PART I. FINANCIAL INFORMATION

ITEM 1—1 - FINANCIAL STATEMENTS (UNAUDITED)

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

See notes to consolidated financial statements (unaudited).

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

See notes to consolidated financial statements (unaudited).

THE GORMAN-RUPP COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

See notes to consolidated financial statements (unaudited).

THE GORMAN-RUPP COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to consolidated financial statements (unaudited).

THE GORMAN-RUPP COMPANY

PART ICONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

See notes to consolidated financial statements (unaudited).

(Amounts in tables in thousands of dollars)dollars, except for per share amounts)

NOTE 1 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statementsConsolidated 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 to Form 10-Q10-Q and do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The consolidated financial statementsConsolidated Financial Statements include the accounts of The Gorman-Rupp Company (the “Company” or “Gorman-Rupp”) and its wholly-ownedwholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results. In the opinion of management of the Company, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2017 2021 are not necessarily indicative of results that may be expected for the year ending December 31, 2017.2021. For further information, refer to the consolidated financial statementsConsolidated Financial Statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K10-K for the year ended December 31, 2016,2020, from which related information herein has been derived.

COVID-19 Impact

In March 2020, the World Health Organization categorized the coronavirus (“COVID-19”) as a pandemic. While the near-term effects of the pandemic have negatively impacted our financial results, uncertainty over the economic and operational impacts of COVID-19 means the ultimate related financial impact cannot be reasonably estimated at this time. The Company’s Consolidated Financial Statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and reported amounts of revenue and expenses during the reporting periods presented. Such estimates and assumptions affect, among other things, the Company’s goodwill, long-lived asset and indefinite-lived intangible asset valuation; inventory valuation; the allowance for doubtful accounts; and pension plan assumptions. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of the financial statements included in this Quarterly Report on Form 10-Q. These estimates may change as new events occur and additional information is obtained.

NOTE 2 - 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 either to be not applicable or are expected to have minimal impact on the Company’s consolidated financial statements.Consolidated Financial Statements.

Recently Adopted Accounting Standards

In March 2017, December 2019, the FASB issued ASU No. 2017-07, “Compensation – Retirement Benefits (Topic 715) – Improving2019-12, “Simplifying the PresentationAccounting for Income Taxes”, which, as part of Net Periodic Pension Costits Simplification Initiative to reduce the cost and Net Periodic Postretirement Benefit Cost,” which provides additional guidance oncomplexity in accounting for income taxes, removes certain exceptions related to the presentationapproach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of net periodic pension and postretirement benefit costs in the income statement and on the components eligibledeferred tax liabilities for capitalization. The amendments in thisoutside basis differences. ASU require that an employer report the service cost component2019-12 also amends other aspects of the net periodic benefit costs in the same income statement line item as other compensation costs arising from services rendered by employees during the period. The non-service-cost componentsguidance to help simplify and promote consistent application of net periodic benefit costs are to be presented in the income statement separately from the service cost components and outside a subtotal of income from operations. The ASU also allows for the capitalization of the service cost components, when applicable (i.e., as a cost of internally manufactured inventory or a self-constructed asset). The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017 and early adoption is permitted. The amendments in this ASU are to be applied retrospectively. The adoption of ASU 2017-07 will result in a change within operating income with a corresponding change in other income (expense), net to reflect the impact of presenting all components of net benefit cost, except for service cost, outside of operating income. See Note 6 for the components of the Company’s net benefit costs. The Company does not expect the adoption of ASU-2017-07 to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The ASU is effective for impairment tests performed in fiscal years, and interim periods within those years, beginning after December 15, 2019 and early adoption is permitted. The amendments in this ASU are to be applied on a prospective basis. The Company early adopted this new guidance during the three months ended September 30, 2017. The Company concluded that ASU 2017-04 is preferable to the current guidance due to efficiency, since ASU 2017-04 eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. The Company believes the adoption of ASU 2017-04 did not change the amount of impairment charges recorded in the third quarter of 2017. See Note 8 – Impairment Charges for additional information on our interim goodwill and other intangible asset impairment tests performed.

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 U.S. GAAP. The guidance is effective for fiscal years,interim and interimannual periods within those years, beginning after December 15, 2018 and2020, with early adoption is permitted. The Company currently does not expect the adoption ofadopted ASU 2016-02 will have a2019-12 effective January 1, 2021 with no material impact on its consolidated financial statements as its future minimum lease commitments are not material.

In May 2014,

NOTE 3– REVENUE

Disaggregation of Revenue

The following tables disaggregate total net sales by major product category and geographic location:

International sales represented approximately 33% and 29% of total net sales for the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which supersedes most current revenue recognition guidance, including industry-specific guidance,third quarter of 2021 and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services2020 respectively, and were made to customers in an amount that reflectsmany different countries around the considerationworld.

On September 30, 2021, the Company had $156.5 million of remaining performance obligations, also referred to which the entityas backlog. The Company expects to be entitled to in exchange for those goods or services. Subsequent accounting standards updates have been issued, which amend and/or clarify the application of ASU 2014-09. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company is still finalizing its assessment of this ASU, but it does not currently expect it to have a material impact on its consolidated financial statements. Based on the evaluationrecognize as revenue substantially all of its current revenue streamsremaining performance obligations within one year.

The Company’s contract assets and contracts, most will be recorded consistently under bothliabilities as of September 30, 2021 and December 31, 2020 were as follows:

Revenue recognized for the current nine months ended September 30, 2021 and new standard. The Company has determined it will use the modified retrospective method as its transition method2020 that was included in the adoptioncontract liabilities balance at the beginning of the new revenue standard. The Company will continue to accumulate information that will be necessary for implementationperiod was $6.0 million and to identify and implement any changes needed to processes and controls to meet the ASU’s updated reporting and disclosure requirements. The Company will continue its evaluation of this new guidance through the date of adoption.$4.4 million, respectively.

NOTE 34 - INVENTORIES

Inventories

LIFO inventories are stated at the lower of cost or market. The costs for approximately 72%market and all other inventories are stated at the lower of inventories at September 30, 2017 and December 31, 2016 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.cost or net realizable value. Replacement cost approximates current cost and the excess over LIFO cost wasis approximately $59.7$67.3 million and $58.4$63.5 million at September 30, 2017 2021 and December 31, 2016,2020, respectively. Allowances for excess and obsolete inventory totaled $5.9 million for each of the periods ended September 30, 2021 and December 31,2020. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time. Interim LIFO calculations are based on management’s estimate of expected year-end inventory levels and costs, and are subject to the final year-end LIFO inventory valuation.

Allowances for excess and obsolete inventory totaled $4.9 million and $4.5 million at September 30, 2017 and December 31, 2016, respectively.

The major componentsInventories are comprised of net inventories are as follows:the following:

NOTE 4 -5– PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consist of the following:

NOTE 56 - 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 costCost of products sold. Changes in the Company’s product warrantywarranties liability are:

NOTE 67 - 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 this date, in eligible locations, participate in an enhanced 401(k)401(k) plan instead of the Plan.defined benefit pension plan. Employees hired prior to this date continue to accrue benefits.

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.

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

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

		Pension Benefits								Postretirement Benefits
		Nine Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Service cost		$	2,078			$	2,127			$	937			$	894
Interest cost			1,918				1,981				610				631
Expected return on plan assets			(3,525	)			(2,947	)			—				—
Recognized actuarial loss (gain)			1,384				1,576				(505	)			(523	)
Settlement loss			3,841				—				—��				—
Net periodic benefit cost		$	5,696			$	2,737			$	1,042			$	1,002

During the three and nine months ended September 30, 2021, the Company recorded a settlement loss relating to retirees that received lump-sum distributions from the Company’s defined benefit pension plan totaling $0.4 million and $2.1 million, respectively. The Company recorded settlement losses of $1.0 million and $4.4 million for the three and nine month periods ended September 30, 2020, respectively. These charges were the result of lump-sum distributions to retirees exceeding the Plan’s actuarial service and interest cost thresholds.

NOTE 7 -8– ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

The following tables summarize changes in balances for each componentcomponents of accumulatedAccumulated other comprehensive income (loss): as reported in the Consolidated Balance Sheets are:

		Currency Translation Adjustments				Pension and Other Postretirement Benefits				Accumulated Other Comprehensive Income (Loss)
Balance at January 1, 2016		$	(9,057	)		$	(13,358	)		$	(22,415	)
Reclassification adjustments			—				1,053				1,053
Current period credit			1,487				—				1,487
Income tax expense			—				(343	)			(343	)
Balance at September 30, 2016		$	(7,570	)		$	(12,648	)		$	(20,218	)

NOTE 8 – IMPAIRMENT CHARGES

The decreasing demand for barge pumps for the marine transportation market, driven by low oil prices and overcapacity of inland barges, has continued to negatively affect the Bayou City Pump Company (“Bayou”) reporting unit, leading management to reconsider its estimates for future profitability of this reporting unit during the third quarter of 2017 and thereby increasing the likelihood that the associated goodwill and other intangible assets could be impaired. As such, the Company performed an interim discounted cash flow analysis to test for potential impairment of goodwill pursuant to ASU 2017-04 and performed a recoverability test related to Bayou’s customer relationship intangible asset. As a result of these impairment tests, the Company concluded that the goodwill and customer relationships were impaired and recorded non-cash impairment charges of $0.9 million and $3.2 million, respectively, which represented the full remaining amounts of both of these intangible assets. These impairment charges are included in Impairment of goodwill and other intangible assets on the Condensed Consolidated Statements of Income.

(Amounts in tablesDollars in thousands, except for per share amounts)

The following discussion and analysis of dollars)the Company’s financial condition and Results of Operations should be read in conjunction with the Consolidated Financial Statements, and notes thereto, and the other financial data included elsewhere in this Quarterly Report on Form 10-Q. The following discussion should also be read in conjunction with the Company’s audited Consolidated Financial Statements and accompanying notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in its Annual Report on Form 10-K for the year ended December 31, 2020. The coronavirus (COVID-19) pandemic has had an adverse effect on the Company’s reported results, although our facilities and supply chain have remained operational through the pandemic and our reported results have started to improve as the global economy further recovers from the pandemic. The extent to which the Company’s operations will continue to be impacted by the pandemic will depend largely on future developments, which are highly uncertain and cannot be accurately predicted, including new information which may emerge concerning the severity of the pandemic and actions by government authorities to contain the pandemic or treat its impact, among other things.

Executive Overview

The following discussion of Results of Operations includes certain non-GAAP financial data and measures such as adjusted earnings before interest, taxes, depreciation and amortization and adjusted earnings per share amounts which exclude a 2017 non-cash pension settlement chargecharges in 2021 and non-cash impairment charges relating to goodwill and other intangible assets.2020. Management utilizes these adjusted financial data and measures to assess comparative operations against those of prior periods without the distortion of non-comparable factors. The Gorman-Rupp Company believes that these non-GAAP financial data and measures also will be useful to investors as well as to assessin assessing the continuing strength of the Company’s underlying operations from period to period. Provided below is a reconciliation of adjusted earnings per share amounts and adjusted earnings before interest, taxes, depreciation and amortization.

		Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Adjusted earnings per share:
Reported earnings per share – GAAP basis		$	0.22			$	0.27			$	0.71			$	0.76
Plus pension settlement charge			0.01				—				0.10				—
Plus impairment of goodwill and other intangible asset charges			0.10				—				0.10				—
Non-GAAP adjusted earnings per share		$	0.33			$	0.27			$	0.91			$	0.76
Adjusted earnings before interest, taxes, depreciation and amortization:
Reported net income – GAAP basis		$	5,702			$	6,927			$	18,615			$	19,829
Plus income taxes			2,255				3,475				8,469				9,464
Plus depreciation and amortization			3,973				3,827				11,406				11,604
Non-GAAP earnings before interest, taxes, depreciation and amortization			11,930				14,229				38,490				40,897
Plus pension settlement charge			448				—				3,841				—
Plus impairment of goodwill and other intangible asset charges			4,098				—				4,098				—
Non-GAAP adjusted earnings before interest, taxes, depreciation and amortization		$	16,476			$	14,229			$	46,429			$	40,897