grc20240930_10q.htm

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 September 30, 2024

☐	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 incorporation or organization)		(I.R.S. Employer 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 October 28, 2024 there were 26,227,540 common shares, without par value, of The Gorman-Rupp Company outstanding.

The Gorman-Rupp Company

Three and Nine Months Ended September 30, 2024 and 2023

PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income - Three months ended September 30, 2024 and 2023 - Nine months ended September 30, 2024 and 2023	3
	Consolidated Statements of Comprehensive Income - Three months ended September 30, 2024 and 2023 - Nine months ended September 30, 2024 and 2023	3
	Consolidated Balance Sheets - September 30, 2024 and December 31, 2023	4
	Consolidated Statements of Cash Flows - Nine months ended September 30, 2024 and 2023	5
	Consolidated Statements of Equity - Nine months ended September 30, 2024 and 2023	6

	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 4.	Controls and Procedures	23

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Information	25
Item 5.	Other Information	25
Item 6.	Exhibits	26
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

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands, except per share amounts)	2024			2023			2024			2023
Net sales	$	168,182		$	167,456		$	496,963		$	498,946
Cost of products sold		115,521			119,322			341,828			353,631
Gross profit		52,661			48,134			155,135			145,315
Selling, general and administrative expenses		25,675			23,233			75,494			70,664
Amortization expense		3,101			3,026			9,278			9,398
Operating income		23,885			21,875			70,363			65,253
Interest expense		(7,766	)		(10,475	)		(26,886	)		(31,147	)
Other income (expense), net		(59	)		(416	)		(6,662	)		(1,385	)
Income before income taxes		16,060			10,984			36,815			32,721
Provision for income taxes		3,141			2,006			7,677			6,746
Net income	$	12,919		$	8,978		$	29,138		$	25,975
Earnings per share	$	0.49		$	0.34		$	1.11		$	0.99
Average number of shares outstanding		26,227,540			26,193,656			26,216,521			26,167,494

See notes to consolidated financial statements (unaudited).

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2024			2023			2024			2023
Net income	$	12,919		$	8,978		$	29,138		$	25,975
Other comprehensive income (loss), net of tax:
Cumulative translation adjustments		1,866			(1,166	)		677			(888	)
Cash flow hedging activity		(2,612	)		1,238			(770	)		2,332
Pension and postretirement medical liability adjustments		255			226			228			592
Other comprehensive income (loss)		(491	)		298			135			2,036
Comprehensive income	$	12,428		$	9,276		$	29,273		$	28,011

See notes to consolidated financial statements (unaudited).

THE GORMAN-RUPP COMPANY

CONSOLIDATED BALANCE SHEETS

	(unaudited)
(Dollars in thousands)	September 30, 2024			December 31, 2023
Assets
Current assets:
Cash and cash equivalents	$	39,701		$	30,518
Accounts receivable, net		88,350			89,625
Inventories, net		101,781			104,156
Prepaid and other		10,806			11,812
Total current assets		240,638			236,111
Property, plant and equipment, net		133,619			134,872
Other assets		23,871			24,841
Other intangible assets, net		227,536			236,813
Goodwill		257,810			257,721
Total assets	$	883,474		$	890,358
Liabilities and equity
Current liabilities:
Accounts payable	$	26,242		$	23,277
Payroll and employee related liabilities		26,914			20,172
Commissions payable		6,415			10,262
Deferred revenue and customer deposits		9,681			12,521
Current portion of long-term debt		18,500			21,875
Accrued expenses		12,763			12,569
Total current liabilities		100,515			100,676
Pension benefits		7,754			11,500
Postretirement benefits		22,717			22,786
Long-term debt, net of current portion		362,489			382,579
Other long-term liabilities		22,665			23,358
Total liabilities		516,140			540,899
Equity:
Common shares, without par value:
Authorized - 35,000,000 shares;
Outstanding - 26,227,540 shares at September 30, 2024 and 26,193,998 shares at December 31, 2023 (after deducting treasury shares of 821,256 and 953,931, respectively), at stated capital amounts		5,126			5,119
Additional paid-in capital		8,378			5,750
Retained earnings		378,632			363,527
Accumulated other comprehensive (loss)		(24,802	)		(24,937	)
Total equity		367,334			349,459
Total liabilities and equity	$	883,474		$	890,358

See notes to consolidated financial statements (unaudited).

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended September 30,
(Dollars in thousands)	2024			2023
Cash flows from operating activities:
Net income	$	29,138		$	25,975
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		20,973			21,196
LIFO expense		3,445			6,414
Pension expense		1,989			2,426
Stock based compensation		3,025			2,335
Contributions to pension plans		(4,510	)		(2,250	)
Amortization of debt issuance fees		6,110			2,247
Gain on sale of property, plant, and equipment		(1,021	)		-
Other		296			1,282
Changes in operating assets and liabilities:
Accounts receivable, net		1,426			(6,515	)
Inventories, net		(921	)		656
Accounts payable		2,885			230
Commissions payable		(3,875	)		(531	)
Deferred revenue and customer deposits		(2,833	)		2,053
Income taxes		670			2,186
Accrued expenses and other		(1,894	)		5,499
Benefit obligations		5,671			8,456
Net cash provided by operating activities		60,574			71,659
Cash flows from investing activities:
Capital additions		(10,309	)		(16,917	)
Proceeds from sale of property, plant, and equipment		2,278			-
Other		-			608
Net cash used for investing activities		(8,031	)		(16,309	)
Cash flows from financing activities:
Cash dividends		(14,157	)		(13,732	)
Treasury share repurchases		(267	)		(1,028	)
Proceeds from bank borrowings		400,000			5,000
Payments to banks for borrowings		(428,375	)		(33,125	)
Debt issuance fees		(746	)		-
Other		(86	)		(519	)
Net cash used for financing activities		(43,631	)		(43,404	)
Effect of exchange rate changes on cash		271			(540	)
Net increase in cash and cash equivalents		9,183			11,406
Cash and cash equivalents:
Beginning of period		30,518			6,783
End of period	$	39,701		$	18,189

See notes to consolidated financial statements (unaudited).

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

	Nine Months Ended September 30, 2024
(Dollars in thousands, except	Common Shares						Additional Paid-In			Retained			Accumulated Other Comprehensive
share and per share amounts)	Shares			Dollars			Capital			Earnings			(Loss) Income			Total
Balances December 31, 2023		26,193,998		$	5,119		$	5,750		$	363,527		$	(24,937	)	$	349,459
Net income											7,884						7,884
Other comprehensive income														248			248
Stock based compensation, net		24,336			5			979			90						1,074
Treasury share repurchases		(7,348	)		(2	)		(238	)		(27	)					(267	)
Cash dividends - $0.18 per share											(4,715	)					(4,715	)
Balances March 31, 2024		26,210,986		$	5,122		$	6,491		$	366,759		$	(24,689	)	$	353,683
Net income											8,335						8,335
Other comprehensive income														378			378
Stock based compensation, net		16,554			4			816			61						881
Cash dividends - $0.18 per share											(4,718	)					(4,718	)
Balances June 30, 2024		26,227,540		$	5,126		$	7,307		$	370,437		$	(24,311	)	$	358,559
Net income											12,919						12,919
Other comprehensive loss														(491	)		(491	)
Stock based compensation, net								1,071									1,071
Cash dividends - $0.18 per share											(4,724	)					(4,724	)
Balances September 30, 2024		26,227,540		$	5,126		$	8,378		$	378,632		$	(24,802	)	$	367,334

	Nine Months Ended September 30, 2023
(Dollars in thousands, except	Common Shares						Additional Paid-In			Retained			Accumulated Other Comprehensive
share and per share amounts)	Shares			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
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
Net income											8,978						8,978
Other comprehensive loss														298			298
Stock based compensation, net		15,750			3			668			58						729
Cash dividends - $.0175 per share											(4,584	)					(4,584	)
Balances September 30, 2023		26,193,998		$	5,118		$	4,833		$	359,267		$	(22,438	)	$	346,780

See notes to consolidated financial statements (unaudited).

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 nine months ended September 30, 2024 are not necessarily indicative of results that may be expected for the year ending December 31, 2024. 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, 2023, from which related information herein has been derived.

Accounting Standards Issued But Not Yet Adopted

The Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new standard is intended to improve reportable segment disclosure requirements, primarily through additional and more detailed information about a reportable segment's expenses. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The guidance is to be applied retrospectively to all prior periods presented in the financial statements. The Company plans to adopt this ASU for its fiscal year end December 31, 2024 disclosures, but does not anticipate the adoption to have a material impact on the Company's financial disclosures.

The FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The standard is intended to enhance the transparency and decision usefulness of income tax disclosures. This amendment modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation and additional information for reconciling items that meet a quantitative threshold, (2) the amount of income taxes paid, net of refunds received, disaggregated by federal, state, and foreign taxes, as well as individual jurisdictions in which income taxes paid is equal to or greater than 5 percent of total income taxes paid, (3) the income or loss from continuing operations before income tax expense or benefit disaggregated between domestic and foreign, and (4) income tax expense or benefit from continuing operations disaggregated by federal, state and foreign. Thew standard is effective for annual periods beginning after December 15, 2024. The standard should be applied on a prospective basis, while retrospective application is permitted. The Company does not anticipate the adoption to have a material impact on the Company's financial disclosures.

NOTE 2 – REVENUE

Disaggregation of Revenue

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

	End market
	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Industrial	$	30,939	$	34,777	$	99,054	$	103,886
Fire		31,591		35,986		92,742		109,211
Agriculture		20,496		21,235		62,282		65,292
Construction		22,255		23,388		65,592		66,723
Municipal		24,279		18,841		70,668		55,831
Petroleum		7,004		5,801		18,351		16,440
OEM		11,579		9,730		31,420		28,223
Repair parts		20,039		17,698		56,854		53,340
Total net sales	$	168,182	$	167,456	$	496,963	$	498,946

	Geographic Location
	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
United States	$	124,434	$	127,132	$	366,030	$	375,170
Foreign countries		43,748		40,324		130,933		123,776
Total net sales	$	168,182	$	167,456	$	496,963	$	498,946

The Company attributes revenues to individual countries based on the customer location to which finished products are shipped. International sales represented approximately 26% and 24% of total net sales for the third quarter of 2024 and 2023, respectively.

On September 30, 2024, the Company had $207.8 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 September 30, 2024 and December 31, 2023 were as follows:

	September 30, 2024		December 31, 2023
Contract assets	$	-	$	-
Contract liabilities	$	9,681	$	12,521

Revenue recognized for the nine months ended September 30, 2024 and 2023 that was included in the contract liabilities balance at the beginning of the period was $8.6 million and $4.5 million, respectively.

NOTE 3 - 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 was approximately $98.5 million and $95.1 million at September 30, 2024 and December 31, 2023, respectively. Allowances for excess and obsolete inventory totaled $7.1 million and $7.9 million at September 30, 2024 and December 31, 2023, 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.

Inventories are comprised of the following:

	September 30, 2024		December 31, 2023
Inventories, net:
Raw materials and in-process	$	36,658	$	37,037
Finished parts		49,418		52,458
Finished products		15,705		14,661
Total net inventories	$	101,781	$	104,156

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

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

	September 30, 2024			December 31, 2023
Land	$	6,249		$	6,214
Buildings		123,624			121,517
Machinery and equipment		229,991			227,567
	$	359,864		$	355,298
Less accumulated depreciation		(226,245	)		(220,426	)
Property, plant and equipment, net	$	133,619		$	134,872

NOTE 5 - 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:

	September 30,
	2024			2023
Balance of beginning of year	$	2,269		$	1,973
Provision		2,349			3,121
Claims		(2,332	)		(2,716	)
Balance at end of period	$	2,286		$	2,378

NOTE 6 - 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.

Upon the Company’s acquisition of the assets of Fill-Rite and Sotera (“Fill-Rite”), a division of Tuthill Corporation, as of June 1, 2022, the Company established a defined benefit pension plan for certain Fill-Rite employees (“Fill-Rite Plan”). The Fill-Rite Plan was frozen on January 31, 2024 and terminated on April 30, 2024. The assets of the Fill-Rite Plan will be distributed to employees in the fourth quarter. Participants in the Fill-Rite Plan now participate in the Company’s enhanced 401(k) plan.

Additionally, the Company sponsors defined contribution pension plans made available to all domestic and Canadian employees. The Company funds the cost of these benefits as incurred.

The 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 September 30,						Three Months Ended September 30,
	2024			2023			2024			2023
Service cost	$	502		$	530		$	213		$	209
Interest cost		668			635			285			299
Expected return on plan assets		(839	)		(657	)		-			-
Amortization of prior service cost		-			-			-			(249	)
Recognized actuarial loss (gain)		332			301			(8	)		(9	)
Net periodic benefit cost (a)	$	663		$	809		$	490		$	250

	Pension Benefits						Postretirement Benefits
	Nine Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Service cost	$	1,506		$	1,591		$	639		$	626
Interest cost		2,006			1,904			857			897
Expected return on plan assets		(2,518	)		(1,971	)		-			-
Amortization of prior service cost		-			-			-			(746	)
Recognized actuarial loss (gain)		995			902			(25	)		(28	)
Net periodic benefit cost (a)	$	1,989		$	2,426		$	1,471		$	749

(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.

NOTE 7 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

	Currency Translation Adjustments			Deferred Gain (Loss) on Cash Flow Hedging			Pension and OPEB Adjustments			Accumulated Other Comprehensive (Loss) Income
Balance at December 31, 2023	$	(9,688	)	$	(1,069	)	$	(14,180	)	$	(24,937	)
Reclassification adjustments		-			(1,540	)		216			(1,324	)
Current period benefit (charge)		677			528			251			1,456
Income tax benefit (charge)		-			242			(239	)		3
Balance at September 30, 2024	$	(9,011	)	$	(1,839	)	$	(13,952	)	$	(24,802	)

	Currency Translation Adjustments			Deferred Gain (Loss) on Cash Flow Hedging			Pension and OPEB Adjustments			Accumulated Other Comprehensive (Loss) Income
Balance at December 31, 2022	$	(10,619	)	$	(617	)	$	(13,238	)	$	(24,474	)
Reclassification adjustments		-			(1,096	)		874			(222	)
Current period benefit (charge)		(888	)		4,154			(68	)		3,198
Income tax benefit (charge)		-			(726	)		(214	)		(940	)
Balance at September 30, 2023	$	(11,507	)	$	1,715		$	(12,646	)	$	(22,438	)

NOTE 8 – 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 September 30, 2024, the Company had $48.1 million available for repurchase under the share repurchase program. During the nine-month period ending September 30, 2024, the Company repurchased 7,348 shares at an average cost per share of $36.34 for a total of $0.3 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 nine month period ending September 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. No shares were repurchased during the three month periods ending September 30, 2024 and 2023.

NOTE 9 – FINANCING ARRANGEMENTS

Debt consisted of:
	September 30, 2024			December 31, 2023
Senior Secured Credit Agreement	$	355,375		$	323,750
6.40% Note Agreement		30,000			-
Subordinated Credit Agreement		-			90,000
Total debt		385,375			413,750
Unamortized discount and debt issuance fees		(4,386	)		(9,296	)
Total debt, net		380,989			404,454
Less: current portion of long-term debt		(18,500	)		(21,875	)
Total long-term debt, net	$	362,489		$	382,579

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.

Amended and Restated Senior Secured Credit Agreement

On May 31, 2024, the Company entered into an Amended and Restated Senior Secured Credit Agreement (the “Amended and Restated Senior Credit Agreement”) with several lenders, which amended, extended, and restated the Company’s existing Senior Secured Credit Agreement, dated as of May 31, 2022. The Amended and Restated Senior Credit Agreement provides for a term loan facility in an aggregate principal amount of $370 million (the “Senior Term Loan Facility”), a revolving credit facility in an aggregate principal amount of up to $100 million (the “Credit Facility”), a letter of credit sub-facility in the aggregate available amount of up to $30 million, as a sublimit of the Credit Facility, and a swing line sub-facility in the aggregate available amount of up to $20 million, as a sublimit of the Credit Facility. The obligations of the Company under the Amended and Restated Senior Credit Agreement are secured by a first priority lien on substantially all of its personal property, and guaranteed by certain of the Company’s direct, wholly-owned subsidiaries (the “Guarantors”), which guarantees are secured by a first priority lien in substantially all of the Guarantors’ personal property.

The Amended and Restated Senior Credit Agreement has a maturity date of May 31, 2029, with the Senior Term Loan Facility requiring quarterly installment payments commencing on September 30, 2024 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 (as defined in the Amended and Restated Senor Credit Agreement), plus the applicable margin, which ranges from 0.5% to 1.25% for base rate loans and 1.50% to 2.25% for Adjusted Term SOFR Rate loans. The applicable margin is based on the Company’s total leverage ratio. At September 30, 2024, the applicable interest rate under the Amended and Restated Senior Secured Credit Agreement was Adjusted Term SOFR plus 2.25%.

The Amended and Restated Senior Credit Agreement requires the Company to maintain a consolidated total net leverage ratio not to exceed 4.50 to 1.00 for each of the four consecutive fiscal quarter periods ending June 30, 2024 and September 30, 2024, decreasing to 4.25 to 1.00 for each of the four consecutive quarters ending December 31, 2024 and March 31, 2025, decreasing to 4.00 to 1.00 for each of the four consecutive fiscal quarter periods ending June 30, 2025 and September 30, 2025, and decreasing to 3.50 to 1.00 for the four consecutive fiscal quarter periods ending December 31, 2025 and each of the four consecutive fiscal quarter periods ending thereafter.

The Amended and Restated Senior Credit Agreement requires the Company to maintain an interest coverage ratio of not less than 3.00 to 1.00 for any four consecutive fiscal quarter period.

The Amended and Restated Senior Credit Agreement contains customary affirmative and negative covenants, including among others, limitations on the Company and its subsidiaries with respect to the incurrence of liens and indebtedness, dispositions of assets, mergers, transaction with affiliates, and the ability to make or pay dividends in excess of certain thresholds.

The Amended and Restated Senior Credit Agreement also contains customary provisions requiring the following mandatory prepayments, including, among others, prepayments of the net cash proceeds from any non-ordinary course sale of assets, and net cash proceeds of any non-permitted indebtedness.

6.40% Note Agreement

On May 31, 2024, the Company entered into a Note Agreement (the “6.40% Note Agreement”) whereby the Company issued $30.0 million aggregate principal amount of 6.40% senior secured notes (the “6.40% Notes”). The Company’s obligations under the 6.40% Notes are secured by a first priority lien on substantially all of its personal property, and guaranteed by each of the Guarantors, which guarantees are secured by a first priority lien in substantially all of the Guarantors’ personal property. The liens granted under the 6.40% Notes are equal in priority to those granted pursuant to the Amended and Restated Senior Credit Agreement.

The 6.40% Note Agreement has a maturity date of May 31, 2031 and interest is payable semiannually on the last day of May and November in each year, commencing with November 30, 2024.

The 6.40% Note Agreement includes representations, warranties, covenants and events of default, substantially consistent with those contained in the Amended and Restated Senior Credit Agreement.

Subordinated Credit Agreement

On May 31, 2024, using the proceeds from the upsized Amended and Restated Senior Secured Credit Agreement and the issuance of the 6.40% Notes, as well as approximately $10.0 million of cash on hand, the Company repaid in full all outstanding indebtedness and terminated all commitments and obligations under its unsecured subordinated credit agreement (the “Subordinated Credit Agreement”), dated as of May 31, 2022.

The Company’s payment to the lenders under the Subordinated Credit Agreement was approximately $91.8 million, which included a make-whole payment of approximately $1.8 million. This amount satisfies all of the Company’s obligations under the Subordinated Credit Agreement, which would have matured on December 1, 2027.

Other

In the second quarter of 2024, the Company expensed $1.3 million of transaction related fees and recorded a non-cash charge of $4.4 million to write-off unamortized previously deferred transaction fees related to both the Subordinated Credit Agreement and a portion of the existing Senior Term Loan Facility.

In the second quarter of 2024, the Company incurred total issuance costs of approximately $0.7 million related to the Amended and Restated Senior Secured Credit Agreement and the 6.40% Note Agreement. These costs are being amortized to interest expense over the respective terms.

The Company was in compliance with all debt covenants as of September 30, 2024.

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 September 30, 2024 and December 31, 2023:

Notional Amount

Average Fixed Rate

September 30,

2024

December 31,

2023

September 30,

2024

December 31,

2023

Term

Interest rate swaps

154,219

161,875

4.1%

Extending to May 2027

The fair value of the Company’s interest rate swaps was a payable of $2.4 million as of September 30, 2024 and a payable of $1.4 million as of December 31, 2023. 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 September 30, 2024 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:

	September 30, 2024			December 31, 2023
Current Assets:
Prepaid and Other	$	-		$	955
Liabilities:
Accrued expenses		(376	)		-
Other long-term liabilities		(2,036	)		(2,355	)
Total derivatives	$	(2,412	)	$	(1,400	)

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

Derivatives in Cash Flow Hedging Relationships	Amount of (Loss) Gain Recognized in AOCI on Derivatives
	Three Months Ended September 30,					Nine Months Ended September 30,
	2024			2023		2024		2023
Interest rate swaps	$	(2,923	)	$	2,131	$	528	$	4,154

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

Location of (Loss) Gain Reclassed from AOCI into Income (Effective Portion)	Amount of (Loss) Gain Reclassed from AOCI into Income (Effective Portion)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Interest expense	$	(503	)	$	(508	)	$	(1,540	)	$	(1,096	)

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, 2023.

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.

The Company’s backlog of orders was $207.8 million at September 30, 2024 compared to $237.5 million at September 30, 2023 and $218.1 million at December 31, 2023. Incoming orders for the first nine months of 2024 were $496.1 million, or an increase of 4.1%, compared to the same period in 2023.

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

Our year-to-date incoming orders are exceeding last year’s pace and are up just over 4%. As expected, we reduced our backlog during the quarter, however our backlog still remains at healthy levels as we head into the fourth quarter.

Effective January 3, 2025, his 47th anniversary of working for Gorman-Rupp, Jeffrey S. Gorman, age 72, will transition from Executive Chairman of the Board to Chairman of the Board. In his new role as Chairman of the Board, Mr. Gorman will continue to provide valuable insights and governance oversight while working closely with the Board of Directors and the executive team in supporting the Company’s long-term strategic objectives.

Three Months Ended September 30, 2024 vs. Three Months Ended September 30, 2023

Net Sales

The following table presents the Company’s disaggregated net sales by its end markets for the three months ended September 30, 2024 and September 30, 2023:

	Three Months Ended September 30,
	2024		2023		$ Change			% Change
Industrial	$	30,939	$	34,777	$	(3,838	)		(11.0	)%
Fire		31,591		35,986		(4,395	)		(12.2	)%
Agriculture		20,496		21,235		(739	)		(3.5	)%
Construction		22,255		23,388		(1,133	)		(4.8	)%
Municipal		24,279		18,841		5,438			28.9	%
Petroleum		7,004		5,801		1,203			20.7	%
OEM		11,579		9,730		1,849			19.0	%
Repair parts		20,039		17,698		2,341			13.2	%
Total net sales	$	168,182	$	167,456	$	726			0.4	%

Net sales for the third quarter of 2024 were $168.2 million compared to net sales of $167.5 million for the third quarter of 2023, an increase of 0.4% or $0.7 million. The increase in sales was due to the impact of pricing increases taken in the first quarter of 2024 partially offset by a decrease in volume.

Sales increased $5.4 million in the municipal market due to domestic flood control and wastewater projects related to increased infrastructure investment, $2.3 million in the repair market also related to domestic flood control and wastewater projects, $1.8 million in the OEM market primarily related to computer cooling, and $1.2 million in the petroleum market primarily driven by increased international refueling applications. These increases were offset by a sales decrease of $4.4 million in the fire suppression market primarily resulting from backlog returning to more normal levels. Fire suppression sales in 2023 were up significantly compared to 2022 as the Company was working to return backlog and lead times to normal levels, which resulted in higher 2023 sales and a tougher year-over-year comparison for 2024. Sales for the third quarter of 2024 also decreased $3.8 million in the industrial market and $1.1 million in the construction market due to slower construction activity and $0.7 million in the agriculture market primarily driven by a significant decline in farm income.

Cost of Products Sold and Gross Profit

	Three Months Ended September 30,
	2024			2023			$ Change			% Change
Cost of products sold	$	115,521		$	119,322		$	(3,801	)		(3.2	)%
% of Net sales		68.7	%		71.3	%
Gross Margin		31.3	%		28.7	%

Gross profit was $52.7 million for the third quarter of 2024, resulting in gross margin of 31.3%, compared to gross profit of $48.1 million and gross margin of 28.7% for the same period in 2023. The 260 basis point increase in gross margin included a 240 basis point improvement in cost of material, which consisted of a reduction in LIFO expense of 40 basis points and a 200 basis point improvement from the realization of selling price increases. The increase in gross margin also included a 20 basis point improvement on labor and overhead leverage.

Selling, General and Administrative (SG&A) Expenses

	Three Months Ended September 30,
	2024			2023			$ Change		% Change
Selling, general and administrative expenses	$	25,675		$	23,233		$	2,442		10.5	%
% of Net sales		15.3	%		13.9	%

SG&A expenses were $25.7 million and 15.3% of net sales for the third quarter of 2024 compared to $23.2 million and 13.9% of net sales for the same period in 2023. SG&A expenses increased due to payroll and payroll related costs, including healthcare costs, as well as increased selling activity.

Operating Income

	Three Months Ended September 30,
	2024			2023			$ Change		% Change
Operating Income	$	23,885		$	21,875		$	2,010		9.2	%
% of Net sales		14.2	%		13.1	%

Operating income was $23.9 million for the third quarter of 2024, resulting in an operating margin of 14.2%, compared to operating income of $21.9 million and operating margin of 13.1% for the same period in 2023. Operating margin in the third quarter of 2024 increased 110 basis points compared to the same period in 2023 primarily due to improved cost of material, partially offset by increased SG&A expenses.

Interest Expense

	Three Months Ended September 30,
	2024			2023			$ Change			% Change
Interest Expense	$	7,766		$	10,475		$	(2,709	)		(25.9	)%
% of Net sales		4.6	%		6.3	%

Interest expense was $7.8 million for the third quarter of 2024 compared to $10.5 million for the same period in 2023. The decrease in interest expense was due primarily to a series of refinancing transactions the Company completed on May 31, 2024.

Net Income

	Three Months Ended September 30,
	2024			2023			$ Change		% Change
Income before income taxes	$	16,060		$	10,984		$	5,076		46.2	%
% of Net sales		9.5	%		6.6	%
Income taxes	$	3,141		$	2,006		$	1,135		56.6	%
Effective tax rate		19.6	%		18.3	%
Net income	$	12,919		$	8,978		$	3,941		43.9	%
% of Net sales		7.7	%		5.4	%
Earnings per share	$	0.49		$	0.34		$	0.15		44.1	%

The Company’s effective tax rate was 19.6% for the third quarter of 2024 compared to 18.3% for the third quarter of 2023.

Net income was $12.9 million, or $0.49 per share, for the third quarter of 2024 compared to net income of $9.0 million, or $0.34 per share, in the third quarter of 2023.

Adjusted EBITDA was $32.0 million and 19.0 % of sales for the third quarter of 2024 compared to $30.5 million and 18.2% of sales for the third quarter of 2023.

Nine Months Ended September 30, 2024 vs. Nine Months Ended September 30, 2023

Net Sales

The following table presents the Company’s disaggregated net sales by its end markets for the nine months ended September 30, 2024 and September 30, 2023:

	Nine Months Ended September 30,
	2024		2023		$ Change			% Change
Industrial	$	99,054	$	103,886	$	(4,832	)		(4.7	)%
Fire		92,742		109,211		(16,469	)		(15.1	)%
Agriculture		62,282		65,292		(3,010	)		(4.6	)%
Construction		65,592		66,723		(1,131	)		(1.7	)%
Municipal		70,668		55,831		14,837			26.6	%
Petroleum		18,351		16,440		1,911			11.6	%
OEM		31,420		28,223		3,197			11.3	%
Repair parts		56,854		53,340		3,514			6.6	%
Total net sales	$	496,963	$	498,946	$	(1,983	)		(0.4	)%

Net sales for the first nine months of 2024 were $496.9 million compared to net sales of $498.9 million for the first nine months of 2023, a decrease of 0.4% or $2.0 million. The decrease in sales was due to a decrease in volume partially offset by the impact of pricing increases taken in the first quarter of 2024.

Sales increased $14.8 million in the municipal market due to domestic flood control and wastewater projects related to increased infrastructure investment, $3.5 million in the repair market also related to domestic flood control and wastewater projects, $3.2 million in the OEM market primarily related to computer cooling, and $1.9 million in the petroleum market primarily driven by increased international refueling applications. Offsetting these increases was a decrease of $16.5 million in the fire suppression market primarily resulting from backlog returning to more normal levels. Fire suppression sales in 2023 were up significantly compared to 2022 as the Company was working to return backlog and lead times to normal levels, which resulted in higher 2023 sales and a tougher year-over-year comparison for 2024. Fire suppression incoming orders for the first nine months of 2024 were up 3.5% when compared to the first nine months of 2023. Sales for the first nine months of 2024 also decreased $4.8 million in the industrial market, and $1.1 million in the construction market due to slower construction activity, and $3.0 million in the agriculture market primarily driven by significant declines in farm income.

Cost of Products Sold and Gross Profit

	Nine Months Ended September 30,
	2024			2023			$ Change			% Change
Cost of products sold	$	341,828		$	353,631		$	(11,803	)		(3.3	)%
% of Net sales		68.8	%		70.9	%
Gross Margin		31.2	%		29.1	%

Gross profit was $155.1 million for the first nine months of 2024, resulting in gross margin of 31.2%, compared to gross profit of $145.3 million and gross margin of 29.1% for the same period in 2023. The 210 basis point increase in gross margin included a 250 basis point improvement in cost of material, which consisted of a reduction in LIFO expense of 60 basis points, a favorable impact of 20 basis points related to the amortization of acquired Fill-Rite customer backlog which occurred in 2023 and did not reoccur in 2024, and a 170 basis point improvement from the realization of selling price increases. These improvements were partially offset by a 40 basis point increase in labor and overhead expenses as a percent of sales.

Selling, General and Administrative (SG&A) Expenses

	Nine Months Ended September 30,
	2024			2023			$ Change		% Change
Selling, general and administrative expenses	$	75,494		$	70,664		$	4,830		6.8	%
% of Net sales		15.2	%		14.2	%

SG&A expenses were $75.5 million and 15.2% of net sales for the first nine months of 2024 compared to $70.7 million and 14.2% of net sales for the same period in 2023. SG&A expenses for the first nine months of 2024 included $1.3 million of refinancing transaction costs and a $1.1 million gain on the sale of a fixed asset. SG&A expenses increased due to payroll and payroll related costs, including healthcare costs, as well as increased selling activity.

Operating Income

	Nine Months Ended September 30,
	2024			2023			$ Change		% Change
Operating Income	$	70,363		$	65,253		$	5,110		7.8	%
% of Net sales		14.2	%		13.1	%

Operating income was $70.4 million for the first nine months of 2024, resulting in an operating margin of 14.2%, compared to operating income of $65.3 million and operating margin of 13.1% for the same period in 2023. Operating margin in the first nine months of 2024 increased 110 basis points compared to the same period in 2023 primarily due to improved cost of material, partially offset by increased labor, overhead, and SG&A expenses.

Interest Expense

	Nine Months Ended September 30,
	2024			2023			$ Change			% Change
Interest Expense	$	26,886		$	31,147		$	(4,261	)		(13.7	)%
% of Net sales		5.4	%		6.2	%

Interest expense was $26.9 million for the first nine months of 2024 compared to $31.1 million for the same period in 2023. The decrease in interest expense was due primarily to a series of debt refinancing transactions the Company completed on May 31, 2024. In addition to reducing interest expense, the refinancing also extended and staggered the Company’s debt maturities. The Company upsized, amended, and extended the existing Senior Term Loan Facility from $350.0 million to $370.0 million, amended and extended the existing $100.0 million revolving Credit Facility, and issued $30.0 million in new 6.40% Senior Secured Notes. The proceeds from these transactions, as well as $10.0 million of cash on hand, were used to retire the Company’s $90.0 million unsecured Subordinated Credit Facility.

Other income (expense), net

	Nine Months Ended September 30,
	2024			2023			$ Change			% Change
Other Income (Expense), net	$	(6,662	)	$	(1,385	)	$	(5,277	)		(381.0	)%
% of Net sales		(1.3	)%		(0.3	)%

Other income (expense), net was $6.7 million of expense for the first nine months of 2024 compared to $1.4 million of expense for the same period in 2023. Other expense for the first nine months of 2024 included a $4.4 million write-off of unamortized previously deferred debt financing fees and a $1.8 million prepayment fee related to the early retirement of the unsecured Subordinated Credit Facility.

Net Income

	Nine Months Ended September 30,
	2024			2023			$ Change		% Change
Income before income taxes	$	36,815		$	32,721		$	4,094		12.5	%
% of Net sales		7.4	%		6.6	%
Income taxes	$	7,677		$	6,746		$	931		13.8	%
Effective tax rate		20.9	%		20.6	%
Net income	$	29,138		$	25,975		$	3,163		12.2	%
% of Net sales		5.9	%		5.2	%
Earnings per share	$	1.11		$	0.99		$	0.12		12.1	%

The Company’s effective tax rate was 20.9% for the first nine months of 2024 compared to 20.6% for the first nine months of 2023.

Net income was $29.1 million, or $1.11 per share, for the first nine months of 2024 compared to net income of $26.0 million, or $0.99 per share, for the first nine months of 2023. Adjusted earnings per share for the first nine months of 2024 were $1.32 per share compared to $1.02 per share for the first nine months of 2023.

Adjusted EBITDA was $95.6 million and 19.2% of net sales for the first nine months of 2024 compared to $92.6 million and 18.6% of net sales for the first nine months of 2023.

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 EBITDA”). Adjusted earnings is earnings excluding amortization of customer backlog, write-off of unamortized previously deferred debt financing fees, and refinancing costs. Adjusted earnings per share is earnings per share excluding amortization of customer backlog per share, write-off of unamortized previously deferred debt financing fees per share, and refinancing costs per share. Adjusted earnings before interest, taxes, depreciation and amortization is net income (loss) excluding interest, taxes, depreciation and amortization, adjusted to exclude amortization of customer backlog, write-off of unamortized previously deferred debt financing fees, refinancing costs, 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 and liquidity 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 EBITDA to their respective corresponding GAAP financial measures, which includes descriptions of actual adjustments made in the current period and the corresponding prior period.

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Adjusted earnings:
Reported net income – GAAP basis	$	12,919	$	8,978	$	29,138	$	25,975
Amortization of acquired customer backlog		-		-		-		857
Write-off of unamortized previously deferred debt financing fees		-		-		3,506		-
Refinancing costs		-		-		2,413		-
Non-GAAP adjusted earnings	$	12,919	$	8,978	$	35,057	$	26,832

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Adjusted earnings per share:
Reported earnings per share – GAAP basis	$	0.49	$	0.34	$	1.11	$	0.99
Amortization of acquired customer backlog		-		-		-		0.03
Write-off of unamortized previously deferred debt financing fees		-		-		0.13		-
Refinancing costs		-		-		0.09		-
Non-GAAP adjusted earnings per share	$	0.49	$	0.34	$	1.33	$	1.02

Adjusted earnings before interest, taxes, depreciation and amortization:
Reported net income –GAAP basis	$	12,919	$	8,978	$	29,138	$	25,975
Interest expense		7,766		10,475		26,886		31,147
Provision for income taxes		3,141		2,006		7,677		6,746
Depreciation and amortization expense		6,884		7,038		20,973		21,196
Non-GAAP earnings before interest, taxes, depreciation and amortization		30,710		28,497		84,674		85,064
Amortization of acquired customer backlog		-		-		-		1,085
Write-off of unamortized previously deferred debt financing fees		-		-		4,438		-
Refinancing costs		-		-		3,055		-
Non-cash LIFO expense		1,318		1,974		3,445		6,414
Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization	$	32,028	$	30,471	$	95,612	$	92,563

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 $39.7 million at September 30, 2024. The Company had an additional $98.7 million available under the revolving credit facility with no amounts borrowed and $1.3 million in outstanding letters of credit primarily related to customer orders. We believe we have adequate liquidity from funds on hand and borrowing capacity to execute our financial and operating strategy, as well as comply with debt obligation and financial covenants for at least the next 12 months.

As of September 30, 2024, the Company had $385.4 million in total debt outstanding with $30.0 million due in 2031 and the remainder due in 2029. The Company was in compliance with its debt covenants, including limits on additional borrowings and maintenance of certain operating and financial ratios, at September 30, 2024 and December 31, 2023. See “Note 9 – Financing Arrangements” in the Notes to Consolidated Financial Statements included in this Form 10-Q for a further description of our outstanding debt.

Capital expenditures for the first nine months of 2024 were $10.3 million and consisted primarily of machinery and equipment and building improvements. Capital expenditures for the full-year 2024 are presently planned to be approximately $18 - $20 million primarily for building improvements and machinery and equipment purchases, and are expected to be financed through internally-generated funds.

On October 24, 2024, the Board of Directors authorized the payment of a quarterly dividend of $0.185 per share on the common stock of the Company, payable December 10, 2024, to shareholders of record as of November 15, 2024. This will mark the 299th consecutive quarterly dividend paid by The Gorman-Rupp Company. The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends. However, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent on our assessment of the Company’s financial condition and business outlook at the applicable time.

The Board of Directors has authorized a share repurchase program of up to $50.0 million of the Company’s common shares. The actual number of shares repurchased will depend on prevailing market conditions, alternative uses of capital and other factors, and will be determined at management’s discretion. The Company is not obligated to make any purchases under the program, and the program may be suspended or discontinued at any time. As of September 30, 2024, the Company had $48.1 million available for repurchase under the share repurchase program.

Financial Cash Flow

	Nine Months Ended September 30,
	2024			2023
Beginning of period cash and cash equivalents	$	30,518		$	6,783
Net cash provided by operating activities		60,574			71,659
Net cash used for investing activities		(8,031	)		(16,309	)
Net cash used for financing activities		(43,631	)		(43,404	)
Effect of exchange rate changes on cash		271			(540	)
Net increase in cash and cash equivalents	$	9,183		$	11,406
End of period cash and cash equivalents	$	39,701		$	18,189

The decrease in cash provided by operating activities in the first nine months of 2024 compared to the same period last year was primarily due to working capital needs.

During the first nine months of 2024, investing activities of $8.0 million consisted of $10.3 million for capital expenditures primarily for machinery and equipment partially offset by $2.3 million in proceeds from the sale of property, plant, and equipment. During the first nine months of 2023, investing activities of $16.3 million consisted of $16.9 million for capital expenditures primarily for machinery and equipment.

Net cash used for financing activities of $43.6 million for the first nine months of 2024 primarily consisted of net payments on bank borrowings of $28.4 million and dividend payments of $14.2 million. Net cash used for financing activities of $43.4 million for the first nine months of 2023 primarily consisted of net payments on bank borrowings of $28.1 million, dividend payments of $13.7 million, and $1.0 million of payments in the surrender of common shares to cover taxes upon the vesting of stock awards.

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, 2023 contained in our Annual Report on Form 10-K for the year ended December 31, 2023. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the notes to our Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

Cautionary Note Regarding Forward-Looking Statements

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

Such uncertainties include, but are not limited to, our estimates of future earnings and cash flows, general economic conditions and supply chain conditions and any related impact on costs and availability of materials, integration of the Fill-Rite business in a timely and cost effective manner, retention of supplier and customer relationships and key employees, the ability to achieve synergies and cost savings in the amounts and within the time frames currently anticipated and the ability to service and repay indebtedness incurred in connection with the transaction. Other factors include, but are not limited to: company specific risk factors including (1) loss of key personnel; (2) intellectual property security; (3) acquisition performance and integration; (4) the Company’s indebtedness and how it may impact the Company’s financial condition and the way it operates its business; (5) general risks associated with acquisitions; (6) the anticipated benefits from the Fill-Rite transaction may not be realized; (7) impairment in the value of intangible assets, including goodwill; (8) defined benefit pension plan settlement expense; (9) LIFO inventory method, and (10) family ownership of common equity; and general risk factors including (11) continuation of the current and projected future business environment; (12) highly competitive markets; (13) availability and costs of raw materials and labor; (14) cybersecurity 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 and 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 0.50% to 1.25%, or at (ii) an Adjusted Term SOFR Rate, plus the applicable margin, which ranges from 1.5% to 2.25%. At September 30, 2024, the Company had $355.4 million in borrowings under the Senior Term Loan Facility and no borrowings under the Credit Facility. As of June 30, 2024, the applicable interest rates under the Senior Secured Credit Agreement were Adjusted Term SOFR plus 2.25%.

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 $2.0 million on an annual basis.

Foreign Currency Risk

The Company’s foreign currency exchange rate risk is limited primarily to the Euro, Canadian Dollar, South African Rand and British Pound. The Company manages its foreign exchange risk principally through invoicing customers in the same currency as is used in the market of the source of products. The foreign currency transaction gains (losses) for the nine month period ending September 30, 2023 were ($0.5) million and are reported within Other (expense) income, net on the Consolidated Statements of Income. There were no foreign currency gains (losses) for the nine month period ending September 30, 2024.

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 September 30, 2024.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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, 2023.

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, 2023. There have been no material changes from the risk factors disclosed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, except for the following which supplements the Company’s previously disclosed risk factors:

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. Such indebtedness includes senior secured first lien credit facilities comprised of a $370 million term loan facility and a $100 million revolving credit facility, and a $30 million in aggregate principal amount of 6.40% senior secured notes. The indebtedness could have important negative consequences, including:

●

higher borrowing costs resulting from fluctuations in our variable benchmark borrowing rates that have adversely affected, and could in the future adversely affect, our interest rates;

●

reduced availability of cash for the Company’s operations and other business activities after satisfying interest payments and other requirements under the terms of its debt instruments;

●

less flexibility to plan for or react to competitive challenges, and a competitive disadvantage relative to competitors that do not have as much indebtedness;

●

limiting the Company’s ability to undertake mergers or dispositions of assets, or pay dividends;

●

difficulty in obtaining additional financing in the future;

●

inability to comply with covenants in, and potential for default under, the Company’s debt instruments;

●

inability to operate our business or to take advantage of business opportunities due to restrictions created from the debt covenants; and

●

challenges to repaying or refinancing any of the Company’s debt.

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.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Issuer purchases of its common shares during the third quarter of 2024 were:

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
July 1 to July 31, 2024		-		-		-	$	48,067
August 1 to August 31, 2024		-		-		-		48,067
September 1 to September 30, 2024		-		-		-		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 September 30, 2024, 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.

ITEM 6.

EXHIBITS

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 September 30, 2024, 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)

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: October 28, 2024
	By:	/s/James C. Kerr
		James C. Kerr
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)