10-Q 1 l21357ae10vq.htm THE GORMAN-RUPP COMPANY 10-Q/QTR END 6-30-06 The Gorman-Rupp Company 10-Q
 

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
     
þ   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    For the Quarterly Period Ended June 30, 2006
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 No o
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 June 30, 2006   10,685,697
*****************
 
 


 

The Gorman-Rupp Company and Subsidiaries
Three and Six Months Ended June 30, 2006 and 2005
             
PART I. FINANCIAL INFORMATION
 
           
    Item 1.   Financial Statements (Unaudited)
 
           
        Condensed Consolidated Statements of Income
 
          -Three months ended June 30, 2006 and 2005
 
          -Six months ended June 30, 2006 and 2005
 
           
        Condensed Consolidated Balance Sheets
 
          -June 30, 2006 and December 31, 2005
 
           
        Condensed Consolidated Statements of Cash Flows
 
          -Six months ended June 30, 2006 and 2005
 
           
    Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
           
    Item 3.   Quantitative and Qualitative Disclosures about Market Risk
 
           
    Item 4.   Controls and Procedures
 
           
PART II. OTHER INFORMATION
 
           
    Item 1.   Legal Proceedings
 
           
    Item 1A.   Risk Factors
 
           
    Item 6.   Exhibits
 
           
    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

2


 

PART I. FINANCIAL INFORMATION
ITEM 1—FINANCIAL STATEMENTS (UNAUDITED)
THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                                 
(Thousands of dollars, except per share amounts)   Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2006     2005     2006     2005  
 
Net sales
  $ 67,905     $ 56,109     $ 134,992     $ 108,146  
Cost of products sold
    52,318       43,703       104,455       85,955  
 
                       
 
Gross Profit
    15,587       12,406       30,537       22,191  
 
Selling, general and administrative expenses
    7,643       7,274       15,749       14,705  
 
                       
 
Operating Income
    7,944       5,132       14,788       7,486  
 
Other income
    442       173       654       490  
 
Other expense
    (3 )     (7 )     (11 )     (54 )
 
                       
 
Income Before Income Taxes
    8,383       5,298       15,431       7,922  
 
Income taxes
    2,884       1,961       5,394       2,931  
 
                       
 
Net Income
  $ 5,499     $ 3,337     $ 10,037     $ 4,991  
 
                       
 
Basic and Diluted Earnings Per Share
  $ 0.52     $ 0.32     $ 0.94     $ 0.47  
 
Dividends Paid Per Share
  $ 0.140     $ 0.140     $ 0.280     $ 0.280  
 
Average number of shares outstanding
    10,685,697       10,682,697       10,685,697       10,682,697  
See notes to condensed consolidated financial statements.

3


 

THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                 
(Thousands of dollars)   June 30,     December 31,  
    2006     2005  
 
               
Assets
               
 
               
Current Assets:
               
 
               
Cash and cash equivalents
  $ 7,785     $ 6,755  
Short-term investments
    6,513       4,785  
Accounts receivable — net
    47,199       41,473  
Inventories — net
    54,167       52,403  
Deferred income taxes and other current assets
    4,119       5,085  
 
           
 
Total Current Assets
    119,783       110,501  
 
               
Property, plant and equipment
    138,382       136,629  
Less allowances for depreciation
    87,467       85,124  
 
           
 
Property, Plant and Equipment — Net
    50,915       51,505  
 
Other assets
    17,628       17,535  
 
           
 
Total Assets
  $ 188,326     $ 179,541  
 
           
 
               
Liabilities and Shareholders’ Equity
               
 
               
Current Liabilities:
               
 
               
Accounts payable
  $ 9,913     $ 9,835  
Payrolls and related liabilities
    3,886       3,781  
Accrued expenses
    15,427       13,782  
Income taxes
    15       821  
 
           
 
Total Current Liabilities
    29,241       28,219  
 
               
Postretirement Benefits
    23,870       23,255  
 
               
Deferred Income Taxes
    1,014       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
    129,288       122,243  
Accumulated other comprehensive loss
    (182 )     (290 )
 
           
 
Total Shareholders’ Equity
    134,201       127,048  
 
           
 
Total Liabilities and Shareholders’ Equity
  $ 188,326     $ 179,541  
 
           
See notes to condensed consolidated financial statements.

4


 

THE GORMAN-RUPP COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                 
(Thousands of dollars)   Six Months Ended  
    June 30,  
    2006     2005  
 
               
Cash flows from operating activities:
               
 
               
Net income
  $ 10,037     $ 4,991  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    3,311       3,441  
Changes in operating assets and liabilities
    (5,232 )     (6,594 )
 
           
 
Net cash provided by operating activities
    8,116       1,838  
 
               
Cash flows from investing activities:
               
 
               
Capital additions, net
    (2,596 )     (726 )
Purchases of short-term investments
    (1,728 )     (351 )
Payment for acquisition
          (1,331 )
 
           
 
Net cash used for investing activities
    (4,324 )     (2,408 )
 
               
Cash flows from financing activities:
               
 
               
Cash dividends
    (2,992 )     (2,991 )
 
           
 
Net cash used for financing activities
    (2,992 )     (2,991 )
 
Effect of exchange rate changes on cash
    230       (99 )
 
           
 
Net increase (decrease) in cash and cash equivalents
    1,030       (3,660 )
 
               
Cash and cash equivalents:
               
Beginning of year
    6,755       16,202  
 
           
 
June 30,
  $ 7,785     $ 12,542  
 
           
See notes to condensed consolidated financial statements.

5


 

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 six months ended June 30, 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.
In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 will be effective for the Company beginning January 1, 2007. The Company is in the process of determining the effect, if any, the adoption of FIN 48 will have on its financial statements.
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)
                 
 
(Thousands of dollars)   June 30,   December 31,
    2006   2005
 
Raw materials and in-process
  $ 28,088     $ 29,187  
Finished parts
    22,850       21,883  
Finished products
    3,229       1,333  
 
Total inventories
  $ 54,167     $ 52,403  
 

6


 

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:
                 
 
(Thousands of dollars)   Six Months Ended
    June 30,
 
    2006   2005
 
Balance at beginning of year
  $ 1,277     $ 829  
Warranty costs
    1,005       492  
Settlements
    (906 )     (541 )
 
Balance at end of quarter
  $ 1,376     $ 780  
 
NOTE D — COMPREHENSIVE INCOME
Comprehensive income and its components, net of tax, were as follows:
                                 
 
(Thousands of dollars)   Three Months Ended   Six Months Ended
    June 30,   June 30,
 
    2006   2005   2006   2005
 
Net income
  $ 5,499     $ 3,337     $ 10,037     $ 4,991  
Changes in cumulative foreign currency translation adjustment
    432       (317 )     108       (486 )
 
Comprehensive income
  $ 5,931     $ 3,020     $ 10,145     $ 4,505  
 
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.)

7


 

PART I — CONTINUED
ITEM 1.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — CONTINUED
NOTE E — PENSION AND OTHER POSTRETIREMENT BENEFITS — CONTINUED
The following table presents the components of net periodic benefit cost:
                                 
 
    Pension Benefits   Postretirement Benefits
 
(Thousands of dollars)   Six Months Ended   Six Months Ended
    June 30,   June 30,
 
    2006   2005   2006   2005
 
Service cost
  $ 1,118     $ 970     $ 596     $ 525  
Interest cost
    1,248       1,109       855       888  
Expected return on plan assets
    (1,429 )     (1,219 )            
Amortization of prior service cost and unrecognized (gain)/loss
    512       338              
Recognized net actuarial (gain)/loss
                131       149  
 
Benefit cost
  $ 1,449     $ 1,198     $ 1,582     $ 1,562  
 
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.
Second Quarter 2006 Compared to Second Quarter 2005
Net Sales
                                 
 
(Thousands of Dollars)   Three Months Ended        
    June 30,        
 
    2006   2005   $ Change   % Change
 
Net Sales
  $ 67,905     $ 56,109     $ 11,796       21.0 %
 

8


 

PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
The record sales for the quarter, representing a 21.0% increase from the second quarter of 2005, were primarily due to strength in the fire protection, municipal and international markets. At Patterson Pump Company, a wholly-owned subsidiary, international sales grew $6,400,000 primarily due to increased fire protection sales to oil producing countries; additionally, fabricated components sales to the power generation market increased $2,500,000 over second quarter 2005.
The Company continued to play an important part in the aftermath of Hurricane Katrina; in June 2006, Patterson Pump shipped the first of six massive pumps for flood control and levee protection in two watersheds of the Velasco Drainage District headquartered in Clute, Texas.
The backlog at June 30, 2006 was $91,700,000 compared to the record backlog of $98,600,000 at March 31, 2006, representing a 7.0% decrease as a result of higher shipments.
Cost of Products Sold
                                 
(Thousands of Dollars)   Three Months Ended        
    June 30,        
    2006   2005   $ Change   % Change
 
Cost of Products Sold
  $ 52,318     $ 43,703     $ 8,615       19.7 %
% Of sales
    77.0 %     77.9 %           (0.9 )
 
The 19.7% increase in cost of products sold in the second quarter 2006 from 2005 was primarily due to the higher sales volume, which resulted in increased material costs and hourly labor costs of $6,207,000 and $971,000, respectively. Warranty costs increased $330,000 due to estimates related to sales volume, while expenses related to the Company’s employee profit sharing plan increased $304,000 as a result of higher operating income.
Selling, General, and Administrative Expenses (SG&A)
                                 
(Thousands of Dollars)   Three Months Ended        
    June 30,        
    2006   2005   $ Change   % Change
 
Selling, General, and Administrative Expenses (SG&A)
  $ 7,643     $ 7,274     $ 369       5.1 %
% Of sales
    11.3 %     13.0 %           (1.7 )
 
The 5.1% increase in SG&A expense is primarily due to increased professional fees of $290,000 related to the timing and outsourcing of auditing and consulting services. The 1.7% decrease as a percent of net sales for 2006 was primarily due to additional sales volume.

9


 

PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Net Income
                                 
(Thousands of Dollars)   Three Months Ended        
    June 30,        
    2006   2005   $ Change   % Change
 
Income before income taxes
  $ 8,383     $ 5,298     $ 3,085       58.2 %
% Of sales
    12.3 %     9.4 %           2.9  
Income taxes
  $ 2,884     $ 1,961       923       47.1  
Effective tax rate
    34.4 %     37.0 %           (2.6 )
Net income
  $ 5,499     $ 3,337       2,162       64.8  
% Of sales
    8.1 %     5.9 %           2.2  
Earnings per share
  $ 0.52     $ 0.32     $ 0.20       62.5  
 
Income before income taxes for the second quarter 2006 was $8,383,000 compared to $5,298,000 for the same period in 2005, an increase of $3,085,000 or 58.2%. Income taxes were $2,884,000 compared to $1,961,000 for the same period of 2005, an increase of $923,000 or 47.1%. Higher income taxes were a direct result of increased profits during the quarter; partially offset by a reduction in the effective tax rate due to the favorable effects of new federal and Ohio corporate tax legislation.
Net income for the second quarter 2006 was $5,499,000 compared to $3,337,000 for the same period in 2005, an increase of $2,162,000 or 64.8%. As a percent of net sales, net income was 8.1% for 2006 compared to 5.9% in 2005. The Company had record earnings per share of $0.52 for the quarter compared to $0.32 for the same period in 2005, an increase of $0.20 per share.
Six Months 2006 Compared to Six Months 2005
Net Sales
                                 
(Thousands of Dollars)   Six Months Ended        
    June 30,        
    2006   2005   $ Change   % Change
 
Net Sales
  $ 134,992     $ 108,146     $ 26,846       24.8 %
 
The record sales for the six months, representing a 24.8% increase over the six months ended June 30, 2005, were principally due to strength in the fire protection, municipal and international markets. At Patterson Pump Company, a wholly-owned subsidiary, international sales grew $17,080,000 primarily due to increased fire protection sales to oil producing countries; additionally, fabricated components sales to the power generation market increased $5,800,000 over 2005 levels.
The backlog at June 30, 2006 was $91,700,000 compared to $87,200,000 at June 30, 2005, representing a 5.2% increase. The backlog is down slightly from the backlog of $94,100,000 at December 31, 2005 due to reductions in record backlog levels through higher shipments.

10


 

PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Cost of Products Sold
                                 
(Thousands of Dollars)   Six Months Ended        
    June 30,        
    2006   2005   $ Change   % Change
 
Cost of Products Sold
  $ 104,455     $ 85,955     $ 18,500       21.5 %
% Of sales
    77.4 %     79.5 %           (2.1 )
 
The 21.5% increase in cost of products sold in the six months ended June 30, 2006 from 2005 was principally due to the higher sales volume. The 2.1% reduction in cost of products sold as a percent of net sales was primarily related to increased efficiencies of volume related costs at the Company’s production facilities due to increased production levels. Material costs and hourly labor costs increased $13,726,000 and $2,311,000, respectively, to support the higher sales volume. Material costs for metals and energy continued to face upward pressure during the six months ended June 30, 2006. Expenses related to the Company’s employee profit sharing plan increased $807,000 as a result of higher operating income, and warranty costs increased $518,000 due to estimates related to sales volume.
Selling, General, and Administrative Expenses (SG&A)
                                 
(Thousands of Dollars)   Six Months Ended        
    June 30,        
    2006   2005   $ Change   % Change
 
Selling, General, and Administrative Expenses (SG&A)
  $ 15,749     $ 14,705     $ 1,044       7.1 %
% Of sales
    11.7 %     13.6 %           (1.9 )
 
The 7.1% increase in SG&A expense was principally due to increased expenses related to the Company’s employee profit sharing plan of $538,000 as a result of higher operating income, professional fees of $537,000 related to the timing and outsourcing of auditing and consulting services, employee related expenses of $339,000 and business tax of $211,000. Partially offsetting this increase was a reduction in advertising expense of $693,000 due to attending a trade show in 2005 which is held every three years. The 1.9% decrease as a percent of net sales for 2006 was primarily due to additional volume.

11


 

PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
Net Income
                                 
(Thousands of Dollars)   Six Months Ended        
    June 30,        
    2006   2005   $ Change   % Change
 
Income before income taxes
  $ 15,431     $ 7,922     $ 7,509       94.8 %
% Of sales
    11.4 %     7.3 %           4.1  
Income taxes
  $ 5,394     $ 2,931       2,463       84.0  
Effective tax rate
    35.0 %     37.0 %           (2.0 )
Net income
  $ 10,037     $ 4,991       5,046       101.1  
% Of sales
    7.4 %     4.6 %           2.8  
Earnings per share
  $ 0.94     $ 0.47     $ 0.47       100.0  
 
Income before income taxes for the six months ended June 30, 2006 was $15,431,000 compared to $7,922,000 for the same period in 2005, an increase of $7,509,000 or 94.8%. Higher income taxes were a direct result of increased profits during the six months ended June 30, 2006. The effective income tax rate used was 35.0% 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 six months ended June 30, 2006 was $10,037,000 compared to $4,991,000 for the same period in 2005, an increase of $5,046,000 or 101.1%. As a percent of net sales, net income was 7.4% in 2006 and 4.6% in 2005. The Company had record earnings per share of $0.94 for the six months ended June 30, 2006 compared to $0.47 for the same period in 2005, an increase of $0.47 per share.
Liquidity and Sources of Capital
Cash provided by operating activities during the first six months in 2006 was $8,116,000 compared to $1,838,000 for the same period in 2005, an increase of $6,278,000. The increase was primarily attributable to favorable variances in inventory and net income of $6,669,000 and $5,046,000, respectively; partially offset by unfavorable variances in accounts receivable of $4,383,000 resulting from increased sales in 2006 and income taxes of $2,363,000 resulting from increased estimated tax payments.
Cash used for investing activities during the first six months in 2006 was $4,324,000 compared to $2,408,000 for the same period in 2005, an increase of $1,916,000. Investing activities for the six months ended June 30, 2006 consisted of net capital additions of $2,596,000 and investment of $1,728,000 in short-term investments.
The Company has allocated $2,450,000 for site preparation regarding possible future expansion to a manufacturing facility in Mansfield, Ohio. At this time, the Company has not determined when it would proceed with construction, which would be an addition to a manufacturing facility completed in 2000.
Financing activities consisted of payments for dividends, which were $2,992,000 and $2,991,000 for the six months ended June 30, 2006 and 2005, respectively.

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PART I — CONTINUED
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CONTINUED
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 4.1 to 1 at June 30, 2006 and 4.4 to 1 at June 30, 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 June 30, 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.
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: August 4, 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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