-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Km5W/VREExjyQTjai7yjUz5ei3V2ey5OXNT0ucwqUdVUGX/rKjPzsh0f6I8l2EpG GKjxK8l2UmukB30Fu5s6ug== 0000950152-99-002601.txt : 19990330 0000950152-99-002601.hdr.sgml : 19990330 ACCESSION NUMBER: 0000950152-99-002601 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GORMAN RUPP CO CENTRAL INDEX KEY: 0000042682 STANDARD INDUSTRIAL CLASSIFICATION: PUMPS & PUMPING EQUIPMENT [3561] IRS NUMBER: 340253990 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-06747 FILM NUMBER: 99576079 BUSINESS ADDRESS: STREET 1: 305 BOWMAN ST STREET 2: PO BOX 1217 CITY: MANSFIELD STATE: OH ZIP: 44901 BUSINESS PHONE: 4197551011 MAIL ADDRESS: STREET 1: 305 BOWMAN STREET STREET 2: P.O. BOX 1217 CITY: MANSFIELD STATE: OH ZIP: 44901 10-K405 1 THE GORMAN-RUPP COMPANY 10-K405 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 Commission file number 1-6747 ----------------- ------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 THE GORMAN-RUPP COMPANY ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Ohio 34-0253990 - --------------------------------- ------------------------------------ (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization 305 Bowman St., Mansfield, Ohio 44903 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (419) 755-1011 -------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered Common Shares, without par value American Stock Exchange - -------------------------------- ----------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ----------------------------------------------------------- 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in the definitive proxy statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- State the aggregate market value of the voting stock held by non-affiliates of the Registrant. The aggregate market value is computed by reference to the price at which the stock was sold as of March 19, 1999. $66,401,024 --------------- Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of March 19, 1999. Common Shares, without par value--8,572,016 ------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1998 Annual Report to Shareholders incorporated by reference into Part II (Items 5-8). Portions of Notice of 1999 Annual Meeting of Shareholders and related Proxy Statement incorporated by reference into Part III (Items 10-13). ************** The Exhibit Index is located at Page 13 2 PART I ITEM 1. BUSINESS Registrant ("Gorman-Rupp" or the "Company") designs, manufactures and sells pumps and related equipment (pump and motor controls) for use in water, wastewater, construction, industrial, petroleum, original equipment, agricultural, fire, military and other liquid-handling applications. PRODUCTS The principal products of the Company are pumps and fluid control products. (The Company operates principally in one business segment, the manufacture and sale of pumps and other fluid control equipment.) The following table sets forth, for the years 1996 through 1998, the total net sales, income before income taxes and identifiable assets ($000 omitted) of the Company.
1998 1997 1996 ---- ---- ---- Net Sales $171,245 $164,862 $155,187 Income Before Income Taxes 19,152 16,952 15,663 Identifiable Assets 127,477 127,865 117,650
The Company's product line is composed of pump models ranging in size from 1/2" to 84" and ranging in rated capacity from less than one gallon per minute up to 500,000 gallons per minute. The types of pumps which the Company produces include self priming centrifugal, standard centrifugal, magnetic drive centrifugal, axial and mixed flow, rotary gear, diaphragm, bellows and oscillating. The pumps have drives that range from 1/35 horsepower electric motors up to much larger electric motors or internal combustion engines. Many of the larger units comprise encased, fully integrated sewage pumping stations. In certain cases, units are designed for the inclusion of customer-supplied drives. The Company's larger pumps are sold principally for use in the construction, industrial, sewage and waste handling fields; for pumping refined petroleum products, including the ground refueling of aircraft; for agricultural applications; and for fire fighting. Many of the Company's smallest pumps are sold to customers for incorporation into such products as X-ray processing equipment; gas air conditioning equipment; office copy machines; chemical feeding, instrumentation and ice cube making machinery; photographic processing and soft drink dispensing equipment; laser cooling applications; graphic arts equipment; and floor cleaning equipment. 2 3 PART I--CONTINUED ITEM 1. BUSINESS--CONTINUED In 1998 the Company launched a line of new pump stations, known as Booster Pumps. These packaged systems consist of pressure booster stations which are designed for water tower applications and for boosting low residential water pressure in the municipal and commercial fresh water markets. The manufacture of Booster Pumps are a result of the combined effort of the Company's Mansfield Division, historically a leader in the packaged sewage pump market, and Patterson Pump Company (the Company's wholly owned subsidiary), a current leading producer of fire pumps for building and industry. In 1996 the Company expanded its pump line with the introduction of the Prime-Aire(TM) trash pump, equipped with a unique auxiliary priming system. This priming system virtually eliminates any spewing of liquids from the priming air exhaust line and thereby reduces operational concerns, especially for applications containing environmentally hazardous liquids. During 1996 vertical turbine pumps were also designed to better serve the water, wastewater and fire pump markets, extending the capacity range of the product line. The Company continues to emphasize product development. Several of the Company's existing products, which were designed with added features, have also been expanded to various new applications. MARKETING Except for government and export sales, the Company's pumps are marketed in the United States and Canada through a network of about 1,000 distributors, through manufacturers' representatives (for sales to many original equipment manufacturers) and by direct sales. Government sales are handled directly by the Company; and export sales are made through the Company's wholly owned subsidiary, The Gorman-Rupp International Company, as well as through foreign distributors and representatives. During 1998 there were no shipments to any single customer greater than 10% of total net sales. Gorman-Rupp is actively pursuing international business opportunities and established offices in Thailand and Greece in 1996 to improve access to Asian Pacific, Mid-East and European markets. In 1998 Patterson Pump Company's majority-owned subsidiary, Patterson Pump Ireland Limited, started assembly of pumps in Ireland to further serve the European market. The Company continues to penetrate international markets principally by its aggressive response to worldwide pump needs. In 1998 the Company also organized a Foreign Sales Corporation to further enhance its exporting activities. Approximately 16% of all 1998 sales were made to customers outside the United States (as compared to 15% in 1997 and 12% in 1996). 3 4 PART I--CONTINUED ITEM 1. BUSINESS--CONTINUED COMPETITION Consolidations of pump companies have occurred within the highly competitive pump business. Two large independent pump manufacturing companies combined with other companies in 1997. Gorman-Rupp estimates that 80 other companies sell pumps and pump units which compete in one or more of the industries and applications in which comparable products of the Company are utilized. Many pumps are specifically designed and engineered for a particular customer's application. The Company believes that proper application, product performance and service are the principal methods of competition, and attributes its success to its emphasis in these areas. PURCHASING AND PRODUCTION Virtually all materials, supplies, components and accessories used by the Company in the fabrication of its products, including all castings (for which the patterns are made and owned by the Company), structural steel, bar stock, motors, solenoids, engines, seals, and plastic and elastomeric components, are purchased by the Company from other suppliers and manufacturers. No purchases are made under long-term contracts and the Company is not dependent upon a single source for any materials, supplies, components or accessories which are of material importance to its business. The Company purchases motors for its polypropylene bellows pumps and its magnetic drive pumps from several alternate vendors and motor components for its large submersible pumps from a limited number of suppliers. Small motor requirements are also currently sourced from alternate suppliers. The other production operations of the Company consist of the machining of castings, the cutting and shaping of bar stock and structural members, the manufacture of a few minor components, and the assembling, painting and testing of its products. Virtually all of the Company's products are tested prior to shipment. OTHER ASPECTS As of December 31, 1998, the Company employed approximately 1,015 persons, of whom approximately 608 were hourly employees. The Company has no collective bargaining agreements, has never experienced a strike and considers its labor relations to be satisfactory. Although the Company owns a number of patents, and several of them are important to its business, Gorman-Rupp believes that the business of the Company is not materially dependent upon any one or more patents. As of December 31, 1998, the value of the Company's backlog of unfilled orders was approximately $48,228,000, of which $28,506,000 was for the unfilled orders of Patterson Pump Company. All of the backlog at December 31, 1998 is scheduled to be shipped during 1999. At December 31, 1997, the value of the backlog of unfilled orders was approximately $47,869,000. 4 5 PART I--CONTINUED ITEM 2. PROPERTIES All of the production operations of the Company are conducted at its plants located in Mansfield and Bellville, Ohio; St. Thomas, Ontario; Sand Springs, Oklahoma; Toccoa, Georgia; and County Westmeath, Ireland. All of the Company's properties, except the leased facility in Ireland, are owned in fee without any material encumbrance. The Company also owns in fee an approximately 26,000 square foot facility in Sparks, Nevada which comprises a training center and warehouse space. The Company's Ohio operations are principally located in facilities in Mansfield. These facilities consist of five buildings containing approximately 682,200 square feet of floor space for production, office and warehousing functions. The original portion of the largest production plant, consisting of approximately 238,000 square feet located on a 26 acre site, was built in 1917 and has been expanded on several occasions, the latest in 1973. Another production plant, also situated on the 26 acre site, was built in 1968 and has been frequently expanded, most recently in 1994. The 1994 expansion added approximately 37,600 square feet, including a modern testing facility. This plant currently comprises approximately 134,200 square feet of floor space. A third plant, containing approximately 215,000 square feet of floor space, located on a 5-1/2 acre site, was purchased in 1975 and is used for most machining operations and storage of raw materials. Its latest addition, consisting of 30,000 square feet of floor space, was made in 1978. A small office building of approximately 11,500 square feet was purchased in 1979 and houses a training facility and the Company's personnel and advertising departments. In late 1982, the Company purchased a building built in 1920 and located on 3.4 acres adjacent to the Company's 26 acre site. This acquisition, which was renovated in 1983, contains 83,500 square feet and is being used for additional warehouse space. In 1997 the Company purchased 90 acres of undeveloped land near the Mansfield Lahm Airport for future expansion and consolidation of facilities for the Mansfield Division and the Corporate Office. In 1998 design work and site preparation began on the new consolidated facilities project. A plan has been approved to begin construction in 1999 on the first phase consisting of a 360,000 square foot manufacturing and warehousing plant. Completion of phase one is projected to take twelve months. No plans or schedule have been determined for the completion of the multi-phased, approximately one million square foot consolidated facilities project. The remainder of the Company's Ohio operations are conducted at two plants in Bellville, which comprise approximately 107,500 square feet of floor space situated on an 8.5 acre site. The initial portion of the larger plant, containing approximately 93,200 square feet of floor space, was built in 1953 and has been expanded on several occasions, most recently in 1973-74. The smaller facility, which contains approximately 14,300 square feet of floor space, was acquired in 1984. The plant in St. Thomas, Ontario has undergone five major expansions since it was established in 1960. In 1986, a minor expansion of approximately 600 square feet was added as a receiving and shipping area to improve materials handling. This facility contains about 52,600 square feet of floor space and is situated on an 11 acre site. In 1998, a 3,000 square foot expansion of the office and training facilities was completed. 5 6 PART I--CONTINUED ITEM 2. PROPERTIES--CONTINUED The Oklahoma facility, located on 4.5 acres of land, was purchased in 1977. Manufacturing and warehousing facilities are located in a 26,700 square foot building, originally built in 1973 and expanded in 1978, 1981, 1982 and 1991. A detached 2,200 square foot building is used for offices. In 1980, a contiguous parcel of two acres of undeveloped land was purchased for future needs. Patterson Pump Company, in Toccoa, Georgia, includes a 31 acre site with buildings totaling approximately 165,900 square feet, with about 28,000 square feet of office space and 137,900 square feet of manufacturing space. In 1989 Patterson Pump Company completed an addition of 38,500 square feet to the building for manufacturing purposes and razed an approximately 12,700 square foot portion of the manufacturing facility. In 1992 Patterson completed a 64,000 square foot addition to the manufacturing plant, including a modern 400,000 gallon testing facility. A 28,000 square foot office addition was completed in 1993. Upon occupancy of the new building in 1993, the pre-existing office space of 15,200 square feet was razed for additional parking space. The manufacturing facilities occupied by Patterson Pump Ireland Limited in County Westmeath, Ireland consist of 4,500 square feet of leased manufacturing space. Office space is shared with another occupant in the building. The Company considers its plants, machinery and equipment to be well maintained, in good operating condition and adequate for the present uses and business requirements of the Company. ITEM 3. LEGAL PROCEEDINGS Gorman-Rupp is not currently engaged in any litigation which in the opinion of the Company is material to its operations or assets. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this Form 10-K, no matter was submitted to a vote of the Company's shareholders, through the solicitation of proxies or otherwise. ******************** 6 7 PART I --CONTINUED EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3), the information regarding executive officers called for by Item 401 of Regulation S-K and by Item 10 of this Form 10-K is set forth below.
Date Elected to Name Age Office Position ---- --- ------ ---------- James C. Gorman 74 Chairman 1989 John A. Walter 65 Formerly President and Chief Executive Officer 1989 Jeffrey S. Gorman 46 President and Chief Executive Officer; General Manager, Mansfield Division 1998/1989 Kenneth E. Dudley 61 Treasurer 1982 Robert E. Kirkendall 56 Corporate Secretary/Assistant Treasurer 1982 William D. Danuloff 51 Vice President Information Services 1991
Except as noted, each of the above-named officers has held his executive position with the Company for the past five years. Mr. J. C. Gorman served as the Company's President from 1964 until 1989, and as Chief Executive Officer from 1964 until 1996. Mr. Walter retired from the Company on May 1, 1998. Previously Mr. Walter was elected to the additional position of Chief Executive Officer in 1996; he had served as Chief Operating Officer beginning in 1993; he had also served as Vice President and General Manager of the Industries Division from 1978 until 1990. Mr. J. S. Gorman was elected President and Chief Executive Officer effective May 1, 1998, after having served as Senior Vice President since 1996. Mr. J. S. Gorman has held the position of General Manager of the Mansfield Division since 1989. He served as Assistant General Manager from 1986 to 1988; and he held the office of Corporate Secretary from 1982 to 1990. Mr. Kirkendall was elected as Assistant Treasurer in 1982; he assumed the additional office of Corporate Secretary in 1990. Mr. Danuloff was elected Vice President Information Services in 1991, after having served as Director of Information Services from 1981 to 1991. Mr. J. S. Gorman is the son of Mr. J. C. Gorman. Otherwise, there is no family relationship among any of the Executive Officers and Directors of the Company. 7 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Attention is directed to the section "Ranges of Stock Prices" and the data immediately below pertaining to the shareholder information reported by the Transfer Agent and Registrar on page 22 in the Company's 1998 Annual Report to Shareholders, which are incorporated herein by this reference. ITEM 6. SELECTED FINANCIAL DATA Attention is directed to the section "Ten Year Summary of Selected Financial Data" on pages 18 and 19 in the Company's 1998 Annual Report to Shareholders, which is incorporated herein by this reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Attention is directed to the section "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 16 and 17, and to page 23, in the Company's 1998 Annual Report to Shareholders, which are incorporated herein by this reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Attention is directed to the section "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 16 and 17, and to page 23, in the Company's 1998 Annual Report to Shareholders, which are incorporated herein by this reference. The Company has no material market risk exposures required to be reported by Item 305 of Regulation S-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Attention is directed to the Company's consolidated financial statements, the notes thereto and the report of independent auditors thereon on pages 10-15, and 19, and to the section "Summary of Quarterly Results of Operations" on page 18, in the Company's 1998 Annual Report to Shareholders, which are incorporated herein by this reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has not changed its independent public accountants and there have been no reportable disagreements with such accountants regarding accounting principles or practices or financial disclosure matters. 8 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT With respect to Directors, attention is directed to the section "Election of Directors" in the Company's definitive Notice of 1999 Annual Meeting of Shareholders and related Proxy Statement (filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K), which is incorporated herein by this reference. With respect to executive officers, attention is directed to Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Attention is directed to the sections "Board of Directors and Directors' Committees", "Executive Compensation", "Pension and Retirement Benefits", "Salary Committee Report on Executive Compensation" and "Shareholder Return Performance Presentation" in the Company's definitive Notice of 1999 Annual Meeting of Shareholders and related Proxy Statement (filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K), which are incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Attention is directed to the sections "Principal Shareholders", "Election of Directors" and "Shareholdings by Executive Officers" in the Company's definitive Notice of 1999 Annual Meeting of Shareholders and related Proxy Statement (filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K), which are incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Except as disclosed in the footnote in the section "Shareholdings By Executive Officers" and in footnote 2 in the section "Principal Shareholders" in the Company's definitive Notice of 1999 Annual Meeting of Shareholders and related Proxy Statement (filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K), which are incorporated herein by this reference, the Company has no relationships or transactions required to be reported by Item 404 of Regulation S-K. 9 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements -------------------- With respect to the consolidated financial statements of the Registrant and its subsidiaries, the following documents have been incorporated by reference into this report: (i) Consolidated balance sheets--December 31, 1998 and 1997 (ii) Consolidated statements of income--Years ended December 31, 1998, 1997 and 1996 (iii) Consolidated statements of shareholders' equity--Years ended December 31, 1998, 1997 and 1996 (iv) Consolidated statements of cash flows--Years ended December 31, 1998, 1997 and 1996 (v) Notes to consolidated financial statements (vi) Report of independent auditors 2. Financial Statement Schedules ----------------------------- All financial statement schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. 3. Exhibits -------- The exhibits listed below are submitted in a separate section of this report immediately following the Exhibit Index. (3) (i) Articles of incorporation and (ii) By-laws (4) Instruments defining the rights of security holders, including indentures (10) Material contracts (13) Annual report to security holders (21) Subsidiaries of the registrant (23) Consent of independent auditors (24) Powers of attorney (27) Financial data schedule (b) No reports on Form 8-K were filed during the last quarter of the period covered by this report. 10 11 PART IV--CONTINUED SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. THE GORMAN-RUPP COMPANY *By ROBERT E. KIRKENDALL -------------------- Robert E. Kirkendall Attorney-In-Fact Date: March 29, 1999 11 12 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. *JEFFREY S. GORMAN President, Principal Executive ----------------- Officer and Director Jeffrey S. Gorman *KENNETH E. DUDLEY Treasurer and Principal Financial ----------------- and Accounting Officer Kenneth E. Dudley *JAMES C. GORMAN Director --------------- James C. Gorman *WILLIAM A. CALHOUN Director ------------------ William A. Calhoun *THOMAS E. HOAGLIN Director ----------------- Thomas E. Hoaglin *PETER B. LAKE Director ------------- Peter B. Lake *JOHN A. WALTER Director -------------- John A. Walter *JAMES R. WATSON Director --------------- James R. Watson *The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K on behalf of The Gorman-Rupp Company and on behalf of each of the above-named Officers and Directors of The Gorman-Rupp Company pursuant to Powers of Attorney executed by The Gorman-Rupp Company and by each such Officer and Director and filed with the Securities and Exchange Commission. March 29, 1999 By: /s/ ROBERT E. KIRKENDALL ------------------------ Robert E. Kirkendall Attorney-In-Fact 12 13 ANNUAL REPORT ON FORM 10-K THE GORMAN-RUPP COMPANY For the Year Ended December 31, 1998 EXHIBIT INDEX
EXHIBIT (3) (4) Amended Articles of Incorporation, as amended 14 (3) (4) Regulations 16 (10) Form of Indemnification Agreement between the Company and its Directors and Officers 23 (13) Incorporated Portions of 1998 Annual Report to Shareholders 31 (21) Subsidiaries of the Company 43 (23) Consent of Independent Auditors 44 (24) Powers of Attorney 45 (27) Financial Data Schedule 48
13 EX-3.4 2 EXHIBIT (3)(4) 1 Exhibit (3) (4) Effective May 4, 1993 AMENDED ARTICLES OF INCORPORATION OF THE GORMAN-RUPP COMPANY (AS AMENDED) --------------------------------- ARTICLE I: The name of the Company shall be The Gorman-Rupp Company. ARTICLE II: The place in the State of Ohio where the principal office of the Company is to be located is the City of Mansfield, Richland County. ARTICLE III: The purposes for which, and for any of which, the Company is formed is to buy, sell and generally deal in, in every manner, and to develop, manufacture, repair, treat and finish in every manner, materials, articles or products of every kind and description, to provide services of all kinds, and to do all things necessary or incidental to any of the foregoing, including owning, holding and dealing, in every manner, in all real and personal property necessary or incidental to the foregoing purposes. The Company reserves the right at any time and from time to time to substantially change its purposes in any manner now or hereafter permitted by statute. Any change of the purposes of the Company authorized or approved by the holders of shares entitled to exercise the proportion of the voting power of the Company now or hereafter required by statute for such authorization or approval shall be binding and conclusive upon every shareholder of the Company as fully as if such shareholder had voted therefor; and no shareholder, notwithstanding that he may have voted against such change of purposes or may have objected in writing thereto, shall be entitled to payment of the fair cash value of his shares. ARTICLE IV: The number of shares which the Company is authorized to have outstanding is 14,000,000 Common Shares, without par value. Each Common Share shall be equal to every other Common Share. The holders of Common Shares shall be entitled to one vote for each share upon all matters presented to the shareholders. ARTICLE V: No holders of any class of shares of the Company shall have any pre-emptive right to purchase or have offered to them for purchase any shares or other securities of the Company. ARTICLE VI: The Company may from time to time, pursuant to authorization by its Directors and without action by the shareholders, purchase or otherwise acquire shares of the Company of any class or series upon such terms and in such amounts as the Directors shall determine, to the extent permitted by law; subject, however, to such limitation or restriction, if 2 2 any, as may be imposed by the terms of any class or series of shares or other securities of the Company outstanding at the time of the purchase or acquisition in question. ARTICLE VII: Any and every statute of the State of Ohio hereafter enacted whereby the rights, powers and privileges of corporations or of the shareholders of corporations organized under the laws of the State of Ohio are increased or diminished or in any way affected, or whereby effect is given to the action taken by any number, less than all, of the shareholders of any such corporation, shall apply to the Company and shall be binding not only upon the Company but upon every shareholder of the Company to the same extent as if such statute had been in force on the date of filing these Amended Articles of Incorporation of the Company in the office of the Secretary of State of Ohio. ARTICLE VIII: These Amended Articles of Incorporation supersede and take the place of the heretofore existing Articles of Incorporation of the Company and all amendments thereto. 3 Exhibit (3) (4) Effective April 16, 1998 REGULATIONS OF THE GORMAN-RUPP COMPANY ARTICLE I SHAREHOLDERS' MEETINGS SECTION 1. ANNUAL MEETINGS. The annual meeting of the Company shall be held at such time as is set forth in the notice of the meeting, on the fourth Thursday in April of each year, if not a legal holiday, and if a legal holiday, then on the next day not a legal holiday, for the election of Directors and the consideration of reports to be laid before such meeting. Upon due notice, there may also be considered and acted upon at an annual meeting any matter which could properly be considered and acted upon at a special meeting, in which case and for which purpose the annual meeting shall also be considered as, and shall be, a special meeting. When the annual meeting is not held or Directors are not elected thereat, they may be elected at a special meeting called for that purpose. SECTION 2. SPECIAL MEETINGS. Special meetings of shareholders may be called by the Chairman of the Board or the President or a Vice President, or by the Directors by action at a meeting or by a majority of the Directors acting without a meeting, or by the person or persons who hold of record not less than twenty-five percent of all shares outstanding and entitled to be voted on any proposal to be submitted at such meeting. Upon request in writing delivered either in person or by registered mail to the President or Secretary by any person or persons entitled to call a meeting of shareholders, such officer shall forthwith cause to be given, to the shareholders entitled thereto, notice of a meeting to be held not less than seven nor more than sixty days after the receipt of such request, as such officer shall fix. If such notice shall not be given within twenty days after the delivery or mailing of such request, the person or persons calling the meeting may fix the time of the meeting and give, or cause to be given, notice in the manner hereinafter provided. 4 2 SECTION 3. PLACE OF MEETINGS. Any meeting of shareholders may be held either at the principal office of the Company or at such other place within or without the State of Ohio as may be designated in the notice of said meeting. SECTION 4. NOTICE OF MEETINGS. Not more than sixty days nor less than ten days before the date fixed for a meeting of shareholders, whether annual or special, written notice of the time, place and purposes of such meeting shall be given by or at the direction of the President, a Vice President, the Secretary or an Assistant Secretary. Such notice shall be given either by personal delivery or by mail to each shareholder of record entitled to notice of such meeting. If such notice is mailed, it shall be addressed to the shareholders at their respective addresses as they appear upon the records of the Company, and notice shall be deemed to have been given on the day so mailed. Notice of adjournment of a meeting need not be given if the time and place to which it is adjourned are fixed and announced at such meeting. SECTION 5. SHAREHOLDERS ENTITLED TO NOTICE AND TO VOTE. If a record date shall not be fixed and the books of the Company shall not be closed against transfers of shares pursuant to statutory authority, the record date for the determination of shareholders who are entitled to notice of, or who are entitled to vote at, a meeting of shareholders, shall be the date next preceding the day on which notice is given, or the date next preceding the day on which the meeting is held, as the case may be. SECTION 6. INSPECTORS OF ELECTION - LIST OF SHAREHOLDERS. Inspectors of Election may be appointed to act at any meeting of shareholders in accordance with statute. At any meeting of shareholders, a list of shareholders, alphabetically arranged, showing their respective addresses and the number and classes of shares held by each on the record date applicable to such meeting shall be produced on the request of any shareholder. SECTION 7. QUORUM. Subject to the provisions of the Amended Articles of Incorporation, to constitute a quorum at any meeting of shareholders, there shall be present in person or by proxy shareholders of record entitled to exercise not less than fifty percent of the voting power of the Company in respect of any one of the purposes for which the meeting is called. The shareholders present in person or by proxy, whether or not a quorum be present, may adjourn the meeting from time to time. 5 3 SECTION 8. VOTING. In all cases, except where otherwise by statute or the Articles or the Regulations provided, a majority of the votes cast shall control. Cumulative voting in the election of Directors shall be permitted as provided by statute. SECTION 9. REPORTS TO SHAREHOLDERS. At the annual meeting, or the meeting to be held in lieu thereof, the officers of the Company shall lay before the shareholders a financial statement as required by statute. SECTION 10. ACTION WITHOUT A MEETING. Any action which may be authorized or taken at a meeting of the shareholders may be authorized or taken without a meeting with the affirmative vote or approval of, and in a writing or writings signed by, all of the shareholders who would be entitled to notice of a meeting for such purpose, which writing or writings shall be filed with or entered upon the records of the Company. ARTICLE II DIRECTORS SECTION 1. ELECTION, NUMBER AND TERM OF OFFICE. The Directors shall be elected at the annual meeting of shareholders, or if not so elected, at a special meeting of shareholders called for that purpose, and each Director shall hold office until the date fixed by these Regulations for the next succeeding annual meeting of shareholders and until his successor is elected, or until his earlier resignation, removal from office, or death. At any meeting of shareholders at which Directors are to be elected, only persons nominated as candidates shall be eligible for election. The number of Directors, which shall not be less than three, may be fixed or changed at a meeting called for the purpose of electing Directors at which a quorum is present, by the affirmative vote of the holders of a majority of the shares represented at the meeting and entitled to vote on such proposal. In case the shareholders at any meeting for the election of Directors shall fail to fix the number of Directors to be elected, the number elected shall be deemed to be the number of Directors so fixed. 6 4 SECTION 2. MEETINGS. Regular meetings of the Directors shall be held immediately after the annual meeting of shareholders and at such other times and places as may be fixed by the Directors, and such meetings may be held without further notice. Special meetings of the Directors may be called by the Chairman of the Board or by the President or by a Vice President or by the Secretary of the Company, or by not less than one-third of the Directors. Notice of the time and place of a special meeting shall be served upon or telephoned to each Director at least twenty-four hours, or mailed, telegraphed or cabled to each Director at least forty-eight hours, prior to the time of the meeting. SECTION 3. QUORUM. A majority of the number of Directors then in office shall be necessary to constitute a quorum for the transaction of business, but if at any meeting of the Directors there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time without notice other than announcement at the meeting until a quorum shall attend. SECTION 4. ACTION WITHOUT A MEETING. Any action which may be authorized or taken at a meeting of the Directors may be authorized or taken without a meeting with the affirmative vote or approval of, and in a writing or writings signed by, all of the Directors, which writing or writings shall be filed with or entered upon the records of the Company. SECTION 5. COMMITTEES. The Directors my from time to time create a committee or committees of Directors to act in the intervals between meetings of the Directors and may delegate to such committee or committees any of the authority of the Directors other than that of filling vacancies among the Directors or in any committee of the Directors. No committee shall consist of less than three Directors. The Directors may appoint one or more Directors as alternate members of any such committee, who may take the place of any absent member or members at any meeting of such committee. In particular, the Directors may create and define the powers and duties of an Executive Committee. Except as above provided and except to the extent that its powers are limited by the Directors, the Executive Committee during the intervals between meetings of the Directors shall possess and may exercise, subject to the control and direction of the Directors, all of the powers of the Directors in the management and control of the business of the Company, regardless of whether such powers are specifically conferred by these Regulations. All action taken by the Executive Committee shall be reported to the Directors at their first meeting thereafter. 7 5 Unless otherwise ordered by the Directors, a majority of the members of any committee appointed by the Directors pursuant to this section shall constitute a quorum at any meeting thereof, and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of such committee. Action may be taken by any such committee without a meeting by a writing or writings signed by all of its members. Any such committee shall prescribe its own rules for calling and holding meetings and its method of procedure, subject to any rules prescribed by the Directors, and shall keep a written record of all action taken by it. ARTICLE III OFFICERS SECTION 1. OFFICERS. The Company may have a Chairman of the Board and shall have a President (both of whom shall be Directors), a Secretary and a Treasurer. The Company may also have one or more Vice Presidents and such other officers and assistant officers as the Directors may deem necessary. All of the officers and assistant officers shall be elected by the Directors. SECTION 2. AUTHORITY AND DUTIES OF OFFICERS. The officers of the Company shall have such authority and shall perform such duties as are customarily incident to their respective offices, or as may be specified from time to time by the Directors regardless of whether such authority and duties are customarily incident to such office. SECTION 3. COMPENSATION. The Directors shall fix the compensation of the Chairman of the Board and of the President and shall fix or authorize one or more officers or Directors to fix the compensation of any or all other officers. The Directors may authorize compensation to any Director and to any member of any committee for attendance at meetings and for any special services. ARTICLE IV INDEMNIFICATION AND INSURANCE SECTION 1. INDEMNIFICATION. (a) The Company shall indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a Director, officer, employee or agent of the Company, or is or was serving at the request of the 8 6 Company as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise, to the full extent permitted from time to time under the laws of the State of Ohio; provided, however, that the Company shall indemnify any such agent (as opposed to any Director, officer or employee) of the Company to an extent greater than that required by law only if and to the extent that the Directors may, in their discretion, so determine. (b) The indemnification authorized by this Article shall not be exclusive of, and shall be in addition to, any other rights granted to those seeking indemnification hereunder or under the Articles or any agreement, vote of shareholders or disinterested Directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (c) No amendment, termination or repeal of this Article IV shall affect or impair in any way the rights of any Director or officer of the Company to indemnification under the provisions hereof with respect to any action, suit or proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. SECTION 2. LIABILITY INSURANCE. The Company may purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit or self-insurance, on behalf of or for any person who is or was a Director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, regardless of whether the Company would have the power to indemnify him against such liability under this Article. Insurance may be purchased from or maintained with a person in which the Company has a financial interest. ARTICLE V MISCELLANEOUS SECTION 1. TRANSFER AND REGISTRATION OF CERTIFICATES. The Directors shall have authority to make such rules and regulations as they deem expedient concerning the issuance, transfer and registration of certificates for shares and the shares represented thereby and may appoint transfer agents and registrars thereof. 9 7 SECTION 2. SUBSTITUTED CERTIFICATES. Any person claiming a certificate for shares to have been lost, stolen or destroyed shall make an affidavit or affirmation of that fact, shall give the Company and its registrar or registrars and its transfer agent or agents a bond of indemnity satisfactory to the Directors or to the Executive Committee or to the President or a Vice President and the Secretary or the Treasurer, and, if required by the Directors or the Executive Committee or such officers, shall advertise the same in such manner as may be required, whereupon a new certificate may be executed and delivered of the same tenor and for the same number of shares as the one alleged to have been lost, stolen or destroyed. SECTION 3. VOTING UPON SHARES HELD BY THE COMPANY. Unless otherwise ordered by the Directors, the President, in person or by proxy or proxies appointed by him, shall have full power and authority on behalf of the Company to vote, act and consent with respect to any shares issued by other corporations which the Company may own. SECTION 4. CORPORATE SEAL. The seal of the Company shall be circular in form with the name of the Company stamped around the margin and the words "Corporate Seal" stamped across the center. SECTION 5. ARTICLES TO GOVERN. In case any provision of these Regulations shall be inconsistent with the Articles, the Articles shall govern. SECTION 6. AMENDMENTS. These Regulations may be amended by the affirmative vote or the written consent of the shareholders of record entitled to exercise a majority of the voting power on such proposal, provided, however, that if an amendment is adopted by written consent without a meeting of the shareholders, the Secretary shall mail a copy of such amendment to each shareholder of record who would have been entitled to vote thereon and did not participate in the adoption thereof. EX-10 3 EXHIBIT 10 1 Exhibit (10) FORM OF INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of the _________ day of __________, __________, by and between The Gorman-Rupp Company, an Ohio corporation (the "Company"), and (the "Indemnitee"), a Director and an officer of the Company. RECITALS A. The Indemnitee is presently serving as a Director and an officer of the Company and the Company desires the Indemnitee to continue in those capacities. The Indemnitee is willing, subject to certain conditions, including, without limitation, the execution and performance of this Agreement by the Company, to continue in those capacities. B. In addition to the indemnification to which the Indemnitee is entitled under the Regulations of the Company, as amended (the "Regulations"), the Company has obtained, at its sole expense, insurance protecting the Company and its officers and Directors, including the Indemnitee, against certain losses arising out of actual or threatened actions, suits or proceedings to which such persons may be made or threatened to be made parties. However, as a result of circumstances having no relation to, and beyond the control of, the Company and the Indemnitee, the scope of that insurance has been reduced, and there can be no assurance of the continuation or renewal of that insurance. Accordingly, and in order to induce the Indemnitee to continue to serve in his present capacities, the Company and the Indemnitee agree as follows: 1. CONTINUED SERVICE. The Indemnitee shall continue to serve at the will of the Company as a Director and an officer of the Company so long as he is duly elected and qualified in accordance with the Regulations or until he resigns in writing in accordance with applicable law. 2. INITIAL INDEMNITY. (a) The Company shall indemnify the Indemnitee if or when he is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company), by reason of the fact that he is or was a Director or officer of the Company or is or was serving at the request of the Company as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise, or by reason of any action alleged to have been taken or omitted in any such capacity, against any and all costs, charges, expenses (including, without limitation, fees and expenses of attorneys and/or others; all such costs, charges and expenses being herein jointly referred to as "Expenses"), judgments, fines and amounts paid in settlement, actually and reasonably incurred by the Indemnitee in connection therewith including any appeal of or from any judgment or decision, unless it is proved by clear and convincing evidence in a court of competent jurisdiction that the Indemnitee's action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the 2 2 Company or undertaken with reckless disregard for the best interests of the Company. In addition, with respect to any criminal action or proceeding, indemnification hereunder shall be made only if the Indemnitee had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of "nolo contendere" or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not satisfy the foregoing standard of conduct to the extent applicable thereto. (b) The Company shall indemnify the Indemnitee if or when he is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by or in the right of the Company to procure a judgment in its favor, by reason of the fact that the Indemnitee is or was a Director or an officer of the Company or is or was serving at the request of the Company as a director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise, against any and all Expenses actually and reasonably incurred by the Indemnitee in connection with the defense or settlement thereof or any appeal of or from any judgment or decision, unless it is proved by clear and convincing evidence in a court of competent jurisdiction that the Indemnitee's action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Company or undertaken with reckless disregard for the best interests of the Company, except that no indemnification shall be made in respect of any action or suit in which the only liability asserted against the Indemnitee is pursuant to Section 1701.95 of the Ohio Revised Code (the "ORC"). (c) Any indemnification under Section 2(a) or 2(b) (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the Indemnitee is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 2(a) or 2(b). Such authorization shall be made (i) by the Directors of the Company (the "Board") by a majority vote of a quorum consisting of Directors who were not and are not parties to or threatened with such action, suit or proceeding, or (ii) if such a quorum of disinterested Directors is not available or if a majority of such quorum so directs, in a written opinion by independent legal counsel (designated for such purpose by the Board) which shall not be an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the Company, or any person to be indemnified, within the five years preceding such determination, or (iii) by the shareholders of the Company (the "Shareholders"), or (iv) by the court in which such action, suit or proceeding was brought. (d) To the extent that the Indemnitee has been successful on the merits or otherwise, including, without limitation, the dismissal of an action without prejudice, in defense of any action, suit or proceeding referred to in Section 2(a) or 2(b), or in defense of any claim, issue or matter therein, he shall be indemnified against Expenses actually and reasonably incurred by him in connection therewith. Expenses actually and reasonably incurred by the Indemnitee in defending any such action, suit or proceeding shall be paid by the Company as they are incurred in advance of the final disposition of such action, suit or proceeding under the procedure set forth in Section 4(b) hereof. 3 3 (e) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on the Indemnitee with respect to any employee benefit plan; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involve services by, the Indemnitee with respect to an employee benefit plan, its participants or beneficiaries; references to the masculine shall include the feminine; and references to the singular shall include the plural and VICE VERSA. 3. ADDITIONAL INDEMNIFICATION. Pursuant to Section 1701.13(E)(6) of the ORC, without limiting any right which the Indemnitee may have pursuant to Section 2 hereof or any other provision of this Agreement or the Articles of Incorporation, as amended, of the Company (the "Articles"), the Regulations, the ORC, any policy of insurance, or otherwise, but subject to any limitation on the maximum permissible indemnity which may exist under applicable law at the time of any request for indemnity hereunder and subject to the following provisions of this Section 3, the Company shall indemnify the Indemnitee against any amount which he is or becomes obligated to pay relating to or arising out of any claim made against him because of any act, failure to act or neglect or breach of duty, including any actual or alleged error, misstatement or misleading statement, which he commits, suffers, permits or acquiesces in while acting in his capacity as a Director or an officer of the Company. The payments which the Company is obligated to make pursuant to this Section 3 shall include, without limitation, judgments, fines and amounts paid in settlement and any and all Expenses actually and reasonably incurred by the Indemnitee in connection therewith including any appeal of or from any judgment or decision; PROVIDED, HOWEVER, that the Company shall not be obligated under this Section 3 to make any payment in connection with any claim against the Indemnitee: (a) to the extent of any fine or similar governmental imposition which the Company is prohibited by applicable law from paying which results from a final, nonappealable order; or (b) to the extent based upon or attributable to the Indemnitee having actually realized a personal gain or profit to which he was not legally entitled, including, without limitation, profit from the purchase and sale by the Indemnitee of equity securities of the Company which are recoverable by the Company pursuant to Section 16(b) of the Securities Exchange Act of 1934, or profit arising from transactions in publicly traded securities of the Company which were effected by the Indemnitee in violation of Section 10(b) of the Securities Exchange Act of 1934, or Rule 10b-5 promulgated thereunder. A determination as to whether the Indemnitee shall be entitled to indemnification under this Section 3 shall be made in accordance with Section 4(a) hereof. Expenses incurred by the Indemnitee in defending any claim to which this Section 3 applies shall be paid by the Company as they are actually and reasonably incurred in advance of the final disposition of such claim under the procedure set forth in Section 4(b) hereof. 4. CERTAIN PROCEDURES RELATING TO INDEMNIFICATION. (a) For purposes of pursuing his rights to indemnification under Section 3 hereof, the Indemnitee shall (i) submit to the Board a sworn statement of request for indemnification substantially in the 4 4 form of Exhibit 1 attached hereto and made a part hereof (the "Indemnification Statement") averring that he is entitled to indemnification hereunder; and (ii) present to the Company reasonable evidence of all amounts for which indemnification is requested. Submission of an Indemnification Statement to the Board shall create a presumption that the Indemnitee is entitled to indemnification hereunder, and the Company shall, within sixty (60) calendar days after submission of the Indemnification Statement, make the payments requested in the Indemnification Statement to or for the benefit of the Indemnitee, unless (i) within such 60-calendar-day period the Board shall resolve by vote of a majority of the Directors at a meeting at which a quorum is present that the Indemnitee is not entitled to indemnification under Section 3 hereof, (ii) such vote shall be based upon clear and convincing evidence (sufficient to rebut the foregoing presumption) and (iii) the Indemnitee shall have received within such period notice in writing of such vote, which notice shall disclose with particularity the evidence upon which the vote is based. The foregoing notice shall be sworn to by all persons who participated in the vote and voted to deny indemnification. The provisions of this Section 4(a) are intended to be procedural only and shall not affect the right of the Indemnitee to indemnification under Section 3 of this Agreement so long as the Indemnitee follows the prescribed procedure, and any determination by the Board that the Indemnitee is not entitled to indemnification and any failure to make the payments requested in the Indemnification Statement shall be subject to judicial review by any court of competent jurisdiction. (b) For purposes of obtaining payments of Expenses in advance of final disposition pursuant to the second sentence of Section 2(d) or the last sentence of Section 3 hereof, the Indemnitee shall submit to the Company a sworn request for advancement of Expenses substantially in the form of Exhibit 2 attached hereto and made a part hereof (the "Undertaking"), averring that he has reasonably incurred actual Expenses in defending an action, suit or proceeding referred to in Section 2(a) or 2(b) or any claim referred to in Section 3, or pursuant to Section 7 hereof. Unless at the time of the Indemnitee's act or omission at issue, the Articles or Regulations of the Company prohibit such advances by specific reference to ORC Section 1701.13(E)(5)(a) and unless the only liability asserted against the Indemnitee in the subject action, suit or proceeding is pursuant to ORC Section 1701.95, the Indemnitee shall be eligible to execute Part A of the Undertaking by which he undertakes to (a) repay such amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that the Indemnitee's action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Company or undertaken with reckless disregard for the best interests of the Company and (b) reasonably cooperate with the Company concerning the action, suit, proceeding or claim. In all cases, the Indemnitee shall be eligible to execute Part B of the Undertaking by which he undertakes to repay such amount if it ultimately is determined that he is not entitled to be indemnified by the Company under this Agreement or otherwise. In the event that the Indemnitee is eligible to and does execute both Part A and Part B of the Undertaking, the Expenses which are paid by the Company pursuant thereto shall be required to be repaid by the Indemnitee only if he is required to do so under the terms of both Part A and Part B of the Undertaking. Upon receipt of the Undertaking, the Company shall thereafter promptly pay such Expenses of the Indemnitee as are noticed to the Company in writing and in reasonable detail arising out of the matter described in the Undertaking. No security shall be required in connection with any Undertaking. 5 5 5. LIMITATION ON INDEMNITY. Notwithstanding anything contained herein to the contrary, the Company shall not be required hereby to indemnify the Indemnitee with respect to any action, suit or proceeding that was initiated by the Indemnitee unless (i) such action, suit or proceeding was initiated by the Indemnitee to enforce any rights to indemnification arising hereunder and such person shall have been formally adjudged to be entitled to indemnity by reason hereof, (ii) authorized by another agreement to which the Company is a party whether heretofore or hereafter entered or (iii) otherwise ordered by the court in which the suit was brought. 6. SUBROGATION; DUPLICATION OF PAYMENTS. (a) In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. (b) The Company shall not be liable under this Agreement to make any payment in connection with any claim made against the Indemnitee to the extent the Indemnitee has actually received payment (under any insurance policy, the Company's Regulations or otherwise) of the amounts otherwise payable hereunder. 7. FEES AND EXPENSES OF ENFORCEMENT. It is the intent of the Company that the Indemnitee not be required to incur the expenses associated with the enforcement of his rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnitee hereunder. Accordingly, if it should appear to the Indemnitee that the Company has failed to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any action, suit or proceeding to deny, or to recover from, the Indemnitee the benefits intended to be provided to the Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from time to time to retain counsel of his choice, at the expense of the Company as hereafter provided, to represent the Indemnitee in connection with the initiation or defense of any litigation or other legal action, whether by or against the Company or any director, officer, shareholder or other person affiliated with the Company, in any jurisdiction. Regardless of the outcome thereof, the Company shall pay and be solely responsible for any and all costs, charges and expenses, including, without limitation, fees and expenses of attorneys and others, reasonably incurred by the Indemnitee pursuant to this Section 7. 8. MERGER OR CONSOLIDATION. In the event that the Company shall be a constituent corporation in a consolidation, merger or other reorganization, the Company, if it shall not be the surviving, resulting or acquiring corporation therein, shall require as a condition thereto that the surviving, resulting or acquiring corporation agree to assume all of the obligations of the Company hereunder and to indemnify the Indemnitee to the full extent provided herein. Regardless of whether the Company is the resulting, surviving or acquiring corporation in any such transaction, the Indemnitee shall also stand in the same position under this Agreement with respect to the resulting, surviving or acquiring corporation as he would have with respect to the Company if its separate existence had continued. 6 6 9. NONEXCLUSIVITY AND SEVERABILITY. (a) The rights to indemnification provided by this Agreement shall not be exclusive of any other rights of indemnification to which the Indemnitee may be entitled under the Articles, the Regulations, the ORC or any other statute, any insurance policy, agreement or vote of shareholders or directors or otherwise, as to any actions or failures to act by the Indemnitee, and shall continue after he has ceased to be a Director, officer, employee or agent of the Company or other entity for which his service gives rise to a right hereunder, and shall inure to the benefit of his heirs, executors and administrators. (b) If any provision of this Agreement or the application of any provision hereof to any person or circumstances is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected, and the provision so held to be invalid, unenforceable or otherwise illegal shall be reformed to the extent (and only to the extent) necessary to make it enforceable, valid and legal. 10. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio, without giving effect to the principles of conflict of laws thereof. 11. MODIFICATION. This Agreement and rights and duties of the Indemnitee and the Company hereunder may be modified only by an instrument in writing signed by both parties hereto. IN WITNESS WHEREOF, the parties hereunto have duly executed this Agreement as of the date first above written. THE GORMAN-RUPP COMPANY By______________________________ ________________________________ ("Indemnitee") 7 Exhibit 1 INDEMNIFICATION STATEMENT STATE OF ___________________) ) SS: COUNTY OF __________________) I, __________________________________, being first duly sworn, do depose and say as follows: 1. This Indemnification Statement is submitted pursuant to the Indemnification Agreement, dated ______________, ____, between The Gorman-Rupp Company, an Ohio corporation (the "Company"), and the undersigned. 2. I am requesting indemnification against costs, charges, expenses (which may include fees and expenses of attorneys and/or others), judgments, fines and amounts paid in settlement (collectively, "Liabilities"), which have been actually and reasonably incurred by me in connection with a claim referred to in Section 3 of the aforesaid Indemnification Agreement. 3. With respect to all matters related to any such claim, I am entitled to be indemnified as herein contemplated pursuant to the aforesaid Indemnification Agreement. 4. Without limiting any other rights which I have or may have, I am requesting indemnification against liabilities which have or may arise out of _____________________________________________________________________________ ____________________________. __________________________________ (Signature of Indemnitee) Subscribed and sworn to before me, a Notary Public in and for said County and State, this ____ day of _________, ____. __________________________________ [Seal] My commission expires the ____ day of _________, ____. 8 Exhibit 2 UNDERTAKING STATE OF ___________________) ) SS: COUNTY OF __________________) I, __________________________________, being first duly sworn, do depose and say as follows: 1. This Undertaking is submitted pursuant to the Indemnification Agreement, dated ________, ___________, between The Gorman-Rupp Company, an Ohio corporation (the "Company"), and the undersigned. 2. I am requesting payment of costs, charges and expenses which I have reasonably incurred or will reasonably incur in defending an action, suit or proceeding, referred to in Section 2(a) or 2(b) or any claim referred to in Section 3, or pursuant to Section 7, of the aforesaid Indemnification Agreement. 3. The costs, charges and expenses for which payment is requested are, in general, all expenses related to _____________________________ _______________________________________________________________________________. 4. Part A I hereby undertake to (a) repay all amounts paid pursuant hereto if it is proved by clear and convincing evidence in a court of competent jurisdiction that my action or failure to act which is the subject of the matter described herein involved an act or omission undertaken with deliberate intent to cause injury to the Company or undertaken with reckless disregard for the best interests of the Company and (b) reasonably cooperate with the Company concerning the action, suit, proceeding or claim. __________________________________ (Signature of Indemnitee) 4. Part B I hereby undertake to repay all amounts paid pursuant hereto if it ultimately is determined that I am not entitled to be indemnified by the Company under the aforesaid Indemnification Agreement or otherwise. __________________________________ (Signature of Indemnitee) Subscribed and sworn to before me, a Notary Public in and for said County and State, this ____ day of _________, ____. __________________________________ [Seal] My commission expires the ____ day of _________, ____. EX-13 4 EXHIBIT 13 1 Exhibit 13 Consolidated Statements of Income And Shareholders' Equity
(Thousands of dollars, except per share amounts) YEAR ENDED DECEMBER 31, INCOME 1998 1997 1996 ---- ---- ---- Net sales .................................... $171,245 $164,862 $155,187 Other income ................................. 1,001 706 491 ------- ------- ------- TOTAL INCOME ............................ 172,246 165,568 155,678 Deductions from income: Cost of products sold ...................... 127,532 123,898 116,060 Selling, general and administrative expenses 25,562 24,718 23,955 ------- ------- ------- 153,094 148,616 140,015 ------- ------- ------- INCOME BEFORE INCOME TAXES .............. 19,152 16,952 15,663 Income taxes ................................. 7,400 6,340 5,735 ------- ------- ------- NET INCOME .............................. $11,752 $10,612 $9,928 ======= ======= ======= BASIC AND DILUTED EARNINGS PER SHARE .... $1.37 $1.23 $1.15 ===== ===== ===== Average number of shares outstanding ......... 8,599,713 8,609,479 8,617,168
SHAREHOLDERS' EQUITY ACCUMULATED OTHER COMMON RETAINED COMPREHENSIVE SHARES EARNINGS INCOME (LOSS) TOTAL ------ -------- ------------- ----- BALANCES DECEMBER 31, 1995 ....................... $5,133 $62,984 $ (877) $67,240 Comprehensive income: Net income ....................................... 9,928 9,928 Foreign currency translation adjustments ......... (29) (29) ------ Total comprehensive income ....................... 9,899 Sale of 10,711 common shares from treasury ....... 8 157 165 Cash dividends - $.53 a share .................... (4,567) (4,567) ------ ------ ------ ------ BALANCES DECEMBER 31, 1996 ....................... 5,141 68,502 (906) 72,737 Comprehensive income: Net income ....................................... 10,612 10,612 Foreign currency translation adjustments ......... (312) (312) ----- Total comprehensive income ....................... 10,300 Sale of 11,768 common shares from treasury ....... 8 211 219 Purchase of 20,783 common shares for treasury .... (14) (361) (375) Cash dividends - $.56 a share .................... (4,821) (4,821) ------ ------ ------ ------ BALANCES DECEMBER 31, 1997 ....................... 5,135 74,143 (1,218) 78,060 Comprehensive income: Net income ....................................... 11,752 11,752 Foreign currency translation adjustments ......... (506) (506) ------ Total comprehensive income ....................... 11,246 Sale of 59,848 common shares from treasury ....... 39 1,027 1,066 Purchase of 87,980 common shares for treasury .... (58) (1,625) (1,683) Cash dividends - $.58 a share .................... (4,983) (4,983) ------ ------ ------ ------ BALANCES DECEMBER 31, 1998 ....................... $5,116 $80,314 $(1,724) $83,706 ====== ====== ====== ======
10 See notes to consolidated financial statements 2 Consolidated Balance Sheets
(Thousands of dollars) DECEMBER 31, ASSETS 1998 1997 ---- ---- CURRENT ASSETS Cash and cash equivalents ........................................................ $ 2,359 $ 836 Short-term investments ........................................................... 6,306 6,901 Accounts receivable .............................................................. 26,282 31,263 Inventories ...................................................................... 38,323 39,761 Deferred income taxes ............................................................ 4,214 2,068 Other current assets ............................................................. 1,072 866 ------- ------- TOTAL CURRENT ASSETS ....................................................... 78,556 81,695 OTHER ASSETS ........................................................................ 632 816 DEFERRED INCOME TAXES ............................................................... 4,373 4,435 PROPERTY, PLANT AND EQUIPMENT Land ........................................................................... 1,611 1,611 Buildings ...................................................................... 28,093 25,875 Machinery and equipment ........................................................ 63,659 59,511 ------- ------- 93,363 86,997 Less allowances for depreciation ............................................... 49,447 46,078 ------- ------- PROPERTY, PLANT AND EQUIPMENT - NET ........................................ 43,916 40,919 ------- ------- $127,477 $127,865 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable.................................................................. $ 8,666 $ 7,669 Payrolls and related liabilities ................................................. 2,925 2,607 Commissions payable .............................................................. 2,055 2,160 Accrued expenses ................................................................. 2,203 2,155 Income taxes ..................................................................... 543 1,459 Accrued medical benefits ......................................................... 1,039 986 ------- ------- TOTAL CURRENT LIABILITIES .................................................. 17,431 17,036 LONG-TERM DEBT ...................................................................... 783 6,689 POSTRETIREMENT BENEFITS ............................................................. 25,557 26,080 SHAREHOLDERS' EQUITY Common Shares, without par value: Authorized - 14,000,000 shares; Outstanding-8,581,236 shares in 1998 and 8,609,368 shares in 1997 (after deducting treasury shares of 283,940 in 1998 and 255,808 in 1997) at stated capital amount ................................................... 5,116 5,135 Retained earnings ................................................................ 80,314 74,143 Accumulated other comprehensive income (translation adjustments) ................. (1,724) (1,218) ------- ------- TOTAL SHAREHOLDERS' EQUITY ................................................. 83,706 78,060 ------- ------- $127,477 $127,865 ======= =======
11 See notes to consolidated financial statements 3 Consolidated Statements Of Cash Flows
YEAR ENDED DECEMBER 31, 1998 1997 1996 (Thousands of dollars) ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................ $ 11,752 $ 10,612 $ 9,928 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ..................... 6,330 5,959 5,675 Deferred income taxes ............................. (2,084) 972 791 Changes in operating assets and liabilities: Accounts receivable .............................. 4,981 (1,369) 2,058 Inventories ...................................... 1,438 (6,140) (788) Accounts payable ................................. 997 1,010 (849) Postretirement benefits .......................... (523) 162 257 Other ............................................ (989) 660 792 -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES ........ 21,902 11,866 17,864 CASH FLOWS FROM INVESTING ACTIVITIES: Capital additions, net .............................. (9,327) (6,329) (4,036) Purchases of short-term investments ................. (18,193) (25,689) -- Proceeds from short-term investments ................ 18,788 18,788 -- Other ............................................... (141) -- -- -------- -------- -------- NET CASH USED FOR INVESTING ACTIVITIES ........... (8,873) (13,230) (4,036) CASH FLOWS FROM FINANCING ACTIVITIES: Cash dividends ...................................... (4,983) (4,821) (4,567) Net borrowings from (payments to) banks ............. (5,906) 2,893 (8,392) Sale of common shares from treasury ................. 1,066 219 165 Purchase of common shares for treasury .............. (1,683) (375) -- -------- -------- -------- NET CASH USED FOR FINANCING ACTIVITIES ........... (11,506) (2,084) (12,794) -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........................... 1,523 (3,448) 1,034 CASH AND CASH EQUIVALENTS: Beginning of year ................................... 836 4,284 3,250 -------- -------- -------- END OF YEAR ......................................... $ 2,359 $ 836 $ 4,284 ======== ======== ========
See notes to consolidated financial statements. 12 4 Notes To Consolidated Financial Statements NOTE A - SUMMARY OF MAJOR ACCOUNTING POLICIES CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: The Company considers highly liquid, short-term investments to be cash equivalents. Short-term investments consist of certificates of deposit having maturities of less than one year. Because of their short maturity, the carrying amounts of the investments are valued at cost which approximates market value. INVENTORIES: Inventories are stated at the lower of cost or market. The cost for approximately 97% and 96% of inventories at December 31, 1998 and 1997, respectively, is determined using the last-in, first-out (LIFO) method, with the remainder determined using the first-in, first-out method. At December 31, 1997, retroactive to January 1, 1997, the Company extended the use of the LIFO method to the remaining United States inventories to better match the cost of products sold with related revenues. This change decreased 1997 net income by $246,000 (equal to $.03 per share). PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated on the basis of cost. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. The estimated useful life is primarily 30 years for buildings and ranges from 5 to 12 years for machinery and equipment. Long-lived assets are reviewed for impairment losses whenever events or changes in circumstances indicate the carrying amount may not be recovered through future net cash flows generated by the assets. CONCENTRATION OF CREDIT RISK: The Company does not require collateral from its customers and has generally had a good collection history. REVENUE RECOGNITION: The Company recognizes revenues at the point of passage of title, which is generally at the time of shipment to the customer. ADVERTISING: The Company expenses all advertising costs as incurred which, for the years ended December 31, 1998, 1997 and 1996, totaled $2,861,000, $2,295,000 and $2,598,000, respectively. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE B - INVENTORIES: The major components of inventories are as follows:
- -------------------------------------------------------------------------------- (Thousands of dollars) 1998 1997 - -------------------------------------------------------------------------------- Raw materials and in-process ............... $21,335 $23,749 Finished parts ............................. 13,617 12,471 Finished products .......................... 3,371 3,541 ------- ------- $38,323 $39,761 ======= ======= - --------------------------------------------------------------------------------
The excess of replacement cost over LIFO cost is approximately $22,369,000 and $21,500,000 at December 31, 1998 and 1997, respectively. NOTE C - FINANCING ARRANGEMENTS: Under unsecured demand lines of credit with banks, the Company may borrow up to $10.3 million with interest at LIBOR plus .75% or at alternative rates as selected by the Company. At December 31, 1998, $10.3 million is available for borrowing. The Company also has an $8.0 million unsecured revolving loan agreement which matures in May 2001. At December 31, 1998, $6.3 million is available for borrowing after deducting $783,000 of outstanding borrowings due in 2001 and $900,000 of outstanding letters of credit. Interest is payable quarterly at LIBOR plus .55% or at alternative rates as selected by the Company (weighted-average interest rate 6.1% and 6.2% at December 31, 1998 and 1997, respectively). Although the agreement contains restrictive covenants including limits on additional borrowings and maintenance of certain operating and financial ratios, the Company significantly exceeds the requirements. Interest expense was $188,000, $238,000 and $330,000 in 1998, 1997 and 1996, respectively. 13 5 Notes to Consolidated Financial Statements NOTE D - INCOME TAXES: The components of income before income taxes are:
- -------------------------------------------------------------------------------- (Thousands of dollars) 1998 1997 1996 - -------------------------------------------------------------------------------- United States ............ $18,315 $16,021 $14,902 Foreign .................. 837 931 761 ------- ------- ------- $19,152 $16,952 $15,663 ======= ======= ======= - --------------------------------------------------------------------------------
The components of income tax expense are as follows:
- -------------------------------------------------------------------------------- (Thousands of dollars) 1998 1997 1996 - -------------------------------------------------------------------------------- Current: Federal ................ $8,386 $4,301 $4,124 Canadian ............... 409 454 313 State and local ........ 689 613 507 ------- ------- ------- 9,484 5,368 4,944 Deferred ................. (2,084) 972 791 ------- ------- ------- $7,400 $6,340 $5,735 ======= ======= ======= - --------------------------------------------------------------------------------
The reconciliation between income tax expense and the amount computed by applying the statutory federal income tax rate of 35% to income before income taxes is as follows:
- -------------------------------------------------------------------------------- (Thousands of dollars) 1998 1997 1996 - -------------------------------------------------------------------------------- Income taxes at statutory rate .............. $6,703 $5,933 $5,482 State and local income taxes, net of federal tax benefit ................. 448 399 330 Other ............................ 249 8 (77) ------- ------- ------- $7,400 $6,340 $5,735 ======= ======= ======= - --------------------------------------------------------------------------------
Deferred tax assets (liabilities) consist of the following:
- -------------------------------------------------------------------------------- (Thousands of dollars) 1998 1997 1996 - -------------------------------------------------------------------------------- Current: Inventories ............... $ 1,957 $ 64 $ 1,333 Accrued liabilities ....... 2,257 2,004 1,753 ------- ------- ------- 4,214 2,068 3,086 Non-current: Depreciation .............. (5,399) (5,217) (5,033) Postretirement health benefits obligation ..... 9,820 9,815 9,551 Other ..................... (48) (163) (129) ------- ------- ------- 4,373 4,435 4,389 ------- ------- ------- $ 8,587 $ 6,503 $ 7,475 ======= ======= ======= - --------------------------------------------------------------------------------
The Company made income tax payments of $10,400,000, $5,000,000 and $4,600,000 in 1998, 1997 and 1996, respectively. NOTE E - PENSIONS AND OTHER POSTRETIREMENT BENEFITS: The Company sponsors a defined benefit pension plan covering substantially all employees. The Company's policy is to fund the maximum tax deductible contribution. The Company also sponsors a non-contributory defined benefit health care plan that provides health benefits to retirees and their spouses. The Company's policy is to fund the cost of these benefits as incurred. The following table presents the plans' funded status reconciled with amounts recognized in the Company's balance sheets.
PENSION BENEFITS OTHER BENEFITS - -------------------------------------------------------------------------------- (Thousands of dollars) 1998 1997 1998 1997 - -------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year ............. $25,867 $24,150 $17,815 $15,502 Service cost ....................... 1,377 1,312 642 974 Interest cost ...................... 1,784 1,678 1,113 1,099 Amendments ......................... - - (2,093) - Actuarial losses (gains) ........... 1,124 1,039 (48) 883 Benefits paid ...................... (2,448) (2,312) (754) (643) ------ ------ ------ ------ Benefit obligation at end of year .. 27,704 25,867 16,675 17,815 CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year .......... 24,300 21,714 - - Actual return on plan assets ....... 2,621 3,201 - - Company contributions .............. 1,710 1,697 754 643 Benefits paid ...................... (2,448) (2,312) (754) (643) ------ ------ ------ ------ Fair value of plan assets at end of year ..................... 26,183 24,300 - - ------ ------ ------ ------ Funded status of the plan (underfunded) ................. (1,521) (1,567) (16,675) (17,815) Unrecognized net actuarial loss .... 1,274 927 (3,477) (2,789) Unrecognized net transition asset .. (695) (869) - - Unrecognized prior service cost .... 56 91 (4,519) (4,058) ------ ------ ------ ------ ACCRUED BENEFIT COST ............... $ (886) $(1,418) $(24,671) $(24,662) ====== ====== ====== ======
- -------------------------------------------------------------------------------- Weighted-average assumptions PENSION BENEFITS OTHER BENEFITS - -------------------------------------------------------------------------------- (as of December 31,) 1998 1997 1998 1997 - -------------------------------------------------------------------------------- Discount rate ............................. 7.00% 7.25% 7.00% 7.25% Expected rate of return on plan assets .... 8.00% 8.00 - - Rate of compensation increase ............. 4.00% 4.50% - - - --------------------------------------------------------------------------------
14 6 Notes to Consolidated Financial Statements For measurement purposes, a 7.0 - 7.5 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 1999. The rate was assumed to decrease gradually to 4.5 percent by 2005 and remain at that level thereafter.
PENSION BENEFITS OTHER BENEFITS - ---------------------------------------------------------------------------------------------- (Thousands of dollars) 1998 1997 1996 1998 1997 1996 - ---------------------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST Service cost ..................... $ 1,377 $ 1,312 $ 1,172 $ 642 $ 974 $ 675 Interest cost .................... 1,784 1,678 1,624 1,113 1,099 1,138 Expected return on plan assets ... (1,844) (1,657) (1,426) - - - Amortization of prior service cost 35 34 34 (756) (524) (524) Recognized net actuarial loss .... (174) (173) (171) (208) (241) (131) ------- ------- ------- ------- ------- ------- BENEFIT COST ..................... $ 1,178 $ 1,194 $ 1,233 $ 791 $ 1,308 $ 1,158 ======= ======= ======= ======= ======= ======= - ----------------------------------------------------------------------------------------------
The assumed health care trend rate has a significant effect on the amounts reported for other postretirement benefits. A one-percentage point change in the assumed health care cost trend rate would have the following effects:
ONE-PERCENTAGE POINT - -------------------------------------------------------------------------------------------------------- (Thousands of dollars) Increase Decrease - -------------------------------------------------------------------------------------------------------- Effect on total of service and interest cost components in 1998 ................... $169 $(152) Effect on accumulated postretirement benefit obligation as of December 31, 1998 ... $1,499 $(1,328) - --------------------------------------------------------------------------------------------------------
NOTE F - BUSINESS SEGMENT INFORMATION: Effective January 1, 1998, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information". The Company operates principally in one business segment, the manufacture and sale of pumps and related fluid control equipment for water, wastewater, construction, industrial, petroleum, original equipment, agricultural, fire and military applications. Except for government and export sales, the Company's pumps are marketed in the United States and Canada through a network of about 1,000 distributors, through manufacturers' representatives (for sales to many original equipment manufacturers) and by direct sales. Government sales are handled directly by the Company. Export sales are principally made through foreign distributors and manufacturers' representatives. The Company exports to more than 75 countries located around the world. The components of customer sales, determined based on the location of customers, are as follows:
- ----------------------------------------------------------------------------------------- (Thousands of dollars) 1998 % 1997 % 1996 % - ----------------------------------------------------------------------------------------- United States .............. $144,261 84 $140,040 85 $136,121 88 Exports to foreign countries 26,984 16 24,822 15 19,066 12 -------- --- -------- --- -------- --- $171,245 100 $164,862 100 $155,187 100 ======== === ======== === ======== === - -----------------------------------------------------------------------------------------
15 7 Management's Discussion And Analysis Of Financial Condition And Results Of Operations 1998 COMPARED TO 1997 1998 marked the 12th consecutive year the Company achieved record net sales and net income. Net sales amounted to $171.2 million in 1998 compared to $164.9 million in 1997, an increase of 3.9%. This growth was largely the result of shipments in the wastewater, construction and fire markets approximating increases of $6.7 million or 11.0%. Export shipments also increased $2.2 million or 8.7% and represented approximately 16% of total sales in 1998 compared to 15% in 1997. These results were, however, somewhat offset by an estimated $6 million decline in business directly associated with the deteriorated economy in Asia. Other income amounted to $1.0 million in 1998 compared to $706,000 in 1997 and results principally from interest income earned on the investment of funds. Cost of products sold for 1998 was $127.5 million compared to $123.9 million in 1997, an increase of $3.6 million or 2.9%. This increase was reflective of increased sales. As a percent of net sales, cost of products sold was 74.5% and 75.2% in 1998 and 1997, respectively. Gross profit margins of 25.5% in 1998 and 24.8% in 1997 have improved and are principally the result of product mix, utilization of capacity, cost control and manufacturing efficiencies resulting from continued investment in manufacturing technology and machinery. Selling, general and administrative (SG&A) expenses for 1998 were $25.6 million compared to $24.7 million for 1997. As a percent of net sales, SG&A expenses were 14.9% in 1998 and 15.0% in 1997. The reduction in 1998 SG&A expenses as a percent of net sales principally resulted from increased sales volume and continued efficiencies associated with the design and implementation of upgraded information management systems during the mid-1990s. Interest expense was $188,000 in 1998 compared to $238,000 in 1997, principally the reflection of lower average borrowings. The effective income tax rate was 38.6% in 1998, compared to 37.4% in 1997. (See Note D to the financial statements.) Net income increased 10.7% to a record $11.8 million in 1998 compared to $10.6 million in 1997. Net income as a percent of net sales was 6.9% and 6.4% in 1998 and 1997, respectively. Earnings per share increased 14 cents to $1.37 compared to $1.23 in 1997. The 1998 annual dividend of 58 cents per share represented the 26th consecutive year of increased cash dividends. The quarterly dividend increase to 15 cents per share approved by the Board of Directors in July 1998 represented an increase of 7.1%. The yield at December 31, 1998 was 3.6%. 1997 COMPARED TO 1996 The Company achieved record net sales and net income in 1997, marking the 11th consecutive year for those accomplishments. Net sales increased 6.2% in 1997 to $164.9 million compared to $155.2 million in 1996. Real growth accounted for increases of 3 to 4 percent while the remainder of the growth was the result of increases in the prices of products sold coupled with product mix. Generally, business at the Mansfield Division remained flat in 1997; increased commercial business nearly offset the reduction in government sales due to the completion of a large government contract in mid-year 1996. Patterson Pump Company sales increased $8.5 million in 1997 resulting from an increase in pump sales and a full year of shipments against a long-term agreement with a major customer for fabricated products. Other income amounted to $706,000 in 1997 compared to $491,000 in 1996 and resulted principally from interest income earned on the investment of funds. The increase in 1997 was the result of increased investments in short-term securities. Cost of products sold in 1997, as a percentage of net sales, was 75.2%, compared 74.8% in 1996. The increase in 1997 cost of products sold as a percentage of net sales was principally the result of product mix and the increased material and labor intensive production of product at Patterson Pump Company. Selling, general and administrative (SG&A) expenses were 15.0% of net sales in 1997, compared to 15.4% 16 8 in 1996. The reduction in 1997 SG&A expenses as a percent of net sales principally resulted from increased sales volume and the reduction in expenses incurred in 1996 and 1995 associated with the design and implementation of upgraded information management systems. The effective income tax rate was 37.4% in 1997, compared to 36.6% in 1996. (See Note D to the financial statements.) Net income in 1997 increased 6.9% to a record $10.6 million from $9.9 million in 1996. Net income as a percent of net sales was 6.4% in 1997 and 1996. Earnings per share increased 8 cents to a record $1.23 compared to $1.15 in 1996. LIQUIDITY AND SOURCES OF CAPITAL Cash and cash equivalents and short-term investments totalled $8.7 million as of December 31, 1998. In addition, the Company has $10.3 million in bank short-term lines of credit, all of which are unused. The Company also maintains an unsecured revolving credit facility, expiring in 2001, which provides for maximum borrowings of $8.0 million, $6.3 million of which is available. As of December, 31, 1998, $783,000 had been borrowed and $900,000 covered outstanding letters of credit. Although the facility contains restrictive covenants which limit additional borrowings and require maintenance of certain operating and financial ratios, the Company significantly exceeds the requirements. During 1998, the Company financed its capital improvements and working capital requirements through internally generated funds and line of credit arrangements with banks. Capital expenditures for 1999, estimated to be $24.0 to $25.0 million, are expected to be financed through internally generated funds, existing credit arrangements and a long-term loan with an existing bank. The Company plans to begin construction of the first phase of a new facility that will eventually house the manufacturing, warehousing and office facilities of the Mansfield Division and IPT Pumps Division. $17 million of the $30 million phase one building project is projected to be incurred in 1999 and the remainder is scheduled in 2000. The ratio of current assets to current liabilities was 4.5 to 1 at December 31, 1998, compared to 4.8 to 1 at December 31, 1997. Management believes that it has adequate working capital and a healthy liquidity position. IMPACT OF YEAR 2000 The Year 2000 issue, as widely reported, could cause malfunctions in certain computer-related applications with respect to dates on or after January 1, 2000. The Company's Year 2000 program provides for assessments of its computer technology, operating equipment, facilities and suppliers. Assessments, initiated in 1998, continue to be conducted primarily through internal testing procedures and inquiry of critical suppliers. Further, individual assessments regarding significant suppliers of services, product materials and components continue to be conducted at the Company's various facilities in accordance with the Company's Year 2000 program. Management believes the completion in 1998 of additional hardware and software upgrades to the Company's new management information systems originally installed in 1996 have enabled manufacturing, financial and distribution systems to become Year 2000 compliant. Ancillary computer systems are being evaluated in accordance with the Company's Year 2000 program to assure their compliance. Costs of the new systems were capitalized in 1996; certain implementation costs were expensed and related software upgrades were substantially provided through existing acquisition and maintenance agreements. Any other Year 2000 costs have not been and are not expected to be material. Management continues to assess the extent of necessary modifications to its operating activities and supplier and customer readiness. To date, no significant issues have been identified and the Company is not aware of any unresolved Year 2000 issue which would materially impact the Company's operations and financial position. 17 9 Ten Year Summary Of Selected Financial Data
(Thousands of dollars, except per share amounts) 1998 1997 1996 1995 ---- ---- ---- ---- OPERATING RESULTS: Net sales $171,245 $164,862 $155,187 $149,489 Gross profit 43,713 40,964 39,127 36,516 Income taxes 7,400 6,340 5,735 5,590 Income (1) 11,752 10,612 9,928 9,461 Return on net sales (%) 6.9 6.4 6.4 6.3 Sales dollars per employee 167.6 161.0 159.3 153.8 FINANCIAL POSITION: Current assets $78,556 $81,695 $71,926 $71,401 Current liabilities 17,431 17,036 15,199 19,727 Working capital 61,125 64,659 56,727 51,674 Current ratio 4.5 4.8 4.7 3.6 Property, plant and equipment - net 43,916 40,919 40,549 42,163 Capital additions 9,327 6,329 4,036 8,229 Total assets 127,477 127,865 117,650 119,816 Shareholders' equity 83,706 78,060 72,737 67,240 Dividends paid 4,983 4,821 4,567 4,466 Average number of employees 1,022 1,024 974 972 SHAREHOLDER INFORMATION: Basic and diluted earnings per share (1) $1.37 $1.23 $1.15 $1.10 Cash dividends per share .58 .56 .53 .52 Shareholders' equity per share at December 31, 9.75 9.07 8.44 7.81 Average number of shares outstanding 8,599,713 8,609,479 8,617,168 8,587,466
(1) Income in 1992 is before the cumulative effect of a change in accounting principle which reduced income by $11,886,000 or $1.38 per share. - -------------------------------------------------------------------------------- SUMMARY OF QUARTERLY RESULTS OF OPERATIONS The following is a summary of unaudited quarterly results of operations for the years ended December 31, 1998 and 1997. (Thousands of dollars, except per share amounts) QUARTER ENDED 1998 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 TOTAL ------- ------- -------- ------- ----- Net sales $43,703 $42,535 $44,535 $40,472 $171,245 Gross profit 11,107 11,063 12,040 9,503 43,713 Net income 3,251 3,027 3,384 2,090 11,752 Basic and diluted earnings per share .38 .35 .39 .25 1.37
QUARTER ENDED 1997 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 TOTAL ------- ------- -------- ------- ----- Net sales $40,530 $40,163 $42,278 $41,891 $164,862 Gross profit 9,907 10,572 10,775 9,710 40,964 Net income 2,736 2,812 3,008 2,056 10,612 Basic and diluted earnings per share .32 .32 .35 .24 1.23
18 10
1994 1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- ---- $137,508 $131,535 $126,019 $123,442 $119,715 $114,253 35,763 32,699 30,975 29,872 28,602 27,663 5,625 5,063 4,693 4,664 4,888 4,638 9,327 8,795 7,966 7,689 7,342 6,771 6.8 6.7 6.3 6.2 6.1 5.9 138.5 133.9 125.6 120.0 120.7 118.6 $60,070 $55,746 $50,152 $53,642 $50,531 $48,793 16,391 14,382 12,380 14,471 14,805 15,871 43,679 41,364 37,772 39,171 35,726 32,922 3.7 3.9 4.1 3.7 3.4 3.1 40,879 36,835 30,807 30,838 26,134 24,479 8,553 10,277 4,496 8,224 4,962 4,844 107,100 98,706 86,434 85,131 77,643 74,560 61,608 56,911 52,759 61,256 57,310 53,711 4,209 4,122 3,923 3,820 3,743 3,667 993 982 1,003 1,029 992 963 $1.09 $1.02 $.92 $.89 $.85 $.79 .49 .48 .46 .45 .44 .43 7.18 6.63 6.14 7.13 6.67 6.25 8,579,633 8,588,493 8,594,255 8,594,255 8,594,255 8,594,255
- -------------------------------------------------------------------------------- REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Shareholders The Gorman-Rupp Company We have audited the accompanying consolidated balance sheets of The Gorman-Rupp Company and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31,1998, appearing on pages 10 through 15. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Gorman-Rupp Company and subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Cleveland, Ohio January 29, 1999 19 11 Shareholder Information RANGES OF STOCK PRICES The high and low sales price and dividends per share for Common Shares traded on the American Stock Exchange were:
SALES PRICE OF COMMON SHARES DIVIDENDS PER SHARE 1998 1997 1998 1997 ------------------------ ---------------------- ---- ---- Quarter High Low High Low First................. $21.3750 $19.5000 $16.6250 $13.3750 $.14 $.14 Second................ 21.5000 17.5000 18.8750 14.8750 .14 .14 Third................. 19.2500 15.7500 19.8750 17.3750 .15 .14 Fourth ............... 17.5000 13.2500 22.2500 17.8125 .15 .14
- -------------------------------------------------------------------------------- Shareholder information reported by Transfer Agent and Registrar, National City Bank, February 16, 1999.
Holders Shares ------- ------ Individuals...................................... 1,329 2,452,882 Nominees, Brokers and Others .................... 32 6,135,467 ----- --------- TOTAL 1,361 8,588,349 ===== =========
An additional 276,827 Common Shares are held in Treasury. - -------------------------------------------------------------------------------- 22 12 SAFE HARBOR STATEMENT Safe Harbor Statement This Annual Report contains various forward-looking statements and includes assumptions concerning The Gorman-Rupp Company's operations, future results and prospects. These forward-looking statements are based on current expectations and are subject to risk and uncertainties. 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 identifying important economic, political and technological factors, among others, the absence of which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions. Such factors include the following: (1) continuation of the current and projected future business environment, including interest rates and capital and consumer spending; (2) competitive factors and competitor responses to Gorman-Rupp initiatives; (3) successful development and market introductions of anticipated new products; (4) stability of government laws and regulations, including taxes; (5) stable governments and business conditions in emerging economies; (6) successful penetration of emerging economies; (7) continuation of the favorable environment to make acquisitions, domestic and foreign, including regulatory requirements and market values of candidates; (8) successful identification and conversion of computer systems to address the Year 2000 issue by the Company, suppliers and vendors. 23 EX-21 5 EXHIBIT 21 1 EXHIBIT (21) SUBSIDIARIES OF THE COMPANY --------------------------- The Company has four wholly owned subsidiaries: (i) Gorman-Rupp of Canada Limited, organized under the laws of the Province of Ontario; (ii) The Gorman-Rupp International Company, organized under the laws of the State of Ohio; (iii) Patterson Pump Company, organized under the laws of the State of Ohio; and; (iv) Gorman-Rupp Foreign Sales Corporation, organized under the laws of Barbados. The Company has one indirect, majority-owned subsidiary: Patterson Pump Ireland Limited, a majority-owned subsidiary of Patterson Pump Company, organized under the laws of the Republic of Ireland. The consolidated financial statements of the Company, filed as a part of this Form 10-K, include the account of each such subsidiary. 43 EX-23 6 EXHIBIT 23 1 EXHIBIT (23) Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of The Gorman- Rupp Company of our report dated January 29, 1999, included in the 1998 Annual Report to Shareholders of The Gorman-Rupp Company. We also consent to the incorporation by reference in the Registration Statement and in the related Prospectus (Form S-8 No. 333-32973) pertaining to the Employee Stock Purchase Plan of The Gorman-Rupp Company, in the Registration Statement and in the related Prospectus (Form S-8 No. 333-03395) pertaining to the Individual Profit Sharing Retirement Plan of The Gorman-Rupp Company, in the Registration Statement and in the related Prospectus (Form S-8 No. 333-30159) pertaining to the Non-Employee Directors Compensation Plan of The Gorman-Rupp Company, in the Registration Statement and in the related Prospectus (Form S-3 No. 333-37503) pertaining to Treasury shares, and in the Registration Statement and in the related Prospectus (Form S-3 No. 333-45671) pertaining to the J.C. Gorman Trust shares of our report dated January 29, 1999, with respect to the consolidated financial statements of The Gorman-Rupp Company incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1998. /s/ ERNST & YOUNG LLP --------------------- Ernst & Young LLP Cleveland, Ohio March 29, 1999 44 EX-24 7 EXHIBIT 24 1 EXHIBIT (24) THE GORMAN-RUPP COMPANY CERTIFICATE OF THE SECRETARY The undersigned hereby certifies that he is the duly elected, qualified and acting Corporate Secretary of The Gorman-Rupp Company, an Ohio corporation (the "Company"), and that the following resolutions were duly adopted by the Company's Board of Directors at a duly noticed and called meeting held on February 25, 1999 at which a quorum was present and acting throughout, which resolutions have not been amended, rescinded or modified and are in full force and effect on the date hereof. RESOLVED, that the officers of the Company, and each of them, hereby are authorized, for and on behalf of the Company, to prepare, sign and file, or cause to be prepared, signed and filed, with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, the Company's 1998 Annual Report on Form 10-K, and any and all amendments thereto, and to do or cause to be done all things necessary or advisable in connection therewith. FURTHER RESOLVED, that Jeffrey S. Gorman, Robert E. Kirkendall and Anthony R. Moore, and each of them, hereby are appointed attorneys for the Company, with full power of substitution, for and in the name, place and stead of the Company, to sign and file the Company's 1998 Annual Report on Form 10-K and any and all amendments thereto, and any and all other documents in connection therewith, with full power and authority to do and perform any and all acts necessary or advisable. FURTHER RESOLVED, that the officers of the Company and each of them, hereby are authorized, for and on behalf of the Company, to execute a power of attorney evidencing the foregoing appointments. IN WITNESS WHEREOF, I have hereunto signed this Certificate as of the 29th day of March, 1999. /s/ ROBERT E. KIRKENDALL ------------------------ Robert E. Kirkendall Corporate Secretary 45 2 EXHIBIT (24) POWER OF ATTORNEY ----------------- The undersigned, The Gorman-Rupp Company (the "Company"), by the undersigned officer of the Company hereunto duly authorized, hereby appoints Jeffrey S. Gorman, Robert E. Kirkendall and Anthony R. Moore, and each of them, as attorneys for the Company, with full power of substitution, for and in its name, place and stead, to sign and file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, the Company's 1998 Annual Report on Form 10-K and any and all amendments thereto, and any and all other documents to be filed with the Securities and Exchange Commission or otherwise in connection therewith, with full power and authority to do and perform any and all acts whatsoever necessary or advisable. Executed this 29th day of March 1999. THE GORMAN-RUPP COMPANY BY: /s/ ROBERT E. KIRKENDALL ------------------------ Robert E. Kirkendall Corporate Secretary 46 3 EXHIBIT (24) POWER OF ATTORNEY ----------------- The undersigned Officers and Directors of The Gorman-Rupp Company (the "Company") hereby appoint Jeffrey S. Gorman, Robert E. Kirkendall, and Anthony R. Moore, and each of them, as attorneys for each of the undersigned, with full power of substitution, for and in the name, place and stead of each of the undersigned, to sign and file with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, the Company's 1998 Annual Report on Form 10-K and any and all amendments thereto, and any and all other documents to be filed with the Securities and Exchange Commission or otherwise in connection therewith, with full power and authority to do and perform any and all acts whatsoever necessary or advisable. Executed this 25th day of February 1999. /s/ JEFFREY S. GORMAN President, Principal Executive Officer - --------------------- and Director Jeffrey S. Gorman /s/ KENNETH E. DUDLEY Treasurer and Principal Financial - --------------------- and Accounting Officer Kenneth E. Dudley /s/ JAMES C. GORMAN Director - ------------------- James C. Gorman /s/ WILLIAM A. CALHOUN Director - ---------------------- William A. Calhoun /s/ THOMAS E. HOAGLIN Director - --------------------- Thomas E. Hoaglin /s/ PETER B. LAKE Director - ----------------- Peter B. Lake /s/ JOHN A. WALTER Director - ------------------ John A. Walter /s/ JAMES R. WATSON Director - ------------------- James R. Watson 47 EX-27 8 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ART. 5 FDS FOR 1998 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 0000042682 THE GORMAN-RUPP COMPANY 1,000 U.S. DOLLARS YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 1 8,665 0 26,282 0 38,323 78,556 93,363 49,447 127,477 17,431 0 0 0 5,116 78,590 127,477 171,245 172,246 127,532 153,094 0 0 0 19,152 7,400 0 0 0 0 11,752 1.37 1.37
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