ITEM 2.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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(Amounts in tables in thousands of dollars)
Executive Overview
The
following discussion of Results of Operations includes certain non-GAAP financial data, and measures such as adjusted earnings before interest, taxes, depreciation and amortization. The adjusted earnings per share amounts exclude a 2017 non-cash
pension settlement charge. Management utilizes these adjusted financial data and measures to assess comparative operations against those of prior periods without the distortion of non-comparable factors.
9
The Gorman-Rupp Company believes that these non-GAAP financial data and measures will be useful to investors as well as to assess the continuing strength of the Companys underlying
operations. Provided below is a reconciliation of adjusted earnings per share amounts and adjusted earnings before interest, taxes, depreciation and amortization.
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Three Months Ended
June 30,
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Six Months Ended
June 30,
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2017
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2016
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2017
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2016
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Adjusted earnings per share:
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Reported earnings per share GAAP basis
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$
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0.30
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$
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0.25
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$
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0.49
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$
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0.49
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Plus pension settlement charge
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0.05
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0.09
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Non-GAAP adjusted earnings per share
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$
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0.35
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$
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0.25
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$
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0.58
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$
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0.49
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Adjusted earnings before interest, taxes, depreciation
and amortization:
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Reported net income GAAP basis
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$
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7,848
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$
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6,620
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$
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12,913
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$
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12,902
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Plus income taxes
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3,959
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3,012
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6,214
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5,989
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Plus depreciation and amortization
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3,679
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3,905
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7,433
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7,777
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Non-GAAP earnings before interest, taxes, depreciation and amortization
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15,486
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13,537
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26,560
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26,668
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Plus pension settlement charge
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1,713
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3,393
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Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization
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$
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17,199
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$
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13,537
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$
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29,953
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$
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26,668
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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 seeks to develop initiatives to improve performance in these key areas.
Gorman-Rupp actively pursues growth opportunities through organic growth, international business expansion and acquisitions.
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 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 ability to reinvest our cash resources and preserve a strong balance sheet to position us for future acquisition and product development
opportunities. The Company had no bank debt as of June 30, 2017.
Net sales during the second quarter of 2017 were
$97.9 million compared to $96.3 million during the second quarter of 2016, an increase of 1.7% or $1.6 million. Excluding sales from the New Orleans Permanent Canal Closures & Pumps (PCCP) project of $2.5 million in the
second quarter of 2016, net sales increased 4.4% or $4.1 million. Domestic sales, excluding PCCP, increased 3.0% or $1.9 million while international sales increased 7.1% or $2.2 million compared to the same period in 2016.
Gross profit was $26.1 million for the second quarter of 2017, resulting in gross margin of 26.7%, compared to gross profit of
$23.2 million and gross margin of 24.1% for the same period in 2016. Gross margin included a non-cash pension settlement charge of $1.1 million or 120 basis points in the second quarter of 2017 which did not occur in the second quarter of
2016. Excluding the non-cash pension settlement charge, gross margin increased by 380 basis points due principally to favorable sales mix, labor efficiency and lower warranty expense.
Selling, general and administrative expense (SG&A) was $14.7 million for the second quarter of 2017 and 15.0%
of net sales, compared to $13.7 million and 14.2% of net sales for the same period in 2016. SG&A included a non-cash pension settlement charge of $0.6 million or 60 basis points in the second quarter of 2017 which did not occur in the second
quarter of 2016. The remaining increase in SG&A as a percentage of sales was due principally to several smaller immaterial variances.
10
Operating income was $11.5 million, resulting in operating margin of 11.7% for
the second quarter of 2017, compared to operating income of $9.5 million and operating margin of 9.9% for the same period in 2016. Operating margin included a non-cash pension settlement charge of $1.7 million or 180 basis points in the second
quarter of 2017 which did not occur in the second quarter of 2016. Excluding the non-cash pension settlement charge, operating margin increased by the 360 basis points due principally to favorable sales mix, and lower labor and overhead costs.
Net income was $7.8 million during the second quarter of 2017 compared to $6.6 million in the second quarter of 2016 and
earnings per share were $0.30 and $0.25 for the respective periods. Earnings for the second quarter of 2017 included a non-cash pension settlement charge of $0.05 per share.
Net sales for the six months ended June 30, 2017 were $190.5 million compared to $196.5 million during the same period in
2016, a decrease of 3.1% or $6.0 million. Excluding sales from the PCCP project of $0.5 million in the first half of 2017 and $7.9 million for the same period in 2016, net sales for the first half of 2017 increased 0.7% or $1.4 million. Domestic
sales, excluding PCCP, decreased 1.4% or $1.7 million while international sales increased 4.8% or $3.1 million compared to the same period in 2016.
Gross profit was $47.3 million for the first six months of 2017, resulting in gross margin of 24.9%, compared to gross profit
of $46.1 million and gross margin of 23.5% for the same period in 2016. Gross margin included a non-cash pension settlement charge of $2.2 million or 120 basis points in the first half of 2017 which did not occur in the first half of 2016.
Excluding the non-cash pension settlement charge, gross margin increased by 260 basis points due principally to favorable sales mix and labor efficiency. Offsetting the sales mix benefit was a 30 basis point increase in healthcare expenses.
Selling, general and administrative expense (SG&A) was $28.9 million for the first six months of 2017 and
15.2% of net sales, compared to $27.4 million and 13.9% of net sales for the same period in 2016. SG&A included a non-cash pension settlement charge of $1.2 million or 60 basis points in the first half of 2017 which did not occur in the first
half of 2016. The remaining increase in SG&A as a percentage of sales was due principally to loss of leverage due to lower sales volume.
Operating income was $18.5 million, resulting in operating margin of 9.7% for the first six months of 2017, compared to
operating income of $18.8 million and operating margin of 9.5% for the same period in 2016. Operating margin included a non-cash pension settlement charge of $3.4 million or 180 basis points in the first half of 2017 which did not occur in the same
period in 2016. Excluding the non-cash pension settlement charge, operating margin increased by 200 basis points due principally to favorable sales mix and lower labor costs.
Net income was $12.9 million during both the first six months of 2017 and the first six months of 2016 and earnings per share
were $0.49 for both respective periods. Earnings for the first half of 2017 included a non-cash pension settlement charge of $0.09 per share.
The Companys backlog of orders was $103.6 million at June 30, 2017 compared to $107.7 million at June 30, 2016
and $98.8 million at December 31, 2016. Excluding the PCCP project in 2017 and 2016, the backlog at June 30, 2017 was down 1.6% as compared to June 30, 2016.
On July 27, 2017, the Board of Directors authorized the payment of a quarterly dividend of $0.115 per share, representing
the 270th consecutive quarterly dividend to be paid by the Company. The dividend yield at June 30, 2017 was 1.8%.
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.
Outlook
Domestic and
foreign uncertainties, including turmoil related to the production and price of oil and low commodity prices continue to make 2017 challenging. In addition, with the completion of the PCCP project, comparisons of revenue with 2016 will need to be
appropriately adjusted during 2017. We are encouraged by the new federal administrations attention to increased spending for water and wastewater infrastructure, military growth and renewed pipeline projects. Along with the
administrations focus on U.S. manufacturing, these initiatives could have positive impacts for Gorman-Rupp as the majority of our products continue to be manufactured domestically. We are encouraged to see capital spending increase in
industries related to oil and gas and are hopeful the momentum is sustainable. The Company remains focused on operational efficiencies and will continue to manage expenses closely. Our underlying fundamentals remain strong and we remain well
positioned to drive long-term growth. Our strong balance sheet provides us with the flexibility to continue to evaluate acquisition opportunities and new product development that we expect will help add value to our operations over the
longer-term.
11
Three Months Ended June 30, 2017 vs. Three Months Ended June 30, 2016
Net Sales
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Three Months Ended
June 30,
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2017
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2016
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$ Change
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% Change
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Net Sales
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$
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97,872
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$
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96,265
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$
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1,607
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1.7
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%
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Net sales during the second quarter were $97.9 million compared to $96.3 million during the
second quarter of 2016, an increase of 1.7% or $1.6 million. Excluding sales from the PCCP project of $2.5 million in the second quarter of 2016, net sales increased 4.4% or $4.1 million. Domestic sales, excluding PCCP, increased 3.0% or $1.9
million while international sales increased 7.1% or $2.2 million compared to the same period in 2016.
Sales in our larger
water markets, excluding PCCP, increased 5.1% or $3.2 million in the second quarter of 2017 compared to the second quarter of 2016. Sales in the construction market increased $3.5 million due primarily to sales to rental market customers related to
the oil and gas industry. Sales in the municipal market, excluding PCCP, increased a total of $1.1 million primarily driven by increased shipments of large volume wastewater pumps partially offset by lower shipments attributable to other flood
control projects. Sales of repair parts increased $0.3 million. These increases were partially offset by decreased sales of $1.7 million in the fire protection market principally due to market softness in the Middle East.
Sales increased 3.0% or $0.9 million in non-water markets during the second quarter of 2017 compared to the second quarter of
2016. Sales in the industrial and petroleum markets increased a combined $1.3 million principally attributable to an increase in oil and gas drilling activity. These increases were partially offset by decreased sales of $0.4 million in the OEM
market related to power generation equipment and services.
Cost of Products Sold and Gross Profit
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Three Months Ended
June 30,
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2017
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2016
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$ Change
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% Change
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Cost of products sold
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|
$
|
71,727
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|
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$
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73,025
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$
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(1,297
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)
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(1.7
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)%
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% of Net sales
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73.3
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%
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75.9
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%
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Gross Margin
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26.7
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%
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24.1
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%
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Gross profit was $26.1 million for the second quarter of 2017, resulting in gross margin of
26.7%, compared to gross profit of $23.2 million and gross margin of 24.1% for the same period in 2016. Gross margin included a non-cash pension settlement charge of $1.1 million or 120 basis points in the second quarter of 2017 which did
not occur in the second quarter of 2016. Excluding the non-cash pension settlement charge, gross margin increased by 380 basis points due principally to favorable sales mix and labor efficiency. In addition, reduced warranty and depreciation expense
improved gross margin by 70 and 30 basis points, respectively.
Selling, General and Administrative Expenses (SG&A)
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Three Months Ended
June 30,
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2017
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2016
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|
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$ Change
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|
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% Change
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Selling, general and administrative expenses
|
|
$
|
14,651
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|
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$
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13,702
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|
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$
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949
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6.9
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%
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% of Net sales
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15.0
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%
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|
|
14.2
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%
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Selling, general and administrative expense (SG&A) was $14.7 million for the
second quarter of 2017 and 15.0% of net sales, compared to $13.7 million and 14.2% of net sales for the same period in 2016. SG&A included a non-cash pension settlement charge of $0.6 million or 60 basis points in the second quarter of 2017
which did not occur in the second quarter of 2016. The remaining increase of 20 basis points in SG&A as a percentage of sales was due principally to several smaller immaterial variances.
12
Operating Income
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Three Months Ended
June 30,
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|
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2017
|
|
|
2016
|
|
|
$ Change
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|
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% Change
|
|
Operating income
|
|
$
|
11,494
|
|
|
$
|
9,538
|
|
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$
|
1,955
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|
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20.5
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%
|
% of Net sales
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|
|
11.7
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%
|
|
|
9.9
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%
|
|
|
|
|
|
|
|
|
Operating income was $11.5 million, resulting in operating margin of 11.7% for the second
quarter of 2017, compared to operating income of $9.5 million and operating margin of 9.9% for the same period in 2016. Operating margin included a non-cash pension settlement charge of $1.7 million or 180 basis points in the second quarter of 2017
which did not occur in the second quarter of 2016. Excluding the non-cash pension settlement charge, operating margin increased by 360 basis points due principally to favorable sales mix, and lower labor and overhead costs.
Net Income
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Three Months Ended
June 30,
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|
|
|
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|
|
|
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|
2017
|
|
|
2016
|
|
|
$ Change
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|
|
% Change
|
|
Income before income taxes
|
|
$
|
11,807
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|
|
$
|
9,632
|
|
|
$
|
2,175
|
|
|
|
22.6
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%
|
% of Net sales
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|
|
12.1
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%
|
|
|
10.0
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
3,959
|
|
|
$
|
3,012
|
|
|
$
|
947
|
|
|
|
31.4
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%
|
Effective tax rate
|
|
|
33.5
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%
|
|
|
31.3
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7,848
|
|
|
$
|
6,620
|
|
|
$
|
1,228
|
|
|
|
18.5
|
%
|
% of Net sales
|
|
|
8.0
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%
|
|
|
6.9
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%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
$
|
0.30
|
|
|
$
|
0.25
|
|
|
$
|
0.05
|
|
|
|
20.0
|
%
|
The increase in net income in the second quarter of 2017 compared to the second quarter of
2016 was due primarily to increased gross profit partially offset by a non-cash pension settlement charge in the second quarter of 2017 of $1.1 million, net of income taxes. The increase in the effective tax rate between the two periods was due
primarily to the impact of more income in domestic jurisdictions with higher tax rates. Earnings for the second quarter of 2017 included a non-cash pension settlement charge of $0.05 per share.
Six Months Ended June 30, 2017 vs. Six Months Ended June 30, 2016
Net Sales
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
|
|
|
% Change
|
Net Sales
|
|
$
|
190,475
|
|
|
$
|
196,522
|
|
|
$
|
(6,047
|
)
|
|
(3.1)%
|
Net sales for the six months ended June 30, 2017 were $190.5 million compared to $196.5
million during the same period in 2016, a decrease of 3.1% or $6.0 million. Excluding sales from the PCCP project of $0.5 million in the first half of 2017 and $7.9 million for the same period in 2016, net sales for the first half of 2017 increased
0.7% or $1.4 million. Domestic sales, excluding PCCP, decreased 1.4% or $1.7 million while international sales increased 4.8% or $3.1 million compared to the same period in 2016.
Sales in the first half of 2017 in our larger water markets, excluding PCCP, increased 0.5% or $0.7 million. Sales in the
construction market increased $4.6 million due primarily to sales to rental market customers, and sales of repair parts increased $1.4 million. Sales in the fire protection market decreased $3.3 million principally due to market softness
domestically and in the Middle East, and sales in the agriculture market decreased $1.3 million principally due to low farm income and competitive pricing pressure. Sales in the municipal market, excluding PCCP, decreased $0.7 million principally
driven by decreased shipments attributable to other flood control projects.
13
Sales in the first half of 2017 in our non-water markets increased 1.1% or $0.7
million. Sales increased $2.3 million in the industrial market driven by an increase in oil and gas drilling activity and sales in the OEM market increased $0.4 million driven by infrastructure spending relating to gas production. These increases
were partially offset by decreased shipments of $2.0 million in the petroleum market driven by challenging market conditions.
Cost of Products Sold
and Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
|
|
|
% Change
|
|
Cost of products sold
|
|
$
|
143,135
|
|
|
$
|
150,385
|
|
|
$
|
(7,250
|
)
|
|
|
(4.8
|
)%
|
% of Net sales
|
|
|
75.1
|
%
|
|
|
76.5
|
%
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
24.9
|
%
|
|
|
23.5
|
%
|
|
|
|
|
|
|
|
|
Gross profit was $47.3 million for the first half of 2017, resulting in gross margin of 24.9%,
compared to gross profit of $46.1 million and gross margin of 23.5% for the same period in 2016. Gross margin included a non-cash pension settlement charge of $2.2 million or 120 basis points in the first half of 2017 which did not occur in the
first half of 2016. Excluding the non-cash pension settlement charge, gross margin increased by 260 basis points due principally to favorable sales mix and labor efficiency. Offsetting the sales mix benefit was a 30 basis point increase in
healthcare expenses.
Selling, General and Administrative Expenses (SG&A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
|
|
|
% Change
|
|
Selling, general and administrative expenses
|
|
$
|
28,865
|
|
|
$
|
27,371
|
|
|
$
|
1,494
|
|
|
|
5.5
|
%
|
% of Net sales
|
|
|
15.2
|
%
|
|
|
13.9
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense (SG&A) was $28.9 million for the
first half of 2017 and 15.2% of net sales, compared to $27.4 million and 13.9% of net sales for the same period in 2016. SG&A included a non-cash pension settlement charge of $1.2 million or 60 basis points in the first half of 2017 which did
not occur in the first half of 2016. The remaining increase of 70 basis point in SG&A as a percentage of sales was due principally to loss of leverage due to lower sales volume.
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
|
|
|
% Change
|
|
Operating income
|
|
$
|
18,475
|
|
|
$
|
18,766
|
|
|
$
|
(291
|
)
|
|
|
(1.6
|
)%
|
% of Net sales
|
|
|
9.7
|
%
|
|
|
9.5
|
%
|
|
|
|
|
|
|
|
|
Operating income was $18.5 million, resulting in operating margin of 9.7% for the first six
months of 2017, compared to operating income of $18.8 million and operating margin of 9.5% for the same period in 2016. Operating margin included a non-cash pension settlement charge of $3.4 million or 180 basis points in the first half of 2017
which did not occur in the same period in 2016. Excluding the non-cash pension settlement charge, operating margin increased by 200 basis points due principally to favorable sales mix and lower labor costs.
14
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
$ Change
|
|
|
% Change
|
|
Income before income taxes
|
|
$
|
19,127
|
|
|
$
|
18,891
|
|
|
$
|
236
|
|
|
|
1.2
|
%
|
% of Net sales
|
|
|
10.0
|
%
|
|
|
9.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
6,214
|
|
|
$
|
5,989
|
|
|
$
|
225
|
|
|
|
3.8
|
%
|
Effective tax rate
|
|
|
32.5
|
%
|
|
|
31.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,913
|
|
|
$
|
12,902
|
|
|
$
|
11
|
|
|
|
0.1
|
%
|
% of Net sales
|
|
|
6.8
|
%
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
$
|
0.49
|
|
|
$
|
0.49
|
|
|
$
|
0
|
|
|
|
0.0
|
%
|
The increase in net income in the first half of 2017 compared to the first half of 2016 was
due primarily to increased gross profit partially offset by a non-cash pension settlement charge in the first half of 2017 of $2.3 million, net of income taxes. The increase in the effective tax rate between the two periods was due primarily to the
impact of more income in domestic jurisdictions with higher tax rates. Earnings for the first half of 2017 included a non-cash pension settlement charge of $0.09 per share.
Liquidity and Capital Resources
Cash and cash equivalents totaled $67.0 million and there was no outstanding bank debt at June 30, 2017. In addition, the
Company had $22.4 million available in bank lines of credit after deducting $8.6 million in outstanding letters of credit primarily related to customer orders. The Company was in compliance with its debt covenants, including limits on additional
borrowings and maintenance of certain operating and financial ratios, at June 30, 2017 and December 31, 2016.
Working capital increased $13.0 million from December 31, 2016 to $167.5 million at June 30, 2017. The increase in
working capital was due principally to operating results and reduced commissions payable driven by product mix and timing of payments.
Free cash flow, a non-GAAP financial measure for reporting cash flow, is defined by the Company as adjusted earnings before
interest, income taxes and depreciation and amortization, less capital expenditures and dividends. The Company believes free cash flow provides the Company and investors with an important perspective on cash available for investments, acquisitions
and working capital requirements.
The following table reconciles adjusted earnings before interest, income taxes and
depreciation and amortization as reconciled above to free cash flow:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization
|
|
$
|
29,953
|
|
|
$
|
26,668
|
|
Less capital expenditures
|
|
|
(3,345
|
)
|
|
|
(2,547
|
)
|
Less cash dividends
|
|
|
(6,002
|
)
|
|
|
(5,478
|
)
|
|
|
|
|
|
|
|
|
|
Non-GAAP free cash flow
|
|
$
|
20,606
|
|
|
$
|
18,643
|
|
|
|
|
|
|
|
|
|
|
15
Financial Cash Flow
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Beginning of period cash and cash equivalents
|
|
$
|
57,604
|
|
|
$
|
23,724
|
|
Net cash provided by operating activities
|
|
|
23,987
|
|
|
|
33,591
|
|
Net cash used for investing activities
|
|
|
(9,344
|
)
|
|
|
(2,547
|
)
|
Net cash used for financing activities
|
|
|
(6,002
|
)
|
|
|
(5,478
|
)
|
Effect of exchange rate changes on cash
|
|
|
729
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
9,370
|
|
|
|
25,817
|
|
|
|
|
|
|
|
|
|
|
End of period cash and cash equivalents
|
|
$
|
66,974
|
|
|
$
|
49,541
|
|
|
|
|
|
|
|
|
|
|
The primary drivers of operating cash flows during the first six months of 2017 were operating
income, reduced inventories and reduced prepaid income taxes, partially offset by reduced commissions payable due to product mix and timing of payments. During this same period in 2016, operating cash flows were primarily driven by reduced
inventories, lower estimated income tax payments and lower commissions payable driven by product mix partially offset by $6.0 million of contributions to the pension plan.
During the first six months of 2017, investing activities of $9.3 million primarily consisted of $6.0 million of purchases of
short-term investments and $3.3 million of capital expenditures for machinery and equipment. Capital expenditures for the full-year 2017 are presently planned to be in the range of $8 to $10 million and are expected to be financed through
internally-generated funds. During the first six months of 2016, cash used in investing activities primarily consisted of capital expenditures for machinery and equipment and building improvements.
Net cash used for financing activities for the first six months of 2017 and 2016 consisted of dividend payments of $6.0
million and $5.5 million, respectively.
On July 27, 2017, the Board of Directors of the Company declared a
quarterly cash dividend of $0.115 per share on the common stock of the Company, payable September 8, 2017, to shareholders of record August 15, 2017. This will mark the 270th 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 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, 2016 contained in our Annual Report on Form 10-K for the year ended December 31, 2016. 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.
16
Such factors include, but are not limited to: (1) continuation of the
current and projected future business environment; (2) highly competitive markets; (3) availability of raw materials; (4) loss of key management; (5) cyber security threats; (6) acquisition performance and integration;
(7) compliance with, and costs related to, a variety of import and export laws and regulations; (8) environmental compliance costs and liabilities; (9) exposure to fluctuations in foreign currency exchange rates; (10) conditions
in foreign countries in which the Company conducts business; (11) impairment in the value of intangible assets, including goodwill; (12) defined benefit pension plan settlement expense; (13) family ownership of common equity; and
(14) 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.