increased sales.

### Amortization expense

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Amortization expense | $9,398 | $4,498 | $4,900 | 108.9% |
| % of Net sales | 1.9% | 1.2% |  |  |

Amortization expense was $9.4 million for the first nine months of 2023 compared to $4.5 million for the same period in 2022. The increase in amortization expense was due to the inclusion of nine months of amortization attributable to the Fill-Rite acquisition compared to four months for the same period in 2022.

### Operating Income

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Operating Income | $65,253 | $27,676 | $37,577 | 135.8% |
| % of Net sales | 13.1% | 7.4% |  |  |

Operating income was $65.3 million for the first nine months of 2023, resulting in an operating margin of 13.1%, compared to operating income of $27.7 million and operating margin of 7.4% for the same period in 2022. Operating income for the first nine months of 2022 included $7.0 million of one-time acquisition costs, and $1.4 million of inventory step-up amortization. Excluding acquisition costs and inventory step-up totaling $8.4 million, operating income was $36.1 million for the first nine months of 2022 resulting in an operating margin of 9.6% of net sales. Excluding acquisition costs and inventory step-up in 2022, operating margin in the first nine months of 2023 increased 350 basis points compared to the same period in 2022 due to improved margin on material costs, and improved leverage on SG&A expense due to increased sales volumes partially offset by increased amortization expense.

### Interest Expense

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Interest Expense | $31,147 | $9,878 | $21,269 | 215.3% |
| % of Net sales | 6.2% | 2.6% |  |  |

19

Interest expense was $31.1 million for the first nine months of 2023 compared to $9.9 million for the same period in 2022. The increase in interest expense was primarily due to the inclusion of nine months of interest expense in 2023 compared to four months for the first nine months of 2022 on the debt financing attributable to the Fill-Rite acquisition, as well as increased interest rates in 2023 as compared to 2022.

### Other income (expense), net

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Other Income (expense), net | $(1,385) | $(7,079) | $5,694 | -80.4% |
| % of Net sales | 0.3% | 1.9% |  |  |

Other income (expense), net was $1.4 million of expense for the first nine months of 2023 compared to expense of $7.1 million of expense for the same period in 2022. The $7.1 million expense for the first nine months of 2022 included non-cash pension settlement charges of $6.4 million.

### Net Income (loss)

|  | Nine Months Ended September 30, 2023 | 2022 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Income before income taxes | $32,721 | $10,719 | $22,002 | 205.3% |
| % of Net sales | 6.6% | 2.9% |  |  |
| Income taxes | $6,746 | $1,951 | $4,795 | 245.8% |
| Effective tax rate | 20.6% | 18.2% |  |  |
| Net income | $25,975 | $8,768 | $17,207 | 196.2% |
| % of Net sales | 5.2% | 2.3% |  |  |
| Earnings per share | $0.99 | $0.34 | $0.65 | 191.2% |

The Company’s effective tax rate was 20.6% for the first nine months of 2023 compared to 18.2% for the first nine months of 2022.

Net income was $26.0 million, or $0.99 per share, for the first nine months of 2023 compared to net income of $8.8 million, or $0.34 per share for the first nine months of 2022. Adjusted earnings per share for the first nine months of 2023 were $1.02 per share compared to $0.81 per share for the first nine months of 2022. Adjusted earnings per share for the first nine months of 2023 included an unfavorable LIFO impact of $0.19 per share compared to an unfavorable LIFO impact of $0.30 per share in the first nine months of 2022. See “Non-GAAP Financial Information” for reconciliation of Reported earnings per share to Adjusted earnings per share.

### Non-GAAP Financial Information

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

| Adjusted earnings: | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Reported net income – GAAP basis | $8,978 | $2,221 | $25,975 | $8,768 |
| Plus pension settlement charge | - | 3,759 | - | 5,021 |
| Plus one-time acquisition costs | - | 122 | - | 5,568 |
| Plus amortization of step up in value of acquired inventories | - | - | - | 1,111 |
| Plus amortization of acquired customer backlog | - | 514 | 857 | 685 |
| Non-GAAP adjusted earnings | $8,978 | $6,616 | $26,832 | $21,153 |

| Adjusted earnings per share: | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Reported earnings per share – GAAP basis | $0.34 | $0.09 | $0.99 | $0.34 |
| Plus pension settlement charge | - | 0.14 | - | 0.19 |
| Plus one-time acquisition costs | - | - | - | 0.21 |
| Plus amortization of step up in value of acquired inventories | - | - | - | 0.04 |
| Plus amortization of acquired customer backlog | - | 0.02 | 0.03 | 0.03 |
| Non-GAAP adjusted earnings per share | $0.34 | $0.25 | $1.02 | $0.81 |
| **Adjusted earnings before interest, taxes, depreciation and amortization:** |  |  |  |  |
| Reported net income –GAAP basis | $8,978 | $2,221 | $25,975 | $8,768 |
| Plus interest expense | 10,475 | 7,556 | 31,147 | 9,878 |
| Plus provision for income taxes | 2,006 | 211 | 6,746 | 1,951 |
| Plus depreciation and amortization expense | 7,038 | 6,960 | 21,196 | 14,161 |
| Non-GAAP earnings before interest, taxes, depreciation and amortization | 28,497 | 16,948 | 85,064 | 34,758 |
| Plus pension settlement charge | - | 4,759 | - | 6,355 |
| Plus one-time acquisition costs | - | 154 | - | 7,048 |
| Plus amortization of step up in value of acquired inventories | - | - | - | 1,406 |
| Plus amortization of acquired customer backlog | - | 651 | 1,085 | 868 |
| Plus non-cash LIFO expense | 1,974 | 3,762 | 6,414 | 9,767 |
| Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization | $30,471 | $26,274 | $92,563 | $60,202 |

### Liquidity and Capital Resources

Our primary sources of liquidity are cash generated from operations and borrowings under our Credit Facility. Cash and cash equivalents totaled $18.2 million at September 30, 2023. The Company had an additional $96.3 million available under the revolving credit facility after deducting $2.0 million drawn and $1.7 million in outstanding letters of credit primarily related to customer orders. We believe we have adequate liquidity from funds on hand and borrowing capacity to execute our financial and operating strategy, as well as comply with debt obligation and financial covenants for at least the next 12 months.

As of September 30, 2023, the Company had $420.1 million in total debt outstanding due in 2027. The Company was in compliance with its debt covenants, including limits on additional borrowings and maintenance of certain operating and financial ratios, at September 30, 2023 and December 31, 2022.

Capital expenditures for the first nine months of 2023 were $16.9 million and consisted primarily of machinery and equipment and building improvements. Capital expenditures for the full-year 2023 are presently planned to be approximately $20 million primarily for building improvements and machinery and equipment purchases, and are expected to be financed through internally-generated funds.

On October 26, 2023, the Board of Directors authorized the payment of a quarterly dividend of $0.18 per share on the common stock of the Company, payable December 8, 2023, to shareholders of record as of November 15, 2023. This will mark the 295th consecutive quarterly dividend paid by The Gorman-Rupp Company. The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends. However, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent on our assessment of the Company’s financial condition and business outlook at the applicable time.

The Board of Directors has authorized a share repurchase program of up to $50.0 million of the Company’s common shares. The actual number of shares repurchased will depend on prevailing market conditions, alternative uses of capital and other factors, and will be determined at management’s discretion. The Company is not obligated to make any purchases under the program, and the program may be suspended or discontinued at any time. As of September 30, 2023, the Company had $48.1 million available for repurchase under the share repurchase program.

### Financial Cash Flow

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Beginning of period cash and cash equivalents | $6,783 | $125,194 |
| Net cash provided by operating activities | 71,659 | 12,508 |
| Net cash used for investing activities | (16,309) | (537,242) |
| Net cash provided by (used for) financing activities | (43,404) | 411,087 |
| Effect of exchange rate changes on cash | (540) | (1,259) |
| Net increase (decrease) in cash and cash equivalents | $11,406 | $(114,906) |
| End of period cash and cash equivalents | $18,189 | $10,288 |

The increase in cash provided by operating activities in the first nine months of 2023 compared to the same period last year was primarily due to increased earnings before depreciation, amortization, and LIFO expense, and improved cash flow from working capital management.

During the first nine months of 2023, investing activities of $16.3 million consisted of $16.9 million for capital expenditures primarily for machinery and equipment. During the first nine months of 2022, investing activities of $537.2 million consisted of $526.3 million for the acquisition of Fill-Rite and $11.3 million for capital expenditures primarily for machinery and equipment.

Net cash used for financing activities of $43.4 million for the first nine months of 2023 primarily consisted of net payments on bank borrowings of $28.1 million, dividend payments of $13.7 million, and $1.0 million of payments in the surrender of common shares to cover taxes upon the vesting of stock awards. Net cash received for financing activities for the first nine months of 2022 consisted of proceeds from the new Senior Term Loan Facility of $350.0 million, $90.0 million in unsecured subordinated debt, and $5.0 million from the new revolving credit facility. Partially offsetting these proceeds were debt issuance fees paid of $15.2 million, dividend payments of $13.3 million, payments on bank borrowings of $4.4 million, and share repurchases of $0.9 million during the first nine months of 2022.

### Critical Accounting Policies

Our critical accounting policies are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the notes to our Consolidated Financial Statements for the year ended December 31, 2022 contained in our Annual Report on Form 10-K for the year ended December 31, 2022. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the notes to our Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

### Cautionary Note Regarding Forward-Looking Statements

In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, The Gorman-Rupp Company provides the following cautionary statement: This Form 10-Q contains various forward-looking statements based on assumptions concerning The Gorman-Rupp Company’s operations, future results and prospects. These forward-looking statements are based on current expectations about important economic, political, and technological factors, among others, and are subject to risks and uncertainties, which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.

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

## Market risk

As filed, 3,222 characters.

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

### Interest Rate Risk

The results of operations are exposed to changes in interest rates primarily with respect to borrowings under the Company’s Senior Term Loan Facility, Credit Facility, and Subordinated Credit Facility. Borrowings under the Senior Term Loan Facility and Credit Facility may be made either at (i) a base rate plus the applicable margin, which ranges from 0.75% to 1.75%, or at (ii) an Adjusted Term SOFR Rate, plus the applicable margin, which ranges from 1.75% to 2.75%. Borrowings under the Subordinated Credit Facility bear interest at (i) either a base rate plus 8.0%, or at (ii) an Adjusted Term SOFR Rate plus 9.1%. At September 30, 2023, the Company had $328.1 million in borrowings under the Senior Term Loan Facility, $2.0 million in borrowings under the Credit Facility, and $90.0 million in borrowings under the Subordinated Credit Facility. As of September 30, 2023, the applicable interest rates under the Senior Secured Credit Agreement and the Subordinated Credit Facility were Adjusted Term SOFR plus 2.6% and Adjusted Term SOFR plus 9.1%, respectively.

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

The Company estimates that a hypothetical increase of 100 basis points in interest rates would increase interest expense by approximately $2.6 million on an annual basis.

### Foreign Currency Risk

The Company’s foreign currency exchange rate risk is limited primarily to the Euro, Canadian Dollar, South African Rand and British Pound. The Company manages its foreign exchange risk principally through invoicing customers in the same currency as is used in the market of the source of products. The foreign currency transaction gains (losses) for the nine month periods ending September 30, 2023 and 2022 were ($0.5) million and ($0.2) million, respectively, and are reported within Other (expense) income, net on the Consolidated Statements of Income.

## Controls and procedures

As filed, 2,086 characters.

### Evaluation of Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. The Company’s disclosure controls and procedures are also designed to ensure that information required to be disclosed in Company reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

An evaluation was carried out under the supervision and with the participation of the Company’s management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Based on that evaluation, the principal executive officer and the principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2023.

### Changes in Internal Control Over Financial Reporting

As of September 30, 2023, we are in the process of integrating the internal controls of the acquired Fill-Rite business into Gorman-Rupp’s existing operations as part of planned integration activities. In addition, we have implemented new processes and internal controls to assist us in the preparation and disclosure of financial information. There were no other changes in Gorman-Rupp’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, Gorman-Rupp’s internal control over financial reporting during the quarter ended September 30, 2023.

## Risk factors

As filed, 213 characters.

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

Filed Oct 30, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-029344. Last ingested by Listed: Oct 30, 2026, 07:59 ET. No prices; not investment advice.