Equibles

10-Q

GORMAN RUPP CO (GRC)

10-Q 2023-07-31 For: 2023-06-30
View Original
Added on April 08, 2026

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2023

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to ****

Commission File Number

1-6747

The Gorman-Rupp Company

(Exact name of registrant as specified in its charter)

Ohio 34-0253990
(State or other jurisdiction of<br><br> <br>incorporation or organization) (I.R.S. Employer<br><br> <br>Identification No.)
600 South Airport Road, Mansfield, Ohio 44903
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code (419)

755-1011

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Shares, without par value GRC New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    ☒    No    ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes    ☒    No    ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    ☐     No    ☒

On July 31, 2023 there were 26,193,998 common shares, without par value, of The Gorman-Rupp Company outstanding.

The Gorman-Rupp Company

Three and Six Months Ended June 30, 2023 and 2022

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income<br><br> <br>- Three months ended June 30, 2023 and 2022<br><br> <br>- Six months ended June 30, 2023 and 2022 3
Consolidated Statements of Comprehensive Income<br><br> <br>- Three months ended June 30, 2023 and 2022<br><br> <br>- Six months ended June 30, 2023 and 2022 3
Consolidated Balance Sheets<br> - June 30, 2023 and December 31, 2022 4
Consolidated Statements of Cash Flows<br> - Six months ended June 30, 2023 and 2022 5
Consolidated Statements of Equity<br><br> <br>- Six months ended June 30, 2023 and 2022 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
Item 4. Controls and Procedures 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 1A. Risk Factors 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Mine Safety Information 24
Item 5. Other Information 24
Item 6. Exhibits 25
EX-31.1 Section 302 Principal Executive Officer (PEO) Certification
EX-31.2 Section 302 Principal Financial Officer (PFO) Certification
EX-32 Section 1350 Certifications

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PART I. FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS (UNAUDITED)

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands, except per share amounts) 2023 2022 2023 2022
Net sales $ 171,024 $ 119,067 $ 331,490 $ 221,234
Cost of products sold 119,366 90,828 234,309 167,498
Gross profit 51,658 28,239 97,181 53,736
Selling, general and administrative expenses 24,193 24,114 47,430 39,936
Amortization expense 3,182 1,218 6,373 1,435
Operating income 24,283 2,907 43,378 12,365
Interest expense (10,485 ) (2,322 ) (20,672 ) (2,322 )
Other income (expense), net (536 ) (1,846 ) (969 ) (1,756 )
Income (loss) before income taxes 13,262 (1,261 ) 21,737 8,287
Provision (benefit) from income taxes 2,785 (265 ) 4,740 1,740
Net income (loss) $ 10,477 $ (996 ) $ 16,997 $ 6,547
Earnings (loss) per share $ 0.40 $ (0.04 ) $ 0.65 $ 0.25
Cash dividends per share $ 0.175 $ 0.170 $ 0.350 $ 0.340
Average number of shares outstanding 26,178,248 26,079,115 26,154,196 26,085,006

See notes to consolidated financial statements (unaudited).

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Three Months Ended June 30, Six Months Ended June 30,
(Dollars in thousands) 2023 2022 2023 2022
Net income (loss) $ 10,477 $ (996 ) $ 16,997 $ 6,547
Other comprehensive income (loss), net of tax:
Cumulative translation adjustments 23 (2,828 ) 278 (2,864 )
Cash flow hedging activity 2,626 - 1,094 -
Pension and postretirement medical liability adjustments 233 1,663 366 2,086
Other comprehensive income (loss) 2,882 (1,165 ) 1,738 (778 )
Comprehensive income (loss) $ 13,359 $ (2,161 ) $ 18,735 $ 5,769

See notes to consolidated financial statements (unaudited).

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THE GORMAN-RUPP COMPANY

CONSOLIDATED BALANCE SHEETS

(unaudited)
(Dollars in thousands) June 30,<br><br> <br>2023 December 31,<br><br> <br>2022
Assets
Current assets:
Cash and cash equivalents $ 12,173 $ 6,783
Accounts receivable, net 101,875 93,059
Inventories, net 115,816 111,133
Prepaid and other 10,957 14,551
Total current assets 240,821 225,526
Property, plant and equipment, net 136,047 128,640
Other assets 26,133 11,579
Other intangible assets, net 242,989 249,361
Goodwill 257,660 257,724
Total assets $ 903,650 $ 872,830
Liabilities and equity
Current liabilities:
Accounts payable $ 29,161 $ 24,697
Payroll and employee related liabilities 21,281 17,132
Commissions payable 10,352 10,116
Deferred revenue and customer deposits 9,097 6,740
Current portion of long-term debt 17,500 17,500
Accrued expenses 8,796 9,028
Total current liabilities 96,187 85,213
Pension benefits 10,368 9,352
Postretirement benefits 22,092 22,413
Long-term debt, net of current portion 411,405 419,327
Other long-term liabilities 22,239 5,331
Total liabilities 562,291 541,636
Equity:
Common shares, without par value:
Authorized - 35,000,000 shares;
Outstanding - 26,178,248 shares at June 30, 2023 and 26,094,865 shares at December 31, 2022 (after deducting treasury shares of 870,548 and 953,931, respectively), at stated capital amounts 5,115 5,097
Additional paid-in capital 4,165 3,912
Retained earnings 354,815 346,659
Accumulated other comprehensive (loss) (22,736 ) (24,474 )
Total equity 341,359 331,194
Total liabilities and equity $ 903,650 $ 872,830

See notes to consolidated financial statements (unaudited).

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THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended June 30,
(Dollars in thousands) 2023 2022
Cash flows from operating activities:
Net income $ 16,997 $ 6,547
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 14,158 7,201
LIFO expense 4,440 6,004
Pension expense 1,617 3,357
Stock based compensation 1,606 1,413
Amortization of debt issuance fees 1,481 237
Other 30 -
Changes in operating assets and liabilities:
Accounts receivable, net (8,645 ) (11,713 )
Inventories, net (8,959 ) (10,687 )
Accounts payable 4,435 938
Commissions payable 142 392
Deferred revenue and customer deposits 2,365 (1,269 )
Income taxes 2,374 (1,045 )
Accrued expenses and other 2,235 1,273
Benefit obligations 3,580 4,044
Net cash provided by operating activities 37,856 6,692
Cash flows from investing activities:
Capital additions (13,270 ) (8,445 )
Payment for acquisitions - (526,301 )
Other 367 208
Net cash used for investing activities (12,903 ) (534,538 )
Cash flows from financing activities:
Cash dividends (9,148 ) (8,869 )
Treasury share repurchases (1,029 ) (918 )
Proceeds from bank borrowings 5,000 445,000
Payments to banks for borrowings (13,750 ) -
Debt issuance fees - (15,165 )
Other (534 ) (65 )
Net cash provided by (used for) financing activities (19,461 ) 419,983
Effect of exchange rate changes on cash (102 ) (503 )
Net increase (decrease) in cash and cash equivalents 5,390 (108,366 )
Cash and cash equivalents:
Beginning of period 6,783 125,194
End of period $ 12,173 $ 16,828

See notes to consolidated financial statements (unaudited).

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THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)
(Dollars in thousands, except Additional<br><br> <br>Paid-In Retained Accumulated<br><br> <br>Other<br><br> <br>Comprehensive
share and per share amounts) Dollars Capital Earnings (Loss) Income Total
Balances December 31, 2022 26,094,865 $ 5,097 $ 3,912 $ 346,659 $ (24,474 ) $ 331,194
Net income 6,520 6,520
Other comprehensive loss (1,144 ) (1,144 )
Stock based compensation, net 119,488 26 1 438 465
Treasury share repurchases (36,105 ) (8 ) (889 ) (131 ) (1,028 )
Cash dividends - 0.175 per share (4,567 ) (4,567 )
Balances March 31, 2023 26,178,248 $ 5,115 $ 3,024 $ 348,919 $ (25,618 ) $ 331,440
Net income 10,477 10,477
Other comprehensive income 2,882 2,882
Stock based compensation, net 1,141 1,141
Treasury share repurchases -
Cash dividends - 0.175 per share (4,581 ) (4,581 )
Balances June 30, 2023 26,178,248 $ 5,115 $ 4,165 $ 354,815 $ (22,736 ) $ 341,359

All values are in US Dollars.
(Dollars in thousands, except Additional<br><br> <br>Paid-In Retained Accumulated<br><br> <br>Other<br><br> <br>Comprehensive
share and per share amounts) Dollars Capital Earnings (Loss) Income Total
Balances December 31, 2021 26,103,661 $ 5,099 $ 1,838 $ 353,369 $ (30,330 ) $ 329,976
Net income 7,543 7,543
Other comprehensive income 387 387
Stock based compensation, net 682 682
Treasury share repurchases (24,546 ) (5 ) (822 ) (91 ) (918 )
Cash dividends - 0.17 per share (4,436 ) (4,436 )
Balances March 31, 2022 26,079,115 $ 5,094 $ 1,698 $ 356,385 $ (29,943 ) $ 333,234
Net income (loss) (996 ) (996 )
Other comprehensive loss (1,165 ) (1,165 )
Stock based compensation, net 730 730
Treasury share repurchases 0
Cash dividends - 0.17 per share (4,433 ) (4,433 )
Balances June 30, 2022 26,079,115 $ 5,094 $ 2,428 $ 350,956 $ (31,108 ) $ 327,370

All values are in US Dollars.

See notes to consolidated financial statements (unaudited).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ****

(Amounts in tables in thousands of dollars, except for per share amounts)

NOTE 1 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

The accompanying unaudited 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. Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results. In the opinion of management of the Company, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of results that may be expected for the year ending December 31, 2023. For further information, refer to the Consolidated Financial Statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, from which related information herein has been derived.

NOTE 2 - ACQUISITIONS

On May 31, 2022, the Company acquired the assets of Fill-Rite and Sotera (“Fill-Rite”), a division of Tuthill Corporation, for cash consideration of $528.0 million. The transaction was funded with new debt consisting of $350.0 million from a senior secured term loan, $90.0 million from a subordinated unsecured loan, $5.0 million from the new revolving Credit Facility, and $83.0 million of cash on hand. Refer to “Note 10 – Financing Arrangements” for further details related to the financing completed as part of the transaction.

The Company accounted for the Fill-Rite transaction in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805 “Business Combinations”. The results of operations for Fill-Rite are included in the accompanying Consolidated Statements of Income from the acquisition date. Fill-Rite had $13.5 million in net sales and $0.2 million in operating income that was included in the Company’s consolidated financial statements for the three and six months ended June 30, 2022. Operating income included $1.4 million of inventory step up amortization and $0.2 million of acquired customer backlog amortization in addition to the $1.0 million in amortization on customer relationships and developed technology.

Under the acquisition method of accounting, the assets and liabilities have been recorded at their respective estimated fair values as of the date of completion of the acquisition and reported into the Company’s Consolidated Balance Sheets. The following table presents the fair value of assets acquired and liabilities assumed. No adjustments to the preliminary purchase price allocation were made during the second quarter of 2023 and the purchase price allocation is now final:

Account receivable $ 21,273
Inventory 12,214
Customer backlog (amortized over 1 year) 2,600
Other current assets 914
Property, plant, and equipment 24,505
Customer relationships (amortized over 20 years) 200,900
Technology (amortized over 20 years) 39,800
Tradenames (unamortized) 10,700
Goodwill 230,688
Total assets acquired $ 543,594
Current liabilities assumed (15,601 )
Allocated purchase price $ 527,993

For tax purposes, the Fill-Rite acquisition was treated as an asset purchase. As such, the Company received a step-up in tax basis of the net Fill-Rite assets, equal to the purchase price, including goodwill which is deductible for tax purposes.

The transaction costs related to the acquisition approximated $6.9 million for the three and six months ended June 30, 2022. These costs were expensed as incurred and recorded within selling, general, and administrative expenses.

The following is supplemental pro-forma net sales, operating income, net income, and earnings per share had the Fill-Rite Acquisition occurred as of January 1, 2021 (in millions):

Six Months Ended<br><br> <br>June 30, 2022
Net sales $ 286.3
Operating income $ 27.7
Net income $ 9.5
Earnings per share $ 0.36

The supplemental pro forma information presented above is being provided for information purposes only and may not necessarily reflect the future results of operations of the Company or what the results of operations would have been had the Company owned and operated Fill-Rite since January 1, 2021.

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NOTE 3 – REVENUE

Disaggregation of Revenue

The following tables disaggregate total net sales by end market and geographic location:

End market
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Industrial $ 22,786 $ 18,664 $ 43,731 $ 36,518
Fire 36,935 27,904 73,074 56,326
Agriculture 5,027 5,195 9,776 10,207
Construction 11,921 10,073 22,949 19,238
Municipal 19,549 16,950 36,973 31,257
Petroleum 3,719 2,631 7,739 6,173
OEM 9,480 9,300 18,490 18,031
Repair parts 18,722 14,809 35,912 29,943
Total net sales excluding Fill-Rite 128,139 105,526 248,644 207,693
Fill-Rite 42,885 13,541 82,846 13,541
Total net sales $ 171,024 $ 119,067 $ 331,490 $ 221,234
Geographic Location
--- --- --- --- --- --- --- --- ---
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
United States $ 128,289 $ 85,375 $ 248,039 $ 157,766
Foreign countries 42,735 33,692 83,451 63,468
Total net sales $ 171,024 $ 119,067 $ 331,490 $ 221,234

International sales represented approximately 25% and 28% of total net sales for the second quarter of 2023 and 2022, respectively, and were made to customers in many different countries around the world.

On June 30, 2023, the Company had $249.8 million of remaining performance obligations, also referred to as backlog. The Company expects to recognize as revenue substantially all of its remaining performance obligations within one year.

The Company’s contract assets and liabilities as of June 30, 2023 and December 31, 2022 were as follows:

June 30, 2023 December 31, 2022
Contract assets $ - $ -
Contract liabilities $ 9,097 $ 6,740

Revenue recognized for the six months ended June 30, 2023 and 2022 that was included in the contract liabilities balance at the beginning of the period was $3.7 million and $8.2 million, respectively.

NOTE 4 - INVENTORIES

LIFO inventories are stated at the lower of cost or market and all other inventories are stated at the lower of cost or net realizable value. Replacement cost approximates current cost and the excess over LIFO cost is approximately $92.6 million and $88.2 million at June 30, 2023 and December 31, 2022, respectively. Allowances for excess and obsolete inventory totaled $7.2 million at June 30, 2023 and December 31, 2022, respectively. 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 management’s estimate of expected year-end inventory levels and costs, and are subject to the final year-end LIFO inventory valuation.

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Inventories are comprised of the following:

June 30, 2023 December 31, 2022
Inventories, net:
Raw materials and in-process $ 40,752 $ 40,448
Finished parts 61,536 57,224
Finished products 13,528 13,461
Total net inventories $ 115,816 $ 111,133

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consist of the following:

June 30, 2023 December 31, 2022
Land $ 6,210 $ 6,215
Buildings 120,149 119,197
Machinery and equipment 224,510 212,581
$ 350,869 $ 337,993
Less accumulated depreciation (214,822 ) (209,353 )
Property, plant and equipment, net $ 136,047 $ 128,640

NOTE 6 - 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 Company’s product warranties liability are:

June 30,
2023 2022
Balance of beginning of year $ 1,973 $ 1,637
Provision 2,130 593
Acquired - 645
Claims (1,741 ) (665 )
Balance at end of period $ 2,362 $ 2,210

NOTE 7 - PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company sponsors a defined benefit pension plan (“GR Plan”) covering certain domestic employees. Benefits are based on each covered employee’s years of service and compensation. The GR Plan is funded in conformity with the funding requirements of applicable U.S. regulations. The GR Plan was closed to new participants effective January 1, 2008. Employees hired after this date, in eligible locations, participate in an enhanced 401(k) plan instead of the defined benefit pension plan. Employees hired prior to this date continue to accrue benefits.

The Company established a defined benefit pension plan for certain Fill-Rite employees (“Fill-Rite Plan”) upon the acquisition as of June 1, 2022. The activity is included in the tables within this footnote.

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.

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The Company also sponsors a non-contributory defined benefit postretirement health care plan that provides health benefits to certain domestic and Canadian retirees and eligible spouses and dependent children. The Company funds the cost of these benefits as incurred.

The following tables present the components of net periodic benefit costs:

Pension Benefits Postretirement Benefits
Three Months Ended June 30, Three Months Ended June 30,
2023 2022 2023 2022
Service cost $ 530 $ 482 $ 209 $ 287
Interest cost 635 711 299 190
Expected return on plan assets (657 ) (692 ) - -
Amortization of prior service cost - - (249 ) (283 )
Recognized actuarial loss 301 481 (9 ) 92
Settlement loss - 1,597 - -
Net periodic benefit cost (a) $ 809 $ 2,579 $ 250 $ 286
Pension Benefits Postretirement Benefits
--- --- --- --- --- --- --- --- --- --- --- --- ---
Six Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Service cost $ 1,060 $ 1,146 $ 417 $ 573
Interest cost 1,270 1,165 598 380
Expected return on plan assets (1,314 ) (1,504 ) - -
Amortization of prior service cost - - (497 ) (565 )
Recognized actuarial loss 601 935 (18 ) 184
Settlement loss - 1,597 - -
Net periodic benefit cost (a) $ 1,617 $ 3,339 $ 500 $ 572
(a) The components of net periodic cost other than the service cost component are included in Other income (expense), net in the Consolidated Statements of Income.
--- ---

During the three and six months ended June 30, 2022, the Company recorded a settlement loss relating to retirees that received lump-sum distributions from the Company’s defined benefit pension plan totaling $1.6 million. There were no settlement losses recorded for the three or six month periods ended June 30, 2023. These changes were the result of lump-sum payments to retirees exceeding the Plan’s actuarial service and interest cost.

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NOTE 8 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of Accumulated other comprehensive income (loss) as reported in the Consolidated Balance Sheets are:

Currency<br><br> <br>Translation<br><br> <br>Adjustments Deferred Gain<br><br> <br>(Loss) on Cash<br><br> <br>Flow Hedging Pension and<br><br> <br>OPEB<br><br> <br>Adjustments Accumulated<br><br> <br>Other<br><br> <br>Comprehensive<br><br> <br>(Loss) Income
Balance at December 31, 2022 $ (10,619 ) $ (617 ) $ (13,238 ) $ (24,474 )
Reclassification adjustments - (588 ) 583 (5 )
Current period benefit (charge) 278 2,023 (72 ) 2,229
Income tax benefit (charge) - (341 ) (145 ) (486 )
Balance at June 30, 2023 $ (10,341 ) $ 477 $ (12,872 ) $ (22,736 )
Currency<br><br> <br>Translation<br><br> <br>Adjustments Deferred Gain<br><br> <br>(Loss) on Cash<br><br> <br>Flow Hedging Pension and<br><br> <br>OPEB<br><br> <br>Adjustments Accumulated<br><br> <br>Other<br><br> <br>Comprehensive<br><br> <br>(Loss) Income
--- --- --- --- --- --- --- --- --- --- --- ---
Balance at December 31, 2021 $ (7,851 ) $ - $ (22,479 ) $ (30,330 )
Reclassification adjustments - - 2,716 2,716
Current period benefit (charge) (2,864 ) - - (2,864 )
Income tax benefit (charge) - - (630 ) (630 )
Balance at June 30, 2022 $ (10,715 ) $ - $ (20,393 ) $ (31,108 )

NOTE 9 – COMMON SHARE REPURCHASES

The Company has a share repurchase program with the authorization to purchase up to $50.0 million of the Company’s common shares. As of June 30, 2023, the Company had $48.1 million available for repurchase under the share repurchase program. During the six-month period ending June 30, 2023, the Company repurchased 36,105 shares at an average cost per share of $28.51 for a total of $1.0 million in the surrender of common shares to cover taxes in connection with the vesting of stock awards, which were not part of the share repurchase program. During the six-month period ending June 30, 2022, the Company repurchased 24,546 shares at an average cost per share of $37.39 for a total of $0.9 million. No shares were repurchased during the three month periods ending June 30, 2023 and 2022.

NOTE 10 – FINANCING ARRANGEMENTS

Debt consisted of:
Senior Secured Credit Agreement June 30, 2023 December 31, 2022
Senior term loan facility $ 332,500 $ 341,250
Credit facility 17,000 17,000
Subordinated Credit Agreement **** **** **** **** **** ****
Subordinated credit facility 90,000 90,000
Total debt 439,500 448,250
Unamortized discount and debt issuance fees (10,595 ) (11,423 )
Total debt, net 428,905 436,827
Less: current portion of long-term debt (17,500 ) (17,500 )
Total long-term debt, net $ 411,405 $ 419,327

The carrying value of long term debt, including the current portion, approximates fair value as the variable interest rates approximate rates available to other market participants with comparable credit risk.

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Senior Secured Credit Agreement

On May 31, 2022, the Company entered into a Senior Secured Credit Agreement with several lenders, which provides a term loan of $350.0 million (“Senior Term Loan Facility”) and a revolving credit facility up to $100.0 million (“Credit Facility”). The Credit Facility has a letter of credit sublimit of up to $15.0 million, as a sublimit of the Credit Facility, and a swing line subfacility of up to $20.0 million, as a sublimit of the Credit Facility. The Company borrowed $5.0 million under the Credit Facility, which, along with the Senior Term Loan Facility, and cash-on-hand and the proceeds of the Subordinated Credit Facility described below, was used to purchase the assets of Fill-Rite as described in “Note 2 – Acquisitions”. The Company has agreed to secure all of its obligations under the Senior Secured Credit Agreement by granting a first priority lien on substantially all of its personal property, and each of Patterson Pump Company, AMT Pump Company, National Pump Company and Fill-Rite Company (collectively, the “Guarantors”) has agreed to guarantee the obligations of the Company under the Senior Secured Credit Agreement and to secure the obligations thereunder by granting a first priority lien in substantially all of such Guarantor’s personal property.

The Senior Secured Credit Agreement has a maturity date of May 31, 2027, with the Senior Term Loan Facility requiring quarterly installment payments commencing on September 30, 2022 and continuing on the last day of each consecutive December, March, June and September thereafter.

At the option of the Company, borrowings under the Senior Term Loan Facility and under the Credit Facility bear interest at either a base rate or at an Adjusted Term SOFR Rate, plus the applicable margin, which ranges from 0.75% to 1.75% for base rate loans and 1.75% to 2.75% for Adjusted Term SOFR Rate loans. The applicable margin is based on the Company’s senior leverage ratio. As of June 30, 2023, the applicable interest rate under the Senior Secured Credit Agreement was Adjusted Term SOFR plus 2.5%.

The Senior Secured Credit Agreement includes covenants requiring the Company to maintain certain maximum leverage ratios and a minimum fixed charge coverage ratio. On June 30, 2023, the Senior Secured Credit Agreement was amended to provide the Company with more flexibility by adjusting the minimum fixed charge coverage ratio to not less than 1.00 to 1.00 for each four consecutive fiscal quarter periods ending June 30, 2023 through and including June 30, 2024 and not less than 1.10 to 1.00 for each four consecutive fiscal quarter periods ending September 30, 2024 through and including December 31, 2024. We were in compliance with all of our debt covenants as of June 30, 2023, including those covenants as they were in effect prior to the amendment of the Senior Secured Credit Agreement.

Subordinated Credit Agreement

On May 31, 2022, the Company entered into an unsecured subordinated credit agreement (“Subordinated Credit Agreement”) which provides for a term loan of $90.0 million (the “Subordinated Credit Facility”). Each of the Guarantors has agreed to guarantee the obligations of the Company under the Subordinated Credit Agreement. The proceeds from the Subordinated Credit Facility, along with cash-on-hand and the proceeds of the Senior Term Loan Facility described above, were used to purchase the assets of Fill-Rite as described in “Note 2 – Acquisitions”.

The Subordinated Credit Agreement has a maturity date of December 1, 2027. If the Subordinated Credit Facility is prepaid prior to the second anniversary, such prepayment must be accompanied by a make-whole premium. If the Subordinated Credit Facility is prepaid after the second anniversary but prior to the third anniversary, such prepayment requires a prepayment fee of 2%, and if the Subordinated Credit Facility is prepaid after the third anniversary but prior to the fourth anniversary, such prepayment requires a prepayment fee of 1%.

At the option of the Company, borrowings under the Subordinated Credit Facility bear interest at either a base rate plus 8.0%, or at an Adjusted Term SOFR Rate plus 9.0%. As of June 30, 2023 borrowings under the Subordinated Credit Facility bear interest at an Adjusted Term SOFR Rate plus 9.1%.

The Subordinated Credit Agreement includes covenants subject to maximum leverage ratios. We were in compliance with all of our debt covenants as of June 30, 2023.

Interest Rate Derivatives

The Company entered into interest rate swaps that hedge interest payments on its SOFR borrowing during the fourth quarter of 2022. All swaps have been designated as cash flow hedges. The following table summarizes the notional amounts, related rates and remaining terms of interest swap agreements as of June 30, 2023 and December 31, 2022:

Notional Amount Average Fixed Rate
June 30,<br><br> <br>2023 December 31,<br><br> <br>2022 June 30,<br><br> <br>2023 December 31,<br><br> <br>2022 Term
Interest rate swaps $ 166,250 $ 170,600 4.1 % 4.1 % Extending to May 2027

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The fair value of the Company’s interest rate swaps was a receivable of $0.6 million as of June 30, 2023 and a payable of $0.8 million as of December 31, 2022. The fair value was based on inputs other than quoted prices in active markets for identical assets that are observable either directly or indirectly and therefore considered level 2. The mark-to-market effect of interest rate swap agreements that are considered effective as hedges has been included in Accumulated Other Comprehensive Loss. The interest rate swap agreements held by the Company on June 30, 2023 are expected to continue to be effective hedges.

The following table summarizes the fair value of derivative instruments as recorded in the Consolidated Balance Sheets:

June 30, 2023 December 31, 2022
Current Assets:
Prepaid and Other $ 1,879 $ 1,203
Long-term liabilities:
Other long-term liabilities (1,253 ) (2,012 )
Total derivatives $ 626 $ (809 )

The following table summarizes total gains (losses) recognized on derivatives:

Derivatives in Cash<br><br> <br>Flow Hedging<br><br> <br>Relationships Location of (Loss) Gain<br><br> <br>Recognized in Income on<br><br> <br>Derivatives Amount of (Loss) Gain Recognized in Income on Derivatives
Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Interest rate swaps Interest Expense $ 397 $ - $ 588 $ -

The effects of derivative instruments on the Company’s Consolidated Statements of Results of Operations and Comprehensive Income (Loss) for OCI are as follows:

Derivatives in Cash<br><br> <br>Flow Hedging<br><br> <br>Relationships Amount of (Loss) Gain<br><br> <br>Recognized in AOCI on<br><br> <br>Derivatives Location of (Loss) Gain<br><br> <br>Reclassed from AOCI into<br><br> <br>Income (Effective Portion) Amount of (Loss) Gain<br><br> <br>Reclassed from AOCI into<br><br> <br>Income (Effective Portion)
Three Months Ended June 30, Three Months Ended June 30,
2023 2022 2023 2022
Interest rate swaps $ 3,842 $ - Interest expense $ (397 ) $ -
Derivatives in Cash<br><br> <br>Flow Hedging<br><br> <br>Relationships Amount of (Loss) Gain<br><br> <br>Recognized in AOCI on<br><br> <br>Derivatives Location of (Loss) Gain<br><br> <br>Reclassed from AOCI into<br><br> <br>Income (Effective Portion) Amount of (Loss) Gain<br><br> <br>Reclassed from AOCI into<br><br> <br>Income (Effective Portion)
--- --- --- --- --- --- --- --- --- --- ---
Six Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Interest rate swaps $ 2,023 $ - Interest expense $ (588 ) $ -

NOTE 11 – LEASES

On June 1, 2023, the Company commenced a lease for a new manufacturing facility in Lenexa Kansas with an initial lease term through August 31, 2043. The Company will vacate its current leased Lenexa manufacturing facility on August 31, 2023, with no additional lease liability after that date. The new lease is considered an operating lease and is subject to annual rent escalations based on the greater of a set minimum percentage or the Consumer Price Index. As result of this lease, the Company recorded a right-of-use (ROU) asset which is included in Other Assets, and a long-term lease liability, which is included in Other Long-Term Liabilities, each of approximately $17.5 million as of June 30, 2023. The impact on the Consolidated Statements of Income for the three and six month periods ended June 30, 2023 was not material.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(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 $249.8 million at June 30, 2023 compared to $264.7 million at June 30, 2022 and $267.4 million at December 31, 2022. Incoming orders for the first six months of 2023 were $321.0 million, or an increase of 12.0% compared to the same period in 2022, and a decrease of 13.8% excluding Fill-Rite.

On July 27, 2023, the Board of Directors authorized the payment of a quarterly dividend of $0.175 per share on the common stock of the Company, payable September 8, 2023, to shareholders of record as of August 15, 2023. This will mark the 294th 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 level at the end of the first quarter of 2023 but remains elevated, which positions us well for the remainder of the year.  We believe that our inventory levels have peaked and that we will see a reduction in the second-half, which will further contribute to our improvements in cash flow. We remain focused on delivering long term sustained growth and continuing to improve our debt leverage.

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Three Months Ended June 30, 2023 vs. Three Months Ended June 30, 2022

Net Sales

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

Three Months Ended June 30, **** **** **** ****
2023 2022 Change % Change
Industrial $ 22,786 $ 18,664 22.1 %
Fire 36,935 27,904 32.4 %
Agriculture 5,027 5,195 ) (3.2 )%
Construction 11,921 10,073 18.3 %
Municipal 19,549 16,950 15.3 %
Petroleum 3,719 2,631 41.4 %
OEM 9,480 9,300 1.9 %
Repair parts 18,722 14,809 26.4 %
Total net sales excluding Fill-Rite 128,139 105,526 21.4 %
Fill-Rite 42,885 13,541 216.7 %
Total net sales $ 171,024 $ 119,067 43.6 %

All values are in US Dollars.

Net sales for the second quarter of 2023 were $171.0 million compared to net sales of $119.1 million for the second quarter of 2022, an increase of 43.6% or $52.0 million. Domestic sales increased 50.3% or $42.9 million and international sales increased 26.8% or $9.0 million compared to the same period in 2022.

Fill-Rite sales were $42.9 million for the second quarter of 2023 compared to $13.5 million from the acquisition date of May 31, 2022 to June 30, 2022.  In addition to the increase at Fill-Rite, sales increased $22.6 million, or 21.4%, due to an increase in volume as well as the impact of two 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%.  Sales increased $9.0 million in the fire suppression market primarily from increased domestic commercial construction, $4.1 million in the industrial market and $3.9 million in the repair market due to strengthening in the broader industrial economy, $2.6 million in the municipal market due to domestic flood control and wastewater projects related to increased infrastructure investment, $1.9 million in the construction market due to strong overall conditions including infrastructure related projects, $1.1 million in the petroleum market due to increased demand for larger petroleum transfer pumps, and $0.2 million in the OEM market.  Partially offsetting these increases was a sales decrease of $0.2 million in the agriculture market primarily driven by weather conditions, where increased snowfall runoff and rain have slowed demand.

Cost of Products Sold and Gross Profit

Three Months Ended June 30, **** **** ****
2023 2022 Change % Change
Cost of products sold $ 119,366 $ 90,828 31.4 %
% of Net sales 69.8 % 76.3 %
Gross Margin 30.2 % 23.7 %

All values are in US Dollars.

Gross profit was $51.7 million for the second quarter of 2023, resulting in gross margin of 30.2%, compared to gross profit of $28.2 million and gross margin of 23.7% for the same period in 2022.  The 650 basis point increase in gross margin included a 200 basis point improvement on labor and overhead leverage due to increased sales volume and sales mix which includes a full quarter of Fill-Rite.  The increase in gross margin also included a 450 basis point improvement in cost of material, which consisted of a reduction in LIFO expense of 210 basis points, a 120 basis point improvement from the realization of selling price increases, and a favorable impact of 120 basis points related to the Fill-Rite inventory step-up that was recorded during the second quarter of 2022 that did not recur in 2023.

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Selling, General and Administrative (SG&A) Expenses

Three Months Ended June 30, **** **** ****
2023 2022 Change % Change
Selling, general and administrative expenses $ 24,193 $ 24,114 0.3 %
% of Net sales 14.1 % 20.3 %

All values are in US Dollars.

Selling, general and administrative (“SG&A”) expenses were $24.2 million and 14.1% of net sales for the second quarter of 2023 compared to $24.1 million and 20.3% of net sales for the same period in 2022.  SG&A expenses for the second quarter of 2022 included $6.9 million of one-time acquisition costs.  Excluding acquisition costs, SG&A expenses were $17.2 million and 14.5 % of net sales for the second quarter of 2022.  The increase in SG&A expenses, excluding acquisition costs, was due to the inclusion of a full quarter of Fill-Rite as compared to one month 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

Three Months Ended June 30, **** **** ****
2023 2022 Change % Change
Amortization expense $ 3,182 $ 1,218 161.2 %
% of Net sales 1.9 % 1.0 %

All values are in US Dollars.

Amortization expense was $3.2 million for the second quarter of 2023 compared to $1.2 million for the same period in 2022. The increase in amortization expense was due to a full quarter of amortization attributable to the Fill-Rite acquisition compared to one month for the same period in 2022.

Operating Income

Three Months Ended June 30, **** **** ****
2023 2022 Change % Change
Operating Income $ 24,283 $ 2,907 735.3 %
% of Net sales 14.2 % 2.4 %

All values are in US Dollars.

Operating income was $24.3 million for the second quarter of 2023, resulting in an operating margin of 14.2%, compared to operating income of $2.9 million and operating margin of 2.4% for the same period in 2022.  Operating income for the second quarter of 2022 included $6.9 million of one-time acquisition costs and $1.4 million of inventory step-up amortization.  Excluding acquisition costs and inventory step-up totaling together $8.3 million, operating income was $11.2 million for the second quarter 2022 resulting in an operating margin of 9.4% of net sales.  Excluding acquisition costs and inventory step-up in the second quarter of 2022 totaling $8.3 million, operating margin in the second quarter of 2023 increased 480 basis points compared to the same period in 2022 due to improved leverage on labor, overhead, and SG&A expenses due to increased sales volumes and improved cost of material partially offset by increased amortization expense.

Interest Expense

Three Months Ended June 30, **** **** **** ****
2023 2022 Change % Change
Interest Expense $ (10,485 ) $ (2,322 ) ) 351.6 %
% of Net sales (6.1 )% (2.0 )%

All values are in US Dollars.

Interest expense was $10.5 million for the second quarter of 2023 compared to $2.3 million for the same period in 2022. The increase in interest expense was due to the inclusion of a full quarter of interest expense and increased interest rates on the debt financing attributable to the Fill-Rite acquisition.

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Net Income (loss)

Three Months Ended June 30, **** **** ****
2023 2022 Change % Change
Income (loss) before income taxes $ 13,262 $ (1,261 ) 1151.7 %
% of Net sales 7.8 % (1.1 %)
Income taxes $ 2,785 $ (265 ) 1150.9 %
Effective tax rate 21.0 % 21.0 %
Net income (loss) $ 10,477 $ (996 ) 1151.9 %
% of Net sales 6.1 % (0.8 %)
Earnings per share $ 0.40 $ (0.04 ) 1100.0 %

All values are in US Dollars.

The Company’s effective tax rate was 21.0% for both the second quarter of 2023 and 2022.

Net income was $10.5 million, or $0.40 per share, for the second quarter of 2023 compared to net loss of ($1.0) million, or ($0.04) per share, in the second quarter of 2022. Adjusted earnings per share for the second quarter of 2023 were $0.41 per share compared to $0.27 per share for the second quarter of 2022. Adjusted earnings per share for the second quarter of 2023 included an unfavorable LIFO impact of $0.07 per share compared to an unfavorable LIFO impact of $0.13 per share in the second quarter of 2022. Adjusted earnings per share is a non-GAAP financial measure; see “Non-GAAP Financial Information” below for a definition of the measure and the reconciliation to its comparable GAAP financial measure.

Six Months Ended June 30, 2023 vs. Six Months Ended June 30, 2022

Net Sales

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

Six Months Ended June 30, **** **** **** ****
2023 2022 Change % Change
Industrial $ 43,731 $ 36,518 19.8 %
Fire 73,074 56,326 29.7 %
Agriculture 9,776 10,207 ) (4.2 )%
Construction 22,949 19,238 19.3 %
Municipal 36,973 31,257 18.3 %
Petroleum 7,739 6,173 25.4 %
OEM 18,490 18,031 2.5 %
Repair parts 35,912 29,943 19.9 %
Total net sales excluding Fill-Rite 248,644 207,693 19.7 %
Fill-Rite 82,846 13,541 511.8 %
Total net sales $ 331,490 $ 221,234 49.8 %

All values are in US Dollars.

Net sales for the first six months of 2023 were $331.5 million compared to net sales of $221.2 million for the first six months of 2022, an increase of 49.8% or $110.3 million. Domestic sales increased 57.2% or $90.3 million and international sales increased 31.5% or $20.0 million compared to the same period in 2022.

Fill-Rite sales were $82.8 million for the first six months of 2023 compared to $13.5 million from the acquisition date of May 31, 2022 to June 30, 2022.  In addition to the increase from Fill-Rite, sales increased $41.0 million, or 19.7%, due to an increase in volume as well as the impact of two 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%.  Sales increased $16.7 million in the fire market primarily from increased domestic commercial construction, $7.2 million in the industrial market and $6.0 million in the repair market due to strengthening in the broader industrial economy, $5.7 million in the municipal market due to domestic flood control and wastewater projects related to increased infrastructure investment, $3.7 million in the construction market due to strong overall conditions including infrastructure related projects, $1.6 million in the petroleum market due to increased demand for larger petroleum transfer pumps, and $0.5 million in the OEM market.  Partially offsetting these increases was a decrease of $0.4 million in the agriculture market primarily driven by weather conditions, where increased snowfall runoff and rain have slowed demand.

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Cost of Products Sold and Gross Profit

Six Months Ended June 30, **** **** ****
2023 2022 Change % Change
Cost of products sold $ 234,309 $ 167,498 39.9 %
% of Net sales 70.7 % 75.7 %
Gross Margin 29.3 % 24.3 %

All values are in US Dollars.

Gross profit was $97.2 million for the first six months of 2023, resulting in gross margin of 29.3%, compared to gross profit of $53.7 million and gross margin of 24.3% for the same period in 2022.  The 500 basis point increase in gross margin included a 225 basis point improvement on labor and overhead leverage due to increased sales volume and sales mix which includes six months of Fill-Rite for 2023 compared to one month for the same period in 2022.  The increase in gross margin also included a 275 basis point improvement in cost of material, which consisted of a favorable LIFO impact of 140 basis points, a favorable impact of 60 basis points related to the Fill-Rite inventory step-up that was recorded in 2022 that did not recur in 2023 and a 75 basis point improvement in cost of material from the realization of selling price increases.

Selling, General and Administrative (SG&A) Expenses

Six Months Ended June 30, **** **** ****
2023 2022 Change % Change
Selling, general and administrative expenses $ 47,430 $ 39,936 18.8 %
% of Net sales 14.3 % 18.1 %

All values are in US Dollars.

Selling, general and administrative (“SG&A”) expenses were $47.4 million and 14.3% of net sales for the first six months of 2023 compared to $39.9 million and 18.1% of net sales for the same period in 2022. SG&A expenses for the first six months of 2022 included $6.9 million of one-time acquisition costs.  Excluding acquisition costs of $6.9 million, SG&A expenses were $33.0 million, and 14.9% of net sales for the first six months of 2022. The increase in SG&A expenses, excluding acquisition costs, was due to the inclusion of Fill-Rite for the full six month period in 2022 as compared to one month 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

Six Months Ended June 30, **** **** ****
2023 2022 Change % Change
Amortization expense $ 6,373 $ 1,435 344.1 %
% of Net sales 1.9 % 0.6 %

All values are in US Dollars.

Amortization expense was $6.4 million for the first six months of 2023 compared to $1.4 million for the same period in 2022. The increase in amortization expense was due to the inclusion of six months of amortization attributable to the Fill-Rite acquisition compared to one month for the same period in 2022.

Operating Income

Six Months Ended June 30, **** **** ****
2023 2022 Change % Change
Operating Income $ 43,378 $ 12,365 250.8 %
% of Net sales 13.1 % 5.6 %

All values are in US Dollars.

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Operating income was $43.4 million for the first six months of 2023, resulting in an operating margin of 13.1%, compared to operating income of $12.4 million and operating margin of 5.6% for the same period in 2022.  Operating income for the first six months of 2022 included $6.9 million of one-time acquisition costs and $1.4 million of inventory step up amortization.  Excluding acquisition costs and inventory step-up totaling together $8.3 million, operating income was $20.7 million for the first six months of 2022 resulting in an operating margin of 9.4% of net sales.  Excluding acquisition costs and inventory step-up in 2022 totaling $8.3 million operating margin in the first six months of 2023 increased 370 basis points compared to the same period in 2022 due to improved leverage on labor, overhead, and SG&A expenses due to increased sales volumes and improved cost of material partially offset by increased amortization expense.

Interest Expense

Six Months Ended June 30, **** **** **** ****
2023 2022 Change % Change
Interest Expense $ (20,672 ) $ (2,322 ) ) 790.3 %
% of Net sales (6.2 )% (1.0 )%

All values are in US Dollars.

Interest expense was $20.7 million for the first six months of 2023 compared to $2.3 million for the same period in 2022. The increase in interest expense was primarily due to the inclusion of six months of interest expense in 2023 compared to one month for the first six 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.

Net Income (loss)

Six Months Ended June 30, **** **** ****
2023 2022 Change % Change
Income (loss) before income taxes $ 21,737 $ 8,287 162.3 %
% of Net sales 6.6 % 3.7 %
Income taxes $ 4,740 $ 1,740 172.4 %
Effective tax rate 21.8 % 21.0 %
Net income (loss) $ 16,997 $ 6,547 159.6 %
% of Net sales 5.1 % 3.0 %
Earnings per share $ 0.65 $ 0.25 160.0 %

All values are in US Dollars.

The Company’s effective tax rate was 21.8% for the first six months of 2023 compared to 21.0% for the first six months of 2022.

Net income was $17.0 million, or $0.65 per share, for the first six months of 2023 compared to net income of $6.5 million, or $0.25 per share for the first six months of 2022. Adjusted earnings per share for the first six months of 2023 were $0.68 per share compared to $0.56 per share for the first six months of 2022. Adjusted earnings per share for the first six months of 2023 included an unfavorable LIFO impact of $0.13 per share compared to an unfavorable LIFO impact of $0.18 per share in the first six months of 2022. Adjusted earnings per share is a non-GAAP financial measure; see “Non-GAAP Financial Information” below for a definition of the measure and the reconciliation to its comparable GAAP financial measure.

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.

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Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Adjusted earnings: **** **** **** **** **** **** **** **** ****
Reported net income (loss) – GAAP basis $ 10,477 $ (996 ) $ 16,997 $ 6,547
Plus pension settlement charge - 1,261 - 1,261
Plus one-time acquisition costs - 5,446 - 5,446
Plus amortization of step up in value of acquired inventories - 1,111 - 1,111
Plus amortization of acquired customer backlog 344 171 857 171
Non-GAAP adjusted earnings $ 10,821 $ 6,993 $ 17,854 $ 14,536
Three Months Ended June 30, Six Months Ended June 30,
--- --- --- --- --- --- --- --- --- ---
2023 2022 2023 2022
Adjusted earnings per share: **** **** **** **** **** **** **** **** ****
Reported earnings (loss) per share – GAAP basis $ 0.40 $ (0.04 ) $ 0.65 $ 0.25
Plus pension settlement charge - 0.05 - 0.05
Plus one-time acquisition costs - 0.21 - 0.21
Plus amortization of step up in value of acquired inventories - 0.04 - 0.04
Plus amortization of acquired customer backlog 0.01 0.01 0.03 0.01
Non-GAAP adjusted earnings per share $ 0.41 $ 0.27 $ 0.68 $ 0.56
Adjusted earnings (loss) before interest, taxes, depreciation and amortization: **** **** **** **** **** **** **** **** ****
Reported net income (loss) –GAAP basis $ 10,477 $ (996 ) $ 16,997 $ 6,547
Plus interest expense 10,485 2,322 20,672 2,322
Plus provision (benefit) for income taxes 2,785 (265 ) 4,740 1,740
Plus depreciation and amortization expense 7,114 4,268 14,158 7,201
Non-GAAP earnings before interest, taxes, depreciation and amortization 30,861 5,329 56,567 17,810
Plus pension settlement charge - 1,597 - 1,597
Plus one-time acquisition costs - 6,894 - 6,894
Plus amortization of step up in value of acquired inventories - 1,406 - 1,406
Plus amortization of acquired customer backlog 434 217 1,085 217
Plus non-cash LIFO expense 2,409 4,200 4,440 6,004
Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization $ 33,704 $ 19,643 $ 62,092 $ 33,928

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 $12.2 million at June 30, 2023. The Company had an additional $80.9 million available under the revolving credit facility after deducting $17.0 million drawn and $2.1 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.

20

As of June 30, 2023, the Company had $439.5 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 June 30, 2023 and December 31, 2022.

Capital expenditures for the first six months of 2023 were $13.3 million and consisted primarily of machinery and equipment and building improvements. Capital expenditures for the full-year 2023 are presently planned to be in the range of $18-$20 million primarily for building improvements and machinery and equipment purchases, and are expected to be financed through internally-generated funds.

On July 27, 2023, the Board of Directors authorized the payment of a quarterly dividend of $0.175 per share on the common stock of the Company, payable September 8, 2023, to shareholders of record as of August 15, 2023. This will mark the 294th 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 June 30, 2023, the Company had $48.1 million available for repurchase under the share repurchase program.

Financial Cash Flow

Six Months Ended June 30,
2023 2022
Beginning of period cash and cash equivalents $ 6,783 $ 125,194
Net cash provided by operating activities 37,856 6,692
Net cash used for investing activities (12,903 ) (534,538 )
Net cash provided by (used for) financing activities (19,461 ) 419,983
Effect of exchange rate changes on cash (102 ) (503 )
Net increase (decrease) in cash and cash equivalents $ 5,390 $ (108,366 )
End of period cash and cash equivalents $ 12,173 $ 16,828

The increase in cash provided by operating activities in the first six 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 better working capital management.

During the first six months of 2023, investing activities of $12.9 million consisted of $13.3 million for capital expenditures primarily for machinery and equipment. During the first six months of 2022, investing activities of $534.5 million consisted of $526.3 million for the acquisition of Fill-Rite and $8.4 million for capital expenditures primarily for machinery and equipment.

Net cash used for financing activities for the first six months of 2023 primarily consisted of net payments on bank borrowings of $8.8 million, dividend payments of $9.1 million, and share repurchases of $1.0 million. Net cash received for financing activities for the first six 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 $8.9 million and share repurchases of $0.9 million during the first six 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.

21

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 June 30, 2023, the Company had $332.5 million in borrowings under the Senior Term Loan Facility, $17.0 million in borrowings under the Credit Facility, and $90.0 million in borrowings under the Subordinated Credit Facility. As of June 30, 2023, the applicable interest rates under the Senior Secured Credit Agreement and the Subordinated Credit Facility were Adjusted Term SOFR plus 2.5% 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 $2.7 million on an annual basis.

22

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 six month periods ending June 30, 2023 and 2022 were ($0.4) million and $0.1 million, respectively, and are reported within Other (expense) income, net on the Consolidated Statements of Income.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. 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 June 30, 2023.

Changes in Internal Control Over Financial Reporting

As of June 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 June 30, 2023.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no material changes from the legal proceedings previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

ITEM 1A. RISK FACTORS

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.

23

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer purchases of its common shares during the second quarter of 2023 were:

Period Total number<br><br> <br>of shares<br><br> <br>purchased Average price<br><br> <br>paid per share Total number of<br><br> <br>shares purchased as<br><br> <br>part of publicly<br><br> <br>announced program Approximate dollar<br><br> <br>value of shares that may<br><br> <br>yet be purchased under<br><br> <br>the program
April 1 to April 30, 2023 - - - $ 48,067
May 1 to May 31, 2023 - - - 48,067
June 1 to June 30, 2023 - - - 48,067
Total - - - $ 48,067
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
--- ---

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

During the quarter ended June 30, 2023, no director or officer of the Company adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, each as defined in Item 408 of Regulation S-K.

24

ITEM 6. EXHIBITS
Exhibit 10.1 Amendment No. 1 dated as of June 30, 2023 to the Credit Agreement dated as of May 31, 2022
--- ---
Exhibit 31.1 Certification of Scott A. King, President and Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
--- ---
Exhibit 31.2 Certification of James C. Kerr, Executive Vice President and Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
--- ---
Exhibit 32 Certification pursuant to 18 U.S.C Section 1350, as adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002
--- ---
Exhibit 101 Financial statements from the Quarterly Report on Form 10-Q of The Gorman-Rupp Company for the quarter ended June 30, 2023, formatted in Inline eXtensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity, and (vi) the Notes to Consolidated Financial Statements.
--- ---
Exhibit 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
--- ---

25

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

The Gorman-Rupp Company
(Registrant)
Date: July 31, 2023
By: /s/James C. Kerr
James C. Kerr
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

26

ex_549852.htm

Exhibit 10.1

EXECUTION VERSION

AMENDMENT NO. 1

Dated as of June 30, 2023

to

CREDIT AGREEMENT

Dated as of May 31, 2022

THIS AMENDMENT NO. 1 (this “Amendment”) is made as of June 30, 2023 by and among The Gorman-Rupp Company (the “Borrower”), the financial institutions listed on the signature pages hereof and JPMorgan Chase Bank, N.A., as Administrative Agent (the “Administrative Agent”), under that certain Credit Agreement dated as of May 31, 2022 by and among the Borrower, the subsidiaries of the Borrower from time to time party thereto as Subsidiary Guarantors, the Lenders from time to time party thereto and the Administrative Agent (as further amended, restated, supplemented or otherwise modified from time to time, the “Existing Credit Agreement”). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings given to them in the Amended Credit Agreement (as defined below).

WHEREAS, the Borrower has requested that the requisite Lenders and the Administrative Agent agree to make certain amendments to the Existing Credit Agreement; and

WHEREAS, the Borrower, the Lenders party hereto and the Administrative Agent have so agreed on the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Lenders party hereto and the Administrative Agent hereby agree to enter into this Amendment.

1.    Amendments to the Existing Credit Agreement. Effective as of the Amendment No. 1 Effective Date (as defined below), the Existing Credit Agreement is hereby amended as follows (the “Amended Credit Agreement”):

(a)    Section 6.12(c) of the Existing Credit Agreement is hereby amended and restated in its entirety as follows:

“(c)         Fixed Charge Coverage Ratio. The Borrower will not permit the Fixed Charge Coverage Ratio, as of the last day of any Test Period to be less than the ratio set forth below in respect of the last day of each Test Period ending on the day set forth below:

Fiscal Quarters Ending Minimum Fixed Charge<br><br> <br>Coverage Ratio
June 30, 2022 through and including March 31, 2023 1.20 to 1.00
June 30, 2023 through and including June 30, 2024 1.00 to 1.00
September 30, 2024 through and including December 31, 2024 1.10 to 1.00
March 31, 2025 and as of the last day of each Test Period ending thereafter 1.20 to 1.00”

2.    Conditions of Effectiveness. The effectiveness of this Amendment (the “Amendment No. 1 Effective Date”) is subject to the satisfaction of the following conditions precedent:

(a)    the Administrative Agent (or its counsel) shall have received executed counterparts of this Amendment signed by or on behalf of the Borrower, the Required Lenders and the Administrative Agent (which, subject to Section 9.06(b) of the Amended Credit Agreement, may include any Electronic Signatures transmitted by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page); and

(b)    the Lenders and the Administrative Agent shall have received all fees required to be paid, including all fees required under that certain Amendment Fee Letter, dated as of the Amendment No. 1 Effective Date, by and between the Borrower and the Administrative Agent, and all expenses required to be reimbursed for which invoices have been presented (including the fees and expenses of legal counsel to the Administrative Agent) on or prior to the Amendment No. 1 Effective Date.

3.    Representations and Warranties of the Borrower. The Borrower hereby represents and warrants as follows:

(a)    This Amendment and the Amended Credit Agreement constitute legal, valid and binding obligations of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

(b)    As of the date hereof and after giving effect to the terms of this Amendment, (i) no Default or Event of Default has occurred and is continuing or would result therefrom and (ii) the representations and warranties of the Loan Parties set forth in the Amended Credit Agreement and the other Loan Documents are true and correct in all material respects (or in all respects in the case of any representation and warranty qualified by materiality or Material Adverse Effect) with the same effect as though made on and as of the date hereof (it being understood and agreed that any representation or warranty which by its terms is made as of a specified date is true and correct in all material respects (or in all respects in the case of any representation and warranty qualified by materiality or Material Adverse Effect) only as of such specified date).

4.    Reference to and Effect on the Existing Credit Agreement.

(a)    Upon the effectiveness hereof, each reference to the Existing Credit Agreement in the Existing Credit Agreement or any other Loan Document shall mean and be a reference to the Amended Credit Agreement.

(b)    The Borrower hereby (i) agrees that this Amendment and the transactions contemplated hereby shall not limit or diminish its obligations arising under or pursuant to the Loan Documents to which it is a party, (ii) reaffirms all of its obligations under the Existing Credit Agreement and the other Loan Documents to which it is a party and (iii) acknowledges and agrees that the Existing Credit Agreement and each other Loan Document executed by it remains in full force and effect and is hereby reaffirmed, ratified and confirmed.

2

(c)    The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Lenders or the Administrative Agent under the Existing Credit Agreement or any of the other Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents or any other documents, instruments and agreements executed and/or delivered in connection therewith.

(d)    This Amendment is a Loan Document.

5.    Governing Law. This Amendment shall be governed by and construed in accordance with and governed by the law of the State of New York. The parties hereto agree that provisions of Sections 9.09 and 9.10 of the Amended Credit Agreement are hereby incorporated by reference, mutatis mutandis.

6.    Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

7.    Counterparts. This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Amendment that is an Electronic Signature transmitted by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page shall be effective as delivery of a manually executed counterpart of this Amendment. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Amendment shall be deemed to include Electronic Signatures, deliveries or the keeping of records in any electronic form (including deliveries by telecopy, emailed pdf. or any other electronic means that reproduces an image of an actual executed signature page), each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be; provided, that, without limiting the foregoing, (i) to the extent the Administrative Agent has agreed to accept any Electronic Signature, the Administrative Agent and each of the Lenders shall be entitled to rely on such Electronic Signature purportedly given by or on behalf of the Borrower without further verification thereof and without any obligation to review the appearance or form of any such Electronic Signature, and (ii) upon the request of the Administrative Agent or any Lender, any Electronic Signature shall be promptly followed by a manually executed counterpart.

8.    No Novation. Neither the execution, delivery and acceptance of this Amendment nor any of the terms, covenants, conditions or other provisions set forth herein are intended, nor shall they be deemed or construed, to effect a novation of any liens or Obligations under the Existing Credit Agreement or to pay, extinguish, release, satisfy or discharge (a) the Obligations under the Existing Credit Agreement, (b) the liability of any Loan Party under the Existing Credit Agreement or the other Loan Documents executed and delivered in connection therewith or any Obligations or other obligations evidenced thereby, or (c) any mortgages, deeds of trust, liens, security interests or contractual or legal rights securing all or any part of such Obligations.

3

9.    Reaffirmation. Except as expressly modified by this Amendment, all of the terms, provisions and conditions of the Existing Credit Agreement, as heretofore amended, shall remain unchanged and in full force and effect. Each Loan Party, as debtor, grantor, pledgor, guarantor, assignor, or in any other similar capacity in which such Person grants liens or security interests in its property or otherwise acts as accommodation party or guarantor, as the case may be, hereby (i) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, under the Existing Credit Agreement and each other Loan Document to which it is a party (after giving effect hereto) and (ii) to the extent such Person granted liens on or security interests in any of its property pursuant to any Loan Documents as security for or otherwise guaranteed the Obligations under or with respect to the Loan Documents, ratifies and reaffirms such guarantee and grant of security interests and liens and confirms and agrees that such security interests and liens hereafter secure all of the Obligations as amended hereby. This Amendment shall not constitute a course of dealing with the Administrative Agent or any Lender at variance with the Existing Credit Agreement or the other Loan Documents such as to require further notice by such Person to require strict compliance with the terms of the Existing Credit Agreement and the other Loan Documents in the future.

[Signature Pages Follow]

4

IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written.

THE GORMAN-RUPP COMPANY,<br><br> <br>as the Borrower<br><br> <br><br><br> <br><br><br> <br>By:____________________________________<br> Name:<br><br> <br>Title:

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

JPMORGAN CHASE BANK, N.A.,<br><br> <br>individually as a Lender and as Administrative Agent<br><br> <br><br><br> <br><br><br> <br>By:_______________________________________<br><br> <br>Name:<br><br> <br>Title:

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

BANK OF AMERICA, N.A., as a Lender<br><br> <br><br><br> <br><br><br> <br><br><br> <br>By:_____________________________ <br> Name:___________________________<br> Title:____________________________

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

WELLS FARGO BANK, NATIONAL<br><br> <br>ASSOCIATION, as a Lender<br><br> <br><br><br> <br><br><br> <br><br><br> <br>By:_____________________________<br> Name:___________________________<br> Title:____________________________

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

FIFTH THIRD BANK, as a Lender<br><br> <br><br><br> <br><br><br> <br><br><br> <br>By:_____________________________<br> Name:___________________________<br> Title:____________________________

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

PNC BANK, NATIONAL ASSOCIATION, as a Lender<br><br> <br><br><br> <br>By:_____________________________<br> Name:___________________________<br> Title:____________________________

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

HUNTINGTON NATIONAL BANK, as a Lender<br><br> <br><br><br> <br>By:_____________________________<br> Name:___________________________<br> Title:____________________________

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

U.S. BANK NATIONAL ASSOCIATION, as a Lender<br><br> <br><br><br> <br>By:_____________________________<br> Name:___________________________<br> Title:____________________________

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

BMO HARRIS BANK, as a Lender<br><br> <br><br><br> <br>By:_____________________________<br> Name:___________________________<br> Title:____________________________

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

CAPITAL ONE, N.A., as a Lender<br><br> <br><br><br> <br>By:_____________________________<br> Name:___________________________<br> Title:____________________________

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

CITIBANK, N.A., as a Lender<br><br> <br><br><br> <br>By:_____________________________<br> Name:___________________________<br> Title:____________________________

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

CITY NATIONAL BANK, as a Lender<br><br> <br><br><br> <br>By:_____________________________<br> Name:___________________________<br> Title:____________________________

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

FIRST NATIONAL BANK, as a Lender<br><br> <br><br><br> <br>By:_____________________________<br> Name:___________________________<br> Title:____________________________

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

TRISTATE CAPITAL BANK, as a Lender<br><br> <br><br><br> <br>By:_____________________________<br> Name:___________________________<br> Title:____________________________

Signature Page to Amendment No. 1 to Credit Agreement

The Gorman-Rupp Company

EXHIBIT 31.1

CERTIFICATIONS

I, Scott A. King, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Gorman-Rupp Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
--- ---
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
--- ---
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
--- ---
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
--- ---
Date: July 31, 2023 /s/Scott A. King
--- ---
Scott A. King
President and Chief Executive Officer
The Gorman-Rupp Company
(Principal Executive Officer)

EXHIBIT 31.2

CERTIFICATIONS

I, James C. Kerr, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Gorman-Rupp Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
--- ---
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
--- ---
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
--- ---
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
--- ---
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
--- ---
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
--- ---
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: July 31, 2023 /s/James C. Kerr
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James C. Kerr
Executive Vice President and Chief Financial Officer
The Gorman-Rupp Company
(Principal Financial Officer)

EXHIBIT 32

Certification Pursuant to 18 U. S. C. Section 1350,

As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of The Gorman-Rupp Company on Form 10-Q for the quarter ended June 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:

(1) The Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
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Date: July 31, 2023 /s/Scott A. King
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Scott A. King
President and Chief Executive Officer
(Principal Executive Officer)
/s/James C. Kerr
James C. Kerr
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

The foregoing certification is being furnished solely pursuant to 18 U. S. C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.

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