UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the Quarterly Period Ended JuneSeptember 30, 2016

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 26,091,123 shares of common stock, without par value, outstanding at July 29,October 28, 2016.

Page 1 of 2122 pages

The Gorman-Rupp Company and Subsidiaries

Three and sixnine months ended JuneSeptember 30, 2016 and 2015

2

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 (unaudited).

3

THE GORMAN-RUPP COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

See notes to condensed consolidated financial statements (unaudited).

4

THE GORMAN-RUPP COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

See notes to condensed consolidated financial statements (unaudited).

5

THE GORMAN-RUPP COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to condensed consolidated financial statements (unaudited).

6

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 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 sixnine months ended JuneSeptember 30, 2016 are not necessarily indicative of results that may be expected for the year ending December 31, 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, 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 approximatelyapproximate 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 FASB issued ASU 2014-09, “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. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016; however, in July 2015, the FASB approved a one yearone-year deferral of this standard, with a new effective date for fiscal years beginning after December 15, 2017. The Company is currently does not expectevaluating the impact the adoption of ASU2014-09 to will have a material impact on its consolidated financial statements.statements and related disclosures. The Company has not yet selected a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

NOTE C - INVENTORIES

Inventories are stated at the lower of cost or market. The costs for approximately 72%71% of inventories at JuneSeptember 30, 2016 and 73% of inventories at December 31, 2015 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.

7

PART I - CONTINUED

NOTE C - INVENTORIES – CONTINUED

The major components of inventories are as follows (net of LIFO reserves of $60.0$59.3 million and $59.1 million at JuneSeptember 30, 2016 and December 31, 2015, respectively):

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 that 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 January 1, 2008 continue to accrue benefits under the Plan.

Additionally, the Company sponsors defined contribution pension plans made available to all domestic and Canadian employees. The Company funds the cost of these benefits as incurred.

8

PART I –- CONTINUED

NOTE E - PENSION AND OTHER POSTRETIREMENT BENEFITS – BENEFITS—CONTINUED

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

9

PART I – CONTINUED

NOTE F - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes reclassifications out of accumulated other comprehensive income (loss):

The following tables summarize changes in balances for each component of accumulated other comprehensive income (loss):

10

PART I – 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 generally stable financial growth we have produced over the past 80 plus years.

The 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 reinvest our cash resources and preserve a strong balance sheet to position us for future acquisition and product development opportunities. The Company had no bank debt as of JuneSeptember 30, 2016.

Net sales during the secondthird quarter were $96.3$91.3 million compared to $103.9$104.2 million during the secondthird quarter of 2015, a decrease of 7.3%12.4% or $7.6$12.9 million. Excluding sales from the New Orleans Permanent Canal Closures & Pumps (“PCCP”) project of $2.5$1.6 million in the secondthird quarter of 2016 and $11.7$9.8 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.5.0%. Domestic sales decreased 7.7%19.3% or $5.3$13.9 million while international sales decreased 6.7%increased 3.3% or $2.3$1.0 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 $23.2$22.7 million for the secondthird quarter of 2016, resulting in gross margin of 24.1%24.8%, compared to gross profit of $24.1$23.3 million and gross margin of 23.2% for the same period in 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%22.4% for the same period in 2015. The quarter’s gross profit margin increase was due principally to favorable sales mix changes and lower pension expense as a result of a non-cash pension settlement charge of 100120 basis points in the secondthird quarter of 2015 which hasdid not recurredrecur in the same period this year.year, partially offset by lower leverage due to sales volume decreases. Operating income was $9.9 million, resulting in operating margin of 10.8% for the third quarter of 2016, compared to operating income of $8.9 million and operating margin of 8.6% for the same period in 2015. The operating margin increase alsoimprovement was largely driven by an additional 40 basis points from thea non-cash pension settlement charge totaling 180 basis points in the secondthird quarter of 2015 which hasdid not recurredrecur in the same period this year.year and a gain on the sale of property, plant and equipment in the third quarter of 2016 of 110 basis points, offset by lower operating leverage due to sales volume decreases. Net income was $6.6$6.9 million during the second quartersthird quarter of 2016 andcompared to $5.9 million in the third quarter of 2015 and earnings per share were $0.25$0.27 and $0.22 for boththe respective periods. TheGain on the sale of property, plant and equipment increased the third quarter of 2016 earnings by $0.03 per share. Conversely, the non-cash pension settlement charge reducedin the secondthird quarter of 2015 reduced earnings per share by $0.04$0.05 per share.

Net sales for the sixnine months ended JuneSeptember 30, 2016 were $196.5$287.9 million compared to $203.1$307.4 million during the same period in 2015, a decrease of 3.3%6.3% or $6.6$19.5 million. Excluding sales from the PCCP project of $7.9$9.5 million in the first halfnine months of 2016 and $20.5$30.3 million in the first halfnine months of 2015, net sales for the first halfnine months increased 3.3%0.5%. 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%8.1% or $2.8$16.7 million and international sales decreased 5.6%2.8% or $3.8$2.8 million. Of the total decrease in net sales in the first halfnine months of 2016, approximately $0.9 million was due to unfavorable foreign currency translation. Gross profit was $46.1$68.8 million for the first sixnine months of 2016, resulting in gross margin of 23.5%23.9%, compared to gross profit of $48.1$71.4 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 first six months of 2016, compared to operating income of $20.5 million and operating margin of 10.1%23.2% for the same period in 2015. The gross profit andmargin increase was due principally to a non-cash pension settlement charge of 80 basis points in the first nine months of 2015 which did not recur in the same period this year. Operating income was $28.6 million, resulting in operating income margin declinesof 9.9% for the first half were due principallynine months of 2016, compared to the sales volume decreases from 2015 to 2016. The gross marginoperating income of $29.4 million and operating margin of 9.6% for the first six months of 2015 were reducedsame period in 2015. The operating margin improvement also was largely driven by a non-cash pension settlement charge of 40 and 70totaling 110 basis points respectively,in the first nine months of 2015 which hasdid not recurredrecur in the same period this year.year and a gain on the sale of property, plant and equipment of 30 basis points in the first nine months of 2016, offset by lower operating leverage due to sales volume decreases. Net income was $12.9$19.8 million during the first sixnine months of both 2016 compared to $13.9 million for the same period inand 2015 and earnings per share were $0.49$0.76 and $0.53$0.75 for the respective periods. TheGain on the sale of property, plant and equipment increased the first nine months of 2016 earnings by $0.03 per share. Conversely, the non-cash pension settlement charge reduced the first sixnine months of 2015 earnings per share by $0.04$0.09 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 $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.

11

PART I – CONTINUED

The decrease inCompany’s backlog from last year is due primarilyof orders was $102.8 million at September 30, 2016 compared to approximately $25.0$138.8 million of shipments related toat September 30, 2015 and $117.1 million at December 31, 2015. Excluding the PCCP project in 2015 and 2016, the last twelve months along withbacklog at September 30, 2016 was down 16.0% as compared to September 30, 2015. In addition to the impact of PCCP, backlog has been impacted by lower orders in the petroleum and agriculturefire protection markets. IncomingEncouragingly, the municipal wastewater sector appears to be gaining momentum as incoming orders during the second quarter of 2016 remained steadyhave increased as compared to the first quarternine months of 2016 as orders increased in the municipal and construction markets while orders decreased in the fire protection and OEM markets.2015. Approximately $2.7$1.2 million of orders related to the PCCP project remain in the JuneSeptember 30, 2016 backlog total and are expected to ship by the end of the thirdfourth quarter of 2016. When completed, this flood control project will be one of the largest such projects in the world.

On July 28,October 27, 2016, the Board of Directors of the Company declared a quarterly cash dividend of $0.105$0.115 per share on the common stock of the Company, payable SeptemberDecember 9, 2016, to shareholders of record AugustNovember 15, 2016. This will mark the 266th267th consecutive quarterly dividend paid by The Gorman-Rupp Company. During 2015,Company and the Company again paid increased dividends and thereby attained its forty-third44th consecutive year of increased dividends.dividends paid to its shareholders. 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 JuneSeptember 30, 2016 was 1.5%1.6%.

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 on our assessment of the Company’s financial condition and business outlook at the applicable time.

Outlook

Domestic and foreign uncertainties, including turmoil related to the production and price of oil, extensive foreign currency translation impacts and low commodity prices, continued to make the first halfnine months of 2016 challenging. The second halffourth quarter of most years ishas been seasonally slower and the remainder of 2016 will compare to a second half of 2015 that included substantial PCCP sales.project shipments are generally complete. As periods of economic and business volatility persist, the Company remains focused on operational efficiencies and will continue to manage 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 we expect will help add value to our operations over the longer-termlonger-term.

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

SecondThird Quarter 2016 Compared to SecondThird 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$1.6 million in the secondthird quarter of 2016 and $11.7$9.8 million for the same period in 2015, net sales during the quarter decreased 5.0%. Domestic sales decreased 19.3% or $13.9 million while international sales increased 1.7%.3.3% or $1.0 million compared to the same period in 2015.

Sales in the secondthird quarter of 2016 in our larger water markets decreased 12.0%8.9% or $9.2 million.$6.5 million compared to the third quarter of 2015. Sales in the municipal market decreased $4.9$5.1 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 wastewaterclean water 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$1.8 million principally due to wet weather conditions in mostmany locations domestically and lower farm income. However, sales in the construction market increased $1.6$2.0 million drivendue primarily to sales to rental businesses as a result of flooding in several areas domestically and a fleet purchase by domestica new customer. The remainder of the overall sales decrease was largely due to reduced shipments of engine-driven pump systems and pumps for applications independent of oil and gas.repair parts.

12

PART I – CONTINUED

Sales increased 5.6%decreased 20.3% or $1.6$6.4 million in non-water markets during the second quarter. The net increase included increased salesthird quarter of $2.6 million2016 compared to the third quarter of 2015. Sales in the OEMindustrial market relateddecreased $4.2 million and sales in the petroleum market decreased $1.4 million, both principally attributable to power generation equipmentthe continued slowdown in oil and services, as well as increased sales of fuel-handling pumps for military applications.gas production.

Cost of Products Sold and Gross Profit

The increaseimprovement in gross margin in the secondthird quarter of 2016 compared to the secondthird quarter of 2015 was principally due to lower cost of material of 290 basis points driven by sales mix changes.changes and a favorable LIFO adjustment. In addition, labor decreased 80 basis points due principally to lower pension expense was lower because of a non-cash pension settlement charge of 100120 basis points in the secondthird quarter of 2015 which did not recur in the secondthird quarter of 2016. Partially offsetting these favorable variances were higher warranty services and depreciation expenseswas lower leverage because of approximately 42 and 35 basis points, respectively.sales volume decreases.

Selling, General and Administrative Expenses (SG&A)

The increase in SG&A expenses as a percentage of net sales in the secondthird quarter of 2016 compared to the secondthird quarter of 2015 was due principally to loss of leverage due to lower sales volume, and increased professional services fees of approximately 3150 basis points related largely toand increased healthcare costs incurred in connection with recently acquired businesses.of approximately 40 basis points. Offsetting these increases was lower pension expense becausea gain on the sale of property, plant and equipment in the third quarter of 2016 of 110 basis points. There was a non-cash pension settlement charge of 40 basis points fromin the secondthird quarter of 2015 of 60 basis points which did not recur in the secondthird quarter of 2016.

Net Income

13

PART I – CONTINUED

The decreaseincrease in net income in the secondthird quarter of 2016 compared to the secondthird quarter of 2015 was due primarily to a gain on the sale of property, plant and equipment in 2016, a favorable LIFO adjustment in 2016 and a pension settlement charge in the third quarter of 2015 which did not recur in the third quarter of 2016. These favorable variances were offset by lower sales volume. The decrease in the effective tax rate between the two periods iswas due primarily to a research and development tax credit being in effect in the secondthird quarter of 2016 but not in the secondthird quarter of 2015, changes in the estimated domestic production activities deduction and the impact of more income in jurisdictions with lower tax rates.

SixNine Months 2016 Compared to SixNine Months 2015

Net Sales

Excluding sales from the PCCP project of $9.5 million in the first nine months of 2016 and $30.3 million in the first nine months of 2015, net sales for the first nine months increased 0.5%. Domestic sales decreased 2.1%8.1% or $2.8$16.7 million and international sales decreased 5.6%2.8% or $3.8$2.8 million. Of the total decrease in net sales in the first halfnine months of 2016, approximately $0.9 million 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 halfnine months of 2016 in our larger water markets decreased 5.7%6.8% or $8.4 million.$14.9 million compared to the first nine months of 2015. Sales in the municipal market decreased $3.7$8.8 million driven by reduced PCCP project sales noted above, offset in part by increased shipments attributable to other Gulf Coast flood control projects and otherclean water and wastewater applications. Sales decreased $1.9$3.1 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 mostmany locations domestically and lower farm income.income, and sales in the fire protection market decreased $2.2 million due to market softness domestically and in countries in the Middle East.

Sales increased 3.1%decreased 5.3% or $1.8$4.6 million in non-water markets. The net increase was primarily duemarkets during the first nine months of 2016 compared to increasedthe first nine months of 2015. Increased sales of $3.4$2.6 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 waswere offset by a decrease of $2.9$7.1 million in the industrial market largely attributable to the downturncontinued slowdown in oil and gas production and the related decline in the offloading of oil from barges due to excess inventory.production.

Cost of Products Sold and Gross Profit

The decreaseimprovement in gross margin in the first halfnine months of 2016 compared to the same period in 2015 was principally driven by sales mix changes and higher warranty services and depreciation expenses of approximately 24 and 22 basis points, respectively. Partially offsetting these unfavorable variances was lower labor expense of approximately 71 basis points because of a non-cash pension settlement charge of 40 basis points in the first halfnine months of 2015 of 80 basis points which did not recur in the same period in 2016, and a favorable LIFO adjustment of 50 basis points in 2016. Partially offsetting these favorable variances was lower headcount from normal employee retirements.leverage because of sales volume decreases.

14

PART I – CONTINUED

Selling, General and Administrative Expenses (SG&A)

The increase in SG&A expenses as a percentage of net sales in the first halfnine months of 2016 compared to the same period in 2015 was due principally to loss of leverage due to lower sales volume and increased professional services fees of approximately 3440 basis points related largely to costs incurred in connection with recently acquired businesses.businesses during the previous two years. Offsetting these increases was lower pension expense primarily because of a non-cash pension settlement charge of 30 basis points from the first halfnine months of 2015 which did not recur in the same period in 2016 and lower advertising expense of approximately 14 basis points due to participation in fewer trade shows during 2016.

Net Income

The decreasesincreases in net income and earnings per share in the first halfnine months of 2016 compared to the same period in 2015 were due primarily to major market sales mix changesa gain on the sale of property, plant and equipment, a favorable LIFO adjustment and lower pension expense due to a pension settlement charge in the first nine months of 2015 which did not recur in the same period in 2016. These favorable variances were offset by sales volume.volume decreases from 2015 to 2016. The decrease in the effective tax rate between the two periods iswas due primarily to a research and development tax credit being in effect in the first halfnine months of 2016 but not in the first halfnine months of 2015, changes in the estimated domestic production activities deduction and the impact of more income in jurisdictions with lower tax rates.

Liquidity and Capital Resources

Cash and cash equivalents totaled $49.5$63.7 million and there was no outstanding bank debt at JuneSeptember 30, 2016. In addition, the Company had $24.0$23.9 million available in bank lines of credit after deducting $7.0$7.1 million in outstanding letters of credit primarily related to customer orders. The Company has continuallycontinuously been in compliance with its nominal restrictive covenants, such as limits on additional borrowings and maintenance of certain operating and financial ratios, including at JuneSeptember 30, 2016.

15

PART I – CONTINUED

Working capital increased $9.8$16.9 million from December 31, 2015 to a record $155.7$162.8 million at JuneSeptember 30, 2016. TheThis increase was due principally to higher cash balances partially offset by lower inventories and accounts receivable.increased customer deposits.

The primary drivers of operating cash flows during the first sixnine months of 2016 were operating income, reduced inventories lower estimated income tax payments and lower commissions payable driven by product mixincreased customer deposits partially offset by $6.0$8.0 million of contributions to the pension plan. During this same period in 2015, operating cash flows were primarily driven by netcash earnings during the period combined with non-cash charges relating to depreciation and amortization and pension expense, offset by changesa planned decrease in working capital.inventory levels.

During the first sixnine months of 2016, investing activities of $2.5$4.3 million primarily consisted of capital expenditures for machinery and equipment, a new operations facility in Africa, and other building improvements. Net capitalimprovements totaling $5.6 million offset by proceeds from the sale of property, plant and equipment of $1.3 million. Capital expenditures for 2016, consisting principallythe fourth quarter of machinery and equipment and building improvements,2016 are currently estimatedexpected to be in the range of $7$1 to $10$3 million and are expected to be principally financed through internally generated funds. During the first sixnine months of 2015, cash used in investing activities of $4.1$10.0 million primarily consisted primarily of net capital expenditures of $6.6 million for machinery and equipment, a new operations facility in Ireland and other building improvements.improvements, and the acquisition of the Hydro companies for $3.4 million.

Net cash used for financing activities for the first sixnine months of 2016 consisted of dividend payments of $5.5$8.2 million. DuringNet cash used in financing activities for the first sixnine months of 2015 financing activities consisted of dividend payments of $5.3$7.9 million, and re-payment of $6.0$12.0 million in short-term debt. The ratiodebt and a privately-arranged market value purchase of current assets to current liabilities was 4.3 to 1 at June 30, 2016 and 4.4 to 1 at December 31, 2015.Company shares in the amount of $4.6 million from a Rupp family estate.

On July 28,October 27, 2016, the Board of Directors of the Company declared a quarterly cash dividend of $0.105$0.115 per share on the common stock of the Company, payable SeptemberDecember 9, 2016, to shareholders of record AugustNovember 15, 2016. The cash dividend represents a 9.5% increase over the dividend paid in the previous quarter. This will mark the 266th267th consecutive quarterly dividend paid by The Gorman-Rupp Company.Company and the 44th consecutive year of increased dividends paid to its shareholders.

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, 2015 contained in our Fiscal 2015 Annual Report on Form 10-K.10-K for the year ended December 31, 2015. 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.

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 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,

16

PART I – CONTINUED

including taxes; (5) stable governments and business conditions in emerging economies; (6) successful penetration of emerging economies; (7) unforeseen delays or disruptions in the remaining 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; (8) if acquired businesses do not meet performance expectations, assets acquired could be subject to impairment; 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 does not believe it 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 JuneSeptember 30, 2016.

Changes in Internal Control Over Financial Reporting

There were 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, 2015.

ThereExcept as noted below, 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, 2015.

Impairment - If acquired businesses do not meet performance expectations, assets acquired could be subject to impairment.

17

PART II – CONTINUED

The Company’s total assets reflect goodwill from acquisitions, representing the excess cost over the fair value of the identifiable net assets acquired, including other indefinite-lived intangible assets and long-lived assets. Goodwill and other indefinite-lived intangible assets are not amortized but are reviewed annually for impairment as of October 1 or whenever events or changes in circumstances indicate there may be a possible permanent loss of value using either a quantitative or qualitative analysis. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recovered through future net cash flows generated by the assets. If future operating performance at one or more of the Company’s reporting units were to fall significantly below forecast levels or if market conditions for one or more of its acquired businesses were to decline, the Company could be required to incur a non-cash charge to operating income for impairment. Any impairment in the value of these assets could have an adverse non-cash impact on the Company’s reported results of operations.

18

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.

19