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What changed in GORMAN RUPP CO's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of GORMAN RUPP CO's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+122 added−124 removedSource: 10-K (2024-02-26) vs 10-K (2023-03-08)

Top changes in GORMAN RUPP CO's 2023 10-K

122 paragraphs added · 124 removed · 91 edited across 7 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdditional potential risks associated with acquisitions are the diversion of management’s attention from other business concerns, additional debt leverage, the loss of key employees and customers of the acquired business, the assumption of unknown liabilities, disputes with sellers, and the inherent risk associated with the Company entering new lines of business. 7 The anticipated benefits from the Fill-Rite transaction may not be realized The Company may not realize the full benefits of the increased sales volume and other benefits that are currently expected to result from the Fill-Rite transaction, or realize these benefits within the time frame that is currently expected.
Biggest changeAdditional potential risks associated with acquisitions are the diversion of management’s attention from other business concerns, additional debt leverage, the loss of key employees and customers of the acquired business, the assumption of unknown liabilities, disputes with sellers, and the inherent risk associated with the Company entering new lines of business.
Cyber security threats Increased global information technology security threats and more sophisticated and targeted computer crime pose a risk to the security of Gorman-Rupp’s systems and networks and to the confidentiality, availability, and integrity of its data.
Cybersecurity threats Increased global information technology security threats and more sophisticated and targeted computer crime pose a risk to the security of Gorman-Rupp’s systems and networks and to the confidentiality, availability, and integrity of its data.
Acquisition performance and integration The Company’s historical growth has depended, and its future growth is likely to continue to depend, in part on its acquisition strategy and the successful integration of acquired businesses into existing operations. The Company intends to continue to seek additional domestic and international acquisition opportunities that have the potential to support and strengthen its operations.
Growth through Acquisitions The Company’s historical growth has depended, and its future growth is likely to continue to depend, in part on its acquisition strategy and the successful integration of acquired businesses into existing operations. The Company intends to continue to seek additional domestic and international acquisition opportunities that have the potential to support and strengthen its operations.
Our business could be adversely affected if we fail to source and maintain adequate inventory levels. Raw material and energy expenses are substantial drivers of costs in the manufacture of pumps and changes in these costs are often unpredictable.
We are required to maintain sufficient inventories to accommodate the needs of our customers, often with short lead times. Our business could be adversely affected if we fail to source and maintain adequate inventory levels. Raw material and energy expenses are substantial drivers of costs in the manufacture of pumps and changes in these costs are often unpredictable.
If these audits result in assessments different from amounts recorded, the Company’s future financial results may include unfavorable adjustments.
If these audits result in assessments different from amounts recorded, the Company’s future financial results may include unfavorable adjustments. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
Inflationary economic conditions may further increase these various costs. The Company may not be able to pass along any increased material or labor costs to customers for competitive or other reasons.
These considerations may also impact the operations of the Company’s suppliers, who may seek to pass along any increased costs to the Company. Inflationary economic conditions may further increase these various costs. The Company may not be able to pass along any increased material or labor costs to customers for competitive or other reasons.
The Company may be required to pay substantial damages if it is determined its products infringe the intellectual property of others. The Company may also be required to develop an alternative, non-infringing product that could be costly and time-consuming, or acquire a license (if available) on terms that are not favorable to it.
The Company may also be required to develop an alternative, non-infringing product that could be costly and time-consuming, or acquire a license (if available) on terms that are not favorable to it.
If inflation causes the Producer Price Index for Machinery and Equipment – Pumps, Compressors and Equipment to increase in future periods, the LIFO reserve will increase with a corresponding increase to non-cash LIFO expense which may negatively impact the Company’s operating results.
If inflation causes the Producer Price Index for Machinery and Equipment – Pumps, Compressors and Equipment to increase in future periods, the LIFO reserve will increase with a corresponding increase to non-cash LIFO expense which may negatively impact the Company’s operating results. 9 In 2023, 2022, and 2021, the Company recorded pre-tax non-cash LIFO expense of $6.9 million, $18.0 million, and $6.7 million, respectively.
The availability and prices of raw materials, parts and components purchased from the Company’s suppliers may be subject to curtailment or change due to, among other things, suppliers’ allocations to other purchasers, interruptions in production or deliveries by suppliers, changes in exchange rates, tariffs, changes in duty rates and changes in other trade barriers and import and export licensing requirements. 9 The Company's business depends, in part, upon the adequate recruitment and retention, and continued service of, key managerial, engineering, marketing, sales and technical and operational personnel.
The availability and prices of raw materials, parts and components purchased from the Company’s suppliers may be subject to curtailment or change due to, among other things, suppliers’ allocations to other purchasers, interruptions or delays in production or deliveries by suppliers, changes in exchange rates, tariffs, changes in duty rates and changes in other trade barriers and import and export licensing requirements.
Any significant change in the value of these currencies could affect the Company’s ability to sell products competitively and control its cost structure, which could have a material effect on its financial condition, results of operations or cash flows. 10 Conditions in foreign countries in which the Company conducts business In 2022, 27% of the Company’s net sales were to customers outside the United States.
Any significant change in the value of these currencies could affect the Company’s ability to sell products competitively and control its cost structure, which could have a material effect on its financial condition, results of operations or cash flows.
The ability to protect and enforce intellectual property rights varies across jurisdictions. Competitors who attempt to copy the Company’s products, technologies or industrial designs are becoming more prevalent, particularly in Asia.
The ability to protect and enforce intellectual property rights varies across jurisdictions. Competitors who attempt to copy the Company’s products, technologies or industrial designs are becoming more prevalent, particularly in Asia. If the Company is unable to adequately enforce and protect its intellectual property rights, it could adversely affect its revenues and profits and hamper its ability to grow.
Current cost approximates replacement cost, or market, and LIFO cost is determined at the end of each fiscal year based on inventory levels on-hand at current replacement cost and a LIFO reserve.
LIFO inventory method The majority of the Company’s inventories are valued on the last-in, first-out (LIFO) method and stated at the lower of cost or market. Current cost approximates replacement cost, or market, and LIFO cost is determined at the end of each fiscal year based on inventory levels on-hand at current replacement cost and a LIFO reserve.
In addition, the Company cannot assure that any acquisition, even if successfully integrated, will perform as planned, be accretive to earnings, or prove to be beneficial to the Company’s operations and cash flows.
In addition, the Company cannot assure that any acquisition, even if successfully integrated, will perform as planned, be accretive to earnings, or prove to be beneficial to the Company’s operations and cash flows. The Company has substantial indebtedness, which may impact the Company ’ s financial condition and the way it operates its business The Company has substantial indebtedness.
Failure to retain key management personnel and attract and retain other highly-skilled personnel could limit the Company’s global growth and ability to execute operational initiatives, or may result in inefficient and ineffective management and operations, which could harm the Company’s revenues, operations and product development efforts and could eventually result in a decrease in profitability.
Failure to retain key management personnel and attract and retain other highly-skilled personnel could limit the Company’s global growth and ability to execute operational initiatives, or may result in inefficient and ineffective management and operations, which could harm the Company’s revenues, operations and product development efforts and could eventually result in a decrease in profitability. 7 Intellectual property security The Company possesses a wide array of intellectual property rights, including patents, trademarks, copyrights, and applications for the above, as well as other proprietary information.
Should LIFO be repealed, the $18.5 million of postponed taxes, plus any future benefit realized prior to the date of repeal, would likely have to be repaid over some period of time.
From time-to-time, discussions regarding changes in U.S. tax laws have included the potential of LIFO being repealed. Should LIFO be repealed, the $20.0 million of postponed taxes, plus any future benefit realized prior to the date of repeal, would likely have to be repaid over some period of time.
The Company’s ability to satisfy its debt and other obligations will depend principally upon its future operating performance. As a result, prevailing economic conditions and financial, business, legal and regulatory and other factors, many of which are beyond the Company’s control, may affect its ability to make payments on its debt and other obligations.
As a result, prevailing economic conditions and financial, business, legal and regulatory and other factors, many of which are beyond the Company’s control, may affect its ability to make payments on its debt and other obligations. 8 Acquisition performance and integration The Company has historically made strategic acquisitions of businesses and may do so in the future in support of its strategy.
If the Company is required to incur increased compliance costs or violates environmental laws or regulations, future environmental compliance expenditures or liabilities could have a material adverse effect on our financial condition, results of operations or cash flows.
If the Company is required to incur increased compliance costs or violates environmental laws or regulations, future environmental compliance expenditures or liabilities could have a material adverse effect on our financial condition, results of operations or cash flows. 11 Exposure to fluctuations in foreign currency exchange rates The Company is exposed to fluctuations in foreign currency exchange rates, particularly with respect to the Euro, Canadian Dollar, South African Rand and British Pound.
The Company expects its international and export sales to continue to be a significant portion of its revenue. The Company’s sales from international operations and export sales are subject, in varying degrees, to risks inherent to doing business outside the United States.
The Company’s sales from international operations and export sales, and the availability and prices of certain raw materials, parts, and components, are subject, in varying degrees, to risks inherent to doing business outside the United States.
The Company may not be able to compete successfully with its existing competitors or with new competitors. Failure to compete successfully could negatively impact the Company’s sales, operating margins and overall financial performance.
The Company may not be able to compete successfully with its existing competitors or with new competitors.
If the Company is unable to adequately enforce and protect its intellectual property rights, it could adversely affect its revenues and profits and hamper its ability to grow. 6 Competitors and others may also challenge the validity of the Company’s intellectual property or allege that it has infringed their intellectual property, including through litigation.
Competitors and others may also challenge the validity of the Company’s intellectual property or allege that it has infringed their intellectual property, including through litigation. The Company may be required to pay substantial damages if it is determined its products infringe the intellectual property of others.
If the Company is unable to integrate acquisitions successfully, its financial results could suffer.
The success of past and future acquisitions is dependent on the Company’s ability to successfully integrate acquired and existing operations. If the Company is unable to integrate acquisitions successfully, its financial results could suffer.
The Company has been required to make such adjustments, and, if such non-cash adjustments are necessary in future periods, they may negatively impact the Company’s operating results. In 2022, 2021, and 2020, the Company recorded pre-tax non-cash pension settlement charges of $6.4 million, $2.3 million, and $4.6 million, respectively, driven by lump-sum distributions discussed above.
The Company has been required to make such adjustments in prior periods, and, if such non-cash adjustments are necessary in future periods, they may negatively impact the Company’s operating results. There was no pension settlement charge recorded in 2023.
Availability and costs of raw materials and labor The Company could be adversely affected by raw material price volatility or an inability of its suppliers to meet quality and delivery requirements. We are required to maintain sufficient inventories to accommodate the needs of our customers, often with short lead times.
Failure to compete successfully could negatively impact the Company’s sales, operating margins and overall financial performance. 10 Availability and costs of raw materials and labor The Company could be adversely affected by raw material price volatility or an inability of its suppliers to meet quality and delivery requirements.
Economic conditions may cause an increasingly competitive labor market, which could lead to labor shortages or increased turnover rates within, or increased labor costs to maintain, the Company’s employee base. These considerations may also impact the operations of the Company’s suppliers, who may seek to pass along any increased costs to the Company.
The Company's business depends, in part, upon the adequate recruitment and retention, and continued service of, key managerial, engineering, marketing, sales and technical and operational personnel. Economic conditions may cause an increasingly competitive labor market, which could lead to labor shortages or increased turnover rates within, or increased labor costs to maintain, the Company’s employee base.
Corporate tax rate, represents approximately $18.5 million of income taxes, payment of which is delayed to future dates based upon changes in inventory costs. From time-to-time, discussions regarding changes in U.S. tax laws have included the potential of LIFO being repealed.
See Note 4 to the Consolidated Financial Statements, Inventories. As of December 31, 2023 we had a LIFO reserve of $95.1 million, which at the current U.S. Corporate tax rate, represents approximately $20.0 million of income taxes, payment of which is delayed to future dates based upon changes in inventory costs.
In 2022, 2021, and 2020, the Company recorded pre-tax non-cash LIFO expense of $18.0 million, $6.7 million, and $1.0 million, respectively. See Note 5 to the Consolidated Financial Statements, Inventories. 8 As of December 31, 2022 we had a LIFO reserve of $88.2 million, which at the current U.S.
In 2022 and 2021, the Company recorded pre-tax non-cash pension settlement charges of $6.4 million and $2.3 million, respectively, driven by lump-sum distributions discussed above. See Note 9 to the Consolidated Financial Statements, Pensions and Other Postretirement Benefits.
Removed
Intellectual property security The Company possesses a wide array of intellectual property rights, including patents, trademarks, copyrights, and applications for the above, as well as other proprietary information.
Added
The Company’s ability to satisfy its debt and other obligations will depend principally upon its future operating performance.
Removed
The Company incurred substantial indebtedness, which may impact the Company ’ s financial condition and the way it operates its business In connection with the Company’s acquisition of the assets of Fill-Rite, the Company incurred substantial indebtedness.
Added
The anticipated benefits from the Fill-Rite transaction may not be realized The Company may not realize the full benefits of the increased sales volume and other benefits that are currently expected to result from the Fill-Rite transaction, or realize these benefits within the time frame that is currently expected.
Removed
The Company ’ s operations are subject to the general risks associated with acquisitions The Company has historically made strategic acquisitions of businesses, such as Fill-Rite, and may do so in the future in support of its strategy. The success of past and future acquisitions is dependent on the Company’s ability to successfully integrate acquired and existing operations.
Added
Conditions in foreign countries in which the Company conducts business In 2023, 25% of the Company’s net sales were to customers outside the United States. The Company expects its international and export sales to continue to be a significant portion of its revenue.
Removed
See Note 10 to the Consolidated Financial Statements, Pensions and Other Postretirement Benefits. LIFO inventory method The majority of the Company’s inventories are valued on the last-in, first-out (LIFO) method and stated at the lower of cost or market.
Removed
Exposure to fluctuations in foreign currency exchange rates The Company is exposed to fluctuations in foreign currency exchange rates, particularly with respect to the Euro, Canadian Dollar, South African Rand and British Pound.

Item 2. Properties

Properties — owned and leased real estate

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Removed
ITEM 2. PROPERTIES The Company’s corporate headquarters are located in Mansfield, Ohio. The production operations of the Company are conducted at several locations throughout the United States and other countries as set forth below. The Company is a lessee under a number of operating leases for certain real properties, none of which is material to its operations.
Added
ITEM 2. PROPERTIES The Company conducts business at plants and offices that are owned or leased and located in the United States and other countries as described below. The following table sets forth the location, approximate size, principal use, markets served, ownership status and utilization of each of our material facilities.
Removed
The Company’s principal production operations are: United States Mansfield (two) and Bellville, Ohio Royersford, Pennsylvania (two) Olive Branch, Mississippi Toccoa, Georgia Glendale, Arizona Lubbock, Texas Fort Wayne, Indiana Lenexa, Kansas Other Countries St.
Added
Our facilities have the capacity to work three full-time shifts up to seven days per week as well as automated machining running during unstaffed hours, which the Company defines as full utilization.
Removed
Thomas, Ontario, Canada County Westmeath, Ireland Waardenburg, The Netherlands Johannesburg, South Africa Namur, Belgium The Company owns a facility in Dallas, Texas comprising a training center and warehouse. Gorman-Rupp considers its plants, machinery and equipment to be well maintained, in good operating condition and adequate for the present uses and business requirements of the Company. 11
Added
At partial utilization, our facilities are working one fully staffed shift five days per week, supplemented with partial second shifts and running certain automated machining operations during peak periods. We believe we make effective use of our productive capacities at our facilities. We consider our plants, machinery and equipment to be well maintained and in good operating condition.
Added
We believe the quality and production capacity of our facilities is sufficient to maintain our competitive position for the foreseeable future. 13 Properties Approximate Sq Footage Principal Use Markets Served Owned/ Leased Utilization United States Bellville, OH 98,000 Manufacturing, R&D Industrial, OEM Owned Partial Fort Wayne, IN 125,000 Manufacturing, R&D Industrial, agriculture, construction Owned Partial Glendale, AZ 32,000 Manufacturing, R&D Industrial, agriculture, municipal, pretroleum, OEM Owned Partial Lenexa, KS 142,000 Manufacturing Industrial, agriculture, construction Leased Partial Lubbock, TX 60,000 Manufacturing Industrial, agriculture, municipal, pretroleum, OEM Owned Partial Mansfield, OH (2 properties) 970,000 Corporate HQ, Manufacturing, R&D Industrial, construction, municipal, pretroleum, OEM Owned Partial Olive Branch, MS 62,000 Manufacturing Industrial, agriculture, municipal, pretroleum, OEM Owned Partial Royersford, PA (2 properties) 120,000 Manufacturing Industrial, agriculture, construction, municipal, OEM Owned Partial Toccoa, GA 295,000 Manufacturing, R&D Industrial, fire, municipal Owned Partial Other Countries County Westmeath, Ireland 42,000 Manufacturing Industrial, fire, municipal Owned Partial Waardenburg, The Netherlands 41,000 Manufacturing Industrial, agriculture, construction, municipal, pretroleum, OEM Owned Partial St.
Added
Thomas, Ontario, Canada 63,000 Manufacturing Industrial, agriculture, construction, municipal, pretroleum, OEM Owned Partial Johannesburg, South Africa 38,000 Manufacturing Industrial, agriculture, construction, municipal, pretroleum, OEM Owned Partial Namur, Belgium 18,000 Manufacturing Industrial, agriculture, construction, municipal, pretroleum, OEM Owned Partial

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAccordingly, this series of lawsuits has not, cumulatively or individually, had a material adverse impact on the Company's consolidated results of operations, liquidity or financial condition, nor is it expected to have any such impact in the future, based on the current knowledge of the Company.
Biggest changeAccordingly, this series of lawsuits has not, cumulatively or individually, had a material adverse impact on the Company's consolidated results of operations, liquidity or financial condition, nor is it expected to have any such impact in the future, based on the current knowledge of the Company. 14 In addition, the Company and/or its subsidiaries are parties in a small number of legal proceedings arising in the ordinary course of business.
In addition, the Company and/or its subsidiaries are parties in a small number of legal proceedings arising in the ordinary course of business. Management does not currently believe that these proceedings will materially impact the Company’s consolidated results of operations, liquidity or financial condition.
Management does not currently believe that these proceedings will materially impact the Company’s consolidated results of operations, liquidity or financial condition.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeKerr previously served as Chief Financial Officer effective January 1, 2017 and as Vice President of Finance from July 18, 2016 to December 31, 2016. Prior to 2016, Mr.
Biggest changeKerr previously served as Chief Financial Officer effective January 1, 2017 and as Vice President of Finance from July 18, 2016 to December 31, 2016. Prior to 2016, Mr. Kerr served as both Executive Vice President and Chief Financial Officer of Jo-Ann Stores from 2006 to 2015 and as Vice President, Controller of Jo-Ann Stores from 1998 to 2006. Ms.
Burnell served as Corporate Counsel of Red Capital Group from 2011 to 2013 and as an Associate at Jones Day from 2002 to 2011. PART II
Burnell served as Corporate Counsel of Red Capital Group from 2011 to 2013 and as an Associate at Jones Day from 2002 to 2011. 15 PART II
ITEM 4. MINE SAFETY DISCLOSURE Not applicable. INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following table sets forth certain information with respect to the executive officers of the Company as of January 31, 2023: Name Age Office Date Elected to Executive Office Position Jeffrey S. Gorman 70 Executive Chairman 1998 Scott A.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. INFORMATION ABOUT OUR EXECUTIVE OFFICERS The following table sets forth certain information with respect to the executive officers of the Company as of January 31, 2024: Name Age Office Date Elected to Executive Office Position Jeffrey S. Gorman 71 Executive Chairman 1998 Scott A.
King 48 President and Chief Executive Officer 2019 James C. Kerr 60 Executive Vice President and Chief Financial Officer 2017 Brigette A. Burnell 47 Executive Vice President, General Counsel and Corporate Secretary 2014 Mr.
King 49 President and Chief Executive Officer 2019 James C. Kerr 61 Executive Vice President and Chief Financial Officer 2017 Brigette A. Burnell 48 Executive Vice President, General Counsel and Corporate Secretary 2014 Mr.
Removed
Kerr served as both Executive Vice President and Chief Financial Officer of Jo-Ann Stores from 2006 to 2015 and as Vice President, Controller of Jo-Ann Stores from 1998 to 2006. 12 Ms.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThis graph is not deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the graph shall not be deemed to be incorporated by reference into any prior or subsequent filing by us under the Securities Act of 1933, as amended, or the Exchange Act. 2017 2018 2019 2020 2021 2022 The Gorman-Rupp Company 100.00 111.78 131.52 115.91 161.92 95.23 NYSE Composite 100.00 91.20 114.67 122.69 148.06 134.22 NYSE American 100.00 88.23 100.34 92.80 134.71 162.54 SIC Code 3561 100.00 91.06 121.51 141.94 166.38 144.49 13 PURCHASES OF EQUITY SECURITIES (Amounts in tables in thousands of dollars, except share and per share data) On October 29, 2021, the Company announced a share repurchase program of up to $50.0 million of the Company’s common shares.
Biggest changeThis graph is not deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the graph shall not be deemed to be incorporated by reference into any prior or subsequent filing by us under the Securities Act of 1933, as amended, or the Exchange Act. 2018 2019 2020 2021 2022 2023 The Gorman-Rupp Company 100.00 117.66 103.69 144.85 85.19 121.06 NYSE Composite 100.00 125.74 134.53 162.35 147.17 167.44 NYSE American 100.00 113.72 105.18 152.68 184.22 204.67 SIC Code 3561 100.00 130.86 154.18 180.36 164.11 188.23 16 PURCHASES OF EQUITY SECURITIES (Amounts in tables in thousands of dollars, except share and per share data) On October 29, 2021, the Company announced a share repurchase program of up to $50.0 million of the Company’s common shares.
Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced program Approximate dollar value of shares that may yet be purchased under the program October 1 to October 31, 2022 - - - $ 48,067 November 1 to November 30, 2022 - - - 48,067 December 1 to December 31, 2022 - - - 48,067 Total - - - $ 48,067
Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced program Approximate dollar value of shares that may yet be purchased under the program October 1 to October 31, 2023 - - - $ 48,067 November 1 to November 30, 2023 - - - 48,067 December 1 to December 31, 2023 - - - 48,067 Total - - - $ 48,067
PERFORMANCE GRAPH The following stock price performance graph and related table compares the cumulative total returns (assuming reinvestment of dividends) on $100 invested on December 31, 2017 through December 31, 2022 in the Company’s common shares, the NYSE Composite Index, the NYSE American Index and a peer group of companies in the SIC Code 3561 Index — Pumps and Pumping Equipment.
PERFORMANCE GRAPH The following stock price performance graph and related table compares the cumulative total returns (assuming reinvestment of dividends) on $100 invested on December 31, 2018 through December 31, 2023 in the Company’s common shares, the NYSE Composite Index, the NYSE American Index and a peer group of companies in the SIC Code 3561 Index — Pumps and Pumping Equipment.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s Common Stock is listed on the New York Stock Exchange under the ticker symbol “GRC”. On February 1, 2023, there were 1,570 registered holders of the Company’s common shares.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s Common Stock is listed on the New York Stock Exchange under the ticker symbol “GRC”. On February 1, 2024, there were 1,615 registered holders of the Company’s common shares.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeProvided below is a reconciliation of adjusted earnings per share and adjusted earnings before interest, taxes, depreciation and amortization. 2022 2021 2020 Adjusted earnings per share: Reported earnings per share – GAAP basis $ 0.43 $ 1.14 $ 0.97 Plus pension settlement charge 0.20 0.07 0.14 Plus one-time acquisition costs 0.22 - - Plus amortization of step up in value of acquired inventories 0.04 - - Plus amortization of acquired customer backlog 0.05 - - Non-GAAP adjusted earnings per share $ 0.94 $ 1.21 $ 1.11 Adjusted earnings before interest, taxes, depreciation and amortization: Reported net income – GAAP basis $ 11,195 $ 29,851 $ 25,188 Plus interest expense 19,240 1 18 Plus provision for income taxes 2,677 7,397 6,058 Plus depreciation and amortization 21,158 11,914 12,692 Non-GAAP earnings before interest, taxes, depreciation and amortization 54,270 49,163 43,956 Plus pension settlement charge 6,427 2,304 4,583 Plus one-time acquisition costs 7,088 - - Plus amortization of step up in value of acquired inventories 1,406 - - Plus amortization of acquired customer backlog 1,517 - - Plus non-cash LIFO expense 18,041 6,669 969 Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization $ 88,749 $ 58,136 $ 49,508 15 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.
Biggest changeProvided below is a reconciliation of adjusted earnings, adjusted earnings per share, and adjusted earnings before interest, taxes, depreciation and amortization. 21 2023 2022 2021 Adjusted earnings: Reported net income – GAAP basis $ 34,951 $ 11,195 $ 29,851 Pension settlement charge - 5,216 1,846 One-time acquisition costs - 5,752 - Amortization of step up in value of acquired inventories - 1,141 - Amortization of acquired customer backlog 863 1,231 - Non-GAAP adjusted earnings $ 35,814 $ 24,535 $ 31,697 2023 2022 2021 Adjusted earnings per share: Reported earnings per share - GAAP basis $ 1.34 $ 0.43 $ 1.14 Pension settlement charge - 0.20 0.07 One-time acquisition costs - 0.22 - Amortization of step up in value of acquired inventories - 0.04 - Amortization of acquired customer backlog 0.03 0.05 - Non-GAAP adjusted earnings per share $ 1.37 $ 0.94 $ 1.21 2023 2022 2021 Adjusted earnings before interest, taxes, depreciation and amortization: Reported net income - GAAP basis $ 34,951 $ 11,195 $ 29,851 Interest expense 41,273 19,240 1 Provision for income taxes 9,010 2,677 7,397 Depreciation and amortization 28,496 21,158 11,914 Non-GAAP earnings before interest, taxes, depreciation and amortization 113,730 54,270 49,163 Pension settlement charge - 6,427 2,304 One-time acqusition costs - 7,088 - Amortization of step up in value of acquired inventories - 1,406 - Amortization of acquired customer backlog 1,085 1,517 - Non-cash LIFO expense 6,891 18,041 6,669 Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization $ 121,706 $ 88,749 $ 58,136 Liquidity and Capital Resources Our primary sources of liquidity are cash generated from operations and borrowings under our revolving credit facility.
These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials and the performance of subcontractors as applicable. 21 As a significant change in one or more of these estimates could affect the profitability of our contracts, the Company reviews and updates its contract-related estimates regularly.
These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials and the performance of subcontractors as applicable. As a significant change in one or more of these estimates could affect the profitability of our contracts, the Company reviews and updates its contract-related estimates regularly.
The Company is not obligated to make any purchases under the program, and the program may be suspended or discontinued at any time. 20 Contractual Obligations Capital commitments in the table below include contractual commitments to purchase machinery and equipment that have been approved by the Board of Directors.
The Company is not obligated to make any purchases under the program, and the program may be suspended or discontinued at any time. Contractual Obligations Capital commitments in the table below include contractual commitments to purchase machinery and equipment that have been approved by the Board of Directors.
The fair value of these assets is determined using a royalty relief methodology similar to that employed when the associated assets were acquired, but using updated estimates of future sales, cash flows and profitability. For 2022 and 2021, the fair value of all indefinite lived intangible assets exceeded the respective carrying values.
The fair value of these assets is determined using a royalty relief methodology similar to that employed when the associated assets were acquired, but using updated estimates of future sales, cash flows and profitability. For 2023 and 2022, the fair value of all indefinite lived intangible assets exceeded the respective carrying values.
A sensitivity analysis was performed for the National reporting unit, assuming a hypothetical 100 basis point decrease in the expected long-term growth rate or a hypothetical 100 basis point increase in the weighted average cost of capital, and both scenarios independently yielded an estimated fair value for the National reporting unit above carrying value.
A sensitivity analysis was performed for each reporting unit, assuming a hypothetical 100 basis point decrease in the expected long-term growth rate or a hypothetical 100 basis point increase in the weighted average cost of capital, and both scenarios independently yielded an estimated fair value above carrying value.
See Note 11 to the Consolidated Financial Statements, Goodwill and Other Intangible Assets. Acquisitions The Company allocates the purchase price of its acquisitions to the assets acquired, liabilities assumed, and noncontrolling interests based upon their respective fair values at the acquisition date.
See Note 10 to the Consolidated Financial Statements, Goodwill and Other Intangible Assets. Acquisitions The Company allocates the purchase price of its acquisitions to the assets acquired, liabilities assumed, and noncontrolling interests based upon their respective fair values at the acquisition date.
When interest rates are low, this subjects the Company to the risk of exceeding an actuarial threshold computed on an annual basis and triggering a GAAP-required non-cash pension settlement loss, which occurred in 2022 and 2021. The assumption used for the rate of increase in medical costs over the next five years was 5% in both 2022 and 2021.
When interest rates are low, this subjects the Company to the risk of exceeding an actuarial threshold computed on an annual basis and triggering a GAAP-required non-cash pension settlement loss, which occurred in 2023 and 2022. The assumption used for the rate of increase in medical costs over the next five years was 5.0% in both 2023 and 2022.
The capital commitments do not represent the entire anticipated purchases in the future but represent only those substantive items for which the Company is contractually obligated as of December 31, 2022. Also, the Company has operating leases and two financing leases for certain offices, manufacturing facilities, land, office equipment and automobiles.
The capital commitments do not represent the entire anticipated purchases in the future but represent only those substantive items for which the Company is contractually obligated as of December 31, 2023. Also, the Company has operating leases and financing leases for certain offices, manufacturing facilities, land, office equipment and automobiles.
See Note 11 to the Consolidated Financial Statements, “Goodwill and Other Intangible Assets”. 23 Other indefinite-lived intangible assets primarily consist of trademarks and trade names. The fair value of these assets is also tested annually for impairment as of October 1, or whenever events or changes in circumstances indicate there may be a possible permanent loss of value.
See Note 10 to the Consolidated Financial Statements, “Goodwill and Other Intangible Assets”. 26 Other indefinite-lived intangible assets primarily consist of trademarks and trade names. The fair value of these assets is also tested annually for impairment as of October 1, or whenever events or changes in circumstances indicate there may be a possible permanent loss of value.
The identification of relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involve significant judgments and assumptions.
The identification of relevant events and circumstances and how these may impact a reporting unit’s fair value or carrying amount involves significant judgments and assumptions.
These consecutive years of increases continue to position Gorman-Rupp in the top 50 of all U.S. public companies with respect to number of years of increased dividend payments. The regular dividend yield at December 31, 2022 was 2.7%. The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends.
These consecutive years of increases continue to position Gorman-Rupp in the top 50 of all U.S. public companies with respect to number of years of increased dividend payments. The regular dividend yield at December 31, 2023 was 2.0%. The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends.
The discount rates were determined by constructing a zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date. The expected rate of return on pension assets is designed to be a long-term assumption that will be subject to year-to-year variability. The rate for 2022 was 5.0% and 2021 was 5.10%.
The discount rates were determined by constructing a zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date. The expected rate of return on pension assets is designed to be a long-term assumption that will be subject to year-to-year variability. The rate for 2023 was 6.2% and for 2022 was 5.0%.
Net cash received of $414.1 million from financing activities for 2022 consisted of proceeds from the Senior Secured Term Loan Facility of $350.0 million, $90.0 million from the unsecured Subordinated Credit Facility, and $17.0 million from the revolving Credit Facility.
During 2022, net cash received from financing activities of $414.1 million consisted primarily of proceeds from the Senior Secured Term Loan Facility of $350.0 million, $90.0 million from the unsecured Subordinated Credit Facility, and $17.0 million from the revolving Credit Facility.
Actual pension plan asset performance will either reduce or increase unamortized losses included in Accumulated other comprehensive loss, which will ultimately affect net income. The assumed rate of compensation increase was 3.50% in both 2022 and 2021. Substantially all retirees elect to take lump sum settlements of their pension plan benefits.
Actual pension plan asset performance will either reduce or increase unamortized losses included in Accumulated other comprehensive loss, which will ultimately affect net income. The assumed rate of compensation increase was 3.5% in both 2023 and 2022. 25 Substantially all retirees elect to take lump sum settlements of their pension plan benefits.
Results of Operations – 2021 Compared to 2020: Information pertaining to fiscal year 2020 was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 beginning on page 15 under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed with the SEC on March 1, 2021.
Results of Operations – Year ended December 31, 2022 compared to year ended December 31, 2021: Information pertaining to fiscal year 2021 was included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 beginning on page 15 under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which was filed with the SEC on February 28, 2022.
The effective tax rate for 2022 was impacted by similar benefits from credits and permanent items as the prior year on lower pretax income. We expect our effective tax rate for 2023 to be between 20.0% and 22.0%.
The Company’s effective tax rate was 20.5% for 2023 compared to 19.3% for 2022. The effective tax rate for 2022 was impacted by similar benefits from credits and permanent items as the prior year on lower pretax income. We expect our effective tax rate for 2024 to be between 20.0% and 22.0%.
During 2022, investing activities of $545.7 million consisted of $528.0 million for the acquisition of Fill-Rite and $18.0 million for capital expenditures primarily for machinery and equipment. During 2021, investing activities of $9.2 million consisted of capital expenditures primarily for machinery and equipment of $9.8 million.
During 2022, net cash used for investing activities of $545.7 million consisted primarily of $528.0 million for the acquisition of Fill-Rite and $18.0 million for capital expenditures largely related to machinery and equipment. During 2021, net cash used for investing activities of $9.2 million consisted primarily of capital expenditures of $9.8 million, largely related to machinery and equipment.
A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. For customer contracts with multiple performance obligations, the Company allocates revenue to each performance obligation based on its relative standalone selling price, which is generally determined based on standalone selling prices charged to customers or using expected cost plus margin.
For customer contracts with multiple performance obligations, the Company allocates revenue to each performance obligation based on its relative standalone selling price, which is generally determined based on standalone selling prices charged to customers or using expected cost plus margin.
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 from the acquisition date are included in the Company’s Consolidated Statements of Income for the year ended December 31, 2022.
The Company incurred $7.1 million of one-time acquisition costs during the year ended December 31, 2022. The results of operations for Fill-Rite from the acquisition date going forward are included in the Company’s Consolidated Statements of Income.
Rental expenses relating to these leases were $1.4 million in 2022, $0.9 million in both 2021 and 2020.
Rental expenses relating to these leases were $2.8 million in 2023, $1.4 million in 2022, and $0.9 million in 2021.
On January 26, 2023, the Board of Directors authorized the payment of a quarterly dividend of $0.175 per share, representing the 292nd consecutive quarterly dividend to be paid by the Company. During 2022, the Company again paid increased dividends and thereby attained its 50th consecutive year of increased dividends.
On January 25, 2024, the Board of Directors authorized the payment of a quarterly dividend of $0.18 per share, representing the 296th consecutive quarterly dividend to be paid by the Company. During 2023, the Company again paid increased dividends and thereby attained its 51st consecutive year of increased dividends.
The Company performed a quantitative impairment analysis as of October 1, 2022 for the National Pump Company (“National”) reporting unit and concluded that National’s fair value exceeded its carrying value and therefore was not impaired.
The Company performed a quantitative impairment analysis as of October 1, 2023 for National and Fill-Rite reporting units and concluded that the fair value of each reporting unit exceeded its carrying value and therefore was not impaired.
Maturities of long-term debt in the next five fiscal years, and the remaining years thereafter, are as follows: 2023 2024 2025 2026 2027 Total $ 17,500 $ 21,875 $ 30,625 $ 35,000 $ 343,250 $ 448,250 The Company was in compliance with its debt covenants, including limits on additional borrowings and maintenance of certain operating and financial ratios at December 31, 2022 and December 31, 2021.
See Note 5 “Financing Arrangements” in the Notes to our Consolidated Financial Statements. 23 Maturities of long-term debt in the next five fiscal years, and the remaining years thereafter, are as follows: 2024 2025 2026 2027 2028 Total $ 21,875 $ 30,625 $ 35,000 $ 326,250 $ - $ 413,750 The Company was in compliance with its debt covenants, including limits on additional borrowings and maintenance of certain operating and financial ratios at December 31, 2023 and December 31, 2022.
The discount rates used to value pension plan obligations were 4.89% at December 31, 2022 and 2.44% at December 31, 2021, respectively. The discount rates used to value postretirement obligations were 5.16% at December 31, 2022 and 2.70% at December 31, 2021, respectively.
The discount rates used to value pension plan obligations were 4.7% at December 31, 2023 and 4.9% at December 31, 2022, respectively. The discount rates used to value postretirement obligations were 4.9% at December 31, 2023 and 5.2% at December 31, 2022, respectively.
Capital expenditures for 2023, which are expected to consist principally of machinery and equipment purchases, are estimated to be in the range of $18 - $20 million and are expected to be financed through internally generated funds. During 2022, 2021 and 2020, the Company financed its capital improvements and working capital requirements principally through internally generated funds.
Capital expenditures in 2023 were $20.8 million and consisted primarily of machinery and equipment and building improvements. Capital expenditures for 2024, which are expected to consist principally of machinery and equipment purchases, are estimated to be in the range of $18 - $20 million and are expected to be financed through internally generated funds.
Pension Plans and Other Postretirement Benefit Plans The Company recognizes the obligations associated with its defined benefit pension plans and defined benefit health care plans in its Consolidated Financial Statements.
The Company uses the last-in, first-out (LIFO) method for the majority of its inventories. Pension Plans and Other Postretirement Benefit Plans The Company recognizes the obligations associated with its defined benefit pension plans and defined benefit health care plans in its Consolidated Financial Statements.
The following table summarizes the Company’s contractual obligations at December 31, 2022: Payment Due By Period Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Capital commitments $ 2,625 $ 2,625 $ - $ - $ - Leases 2,348 1,217 1,078 45 8 Total $ 4,973 $ 3,842 $ 1,078 $ 45 $ 8 Critical Accounting Policies The accompanying Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States.
The following table summarizes the Company’s contractual obligations at December 31, 2023: Payment Due By Period Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Capital commitments $ 3,616 $ 3,616 $ - $ - $ - Leases 40,552 2,501 5,230 3,330 29,491 Total $ 44,168 $ 6,117 $ 5,230 $ 3,330 $ 29,491 Critical Accounting Policies The accompanying Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States.
The Company had an additional $78.5 million available under the revolving credit facility after deducting $17.0 million drawn and $1.5 million in outstanding letters of credit primarily related to customer orders.
Cash and cash equivalents totaled $30.5 million at December 31, 2023. The Company had an additional $98.0 million available under the revolving credit facility after deducting $2.0 million in outstanding letters of credit primarily related to customer orders.
When adjusted for approximately $80.0 million in expected tax benefits, the net transaction value is approximately $448.0 million. The Company funded the transaction with cash on-hand and new debt.
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 is approximately $448.0 million. The Company funded the transaction with cash on-hand and new debt.
The Company performed a qualitative analyses as of October 1, 2022 and 2021 for all of its reporting units except for one and concluded that it is more likely than not that the fair value of the reporting units continues to exceed the respective carrying amounts.
The Company performed qualitative analyses as of October 1, 2023 and 2022 for all of its reporting units except for National Pump Company (“National”) in 2023 and 2022 and Fill-Rite in 2023 concluding that it was more likely than not that the fair value of the reporting units exceeded the respective carrying amounts.
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. 16 Outlook As we begin our 90th year, our outlook remains positive.
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 Our backlog has come down from the record levels that we saw in early 2023 but remains elevated as we enter 2024.
In addition, cash flow from accounts payable decreased $11.0 million from 2021 to 2022 and deferred revenue and customer deposits have decreased in the current year compared to an increase in the prior year.
In addition, cash flow from accounts payable decreased $11.0 million from 2021 to 2022 and deferred revenue and customer deposits have decreased in the current year compared to an increase in the prior year. During 2023, net cash used for investing activities of $20.2 million consisted primarily of $20.8 million used for capital expenditures, largely related to machinery and equipment.
Approximately 89% of the Company’s backlog of unfilled orders is scheduled to be shipped during 2023, with the remainder principally during the first half of 2024. Incoming orders increased 30.6% for the year ending December 31, 2022 compared to the same period in 2021, and 11.2% excluding Fill-Rite.
Approximately 90% of the Company’s backlog of unfilled orders is scheduled to be shipped during 2024, with the remainder principally during the first half of 2025. Incoming orders for the year ending December 31, 2023, were $617.6 million, an increase of 4.4%, compared to 2022.
The Company accrued approximately $0.2 million for the payment of interest and penalties at December 31, 2022, 2021 and 2020. Goodwill and Other Intangibles The Company accounts for goodwill in a purchase business combination as the excess of the cost over the fair value of net assets acquired. Business combinations can also result in other intangible assets being recognized.
Goodwill and Other Intangibles The Company accounts for goodwill in a purchase business combination as the excess of the cost over the fair value of net assets acquired. Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over their estimated useful lives.
The Company does not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions pertaining to the accounting policies described below.
The Company does not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions pertaining to the accounting policies described below. 24 Revenue Recognition The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” under which the unit of account is a performance obligation.
The following discussion of Results of Operations includes certain non-GAAP financial data and measures such as adjusted earnings per share and adjusted earnings before interest, taxes, depreciation and amortization.
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.
Cost of Products Sold and Gross Profit Year Ended December 31, 2022 2021 $ Change % Change Cost of products sold $ 390,090 $ 282,419 $ 107,671 38.1 % % of Net sales 74.9 % 74.7 % Gross margin 25.1 % 25.3 % Gross profit was $130.9 million in 2022, resulting in gross margin of 25.1%, compared to gross profit of $95.9 million and gross margin of 25.3% in 2021.
Cost of Products Sold and Gross Profit 2023 2022 $ Change % Change Cost of products sold $ 463,258 $ 390,090 $ 73,168 18.8 % % of Net sales 70.2 % 74.9 % Gross margin 29.8 % 25.1 % Gross profit was $196.3 million for 2023, resulting in gross margin of 29.8%, compared to gross profit of $130.9 million and gross margin of 25.1% in 2022.
The following table reconciles adjusted earnings before interest, income taxes and depreciation and amortization as reconciled above to free cash flow: 2022 2021 2020 Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization $ 88,749 $ 58,136 $ 49,508 Less capital expenditures (17,986 ) (9,751 ) (7,999 ) Less cash dividends (17,872 ) (16,586 ) (15,394 ) Non-GAAP free cash flow $ 52,891 $ 31,799 $ 26,115 19 Financial Cash Flow Year Ended December 31, 2022 2021 2020 Beginning of period cash and cash equivalents $ 125,194 $ 108,203 $ 80,555 Net cash provided by operating activities 13,685 45,438 51,162 Net cash used for investing activities (545,673 ) (9,169 ) (7,704 ) Net cash received from (used for) financing activities 414,113 (18,553 ) (16,136 ) Effect of exchange rate changes on cash (536 ) (725 ) 326 Net increase (decrease) in cash and cash equivalents (118,411 ) 16,991 27,648 End of period cash and cash equivalents $ 6,783 $ 125,194 $ 108,203 The decrease in cash provided by operating activities in 2022 compared to 2021 was primarily due to interest expense of $19.2 million and acquisition costs of $7.1 million as well as increases in accounts receivable and inventory as the result of increased sales and backlog.
Financial Cash Flow Year Ended December 31, 2023 2022 2021 Beginning of period cash and cash equivalents $ 6,783 $ 125,194 $ 108,203 Net cash provided by operating activities 98,225 13,685 45,438 Net cash used for investing activities (20,163 ) (545,673 ) (9,169 ) Net cash received from (used for) financing activities (54,527 ) 414,113 (18,553 ) Effect of exchange rate changes on cash 200 (536 ) (725 ) Net increase (decrease) in cash and cash equivalents 23,735 (118,411 ) 16,991 End of period cash and cash equivalents $ 30,518 $ 6,783 $ 125,194 The increase in cash provided by operating activities in 2023 compared to 2022 was primarily due to increased earnings before depreciation, amortization, and LIFO expense, and improved cash flow from working capital management.
Operating Income Year Ended December 31, 2022 2021 $ Change % Change Operating income $ 40,183 $ 39,356 $ 827 2.1 % % of Net sales 7.7 % 10.4 % Operating income was $40.2 million in 2022, which included $7.1 million in one-time acquisition costs, $1.4 million of inventory step up amortization, and $1.5 million of acquired customer backlog amortization.
Operating income in 2022 included $7.1 million of one-time acquisition costs, and $1.4 million of inventory step-up amortization. Excluding acquisition costs and inventory step-up totaling $8.5 million, operating income was $48.7 million in 2022 resulting in an operating margin of 9.3% of net sales.
Excluding acquisition costs, SG&A expenses were $76.0 million and 14.6% of net sales in 2022 compared to $56.0 million and 14.8% of net sales in 2021. The decrease in SG&A expenses as a percentage of sales, excluding acquisition costs, was primarily due to leverage from increased sales volume.
SG&A expenses in 2022 included $7.1 million of one-time acquisition costs. Excluding acquisition costs of $7.1 million, SG&A expenses were $76.0 million and 14.6% of net sales in 2022.
Revenue Recognition The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” under which the unit of account is a performance obligation. Substantially all of our revenue is derived from fixed-price customer contracts and the majority of our customer contracts have a single performance obligation.
Substantially all of our revenue is derived from fixed-price customer contracts and the majority of our customer contracts have a single performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer.
Adjusted earnings per share in 2022 were $0.94 per share compared to $1.21 per share in 2021. Adjusted earnings per share in 2022 included an unfavorable LIFO impact of $0.56 per share compared to an unfavorable LIFO impact of $0.20 per share in 2021. The Company’s effective tax rate was 19.3% for 2022 compared to 19.9% for 2021.
Adjusted earnings per share in 2023 were $1.37 per share compared to $0.94 per share in 2022. Adjusted earnings per share in 2023 included an unfavorable LIFO impact of $0.21 per share compared to an unfavorable LIFO impact of $0.56 per share in 2022. Adjusted earnings per share is a non-GAAP financial measure- please see “Non-GAAP Financial Information” below.
Interest Expense Year Ended December 31, 2022 2021 $ Change % Change Interest Expense $ 19,240 $ - $ 19,240 100.0 % % of Net sales 3.7 % - % Interest expense was $19.2 million in 2022. No interest expense was recorded in 2021.
Interest Expense 2023 2022 $ Change % Change Interest Expense $ 41,273 $ 19,240 $ 22,033 114.5 % % of Net sales 6.3 % 3.7 % Interest expense was $41.3 million in 2023 compared to $19.2 million in 2022.
The interest expense was due to debt financing attributable to the Fill-Rite acquisition. 18 Net Income Year Ended December 31, 2022 2021 $ Change % Change Income before income taxes $ 13,872 $ 37,248 $ (23,376 ) (62.8 )% % of Net sales 2.7 % 9.8 % Income taxes $ 2,677 $ 7,397 $ (4,720 ) (63.8 )% Effective tax rate 19.3 % 19.9 % Net income $ 11,195 $ 29,851 $ (18,656 ) (62.5 )% % of Net sales 2.1 % 7.9 % Earnings per share $ 0.43 $ 1.14 $ (0.71 ) (62.3 )% Net income was $11.2 million, or $0.43 per share, in 2022 compared to $29.9 million, or $1.14 per share, in 2021.
Net Income 2023 2022 $ Change % Change Income before income taxes $ 43,961 $ 13,872 $ 30,089 216.9 % % of Net sales 6.7 % 2.7 % Income taxes $ 9,010 $ 2,677 $ 6,333 236.6 % Effective tax rate 20.5 % 19.3 % Net income $ 34,951 $ 11,195 $ 23,756 212.2 % % of Net sales 5.3 % 2.1 % Earnings per share $ 1.34 $ 0.43 $ 0.91 211.6 % Net income was $35.0 million, or $1.34 per share, in 2023 compared to net income of $11.2 million, or $0.43 per share in 2022.
Amortization Expense Year Ended December 31, 2022 2021 $ Change % Change Amortization expense $ 7,637 $ 537 $ 7,100 1,322.2 % % of Net sales 1.5 % 0.1 % Amortization expense was $7.6 million in 2022 compared to $0.5 million in 2021. The increase in amortization expense was due to $7.0 million in amortization attributable to the Fill-Rite acquisition.
Amortization Expense 2023 2022 $ Change % Change Amortization expense $ 12,552 $ 7,637 $ 4,915 64.4 % % of Net sales 1.9 % 1.5 % Amortization expense was $12.6 million in 2023 compared to $7.6 million in 2022.
If National fails to experience growth or revises its long-term projections downward, it could be subject to impairment charges in the future. Goodwill relating to the National reporting unit is $13.6 million, 1.6% of the Company’s December 31, 2022 total assets.
If National or Fill-Rite fail to experience growth or revise their long-term projections downward, they could be subject to impairment charges in the future.
The 20 basis point decrease in gross margin was driven by a 280 basis point increase in cost of material, which included an unfavorable LIFO impact of 170 basis points, an unfavorable impact of 30 basis points related to Fill-Rite inventory recorded at fair value and recognized during the second quarter of 2022, and an unfavorable impact of 30 basis points related to the amortization of acquired Fill-Rite customer backlog.
The 470 basis point increase in gross margin included a 380 basis point improvement in cost of material, which consisted of a favorable LIFO impact of 240 basis points, a favorable impact of 30 basis points related to the Fill-Rite inventory step-up that was recognized in 2022 that did not recur in 2023 and a 110 basis point improvement from the realization of selling price increases.
For further discussion on the LIFO inventory costing method, see Note 1 “Summary of Significant Accounting Policies” and Note 5 “Inventories” in the Notes to our Consolidated Financial Statements. 17 Selling, General and Administrative (SG&A) Expenses Year Ended December 31, 2022 2021 $ Change % Change Selling, general and administrative expenses $ 83,117 $ 56,004 $ 27,113 48.4 % % of Net sales 16.0 % 14.8 % Selling, general and administrative (“SG&A”) expenses were $83.1 million in 2022, which included $7.1 million of one-time acquisition costs.
The increase in gross margin also included a 90 basis point improvement on labor and overhead leverage due to increased sales volume and sales mix which includes a full year of Fill-Rite sales in 2023 compared to seven months in 2022. 19 For further discussion on the LIFO inventory costing method, see Note 1 “Summary of Significant Accounting Policies” and Note 4 “Inventories” in the Notes to our Consolidated Financial Statements.
The Company contributed $2.3 million to its defined benefit pension plans in 2022 and expects to contribute up to $2.3 million to its defined benefit pension plans in 2023. Free cash flow, a non-GAAP measure for reporting cash flow, is defined by the Company as adjusted earnings before interest, income taxes and depreciation and amortization, less capital expenditures and dividends.
During 2023, 2022 and 2021, the Company financed its capital improvements and working capital requirements principally through internally generated funds. The Company contributed $2.3 million to its defined benefit pension plans in 2023 and expects to contribute up to $3.0 million to its defined benefit pension plans in 2024.
Removed
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Amounts in tables in thousands of dollars, except for per share data) Executive Overview 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.
Added
MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Amounts in tables in thousands of dollars, except for per share data) 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.
Removed
As a result of the Fill-Rite acquisition, the Company’s cash position decreased $118.4 million during the year ended December 31, 2022 to $6.8 million. The Company generated $88.7 million in adjusted earnings before interest, taxes, depreciation and amortization during the same period.
Added
The Company’s backlog of orders was $218.1 million at December 31, 2023 compared to $267.4 million at December 31, 2022, a decrease of 18.4%. The backlog was reduced from record levels towards the end of 2022 and beginning of 2023. The backlog aging in 2023 was consistent with historical levels.
Removed
From these earnings, the Company invested $18.0 million primarily in buildings, machinery and equipment and returned $17.9 million in dividends to shareholders. Capital expenditures in 2022 were $18.0 million and consisted primarily of machinery and equipment and building improvements.
Added
We expect backlog to return to more normal levels during 2024.
Removed
Capital expenditures for the full-year 2023 are presently planned to be in the range of $18-$20 million primarily for machinery and equipment purchases, and are expected to be financed through internally-generated funds. The Company’s backlog of orders was $267.4 million at December 31, 2022 compared to $186.0 million at December 31, 2021, an increase of 43.8%.
Added
Our diverse markets continue to be a strength and we remain well positioned to benefit from infrastructure spending and the increased demand for flood control and storm water management. 18 Results of Operations – Year ended December 31, 2023 compared to year ended December 31, 2022: Net Sales End Market 2023 2022 $ Change % Change Industrial $ 136,978 $ 100,826 $ 36,152 35.9 % Fire 143,551 121,001 22,550 18.6 % Agriculture 83,053 57,703 25,350 43.9 % Construction 86,996 60,557 26,439 43.7 % Municipal 78,528 69,726 8,802 12.6 % Petroleum 23,168 16,464 6,704 40.7 % OEM 37,708 34,820 2,888 8.3 % Repair parts 69,529 59,930 9,599 16.0 % Total net sales $ 659,511 $ 521,027 $ 138,484 26.6 % Net sales for 2023 of $659.5 million increased 26.6% or $138.5 million compared to net sales of $521.0 million in 2022.
Removed
Fill-Rite added $13.0 million to the backlog at December 31, 2022. The increase in backlog for the year ending December 31, 2022 was primarily driven by strong incoming orders during the year, large municipal orders which are longer term in nature, and the acquisition of Fill-Rite. The backlog aging was consistent with historical levels.
Added
The increase in sales was due to the inclusion of a full year of Fill-Rite sales compared to seven months of sales included in the prior year as well as an increase in volume and the impact of pricing increases taken in 2022 and an annual price increase in the first quarter of 2023.
Removed
We enter 2023 with record backlog and believe the majority of our markets will continue to show growth, particularly those related to infrastructure. We expect our 2023 gross margin to benefit as the pricing actions we have taken throughout 2022 are fully realized and the impact of LIFO and related expense returns to more normal levels.
Added
The Company’s two price increases in 2022, as well as the price increase in 2023 averaged between 4%-5%. Domestic sales increased 30.4% or $116.1 million and international sales increased 16.0% or $22.4 million compared to 2022.
Removed
In addition to pursuing earnings growth, we continue to focus on cash flow by improving on our working capital through inventory management without diminishing customer service.
Added
Sales increased $36.2 million in the industrial market primarily due to the inclusion of a full year of Fill-Rite sales in 2023 compared to seven months of sales included in the prior year. In addition to the increase from Fill-Rite, industrial sales increased $14.2 million due to the strengthening in the broader industrial economy.
Removed
Results of Operations – 2022 Compared to 2021: Net Sales Year Ended December 31, 2022 2021 $ Change % Change Net sales $ 521,027 $ 378,316 $ 142,711 37.7 % Net sales for 2022 were $521.0 million compared to net sales of $378.3 million for 2021, an increase of 37.7% or $142.7 million.
Added
Sales increased $25.4 million in the agriculture market due entirely to the inclusion of a full year of Fill-Rite sales compared to seven months of sales in the prior year.
Removed
Domestic sales of $381.3 million increased 46.3%, or $120.6 million, and international sales of $139.7 million increased 18.8%, or $22.1 million, compared to 2021. Fill-Rite sales, which are primarily domestic, were $87.4 million from the acquisition date of May 31, 2022 to December 31, 2022.
Added
Sales increased $26.4 million in the construction market primarily due to the inclusion of a full year of Fill-Rite sales compared to seven months of sales included in the prior year. In addition to the increase from Fill-Rite, construction sales increased $8.9 million due to overall strong conditions including infrastructure related projects.
Removed
Excluding Fill-Rite, sales in our water markets increased 15.9% or $42.5 million in 2022 compared to 2021. Sales increased $17.3 million in the fire market, $14.8 million in the municipal market, $6.4 million in the repair market, and $5.1 million in the construction market. Partially offsetting these increases was a decrease of $1.1 million in the agriculture market.
Added
Sales increased $22.6 million in the fire market primarily from increased domestic commercial construction, $9.6 million in the repair market due to strengthening in the broader industrial economy, $8.8 million in the municipal market due to domestic flood control and wastewater projects related to increased infrastructure investment, and $2.8 million in the OEM market.
Removed
Excluding Fill-Rite, sales in our non-water markets increased 11.7% or $12.8 million in 2022 compared to 2021. Sales increased $13.5 million in the industrial market and $1.9 million in the OEM market. Partially offsetting these increases was a decrease of $2.6 million in the petroleum market.
Added
Sales in the petroleum market increased $6.7 million primarily due to the inclusion of a full year of Fill-Rite sales compared to seven months of sales included in the prior year as well as increased demand for larger petroleum transfer pumps.
Removed
The full amount of the step up to record Fill-Rite inventory at fair value was recognized during the second quarter of 2022 and will not recur, while the acquired Fill-Rite customer backlog will be fully amortized within the next two quarters.
Added
Selling, General and Administrative (SG&A) Expenses 2023 2022 $ Change % Change Selling, general and administrative expenses $ 96,660 $ 83,117 $ 13,543 16.3 % % of Net sales 14.7 % 16.0 % Selling, general and administrative (“SG&A”) expenses were $96.7 million and 14.7% of net sales in 2023 compared to $83.1 million and 16.0% of net sales in 2022.
Removed
The increase in cost of material was partially offset by a 260 basis point improvement from labor and overhead leverage due to increased sales volume.
Added
The increase in SG&A expenses, excluding acquisition costs, was due to the inclusion of Fill-Rite expenses for the full year in 2023 as compared to seven months in 2022, as well as increased expenses to support sales growth.
Removed
Excluding acquisition costs, inventory step up and backlog amortization, operating income was $50.2 million in 2022, resulting in an operating margin of 9.6%, compared to operating income of $39.4 million and operating margin of 10.4% in 2021. The decrease of 80 basis points in operating margin was primarily the result of an unfavorable LIFO impact.
Added
The increase in amortization expense was due to the inclusion of a full year of amortization attributable to the Fill-Rite acquisition in 2023 compared to seven months in 2022.
Removed
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 $6.8 million at December 31, 2022.
Added
Operating Income 2023 2022 $ Change % Change Operating Income $ 87,041 $ 40,183 $ 46,858 116.6 % % of Net sales 13.2 % 7.7 % Operating income was $87.0 million in 2023, resulting in an operating margin of 13.2%, compared to operating income of $40.2 million and operating margin of 7.7% in 2022.
Removed
During 2022, our debt obligations increased as a result of the Senior Term Loan Facility, revolving Credit Facility and Subordinated Credit Facility entered into in connection with the Fill-Rite transaction. See Note 6 “Financing Arrangements” in the Notes to our Consolidated Financial Statements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+1 added−1 removed4 unchanged
Biggest changeTo 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.
Biggest changeSee Note 5 “Financing Arrangements” in the Notes to our Consolidated Financial Statements. 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.
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 senior term loan facility and revolving 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%.
See “Derivative Financial Instruments” and “Interest Rate Derivatives” in the Notes to our Consolidated Financial Statements. The Company estimates that a hypothetical increase of 100 basis points in interest rates would increase interest expense by approximately $2.8 million on an annual basis.
See “Derivative Financial Instruments” and “Interest Rate Derivatives” in the Notes to our Consolidated Financial Statements. The Company estimates that a hypothetical increase of 100 basis points in interest rates would increase interest expense by approximately $2.5 million on an annual basis.
These financial instruments are used to mitigate market exposure and are not used for trading or speculative purposes. 24 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.
These financial instruments are used to mitigate market exposure and are not used for trading or speculative purposes. 27 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, revolving credit facility, and subordinated credit facility.
The foreign currency transaction gains (losses) for 2022 and 2020 were $0.2 million and $0.3 million, respectively, and are reported within Other (expense) income, net on the Consolidated Statements of Income. There were no net foreign currency transaction gains (losses) for the period ending December 31, 2021.
The foreign currency transaction gains (losses) for 2023 and 2022 were $(0.4) million and $0.2 million, respectively, and are reported within Other (expense) income, net on the Consolidated Statements of Income. There were no net foreign currency transaction gains (losses) for the period ending December 31, 2021.
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%.
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 December 31, 2023, the Company had $323.8 million in borrowings under the senior term loan facility, $90.0 million in borrowings under the subordinated credit facility, and no borrowings under the revolving credit facility.
Removed
At December 31, 2022, the Company had $341.3 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. See Note 6 “Financing Arrangements” in the Notes to our Consolidated Financial Statements.
Added
Terms of the interest rate swap agreements require the Company to receive a fixed interest rate and pay a variable interest rate.

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