Summary of GORMAN RUPP CO - Yahoo! Finance

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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: 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 about important economic, political, and technological factors, among others, and are subject to risk and uncertainties, 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 regulations, 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. Third Quarter 2008 Compared to Third Quarter 2007

Net Sales

                                      Three Months Ended
                                        September 30,
          (Thousands of Dollars)      2008          2007       $ Change     % Change

          Net sales                 $ 84,188     $ 74,629      $ 9,559          12.8 %

The increase in net sales was principally due to increased international sales of $7.4 million. Product sales increased in most major markets, including increased fire protection pump sales and fabricated component sales from the Company's Patterson Pump Company subsidiary.

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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

Three Months Ended September 30, (Thousands of Dollars) 2008 2007 $ Change % Change

Cost of products sold $ 64,016 $ 58,362 $ 5,654 9.7 % % of Net sales 76.0 % 78.2 %

The increase in cost of products sold was primarily due to higher sales volume which resulted in increased material costs of $5.0 million, including higher LIFO expense of $628,000 related to increased inventory levels and inflation. Manufacturing costs included increases in labor of $489,000 and supplies, patterns and tooling of $322,000 due to increased production levels. Partially offsetting these increases are reduced healthcare costs of $569,000 due to reduced claims experience. The overall reduction in cost of products sold as a percent of net sales was due primarily to favorable product mix and increased operating leverage on sales volume.
Selling, General, and Administrative Expenses (SG&A)

                                                    Three Months Ended
                                                       September 30,
(Thousands of Dollars)                             2008             2007           $ Change         % Change

Selling, general, and administrative
expenses (SG&A)                                 $  9,140          $ 8,342          $   798              9.6 %
% of Net sales                                      10.9 %           11.2 %

The increase in SG&A expenses is principally due to $221,000 of additional compensation and related costs, and $289,000 additional accrued profit sharing expense based on operating results.

Other Income

                                     Three Months Ended
                                        September 30,
         (Thousands of Dollars)      2008           2007       $ Change      % Change

         Other income              $   440        $   575      $   (135 )     (23.5 )%
         % of Net sales                0.5 %          0.8 %

The decrease in other income is principally due to reduced interest income resulting from lower interest rates.

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PART I - CONTINUED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Net Income

Three Months Ended September 30, (Thousands of Dollars) 2008 2007 $ Change % Change

Income before income taxes $ 11,409 $ 8,432 $ 2,977 35.3 % % of Net sales 13.6 % 11.3 %

Income taxes $ 4,024 $ 2,957 $ 1,067 36.1 % Effective tax rate 35.3 % 35.1 %

Net income $ 7,385 $ 5,475 $ 1,910 34.9 % % of Net sales 8.8 % 7.3 %

Earnings per share $ 0.44 $ 0.33 $ 0.11 33.3 %

Earnings per share reflect the five-for-four stock split distributed December 10, 2007.
Nine Months 2008 Compared to Nine Months 2007

Net Sales

                                       Nine Months Ended
                                         September 30,
          (Thousands of Dollars)      2008          2007        $ Change     % Change

          Net sales                $ 249,653     $ 228,737     $ 20,916          9.1 %

The record sales for the nine months were principally due to increases in most major markets, including increased fire protection pump sales and fabricated component sales from the Company's Patterson Pump Company subsidiary totaling $18.2 million, which more than replaced the $11.1 million in custom pump revenues for a flood control project shipped in 2007. International sales increased $15.5 million, which included Gorman-Rupp Europe B.V. acquired in the second quarter 2007.
The record backlog at September 30, 2008 was $128.3 million compared to $123.7 million at September 30, 2007, representing a 3.7% increase primarily due to orders in the fire protection and original equipment market.

Cost of Products Sold

                                       Nine Months Ended
                                         September 30,
          (Thousands of Dollars)      2008          2007        $ Change     % Change

          Cost of products sold    $ 189,231     $ 178,306     $ 10,925          6.1 %
          % of Net sales                75.8 %        78.0 %

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PART I - CONTINUED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
The increase in cost of products sold was primarily due to higher sales volume which resulted in increased material costs of $8.1 million, including higher LIFO expense of $1.1 million related to increased inventory levels and inflation. Manufacturing costs increased $2.8 million primarily due to the addition of Gorman-Rupp Europe B.V. purchased in the second quarter of 2007, and supplies, patterns and tooling due to increased manufacturing levels. Partially offsetting these increases are reduced healthcare costs of $1.1 million due to reduced claims experience and a subrogation settlement of $300,000 received from a third-party carrier. The overall reduction in cost of products sold as a percent of net sales was due primarily to favorable product mix and increased operating leverage on added sales volume. Selling, General, and Administrative Expenses (SG&A)

                                                     Nine Months Ended
                                                       September 30,
(Thousands of Dollars)                             2008              2007           $ Change          % Change

Selling, general, and administrative
expenses (SG&A)                                 $ 27,995          $ 25,068          $ 2,927              11.7 %
% of Net sales                                      11.2 %            11.0 %

The increase in SG&A expenses is principally due to increases in advertising costs of $461,000 and travel and supplies of $337,000 primarily related to the Construction Expo trade show and the International Trade Fair for Water - Sewage
- Refuse - Recycling, both of which are held every three years. In addition, accrued profit sharing based on increased operating results rose by $766,000, and compensation and related costs increased $698,000. Also, amortization expense increased $227,000 as a result of the inclusion of Gorman-Rupp Europe B.V. for nine months in 2008.

Other Income

                                      Nine Months Ended
                                        September 30,
          (Thousands of Dollars)      2008         2007       $ Change     % Change

          Other income              $  2,003     $ 1,643      $   360          21.9 %
          % of Net sales                 0.8 %       0.7 %

The increase in other income is primarily due to the final accounting for insurance proceeds related to property damage caused by flooding of a facility at the Company's Mansfield Division in August 2007.

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PART I - CONTINUED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Net Income

Nine Months Ended September 30, (Thousands of Dollars) 2008 2007 $ Change % Change

Income before income taxes $ 34,230 $ 26,913 $ 7,317 27.2 % % of Net sales 13.7 % 11.8 %

Income taxes $ 11,798 $ 9,808 $ 1,990 20.3 % Effective tax rate 34.5 % 36.4 %

Net income $ 22,432 $ 17,105 $ 5,327 31.1 % % of Net sales 9.0 % 7.5 %

Earnings per share $ 1.34 $ 1.02 $ 0.32 31.4 %

The decline in the effective tax rate was due to a deferred tax benefit of $170,000 recorded in 2008, and a lower effective foreign tax rate due to the inclusion in 2008 of Gorman-Rupp Europe B.V. as previously noted. Earnings per share reflect the five-for-four stock split distributed December 10, 2007.

Liquidity and Sources of Capital

                                                Nine Months Ended
                                                  September 30,
 (Thousands of Dollars)                         2008         2007       $ Change     % Change

 Net cash provided by operating activities   $ 27,398     $ 27,698     $   (300 )      (1.1 )%
 Net cash used for investing activities         6,305       13,224       (6,919 )     (52.3 )
 Net cash used for financing activities         5,010        4,810          200         4.2

Cash provided by operating activities resulted primarily from net income plus noncash charges.
Investing activities for the nine months ended September 30, 2008 primarily consisted of capital expenditures related to the consolidation and expansion of the Mansfield, Ohio facilities of $7.3 million and machinery and equipment additions of $5.7 million, partially offset by proceeds from short-term investments of $5.6 million. Total capital expenditures for the previously announced consolidation and expansion of the Mansfield, Ohio facilities of $9.7 million have been incurred as of September 30, 2008. Financing activities consisted of payments for dividends, which were $5.0 million and $4.8 million for the nine months ended September 30, 2008 and 2007, respectively. The Company continues to finance its capital expenditures and working capital requirements principally through internally generated funds, available unsecured lines of credit and proceeds from short-term investments. The ratio of current assets to current liabilities was 4.0 to 1 at September 30, 2008 and 3.9 to 1 at September 30, 2007.

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PART I - CONTINUED