10-Q

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 March 31, 2006

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.)
305 Bowman Street, Mansfield, Ohio	44903
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (419) 755-1011

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 þ Noo

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

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

Common shares, without par value, outstanding at March 31, 2006 10,685,697

*****************

The Gorman-Rupp Company and Subsidiaries
Three Months Ended March 31, 2006 and 2005

EX-3 Articles of Incorporation and By-laws

EX-4 Instruments defining the rights of security holders, including indentures

EX-10 Material Contracts

EX-31.1 302 CEO Certification

EX-31.2 302 CFO Certification

EX-32 Section 1350 CEO and CFO Certifications

 EX-31.1 Certification of CEO

 EX-31.2 Certification of CFO

 EX-32 Certification Pursuant to Rule 906

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PART I. FINANCIAL INFORMATION

ITEM 1—FINANCIAL STATEMENTS (UNAUDITED)

THE GORMAN-RUPP COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended
	March 31,
(Thousands of dollars, except per share amounts)	2006			2005
Net sales	$	67,087		$	52,037
Cost of products sold		52,137			42,252
Gross Profit		14,950			9,785
Selling, general and administrative expenses		8,106			7,431
Operating Income		6,844			2,354
Other income		212			317
Other expense		(8	)		(47	)
Income Before Income Taxes		7,048			2,624
Income taxes		2,510			970
Net Income	$	4,538		$	1,654
Basic and Diluted
Earnings Per Share	$	0.42		$	0.15
Dividends Paid Per Share	$	0.140		$	0.140
Average Shares Outstanding		10,685,697			10,682,697

See notes to condensed consolidated financial statements.

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THE GORMAN-RUPP COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31,			December 31,
(Thousands of dollars)	2006			2005
Assets
Current Assets:
Cash and cash equivalents	$	6,333		$	6,755
Short-term investments		5,382			4,785
Accounts receivable — net		47,967			41,473
Inventories — net		54,192			52,403
Other current assets and deferred income taxes		4,594			5,085
Total Current Assets		118,468			110,501
Property, plant and equipment		137,386			136,629
Less allowances for depreciation		86,696			85,124
Property, Plant and Equipment — Net		50,690			51,505
Other assets		17,615			17,535
Total Assets	$	186,773		$	179,541
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable	$	11,326		$	9,835
Payrolls and related liabilities		3,778			3,781
Accrued expenses		14,551			13,782
Income taxes		2,784			821
Total Current Liabilities		32,439			28,219
Postretirement Benefits		23,549			23,255
Deferred Income Taxes		1,019			1,019
Shareholders’ Equity
Common shares, without par value:
Authorized — 14,000,000 shares;
Outstanding — 10,685,697 shares in 2006 and 2005 (after deducting treasury shares of 395,278 in 2006 and 2005) at stated capital amount		5,095			5,095
Retained earnings		125,285			122,243
Accumulated other comprehensive loss		(614	)		(290	)
Total Shareholders’ Equity		129,766			127,048
Total Liabilities and Shareholders’ Equity	$	186,773		$	179,541

See notes to condensed consolidated financial statements.

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THE GORMAN-RUPP COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended
	March 31,
(Thousands of dollars)	2006			2005
Cash Flows From Operating Activities:
Net income	$	4,538		$	1,654
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,649			1,737
Changes in operating assets and liabilities		(3,709	)		(1,850	)
Net Cash Provided by Operating Activities		2,478			1,541
Cash Flows From Investing Activities:
Capital additions, net		(781	)		134
Change in short-term investments		(597	)		24
Payment for acquisition		—			(1,331	)
Net Cash Used for Investing Activities		(1,378	)		(1,173	)
Cash Flows From Financing Activities:
Cash dividends		(1,496	)		(1,495	)
Net Cash Used for Financing Activities		(1,496	)		(1,495	)
Effect of exchange rate changes on cash		(26	)		(35	)
Net (Decrease) Increase in Cash and Cash Equivalents		(422	)		(1,162	)
Cash and Cash Equivalents:
Beginning of year		6,755			16,202
March 31,	$	6,333		$	15,040

See notes to condensed consolidated financial statements.

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PART I—CONTINUED

ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A — BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2006 are not necessarily indicative of results that may be expected for the year ending December 31, 2006. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

NEW ACCOUNTING PRONOUNCEMENTS

In November 2004, the FASB issued SFAS No. 151 “Inventory Costs—an amendment of ARB No. 43, Chapter 4.” This Statement amends the guidance in ARB No. 43 to require idle facility expense, freight, handling costs, and wasted material (spoilage) be recognized as current-period charges. In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The Company adopted SFAS No. 151 effective January 1, 2006.

NOTE B — INVENTORIES

Inventories are stated at the lower of cost or market. The costs for substantially all inventories are determined using the last-in, first-out (LIFO) method, with the remainder determined using the first-in, first-out (FIFO) method. 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.

The major components of inventories are as follows: (net of LIFO reserves)

	March 31,		December 31,
(Thousands of dollars)	2006		2005
Raw materials and in-process	$	29,156	$	29,187
Finished parts		22,630		21,883
Finished products		2,406		1,333
	$	54,192	$	52,403

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PART I—CONTINUED

ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—CONTINUED

NOTE C — PRODUCT WARRANTIES

A liability is established for estimated future warranty and service claims based on historical claim experience and specific product failures. The Company expenses warranty costs directly to cost of products sold. Changes in the Company’s product warranty liability are as follows:

	Three Months Ended
	March 31,
(Thousands of dollars)	2006			2005
Balance at beginning of year	$	1,277		$	829
Warranty costs		457			269
Settlements		(470	)		(297	)
Balance at end of quarter	$	1,264		$	801

NOTE D — COMPREHENSIVE INCOME

During the three-month period ended March 31, 2006 and 2005, total comprehensive income was $4,214,000 and $1,485,000, respectively. The reconciling item between net income and comprehensive income consists of foreign currency translation adjustments.

NOTE E—PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company sponsors a defined benefit pension plan covering substantially all employees. The Company also sponsors a non-contributory defined benefit health care plan that provides health benefits to retirees and their spouses. (See Note F – Pensions and Other Postretirement Benefits for the year ended December 31, 2005 included in the Form 10-K.)

The following table presents the components of net periodic benefit cost:

	Pension Benefits						Postretirement Benefits
	Three Months Ended						Three Months Ended
	March 31,						March 31,
(Thousands of dollars)	2006			2005			2006		2005
Service cost	$	559		$	485		$	298	$	262
Interest cost		624			554			427		444
Expected return on plan assets		(714	)		(609	)		—		—

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PART I—CONTINUED

ITEM 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—CONTINUED

Amortization of prior service cost and unrecognized (gain)/loss		256		169		—	—
Recognized net actuarial (gain)/loss		—		—		66		74
Benefit cost	$	725	$	599	$	791	$	780

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

Certain statements in this section and elsewhere herein contain various forward-looking statements and include assumptions concerning The Gorman-Rupp Company’s operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. 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 identifying important economic, political, and technological factors, among others, the absence of 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 factors include the following: (1) continuation of the current and projected future business environment, including interest rates and capital and consumer spending; (2) competitive factors and competitor responses to Gorman-Rupp initiatives; (3) successful development and market introductions of anticipated new products; (4) stability of government laws and regulation, including taxes; (5) stable governments and business conditions in emerging economies; (6) successful penetration of emerging economies and (7) continuation of the favorable environment to make acquisitions, domestic and foreign, including regulatory requirements and market values of candidates.

First Quarter 2006 Compared to First Quarter 2005

Net sales for the first quarter 2006 were $67,087,000 compared to $52,037,000 for the same period 2005, an increase of $15,050,000 or 28.9%. Strength in the fire protection, municipal and international markets contributed to the increase. At Patterson Pump Company, a wholly-owned subsidiary, fire protection sales increased $7,200,000 and fabricated components sales to the power generation market increased $3,300,000 over first quarter 2005 levels.

The record backlog of orders at March 31, 2006 was $98,600,000 compared to $89,000,000 at March 31, 2005. The backlog is up slightly from the previous record backlog of $94,100,000 at December 31, 2005. Patterson Pump orders for fabricated components increased $9,600,000 for the quarter compared to the first quarter of 2005. The backlog at Patterson Pump continued to be strong and totaled $67,600,000 at March 31, 2006.

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PART I—CONTINUED

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

Cost of products sold for the first quarter 2006 was $52,137,000 compared to $42,252,000 during 2005, an increase of $9,885,000 or 23.4%, primarily due to the higher sales volume. As a percentage of net sales, cost of products sold was 77.8% in 2006, compared to 81.2% in 2005. The reduction in cost of products sold as a percent of net sales was primarily related to increased efficiencies of the Company’s production facilities due to additional volume. Material costs and hourly labor costs increased $7,678,000 and $1,340,000, respectively, to support the higher production levels. Expenses related to the Company’s employee profit sharing plan increased $502,000 as a result of higher operating income. Warranty costs increased $188,000 due to estimates related to the higher sales volume and utility costs increased $137,000 primarily due to higher energy costs.

Selling, general, and administrative (“SG&A”) expenses were $8,106,000 in the first quarter 2006 compared to $7,431,000 in 2005, an increase of $675,000 or 9.1%. As a percentage of net sales, SG&A expenses were 12.1% in 2006 compared to 14.3% in 2005. The decrease as a percent of net sales for 2006 was primarily due to additional volume. The increase in SG&A expense is primarily due to expenses related to the Company’s employee profit sharing plan of $335,000 as a result of higher operating income, business tax of $211,000 and professional services of $246,000 related to higher auditing and consulting services. Partially offsetting this increase was a $230,000 reduction in advertising expense compared to 2005 when a large trade show was held, which will be held again in 2008.

Income before income taxes for the first quarter 2006 were $7,048,000 compared to $2,624,000 for the same period in 2005, an increase of $4,424,000 or 168.6%. Income taxes for the first quarter of 2006 were $2,510,000 compared to $970,000 for the same period of 2005, and increase of $1,540,000 or 158.8%. Higher income taxes were a direct result of increased profits during the quarter. The effective income tax rate used was 35.6% in 2006 and 37.0% in 2005. The reduction in the effective tax rate is due to the favorable effects of new federal and Ohio corporate tax legislation.

Net income for the first quarter 2006 was $4,538,000 compared to $1,654,000 for the same period in 2005, an increase of $2,884,000 or 174.4%. As a percent of net sales, net income was 6.8% in 2006 compared to 3.2% in 2005. Earnings per share were $0.42 in 2006 compared to $0.15 in 2005, an increase of $0.27 per share.

Liquidity and Sources of Capital

Cash provided by operating activities during the first three months in 2006 was $2,478,000 compared to $1,541,000 for the same period in 2005, an increase of $937,000. The increase was primarily attributable to favorable variances in inventory, income taxes and accounts payable; partially offset by an unfavorable variance in accounts receivable resulting from increased sales in the first quarter of 2006.

Cash used for investing activities during the first three months in 2006 was $1,378,000 compared to $1,173,000 for the same period in 2005, an increase of $205,000. Investing activities for the three months ended March 31, 2006 primarily consisted of net capital additions of $781,000 and investment of $597,000 in short-term investments.

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PART I—CONTINUED

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

Financing activities consisted of payments for dividends, which were $1,496,000 and $1,495,000 for the three months ended March 31, 2006 and 2005, respectively.

The Company continues to finance its capital expenditures and working capital requirements principally through internally generated funds, available unsecured lines of credit from several banks and proceeds from short-term investments. The ratio of current assets to current liabilities was 3.7 to 1 at March 31, 2006 and 4.4 to 1 at March 31, 2005.

The Company presently has adequate working capital and borrowing capacity and a strong liquidity position.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

The Company’s foreign operations do not involve material risks due to their small size, both individually and collectively. The Company is not exposed to material market risks as a result of its export sales or operations outside of the United States. Export sales are denominated predominately in U.S. dollars and made on open account or under letters of credit.

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. 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 did maintain effective internal control over financial reporting as of March 31, 2006.

Changes in Internal Control Over Financial Reporting

There were no other changes in the Company’s disclosure controls and procedures that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Subsequent to the date of the evaluation, there have been no significant changes in the Company’s disclosure controls and procedures that could significantly affect the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There are no material changes from the legal proceedings previously reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors previously reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

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ITEM 6. EXHIBITS

(a) Exhibits

Exhibits 3, 4 and 10	(articles of incorporation and by-laws; instruments defining the rights of security holders, including indentures; and material contracts) are incorporated herein by this reference from Exhibits (3), (4) and (10) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.
Exhibit 31.1	Certification of Jeffrey S. Gorman, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification of Robert E. Kirkendall, 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

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: May 3, 2006
	By:	/s/Judith L. Sovine
		Judith L. Sovine
		Corporate Treasurer
	By:	/s/Robert E. Kirkendall
		Robert E. Kirkendall
		Senior Vice President and
		Chief Financial Officer

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EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Jeffrey S. Gorman, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of The Gorman-Rupp Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2006	/s/Jeffrey S. Gorman
	Jeffrey S. Gorman
	President and Chief Executive Officer
	The Gorman-Rupp Company
	(Principal Executive Officer)

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EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Robert E. Kirkendall, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of The Gorman-Rupp Company;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2006	/s/Robert E. Kirkendall
	Robert E. Kirkendall
	Senior Vice President and
	Chief Financial Officer
	The Gorman-Rupp Company
	(Principal Financial Officer)

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EX-32

EXHIBIT 32

Certification Pursuant to 18 U. S. C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of The Gorman-Rupp Company on Form 10-Q for the quarter ended March 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U. S. C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

Date: May 3, 2006	/s/Jeffrey S. Gorman
	Jeffrey S. Gorman
	President and Chief Executive Officer
	(Principal Executive Officer)
	/s/Robert E. Kirkendall
	Robert E. Kirkendall
	Senior Vice President and
	Chief Financial Officer
	(Principal Financial Officer)

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

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