The Gorman-Rupp pany(GRC) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents the unaudited financial statements, management's discussion, market risk, and controls for the interim period Item 1. Financial Statements (Unaudited) Details the unaudited consolidated financial statements including income, comprehensive income, balance sheets, cash flows, equity, and related notes Consolidated Statements of Income (Unaudited) Presents the unaudited consolidated statements of income for the three and nine months ended September 30 Consolidated Statements of Income (Three Months Ended September 30) | Metric | 3 Months Ended Sep 30, 2019 (in thousands) | 3 Months Ended Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :---------------------- | :--------- | | Net sales | $99,298 | $102,893 | $(3,595) | (3.5)% | | Gross profit | $25,792 | $27,327 | $(1,535) | (5.6)% | | Operating income | $11,638 | $13,120 | $(1,482) | (11.3)% | | Net income | $9,775 | $10,701 | $(926) | (8.7)% | | Earnings per share | $0.37 | $0.41 | $(0.04) | (9.8)% | | Cash dividends per share | $0.135 | $0.125 | $0.01 | 8.0% | Consolidated Statements of Income (Nine Months Ended September 30) | Metric | 9 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :---------------------- | :--------- | | Net sales | $304,487 | $311,324 | $(6,837) | (2.2)% | | Gross profit | $77,297 | $83,398 | $(6,101) | (7.3)% | | Operating income | $33,792 | $39,963 | $(6,171) | (15.4)% | | Net income | $27,477 | $30,491 | $(3,014) | (9.9)% | | Earnings per share | $1.05 | $1.17 | $(0.12) | (10.3)% | | Cash dividends per share | $0.405 | $0.375 | $0.03 | 8.0% | Consolidated Statements of Comprehensive Income (Unaudited) Details the unaudited consolidated statements of comprehensive income for the three and nine months ended September 30 Consolidated Statements of Comprehensive Income (Three Months Ended September 30) | Metric | 3 Months Ended Sep 30, 2019 (in thousands) | 3 Months Ended Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :---------------------- | :--------- | | Net income | $9,775 | $10,701 | $(926) | (8.7)% | | Other comprehensive (loss) income | $(1,271) | $426 | $(1,697) | (398.4)% | | Comprehensive income | $8,504 | $11,127 | $(2,623) | (23.6)% | Consolidated Statements of Comprehensive Income (Nine Months Ended September 30) | Metric | 9 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :---------------------- | :--------- | | Net income | $27,477 | $30,491 | $(3,014) | (9.9)% | | Other comprehensive (loss) income | $(146) | $1,190 | $(1,336) | (112.3)% | | Comprehensive income | $27,331 | $31,681 | $(4,350) | (13.7)% | Consolidated Balance Sheets (Unaudited) Provides the unaudited consolidated balance sheets as of September 30, 2019, and December 31, 2018 Consolidated Balance Sheets (September 30, 2019 vs. December 31, 2018) | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------------- | :-------------------------- | :---------------------- | :--------- | | Total current assets | $228,246 | $208,686 | $19,560 | 9.4% | | Total assets | $387,417 | $368,282 | $19,135 | 5.2% | | Total current liabilities | $51,202 | $48,465 | $2,737 | 5.6% | | Total liabilities | $77,105 | $75,150 | $1,955 | 2.6% | | Total equity | $310,312 | $293,132 | $17,180 | 5.9% | Consolidated Statements of Cash Flows (Unaudited) Outlines the unaudited consolidated statements of cash flows for the nine months ended September 30 Consolidated Statements of Cash Flows (Nine Months Ended September 30) | Metric | 9 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :--------------------------------------- | :--------------------------------------- | :---------------------- | :--------- | | Net cash provided by operating activities | $58,347 | $36,545 | $21,802 | 59.7% | | Net cash used for investing activities | $(7,985) | $(3,888) | $(4,097) | (105.4)% | | Net cash used for financing activities | $(11,063) | $(10,250) | $(813) | (7.9)% | | Net increase in cash and cash equivalents | $39,244 | $21,701 | $17,543 | 80.8% | | Cash and cash equivalents, End of period | $85,702 | $101,381 | $(15,679) | (15.5)% | Consolidated Statements of Equity (Unaudited) Summarizes the unaudited consolidated statements of equity for the interim period - Total equity increased from $293.1 million at December 31, 2018, to $310.3 million at September 30, 2019, primarily driven by net income of $27.5 million, partially offset by cash dividends of $10.6 million and other comprehensive loss[20] Notes to Consolidated Financial Statements (Unaudited) Provides detailed notes on accounting policies, revenue, inventories, property, pensions, and leases for the interim financial statements NOTE 1 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS Explains the basis of presentation for the unaudited interim consolidated financial statements in accordance with U.S. GAAP - The unaudited Consolidated Financial Statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, including accounts of The Gorman-Rupp Company and its wholly owned subsidiaries, with all significant intercompany accounts and transactions eliminated[22] NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS Discusses the adoption of ASU 2016-02 on Leases, effective January 1, 2019, and its immaterial impact - The Company adopted ASU 2016-02, 'Leases (Topic 842),' effective January 1, 2019, requiring lessees to recognize assets and liabilities for leases with terms over one year on the balance sheet, with the cumulative effect adjustment being immaterial[24][46] NOTE 3 - REVENUE Details revenue disaggregation by product category and geographic location, along with contract balances and backlog Revenue Disaggregation by Product Category | Product Category | 3 Months Ended Sep 30, 2019 (in thousands) | 3 Months Ended Sep 30, 2018 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2018 (in thousands) | | :--------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Pumps and pump systems | $86,114 | $89,835 | $260,913 | $268,485 | | Repair parts and other | $13,184 | $13,058 | $43,574 | $42,839 | | Total net sales | $99,298 | $102,893 | $304,487 | $311,324 | Revenue Disaggregation by Geographic Location | Geographic Location | 3 Months Ended Sep 30, 2019 (in thousands) | 3 Months Ended Sep 30, 2018 (in thousands) | 9 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2018 (in thousands) | | :------------------ | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | United States | $69,491 | $65,285 | $211,976 | $201,237 | | Foreign countries | $29,807 | $37,608 | $92,511 | $110,087 | | Total net sales | $99,298 | $102,893 | $304,487 | $311,324 | - International sales represented approximately 30% of total net sales for Q3 2019, down from 37% in Q3 2018[25] - The Company had $101.4 million in remaining performance obligations (backlog) as of September 30, 2019, expected to be recognized as revenue within one year[25][30] Contract Balances | Metric | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | | :------------- | :-------------------------- | :-------------------------- | | Contract assets | $1,290 | $1,953 | | Contract liabilities | $6,440 | $5,232 | NOTE 4 - INVENTORIES Describes inventory valuation, LIFO impact, and composition of raw materials, finished parts, and products - LIFO inventories are stated at the lower of cost or market, with replacement cost approximating current cost, and the excess over LIFO cost was approximately $64.0 million at September 30, 2019[36] - A reduction in inventory levels during Q3 2019 resulted in a favorable LIFO liquidation impact, increasing net income by approximately $0.8 million[36] Inventory Composition | Inventory Type | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | | :------------- | :-------------------------- | :-------------------------- | | Raw materials and in-process | $14,809 | $21,773 | | Finished parts | $48,384 | $54,209 | | Finished products | $10,406 | $11,405 | | Total net inventories | $73,599 | $87,387 | NOTE 5 - PROPERTY, PLANT AND EQUIPMENT Presents the net property, plant, and equipment by category, including land, buildings, and machinery Property, Plant and Equipment, Net | Asset Category | Sep 30, 2019 (in thousands) | Dec 31, 2018 (in thousands) | | :------------- | :-------------------------- | :-------------------------- | | Land | $4,936 | $3,869 | | Buildings | $109,143 | $106,940 | | Machinery and equipment | $181,417 | $177,668 | | Less accumulated depreciation | $(184,143) | $(174,984) | | Property, plant and equipment, net | $111,353 | $113,493 | NOTE 6 - PRODUCT WARRANTIES Details the changes in product warranty liability, including provisions and claims for the period Product Warranties Liability | Metric | Sep 30, 2019 (in thousands) | Sep 30, 2018 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Balance at beginning of year | $1,380 | $1,098 | | Provision | $1,350 | $803 | | Claims | $(1,254) | $(904) | | Balance at end of period | $1,476 | $997 | NOTE 7 - PENSION AND OTHER POSTRETIREMENT BENEFITS Outlines the net periodic pension and postretirement benefit costs for the defined benefit and contribution plans - The Company sponsors a defined benefit pension plan (closed to new participants since 2008) and defined contribution plans, along with a non-contributory defined benefit postretirement health care plan[40][41] - Net periodic pension benefit cost for the nine months ended September 30, 2019, was $2.1 million, down from $4.3 million in 2018, while postretirement benefit cost increased to $0.7 million from a gain of $(0.15) million[42] NOTE 8 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Provides details on reclassifications out of and components of accumulated other comprehensive income (loss) Reclassifications out of Accumulated Other Comprehensive Income (Loss) (Nine Months Ended September 30) | Metric | 9 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2018 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | | Total before income tax | $1,315 | $3,632 | | Income tax | $(281) | $(893) | | Net of income tax | $1,034 | $2,739 | Components of Accumulated Other Comprehensive Income (Loss) | Component | Balance at Dec 31, 2018 (in thousands) | Balance at Sep 30, 2019 (in thousands) | | :-------- | :----------------------------------- | :----------------------------------- | | Currency Translation Adjustments | $(8,243) | $(9,423) | | Pension and Other Postretirement Benefits | $(15,180) | $(14,146) | | Total Accumulated Other Comprehensive Income (Loss) | $(23,423) | $(23,569) | NOTE 9 - LEASES Details the impact of ASU 2016-02 adoption, lease costs, and recognized right-of-use assets and liabilities - The Company adopted ASU 2016-02 on January 1, 2019, recognizing $1.6 million in operating lease right-of-use assets and lease liabilities[46][48] - Lease terms generally range from 1 to 5 years, with options to extend or terminate[48] Total Lease Costs (Nine Months Ended September 30, 2019) | Lease Cost Component | 9 Months Ended Sep 30, 2019 (in thousands) | | :------------------- | :--------------------------------------- | | Operating lease costs | $420 | | Short-term lease costs | $243 | | Finance lease costs | $72 | | Total lease costs | $735 | Lease Liabilities and Right-of-Use Assets (September 30, 2019) | Metric | Operating Leases (in thousands) | Financing Leases (in thousands) | Total Leases (in thousands) | | :----- | :------------------------------ | :------------------------------ | :-------------------------- | | Right-of-use assets | $1,270 | $570 | $1,840 | | Current portion of lease liabilities | $560 | $120 | $680 | | Non-current portion of lease liabilities | $700 | $460 | $1,160 | | Total lease liabilities | $1,260 | $580 | $1,840 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes financial performance, liquidity, capital resources, and outlook for the interim period, highlighting key drivers and challenges Executive Overview Provides an overview of the Company's business, growth strategies, financial strength, and capital expenditure plans - The Gorman-Rupp Company is a leading designer, manufacturer, and international marketer of pumps and pump systems for diverse liquid-handling applications[54] - The Company focuses on organic growth, international expansion, acquisitions, and continuous investment in product development and manufacturing efficiency[55] - It emphasizes strong cash flow generation and maintaining liquidity, with no bank debt as of September 30, 2019[56][57] Adjusted Financial Measures (Non-GAAP) | Metric | 3 Months Ended Sep 30, 2019 | 3 Months Ended Sep 30, 2018 | 9 Months Ended Sep 30, 2019 | 9 Months Ended Sep 30, 2018 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Non-GAAP adjusted earnings per share | $0.37 | $0.41 | $1.05 | $1.25 | | Non-GAAP adjusted EBITDA (in thousands) | $15,375 | $17,446 | $45,147 | $52,514 | - Capital expenditures for the first nine months of 2019 were $8.0 million, primarily for machinery and equipment[58] - Full-year 2019 capital expenditures are planned to be $15-$17 million, financed internally[58] Three Months Ended September 30, 2019 vs. Three Months Ended September 30, 2018 Compares financial results for the third quarter, focusing on net sales, gross profit, operating income, and net income Net Sales Analyzes net sales performance, including domestic and international trends, and market segment contributions Net Sales (Three Months Ended September 30) | Metric | Sep 30, 2019 (in thousands) | Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------------- | :-------------------------- | :---------------------- | :--------- | | Net Sales | $99,298 | $102,893 | $(3,595) | (3.5)% | - Domestic sales increased 6.4% ($4.2 million), while international sales decreased 20.7% ($7.8 million)[76] - Sales in water markets decreased 5.3% ($3.8 million), driven by declines in fire protection and construction, partially offset by municipal market growth[77][78] - Non-water markets increased 0.7% ($0.2 million), with petroleum market growth offsetting declines in industrial and OEM[79] Cost of Products Sold and Gross Profit Examines the cost of products sold and gross margin changes, influenced by product mix and LIFO impact Cost of Products Sold and Gross Margin (Three Months Ended September 30) | Metric | Sep 30, 2019 (in thousands) | Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------------- | :-------------------------- | :---------------------- | :--------- | | Cost of products sold | $73,506 | $75,566 | $(2,060) | (2.7)% | | % of Net sales | 74.0% | 73.4% | | | | Gross Margin | 26.0% | 26.6% | | (0.6)% pts | - Gross margin decreased by 60 basis points due to product mix and lower sales volume, partially offset by a favorable LIFO impact of 120 basis points from declining inventory levels[80] Selling, General and Administrative (SG&A) Expenses Reviews SG&A expenses and their percentage of net sales, noting the impact of sales volume leverage SG&A Expenses (Three Months Ended September 30) | Metric | Sep 30, 2019 (in thousands) | Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------------- | :-------------------------- | :---------------------- | :--------- | | SG&A expenses | $14,154 | $14,207 | $(53) | (0.4)% | | % of Net sales | 14.3% | 13.8% | | 0.5% pts | - SG&A expenses as a percentage of sales increased by 50 basis points, primarily due to the loss of leverage from lower sales volume[82] Operating Income Assesses operating income and margin changes, driven by sales volume, LIFO impact, and cost factors Operating Income (Three Months Ended September 30) | Metric | Sep 30, 2019 (in thousands) | Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------------- | :-------------------------- | :---------------------- | :--------- | | Operating income | $11,638 | $13,120 | $(1,482) | (11.3)% | | % of Net sales | 11.7% | 12.8% | | (1.1)% pts | - Operating margin decreased by 110 basis points, mainly due to lower sales volume leverage, partially offset by a favorable LIFO impact[83] Net Income Details net income, effective tax rate, and earnings per share, including the impact of LIFO and tax credits Net Income and EPS (Three Months Ended September 30) | Metric | Sep 30, 2019 (in thousands) | Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------------- | :-------------------------- | :---------------------- | :--------- | | Income before income taxes | $11,907 | $13,652 | $(1,745) | (12.8)% | | Income taxes | $2,132 | $2,951 | $(819) | (27.8)% | | Effective tax rate | 17.9% | 21.6% | | (3.7)% pts | | Net income | $9,775 | $10,701 | $(926) | (8.7)% | | Earnings per share | $0.37 | $0.41 | $(0.04) | (9.8)% | - The effective tax rate decreased to 17.9% from 21.6% due to higher R&D tax credits and net tax benefits from FDII and GILTI[84] - Net income included a favorable LIFO impact of $0.9 million (net of tax) in Q3 2019, compared to an unfavorable LIFO impact of $1.1 million (net of tax) in Q3 2018[85] - Earnings per share for Q3 2019 included a favorable LIFO impact of $0.04 per share, while Q3 2018 included an unfavorable LIFO impact of $0.04 per share[86] Nine Months Ended September 30, 2019 vs. Nine Months Ended September 30, 2018 Compares financial results for the first nine months, focusing on net sales, gross profit, operating income, and net income Net Sales Analyzes net sales performance, including domestic and international trends, and market segment contributions Net Sales (Nine Months Ended September 30) | Metric | Sep 30, 2019 (in thousands) | Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------------- | :-------------------------- | :---------------------- | :--------- | | Net Sales | $304,487 | $311,324 | $(6,837) | (2.2)% | - Domestic sales increased 5.3% ($10.7 million), while international sales decreased 16.0% ($17.5 million)[88] - Water market sales decreased 2.1% ($4.5 million), with municipal growth offset by declines in fire protection and agriculture[89][90] - Non-water market sales decreased 2.4% ($2.3 million), with petroleum growth offset by industrial and OEM declines[91] Cost of Products Sold and Gross Profit Examines the cost of products sold and gross margin changes, influenced by material costs, tariffs, and LIFO impact Cost of Products Sold and Gross Margin (Nine Months Ended September 30) | Metric | Sep 30, 2019 (in thousands) | Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------------- | :-------------------------- | :---------------------- | :--------- | | Cost of products sold | $227,190 | $227,926 | $(736) | (0.3)% | | % of Net sales | 74.6% | 73.2% | | 1.4% pts | | Gross Margin | 25.4% | 26.8% | | (1.4)% pts | - Gross margin decreased by 140 basis points due to material cost increases (inflation, tariffs, freight) and lower sales volume leverage, partially offset by a favorable LIFO impact of 90 basis points[92] Selling, General and Administrative (SG&A) Expenses Reviews SG&A expenses and their percentage of net sales, noting the impact of sales volume leverage SG&A Expenses (Nine Months Ended September 30) | Metric | Sep 30, 2019 (in thousands) | Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------------- | :-------------------------- | :---------------------- | :--------- | | SG&A expenses | $43,505 | $43,435 | $70 | 0.2% | | % of Net sales | 14.3% | 14.0% | | 0.3% pts | - SG&A expenses as a percentage of sales increased by 30 basis points, primarily due to the loss of leverage from lower sales volume[93] Operating Income Assesses operating income and margin changes, driven by material costs, sales volume, and LIFO impact Operating Income (Nine Months Ended September 30) | Metric | Sep 30, 2019 (in thousands) | Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------------- | :-------------------------- | :---------------------- | :--------- | | Operating income | $33,792 | $39,963 | $(6,171) | (15.4)% | | % of Net sales | 11.1% | 12.8% | | (1.7)% pts | - Operating margin decreased by 170 basis points, mainly due to material cost increases and lower sales volume leverage, partially offset by selling price increases and a favorable LIFO impact[95] Net Income Details net income, effective tax rate, and earnings per share, including the impact of LIFO and pension charges Net Income and EPS (Nine Months Ended September 30) | Metric | Sep 30, 2019 (in thousands) | Sep 30, 2018 (in thousands) | Change ($ in thousands) | Change (%) | | :----- | :-------------------------- | :-------------------------- | :---------------------- | :--------- | | Income before income taxes | $34,584 | $38,894 | $(4,310) | (11.1)% | | Income taxes | $7,107 | $8,403 | $(1,296) | (15.4)% | | Effective tax rate | 20.5% | 21.6% | | (1.1)% pts | | Net income | $27,477 | $30,491 | $(3,014) | (9.9)% | | Earnings per share | $1.05 | $1.17 | $(0.12) | (10.3)% | - The effective tax rate decreased to 20.5% from 21.6% due to higher R&D tax credits and net tax benefits from FDII and GILTI[96] - Net income for the first nine months of 2018 included an unfavorable LIFO impact of $2.5 million (net of tax) and non-cash pension settlement charges of $2.1 million (net of tax)[96][97] - Earnings per share for the first nine months of 2018 included an unfavorable LIFO impact of $0.09 per share and were reduced by non-cash pension settlement charges of $0.08 per share[98] Liquidity and Capital Resources Discusses cash position, available credit, operating cash flow, free cash flow, and dividend policy - Cash and cash equivalents totaled $85.7 million at September 30, 2019, with no outstanding bank debt[99] - The Company had $24.5 million available in bank lines of credit and was in compliance with debt covenants[99] Free Cash Flow (Non-GAAP) (Nine Months Ended September 30) | Metric | 9 Months Ended Sep 30, 2019 (in thousands) | 9 Months Ended Sep 30, 2018 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | | Non-GAAP adjusted EBITDA | $45,147 | $52,514 | | Less capital expenditures | $(8,027) | $(7,647) | | Less cash dividends | $(10,581) | $(9,791) | | Non-GAAP free cash flow | $26,539 | $35,076 | - Net cash provided by operating activities increased significantly to $58.3 million in the first nine months of 2019 (from $36.5 million in 2018), driven by lower inventories, decreased accounts receivable, and no pension contributions in the current year[103] - The Board of Directors authorized a quarterly dividend of $0.145 per share, a 7.4% increase, marking the 47th consecutive year of increased dividends[73][106] Critical Accounting Policies Confirms consistency of critical accounting policies with the prior annual report, noting any new updates - Critical accounting policies are consistent with those described in the Company's 2018 Annual Report on Form 10-K, with any new policies or updates discussed in the notes to the current financial statements[107] Outlook Presents the Company's forward-looking perspective, addressing economic uncertainties, growth opportunities, and market factors - The Company faces ongoing global economic uncertainty impacting incoming orders, particularly in international markets and construction/agriculture due to adverse weather[75] - Despite this, underlying fundamentals remain strong, with a focus on evaluating acquisition opportunities and new product development[75] - Increased interest in flood control infrastructure and lower taxes are potential positive factors[75] Cautionary Note Regarding Forward-Looking Statements Warns about risks and uncertainties that could cause actual results to differ from forward-looking statements - Forward-looking statements are subject to risks and uncertainties, including competitive markets, raw material costs, loss of key management, cybersecurity threats, acquisition performance, compliance with import/export laws, environmental costs, foreign currency fluctuations, international conditions, tax rate changes, intangible asset impairment, pension settlement expense, and family ownership[109][110] Item 3. Quantitative and Qualitative Disclosures about Market Risk Identifies foreign currency exchange rate fluctuations as the primary market risk and its management - The Company's foreign currency exchange rate risk is primarily limited to the Euro, Canadian Dollar, South African Rand, and British Pound, managed by invoicing customers in the same currency as the product source[111] - Foreign currency transaction gains (losses) for the first nine months of 2019 were negligible, compared to $(0.6) million in 2018[111] - Unrealized foreign exchange gains and losses for long-term transactions are now recognized in Accumulated other comprehensive loss since January 1, 2019[111] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures and the absence of material changes in internal control - The Company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2019, by management, including the principal executive and financial officers[112][113] - No material changes in internal control over financial reporting occurred during the last fiscal quarter[114] PART II. OTHER INFORMATION Includes legal proceedings, risk factors, and a list of exhibits filed with the interim report Item 1. Legal Proceedings States no material changes to legal proceedings previously reported in the 2018 Annual Report on Form 10-K - No material changes from legal proceedings reported in the 2018 Annual Report on Form 10-K[115] Item 1A. Risk Factors Indicates no material changes to risk factors previously reported in the 2018 Annual Report on Form 10-K - No material changes from risk factors reported in the 2018 Annual Report on Form 10-K[116] Item 6. Exhibits Lists the certifications and XBRL formatted financial statements included as exhibits to the Form 10-Q - Exhibits include Section 302 certifications (PEO and PFO), Section 1350 certifications, and XBRL formatted financial statements (Consolidated Statements of Income, Comprehensive Income, Balance Sheets, Cash Flows, Equity, and Notes)[120]