UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended June 30, 20152016

or

For the transition period from    to    

Commission File Number1-6747

The Gorman-Rupp Company

(Exact name of registrant as specified in its charter)

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

There were 26,260,04326,091,123 shares of common stock, without par value, outstanding at July 24, 2015.29, 2016.

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Page 1 of 21 pages

The Gorman-Rupp Company and Subsidiaries

Three and Six Months Endedsix months ended June 30, 20152016 and 20142015

PART I. FINANCIAL INFORMATION

ITEM 1—FINANCIAL STATEMENTS (UNAUDITED)

THE GORMAN-RUPP COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

See notes to condensed consolidated financial statements.statements (unaudited).

THE GORMAN-RUPP COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

See notes to condensed consolidated financial statements.statements (unaudited).

THE GORMAN-RUPP COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

See notes to condensed consolidated financial statements.statements (unaudited).

THE GORMAN-RUPP COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to condensed consolidated financial statements.statements (unaudited).

PART I

NOTE A - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions toForm 10-Q and do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The consolidated financial statements include the accounts of The Gorman-Rupp Company (the “Company” or “Gorman-Rupp”) and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management of the Company, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain amounts for 2015 have been reclassified to conform to the 2016 presentation. Operating results for the three and six month periodsmonths ended June 30, 20152016 are not necessarily indicative of results that may be expected for the year ending December 31, 2015.2016. 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, 2014,2015, from which related information herein has been derived.

NOTE B - RECENTLY ISSUED ACCOUNTING STANDARDS

The Company considers the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02,“Leases (Topic 842),” which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with a term of more than one year. Accounting by lessors will remain similar to existing generally accepted accounting principles. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company currently does not expect the adoption of ASU 2016-02 to have a material impact on its consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” which amended accounting guidance related to the presentation of deferred tax liabilities and assets. The amended guidance requires that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016; however, early adoption is permitted. The Company adopted ASU 2015-17 during the quarter ended December 31, 2015. No prior periods were retrospectively adjusted.

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory (Topic 330 ),”which revises the measurement of inventory at the lower of cost or market. Currently, market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. In accordance with ASU 2015-11, an entity will measure inventory at the lower of cost and net realizable value which is defined as the estimated selling price in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation. The amendment does not apply to inventory that is measured using last-in, first out (LIFO). The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016; however, early adoption is permitted. The Company currently does not expect the adoption of ASU 2015-11 to have a material impact on its consolidated financial statements.

In May 2014, the Financial Accounting Standards BoardFASB issued ASU 2014-09, “Revenue“Revenue from Contracts with Customers (Topic 606),” which supersedes most current revenue recognition guidance, including industry-specific guidance, and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and is to be applied retrospectively,2016; however, in July 2015, the FASB approved a one year deferral of this standard, with early application not permitted.a new effective date for fiscal years beginning after December 15, 2017. The Company currently does not expect the adoption of ASU2014-09 to have a material impact on its consolidated financial statements.

NOTE C - INVENTORIES

Inventories are stated at the lower of cost or market. The costs for approximately 73%72% of inventories at June 30, 20152016 and 75%73% of inventories at December 31, 20142015 are determined using the last-in, first-out (LIFO) method, with the remainder determined using the first-in, first-out (FIFO) method applied on a consistent basis. 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.

PART I – CONTINUED

NOTE C - INVENTORIES – CONTINUED

Interim LIFO calculations are based on management’s estimate of expected year-end inventory levels and costs and are subject to the final year-end LIFO inventory valuation.

The major components of inventories are as follows (net of LIFO reserves of $59.4$60.0 million and $57.9$59.1 million at June 30, 20152016 and December 31, 2014,2015, respectively):

PART I – CONTINUED

NOTE D - PRODUCT WARRANTIES

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

NOTE E - PENSION AND OTHER POSTRETIREMENT BENEFITS

The Company sponsors a defined benefit pension plan (“Plan”) covering certain domestic employees. Benefits are based on each covered employee’s years of service and compensation. The Plan is funded in conformity with the funding requirements of applicable U.S. regulations. The Plan was closed to new participants effective January 1, 2008. Employees hired after thisthat date, in eligible locations, are eligible to participate in an enhanced 401(k) plan instead of the defined benefit pension plan. Employees hired prior to this dateJanuary 1, 2008 continue to accrue benefits. benefits under the Plan.

Additionally, the Company sponsors defined contribution pension plans made available to all domestic and Canadian employees.

The Company also sponsors a non-contributory defined benefit health care plan that provides health benefits to certain domestic and Canadian retirees and their spouses. The Company funds the cost of these benefits as incurred.

During the second quarter of 2015 the Company recorded a non-cash settlement loss relating to retirees that received lump-sum distributions from the Company’s defined benefit pension plan totaling $1.5 million. This charge was the result of lump-sum payments to retirees which exceeded the plan’s actuarial service and interest cost threshold for 2015.

The following tables present the components of net periodic benefit cost:

PART I – CONTINUED

NOTE E - PENSION AND OTHER POSTRETIREMENT BENEFITS – CONTINUED

The following tables present the components of net periodic benefit cost:

PART I – CONTINUED

NOTE F –- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes reclassifications out of accumulated other comprehensive loss as reported in the Consolidated Statements of Income are:income (loss):

The componentsfollowing tables summarize changes in balances for each component of accumulated other comprehensive loss as reported in the Consolidated Balance Sheets are:income (loss):

PART I – CONTINUED

NOTE F – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) – CONTINUED

Executive Overview

The Gorman-Rupp Company is a leading designer, manufacturer and international marketer of pumps and pump systems for use in diverse water, wastewater, construction, dewatering, industrial, petroleum, original equipment, agriculture, fire protection, heating, ventilating and air conditioning (HVAC), military and other liquid-handling applications. The Company attributes its success to long-term product quality, applications and performance combined with timely delivery and service, and continually develops initiatives to improve performance in these key areas.

Gorman-Rupp actively pursues growth opportunities through organic growth, international business expansion and acquisitions.

We continually invest in training for our employees, in new product development and in modern manufacturing equipment, technology and facilities all designed to increase production efficiency and capacity and drive growth by delivering innovative solutions to our customers. We believe that the diversity of our markets is a major contributor to the relativelygenerally stable financial growth we have produced over the past 80 plus years.

DueThe Company places a strong emphasis on cash flow generation and having excellent liquidity and financial flexibility. This focus has afforded us the continuing ability to recent increased retirementsreinvest our cash resources and preserve a related surge in lump sum pension payments, thestrong balance sheet to position us for future acquisition and product development opportunities. The Company recorded a GAAP-required $1.5 million non-cash pension settlement charge during the second quarterhad no bank debt as of 2015 relating to its defined benefit pension plan of which $959,000 related to cost of products sold and $493,000 related to selling, general and administrative expenses. We expect that a non-cash charge will recur during the remainder of this year as additional expected retirements occur. The rate of retirements was less in 2014 and in the first quarter of 2015 and a settlement charge was not required in those periods.June 30, 2016.

Net sales during the second quarter of 2015 were $103.9$96.3 million compared to $109.7$103.9 million during the second quarter of 2014,2015, a decrease of 5.3%7.3% or $7.6 million. Excluding sales from the New Orleans Permanent Canal Closures & Pumps (“PCCP”) project of $2.5 million in the second quarter of 2016 and $11.7 million for the same period in 2015, net sales during the quarter increased 1.7%. Sales in the second quarter of 2016 in our larger water markets decreased 12.0% or $9.2 million while sales increased 5.6% or $1.5 million in our non-water markets. Domestic sales decreased 7.7% or $5.3 million while international sales decreased 6.7% or $2.3 million compared to the same period in 2015. Of the total decrease in net sales in the second quarter, approximately $0.4 million was due to unfavorable foreign currency translation. Gross profit was $24.1$23.2 million for the second quarter of 2015,2016, resulting in gross margin of 23.2%24.1%, compared to 24.5%gross profit of $24.1 million and gross margin of 23.2% for the same period in 2014.2015. Operating income was $9.5 million, resulting in operating margin of 9.9% for the second quarter of 2016, compared to operating income of $9.9 million and operating margin of 9.5% for the same period in 2015. The quarter’s gross profit margin increase was due principally to sales mix changes and lower pension expense as a result of a non-cash pension settlement charge of 100 basis points in the second quarter of 2015 which has not recurred this year. The operating margin increase also was largely driven by an additional 40 basis points from the pension settlement charge in the second quarter of 2015 which has not recurred this year. Net income was $6.6 million during the second quarters of 2016 and 2015 and earnings per share were $0.25 for both periods. The non-cash pension settlement charge reduced the second quarter of 2015 earnings per share by $0.04 per share.

Net sales for the six months ended June 30, 2016 were $196.5 million compared to $203.1 million during the same period in 2015, a decrease of 3.3% or $6.6 million. Excluding sales from the PCCP project of $7.9 million in the first half of 2016 and $20.5 million in the first half of 2015, net sales for the first half increased 3.3%. Sales in the first half of 2016 in our larger water markets decreased 5.7% or $8.4 million while sales increased 3.1% or $1.8 million in our non-water markets. Domestic sales decreased 2.1% or $2.8 million and international sales decreased 5.6% or $3.8 million. Of the total decrease in net sales in the first half of 2016, approximately $0.9 million was due to unfavorable foreign currency translation. Gross profit was $46.1 million for the first six months of 2016, resulting in gross margin of 23.5%, compared to gross profit of $48.1 million and gross margin of 23.7% for the same period in 2015. Operating income was $18.8 million, resulting in operating margin of 9.5% for the second quarterfirst six months of 20152016, compared to anoperating income of $20.5 million and operating margin of 12.2%10.1% for the same period in 2014. Net income was $6.6 million during the second quarter of 2015 compared to $8.9 million in the second quarter of 2014 and earnings per share were $0.25 and $0.34 for the respective periods.2015. The quarter’s gross profit and operating income margin declines for the first half were due principally to the sales volume decreases from 20142015 to 2015,2016. The gross margin and the non-cash pension settlement charge described above of 100 and 140 basis points, respectively.

Net sales duringoperating margin for the first six months of 2015 were $203.1 million compared toreduced by a record $219.8 million during the same period last year, a decreasenon-cash pension settlement charge of 7.6%. Gross profit was $48.1 million for the first six months of 2015, resulting in gross margin of 23.7% compared to 24.8% for the same period in 2014. Operating income was $20.5 million, resulting in operating margin of 10.1% for the first six months of 2015 compared to an operating margin of 12.8% for the same period in 2014.40 and 70 basis points, respectively, which has not recurred this year. Net income was $13.9$12.9 million during the first six months of 20152016 compared to $18.8$13.9 million infor the same period last yearin 2015 and earnings per share were $0.53$0.49 and $0.72$0.53 for the respective periods. The first half’s gross profit and operating income margin declines were due principally to the sales volume decreases from the records of 2014 to 2015, and the non-cash pension settlement charge described abovereduced the first six months of 402015 earnings per share by $0.04 per share.

The Company’s backlog of orders was $107.7 million at June 30, 2016 compared to $144.2 million at June 30, 2015 and 70 basis points, respectively.$117.1 million at December 31, 2015. Excluding PCCP orders in 2015 and 2016, the backlog at June 30, 2016 is down 10.1% as compared to June 30, 2015.

PART I – CONTINUED

The Company’s backlog of orders was $144.2 million at June 30, 2015 compared to $173.8 million a year ago and $160.7 million at December 31, 2014. The decrease in backlog from alast year ago is due principallyprimarily to recordapproximately $25.0 million of shipments related to the PCCP project in the last twelve months along with lower orders in the petroleum and agriculture markets. Incoming orders during the second halfquarter of 2014, approximately $30.8 million related2016 remained steady as compared to the Permanent Canal Closuresfirst quarter of 2016 as orders increased in the municipal and Pumps (“PCCP”) project,construction markets while orders decreased in the fire protection and a decline in order rates due to inconsistent economic conditions in mostOEM markets. Approximately $27.4$2.7 million of orders related to the PCCP project remain in the June 30, 20152016 backlog total. Approximately $18.7 million of the remaining PCCP project orders are scheduled to ship during the last half of 2015 and $8.7 million of related installation services are scheduled during the first three quarters of 2016.

The Company places a strong emphasis on cash flow generation and having excellent liquidity and financial flexibility. This focus has afforded us the ability to continually reward shareholders with increased dividends, reinvest our cash resources and preserve a strong balance sheet to position us for future opportunities. Net capital expenditures for 2015, consisting primarily of machinery and equipment, a new operations facility in Ireland and other building improvements, are currently estimated to be in the range of $11 to $13 milliontotal and are expected to ship by the end of the third quarter of 2016. When completed, this flood control project will be financed through internally generated funds.one of the largest such projects in the world.

On July 23, 2015,28, 2016, the Board of Directors authorizedof the payment ofCompany declared a quarterly cash dividend of $ 0.10$0.105 per share representingon the 262ndcommon stock of the Company, payable September 9, 2016, to shareholders of record August 15, 2016. This will mark the 266th consecutive quarterly dividend to be paid by theThe Gorman-Rupp Company. During 2014,2015, the Company again paid increased dividends and thereby attained its forty-secondforty-third consecutive year of increased dividends. These consecutive years place Gorman-Rupp in the top 50 of all U.S. public companies with respect to number of consecutive years of increased dividend payments. The dividend yield at June 30, 2016 was 1.5%.

The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends. However, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent uponon our assessment of the Company’s financial condition and business outlook at the applicable time.

The Company is pleased with Patterson Pump Company’s performance onOutlook

Domestic and foreign uncertainties, including turmoil related to the PCCP project, for which shipmentsproduction and price of the large flood control pumps for New Orleans began in 2014,oil, extensive foreign currency translation impacts and expect itlow commodity prices, continued to be an even larger contributor this year. When completed, this flood control project is anticipated to be one of the largest such projects in the world. Also, 2015 results will bemake the first full fiscal yearhalf of 2016 challenging. The second half of most years is seasonally slower, and the remainder of 2016 will compare to a second half of 2015 that includes the operationsincluded substantial PCCP sales. As periods of Bayou City Pump Company, which we acquired in June 2014economic and adds market diversity for our petroleum handling products and services.

Outlook

The business environment in most of the markets we serve has improved since the economic downturn in 2008 and 2009 as the U.S. economy has steadily recovered from the recession. However, the recent economic impacts of the rapid decline in oil and natural gas prices and related production has had a substantive negative affect on our construction, rental and industrial pumps markets, and indirectly impacted most of our other markets. Additionally, the strong U.S. dollar has worked against our export sales, and lower commodity prices combined with unseasonably wet weather conditions in most parts of the country negatively impacted agricultural sales. Despite this,volatility persist, the Company expects that fireremains focused on operational efficiencies and municipal pump sales will continue to improve graduallymanage expenses closely as we do not yet see stable sales growth occurring in the near future. Our strong balance sheet provides us with the flexibility to continue to evaluate acquisition opportunities and new product development that will help add value to our portion ofoperations over the New Orleans PCCP flood control project will remain on schedule for the remainder of this year and 2016. Although these strong headwinds may well continue for several more quarters, the Company intends to remain focused on our long-term track record of solid organic growth combined with strategic acquisition opportunities.longer-term

Generally we believe that the Company is well positioned to grow organically at historicallya reasonably comparable sales growth ratespace and operating marginsmargin over the long term by expanding our customer base, both domestically and globally, and through new product offerings. We expect that the well-publicized increasing need for water and wastewater infrastructure rehabilitation within the United States, and even greatersimilar needs internationally, especiallyincluding in emerging economies, along with increasing demand for pumps and pump systems for industrial and agricultural applications, will provide excellentcontinuing growth opportunities for Gorman-Rupp in the future.

Second Quarter 2016 Compared to Second Quarter 2015

Net Sales

Domestic sales decreased 7.7% or $5.3 million while international sales decreased 6.7% or $2.3 million compared to the same period in 2015. Of the total decrease in net sales in the second quarter, approximately $0.4 million was due to unfavorable foreign currency translation. Excluding sales from the New Orleans Permanent Canal Closures & Pumps (“PCCP”) project of $2.5 million in the second quarter of 2016 and $11.7 million for the same period in 2015, net sales during the quarter increased 1.7%.

Sales in the second quarter of 2016 in our larger water markets decreased 12.0% or $9.2 million. Sales in the municipal market decreased $4.9 million driven by reduced PCCP project sales noted above, offset in part by increased shipments attributable to other Gulf Coast flood control projects and other wastewater applications. Sales in the fire protection market decreased $3.2 million largely due to reduced international shipments, and sales in the agriculture market decreased $2.1 million principally due to wet weather conditions in most locations domestically and lower farm income. However, sales in the construction market increased $1.6 million driven primarily by domestic sales of engine-driven pump systems and pumps for applications independent of oil and gas.

PART I – CONTINUED

Second Quarter 2015 Compared to Second Quarter 2014

Net Sales

Sales in the water end markets were comparable between periods as they increased approximately $700,0005.6% or 1.0%. The change includes increased sales in the fire protection market of $8.2 million due to both higher international sales of $5.7 million to Middle-Eastern and Pacific-Rim countries and domestic sales of $2.5 million driven primarily by product sold for the now-halted Keystone pipeline. This increase was offset by lower sales in the construction market, including rental sales, of $3.9 million due primarily to the decline in drilling of oil and gas in North America. Sales in the municipal market decreased $2.2 million driven by lower sales of large volume pumps for wastewater and water supply projects, despite increased shipments related to the PCCP project of $9.1 million. Also, sales decreased in the agricultural market $1.8 million primarily due to depressed domestic farm income in 2015 and unseasonably wet weather conditions in most locations domestically.

Sales decreased $6.5$1.6 million in non-water markets primarily due to lowerduring the second quarter. The net increase included increased sales of $2.6 million in the OEM market of $5.1 million related to power generation equipment and services, as well as increased sales of fuel-handling pumps for military applications. Sales

Cost of Products Sold and Gross Profit

The increase in gross margin in the petroleum marketsecond quarter of 2016 compared to the second quarter of 2015 was principally due to lower cost of material driven by sales mix changes. In addition, labor decreased 80 basis points due principally to lower pension expense because of a non-cash pension settlement charge of 100 basis points in the second quarter of 2015 which did not recur in the second quarter of 2016. Partially offsetting these favorable variances were higher warranty services and depreciation expenses of approximately $900,00042 and 35 basis points, respectively.

Selling, General and Administrative Expenses (SG&A)

The increase in SG&A expenses as a percentage of net sales in the second quarter of 2016 compared to the second quarter of 2015 was due principally to lower sales volume and increased professional services of approximately 31 basis points related largely to costs incurred in connection with recently acquired businesses. Offsetting these increases was lower pension expense because of a non-cash pension settlement charge of 40 basis points from the second quarter of 2015 which did not recur in the second quarter of 2016.

Net Income

PART I – CONTINUED

The decrease in net income in the second quarter of 2016 compared to the second quarter of 2015 was due primarily to lower international shipments.sales volume. The decrease in the effective tax rate between the two periods is due primarily to a research and development tax credit being in effect in the second quarter of 2016 but not in the second quarter of 2015, changes in the estimated domestic production activities deduction and the impact of more income in jurisdictions with lower tax rates.

Six Months 2016 Compared to Six Months 2015

Net Sales

Domestic sales decreased 10.8%2.1% or $8.4$2.8 million principally due to lowerand international sales in the construction, agriculture and OEM markets. International sales increased 7.9%decreased 5.6% or $2.5 million principally due to higher sales in the fire protections market.$3.8 million. Of the total decrease in net sales in the second quarterfirst half of 2015 of $5.82016, approximately $0.9 million $2.1 million or 36.2% of the decrease was due to unfavorable foreign currency translation. Excluding sales from the PCCP project of $7.9 million in the first half of 2016 and $20.5 million in the first half of 2015, net sales for the first half increased 3.3%.

Sales in the first half of 2016 in our larger water markets decreased 5.7% or $8.4 million. Sales in the municipal market decreased $3.7 million driven by reduced PCCP project sales noted above, offset in part by increased shipments attributable to other Gulf Coast flood control projects and other wastewater applications. Sales decreased $1.9 million in the fire protection market due to a decline in international shipments, and sales in the agriculture market decreased $1.3 million principally due to wet weather conditions in most locations domestically and lower farm income.

Sales increased 3.1% or $1.8 million in non-water markets. The net increase was primarily due to increased sales of $3.4 million in the OEM market related to power generation equipment and services, and increased sales of $1.3 million in the petroleum market due to mid-stream transmission of refined petrochemical products. Partially offsetting these increases was a decrease of $2.9 million in the industrial market largely attributable to the downturn in oil and gas production and the related decline in the offloading of oil from barges due to excess inventory.

Cost of Products Sold and Gross Profit

The increasedecrease in costgross margin in the first half of products sold as percent of net sales2016 compared to the same period in 2015 was principally due todriven by sales mix changes and higher pension costwarranty services and depreciation expenses of 109approximately 24 and 22 basis points, respectively. Partially offsetting these unfavorable variances was lower labor expense of which $959,000 or 100approximately 71 basis points was attributable to thebecause of a non-cash pension settlement charge described above. In addition, laborof 40 basis points in the first half of 2015 which did not recur in the same period in 2016 and overhead increased as a percent of net sales due to volume decreaseslower headcount from 2014 to 2015 and health care expense increased 39 basis points. Cost of material was lower as a percent of net sales primarily due to product mix.normal employee retirements.

PART I – CONTINUED

Selling, General and Administrative Expenses (SG&A)

The increase in SG&A expenses as a percentpercentage of net sales isin the first half of 2016 compared to the same period in 2015 was due principally due to higher pension costlower sales volume and increased professional services of 55approximately 34 basis points related largely to costs incurred in connection with recently acquired businesses. Offsetting these increases was lower pension expense primarily because of which $493,000 or 40 basis points was attributable to thea non-cash pension settlement charge described above. In addition, personal property taxes and professional fees increased approximately 15 and 13of 30 basis points respectively. The remaining increase isfrom the first half of 2015 which did not recur in the same period in 2016 and lower advertising expense of approximately 14 basis points due primarily to volume decreases from 2014 to 2015 and the inclusion of Bayou City Pump Company which was acquiredparticipation in June 2014.fewer trade shows during 2016.

Net Income

The decreases in net income and earnings per share were primarily due to decreased sales during the quarter of $5.8 million, and a pension settlement charge described above, net of income taxes, of $966,000 or $0.04 per share.

Six Months 2015 Compared to Six Months 2014

Net Sales

Sales decreased $8.5 million in the water end markets duefirst half of 2016 compared to lower salesthe same period in the construction market, including rental sales, of $8.2 million2015 were due primarily to major market sales mix changes and lower sales volume. The decrease in the declineeffective tax rate between the two periods is due primarily to a research and development tax credit being in fracking activityeffect in North Americathe first half of 2016 but not in the first half of 2015, changes in the estimated domestic production activities deduction and the global declineimpact of more income in oiljurisdictions with lower tax rates.

Liquidity and gas production, which affected both domesticCapital Resources

Cash and international sales. Salescash equivalents totaled $49.5 million and there was no outstanding bank debt at June 30, 2016. In addition, the Company had $24.0 million available in the municipal market decreased $3.9bank lines of credit after deducting $7.0 million driven by lower salesin outstanding letters of large volume pumps for wastewater and water supply projects, despite increased shipmentscredit primarily related to the PCCP projectcustomer orders. The Company has continually been in compliance with its nominal restrictive covenants, such as limits on additional borrowings and maintenance of $16.5 million. Sales decreased in the agricultural market $4.8 million primarily due to depressed domestic farm income in 2015certain operating and unseasonably wet weather conditions in most locations domestically. These decreases were offset by increased sales in the fire protection market of $6.7 million due to higher international sales to Middle-Eastern and Pacific-Rim countries.

Sales decreased $8.1 million in non-water markets primarily due to lower sales in the OEM market related to power generation equipment and pumps for military applications and residential appliances.financial ratios, including at June 30, 2016.

PART I – CONTINUED

Domestic sales decreased 10.0% or $15.0 million principally due to lower sales in the construction, agriculture and OEM markets. International sales decreased 2.4% or $1.7 million principally due to lower sales in the construction, municipal and industrial markets, partially offset by higher sales in the fire protection market. Of the total decrease in net sales during the six month period ended June 30, 2015 of $16.7 million, $4.3 million or 25.7% of the decrease was due to unfavorable currency translation.

Cost of Products Sold and Gross Profit

The increase in cost of products sold as a percent of net sales was principally due to higher pension cost of 66 basis points, of which $959,000 or 40 basis points was attributable to the non-cash pension settlement charge described above. In addition, labor and overhead increased as a percent of net sales due to volume decreases from 2014 to 2015 and health care expenses increased approximately 49 basis points. Cost of material was lower as a percent of net sales primarily due to product mix.

Selling, General and Administrative Expenses (SG&A)

The increase in SG&A expenses as a percent of net sales is principally due to higher pension cost of 34 basis points, of which $493,000 or 30 basis points was attributable to the non-cash pension settlement charge described above. The remaining increase is due primarily to volume decreases from 2014 to 2015 and the inclusion of Bayou City Pump Company which was acquired in June 2014.

Net Income

The decreases in net income and earnings per share were primarily due to decreased sales during the first six months of 2015 of $16.7 million from the record 2014, and a pension settlement charge described above, net of income taxes, of $966,000 or $0.04 per share.

PART I – CONTINUED

Liquidity and Capital Resources

Cash and cash equivalents and short-term investments totaled $26.2 million, and there was $6.0 million in outstanding bank debt at June 30, 2015. In addition, the Company had $24.4 million available in bank lines of credit after deducting $5.6 million in outstanding letters of credit primarily related to customer orders. The Company was in compliance with its nominal restrictive covenants, including limits on additional borrowings and maintenance of normal operating and financial ratios, at June 30, 2015.

Working capital rose $12.5increased $9.8 million from December 31, 20142015 to a record $148.9$155.7 million at June 30, 20152016. The increase was due principally due to higher cash partially offset by lower inventories and accounts receivable from June shipments related to the PCCP project and the re-payment of short-term debt of $6.0 million during the period.receivable.

The primary driverdrivers of operating cash flows during the first six months of 2016 were operating income, reduced inventories, lower estimated income tax payments and lower commissions payable driven by product mix partially offset by $6.0 million of contributions to the pension plan. During this same period in 2015, wasoperating cash flows were primarily driven by net earnings during the period combined with non-cash charges relating to depreciation and amortization and pension expense, offset by changes in working capital. During this same period in 2014 operating cash flows beyond net earnings were primarily driven by increased accounts receivable due to record sales during the period.

During the first six months of 2015,2016, investing activities of $4.1$2.5 million primarily consisted of net capital expenditures for machinery and equipment and building improvements. Net capital expenditures for the full year of 2015,2016, consisting principally of machinery and equipment a new operations facility in Ireland and other building improvements, are currently estimated to be in the range of $11$7 to $13$10 million and are expected to be principally financed through internally generated funds. During the first six months of 2014,2015, investing activities of $21.9$4.1 million consisted primarily of the purchase of Bayou City Pump Company and capital expenditures for machinery and equipment and building improvements.

Net cash used infor financing activities for the first six months of 2016 consisted of dividend payments of $5.5 million. During the first six months of 2015, financing activities consisted of dividend payments of $5.3 million and re-payment of $6.0 in short-term debt. During the first six months of 2014, net cash provided by financing activities consisted of the borrowing of $18.0 million to fund the acquisition of Bayou City Pump Company, offset by dividend payments of $4.7 million and re-payment of $4.3 million in short-term debt. The ratio of current assets to current liabilities was 3.64.3 to 1 at June 30, 20152016 and 3.14.4 to 1 at December 31, 2014.2015.

On July 23, 2015,28, 2016, the Board of Directors of the Company declared a quarterly cash dividend of $ 0.10$0.105 per share on the common stock of the Company, payable September 10, 2015,9, 2016, to shareholders of record August 14, 2015.15, 2016. This markswill mark the 262nd266th consecutive quarterly dividend paid by The Gorman-Rupp Company.

The Company currently expects to continue its distinguished history of paying regular quarterly dividends and increased annual dividends. However, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion, dependent on our assessment of the Company’s financial condition and business outlook at the applicable time.

Critical Accounting Policies

Our critical accounting policies are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and in the notes to our Consolidated Financial Statements for the year ended December 31, 20142015 contained in our Fiscal 20142015 Annual Report on Form 10-K. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been discussed in the notes to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Management uses historical experience and all available information to make these estimates and judgments, and different amounts could be reported using different assumptions and estimates.

PART I – CONTINUED

Safe Harbor Statement

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

Such factors include, but are not limited to: (1) continuation of the current and projected future business environment, including interest rates, changes in foreign exchange rates, commodity pricing and capital and consumer spending;spending and volatility in domestic oil production activity; (2) competitive factors and competitor responses to initiatives of The Gorman-Rupp Company; (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; (7) unforeseen delays or disruptions in the New Orleans flood controlremaining PCCP project, including any further revisions to the timing of shipments for the project; (8) continuation of the favorable environment to make acquisitions, domestic and foreign, including regulatory requirements and market values of potential candidates and our ability to successfully integrate and realize the

PART I – CONTINUED

anticipated benefits of completed acquisitions; and (9) risks described from time to time in our reports filed with the Securities and Exchange Commission. Except to the extent required by law, we do not undertake and specifically decline any obligation to review or update any forward-looking statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments or otherwise.

The Company’s foreign operations do not involve material risks due to their relative size, both individually and collectively. Approximately 90% of the Company’s sales are domiciled within or originated from the United States. The Company is not exposed to material market risks as a result of its diversified export sales. Export sales generally are denominated in U.S. Dollars and made on open account or under letters of credit.

Evaluation of Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. The Company’s disclosure controls and procedures are also designed to ensure that information required to be disclosed in Company reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to the Company’s Management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

An evaluation was carried out under the supervision and with the participation of the Company’s Management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q. Based on that evaluation, the principal executive officer and the principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2015.2016.

Changes in Internal Control Over Financial Reporting

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

PART II OTHER INFORMATION

There are no material changes from the legal proceedings previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.2015.

There are no material changes from the risk factors previously reported in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014.2015.

ITEM 6.

EXHIBITS

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.

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