UNITED STATES
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, 2014
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1-6747
THE GORMAN-RUPP COMPANY
(Exact name of Registrant as specified in its charter)
Ohio | 34-0253990 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
600 South Airport Road, Mansfield, Ohio | 44903 | |
(Address of principal executive offices) | (Zip Code) |
Registrants 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 | NYSE MKT |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrants knowledge, in the definitive proxy statement or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant. The aggregate market value is computed by reference to the price at which the common equity was sold as of June 30, 2014. $590,791,176.
Indicate the number of shares outstanding of each of the Registrants classes of common stock as of March 1, 2015.
Common Shares, without par value 26,260,543
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 2014 Annual Report to Shareholders incorporated by reference into Part II (Items 5-9A).
Portions of Notice of 2015 Annual Meeting of Shareholders and related Proxy Statement incorporated by reference into Part III (Items 10-14).
PART I
ITEM 1. | BUSINESS |
The Gorman-Rupp Company (Registrant, Gorman-Rupp or the Company) was incorporated in Ohio in 1934. The Company designs, manufactures and globally sells pumps and pump systems for use in water, wastewater, construction, dewatering, industrial, petroleum, original equipment, agriculture, fire protection, heating, ventilating and air conditioning (HVAC), military and other liquid-handling applications.
PRODUCTS
The Company operates in one business segment, the manufacture and international sale of pumps and pump systems. The following table sets forth, for the years 2012 through 2014, the total net sales, income before income taxes and year-end total assets (in thousands) of the Company.
2014 | 2013 | 2012 | ||||||||||
Net Sales |
$ | 434,925 | $ | 391,665 | $ | 375,691 | ||||||
Income Before Income Taxes |
53,734 | 44,277 | 42,447 | |||||||||
Total Assets |
380,904 | 355,638 | 335,183 |
The Companys product line consists of pump models ranging in size from 1 / 4 to nearly 15 feet and ranging in rated capacity from less than one gallon per minute to nearly one million gallons per minute. The types of pumps which the Company produces include self-priming centrifugal, standard centrifugal, magnetic drive centrifugal, axial and mixed flow, vertical turbine line shaft, submersible, high pressure booster, 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 capable of producing several thousand horsepower. Many of the larger units comprise encased, fully integrated water and wastewater pumping stations. In certain cases, units are designed for the inclusion of customer-supplied drives.
The Companys larger pumps are sold principally for use in the construction, industrial, water and wastewater handling fields; for flood control; for boosting low residential water pressure; for pumping refined petroleum products, including the ground refueling of aircraft; for fluid control in HVAC applications; and for various agricultural purposes.
The Companys pumps are also utilized for dewatering purposes. Additionally, pumps manufactured for fire protection are used for sprinkler back-up systems, fire hydrants, stand pipes, fog systems and deluge systems at hotels, banks, factories, airports, schools, public buildings and hundreds of other types of facilities throughout the world.
Many of the Companys smallest pumps are sold to customers for incorporation into such products as food processing, chemical processing, photo processing, medical and other waste treatment, HVAC equipment, appliances and solar heating.
MARKETING
The Companys pumps are marketed in the United States and worldwide through a network of more than 1,000 distributors, through manufacturers representatives (for sales to many original equipment manufacturers), through third-party distributor catalogs, and by direct sales. The Company is continuously seeking alliances to further enhance marketing opportunities. Government sales are handled directly by the Company and export sales are made primarily through foreign distributors and representatives.
During 2014, 2013 and 2012, there were no shipments to any single customer that exceeded 10% of total net sales.
Gorman-Rupp continues to actively pursue international business opportunities and, in 2014, shipped its pumps to nearly 150 countries around the world. However, we believe that the Companys foreign operations do not involve material financial or other risks due to their relatively small size, both individually and collectively. No sales made to customers in any one foreign country amounted to more than 5% of total net sales during 2014, 2013 or 2012.
1
PART I CONTINUED
ITEM 1. | BUSINESS CONTINUED |
As a result of our active pursuit of international business, approximately $136.6 million of 2014 sales were shipped outside the United States, as compared to $134.6 million in 2013 and $136.5 million in 2012. International sales represented 31%, 34% and 36% of total sales in 2014, 2013 and 2012, respectively. The Company continues its efforts to penetrate international markets principally by its increased global investments and its sales responses to worldwide pumping needs.
COMPETITION
Since the late 1990s, a number of consolidations have occurred within the highly competitive pump industry. As a consequence, numerous pump competitors now exist as subsidiaries, divisions or departments within significantly larger corporations. Foreign-sourced pumps have also increasingly penetrated into most of the Companys domestic markets.
Gorman-Rupp estimates that approximately 80 other domestic and global companies selling pumps and pump units compete in one or more of the lines of business and applications in which comparable products of the Company are utilized. International competitors are based mostly in Europe and Asia.
Most commercial and industrial pumps are specifically designed and engineered for a particular customers application. The Company believes that proper application, product performance, and quality of delivery and service are its principal methods of competition, and attributes its success to its continued 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 most 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 magnetic drive pumps from several alternative vendors; and motor components for its large submersible pumps, and motors and engines for its pump systems, are purchased from a limited number of suppliers. Small motor requirements are also currently sourced from alternative suppliers.
The other production operations of the Company consist of the machining of castings, the cutting, shaping and welding of bar stock and structural members, the design and assembly of electrical control panels, the manufacture of a few minor components, and the assembling, painting and testing of its products. Virtually all of the Companys products are tested prior to shipment.
OTHER ASPECTS
As of December 31, 2014, the Company employed approximately 1,247 persons, of whom approximately 744 were hourly employees. The Company has no collective bargaining agreements, has never experienced a work stoppage 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. The Companys patents, trademarks and other intellectual property are adequate for its business purposes.
The backlog of orders at December 31, 2014 was valued at $160.7 million compared to $182.2 million at December 31, 2013. Approximately 95% of the Companys backlog of unfilled orders is scheduled to be shipped during 2015, with the remainder principally during the first half of 2016. The decrease in backlog from a year ago reflects record shipments, including $11.7 million of shipments for the Permanent Canal Closures & Pumps (PCCP) project to supply major flood control pumps to a member of a joint venture construction group for a significant New Orleans flood control project.
2
PART I CONTINUED
ITEM 1. | BUSINESS CONTINUED |
Approximately $43.2 million of the project remain in the December 31, 2014 backlog total. The PCCP project is a fixed-price contract and full government funding has been appropriated for the project. The termination, cancellation and delay provisions within the PCCP project contract are governed by provisions of the Federal Acquisition Regulation (FAR), principally by clauses 52.222-12 (Contract Termination-Debarment), 52.242-14 (Suspension of Work), 52.242-2 Alt. 1 (Production Progress Reports), and 52.249.10 (Default Fixed-Price Construction).
AVAILABLE INFORMATION
The Company maintains a website accessible through its internet address of www.gormanrupp.com . Gorman-Rupp makes available free of charge on or through www.gormanrupp.com its Annual Report to Shareholders, its annual reports on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after those reports (and any amendments) are electronically filed with or furnished to the Securities and Exchange Commission (Commission). However, the information contained on the Companys website is not a part of this Form 10-K or any other report filed with or furnished to the Commission.
As noted in Gorman-Rupps Annual Report to Shareholders, a paper copy of the Companys Form 10-K is also available free of charge upon written request to the Companys Corporate Secretary.
ITEM 1A. | RISK FACTORS |
Continuation of current and projected future business environment
The overall pump industry is cyclical in nature, and some of its business activity is related to general business conditions in the durable goods and capital equipment markets. Demand for most of the Companys products and services is affected by the level of new capital investment and planned maintenance expenditures by its customers. The level of such expenditures by our customers depends, in turn, on general economic conditions, availability of credit, economic conditions within their respective industries and expectations of future market behavior. Also, volatility in commodity prices such as oil and agricultural products can negatively affect the level of these activities and can result in postponement of capital spending decisions or the delay or cancellation of existing orders. Additionally, raw material and energy are substantive drivers of costs in the manufacture of pumps and changes of these costs are often unpredictable. While efforts are made to recoup higher production costs through increased prices, the future acceptability of such price increases by customers is not guaranteed due to the highly competitive market place.
Compliance with, and costs related to, a variety of import and export laws and regulations
The Company is subject to a variety of laws regarding international operations, including regulations issued by the U.S. Department of Commerce Bureau of Industry and Security and various foreign governmental agencies. Actual or alleged violations of import-export laws could result in enforcement actions and financial penalties. The Company cannot predict the nature, scope or effect of future regulatory requirements to which our international operations and trading practices might be subject or the manner in which existing laws might be administered or interpreted. Future regulations could limit the countries in which certain of our products may be manufactured or sold or could restrict our access to, and increase the cost of obtaining, products from foreign sources.
International operations exposure to fluctuations in foreign currency exchange rates
Approximately 10% of the Companys revenue and certain of its costs, assets and liabilities, are denominated in currencies other than the U.S. dollar. The primary currencies to which the Company has exposure are the Canadian Dollar, the Euro and the South African Rand. Devaluations of these currencies can reduce the value of the Companys local monetary assets, reduce the U.S. dollar value of its local cash flow, and generate local currency losses that may reduce the U.S. dollar value
3
PART I CONTINUED
ITEM 1A. | RISK FACTORS CONTINUED |
of future local net income. Historically these exchange rate fluctuations have not materially affected our financial condition, results of operations or cash flows.
Environmental compliance costs and liabilities
The Companys operations and properties are subject to numerous, and increasing, domestic and foreign environmental laws and regulations which can impose operating and financial sanctions for violations. Moreover, environmental and sustainability initiatives, practices, rules and regulations are under increasing scrutiny of both governmental and non-governmental bodies and may require changes in operational practices, standards and expectations and in turn increase the Companys compliance costs. Periodically, the Company has incurred, and expects to continue to incur, operating and capital costs to comply with environmental requirements. The Company monitors its environmental responsibilities, together with trends in the related laws, and believes it is in substantial compliance with current regulations. The Company believes that reasonably anticipated future environmental compliance expenditures will not have a material adverse effect on our financial condition, results of operations or cash flows.
Defined benefit pension plan settlement expense
The Company sponsors a defined benefit pension plan covering most domestic employees and accrues amounts for funding of its obligations under the plan. The defined benefit pension plan allows eligible retiring employees to receive a lump-sum distribution for benefits earned in lieu of annual payments and most retirees elect this option. Under applicable accounting rules, if the lump-sum distributions made for a plan year exceed an actuarially-determined threshold of the total of the service cost and interest cost for the plan year, the Company at such point would need to recognize for that years results of operations a settlement expense for the resulting unrecognized actuarial loss. The Company has been required to make such adjustments in some prior years and, if such non-cash adjustments are necessary in future periods, they may be comparably adverse to the Companys operating results.
Family ownership of common equity
A substantial percentage of the Companys Common Shares is held by various members of the Gorman and Rupp families and their affiliates. These family holdings do not typically trade; therefore, the Common Shares, in part because of these circumstances, generally have a history of relatively low volume trading experiences on the NYSE MKT Exchange.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. | PROPERTIES |
The Companys corporate headquarters are located in Mansfield, Ohio. The production operations of the Company are conducted at several locations throughout the United States and other countries as set forth below. The Company is a lessee under a number of operating leases for certain real properties, none of which is material to its operations.
The Company owns facilities in Sparks, Nevada and Dallas, Texas comprising training centers and warehouses, and leases a warehouse and training facility in Bangkok, Thailand. In addition, the Company leases warehouse facilities in Jebal Ali, Dubai and Leeuwarden, The Netherlands.
5
PART I CONTINUED
ITEM 2. | PROPERTIES |
The Companys principal production operations are:
United States | ||||
Mansfield (two) and Bellville, Ohio | Glendale, Arizona | Houston, Texas** (three) | ||
Toccoa, Georgia | Olive Branch, Mississippi | Lubbock, Texas | ||
Royersford, Pennsylvania | Baton Rouge, Louisiana* | |||
Other Countries | ||||
St. Thomas, Ontario, Canada | County Westmeath, Ireland* | Leeuwarden, The Netherlands* | ||
Culemborg, The Netherlands* | Johannesburg, South Africa* |
* | Leased properties |
** | One leased |
Gorman-Rupp 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 |
For more than ten years, numerous business entities in the pump and fluid-handling industries, as well as a multitude of companies in many other industries, have been targeted in a series of lawsuits in several jurisdictions by various individuals seeking redress to claimed injury as a result of the entities alleged use of asbestos in their products. The Company and one of its subsidiaries remain drawn into this mass-scaled litigation, typically as one of many co-defendants in a particular proceeding; the majority of these cases are against Patterson Pump Company. The allegations in the lawsuits involving the Company and/or Patterson Pumps Company are vague, general and speculative, and most cases have not advanced beyond the early stage of discovery. Insurers of the Company have engaged legal counsel to represent the Company and its subsidiaries and to protect their interests. In certain situations, the plaintiffs have voluntarily dismissed the Company and/or Patterson Pump Company from some of the lawsuits after the plaintiffs have acknowledged that there is no basis for their claims. In other situations, the Company and/or Patterson Pump Company have been dismissed from some of the lawsuits as a result of court rulings in favor of motions to dismiss and/or motions for summary judgment. In one hundred cases the Company has entered into nominal economic settlements recommended for payment by its insurers, coupled with dismissal of the lawsuits.
In addition, the Company and/or its subsidiaries are parties in a small number of legal proceedings arising in the ordinary course of business. Management does not currently believe that these proceedings, or the industry-wide asbestos litigation, will materially impact the Companys consolidated results of operations, liquidity or financial condition.
5
PART I CONTINUED
ITEM 4. | MINE SAFETY DISCLOSURE |
Not applicable.
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.
Name |
Age |
Office |
Date Elected to Executive Officer Position |
|||||
James C. Gorman |
90 | Chairman | 1989 | |||||
Jeffrey S. Gorman |
62 | President and Chief Executive Officer | 1998 | |||||
Wayne L. Knabel |
68 | Executive Vice President, Chief Financial Officer and Treasurer | 2009 | |||||
Brigette A. Burnell |
39 | Corporate Counsel and Corporate Secretary | 2014 |
Except as noted, each of the above-named officers has held his or her executive position with the Company for the past five years. Mr. J. C. Gorman served as the Companys President from 1964 until 1989, and as Chief Executive Officer from 1964 until 1996. He has served as a Director of the Company continuously since 1946. 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 also held the position of General Manager of the Mansfield Division from 1989 through 2005. He served as Assistant General Manager from 1986 to 1988; and he held the office of Corporate Secretary from 1982 to 1990. He has served as a Director of the Company continuously since 1989. Mr. Knabel was elected Executive Vice President effective May 1, 2014 and was elected Chief Financial Officer and Treasurer effective May 1, 2009. Mr. Knabel previously served as Vice President Finance since May 1, 2008. Mr. Knabel joined the Company in March 2008. Ms. Burnell joined the Company as Corporate Attorney on January 2, 2014, and was elected as Corporate Counsel and Secretary effective May 1, 2014. Ms. Burnell previously served as Corporate Counsel of Red Capital Group from 2011 to 2013 advising the company on legal matters in all areas of business, after having served as an Associate at Jones Day from 2002 to 2011. Mr. J. S. Gorman is the son of Mr. J. C. Gorman. There are no other family relationships among any of the Executive Officers and Directors of the Company.
6
PART II
ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Attention is directed to the section Quarterly Stock Prices and Dividends and the data below pertaining to the shareholder information on page 42 in the Companys 2014 Annual Report to Shareholders, which is incorporated herein by this reference.
Attention is also directed to the Shareholder Return Performance Presentation on page 42 in the Companys 2014 Annual Report to Shareholders, which is incorporated herein by this reference.
The Company did not repurchase any of its Common Shares during the fourth quarter of the period covered by this Form 10-K.
ITEM 6. | SELECTED FINANCIAL DATA |
Attention is directed to the section Eleven Year Summary of Selected Financial Data on pages 40 and 41 in the Companys 2014 Annual Report to Shareholders, which is incorporated herein by this reference.
ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Attention is directed to the section Managements Discussion and Analysis on pages 30 through 37, and to the section Safe Harbor Statement on page 43, in the Companys 2014 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 Managements Discussion and Analysis on pages 30 through 37, and to the section Safe Harbor Statement on page 43, in the Companys 2014 Annual Report to Shareholders, which are incorporated herein by this reference. As indicated in paragraph 10 on page 1 referenced above, 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 Companys consolidated financial statements, the notes thereto and the report of the independent registered public accounting firm thereon on pages 16 through 29, and to the section Summary of Quarterly Results of Operations on pages 40 and 41, in the Companys 2014 Annual Report to Shareholders, which are incorporated herein by this reference.
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange
7
PART II - CONTINUED
ITEM 9A. | CONTROLS AND PROCEDURES CONTINUED |
Commission rules and forms. The Companys disclosure controls and procedures are also designed to ensure that information required to be disclosed in Company reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to the Companys Management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
An evaluation was carried out under the supervision and with the participation of the Companys Management, including the principal executive officer and the principal financial officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of the end of the period covered by this report on Form 10-K. Based on the evaluation, the principal executive officer and the principal financial officer have concluded that the Companys disclosure controls and procedures were effective as of December 31, 2014.
Managements Report on Internal Control over Financial Reporting
There were no material weaknesses identified at any Division or Subsidiary of the Company during 2014. The 2014 Report of Management on Internal Control over Financial Reporting and the related Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting are incorporated herein by this reference from pages 38 and 39 of the Companys 2014 Annual Report to Shareholders, respectively.
Changes in Internal Control over Financial Reporting
There were no changes in the Companys internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION |
None.
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Attention is directed to the sections Election of Directors, Board of Directors and Board Committees, Audit Committee Report and Beneficial Ownership of Shares in the Companys definitive Notice of 2015 Annual Meeting of Shareholders and related Proxy Statement (filed with the SEC 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.
With respect to Executive Officers, attention is directed to Part I of this Form 10-K.
The Company has adopted a Code of Ethics that applies to its Principal Executive Officer, Principal Financial Officer, , as well as to all employees, officers and Directors. The Code of Ethics is set forth as an exhibit to this Form 10-K. In addition, the Code of Ethics is posted on the Companys website accessible through its Internet address of www.gormanrupp.com (under the heading Investor Relations and the sub-heading Corporate Governance), including any amendments.
ITEM 11. | EXECUTIVE COMPENSATION |
Attention is directed to the sections Board of Directors and Board Committees, Executive Compensation, Compensation Discussion and Analysis, Pension Benefits, Summary Compensation Table, Non-Employee Director Compensation, Risk Oversight, Compensation Committee Interlocks and Insider Participation, and Compensation Committee Report in the Companys definitive Notice of 2015 Annual Meeting of Shareholders
8
PART III CONTINUED
ITEM 11. | EXECUTIVE COMPENSATION CONTINUED |
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 AND RELATED STOCKHOLDER MATTERS |
Attention is directed to the section Beneficial Ownership of Shares and Election of Directors in the Companys definitive Notice of 2015 Annual Meeting of Shareholders and related Proxy Statement (filed with the SEC 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.
On May 22, 1997, the Companys Board of Directors adopted a Non-Employee Directors Compensation Plan, which was amended and restated on July 24, 2014 (the Plan). This Plan became effective without shareholder approval and constitutes the Companys only equity compensation plan. The Plan provides for share compensation for regular services performed by each of the Companys non-employee Directors. In addition to cash compensation, non-employee Directors receive an award of Common Shares (from the Companys treasury) on each July 1. The Plan expires on the earliest of (i) May 21, 2017, (ii) at such time as all of the Companys Common Shares authorized for award under the Plan and registered under Form S-8 Registration Statement No. 333-30159 shall have been awarded and issued, (iii) at such time as the Company deregisters any Common Shares not issued under the foregoing Registration Statement, or (iv) at such time as the Plan is terminated by action of the Board of Directors. The number of Common Shares which may be awarded under the Plan cannot exceed 50,000, subject to certain conditions (e.g., stock splits, stock dividends).
As of December 31, 2014, 65,500 Common Shares had been issued to non-employee Directors and 20,132 Common Shares remained available for future issuance (6,875 Common Shares were added as a result of the 5 for 4 stock split effective September 10, 2004; 7,093 Common Shares were added as a result of the 5 for 4 stock split effective December 8, 2006; 8,117 Common Shares were added as a result of the 5 for 4 stock split effective December 10, 2007; 8,021 were added as a result of the 5 for 4 stock split effective June 10, 2011; and 5,526 Common Shares were added as a result of the 5 for 4 stock split effective December 10, 2013). No options, warrants or rights are available for issuance under the Plan. Attention is directed to the sections Board of Directors and Board Committees and Beneficial Ownership of Shares in the Companys definitive Notice of 2015 Annual Meeting of Shareholders and related Proxy Statement (filed with the SEC 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.
9
PART III CONTINUED
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS CONTINUED |
Plan Category |
Number
of securities to be issued upon exercise of outstanding option warrants and right |
Weighted average
exercise price of outstanding options warrants and rights |
Number of securities
remaining available to future issuance |
|||||||||
Non-Employee Directors Compensation plan ( not approved by Shareholders) |
-0- | $ | -0- | 20,132 | ||||||||
Equity compensation plans approved by shareholders |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total |
-0- | $ | -0- | 20,132 |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Attention is directed to the section Board of Directors and Board Committees and Related Party Transactions in the Companys definitive Notice of 2015 Annual Meeting of Shareholders and related Proxy Statement (filed with the SEC 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. The Company has no relationships or transactions required to be reported by Item 404 of Regulation S-K.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Attention is directed to the section Appointment of Independent Registered Public Accounting Firm in the Companys definitive Notice of 2015 Annual Meeting of Shareholders and related Proxy Statement (filed with the SEC 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.
10
PART III CONTINUED
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
The following documents are filed as part of this report:
1. Financial Statements
With respect to the audited consolidated financial statements of the Registrant and its subsidiaries, the following documents have been incorporated by reference into this report:
(i.) | Consolidated Statements of Income-Years ended December 31, 2014, 2013, 2012 |
(ii.) | Consolidated Statements of Comprehensive Income-Years ended December 31, 2014 , 2013 and 2012 |
(iii.) | Consolidated Balance Sheets-December 31, 2014 and 2013 |
(iv.) | Consolidated Statements of Equity-Years ended December 31, 2014, 2013 and 2012 |
(v.) | Consolidated Statements of Cash Flows-Years ended December 31, 2014, 2013 and 2012 |
(vi.) | Notes to Consolidated Financial Statements |
(vii.) | 2014 Report of Independent Registered Public Accounting Firm |
(viii.) | 2014 Report of Management on Internal Control Over Financial Reporting as of December 31, 2014 |
(ix.) | 2014 Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting as of December 31, 2014 |
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, or the information required to be set forth therein is included in the consolidated financial statements or Notes thereto.
11
PART III CONTINUED
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES CONTINUED |
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 | |||||
(14) | Code of ethics | |||||
(21) | Subsidiaries of the registrant | |||||
(23) | Consent of Independent Registered Public Accounting Firm | |||||
(24) | Powers of attorney | |||||
(31) | Rule 13a-14(a)/15d-14(a) Certifications | |||||
(32) | Section 1350 Certifications | |||||
(101.INS) | XBRL Instance Document | |||||
(101.SCH) | XBRL Taxonomy Extension Schema Document | |||||
(101.CAL) | XBRL Taxonomy Extension Calculation Linkbase Document | |||||
(101.DEF) | XBRL Taxonomy Extension Definition Linkbase Document | |||||
(101.LAB) | XBRL Taxonomy Extension Label Linkbase Document | |||||
(101.PRE) | XBRL Taxonomy Extension Presentation Linkbase Document |
12
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: | /s/ BRIGETTE A. BURNELL | |
Brigette A. Burnell | ||
Attorney-In-Fact |
Date: March 9, 2015
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 and Chief Executive Officer and Director | |||
Jeffrey S. Gorman | (Principal Executive Officer) | |||
*WAYNE L. KNABEL |
Chief Financial Officer | |||
Wayne L. Knabel | (Principal Financial and Accounting Officer) | |||
*JAMES C. GORMAN |
Director | |||
James C. Gorman | ||||
*M. ANN HARLAN |
Director | |||
M. Ann Harlan | ||||
*THOMAS E. HOAGLIN |
Director | |||
Thomas E. Hoaglin | ||||
*CHRISTOPHER H. LAKE |
Director | |||
Christopher H. Lake | ||||
*KENNETH R. REYNOLDS |
Director | |||
Kenneth R. Reynolds | ||||
*RICK R. TAYLOR |
Director | |||
Rick R. Taylor | ||||
*W. WAYNE WALSTON |
Director | |||
W. Wayne Walston |
* | The undersigned, by signing her 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 9, 2015
By: | /s/ BRIGETTE A. BURNELL | |
Brigette A. Burnell | ||
Attorney-In-Fact |
13
ANNUAL REPORT ON FORM 10-K
THE GORMAN-RUPP COMPANY
For the Year Ended December 31, 2014
EXHIBIT INDEX
Exhibit Number |
Description |
|
(3)(4) | Amended Articles of Incorporation, as amended* | |
(3)(4) | Regulations* | |
(10)(a) | Form of Indemnification Agreement between the Company and its Directors | |
(10)(b) | Form of Indemnification Agreement between the Company and its Officers | |
(10)(c) | Amended and Restated Non-Employee Directors Compensation Plan*** | |
(13) | Incorporated Portions of 2014 Annual Report to Shareholders | |
(14) | Code of Ethics | |
(21) | Subsidiaries of the Company | |
(23) | Consent of Independent Registered Public Accounting Firm | |
(24) | Powers of Attorney | |
(31) (a) | Certification of Chief Executive Officer (Section 302 of the Sarbanes-Oxley Act of 2002) | |
(31) (b) | Certification of Chief Financial Officer (Section 302 of the Sarbanes-Oxley Act of 2002) | |
(32) | Certification Pursuant to 18 U. S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
(101.INS) | XBRL Instance Document | |
(101.SCH) | XBRL Taxonomy Extension Schema Document | |
(101.CAL) | XBRL Taxonomy Extension Calculation Linkbase Document | |
(101.DEF) | XBRL Taxonomy Extension Definition Linkbase Document | |
(101.LAB) | XBRL Taxonomy Extension Label Linkbase Document | |
(101.PRE) | XBRL Taxonomy Extension Presentation Linkbase Document |
* | Incorporated herein by this reference from Exhibit (3) (4) of the Companys Annual Report on Form 10-K for the year ended December 31, 2010. |
** | Incorporated herein by this reference from Exhibit (10) (1) of the Companys Quarterly Report on Form 10-Q for the period ended June 30, 2014. |
14
Exhibit 10(a)
DIRECTOR INDEMNIFICATION AGREEMENT
This Director Indemnification Agreement, dated as of July 24, 2014 (this Agreement), is made by and between The Gorman-Rupp Company, an Ohio corporation (the Company), and «First_Name»«Last_Name» (Indemnitee).
RECITALS:
A. Both the Company and the Indemnitee recognize that recent federal legislation and rules adopted by the Securities and Exchange Commission and the national securities exchanges have imposed additional disclosure and corporate governance obligations on directors and officers of public companies and have exposed such directors and officers to the increased risk of litigation and other claims being asserted against them.
B. The Companys Board of Directors (the Board) has determined that enhancing the ability of the Company to retain and attract as directors and officers the most capable persons is in the best interests of the Company and that the Company therefore should seek to assure such persons that indemnification and insurance coverage is available.
C. Indemnitee is a «And_Officer» of the Company and Indemnitees willingness to serve in such «Capacity_ies» is predicated, in substantial part, upon the Companys willingness to indemnify Indemnitee in accordance with the principles reflected above, to the fullest extent permitted by the laws of the state of Ohio, and upon the other undertakings set forth in this Agreement.
D. Therefore, in recognition of the need to provide Indemnitee with substantial protection against personal liability, in order to procure Indemnitees continued service as a «And_Officer» of the Company and to enhance Indemnitees ability to serve the Company in an effective manner, and in order to provide such protection pursuant to express contract rights (intended to be enforceable irrespective of, among other things, any amendment to the Companys Articles of Incorporation or Code of Regulations (collectively, the Constituent Documents), any change in the composition of the Board or any change-in-control or business combination transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of, and the advancement of Expenses (as defined in Section 1(g)), to Indemnitee as set forth in this Agreement and for the continued coverage of Indemnitee under the Companys directors and officers liability insurance policies.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. Certain Definitions . In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters:
(a) Change in Control means the occurrence after the date of this Agreement of any of the following events:
(i) the acquisition by any individual, entity or group (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act) (a Person) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of the combined voting power of the then-outstanding Voting Stock of the Company unless the change in relative beneficial ownership of such Person results solely from a reduction in the aggregate number of outstanding shares of Voting Stock of the Company; provided , however , that, for purposes of this Section 1(a)(i), the following acquisitions shall not constitute a Change in Control: (1) any acquisition of Voting Stock of the Company directly from the Company that is approved by a majority of the Incumbent Directors, (2) any acquisition of Voting Stock of the Company by the Company or any Subsidiary, (3) any acquisition of Voting Stock of the Company by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, and (4) any acquisition of Voting Stock of the Company by any Excepted Person; or
(ii) a majority of the Directors are not Incumbent Directors; or
(iii) the consummation of a reorganization, merger or consolidation, unless immediately following such reorganization, merger or consolidation, all of the individuals and entities who were the beneficial owners of Voting Stock of the Company immediately prior to such transaction beneficially own, directly or indirectly, more than 51% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such transaction; or
(iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, or sale or other disposition of all or substantially all of the assets of the Company.
(b) Claim means (i) any threatened, asserted, pending or completed claim, demand, action, suit or proceeding, whether civil, criminal, administrative, arbitrative, investigative or other, and whether made pursuant to federal, state or other law; and (ii) any threatened, pending or completed inquiry or investigation, whether made, instituted or conducted by the Company or any other person, including any federal, state or other governmental entity, that Indemnitee determines might lead to the institution of any such claim, demand, action, suit or proceeding.
(c) Controlled Affiliate means any corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise, whether or not for profit, that is directly or indirectly controlled by the Company. For purposes of this definition, control means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of an entity or enterprise, whether through the ownership of voting securities, through other voting rights, by contract or otherwise; provided that direct or indirect beneficial ownership of capital stock or other interests in an entity or enterprise entitling the holder to cast 20% or more of the total number of votes generally entitled to be cast in the election of directors (or persons performing comparable functions) of such entity or enterprise shall be deemed to constitute control for purposes of this definition.
(d) Disinterested Director means a director of the Company who is not and was not a party to the Claim in respect of which indemnification is sought by Indemnitee.
(e) Excepted Persons means any one or more of the following: (i) James C. Gorman or any affiliate of James C. Gorman, (ii) any spouse, sibling or lineal descendant of James C. Gorman, or any of their spouses, siblings or lineal descendants, or (iii) any trust, corporation or other entity set up for the primary benefit of, or majority owned or otherwise controlled by, any of the persons or entities described in the foregoing clauses (i) or (ii).
(f) Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
(g) Expenses means reasonable attorneys and experts fees and expenses and all other reasonable costs and expenses paid or payable in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to investigate, defend, be a witness in or participate in (including on appeal), any Claim.
(h) Incumbent Directors means the individuals who, as of the date hereof, are Directors of the Company and any individual becoming a Director subsequent to the date hereof whose election, nomination for election by the Companys shareholders, or appointment, was approved by a vote of at least two-thirds of the then Incumbent Directors.
(i) Indemnifiable Claim means any Claim based upon, arising out of or resulting from (i) any actual, alleged or suspected act or failure to act, whether before, on or after the date of this Agreement, by Indemnitee in his or her capacity as a director, officer, employee or agent of the Company or as a director, officer, employee, member, manager, trustee or agent of any other corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise, whether or not for profit, as to which Indemnitee is or was serving at the request of the Company as a director, officer, employee, member, manager, trustee or agent, (ii) any actual, alleged or suspected act or failure to act, whether before, on or after the date of this Agreement, by Indemnitee in respect of any business, transaction, communication, filing, disclosure or other activity of the Company or any other entity or enterprise referred to in clause (i) of this sentence, or (iii) Indemnitees status as a current or former director, officer, employee or agent of the Company or as a current or former director, officer, employee, member, manager, trustee or agent of the Company or any other entity or enterprise referred to in clause (i) of this sentence or any actual, alleged or suspected act or failure to act by Indemnitee in connection with any obligation or restriction imposed upon Indemnitee by reason of such status. In addition to any service at the actual request of the Company, for purposes of this Agreement, Indemnitee shall be deemed to be serving or to have served at the request of the Company as a director, officer, employee, member, manager, trustee or agent of another entity or enterprise if Indemnitee is or was serving as a director, officer, employee, member, manager, trustee or agent of such entity or enterprise and (i) such entity or enterprise is or at the time of such service was a Controlled Affiliate, (ii) such entity or enterprise is or at the time of such service was an employee benefit plan (or related trust) sponsored or maintained by the Company or a Controlled Affiliate, or (iii) the Company or a Controlled Affiliate directly or indirectly caused or authorized Indemnitee to be nominated, elected, appointed, designated, employed, engaged or selected to serve in such capacity.
(j) Indemnifiable Losses means any and all Losses relating to, arising out of or resulting from any Indemnifiable Claim.
(k) Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company (or any Subsidiary) or Indemnitee (or any immediate family member of Indemnitee) in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other named (or, as to a threatened matter, reasonably likely to be named) party to the Indemnifiable Claim giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement.
(l) Losses means any and all Expenses, damages, losses, liabilities, judgments, fines, penalties (whether civil, criminal or other) and amounts paid in settlement, including all interest, assessments and other charges paid or payable in connection with or in respect of any of the foregoing.
(m) ORC means the Ohio Revised Code.
(n) Subsidiary means an entity in which the Company directly or indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(o) Voting Stock means securities entitled to vote generally in the election of directors (or similar governing bodies).
2. Indemnification Obligation . Subject to Section 7, the Company shall indemnify, defend and hold harmless Indemnitee, to the fullest extent permitted or required by the laws of the State of Ohio in effect on the date hereof or as such laws may from time to time hereafter be amended to increase the scope of such permitted indemnification, against any and all Indemnifiable Claims and Indemnifiable Losses. Notwithstanding the foregoing, Indemnitee shall not be entitled to indemnification pursuant to this Agreement:
(a) in connection with any Claim initiated by Indemnitee against the Company or any director or officer of the Company (i) unless the Company has joined in or consented to the initiation of such Claim or (ii) except for a Claim initiated by Indemnitee pursuant to Section 4 or Section 20, in which case Indemnitee shall be entitled to indemnification to the extent set forth in Section 4 or Section 20, as the case may be;
(b) if a final decision by a court of competent jurisdiction determines that such indemnification is prohibited by applicable law;
(c) for the disgorgement of profits arising from the purchase or sale by Indemnitee of securities of the Company in violation of Section 16(b) of the Exchange Act; or
(d) for Indemnitees reimbursement to the Company of any bonus or other incentive-based or equity-based compensation previously received by Indemnitee or payment of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act, any applicable rules or regulations promulgated by the Securities
and Exchange Commission or any national securities exchange or national securities association on which the Companys securities may be traded, and any Company policy adopted pursuant to such law, rules or regulations.
3. Advancement of Expenses . Indemnitee shall have the right to advancement by the Company, prior to the final disposition of any Indemnifiable Claim, of any and all Expenses relating to, arising out of or resulting from any Indemnifiable Claim actually and reasonably paid or incurred by Indemnitee. Indemnitees right to such advancement is not subject to the satisfaction of any standard of conduct. Without limiting the generality or effect of the foregoing, within five business days after any request by Indemnitee, the Company shall, in accordance with such request (but without duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses; provided that Indemnitee shall repay, without interest any amounts actually advanced to Indemnitee that, at the final disposition of the Indemnifiable Claim to which the advance related, were in excess of amounts paid or payable by Indemnitee in respect of Expenses relating to, arising out of or resulting from such Indemnifiable Claim. For purposes of obtaining payments of Expenses in advance of final disposition, the Indemnitee shall submit to the Company a sworn request for advancement of Expenses substantially in the form of Exhibit A attached hereto and made a part hereof (subject to Indemnitee filling in the blanks therein and selecting from among the bracketed alternatives therein, the Undertaking), averring that the Indemnitee has reasonably incurred or will reasonably incur actual Expenses in defending an Indemnifiable Claim. The Undertaking need not be secured and the Company must accept the Undertaking without reference to Indemnitees ability to repay the Expenses. Unless at the time of the Indemnitees act or omission at issue, the Constituent Documents prohibit such advances by specific reference to ORC Section 1701.13(E)(5)(a) or 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 the Indemnitee undertakes to: (i) repay such amount if it is proved by clear and convincing evidence in a court of competent jurisdiction that the Indemnitees 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 (ii) 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 the Indemnitee undertakes to repay such amount if it ultimately is determined that the Indemnitee 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 the Indemnitee is required to do so under the terms of both Part A and Part B of the Undertaking. In no event shall Indemnitees right to the payment, advancement or reimbursement of Expenses pursuant to this Section 3 be conditioned upon any undertaking that is less favorable to Indemnitee than, or that is in addition to, the undertakings set forth in Exhibit A .
4. Indemnification for Additional Expenses . Without limiting the generality or effect of the foregoing, the Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within five business days of such request, any and all Expenses actually and reasonably paid or incurred by
Indemnitee in connection with any Claim made, instituted or conducted by Indemnitee for (a) indemnification or payment, advancement or reimbursement of Expenses by the Company under any provision of this Agreement, or under any other agreement or provision of the Constituent Documents now or hereafter in effect relating to Indemnifiable Claims, and/or (b) recovery under any directors and officers liability insurance policies maintained by the Company, regardless in each case of whether Indemnitee ultimately is determined to be entitled to such indemnification, reimbursement, advance or insurance recovery, as the case may be; provided , however , that Indemnitee shall return, without interest, any such advance of Expenses (or portion thereof) which remains unspent at the final disposition of the Claim to which the advance related.
5. Partial Indemnity . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Indemnifiable Loss, but not for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
6. Procedure for Notification . To obtain indemnification under this Agreement in respect of an Indemnifiable Claim or Indemnifiable Loss, Indemnitee shall submit to the Company a written request, including a brief description (based upon information then available to Indemnitee) of such Indemnifiable Claim or Indemnifiable Loss. If, at the time of the receipt of such request, the Company has directors and officers liability insurance in effect under which coverage for such Indemnifiable Claim or Indemnifiable Loss is reasonably likely to be available, the Company shall give prompt written notice of such Indemnifiable Claim or Indemnifiable Loss to the applicable insurers in accordance with the procedures set forth in the applicable policies. The Company shall provide to Indemnitee a copy of such notice delivered to the applicable insurers, and copies of all subsequent correspondence between the Company and such insurers regarding the Indemnifiable Claim or Indemnifiable Loss, in each case substantially concurrently with the delivery or receipt thereof by the Company. The failure by Indemnitee to timely notify the Company of any Indemnifiable Claim or Indemnifiable Loss shall not relieve the Company from any liability hereunder unless, and only to the extent that, the Company did not otherwise learn of such Indemnifiable Claim or Indemnifiable Loss and such failure results in forfeiture by the Company of substantial defenses, rights or insurance coverage.
7. Determination of Right to Indemnification .
(a) To the extent that Indemnitee shall have been successful on the merits or otherwise in defense of any Indemnifiable Claim or any portion thereof or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Indemnifiable Losses relating to, arising out of or resulting from such Indemnifiable Claim in accordance with Section 2 and no Standard of Conduct Determination (as defined in Section 7(b)) shall be required. In the event that a matter as to which there has been a dismissal without prejudice is later revived in the same or similar form, that matter will be treated as a new Claim for all purposes of this Agreement.
(b) To the extent that the provisions of Section 7(a) are inapplicable to an Indemnifiable Claim that shall have been finally disposed of, any determination of whether Indemnitee has satisfied any applicable standard of conduct under Ohio law that is a legally required condition precedent to indemnification of Indemnitee hereunder against Indemnifiable
Losses relating to, arising out of or resulting from such Indemnifiable Claim (a Standard of Conduct Determination) shall be made as follows: (i) if a Change in Control shall not have occurred, or if a Change in Control shall have occurred but Indemnitee shall have requested that the Standard of Conduct Determination be made pursuant to this clause (i), (A) by a majority vote of a quorum consisting of the Disinterested Directors, (B) if such Disinterested Directors so direct, by a majority vote of a committee of Disinterested Directors designated by a majority vote of all Disinterested Directors, or (C) if such quorum of Disinterested Directors is not available or if a majority of such a quorum so direct, by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee; and (ii) if a Change in Control shall have occurred and Indemnitee shall not have requested that the Standard of Conduct Determination be made pursuant to clause (i), by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee. Indemnitee will cooperate with the person or persons making such Standard of Conduct Determination, including providing to such person or persons, upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. The Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within five business days of such request, any and all reasonable costs and expenses (including reasonable attorneys and experts fees and expenses) incurred by Indemnitee in so cooperating with the person or persons making such Standard of Conduct Determination.
(c) The Company shall use its reasonable best efforts to cause any Standard of Conduct Determination required under Section 7(b) to be made as promptly as practicable. If (i) the person or persons empowered or selected under Section 7 to make the Standard of Conduct Determination shall not have made a determination within 30 days after the later of (A) receipt by the Company of written notice from Indemnitee advising the Company of the final disposition of the applicable Indemnifiable Claim (the date of such receipt being the Notification Date) and (B) the selection of an Independent Counsel, if such determination is to be made by Independent Counsel, that is permitted under the provisions of Section 7(e) to make such determination and (ii) Indemnitee shall have fulfilled his/her obligations set forth in the second sentence of Section 7(b), then Indemnitee shall be deemed to have satisfied the applicable standard of conduct; provided that such 30-day period may be extended for a reasonable time, not to exceed an additional 30 days, if the person or persons making such determination in good faith requires such additional time for the obtaining or evaluation of documentation and/or information relating thereto.
(d) If (i) Indemnitee shall be entitled to indemnification hereunder against any Indemnifiable Losses pursuant to Section 7(a), (ii) no determination of whether Indemnitee has satisfied any applicable standard of conduct under Ohio law is a legally required condition precedent to indemnification of Indemnitee hereunder against any Indemnifiable Losses, or (iii) Indemnitee has been determined or deemed pursuant to Section 7(b) or (c) to have satisfied any applicable standard of conduct under Ohio law which is a legally required condition precedent to indemnification of Indemnitee hereunder against any Indemnifiable Losses, then the Company shall pay to Indemnitee, within five business days after the later of (x) the Notification Date in respect of the Indemnifiable Claim or portion thereof to which such Indemnifiable Losses are related, out of which such Indemnifiable Losses arose or from which such Indemnifiable Losses resulted and (y) the earliest date on which the applicable criterion specified in clause (i), (ii) or (iii) above shall have been satisfied, an amount equal to the amount of such Indemnifiable Losses.
(e) If a Standard of Conduct Determination is to be made by Independent Counsel pursuant to Section 7(b)(i), the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him or her of the identity of the Independent Counsel so selected. If a Standard of Conduct Determination is to be made by Independent Counsel pursuant to Section 7(b)(ii), the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either case, Indemnitee or the Company, as applicable, may, within five business days after receiving written notice of selection from the other, deliver to the other a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not satisfy the criteria set forth in the definition of Independent Counsel in Section 1(k), and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person or firm so selected shall act as Independent Counsel. If such written objection is properly and timely made and substantiated, (i) the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit and (ii) the non-objecting party may, at its option, select an alternative Independent Counsel and give written notice to the other party advising such other party of the identity of the alternative Independent Counsel so selected, in which case the provisions of the two immediately preceding sentences and clause (i) of this sentence shall apply to such subsequent selection and notice. If applicable, the provisions of clause (ii) of the immediately preceding sentence shall apply to successive alternative selections. If no Independent Counsel that is permitted under the foregoing provisions of this Section 7(e) to make the Standard of Conduct Determination shall have been selected within 30 days after the Company gives its initial notice pursuant to the first sentence of this Section 7(e) or Indemnitee gives its initial notice pursuant to the second sentence of this Section 7(e), as the case may be, either the Company or Indemnitee may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the others selection of Independent Counsel and/or for the appointment as Independent Counsel of a person or firm selected by the court or by such other person as the court shall designate, and the person or firm with respect to whom all objections are so resolved or the person or firm so appointed will act as Independent Counsel. In all events, the Company shall pay all of the reasonable fees and expenses of the Independent Counsel incurred in connection with the Independent Counsels determination pursuant to Section 7(b).
8. Presumption of Entitlement . In making any Standard of Conduct Determination, the person or persons making such determination shall presume that Indemnitee has satisfied the applicable standard of conduct, and the Company may overcome such presumption only by its adducing clear and convincing evidence to the contrary. Any Standard of Conduct Determination that is adverse to Indemnitee may be challenged by the Indemnitee in the state or federal courts in Ohio. No determination by the Company (including by its directors or any Independent Counsel) that Indemnitee has not satisfied any applicable standard of conduct shall be a defense to any Claim by Indemnitee for indemnification or reimbursement or advance payment of Expenses by the Company hereunder or create a presumption that Indemnitee has not met any applicable standard of conduct.
9. No Other Presumption . For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, will not create a presumption that Indemnitee did not meet any applicable standard of conduct or that indemnification hereunder is otherwise not permitted.
10. Non-Exclusivity . The rights of Indemnitee hereunder will be in addition to any other rights Indemnitee may have under the Constituent Documents, or the substantive laws of the Companys jurisdiction of incorporation, any other contract or otherwise (collectively, Other Indemnity Provisions); provided , however , that (a) to the extent that Indemnitee otherwise would have any greater right to indemnification under any Other Indemnity Provision, Indemnitee will be deemed to have such greater right hereunder and (b) to the extent that any change is made to any Other Indemnity Provision which permits any greater right to indemnification than that provided under this Agreement as of the date hereof, Indemnitee will be deemed to have such greater right hereunder.
11. Liability Insurance and Funding . For the duration of Indemnitees service as a director and/or officer of the Company, and thereafter for so long as Indemnitee shall be subject to any pending or possible Indemnifiable Claim, the Company shall use commercially reasonable efforts (taking into account the scope and amount of coverage available relative to the cost thereof) to cause to be maintained in effect policies of directors and officers liability insurance providing coverage for directors and/or officers of the Company that is at least substantially comparable in scope and amount to that provided by the Companys current policies of directors and officers liability insurance. The Company shall provide Indemnitee with a copy of all directors and officers liability insurance applications, binders, policies, declarations, endorsements and other related materials, and shall provide Indemnitee with a reasonable opportunity to review and comment on the same.
12. Subrogation . In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the related rights of recovery of Indemnitee against other persons or entities (other than Indemnitees successors), including any entity or enterprise referred to in clause (i) of the definition of Indemnifiable Claim in Section 1(i). Indemnitee shall execute all papers reasonably required to evidence such rights (all of Indemnitees reasonable Expenses, including attorneys fees and charges, related thereto to be reimbursed by or, at the option of Indemnitee, advanced by the Company).
13. No Duplication of Payments . The Company shall not be liable under this Agreement to make any payment to Indemnitee in respect of any Indemnifiable Losses to the extent Indemnitee has otherwise actually received payment (net of Expenses incurred in connection therewith) under any insurance policy, the Constituent Documents and Other Indemnity Provisions or otherwise (including from any entity or enterprise referred to in clause (i) of the definition of Indemnifiable Claim in Section 1(i)) in respect of such Indemnifiable Losses otherwise indemnifiable hereunder. Indemnitee shall be obligated to repay to the Company any such duplicate payment if actually made.
14. Defense of Claims . The Company shall be entitled to participate in the defense of any Indemnifiable Claim or to assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee; provided that if Indemnitee believes, after consultation with counsel selected by Indemnitee, that (a) the use of counsel chosen by the Company to represent Indemnitee would present such counsel with an actual or potential conflict, (b) the named parties in any such Indemnifiable Claim (including any impleaded parties) include both the Company and Indemnitee and Indemnitee shall conclude that there may be one or more legal defenses available to Indemnitee that are different from or in addition to those available to the Company, or (c) any such representation by such counsel would be precluded under the applicable standards of professional conduct then prevailing, then Indemnitee shall be entitled to retain separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any particular Indemnifiable Claim) at the Companys expense. The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any threatened or pending Indemnifiable Claim effected without the Companys prior written consent. The Company shall not, without the prior written consent of the Indemnitee, effect any settlement of any threatened or pending Indemnifiable Claim to which the Indemnitee is, or could have been, a party unless such settlement solely involves the payment of money and includes a complete and unconditional release of the Indemnitee from all liability on any claims that are the subject matter of such Indemnifiable Claim. Neither the Company nor Indemnitee shall unreasonably withhold its consent to any proposed settlement; provided that Indemnitee may withhold consent to any settlement that does not provide a complete and unconditional release of Indemnitee.
15. | Successors and Binding Agreement . |
(a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise, and including any holding company as described in ORC 1701.802(A)) to all or substantially all of the business or assets of the Company, by agreement in customary form and substance, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Company and any successor to the Company, including any person acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise, and including any holding company as described in ORC 1701.802(A) (and such successor will thereafter be deemed the Company for purposes of this Agreement), but shall not otherwise be assignable or delegatable by the Company.
(b) This Agreement shall inure to the benefit of and be enforceable by the Indemnitees personal or legal representatives, executors, administrators, heirs, distributees, legatees and other successors.
(c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 15(a) and 15(b). Without limiting the generality or effect of the foregoing, Indemnitees right to receive payments hereunder shall not be assignable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by the Indemnitees will or by the laws of descent and distribution, and, in the event of any attempted assignment or transfer contrary to this Section 15(c), the Company shall have no liability to pay any amount so attempted to be assigned or transferred.
(d) This Agreement supersedes in its entirety the Indemnification Agreement, dated as of «Last_Agree_Date», by and between the Company and Indemnitee.
16. Notices . For all purposes of this Agreement, all communications, including notices, consents, requests or approvals, required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission or electronic mail (with receipt thereof orally confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid or one business day after having been sent for next day delivery by a nationally recognized overnight courier service, addressed to the Company (to the attention of the Secretary of the Company) and to Indemnitee at the applicable address shown on the signature page hereto, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt.
17. Governing Law . The validity, interpretation, construction and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Ohio, without giving effect to the principles of conflict of laws of such State. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the state and Federal courts in Ohio for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state or Federal courts in Ohio.
18. Validity . If any provision of this Agreement or the application of any provision hereof to any person or circumstance is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstance 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 or legal. In the event that any court or other adjudicative body shall decline to reform any provision of this Agreement held to be invalid, unenforceable or otherwise illegal as contemplated by the immediately preceding sentence, the parties thereto shall take all such action as may be necessary or appropriate to replace the provision so held to be invalid, unenforceable or otherwise illegal with one or more alternative provisions that effectuate the purpose and intent of the original provisions of this Agreement as fully as possible without being invalid, unenforceable or otherwise illegal.
19. Miscellaneous . No provision of this Agreement may be waived, modified or discharged unless such waiver, modification or discharge is agreed to in writing signed by Indemnitee and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement.
20. Legal Fees and Expenses . It is the intent of the Company that Indemnitee not be required to incur legal fees and or other Expenses associated with the interpretation, enforcement or defense of Indemnitees rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to Indemnitee hereunder. Accordingly, without limiting the generality or effect of any other provision hereof, if it should appear to Indemnitee that the Company has failed to comply with any of its obligations under this Agreement (including its obligations under Section 3) or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from time to time to retain counsel of Indemnitees choice, and the reasonable costs and expenses of such counsel shall be the obligation of the Company as hereafter provided, to advise and represent Indemnitee in connection with any such interpretation, enforcement or defense, including 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.
21. Certain Interpretive Matters . Unless the context of this Agreement otherwise requires, (a) it or its or words of any gender include each other gender, (b) words using the singular or plural number also include the plural or singular number, respectively, (c) the terms hereof, herein, hereby and derivative or similar words refer to this entire Agreement, (d) the terms Article, Section, Annex or Exhibit refer to the specified Article, Section, Annex or Exhibit of or to this Agreement, (e) the terms include, includes and including will be deemed to be followed by the words without limitation (whether or not so expressed), and (f) the word or is disjunctive but not exclusive. Whenever this Agreement refers to a number of days, such number will refer to calendar days unless business days are specified and whenever action must be taken (including the giving of notice or the delivery of documents) under this Agreement during a certain period of time or by a particular date that ends or occurs on a non-business day, then such period or date will be extended until the immediately following business day. As used herein, business day means any day other than Saturday, Sunday or a United States federal holiday.
22. Counterparts . This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together shall constitute one and the same agreement.
[Signature page follows.]
IN WITNESS WHEREOF, Indemnitee has executed and the Company has caused its duly authorized representative to execute this Agreement as of the date first above written.
THE GORMAN-RUPP COMPANY | ||
By: | ||
Name: | ||
Title: |
INDEMNITEE | ||
|
||
Name: | First Name Last Name | |
Address: | HM Mailing Address | |
BD Mailing City, | ||
BD Mailing ST BD Mailing ZIP |
[FORM OF UNDERTAKING]
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 Director Indemnification Agreement, dated ___________, 2014, between The Gorman-Rupp Company, an Ohio corporation (the Company) and the undersigned.
2. I am requesting payment of Expenses that I have reasonably incurred or will reasonably incur in defending an Indemnifiable Claim referred to in the aforesaid Director Indemnification Agreement.
3. The 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) |
[Indemnitee Name] |
5. | 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 Director Indemnification Agreement or otherwise.
|
(Signature of Indemnitee) |
[Indemnitee Name] |
Subscribed and sworn to before me, a Notary Public in and for said County and State, this day of ______________, 20__.
|
[Seal]
My commission expires the ___________ day of ____________, 20__.
Exhibit 10(b)
OFFICER INDEMNIFICATION AGREEMENT
This Officer Indemnification Agreement, dated as of July 25, 2014 (this Agreement), is made by and between The Gorman-Rupp Company, an Ohio corporation (the Company), and «First_Name»«Last_Name» (Indemnitee).
RECITALS:
A. Both the Company and the Indemnitee recognize that recent federal legislation and rules adopted by the Securities and Exchange Commission and the national securities exchanges have imposed additional disclosure and corporate governance obligations on directors and officers of public companies and have exposed such directors and officers to the increased risk of litigation and other claims being asserted against them.
B. The Companys Board of Directors (the Board) has determined that enhancing the ability of the Company to retain and attract as directors and officers the most capable persons is in the best interests of the Company and that the Company therefore should seek to assure such persons that indemnification and insurance coverage is available.
C. Indemnitee is an officer of the Company and Indemnitees willingness to serve in such capacity is predicated, in substantial part, upon the Companys willingness to indemnify Indemnitee in accordance with the principles reflected above, to the fullest extent permitted by the laws of the state of Ohio, and upon the other undertakings set forth in this Agreement.
D. Therefore, in recognition of the need to provide Indemnitee with substantial protection against personal liability, in order to procure Indemnitees continued service as an officer of the Company and to enhance Indemnitees ability to serve the Company in an effective manner, and in order to provide such protection pursuant to express contract rights (intended to be enforceable irrespective of, among other things, any amendment to the Companys Articles of Incorporation or Code of Regulations (collectively, the Constituent Documents), any change in the composition of the Board or any change-in-control or business combination transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of, and the advancement of Expenses (as defined in Section 1(g)), to Indemnitee as set forth in this Agreement and for the continued coverage of Indemnitee under the Companys directors and officers liability insurance policies.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. Certain Definitions . In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement with initial capital letters:
(a) Change in Control means the occurrence after the date of this Agreement of any of the following events:
(i) the acquisition by any individual, entity or group (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act) (a Person) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of [30]% or more of the combined voting power of the then-outstanding Voting Stock of the Company unless the change in relative beneficial ownership of such Person results solely from a reduction in the aggregate number of outstanding shares of Voting Stock of the Company; provided , however , that, for purposes of this Section 1(a)(i), the following acquisitions shall not constitute a Change in Control: (1) any acquisition of Voting Stock of the Company directly from the Company that is approved by a majority of the Incumbent Directors, (2) any acquisition of Voting Stock of the Company by the Company or any Subsidiary, (3) any acquisition of Voting Stock of the Company by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, and (4) any acquisition of Voting Stock of the Company by any Excepted Person; or
(ii) a majority of the Directors are not Incumbent Directors; or
(iii) the consummation of a reorganization, merger or consolidation, unless immediately following such reorganization, merger or consolidation, all of the individuals and entities who were the beneficial owners of Voting Stock of the Company immediately prior to such transaction beneficially own, directly or indirectly, more than [51]% of the combined voting power of the then outstanding shares of Voting Stock of the entity resulting from such transaction; or
(iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, or sale or other disposition of all or substantially all of the assets of the Company.
(b) Claim means (i) any threatened, asserted, pending or completed claim, demand, action, suit or proceeding, whether civil, criminal, administrative, arbitrative, investigative or other, and whether made pursuant to federal, state or other law; and (ii) any threatened, pending or completed inquiry or investigation, whether made, instituted or conducted by the Company or any other person, including any federal, state or other governmental entity, that Indemnitee determines might lead to the institution of any such claim, demand, action, suit or proceeding.
(c) Controlled Affiliate means any corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise, whether or not for profit, that is directly or indirectly controlled by the Company. For purposes of this definition, control means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of an entity or enterprise, whether through the ownership of voting securities, through other voting rights, by contract or otherwise; provided that direct or indirect beneficial ownership of capital stock or other interests in an entity or enterprise entitling the holder to cast 20% or more of the total number of votes generally entitled to be cast in the election of directors (or persons performing comparable functions) of such entity or enterprise shall be deemed to constitute control for purposes of this definition.
(d) Disinterested Director means a director of the Company who is not and was not a party to the Claim in respect of which indemnification is sought by Indemnitee.
(e) Excepted Persons means any one or more of the following: (i) James C. Gorman or any affiliate of James C. Gorman, (ii) any spouse, sibling or lineal descendant of James C. Gorman, or any of their spouses, siblings or lineal descendants, or (iii) any trust, corporation or other entity set up for the primary benefit of, or majority owned or otherwise controlled by, any of the persons or entities described in the foregoing clauses (i) or (ii).
(f) Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
(g) Expenses means reasonable attorneys and experts fees and expenses and all other reasonable costs and expenses paid or payable in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to investigate, defend, be a witness in or participate in (including on appeal), any Claim.
(h) Incumbent Directors means the individuals who, as of the date hereof, are Directors of the Company and any individual becoming a Director subsequent to the date hereof whose election, nomination for election by the Companys shareholders, or appointment, was approved by a vote of at least two-thirds of the then Incumbent Directors.
(i) Indemnifiable Claim means any Claim based upon, arising out of or resulting from (i) any actual, alleged or suspected act or failure to act, whether before, on or after the date of this Agreement, by Indemnitee in his or her capacity as a director, officer, employee or agent of the Company or as a director, officer, employee, member, manager, trustee or agent of any other corporation, limited liability company, partnership, joint venture, trust or other entity or enterprise, whether or not for profit, as to which Indemnitee is or was serving at the request of the Company as a director, officer, employee, member, manager, trustee or agent, (ii) any actual, alleged or suspected act or failure to act, whether before, on or after the date of this Agreement, by Indemnitee in respect of any business, transaction, communication, filing, disclosure or other activity of the Company or any other entity or enterprise referred to in clause (i) of this sentence, or (iii) Indemnitees status as a current or former director, officer, employee or agent of the Company or as a current or former director, officer, employee, member, manager, trustee or agent of the Company or any other entity or enterprise referred to in clause (i) of this sentence or any actual, alleged or suspected act or failure to act by Indemnitee in connection with any obligation or restriction imposed upon Indemnitee by reason of such status. In addition to any service at the actual request of the Company, for purposes of this Agreement, Indemnitee shall be deemed to be serving or to have served at the request of the Company as a director, officer, employee, member, manager, trustee or agent of another entity or enterprise if Indemnitee is or was serving as a director, officer, employee, member, manager, trustee or agent of such entity or enterprise and (i) such entity or enterprise is or at the time of such service was a Controlled Affiliate, (ii) such entity or enterprise is or at the time of such service was an employee benefit plan (or related trust) sponsored or maintained by the Company or a Controlled Affiliate, or (iii) the Company or a Controlled Affiliate directly or indirectly caused or authorized Indemnitee to be nominated, elected, appointed, designated, employed, engaged or selected to serve in such capacity.
(j) Indemnifiable Losses means any and all Losses relating to, arising out of or resulting from any Indemnifiable Claim.
(k) Independent Counsel means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company (or any Subsidiary) or Indemnitee (or any immediate family member of Indemnitee) in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other named (or, as to a threatened matter, reasonably likely to be named) party to the Indemnifiable Claim giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitees rights under this Agreement.
(l) Losses means any and all Expenses, damages, losses, liabilities, judgments, fines, penalties (whether civil, criminal or other) and amounts paid in settlement, including all interest, assessments and other charges paid or payable in connection with or in respect of any of the foregoing.
(m) ORC means the Ohio Revised Code.
(n) Subsidiary means an entity in which the Company directly or indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(o) Voting Stock means securities entitled to vote generally in the election of directors (or similar governing bodies).
2. Indemnification Obligation . Subject to Section 7, the Company shall indemnify, defend and hold harmless Indemnitee, to the fullest extent permitted or required by the laws of the State of Ohio in effect on the date hereof or as such laws may from time to time hereafter be amended to increase the scope of such permitted indemnification, against any and all Indemnifiable Claims and Indemnifiable Losses. Notwithstanding the foregoing, Indemnitee shall not be entitled to indemnification pursuant to this Agreement:
(a) in connection with any Claim initiated by Indemnitee against the Company or any director or officer of the Company (i) unless the Company has joined in or consented to the initiation of such Claim or (ii) except for a Claim initiated by Indemnitee pursuant to Section 4 or Section 20, in which case Indemnitee shall be entitled to indemnification to the extent set forth in Section 4 or Section 20, as the case may be;
(b) if a final decision by a court of competent jurisdiction determines that such indemnification is prohibited by applicable law;
(c) for the disgorgement of profits arising from the purchase or sale by Indemnitee of securities of the Company in violation of Section 16(b) of the Exchange Act; or
(d) for Indemnitees reimbursement to the Company of any bonus or other incentive-based or equity-based compensation previously received by Indemnitee or payment of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act, any applicable rules or regulations promulgated by the Securities and Exchange Commission or any national securities exchange or national securities association on which the Companys securities may be traded, and any Company policy adopted pursuant to such law, rules or regulations.
3. Advancement of Expenses . Indemnitee shall have the right to advancement by the Company, prior to the final disposition of any Indemnifiable Claim, of any and all Expenses relating to, arising out of or resulting from any Indemnifiable Claim actually and reasonably paid or incurred by Indemnitee. Indemnitees right to such advancement is not subject to the satisfaction of any standard of conduct. Without limiting the generality or effect of the foregoing, within five business days after any request by Indemnitee, the Company shall, in accordance with such request (but without duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for such Expenses; provided that Indemnitee shall repay, without interest any amounts actually advanced to Indemnitee that, at the final disposition of the Indemnifiable Claim to which the advance related, were in excess of amounts paid or payable by Indemnitee in respect of Expenses relating to, arising out of or resulting from such Indemnifiable Claim. For purposes of obtaining payments of Expenses in advance of final disposition, the Indemnitee shall submit to the Company a sworn request for advancement of Expenses substantially in the form of Exhibit A attached hereto and made a part hereof (subject to Indemnitee filling in the blanks therein and selecting from among the bracketed alternatives therein, the Undertaking), averring that Indemnitee has reasonably incurred or will reasonably incur actual Expenses in defending an Indemnifiable Claim. The Undertaking need not be secured and the Company must accept the Undertaking without reference to Indemnitees ability to repay the Expenses. In no event shall Indemnitees right to the payment, advancement or reimbursement of Expenses pursuant to this Section 3 be conditioned upon any undertaking that is less favorable to Indemnitee than, or that is in addition to, the undertakings set forth in Exhibit A .
4. Indemnification for Additional Expenses . Without limiting the generality or effect of the foregoing, the Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within five business days of such request, any and all Expenses actually and reasonably paid or incurred by Indemnitee in connection with any Claim made, instituted or conducted by Indemnitee for (a) indemnification or payment, advancement or reimbursement of Expenses by the Company under any provision of this Agreement, or under any other agreement or provision of the Constituent Documents now or hereafter in effect relating to Indemnifiable Claims, and/or (b) recovery under any directors and officers liability insurance policies maintained by the Company, regardless in each case of whether Indemnitee ultimately is determined to be entitled to such indemnification, reimbursement, advance or insurance recovery, as the case may be; provided , however , that Indemnitee shall return, without interest, any such advance of Expenses (or portion thereof) which remains unspent at the final disposition of the Claim to which the advance related.
5. Partial Indemnity . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of any Indemnifiable Loss, but not for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
6. Procedure for Notification . To obtain indemnification under this Agreement in respect of an Indemnifiable Claim or Indemnifiable Loss, Indemnitee shall submit to the Company a written request, including a brief description (based upon information then available to Indemnitee) of such Indemnifiable Claim or Indemnifiable Loss. If, at the time of the receipt of such request, the Company has directors and officers liability insurance in effect under which coverage for such Indemnifiable Claim or Indemnifiable Loss is reasonably likely to be available, the Company shall give prompt written notice of such Indemnifiable Claim or Indemnifiable Loss to the applicable insurers in accordance with the procedures set forth in the applicable policies. The Company shall provide to Indemnitee a copy of such notice delivered to the applicable insurers, and copies of all subsequent correspondence between the Company and such insurers regarding the Indemnifiable Claim or Indemnifiable Loss, in each case substantially concurrently with the delivery or receipt thereof by the Company. The failure by Indemnitee to timely notify the Company of any Indemnifiable Claim or Indemnifiable Loss shall not relieve the Company from any liability hereunder unless, and only to the extent that, the Company did not otherwise learn of such Indemnifiable Claim or Indemnifiable Loss and such failure results in forfeiture by the Company of substantial defenses, rights or insurance coverage.
7. Determination of Right to Indemnification .
(a) To the extent that Indemnitee shall have been successful on the merits or otherwise in defense of any Indemnifiable Claim or any portion thereof or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Indemnifiable Losses relating to, arising out of or resulting from such Indemnifiable Claim in accordance with Section 2 and no Standard of Conduct Determination (as defined in Section 7(b)) shall be required. In the event that a matter as to which there has been a dismissal without prejudice is later revived in the same or similar form, that matter will be treated as a new Claim for all purposes of this Agreement.
(b) To the extent that the provisions of Section 7(a) are inapplicable to an Indemnifiable Claim that shall have been finally disposed of, any determination of whether Indemnitee has satisfied any applicable standard of conduct under Ohio law that is a legally required condition precedent to indemnification of Indemnitee hereunder against Indemnifiable Losses relating to, arising out of or resulting from such Indemnifiable Claim (a Standard of Conduct Determination) shall be made as follows: (i) if a Change in Control shall not have occurred, or if a Change in Control shall have occurred but Indemnitee shall have requested that the Standard of Conduct Determination be made pursuant to this clause (i), (A) by a majority vote of a quorum consisting of the Disinterested Directors, (B) if such Disinterested Directors so direct, by a majority vote of a committee of Disinterested Directors designated by a majority vote of all Disinterested Directors, or (C) if such quorum of Disinterested Directors is not available or if a majority of such a quorum so direct, by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee; and (ii) if a Change in Control shall have occurred and Indemnitee shall not have requested that the Standard of Conduct Determination be made pursuant to clause (i), by Independent Counsel in a written opinion addressed to the Board, a copy of which shall be delivered to Indemnitee. Indemnitee will cooperate with the person or persons making such Standard of Conduct Determination, including providing to such person or persons, upon reasonable advance request, any documentation or information which is not privileged or otherwise protected from disclosure and which is
reasonably available to Indemnitee and reasonably necessary to such determination. The Company shall indemnify and hold harmless Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee for, or advance to Indemnitee, within five business days of such request, any and all reasonable costs and expenses (including reasonable attorneys and experts fees and expenses) incurred by Indemnitee in so cooperating with the person or persons making such Standard of Conduct Determination.
(c) The Company shall use its reasonable best efforts to cause any Standard of Conduct Determination required under Section 7(b) to be made as promptly as practicable. If (i) the person or persons empowered or selected under Section 7 to make the Standard of Conduct Determination shall not have made a determination within 30 days after the later of (A) receipt by the Company of written notice from Indemnitee advising the Company of the final disposition of the applicable Indemnifiable Claim (the date of such receipt being the Notification Date) and (B) the selection of an Independent Counsel, if such determination is to be made by Independent Counsel, that is permitted under the provisions of Section 7(e) to make such determination and (ii) Indemnitee shall have fulfilled his/her obligations set forth in the second sentence of Section 7(b), then Indemnitee shall be deemed to have satisfied the applicable standard of conduct; provided that such 30-day period may be extended for a reasonable time, not to exceed an additional 30 days, if the person or persons making such determination in good faith requires such additional time for the obtaining or evaluation of documentation and/or information relating thereto.
(d) If (i) Indemnitee shall be entitled to indemnification hereunder against any Indemnifiable Losses pursuant to Section 7(a), (ii) no determination of whether Indemnitee has satisfied any applicable standard of conduct under Ohio law is a legally required condition precedent to indemnification of Indemnitee hereunder against any Indemnifiable Losses, or (iii) Indemnitee has been determined or deemed pursuant to Section 7(b) or (c) to have satisfied any applicable standard of conduct under Ohio law which is a legally required condition precedent to indemnification of Indemnitee hereunder against any Indemnifiable Losses, then the Company shall pay to Indemnitee, within five business days after the later of (x) the Notification Date in respect of the Indemnifiable Claim or portion thereof to which such Indemnifiable Losses are related, out of which such Indemnifiable Losses arose or from which such Indemnifiable Losses resulted and (y) the earliest date on which the applicable criterion specified in clause (i), (ii) or (iii) above shall have been satisfied, an amount equal to the amount of such Indemnifiable Losses.
(e) If a Standard of Conduct Determination is to be made by Independent Counsel pursuant to Section 7(b)(i), the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him or her of the identity of the Independent Counsel so selected. If a Standard of Conduct Determination is to be made by Independent Counsel pursuant to Section 7(b)(ii), the Independent Counsel shall be selected by Indemnitee, and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either case, Indemnitee or the Company, as applicable, may, within five business days after receiving written notice of selection from the other, deliver to the other a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not satisfy the criteria set forth in the definition of Independent Counsel in Section 1(k), and the
objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person or firm so selected shall act as Independent Counsel. If such written objection is properly and timely made and substantiated, (i) the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit and (ii) the non-objecting party may, at its option, select an alternative Independent Counsel and give written notice to the other party advising such other party of the identity of the alternative Independent Counsel so selected, in which case the provisions of the two immediately preceding sentences and clause (i) of this sentence shall apply to such subsequent selection and notice. If applicable, the provisions of clause (ii) of the immediately preceding sentence shall apply to successive alternative selections. If no Independent Counsel that is permitted under the foregoing provisions of this Section 7(e) to make the Standard of Conduct Determination shall have been selected within 30 days after the Company gives its initial notice pursuant to the first sentence of this Section 7(e) or Indemnitee gives its initial notice pursuant to the second sentence of this Section 7(e), as the case may be, either the Company or Indemnitee may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the others selection of Independent Counsel and/or for the appointment as Independent Counsel of a person or firm selected by the court or by such other person as the court shall designate, and the person or firm with respect to whom all objections are so resolved or the person or firm so appointed will act as Independent Counsel. In all events, the Company shall pay all of the reasonable fees and expenses of the Independent Counsel incurred in connection with the Independent Counsels determination pursuant to Section 7(b).
8. Presumption of Entitlement . In making any Standard of Conduct Determination, the person or persons making such determination shall presume that Indemnitee has satisfied the applicable standard of conduct, and the Company may overcome such presumption only by its adducing clear and convincing evidence to the contrary. Any Standard of Conduct Determination that is adverse to Indemnitee may be challenged by the Indemnitee in the state or federal courts in Ohio. No determination by the Company (including by its directors or any Independent Counsel) that Indemnitee has not satisfied any applicable standard of conduct shall be a defense to any Claim by Indemnitee for indemnification or reimbursement or advance payment of Expenses by the Company hereunder or create a presumption that Indemnitee has not met any applicable standard of conduct.
9. No Other Presumption . For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere or its equivalent, will not create a presumption that Indemnitee did not meet any applicable standard of conduct or that indemnification hereunder is otherwise not permitted.
10. Non-Exclusivity . The rights of Indemnitee hereunder will be in addition to any other rights Indemnitee may have under the Constituent Documents, or the substantive laws of the Companys jurisdiction of incorporation, any other contract or otherwise (collectively, Other Indemnity Provisions); provided , however , that (a) to the extent that Indemnitee otherwise would have any greater right to indemnification under any Other Indemnity Provision, Indemnitee will be deemed to have such greater right hereunder and (b) to the extent that any change is made to any Other Indemnity Provision which permits any greater right to indemnification than that provided under this Agreement as of the date hereof, Indemnitee will be deemed to have such greater right hereunder.
11. Liability Insurance and Funding . For the duration of Indemnitees service as an officer of the Company, and thereafter for so long as Indemnitee shall be subject to any pending or possible Indemnifiable Claim, the Company shall use commercially reasonable efforts (taking into account the scope and amount of coverage available relative to the cost thereof) to cause to be maintained in effect policies of directors and officers liability insurance providing coverage for directors and/or officers of the Company that is at least substantially comparable in scope and amount to that provided by the Companys current policies of directors and officers liability insurance. The Company shall provide Indemnitee with a copy of all directors and officers liability insurance policies in effect from time to time.
12. Subrogation . In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the related rights of recovery of Indemnitee against other persons or entities (other than Indemnitees successors), including any entity or enterprise referred to in clause (i) of the definition of Indemnifiable Claim in Section 1(i). Indemnitee shall execute all papers reasonably required to evidence such rights (all of Indemnitees reasonable Expenses, including attorneys fees and charges, related thereto to be reimbursed by or, at the option of Indemnitee, advanced by the Company).
13. No Duplication of Payments . The Company shall not be liable under this Agreement to make any payment to Indemnitee in respect of any Indemnifiable Losses to the extent Indemnitee has otherwise actually received payment (net of Expenses incurred in connection therewith) under any insurance policy, the Constituent Documents and Other Indemnity Provisions or otherwise (including from any entity or enterprise referred to in clause (i) of the definition of Indemnifiable Claim in Section 1(i)) in respect of such Indemnifiable Losses otherwise indemnifiable hereunder. Indemnitee shall be obligated to repay to the Company any such duplicate payment if actually made.
14. Defense of Claims . The Company shall be entitled to participate in the defense of any Indemnifiable Claim or to assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee; provided that if Indemnitee believes, after consultation with counsel selected by Indemnitee, that (a) the use of counsel chosen by the Company to represent Indemnitee would present such counsel with an actual or potential conflict, (b) the named parties in any such Indemnifiable Claim (including any impleaded parties) include both the Company and Indemnitee and Indemnitee shall conclude that there may be one or more legal defenses available to Indemnitee that are different from or in addition to those available to the Company, or (c) any such representation by such counsel would be precluded under the applicable standards of professional conduct then prevailing, then Indemnitee shall be entitled to retain separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any particular Indemnifiable Claim) at the Companys expense. The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any threatened or pending Indemnifiable Claim effected without the Companys prior written consent. The Company shall not, without the prior written consent of the Indemnitee, effect any settlement of any threatened or pending Indemnifiable Claim to which the Indemnitee is, or could have been, a party unless such settlement solely involves the payment of money and includes a complete and
unconditional release of the Indemnitee from all liability on any claims that are the subject matter of such Indemnifiable Claim. Neither the Company nor Indemnitee shall unreasonably withhold its consent to any proposed settlement; provided that Indemnitee may withhold consent to any settlement that does not provide a complete and unconditional release of Indemnitee.
15. | Successors and Binding Agreement . |
(a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise, and including any holding company as described in ORC 1701.802(A)) to all or substantially all of the business or assets of the Company, by agreement in customary form and substance, expressly to assume and agree to perform this Agreement in the same manner and to the same extent the Company would be required to perform if no such succession had taken place. This Agreement shall be binding upon and inure to the benefit of the Company and any successor to the Company, including any person acquiring directly or indirectly all or substantially all of the business or assets of the Company whether by purchase, merger, consolidation, reorganization or otherwise, and including any holding company as described in ORC 1701.802(A) (and such successor will thereafter be deemed the Company for purposes of this Agreement), but shall not otherwise be assignable or delegatable by the Company.
(b) This Agreement shall inure to the benefit of and be enforceable by the Indemnitees personal or legal representatives, executors, administrators, heirs, distributees, legatees and other successors.
(c) This Agreement is personal in nature and neither of the parties hereto shall, without the consent of the other, assign or delegate this Agreement or any rights or obligations hereunder except as expressly provided in Sections 15(a) and 15(b). Without limiting the generality or effect of the foregoing, Indemnitees right to receive payments hereunder shall not be assignable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by the Indemnitees will or by the laws of descent and distribution, and, in the event of any attempted assignment or transfer contrary to this Section 15(c), the Company shall have no liability to pay any amount so attempted to be assigned or transferred.
(d) This Agreement supersedes in its entirety the Indemnification Agreement, dated as of «Last_Agree_Date», by and between the Company and Indemnitee.
16. Notices . For all purposes of this Agreement, all communications, including notices, consents, requests or approvals, required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when hand delivered or dispatched by electronic facsimile transmission or electronic mail (with receipt thereof orally confirmed), or five business days after having been mailed by United States registered or certified mail, return receipt requested, postage prepaid or one business day after having been sent for next day delivery by a nationally recognized overnight courier service, addressed to the Company (to the attention of the Secretary of the Company) and to Indemnitee at the applicable address shown on the signature page hereto, or to such other address as any party may have furnished to the other in writing and in accordance herewith, except that notices of changes of address will be effective only upon receipt.
17. Governing Law . The validity, interpretation, construction and performance of this Agreement shall be governed by and construed in accordance with the substantive laws of the State of Ohio, without giving effect to the principles of conflict of laws of such State. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the state and Federal courts in Ohio for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state or Federal courts in Ohio.
18. Validity . If any provision of this Agreement or the application of any provision hereof to any person or circumstance is held invalid, unenforceable or otherwise illegal, the remainder of this Agreement and the application of such provision to any other person or circumstance 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 or legal. In the event that any court or other adjudicative body shall decline to reform any provision of this Agreement held to be invalid, unenforceable or otherwise illegal as contemplated by the immediately preceding sentence, the parties thereto shall take all such action as may be necessary or appropriate to replace the provision so held to be invalid, unenforceable or otherwise illegal with one or more alternative provisions that effectuate the purpose and intent of the original provisions of this Agreement as fully as possible without being invalid, unenforceable or otherwise illegal.
19. Miscellaneous . No provision of this Agreement may be waived, modified or discharged unless such waiver, modification or discharge is agreed to in writing signed by Indemnitee and the Company. No waiver by either party hereto at any time of any breach by the other party hereto or compliance with any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, expressed or implied with respect to the subject matter hereof have been made by either party that are not set forth expressly in this Agreement.
20. Legal Fees and Expenses . It is the intent of the Company that Indemnitee not be required to incur legal fees and or other Expenses associated with the interpretation, enforcement or defense of Indemnitees rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to Indemnitee hereunder. Accordingly, without limiting the generality or effect of any other provision hereof, if it should appear to Indemnitee that the Company has failed to comply with any of its obligations under this Agreement (including its obligations under Section 3) or in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from time to time to retain counsel of Indemnitees choice, and the reasonable costs and expenses of such counsel shall be the obligation of the Company as hereafter provided, to advise and represent Indemnitee in connection with any such interpretation, enforcement or defense, including 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.
21. Certain Interpretive Matters . Unless the context of this Agreement otherwise requires, (a) it or its or words of any gender include each other gender, (b) words using the singular or plural number also include the plural or singular number, respectively, (c) the terms hereof, herein, hereby and derivative or similar words refer to this entire Agreement, (d) the terms Article, Section, Annex or Exhibit refer to the specified Article, Section, Annex or Exhibit of or to this Agreement, (e) the terms include, includes and including will be deemed to be followed by the words without limitation (whether or not so expressed), and (f) the word or is disjunctive but not exclusive. Whenever this Agreement refers to a number of days, such number will refer to calendar days unless business days are specified and whenever action must be taken (including the giving of notice or the delivery of documents) under this Agreement during a certain period of time or by a particular date that ends or occurs on a non-business day, then such period or date will be extended until the immediately following business day. As used herein, business day means any day other than Saturday, Sunday or a United States federal holiday.
22. Counterparts . This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original but all of which together shall constitute one and the same agreement.
[Signature page follows.]
IN WITNESS WHEREOF, Indemnitee has executed and the Company has caused its duly authorized representative to execute this Agreement as of the date first above written.
THE GORMAN-RUPP COMPANY | ||
By: | ||
Name: | ||
Title: |
INDEMNITEE | ||
|
||
Name: | First Name Last Name | |
Address: | BD Mailing Address | |
BD Mailing City, | ||
BD Mailing ST BD Mailing ZIP |
_
[FORM OF UNDERTAKING]
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 Officer Indemnification Agreement, dated ___________, 2014, between The Gorman-Rupp Company, an Ohio corporation (the Company) and the undersigned.
2. I am requesting payment of Expenses that I have reasonably incurred or will reasonably incur in defending an Indemnifiable Claim referred to in the aforesaid Officer Indemnification Agreement.
3. The Expenses for which payment is requested are, in general, all expenses related to __________________.
4. 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 Officer Indemnification Agreement or otherwise.
|
(Signature of Indemnitee) |
[Indemnitee Name] |
Subscribed and sworn to before me, a Notary Public in and for said County and State, this day of ______________, 20__.
|
[Seal]
My commission expires the ___________ day of ____________, 20__.
Exhibit 13
The Gorman-Rupp Company Annual Report 2014
Report of Independent Registered
Public Accounting Firm
The Board of Directors and Shareholders of
The Gorman-Rupp Company
We have audited the accompanying consolidated balance sheets of The Gorman-Rupp Company as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Gorman-Rupp Company at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The Gorman-Rupp Companys internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework), and our report dated March 9, 2015 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
March 9, 2015
16
The Gorman-Rupp Company Annual Report 2014
Consolidated Statements of Income
Year ended December 31, | ||||||||||||
(Thousands of dollars, except per share amounts) | 2014 | 2013 | 2012 | |||||||||
Net sales |
$ | 434,925 | $ | 391,665 | $ | 375,691 | ||||||
Cost of products sold |
327,366 | 298,010 | 285,540 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
107,559 | 93,655 | 90,151 | |||||||||
Selling, general and administrative expenses |
54,254 | 51,734 | 47,968 | |||||||||
|
|
|
|
|
|
|||||||
Operating income |
53,305 | 41,921 | 42,183 | |||||||||
Other income |
940 | 3,050 | 907 | |||||||||
Other expense |
(511 | ) | (694 | ) | (643 | ) | ||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
53,734 | 44,277 | 42,447 | |||||||||
Income taxes |
17,593 | 14,173 | 14,244 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 36,141 | $ | 30,104 | $ | 28,203 | ||||||
|
|
|
|
|
|
|||||||
Earnings per share |
$ | 1.38 | $ | 1.15 | $ | 1.07 | ||||||
|
|
|
|
|
|
|||||||
Average number of shares outstanding |
26,256,824 | 26,249,324 | 26,242,366 |
See notes to consolidated financial statements.
Consolidated Statements of Comprehensive Income
Year ended December 31, | ||||||||||||
(Thousands of dollars) | 2014 | 2013 | 2012 | |||||||||
Net income |
$ | 36,141 | $ | 30,104 | $ | 28,203 | ||||||
Cumulative translation adjustments |
(3,276 | ) | (1,381 | ) | 437 | |||||||
Pension and postretirement medical liability adjustments, net of tax |
(5,589 | ) | 9,202 | (675 | ) | |||||||
|
|
|
|
|
|
|||||||
Other comprehensive (loss) income |
(8,865 | ) | 7,821 | (238 | ) | |||||||
|
|
|
|
|
|
|||||||
Comprehensive income |
$ | 27,276 | $ | 37,925 | $ | 27,965 | ||||||
|
|
|
|
|
|
See notes to consolidated financial statements.
17
The Gorman-Rupp Company Annual Report 2014
Consolidated Balance Sheets
December 31, | ||||||||
(Thousands of dollars) | 2014 | 2013 | ||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 24,491 | $ | 31,123 | ||||
Accounts receivable net |
70,734 | 59,374 | ||||||
Inventories net: |
||||||||
Raw materials and in-process |
16,217 | 26,877 | ||||||
Finished parts |
42,414 | 46,491 | ||||||
Finished products |
36,129 | 16,578 | ||||||
|
|
|
|
|||||
94,760 | 89,946 | |||||||
Deferred income taxes |
4,694 | 3,803 | ||||||
Prepaid and other |
6,030 | 5,043 | ||||||
|
|
|
|
|||||
Total current assets |
200,709 | 189,289 | ||||||
Property, plant and equipment: |
||||||||
Land |
3,562 | 3,048 | ||||||
Buildings |
100,943 | 96,775 | ||||||
Machinery and equipment |
162,155 | 153,935 | ||||||
|
|
|
|
|||||
266,660 | 253,758 | |||||||
Accumulated depreciation |
132,696 | 122,569 | ||||||
|
|
|
|
|||||
Property, plant and equipment net |
133,964 | 131,189 | ||||||
Deferred income taxes and other |
6,313 | 3,657 | ||||||
Goodwill and other intangible assets net |
39,918 | 31,503 | ||||||
|
|
|
|
|||||
$ | 380,904 | $ | 355,638 | |||||
|
|
|
|
See notes to consolidated financial statements.
18
The Gorman-Rupp Company Annual Report 2014
December 31, | ||||||||
2014 | 2013 | |||||||
Liabilities and equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 17,908 | $ | 17,882 | ||||
Short-term debt |
12,000 | 9,000 | ||||||
Payroll and employee related liabilities |
11,355 | 11,020 | ||||||
Commissions payable |
9,448 | 6,081 | ||||||
Deferred revenue |
4,166 | 7,190 | ||||||
Accrued expenses |
9,469 | 9,587 | ||||||
|
|
|
|
|||||
Total current liabilities |
64,346 | 60,760 | ||||||
Pension benefits |
4,496 | | ||||||
Postretirement benefits |
21,297 | 18,393 | ||||||
Deferred and other income taxes |
8,798 | 12,345 | ||||||
|
|
|
|
|||||
Total liabilities |
98,937 | 91,498 | ||||||
Equity: |
||||||||
Common shares, without par value: |
||||||||
Authorized 35,000,000 shares; |
||||||||
Outstanding 26,260,543 shares in 2014 and 26,253,043 shares in 2013 (after deducting treasury shares of 788,253 in 2014 and 795,753 in 2013) at stated capital amount |
5,133 | 5,131 | ||||||
Additional paid-in capital |
3,059 | 2,822 | ||||||
Retained earnings |
291,101 | 264,648 | ||||||
Accumulated other comprehensive loss |
(17,326 | ) | (8,461 | ) | ||||
|
|
|
|
|||||
Total equity |
281,967 | 264,140 | ||||||
|
|
|
|
|||||
$ | 380,904 | $ | 355,638 | |||||
|
|
|
|
19
The Gorman-Rupp Company Annual Report 2014
Consolidated Statements of Equity
(Thousands of dollars, except per share amounts) |
Common
Shares |
Additional
Paid-In Capital |
Retained
Earnings |
Accumulated
Other Comprehensive (Loss) Income |
Total | |||||||||||||||
Balances January 1, 2012 |
$ | 5,128 | $ | 2,544 | $ | 223,136 | $ | (16,044 | ) | $ | 214,764 | |||||||||
Net income |
28,203 | 28,203 | ||||||||||||||||||
Other comprehensive loss |
(238 | ) | (238 | ) | ||||||||||||||||
Issuance of 7,500 treasury shares |
2 | 149 | 27 | 178 | ||||||||||||||||
Cash dividends$0.312 a share |
(8,188 | ) | (8,188 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balances December 31, 2012 |
5,130 | 2,693 | 243,178 | (16,282 | ) | 234,719 | ||||||||||||||
Net income |
30,104 | 30,104 | ||||||||||||||||||
Other comprehensive income |
7,821 | 7,821 | ||||||||||||||||||
Issuance of 7,500 treasury shares |
1 | 129 | 28 | 158 | ||||||||||||||||
Cash dividends$0.330 a share |
(8,662 | ) | (8,662 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balances December 31, 2013 |
5,131 | 2,822 | 264,648 | (8,461 | ) | 264,140 | ||||||||||||||
Net income |
36,141 | 36,141 | ||||||||||||||||||
Other comprehensive loss |
(8,865 | ) | (8,865 | ) | ||||||||||||||||
Issuance of 7,500 treasury shares |
2 | 237 | 27 | 266 | ||||||||||||||||
Cash dividends$0.370 a share |
(9,715 | ) | (9,715 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balances December 31, 2014 |
$ | 5,133 | $ | 3,059 | $ | 291,101 | $ | (17,326 | ) | $ | 281,967 | |||||||||
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
20
The Gorman-Rupp Company Annual Report 2014
Consolidated Statements of Cash Flows
Year ended December 31, | ||||||||||||
(Thousands of dollars) | 2014 | 2013 | 2012 | |||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 36,141 | $ | 30,104 | $ | 28,203 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
14,615 | 13,588 | 12,066 | |||||||||
Pension expense |
2,708 | 7,164 | 6,946 | |||||||||
Contributions to pension plan |
(2,500 | ) | (4,200 | ) | (7,200 | ) | ||||||
Deferred income taxes |
(1,367 | ) | 241 | 2,193 | ||||||||
Gain on sale of property, plant and equipment |
(343 | ) | (2,535 | ) | | |||||||
Changes in operating assets and liabilities, net of effects of acquisitions: |
||||||||||||
Accounts receivable net |
(8,529 | ) | (662 | ) | 710 | |||||||
Inventories net |
(2,987 | ) | (48 | ) | (8,583 | ) | ||||||
Accounts payable |
(693 | ) | 2,985 | (1,911 | ) | |||||||
Commissions payable |
3,367 | (1,487 | ) | (189 | ) | |||||||
Deferred revenue |
(3,024 | ) | 7,112 | | ||||||||
Accrued expenses |
(3,700 | ) | 6,947 | 4,727 | ||||||||
Benefit obligations and other |
(4,685 | ) | (8,823 | ) | (4,329 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
29,003 | 50,386 | 32,633 | |||||||||
Cash flows from investing activities: |
||||||||||||
Capital additions net |
(13,275 | ) | (21,015 | ) | (16,373 | ) | ||||||
Proceeds from sale of property, plant and equipment |
681 | 2,905 | | |||||||||
(Purchases) redemptions of short-term investments |
(3 | ) | 1 | 805 | ||||||||
Payments for acquisitions, net of cash acquired |
(16,667 | ) | | (20,823 | ) | |||||||
|
|
|
|
|
|
|||||||
Net cash used for investing activities |
(29,264 | ) | (18,109 | ) | (36,391 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Cash dividends |
(9,715 | ) | (8,662 | ) | (8,188 | ) | ||||||
Proceeds from bank borrowings |
18,000 | 6,000 | 17,000 | |||||||||
Payments to bank for borrowings |
(15,000 | ) | (19,000 | ) | (5,000 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash (used for) provided by financing activities |
(6,715 | ) | (21,662 | ) | 3,812 | |||||||
Effect of exchange rate changes on cash |
344 | 389 | (77 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net (decrease) increase in cash and cash equivalents |
(6,632 | ) | 11,004 | (23 | ) | |||||||
Cash and cash equivalents: |
||||||||||||
Beginning of year |
31,123 | 20,119 | 20,142 | |||||||||
|
|
|
|
|
|
|||||||
End of period |
$ | 24,491 | $ | 31,123 | $ | 20,119 | ||||||
|
|
|
|
|
|
See notes to consolidated financial statements.
21
The Gorman-Rupp Company Annual Report 2014
Notes to Consolidated Financial Statements
(Amounts in tables in thousands of dollars)
Note A Summary of Significant Accounting Policies
General Information and Basis of Presentation
The Gorman-Rupp Company is a leading designer, manufacturer and international marketer of pumps and pump systems for use in diverse water, wastewater, construction, dewatering, industrial, petroleum, original equipment, agriculture, fire protection, heating, ventilating and air conditioning (HVAC), military and other liquid-handling applications.
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated. Earnings per share are calculated based on the weighted-average number of common shares outstanding.
Cash Equivalents and Short-Term Investments
The Company considers highly liquid instruments with maturities of 90 days or less to be cash equivalents. The Company periodically makes short-term investments for which cost approximates fair value. Short-term investments at December 31, 2014 and 2013 consist primarily of certificates of deposit and are classified as prepaid and other on the consolidated balance sheets.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at the historical carrying amount net of allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses from the failure of its customers to make required payments for products delivered. The Company estimates this allowance based on knowledge of the financial condition of customers, review of historical receivables and reserve trends and other relevant information.
Inventories
Inventories are stated at the lower of cost or market. The costs for approximately 75% of inventories at December 31, 2014 and 76% of inventories at December 31, 2013 are determined using the last-in, first-out (LIFO) method, with the remainder determined using the first-in, first-out method (FIFO). Cost components include materials, inbound freight costs, labor and allocations of fixed and variable overheads on an absorption costing basis.
Long-Lived Assets
Property, plant and equipment are stated on the basis of cost. Repairs and maintenance costs are expensed as incurred. Depreciation for property, plant and equipment and amortization for finite-lived intangible assets are computed by the straight-line method over the estimated useful lives of the assets and are included in cost of
products sold and selling, general and administrative expenses based on the use of the assets. Depreciation expense was $13.2 million, $12.4 million and $11.2 million during 2014, 2013 and 2012, respectively.
Depreciation of property, plant and equipment is determined based on the following lives:
Buildings |
20-50 years | |||
Machinery and equipment |
5-15 years | |||
Software |
3-5 years |
Amortization of finite-lived intangible assets is determined based on the following lives:
Technology and drawings |
13-20 years | |||
Customer relationships |
9-15 years | |||
Other intangibles |
2-18 years |
Long-lived assets, except goodwill and indefinite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recovered through future net cash flows generated by the assets. Impairment losses may be recorded when the undiscounted cash flows estimated to be generated by those assets are less than the assets carrying amounts based on the excess of the carrying amounts over the estimated fair value of the assets.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill and other indefinite-lived intangible assets are not amortized but are reviewed annually for impairment as of October 1 or whenever events or changes in circumstances indicate there may be a possible permanent loss of value using either a quantitative or qualitative analysis. The Company uses a market-based approach to estimate the fair value of our reporting units and performed a quantitative analysis using a discounted cash flow model and other valuation techniques, but may elect to perform a qualitative analysis.
For 2014, the Company used a quantitative analysis for substantially all of its goodwill impairment testing under which the fair value for each reporting unit was estimated using a discounted cash flow model, which considered forecasted cash flows discounted at an estimated weighted-average cost of capital. The forecasted cash flows were based on the Companys long-term operating plan and a terminal value was used to estimate the cash flows beyond the period covered by the operating plan. The weighted-average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt market holders of a business enterprise. These analyses require the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates and the timing of expected future cash flows. Sensitivity analyses were performed around these assumptions in order to assess the reasonableness of
22
The Gorman-Rupp Company Annual Report 2014
the assumptions and the resulting estimated fair values. For 2014, based on the quantitative analysis, the fair values of the Companys reporting units continue to exceed the respective carrying amounts.
A qualitative analysis may be performed by assessing certain trends and factors, including projected market outlook and growth rates, forecasted and actual sales and operating profit margins, discount rates, industry data and other relevant qualitative factors. These trends and factors are compared to, and based on, the assumptions used in the most recent quantitative assessment.
Indefinite-lived intangible assets primarily consist of trademarks and trade names. The fair value of these assets is determined using a royalty relief methodology similar to that employed when the associated assets were acquired, but using updated estimates of future sales, cash flows and profitability. For 2014 and 2013, the fair value of indefinite lived intangible assets exceeded their carrying value.
For additional information about goodwill and other intangible assets, see Note H.
Revenue Recognition
The Companys revenues from product sales are recognized when all of the following criteria are met: persuasive evidence of a sale arrangement exists, the price is fixed or determinable, product delivery has occurred or services have been rendered, there are no further obligations to customers and collectability is probable. Product delivery occurs when the risks and rewards of ownership and title pass, which normally occurs upon shipment to the customer.
Concentration of Credit Risk
The Company generally does not require collateral from its customers and has a very good collection history. There were no sales to a single customer that exceeded 10% of total net sales for the years ended December 31, 2014, 2013 or 2012.
Shipping and Handling Costs
The Company classifies all amounts billed to customers for shipping and handling as revenue and reflects related shipping and handling costs in cost of products sold.
Advertising
The Company expenses all advertising costs as incurred, which for the years ended December 31, 2014, 2013 and 2012 totaled $3.5 million, $3.4 million and $3.5 million, respectively.
Product Warranties
A liability is established for estimated future warranty and service claims based on historical claims experience and specific product failures. The Company expenses warranty
costs directly to cost of products sold. Changes in the Companys product warranty liability are:
2014 | 2013 | 2012 | ||||||||||
Balance at beginning of year |
$ | 1,170 | $ | 1,133 | $ | 1,228 | ||||||
Provision |
1,607 | 1,220 | 1,394 | |||||||||
Claims |
(1,611 | ) | (1,183 | ) | (1,489 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance at end of year |
$ | 1,166 | $ | 1,170 | $ | 1,133 | ||||||
|
|
|
|
|
|
Foreign Currency Translation
Assets and liabilities of the Companys operations outside the United States which are accounted for in a functional currency other than U.S. dollars are translated into U.S. dollars using year-end exchange rates. Revenues and expenses are translated at weighted-average exchange rates effective during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive loss within equity.
Gains and losses resulting from foreign currency transactions, the amounts of which are not material, are included in net income.
Fair Value
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximates their fair value.
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 consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Reclassification
Certain amounts for 2013 have been reclassified to conform to the 2014 presentation.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued ASU 2014-09, Revenue from Contracts with Customers , which supersedes most current revenue recognition guidance, including industry-specific guidance, and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. The Company currently does not expect the adoption of ASU 2014-09 to have a material impact on its consolidated financial statements.
23
The Gorman-Rupp Company Annual Report 2014
Notes to Consolidated Financial Statements
(Amounts in tables in thousands of dollars)
Note B Allowance for Doubtful Accounts
The allowance for doubtful accounts was $474,000 and $498,000 at December 31, 2014 and 2013, respectively.
Note C Inventories
Inventories are stated at the lower of cost or market. Replacement cost approximates current cost and the excess over LIFO cost is approximately $57.9 million and $55.3 million at December 31, 2014 and 2013, respectively. Allowances for excess and obsolete inventory totaled $4.6 million and $3.8 million at December 31, 2014 and 2013, respectively.
Note D Financing Arrangements
On May 30, 2014, the Company borrowed $18.0 million under an unsecured bank loan agreement to finance the asset acquisition of Bayou City Pump, Inc. The loan bears interest at LIBOR plus 0.75%, adjustable and payable monthly, and, with annual renewal, matures in August 2015. At December 31, 2014, $12.0 million was outstanding on the loan.
On December 6, 2013, the Company borrowed $6.0 million in a promissory note for the purchase of equipment. The loan bears interest at LIBOR plus 0.75%, adjustable and payable monthly, and was paid in full at December 31, 2014.
On December 17, 2012, the Company borrowed $17.0 million under an unsecured bank loan agreement to finance the asset acquisition of American Turbine. The loan bears interest at LIBOR plus 0.75%, adjustable and payable monthly, and, with annual renewal, matures in August 2015. During 2014, the remaining balance of $3.0 million was paid in full.
The Company may borrow up to $20.0 million with interest at LIBOR plus 0.75% or at alternative rates as selected by the Company under an unsecured bank line of credit which matures in August 2015. At December 31, 2014 and 2013, $20.0 million was available for borrowing.
The Company also has a $10.0 million unsecured bank line of credit with interest at LIBOR plus 0.75% payable monthly which matures in May 2015. At December 31, 2014 and 2013, $6.0 million was available for borrowing after deducting $4.0 million in outstanding letters of credit.
The financing arrangements described above contain nominal restrictive covenants, including limits on additional borrowings and maintenance of certain operating and financial ratios. At December 31, 2014 and 2013, the Company was in compliance with all requirements.
Interest expense, which approximates interest paid, was $134,000, $146,000 and $122,000 in 2014, 2013 and 2012, respectively.
The Company has operating leases for certain offices, manufacturing facilities, land, office equipment and automobiles. Rental expense relating to operating leases was $1.1 million in 2014, 2013 and 2012.
The future minimum lease payments due under these operating leases as of December 31, 2014 are:
2015 |
2016 | 2017 | 2018 | 2019 | Thereafter | Total | ||||||||||||||||||||
$ | 871 | $ | 648 | $ | 332 | $ | 223 | $ | 3 | $ | 11 | $ | 2,088 |
Note E Accumulated Other Comprehensive Loss
The reclassifications out of accumulated other comprehensive loss as reported in the Consolidated Statements of Income are:
Pension and other post retirement benefits: |
2014 | 2013 | 2012 | |||||||||
Recognized actuarial loss (a) |
$ | 483 | $ | 1,357 | $ | 1,794 | ||||||
Settlement loss (b) |
| 2,756 | 1,940 | |||||||||
Settlement loss (c) |
| 1,413 | 995 | |||||||||
Total before income tax |
483 | 5,526 | 4,729 | |||||||||
Income tax |
(177 | ) | (2,006 | ) | (1,494 | ) | ||||||
|
|
|
|
|
|
|||||||
Net of income tax |
$ | 306 | $ | 3,520 | $ | 3,235 | ||||||
|
|
|
|
|
|
(a) | The recognized actuarial loss is included in the computation of net periodic benefit cost. See Note G for additional details. |
(b) | This portion of the settlement loss is included in cost of products sold in the Consolidated Statements of Income. |
(c) | This portion of the settlement loss is included in selling, general and administrative expenses in the Consolidated Statements of Income. |
The components of accumulated other comprehensive loss as reported in the Consolidated Balance Sheets are:
Currency
Translation Adjustments |
Pension and
OPEB Adjustments |
Accumulated
Other Comprehensive (Loss) Income |
||||||||||
Balance at January 1, 2012 |
$ | (118 | ) | $ | (15,926 | ) | $ | (16,044 | ) | |||
Reclassifications adjustments |
| 4,729 | 4,729 | |||||||||
Current period credit (charge) |
437 | (5,716 | ) | (5,279 | ) | |||||||
Income tax benefit |
| 312 | 312 | |||||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2012 |
319 | (16,601 | ) | (16,282 | ) | |||||||
Reclassifications adjustments |
| 5,526 | 5,526 | |||||||||
Current period (charge) credit |
(1,381 | ) | 8,925 | 7,544 | ||||||||
Income tax charge |
| (5,249 | ) | (5,249 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2013 |
(1,062 | ) | (7,399 | ) | (8,461 | ) | ||||||
Reclassifications adjustments |
| 483 | 483 | |||||||||
Current period charge |
(3,276 | ) | (9,294 | ) | (12,570 | ) | ||||||
Income tax benefit |
| 3,222 | 3,222 | |||||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2014 |
$ | (4,338 | ) | $ | (12,988 | ) | $ | (17,326 | ) | |||
|
|
|
|
|
|
24
The Gorman-Rupp Company Annual Report 2014
Note F Income Taxes
The components of income before income taxes are:
2014 | 2013 | 2012 | ||||||||||
United States |
$ | 49,692 | $ | 40,374 | $ | 40,019 | ||||||
Foreign countries |
4,042 | 3,903 | 2,428 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 53,734 | $ | 44,277 | $ | 42,447 | ||||||
|
|
|
|
|
|
The components of income tax expense are:
2014 | 2013 | 2012 | ||||||||||
Current expense: |
||||||||||||
Federal |
$ | 16,638 | $ | 12,159 | $ | 11,542 | ||||||
Foreign |
946 | 792 | (324 | ) | ||||||||
State and local |
1,376 | 981 | 1,021 | |||||||||
|
|
|
|
|
|
|||||||
18,960 | 13,932 | 12,239 | ||||||||||
|
|
|
|
|
|
|||||||
Deferred (benefit) expense: |
||||||||||||
Federal |
(1,181 | ) | 108 | 2,109 | ||||||||
Foreign |
(114 | ) | (38 | ) | (189 | ) | ||||||
State and local |
(72 | ) | 171 | 85 | ||||||||
|
|
|
|
|
|
|||||||
(1,367 | ) | 241 | 2,005 | |||||||||
|
|
|
|
|
|
|||||||
Income tax expense |
$ | 17,593 | $ | 14,173 | $ | 14,244 | ||||||
|
|
|
|
|
|
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:
2014 | 2013 | 2012 | ||||||||||
Income taxes at statutory rate |
$ | 18,807 | $ | 15,497 | $ | 14,856 | ||||||
State and local income taxes, net of federal tax benefit |
674 | 587 | 719 | |||||||||
Research and development tax credits |
(371 | ) | (740 | ) | | |||||||
Domestic production activities deduction |
(1,324 | ) | (952 | ) | (980 | ) | ||||||
Lower foreign taxes differential |
(583 | ) | (612 | ) | (528 | ) | ||||||
Uncertain tax positions |
53 | 94 | (236 | ) | ||||||||
Valuation allowance |
174 | 162 | | |||||||||
Other |
163 | 137 | 413 | |||||||||
|
|
|
|
|
|
|||||||
Income tax expense |
$ | 17,593 | $ | 14,173 | $ | 14,244 | ||||||
|
|
|
|
|
|
The Company made income tax payments of $19.4 million, $13.2 million and $12.0 million in 2014, 2013 and 2012, respectively.
Deferred income tax assets and liabilities consist of:
2014 | 2013 | |||||||
Deferred tax assets: |
||||||||
Inventories |
$ | 1,030 | $ | 1,688 | ||||
Accrued liabilities |
2,538 | 2,341 | ||||||
Postretirement health benefits obligation |
7,602 | 6,545 | ||||||
Pension |
1,649 | | ||||||
Deferred revenue |
1,267 | | ||||||
Other |
550 | 101 | ||||||
|
|
|
|
|||||
Total deferred tax assets |
14,636 | 10,675 | ||||||
Valuation allowance |
(336 | ) | (162 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
14,300 | 10,513 | ||||||
Deferred tax liabilities: |
||||||||
Depreciation and amortization |
(17,711 | ) | (16,858 | ) | ||||
Pension |
| (1,634 | ) | |||||
|
|
|
|
|||||
Total deferred tax liabilities |
(17,711 | ) | (18,492 | ) | ||||
|
|
|
|
|||||
Net deferred tax liabilities |
$ | (3,411 | ) | $ | (7,979 | ) | ||
|
|
|
|
The Company has a valuation allowance as of December 31, 2014 of $336,000 against certain of its deferred tax assets. The comparable amount of valuation allowance at December 31, 2013 was $162,000. ASC 740 requires that a valuation allowance be recorded against deferred tax assets when it is more likely than not that some or all of a Companys deferred tax assets will not be realized based on available positive and negative evidence.
At December 31, 2014, total unrecognized tax benefits were $576,000. Of the total, $452,000 of unrecognized tax benefits, if ultimately recognized, would reduce the Companys annual effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
2014 | 2013 | 2012 | ||||||||||
Balance at beginning of year |
$ | 516 | $ | 421 | $ | 1,423 | ||||||
Additions based on tax positions related to the current year |
158 | 189 | 68 | |||||||||
Reduction for tax positions of prior years |
| | (1 | ) | ||||||||
Reductions due to lapse of applicable statute of limitations |
(98 | ) | (46 | ) | (131 | ) | ||||||
Settlements |
| (48 | ) | (938 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at end of year |
$ | 576 | $ | 516 | $ | 421 | ||||||
|
|
|
|
|
|
25
The Gorman-Rupp Company Annual Report 2014
Notes to Consolidated Financial Statements
(Amounts in tables in thousands of dollars)
The Company is subject to income taxes in the U.S. federal and various state, local and foreign jurisdictions. Income tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years before 2011. The Company has $55,000 of unrecognized tax benefits recorded for periods which the relevant statutes of limitations expire in the next 12 months.
The Company has state tax credit carryforwards of $545,000 and $343,000 as of December 31, 2014 and 2013, respectively, set to expire between 2018 and 2025.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense for all periods presented. The Company accrued approximately $99,000, $85,000 and $91,000 for the payment of interest and penalties at December 31, 2014, 2013 and 2012, respectively.
The Company has not provided an estimate for any U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries that might be payable if these earnings were repatriated since the Company considers these amounts to be permanently invested. It is not practicable to estimate the additional income taxes and applicable withholding taxes that would be payable on remittance of such earnings.
In September 2013, the Internal Revenue Service issued final regulations governing the income tax treatment of acquisitions, dispositions, and repairs of tangible property. Taxpayers are required to follow the new regulations in taxable years beginning on or after January 1, 2014. The impact of the regulations is not material to the Companys consolidated financial statements.
Note G Pensions and Other Postretirement Benefits
The Company sponsors a defined benefit pension plan (Plan) covering certain domestic employees. Benefits are based on each covered employees years of service and compensation. The Plan is funded in conformity with the funding requirements of applicable U.S. regulations. The Plan was closed to new participants effective January 1, 2008. Employees hired after this date, in eligible locations, participate in an enhanced 401(k) plan instead of the defined benefit pension plan. Employees hired prior to this date continue to accrue benefits.
Additionally, the Company sponsors defined contribution pension plans made available to all domestic and Canadian
employees. Total contributions for the plans in 2014, 2013 and 2012 were $1.6 million, $1.3 million and $1.2 million, respectively.
The Company also sponsors a non-contributory defined benefit health care plan that provides health benefits to certain domestic and Canadian retirees and their spouses. The Company funds the cost of these benefits as incurred. For measurement purposes, and based on maximum benefits as defined by the plan, a zero percent annual rate of increase in the per capita cost of covered health care benefits for retirees age 65 and over was assumed for 2014 and is expected to remain constant going forward. A 5% rate of increase for retirees under age 65 was assumed.
The Company recognizes the obligations associated with its defined benefit pension plan and defined benefit health care plan in its consolidated financial statements. The following table presents the plans funded status as of the measurement date reconciled with amounts recognized in the Companys consolidated balance sheets:
Pension Plan | Postretirement Plan | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Accumulated benefit obligation at end of year |
$ | 65,454 | $ | 57,632 | $ | 22,813 | $ | 19,794 | ||||||||
Change in projected benefit obligation: |
||||||||||||||||
Benefit obligation at beginning of year |
$ | 70,635 | $ | 81,148 | $ | 19,794 | $ | 23,794 | ||||||||
Service cost |
2,904 | 3,144 | 907 | 1,153 | ||||||||||||
Interest cost |
2,895 | 2,851 | 845 | 724 | ||||||||||||
Settlement |
| 191 | | | ||||||||||||
Benefits paid |
(3,584 | ) | (11,371 | ) | (1,736 | ) | (1,370 | ) | ||||||||
Effect of foreign exchange |
| | (49 | ) | (68 | ) | ||||||||||
Actuarial loss (gain) |
7,219 | (5,328 | ) | 3,052 | (4,439 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Benefit obligation at end of year |
$ | 80,069 | $ | 70,635 | $ | 22,813 | $ | 19,794 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Change in plan assets: |
||||||||||||||||
Fair value of plan assets at beginning of year |
$ | 70,889 | $ | 73,631 | $ | | $ | | ||||||||
Actual return on plan assets |
5,768 | 4,429 | | | ||||||||||||
Employer contributions |
2,500 | 4,200 | 1,736 | 1,370 | ||||||||||||
Benefits paid |
(3,584 | ) | (11,371 | ) | (1,736 | ) | (1,370 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Fair value of plan assets at end of year |
75,573 | 70,889 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Funded status at end of year |
$ | (4,496 | ) | $ | 254 | $ | (22,813 | ) | $ | (19,794 | ) | |||||
|
|
|
|
|
|
|
|
26
The Gorman-Rupp Company Annual Report 2014
Pension
Plan |
Postretirement
Plan |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Amounts recognized in the Consolidated Balance Sheets consist of: |
||||||||||||||||
Noncurrent assets |
$ | | $ | 254 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | | $ | 254 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Current liabilities |
$ | | $ | | $ | (1,516 | ) | $ | (1,401 | ) | ||||||
Noncurrent liabilities |
(4,496 | ) | | (21,297 | ) | (18,393 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total liabilities |
$ | (4,496 | ) | $ | | $ | (22,813 | ) | $ | (19,794 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Amounts recognized in accumulated other comprehensive loss consist of: |
||||||||||||||||
Net actuarial loss (gain) |
$ | 28,836 | $ | 24,295 | $ | (7,601 | ) | $ | (11,871 | ) | ||||||
Deferred tax (benefit) expense |
(11,162 | ) | (9,496 | ) | 2,915 | 4,471 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
After tax actuarial loss (gain) |
$ | 17,674 | $ | 14,799 | $ | (4,686 | ) | $ | (7,400 | ) | ||||||
|
|
|
|
|
|
|
|
During 2013 and 2012, the Company recorded settlement losses relating to retirees that received lump-sum distributions from the Companys defined benefit pension plan totaling $4.2 million and $2.9 million, respectively. These charges were the result of lump-sum payments to retirees which exceeded the plans actuarial service and interest cost thresholds in each of 2013 and 2012. The cost threshold was not exceeded in 2014.
The prior service cost is amortized on a straight-line basis over the average estimated remaining service period of active participants. The unrecognized actuarial gain or loss in excess of the greater of 10% of the benefit obligation or the market value of plan assets is also amortized on a straight-line basis over the average estimated remaining service period of active participants.
Pension
Benefits |
Postretirement
Benefits |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Weighted-average assumptions used to determine benefit obligations at December 31: |
||||||||||||||||
Discount rate |
3.45 | % | 4.30 | % | 3.60 | % | 4.50 | % | ||||||||
Rate of compensation increase |
3.50 | % | 3.50 | % | | | ||||||||||
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31: |
||||||||||||||||
Discount rate |
4.30 | % | 4.30 | % | 4.50 | % | 3.20 | % | ||||||||
Expected long-term rate of return on plan assets |
7.00 | % | 7.00 | % | | | ||||||||||
Rate of compensation increase |
3.50 | % | 3.50 | % | | |
To enhance the Companys efforts to mitigate the impact of the defined benefit pension plan on its financial statements, the Company has moved towards a liability driven investing model to more closely align assets with liabilities based on when the liabilities are expected to come due. Currently, based on 2014 funding levels, equities may comprise between 14% to 34% of the Plans market value. Fixed income investments may comprise between 60% to 80% of the Plans market value. Alternative investments may comprise between 0% to 12% of the Plans market value. Cash and cash equivalents (including all senior debt securities with less than one year to maturity) may comprise between 0% to 10% of the Plans market value.
Financial instruments included in pension plan assets are categorized into a fair value hierarchy of three levels, based on the degree of subjectivity inherent in the valuation methodology. Level 1 assets are based on unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets. Level 2 assets are valued at inputs other than quoted prices in
27
The Gorman-Rupp Company Annual Report 2014
Notes to Consolidated Financial Statements
(Amounts in tables in thousands of dollars)
active markets for identical assets that are observable either directly or indirectly for substantially the full term of the assets. Level 3 assets are valued based on unobservable inputs for the asset (i.e., supported by little or no market activity). These inputs include managements own assessments about the assumptions that market participants would use in pricing assets (including assumptions about risk). The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is significant to the fair value measure in its entirety. All of the Plans assets are in level 1 or level 2 within the fair value hierarchy and the following table sets forth by asset class the Plans fair value of assets.
Plan fair value asset allocation by category:
Contributions
Although not required to make pension contributions in 2015, the Company may elect to contribute $2.0 million to $4.0 million to its pension plan in 2015.
Expected future benefit payments
The following benefit payments are expected to be paid as follows based on actuarial calculations:
2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | |||||||||||||||||||
Pension |
$ | 5,095 | $ | 5,319 | $ | 7,044 | $ | 6,089 | $ | 6,366 | $ | 30,780 | ||||||||||||
Postretirement |
1,543 | 1,576 | 1,612 | 1,695 | 1,781 | 8,957 |
A one percentage point increase in the assumed health care trend rate would increase postretirement expense by approximately $201,000, changing the benefit obligation by approximately $2.2 million; while a one percentage point decrease in the assumed health care trend rate would decrease postretirement expense by approximately $185,000, changing the benefit obligation by approximately $1.9 million. The assumed trend rates for healthcare costs are a 5% increase per year for retirees prior to the age 65 and 0% for retirees post age 65.
A one percentage point change in the assumed rate of return on the defined benefit pension plan assets is estimated to have an approximate $679,000 effect on pension expense. Additionally, a one percentage point increase in the discount rate is estimated to have a $1.4 million decrease in pension expense, while a one percentage point decrease in the discount rate is estimated to have a $1.6 million increase in pension expense.
Note H Goodwill and Other Intangible Assets
Changes in the carrying value of goodwill during the years ended December 31, 2014 and 2013 are as follows:
Goodwill | ||||
Balance at January 1, 2013 |
$ | 17,452 | ||
Acquisition |
999 | |||
Foreign currency |
(405 | ) | ||
|
|
|||
Balance at December 31, 2013 |
18,046 | |||
Acquisition |
4,725 | |||
Foreign currency |
(156 | ) | ||
|
|
|||
Balance at December 31, 2014 |
$ | 22,615 | ||
|
|
The major components of goodwill and other intangible assets are:
2014 | 2013 | |||||||||||||||
Historical
Cost |
Accumulated
Amortization |
Historical
Cost |
Accumulated
Amortization |
|||||||||||||
Finite-lived intangible assets: |
||||||||||||||||
Customer relationships |
$ | 12,175 | $ | 3,372 | $ | 8,170 | $ | 2,403 | ||||||||
Technology & drawings |
6,620 | 2,035 | 5,790 | 1,685 | ||||||||||||
Other intangibles |
1,544 | 1,517 | 1,568 | 1,505 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total finite-lived intangible assets |
20,339 | 6,924 | 15,528 | 5,593 | ||||||||||||
Goodwill |
22,615 | | 18,046 | | ||||||||||||
Trade names & trademarks |
3,888 | | 3,522 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 46,842 | $ | 6,924 | $ | 37,096 | $ | 5,593 | ||||||||
|
|
|
|
|
|
|
|
28
The Gorman-Rupp Company Annual Report 2014
Amortization of intangible assets in 2014, 2013 and 2012 was $1.4 million, $1.2 million and $869,000, respectively. Amortization of these intangible assets for 2015 through 2019 is expected to approximate $1.2 million per year.
Note I Business Segment Information
The Company operates in one business segment comprising the design, manufacture and sale of pumps and pump systems. The Companys products are used in water, wastewater, construction, industrial, petroleum, original equipment, agriculture, fire protection, heating, ventilation and air conditioning (HVAC), military and other liquid-handling applications.
The pumps and pump systems are marketed in the United States and worldwide through a network of more than 1,000 distributors, through manufacturers representatives (for sales to many original equipment manufacturers), through third-party distributor catalogs and by direct sales. International sales are made primarily through foreign distributors and representatives.
The Company sells to nearly 150 countries around the world. Company sales, determined by customer location were:
2014 | % | 2013 | % | 2012 | % | |||||||||||||||||||
United States |
$ | 298,338 | 69 | $ | 257,038 | 66 | $ | 239,153 | 64 | |||||||||||||||
Foreign countries |
136,587 | 31 | 134,627 | 34 | 136,538 | 36 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 434,925 | 100 | $ | 391,665 | 100 | $ | 375,691 | 100 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Net sales from external customers by product category are:
2014 | 2013 | 2012 | ||||||||||
Pumps and pump systems |
$ | 379,626 | $ | 336,779 | $ | 318,235 | ||||||
Repairs of pumps and pump systems and other |
55,299 | 54,886 | 57,456 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 434,925 | $ | 391,665 | $ | 375,691 | ||||||
|
|
|
|
|
|
As of December 31, 2014 and 2013, 95% and 96% of the Companys long-lived assets were located in the United States, respectively.
Note J Acquisitions
In June 2014, the Company, through its wholly owned subsidiary National Pump Company, acquired substantially all of the assets and certain liabilities of Bayou City Pump, Inc. (BCP). Founded in 1973, BCP is a leading manufacturer of and service provider for highly-reliable and energy-efficient vertical turbine pumping systems primarily for the inland and coastal marine liquid petroleum and chemical transportation
market. BCP has steadily expanded its product designs and service capabilities in recent years to become a significant market share provider in North American marine transportation. BCP also has developed and manufactures a specialty sludge pumping system for use in a variety of industrial applications. BCPs strong customer relationships and long history will help expand sales in targeted niche markets complementary to National Pump Companys significant and growing vertical turbine products leadership position. In addition, its Houston, Texas base will provide additional capacity and machining capabilities in combination with National Pumps existing location acquired late in 2012, which together will assist The Gorman-Rupp Company in expanding its growing Gulf Coast Operations.
The Company recognized customer relationships of $4.1 million, technology and drawings of $830,000, tradenames and trademarks of $370,000 and goodwill of $4.7 million related to the asset acquisition of Bayou City Pump, Inc.
The results of operations of the acquired business have been included in Gorman-Rupps consolidated results since June 2014. Supplemental pro forma information has not been provided as the acquisition did not have a material impact on the Companys consolidated results of operations.
In December 2012, the Companys wholly owned subsidiary, National Pump Company, acquired substantially all of the assets and certain liabilities of American Turbine. Founded in 1975, American Turbine is a group of companies that collectively are a leading manufacturer and distributor of energy-efficient vertical turbine and submersible pumps primarily serving agricultural, municipal and industrial markets, both domestically and globally.
In September 2012, the Companys wholly owned subsidiary, Gorman-Rupp Africa Proprietary Limited (GR Africa), purchased the business of Pumptron (Proprietary) Limited (Pumptron) through internally generated cash flows. Prior to its acquisition, Pumptron was an international value-added distributor for Gorman-Rupp for over 25 years. Founded in 1986, Pumptron is a leading provider of water-related pumping solutions primarily serving the construction, mining, agricultural and municipal markets in South Africa and increasingly throughout other sub-Sahara African countries. Pumptron is headquartered in Johannesburg with operating locations in Cape Town and Durban, all in South Africa.
29
The Gorman-Rupp Company Annual Report 2014
Managements Discussion and Analysis
Executive Overview
The following discussion of Results of Operations includes certain non-GAAP financial data, and measures such as earnings before interest, taxes, depreciation and amortization. The adjusted gross margins, operating margins and earnings per share amounts exclude non-cash pension settlement charges as a result of lump sum payments related to the defined benefit pension plan. Management utilizes these adjusted financial data and measures to assess comparative operations against those of prior periods without the distortion of non-comparable factors. The Gorman-Rupp Company believes that these non-GAAP financial data and measures will be useful to investors as well as to assess the continuing strength of the Companys underlying operations.
The Gorman-Rupp Company is a leading designer, manufacturer and international marketer of pumps and pump systems for use in diverse water, wastewater, construction, dewatering, industrial, petroleum, original equipment, agriculture, fire protection, heating, ventilating and air conditioning (HVAC), military and other liquid-handling applications. The Company attributes its success to long-term product quality, applications and performance combined with timely delivery and service, and continually develops initiatives to improve performance in these key areas.
Gorman-Rupp actively pursues growth opportunities through organic growth, international business expansion and acquisitions.
We continually invest in training for our employees, new product development and modern manufacturing equipment, technology and facilities designed to increase production efficiency and capacity and drive growth by delivering innovative solutions to our customers. We believe the diversity of our markets is a major contributor to the 80 plus years of stability of our financial growth.
The Company achieved record sales and earnings during 2014 and attained its forty-second consecutive year of increased cash dividends paid to shareholders. Operating results for 2014 include Bayou City Pump Company for seven months, after being acquired at the beginning of June 2014.
The Company places a strong emphasis on cash flow generation and having excellent liquidity and financial flexibility. This focus has afforded us the continuing ability to reinvest our cash resources and preserve a strong balance sheet to position us for future opportunities. The $112.0 million of cash generated by operating activities over the past three years was utilized primarily to fund growth-oriented acquisitions and productivity-enhancing capital expenditures, pay dividends, substantially repay acquisitions-related short-term debt and significantly fund the Companys defined benefit pension plan.
The Company generated $68.5 million in earnings before interest, taxes, depreciation and amortization during 2014. From these earnings, we invested $13.3 million in buildings and machinery and equipment and returned $9.7 million in dividends to shareholders.
Capital additions in 2015 are expected to be $18.0 to $20.0 million. Approximately $2.5 million are for facilities expansion in the United States and $3.5 million are for facilities expansion in Ireland. The remaining $12.0 to $14.0 million are planned for new production equipment to replace aging equipment.
On January 22, 2015, the Board of Directors authorized the payment of a quarterly dividend of $0.10 per share, representing the 260th consecutive quarterly dividend to be paid by the Company. During 2014, the Company again paid increased dividends and thereby attained its forty-second consecutive year of increased dividends. These consecutive years place Gorman-Rupp in the top 50 of all U.S. public companies with respect to number of consecutive years of increased dividend payments. The dividend yield at December 31, 2014 was 1.15%.
The Company currently expects to continue its exceptional history of paying regular quarterly dividends and increased annual dividends. However, any future dividends will be reviewed individually and declared by our Board of Directors at its discretion,
30
The Gorman-Rupp Company Annual Report 2014
dependent on our assessment of the Companys financial condition and business outlook at the applicable time.
We are pleased with Patterson Pump Companys performance on the PCCP project for which shipments of the large flood control pumps for New Orleans began this year and will be an even larger contributor in 2015. When completed, this flood control project will be one of the largest such projects in the world. Also, 2015 results will include a complete year of our Bayou City Pump Company acquisition which adds market diversity for our petroleum handling products and services.
Outlook
Most of the markets we serve have improved since the economic downturn in 2008 and 2009 as the U.S. economy has steadily recovered from the recession. However, uncertain business, global regulatory and economic conditions still persist and continue to be a negative influence on capital goods investment. These uncertainties have caused variations in some of our markets we serve and may continue to do so in the near and longer term. In particular, the recent dramatic decline in the price of oil may have a negative impact in the near term on some of the markets we serve such as construction, including rental equipment, and fire protection markets. Also, there may be additional headwinds for 2015 due to continuing unfavorable exchange rate alignments compounded by ongoing international economic uncertainties.
Generally we believe that the Company is well positioned to grow organically at reasonably comparable sales pace and operating margins over the long term by expanding our customer base, both domestically and globally, and through new product offerings. We expect that the increasing need for water and wastewater infrastructure rehabilitation within the United States, and similar needs internationally, including in emerging economies, along with increasing demand for pumps and pump systems for industrial and agricultural applications, will provide excellent growth opportunities for Gorman-Rupp in the future.
Results of Operations 2014 Compared to 2013:
The Company attained record net sales of $434.9 million in 2014 compared to net sales of $391.7 million in 2013, an increase of $43.3 million or 11.0% . Sales improved 10.4% in our larger water markets group and 12.5% in our non-water markets.
Major contributors to the increase included a $20.0 million increase in the municipal market driven by sales of large volume pumps for wastewater and flood control, a $13.3 million increase in the industrial market related to fracking, $8.5 million from the recent acquisition of Bayou City Pump Company and an increase of $6.1 million in the construction market principally for pumps for rental businesses and oil and gas drilling support within North America. In addition, sales in the fire protection market increased $3.8 million primarily due to domestic sales. These increases were partially offset by a $4.3 million decrease in the agriculture market due to wet weather conditions in several domestic regions.
International sales were $136.6 million in 2014 compared to $134.6 million in 2013, a slight increase of $2.0 million or 1.5% from the prior year. Excluding the impact of the change in foreign exchange rates, international sales were up $4.3 million or 3.2% . International sales represented 31% and 34% of total sales for the Company in 2014 and 2013, respectively. Sales continued to be softer in Europe due to sluggish economic conditions.
The Companys backlog of orders was $160.7 million at December 31, 2014 compared to $182.2 million a year ago and $170.0 million at September 30, 2014. The decrease in backlog from a year ago is principally due to record shipments during 2014, including approximately $14.4 million related to the PCCP flood control project in New Orleans. Approximately 95% of the Companys backlog of unfilled orders at December 31, 2014 is scheduled to be shipped during 2015.
Cost of products sold in 2014 was $327.4 million compared to $298.0 million in 2013, an increase of $29.4 million or 9.9% . Gross profit was $107.6 million in 2014 compared to $93.7 million
31
The Gorman-Rupp Company Annual Report 2014
Managements Discussion and Analysis
in 2013, an increase of 14.8% resulting in gross margins of 24.7% and 23.9% in 2014 and 2013, respectively. The gross margin for 2013 was reduced by 70 basis points due to a non-cash pension settlement charge which did not recur in 2014.
Selling, general and administrative (SG&A) expenses for 2014 were $54.3 million, or 12.5% of net sales, compared with $51.7 million, or 13.2% of net sales for 2013. The decrease in SG&A expenses as a percent of sales was primarily due to leverage generated by the record sales volume during 2014.
Operating income in 2014 was a record $53.3 million compared to $41.9 million in 2013, resulting in operating margins of 12.3% and 10.7%, respectively. The operating margin for 2013 was reduced by 110 basis points due to a non-cash pension settlement charge which did not recur in 2014.
Other income in 2014 was $940,000 compared to $3.1 million in 2013. Other income in 2013 included a gain on sale of property, plant and equipment of $2.5 million.
The effective income tax rate was 32.7% in 2014 compared to 32.0% in 2013. The difference in the effective tax rate was primarily due to the federal research and development tax credit that was not enacted for 2012 until January 2013, and thus not permitted to be recorded until 2013 for 2012. Therefore, two years of the research and development tax credit were recognized in 2013.
Net income for 2014 was a record $36.1 million compared to $30.1 million in 2013, an increase of $6.0 million or 20.1% . As a percent of net sales, net income was 8.3% and 7.7% in 2014 and 2013, respectively.
Earnings per share were $1.38 in 2014 compared to $1.15 in 2013, an increase of $0.23 per share or 20.0% . Earnings per share for 2013 included a reduction of $0.10 due to non-cash pension settlement charges offset by $0.06 per share of gain on the sale of property, plant and equipment, both of which did not recur in 2014. Currency translation negatively impacted earnings in 2014 by $0.01 per share.
Results of Operations 2013 Compared to 2012:
The Company attained then-record net sales of $391.7 million in 2013 compared to net sales of $375.7 million in 2012, an increase of $16.0 million or 4.3% . Major contributors to the increase included an $8.7 million increase in fire pump shipments in the U.S. due to some increases in large building construction, a $7.8 million increase in the agriculture market for irrigation pumps, due to a 2012 acquisition, and an increase of $5.2 million in the municipal market, partially offset by an $8.4 million decrease in the construction market when compared to the strong fracking market early in 2012.
International sales were $134.6 million in 2013 compared to a record $136.5 million in 2012, a slight decrease of $1.9 million or 1.4% from the prior year. International sales represented 34.4% and 36.3% of total sales for the Company in 2013 and 2012, respectively. Sales were somewhat softer in Europe due to the deteriorating economic conditions compared to 2012.
The Companys backlog of orders was $182.2 million at December 31, 2013 compared to $143.4 million a year ago and $190.7 million at September 30, 2013. Approximately 77% of the Companys backlog of unfilled orders at December 31, 2013 is scheduled to be shipped during 2014, lower than previous years percentages due to some of the Permanent Canal Closures and Pumps project that is expected to ship through the first three quarters of 2015.
Cost of products sold in 2013 was $298.0 million compared to $285.5 million in 2012, an increase of $12.5 million or 4.4% . Gross profit was $93.7 million in 2013 compared to $90.2 million in 2012, an increase of 3.9% resulting in gross margins of 23.9% and 24.0% in 2013 and 2012, respectively. Excluding the non-cash pension settlement charges, gross margin would have been 24.6% and 24.5% in 2013 and 2012, respectively.
SG&A expenses for 2013 were $51.8 million, or 13.2% of net sales, compared with $48.0 million, or 12.8% of net sales for 2012. The increase in SG&A expenses was primarily driven by the inclusion of
32
The Gorman-Rupp Company Annual Report 2014
wages and benefits for a full year related to two acquisitions that were made during the latter part of 2012.
Operating income in 2013 was $41.9 million compared to $42.2 million in 2012, resulting in operating margins of 10.7% and 11.2%, respectively. Excluding the non-cash pension settlement charges described above, operating margins would have been 11.4% and 12.0% for 2013 and 2012, respectively.
Other income in 2013 was $3.1 million compared to $907,000 in 2012. The increase in other income during 2013 was principally due to gain on sale of property, plant and equipment of $2.5 million.
The effective income tax rate was 32.0% in 2013 compared to 33.6% in 2012. The difference in the effective tax rate was primarily due to the federal research and development tax credit that was not enacted for 2012 until January 2013, and thus not permitted to be recorded until 2013 for 2012. Therefore, two years of the research and development tax credit were recognized in 2013.
Net income for 2013 was a then-record $30.1 million compared to $28.2 million in 2012, an increase of $1.9 million or 6.7% . The non-cash pension settlement charges reduced net income by $2.8 million and $1.9 million in 2013 and 2012, respectively. Net income excluding the charges would have been $32.9 million in 2013 and $30.1 million in 2012. As a percent of net sales, net income was 7.7% and 7.5% in 2013 and 2012, respectively. Excluding the pension settlement charges, net income would have been 8.4% and 8.0% in 2013 and 2012, respectively.
Earnings per share were $1.15 in 2013 compared to $1.07 in 2012, an increase of $0.08 per share or 7.5% . The non-cash pension settlement charges reduced net income by $0.10 in 2013 and $0.08 per share in 2012, which would have resulted in earnings per share of $1.25 in 2013 and $1.15 in 2012.
Trends
The Company does not believe that it is exposed to material market risks as a result of its export sales or operations outside of the United States. Approximately 70% of the Companys international sales are export sales from the United States. Export sales are denominated predominately in U.S. dollars and made on open account or with letters of credit.
For more than 10 years, numerous business entities in the pump and fluid-handling industries, as well as a multitude of companies in many other industries, have been targeted in a series of lawsuits in several jurisdictions by various individuals seeking redress to claimed injury as a result of the entities alleged use of asbestos in their products. The Company and one of its subsidiaries remain drawn into mass-scale asbestos-related litigation, typically as one of many co-defendants in a particular proceeding; the majority of these cases are against Patterson Pump Company. The allegations in the lawsuits involving the Company and/or Patterson Pump Company are vague, general and speculative, and most cases have not advanced beyond the early stage of discovery. In certain situations, the plaintiffs have voluntarily dismissed the Company and/or Patterson Pump Company from some of the lawsuits after the plaintiffs have acknowledged that there is no basis for their claims. In other situations, the Company and/or Patterson Pump Company have been dismissed from some of the lawsuits as a result of court rulings in favor of motions to dismiss and/or motions for summary judgment. In one hundred cases the Company has entered into nominal economic settlements recommended for payment by its insurers, coupled with dismissal of the lawsuits. Insurers of the Company have engaged legal counsel to represent the Company and its subsidiaries and to protect their interests. Management does not currently believe that the small number of legal proceedings arising out of the ordinary course of business, or the industry-wide asbestos litigation, will materially impact the Companys consolidated results of operations, liquidity or financial condition.
33
The Gorman-Rupp Company Annual Report 2014
Managements Discussion and Analysis
Liquidity and Sources of Capital
Cash and cash equivalents totaled $24.5 million and there was $12.0 million in outstanding bank debt at December 31, 2014. In addition, the Company had $26.0 million available in bank lines of credit after deducting $4.0 million in outstanding letters of credit primarily related to customer orders. The Company was in compliance with its nominal restrictive covenants, including limits on additional borrowings and maintenance of certain operating and financial ratios, at all times in 2014 and 2013.
Capital expenditures for 2015, consisting principally of building expansions and machinery and equipment purchases, are estimated to be in the range of $18.0 to $20.0 million and are expected to be financed through internally generated funds and existing lines of credit. During 2014, 2013 and 2012, the Company financed its capital improvements and working capital requirements principally through internally generated funds.
Working capital increased 6.1% to $136.4 million at December 31, 2014 compared to $128.5 million a year ago, largely due to accounts receivable related to increased sales volume and some completed inventory related to some customer-delayed shipments at December 31, 2014.
Earnings before interest, income taxes and depreciation and amortization, were $68.5 million for 2014, $58.0 million for 2013 and $54.6 million in 2012. Net of capital expenditures, these amounts were $55.2 million, $37.0 million and $38.2 million, respectively. Additionally, net of dividends, these amounts were $45.5 million, $28.3 million and $30.1 million, respectively.
Financial Cash Flow
Net cash provided by operating activities was $29.0 million, $50.4 million and $32.6 million for 2014, 2013 and 2012, respectively. The change in cash provided by operating activities in 2014 compared to 2013 was primarily due to recognition of deferred revenue relating to the PCCP project and increased accounts receivable. The change in cash provided by operating activities in 2013 compared to 2012 was primarily due to increased deferred revenue relating to the PCCP project and change in inventory balances.
Cash used for investing activities was $29.3 million, $18.1 million and $36.4 million for 2014, 2013 and 2012, respectively. Net cash paid for acquisitions was $16.7 million in 2014 and $20.8 million in 2012. Capital expenditures were approximately $13.3 million, $21.0 million and $16.4 million in 2014, 2013 and 2012, respectively.
Net cash (used for) provided by financing activities was ($6.7) million in 2014, ($21.7) million in 2013 and $3.8 million in 2012. During 2014, the Companys repayments on short-term bank borrowings were $15.0 million and dividend payments were $9.7 million.
The changes in foreign currency translation against the U.S. dollar increased cash by $344,000 and $389,000 in 2014 and 2013, respectively, and decreased cash by $77,000 in 2012.
The ratio of current assets to current liabilities was 3.1 to 1 at December 31, 2014 and 2013.
Management believes that cash on hand, combined with cash provided by operating activities and existing financing capabilities, will be sufficient to meet cash requirements for the next twelve months, including capital expenditures, the expected payment of quarterly dividends and principal and interest on debt outstanding.
Contractual Obligations
Capital commitments in the table below include commitments to purchase property, plant and equipment that have been approved by the Board of Directors and are enforceable and legally binding on the Company. The capital commitments do not represent the entire anticipated purchases in the future, but represent only those substantive items for which the Company is contractually obligated as of December 31, 2014. Also, the Company has some operating leases for certain offices, manufacturing facilities, land, office equipment and automobiles. Rental expenses relating to these leases were $1.1 million in 2014, 2013 and 2012.
34
The Gorman-Rupp Company Annual Report 2014
The following table summarizes the Companys contractual obligations at December 31, 2014:
Payment Due By Period | ||||||||||||||||||||
(Thousands of dollars) | Total |
Less
than 1 Year |
1-3
Years |
3-5
Years |
More
than 5 Years |
|||||||||||||||
Capital commitments |
$ | 3,585 | $ | 3,585 | $ | | $ | | $ | | ||||||||||
Operating leases |
2,088 | 871 | 980 | 226 | 11 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 5,673 | $ | 4,456 | $ | 980 | $ | 226 | $ | 11 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Critical Accounting Policies
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. When more than one accounting principle, or the method of its application, is generally accepted, management selects the principle or method that is appropriate in the Companys specific circumstances. Application of these accounting principles requires management to make estimates about the future resolution of existing uncertainties; as a result, actual results could differ from these estimates.
In preparing these consolidated financial statements, management has made its best estimates and judgments of the amounts and disclosures included in the consolidated financial statements, giving due regard to materiality. The Company does not believe there is a great likelihood that materially different amounts would be reported under different conditions or using different assumptions pertaining to the accounting policies described below.
Revenue Recognition
Substantially all of the Companys revenues from product sales are recognized when all of the following criteria are met: persuasive evidence of a sale arrangement exists, the price is fixed or determinable, product delivery has occurred or services have been rendered, there are no further obligations to customers and collectability is probable. Product delivery occurs when the risks and rewards of ownership and title pass, which usually occurs upon shipment to the customer.
Allowance for Doubtful Accounts
The Company evaluates the collectability of its accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customers inability to meet its financial obligations to the Company (e.g., bankruptcy filings, substantial downgrading of credit scores), the Company records a specific allowance for bad debts against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes allowances for bad debts based on the length of time the receivables are past due. If circumstances change (e.g., an unexpected material adverse change in a large customers ability to meet its financial obligations), the Companys estimates of the recoverability of amounts due could be reduced by a material amount. Historically, the Companys collection history has been good.
Inventories and Related Allowance
Inventories are valued at the lower of cost or market value and have been reduced by an allowance for excess and obsolete inventories. The estimated allowance is based on a variety of factors, including historical inventory usage and management evaluations. Historically, the Company has not experienced substantive write-offs due to obsolescence. The Company uses the last-in, first-out (LIFO) method for the majority of its inventories.
Product Warranties
A liability is established for estimated future warranty and service claims based on historical claims experience and specific product failures.
Pension Plans and Other Postretirement Benefit Plans
The Company recognizes the obligations associated with its defined benefit pension plan and defined benefit health care plan in its consolidated financial statements. The measurement of liabilities related to
35
The Gorman-Rupp Company Annual Report 2014
Managements Discussion and Analysis
pension plans and other postretirement benefit plans is based on managements assumptions related to future events including interest rates, return on pension plan assets, rate of compensation increases and health care cost trend rates. Actual pension plan asset performance will either reduce or increase pension losses included in accumulated other comprehensive loss, which ultimately affects net income. The discount rates used to determine the present value of future benefits are based on estimated yields of investment grade fixed income investments.
The discount rate used to value pension plan obligations was 3.45% and 4.30% at December 31, 2014 and 2013, respectively. The discount rate used to value postretirement obligations was 3.60% and 4.50% at December 31, 2014 and 2013, respectively. The discount rates were determined by constructing a zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date. The expected rates of return on pension assets is designed to be a long-term assumption that will be subject to year-to-year variability. The assumed rate of return for 2014 and 2013 was 7.00% . Actual pension plan asset performance will either reduce or increase unamortized losses included in accumulated other comprehensive loss, which will ultimately affect net income. The assumed rate of compensation increase was 3.50% in 2014 and 2013.
The assumption used for the rate of increase in medical costs over the next five years was unchanged in 2014 from 2013. A one percentage point increase in the assumed health care trend would increase postretirement expense by approximately $201,000, changing the benefit obligation by approximately $2.2 million; while a one percentage point decrease in the assumed health care trend would decrease postretirement expense by approximately $185,000, changing the benefit obligation by approximately $1.9 million.
Substantially all retirees elect to take lump sum settlements of their benefits. When interest rates are low as they have been the last three years, this subjects
the Company to the risk of exceeding an actuarial threshold computed on an annual basis and triggering a GAAP-required non-cash pension settlement loss. This event occurred in 2013 and 2012.
Income Taxes
The basic principles related to accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entitys financial statements or tax returns.
Realization of the Companys deferred tax assets is principally dependent upon the Companys achievement of projected future taxable income, which management believes will be sufficient to fully utilize the deferred tax assets recorded, with the exception of deferred tax associated with certain state tax credits for which a valuation allowance has been recognized.
Goodwill and Other Intangibles
The Company accounts for goodwill in a purchase business combination as the excess of the cost over the fair value of net assets acquired. Business combinations can also result in other intangible assets being recognized. Amortization of intangible assets, if applicable, occurs over their estimated useful lives.
Goodwill and indefinite lived intangible assets are tested annually for impairment as of October 1, or whenever events or changes in circumstances indicate there may be a possible permanent loss of value in accordance with ASC 350, Intangibles Goodwill and Other .
Goodwill is tested for impairment at the reporting unit level and is based on the net assets for each reporting unit, including goodwill and intangible assets. The Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not
36
The Gorman-Rupp Company Annual Report 2014
that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary.
In assessing the qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we identify and assess relevant drivers of fair value and events and circumstances that may impact the fair value and the carrying amount of the reporting unit. The identification of relevant events and circumstances and how these may impact a reporting units fair value or carrying amount involve significant judgments and assumptions. The judgments and assumptions include the identification of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, Company-specific events and share price trends and making the assessment on whether each relevant factor will impact the impairment test positively or negatively and the magnitude of any such impact.
When performing a quantitative assessment of goodwill impairment if necessary or in years where we elect to do so, a discounted cash flow model is used to estimate the fair value of each reporting unit, which considers forecasted cash flows discounted at an estimated weighted-average cost of capital. The forecasted cash flows are based on the Companys long-term operating plan and the weighted-average cost of capital is an estimate of the overall after-tax rate of return. Other valuation techniques including comparative market multiples are used when appropriate. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units.
Based upon our fiscal 2014 and 2013 quantitative and qualitative impairment analyses, the Company concluded that it is more likely than not that the fair value of our reporting units continues to substantially exceed the respective carrying amounts.
Indefinite life intangible assets primarily consist of trademarks and trade names. The fair value of these
assets is determined using a royalty relief methodology similar to that employed when the associated assets were acquired, but using updated estimates of future sales, cash flows and profitability. For 2014 and 2013, the fair value of indefinite lived intangible assets exceeded the respective carrying value.
Other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recovered through future net cash flows generated by the assets.
Other Matters
Certain transactions with related parties are in the ordinary course of business and are not material to the Companys consolidated financial position, net income or cash flows.
The Company does not have any off-balance sheet arrangements, financings or other relationships with unconsolidated special purpose entities. The Company is not a party to any long-term debt agreements, or any material capital leases or purchase obligations.
37
The Gorman-Rupp Company Annual Report 2014
Report of Management on Internal Control
Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company (as defined in Exchange Act rules 13[a]15[f ]). Internal control over financial reporting is a process designed by, or under the supervision of, the Companys principal executive and principal financial officers, or persons performing similar functions, and affected by the Companys Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
The Companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of Management and Directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework). Based on this evaluation, Management concluded that the Companys internal control over financial reporting was effective as of December 31, 2014.
The independent registered public accounting firm of Ernst & Young LLP that has audited the consolidated financial statements included in this annual report on Form 10-K, has also issued an attestation report on the Companys internal control over financial reporting as of December 31, 2014. This report is included on the following page.
/s/ JEFFREY S. GORMAN
Jeffrey S. Gorman
President and Chief Executive Officer
/s/ WAYNE L. KNABEL
Wayne L. Knabel
Chief Financial Officer
March 9, 2015
38
The Gorman-Rupp Company Annual Report 2014
Report of Independent Registered
Public Accounting Firm
The Board of Directors and Shareholders
of The Gorman-Rupp Company
We have audited The Gorman-Rupp Companys internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). The Gorman-Rupp Companys management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, The Gorman-Rupp Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Gorman-Rupp Company as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2014 of The Gorman-Rupp Company and our report dated March 9, 2015 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
March 9, 2015
39
The Gorman-Rupp Company Annual Report 2014
Eleven-Year Summary of Selected Financial Data
(Thousands of dollars, except per share amounts)
2014 | 2013 | 2012 | 2011 | |||||||||||||
Operating Results |
||||||||||||||||
Net sales |
$ | 434,925 | $ | 391,665 | $ | 375,691 | $ | 359,490 | ||||||||
Gross profit |
107,559 | 93,655 | 90,151 | 87,837 | ||||||||||||
Income taxes |
17,593 | 14,173 | 14,244 | 13,881 | ||||||||||||
Net income |
36,141 | 30,104 | 28,203 | 28,804 | ||||||||||||
Depreciation and amortization |
14,615 | 13,588 | 12,066 | 11,459 | ||||||||||||
Interest expense |
134 | 146 | 122 | 179 | ||||||||||||
Return on net sales (%) |
8.3 | 7.7 | 7.5 | 8.0 | ||||||||||||
Sales dollars per employee |
340.6 | 315.6 | 326.4 | 327.1 | ||||||||||||
Income dollars per employee |
28.3 | 24.3 | 24.5 | 26.2 | ||||||||||||
Financial Position |
||||||||||||||||
Current assets |
$ | 200,709 | $ | 189,289 | $ | 175,675 | $ | 155,872 | ||||||||
Current liabilities |
64,346 | 60,760 | 64,821 | 50,873 | ||||||||||||
Working capital |
136,363 | 128,529 | 110,854 | 104,999 | ||||||||||||
Current ratio |
3.1 | 3.1 | 2.7 | 3.1 | ||||||||||||
Property, plant and equipmentnet |
$ | 133,964 | $ | 131,189 | $ | 123,066 | $ | 114,349 | ||||||||
Capital additionsnet |
13,275 | 21,015 | 16,373 | 11,175 | ||||||||||||
Total assets |
380,904 | 355,638 | 335,183 | 298,700 | ||||||||||||
Equity |
281,967 | 264,140 | 234,719 | 214,764 | ||||||||||||
Dividends paid |
9,715 | 8,662 | 8,188 | 7,430 | ||||||||||||
Average number of employees |
1,277 | 1,241 | 1,151 | 1,099 | ||||||||||||
Shareholder Information |
||||||||||||||||
Earnings per share |
$ | 1.38 | $ | 1.15 | $ | 1.07 | $ | 1.10 | ||||||||
Cash dividends per share |
0.370 | 0.330 | 0.312 | 0.283 | ||||||||||||
Equity per share at December 31 |
10.74 | 10.06 | 8.94 | 8.19 | ||||||||||||
Average number of shares outstanding |
26,256,824 | 26,249,324 | 26,242,366 | 26,234,579 |
Summary of Quarterly Results of Operations
(Thousands of dollars, except per share amounts)
The following is a summary of unaudited quarterly results of operations for the years ended December 31, 2014 and 2013:
Quarter Ended 2014 | Net Sales | Gross Profit | Net Income |
Earnings
per Share |
||||||||||||
First quarter |
$ | 110,064 | $ | 27,554 | $ | 9,954 | $ | 0.38 | ||||||||
Second quarter |
109,728 | 26,904 | 8,860 | 0.34 | ||||||||||||
Third quarter |
110,159 | 28,066 | 9,439 | 0.36 | ||||||||||||
Fourth quarter |
104,974 | 25,035 | 7,888 | 0.30 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 434,925 | $ | 107,559 | $ | 36,141 | $ | 1.38 | ||||||||
|
|
|
|
|
|
|
|
40
The Gorman-Rupp Company Annual Report 2014
2010 | 2009 | 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||||||
$ | 296,808 | $ | 266,242 | $ | 330,646 | $ | 305,562 | $ | 270,910 | $ | 231,249 | $ | 203,554 | |||||||||||||
76,337 | 61,773 | 77,089 | 67,452 | 58,676 | 47,071 | 42,425 | ||||||||||||||||||||
12,370 | 8,986 | 13,297 | 12,524 | 8,654 | 6,235 | 5,075 | ||||||||||||||||||||
25,963 | 18,269 | 27,197 | 22,859 | 19,072 | 10,903 | 9,277 | ||||||||||||||||||||
10,601 | 8,955 | 7,848 | 7,597 | 6,688 | 6,808 | 7,179 | ||||||||||||||||||||
175 | 170 | 45 | 49 | 41 | 25 | 40 | ||||||||||||||||||||
8.7 | 6.9 | 8.2 | 7.5 | 7.0 | 4.7 | 4.6 | ||||||||||||||||||||
304.4 | 264.1 | 302.5 | 286.9 | 258.3 | 233.3 | 211.4 | ||||||||||||||||||||
26.6 | 18.1 | 24.9 | 21.5 | 18.2 | 11.0 | 9.6 | ||||||||||||||||||||
$ | 143,194 | $ | 131,400 | $ | 134,266 | $ | 135,288 | $ | 120,118 | $ | 110,501 | $ | 96,974 | |||||||||||||
59,678 | 43,175 | 35,569 | 33,481 | 27,646 | 28,219 | 21,112 | ||||||||||||||||||||
83,516 | 88,225 | 98,697 | 101,807 | 92,472 | 82,282 | 75,862 | ||||||||||||||||||||
2.4 | 3.0 | 3.8 | 4.0 | 4.3 | 3.9 | 4.6 | ||||||||||||||||||||
$ | 113,526 | $ | 108,523 | $ | 80,406 | $ | 59,970 | $ | 52,351 | $ | 51,505 | $ | 54,812 | |||||||||||||
8,310 | 38,071 | 27,909 | 12,826 | 7,258 | 3,189 | 7,500 | ||||||||||||||||||||
286,707 | 249,424 | 231,538 | 211,534 | 187,540 | 179,541 | 165,673 | ||||||||||||||||||||
199,834 | 177,612 | 159,206 | 149,960 | 128,142 | 127,048 | 121,898 | ||||||||||||||||||||
7,024 | 6,767 | 6,682 | 6,503 | 6,126 | 5,983 | 5,907 | ||||||||||||||||||||
975 | 1,008 | 1,093 | 1,065 | 1,049 | 991 | 963 | ||||||||||||||||||||
$ | 0.99 | $ | 0.70 | $ | 1.04 | $ | 0.88 | $ | 0.73 | $ | 0.42 | $ | 0.36 | |||||||||||||
0.269 | 0.259 | 0.256 | 0.248 | 0.234 | 0.229 | 0.227 | ||||||||||||||||||||
7.65 | 6.80 | 6.10 | 5.75 | 4.91 | 4.87 | 4.68 | ||||||||||||||||||||
26,132,160 | 26,107,886 | 26,101,891 | 26,095,586 | 26,089,004 | 26,081,676 | 26,073,433 |
Quarter Ended 2013 | Net Sales | Gross Profit | Net Income |
Earnings
per Share |
||||||||||||
First quarter |
$ | 92,457 | $ | 21,224 | $ | 5,818 | $ | 0.22 | ||||||||
Second quarter |
106,415 | 26,481 | 9,168 | 0.35 | ||||||||||||
Third quarter |
101,186 | 24,485 | 7,946 | 0.30 | ||||||||||||
Fourth quarter |
91,607 | 21,465 | 7,172 | 0.28 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 391,665 | $ | 93,655 | $ | 30,104 | $ | 1.15 | ||||||||
|
|
|
|
|
|
|
|
41
The Gorman-Rupp Company Annual Report 2014
Shareholder Information
Comparison of 5-Year Cumulative Total Shareholder Return Among The Gorman-Rupp Company,
NYSE MKT Composite Index and SIC Code 3561
ASSUMES $100 INVESTED ON JANUARY 1, 2010 AND DIVIDENDS REINVESTMENT THROUGH YEAR ENDING DECEMBER 31, 2014.
Set forth above is a line graph comparing the yearly percentage change in the cumulative total shareholder return, including reinvested cash dividends, on the Companys common shares against the cumulative total return of the NYSE MKT Exchange Index and a Peer Group Index for the period of five fiscal years commencing January 1, 2010 and ending December 31, 2014. The issuers in the SIC Code Index were selected on a line-of-business basis by reference to SIC Code 3561 Pumps and Pumping Equipment. The SIC Code Index is composed of the following issuers: Ampco-Pittsburgh Corp., Colfax Corp., Flowserve Corp., Graco Inc., Idex Corp., ITT Corp., The Gorman-Rupp Company and Xylem Inc.
Quarterly Stock Prices and Dividends
The high and low sales price and dividends per share for common shares traded on the NYSE MKT Exchange were:
Sales Price of Common Shares | Dividends Per Share | |||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||
High | Low | High | Low | |||||||||||||||||||||
First quarter |
$ | 35.16 | $ | 29.12 | $ | 24.78 | $ | 22.82 | $ | 0.09 | $ | 0.08 | ||||||||||||
Second quarter |
39.36 | 29.28 | 25.50 | 21.44 | 0.09 | 0.08 | ||||||||||||||||||
Third quarter |
36.82 | 28.28 | 33.88 | 24.43 | 0.09 | 0.08 | ||||||||||||||||||
Fourth quarter |
33.08 | 27.70 | 34.59 | 28.19 | 0.10 | 0.09 |
There were approximately 3,497 shareholders as of January 31, 2015, of which 1,001 were registered holders of common shares.
Annual Meeting | Transfer Agent and Registrar | Mailing Address | Exchange Listing | |||
The annual meeting of the shareholders of The Gorman-Rupp Company will be held at the Companys Corporate Headquarters, 600 South Airport Road, Mansfield, Ohio, on April 23, 2015 at 10:00 a.m., Eastern Daylight Time. |
Broadridge Corporate Issuer Solutions, Inc. P.O. Box 1342 Brentwood, New York 11717 Phone 844-318-0130 or 720-358-3598 Fax 215-553-5402 E-mail Shareholder@broadridge.com |
The Gorman-Rupp Company P.O. Box 1217 Mansfield, OH 44901-1217 Phone 419-755-1011 Fax 419-755-1263
Principal Office The Gorman-Rupp Company 600 South Airport Road Mansfield, OH 44903 |
NYSE MKT Exchange Symbol GRC
Independent Registered Public Accounting Firm
Ernst & Young LLP Suite 1800 950 Main Avenue Cleveland, OH 44113-7214 |
42
The Gorman-Rupp Company Annual Report 2014
Incorporated
April 18, 1934, under the laws of the State of Ohio
Investor Information Contact
Wayne L. Knabel, CPA
Chief Financial Officer
Phone 419-755-1397
Fax 419-755-1263
Email WLKnabel@gormanrupp.com
The SEC Annual Report Form 10-K is available free of charge by written request to Mr. Knabel at:
The Gorman-Rupp Company
P. O. Box 1217
Mansfield, Ohio 44901-1217
Internet Information
Information about the Company, its U.S. Securities and Exchange Commission filings and its products are available through its web site at: www.gormanrupp.com
To Buy or Sell Stock
Stock cannot be purchased or sold directly through The Gorman-Rupp Company. Purchases and sales of the Companys stock generally are made through a Securities dealer or through the Dividend Reinvestment Plan offered through Broadridge Corporate Issuer Solutions, Inc.
In addition, employees of the Company may purchase shares through an Employee Stock Purchase Plan offered through monthly deductions from their paychecks.
Open Enrollment Dividend Reinvestment and Stock Purchase Plan
Broadridge Corporate Issuer Solutions, Inc. offers a convenient plan for investment in shares of common stock of The Gorman-Rupp Company. Investors may buy or sell common shares of The Gorman-Rupp Company through Broadridge Corporate Issuer Solutions, Inc.s Direct Share Purchase and Sale Plan. Initial investments of $200 are required up to a maximum of $5,000 per month. Any subsequent investments may be made for a minimum of $50 (to a maximum of $5,000) per month.
For additional information, please contact The Gorman-Rupp Company, Attention: Corporate Secretary, for a copy of the Plan brochure, or call a customer service representative at Broadridge Corporate Issuer Solutions, Inc.
Phone | 844-318-0130 or |
720-358-3598 |
Direct Dividend Deposit
Gorman-Rupp provides the opportunity to have your dividend directly deposited into your checking or savings account. Your dividend is available to you on the payment date.
For additional information, call a customer service representative at Broadridge Corporate Issuer Solutions, Inc.
Phone | 844-318-0130 or |
720-358-3598 |
Safe Harbor Statement
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, The Gorman-Rupp Company provides the following cautionary statement: This Annual Report contains various forward-looking statements based on assumptions concerning The Gorman-Rupp Companys operations, future results and prospects. These forward-looking statements are based on current expectations about important economic, political, and technological factors, among others, and are subject to risks and uncertainties, which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.
Such factors include, but are not limited to: (1) continuation of the current and projected future business environment, including interest rates and changes in commodity pricing and capital and consumer spending; (2) competitive factors and competitor responses to initiatives of The Gorman-Rupp Company; (3) successful development and market introductions of anticipated new products; (4) stability of government laws and regulations, including taxes; (5) stable governments and business conditions in emerging economies; (6) successful penetration of emerging economies; (7) unforeseen delays or disruptions in the New Orleans flood control project, including any further revisions to the timing of shipments for the project; (8) continuation of the favorable environment to make acquisitions, domestic and foreign, including regulatory requirements and market values of potential candidates and our ability to successfully integrate and realize the anticipated benefits of completed acquisitions; and (9) risks described from time to time in our reports filed with the Securities and Exchange Commission. Except to the extent required by law, we do not undertake and specifically decline any obligation to review or update any forward-looking statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments or otherwise.
43
Exhibit (14)
THE GORMAN-RUPP COMPANY
CODE OF ETHICS
Introduction
This Code of Ethics was first adopted by the Board of Directors of The Gorman-Rupp Company on October 23, 2003 for application to the Companys Chief Executive Officer, Chief Financial Officer and Treasurer. The Board of Directors expanded the scope of this Code of Ethics by the adoption of an amending resolution on April 22, 2004 so that it applies to all employees, officers and Directors of the Company. On January 24, 2013 the Board of Directors approved updating amendments of this Code of Ethics to clarify its applicability to all subsidiaries and divisions of the Company, expand international enforcement emphasis of the U.S. Foreign Corrupt Practices Act, include reference to the new U.K. Bribery Act, and provide for its annual review by the Board of Directors.
This Code of Ethics describes the basic principles of conduct that apply to all employees, officers and Directors of The Gorman-Rupp Company (Company) and its subsidiaries and divisions. This Code is intended to provide a broad overview of basic ethical principles that guide our conduct. Violation of this Code may result in disciplinary action as deemed appropriate by the Companys Board of Directors, varying from reprimand to dismissal.
The requirement that we adhere to each of the policies and principles contained in this Code may only be waived by the Board of Directors. The Company will promptly disclose to the Companys shareholders and the investing public any waiver of this Code.
Compliance with Laws, Rules and Regulations
We strive to comply with all laws, rules and regulations of the places where the Company conducts business.
Conflicts of Interest
We conduct our business affairs in the best interests of the Company and shall therefore avoid situations where our private interests interfere with the Companys interests. We shall be especially sensitive to situations that have the appearance of impropriety.
Record-Keeping
We require honest and accurate recording and reporting of financial and other information.
All of the Companys records, accounts and financial statements are maintained in reasonable detail, appropriately reflect its transactions, and conform both to applicable legal and financial accounting requirements.
Public Reporting
We endeavor to make full, fair, accurate, timely and understandable disclosure in reports and documents filed with, or submitted to, the Securities and Exchange Commission and the NYSE MKT and in the Companys news releases and other public communications.
We require cooperation and open communication with our internal and external auditors. We consider any action to fraudulently influence, coerce, manipulate or mislead any auditor engaged in the performance of an audit of the Companys financial statements to be an illegal activity.
Insider Trading
Consistent with the federal securities laws, we confirm that the conduct of any person who buys or sells the Companys securities on the basis of material, non-public information concerning the Company is illegal.
We further confirm the illegal conduct of any person in possession of material, non-public information who provides another person with such information or recommends that he or she buy or sell the Companys securities. These prohibitions also apply to material, non-public information obtained about any other company during the course of working for the Company.
Corporate Opportunities
We do not personally take advantage of opportunities that are discovered because of our position without the prior consent of the Board of Directors. We shall not compete with the Company and shall fulfill our fiduciary duties to the Company to advance its legitimate interests whenever the opportunity to do so arises.
Competition and Fair Dealing
We manage the Company so that it competes fairly and honestly. We do not engage in unethical or illegal business practices such as stealing proprietary information, possessing trade secret information that was obtained without the owners consent, or inducing disclosure of this type of information by past or present employees of other companies. We shall respect the confidentiality of our customers, suppliers and competitors information.
Business Entertainment and Gifts
We recognize that business entertainment and gifts are meant to create goodwill and sound working relationships, not to gain unfair advantage with customers, suppliers or government officials. We shall not offer, give or accept any gift or entertainment unless it: (i) is not a cash gift, (ii) is not excessive in value, (iii) cannot be construed as a bribe or payoff, and (iv) does not violate any laws or regulations.
Discrimination and Harassment
We provide equal opportunity in employment and will not tolerate discrimination or harassment in the workplace. Derogatory comments based on racial or ethnic characteristics, unwelcome sexual advances and similar behavior are prohibited by the Companys policies.
Health and Safety
We strive to provide a safe and healthful work environment by following safety and health rules and practices.
We do not permit violence or threatening behavior in the workplace.
Confidentiality
We protect the Companys confidential, proprietary and trade secret information. We also protect information that suppliers and customers have entrusted to the Company on a confidential basis. Our personal obligation to safeguard the Companys confidential, proprietary and trade secret information continues even after our employment with the Company ends.
Protection and Proper Use of Company Assets
We shall not engage in theft or careless use of the Companys assets. We shall never use the Companys assets for illegal purposes.
Activities Concerning Foreign Governments
In compliance with the United States Foreign Corrupt Practices Act, The Organization for Economic Co-operation and Development (OECD) Anti-Bribery Convention 2009 Anti-Bribery Recommendation, and the United Kingdom (UK)
Bribery Act 2010, we do not give anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates in order to obtain or retain business. We do not promise, offer or deliver to any foreign or domestic government employee or official any gift, favor or other gratuity that would be illegal.
Our policy is to comply with the laws of other nations in which the Company conducts business.
Reporting Illegal or Unethical Behavior
To encourage good faith reports of illegal or unethical behavior (including violations of this Code) through the Companys Ethics Hotline to the Companys Corporate Manager Internal Audit, we keep all reports confidential and do not allow retaliation for reports of misconduct by others. We will cooperate in internal investigations of alleged misconduct.
We shall not permit any form of retribution against any employee who, in good faith, reports violations or suspected violations of Company policy.
Conclusion
Our business conduct on behalf of the Company shall be guided by the policies and principles set forth in this Code. This Code shall be reviewed annually by the Board of Directors.
Exhibit (21)
SUBSIDIARIES OF THE COMPANY
The Gorman-Rupp Company is publicly-held and has no parent corporation. The Companys subsidiaries as of December 31, 2014, and the state or country in which each was organized, are as follows:
Consolidated subsidiaries |
Jurisdiction of organization |
|
Patterson Pump Company |
Ohio | |
National Pump Company |
Ohio | |
The Gorman-Rupp International Company |
Ohio | |
GRC International LLC |
Ohio | |
Bayou City Pump Company |
Ohio | |
AMT Pump Company |
Delaware | |
Gorman-Rupp of Canada Limited |
Canada | |
Patterson Pump Ireland Limited |
Ireland | |
GRC International C.V. |
Curacao | |
Gorman-Rupp International B.V. |
The Netherlands | |
Gorman-Rupp Europe B.V. |
The Netherlands | |
Gorman-Rupp Africa Proprietary Limited |
Republic of South Africa | |
Pumptron (Proprietary) Limited |
Republic of South Africa | |
Gorman-Rupp Middle East FZE |
United Arab Emirates | |
Gorman-Rupp (A/Asia) Pty Ltd |
Australia |
Exhibit (23)
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in this Annual Report (Form 10-K) of The Gorman-Rupp Company of our reports dated March 9, 2015, with respect to the consolidated financial statements of The Gorman-Rupp Company, and the effectiveness of internal control over financial reporting of The Gorman-Rupp Company, included in the 2014 Annual Report to Shareholders of The Gorman-Rupp Company.
We also consent to the incorporation by reference in the following Registration Statements: (1) Registration Statement (Form S-8 No. 333-187048) pertaining to the Employee Stock Purchase Plan of The Gorman-Rupp Company, (2) Registration Statement (Form S-8 No. 333-105682) pertaining to the 401(k) Plan of The Gorman-Rupp Company, and (3) Registration Statement (Form S-8 No. 333-30159) pertaining to the Non-Employee Directors Compensation Plan of The Gorman-Rupp Company; of our reports dated March 9, 2015, with respect to the consolidated financial statements of The Gorman-Rupp Company and the effectiveness of internal control over financial reporting of The Gorman-Rupp Company incorporated by reference in this Annual Report (Form 10-K) of The Gorman-Rupp Company for the year ended December 31, 2014.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
March 9, 2015
Exhibit (24)
THE GORMAN-RUPP COMPANY
CERTIFICATE OF THE SECRETARY
The undersigned hereby certifies that she 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 Companys Board of Directors at a duly noticed and called meeting held on February 26, 2015 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 Executive 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, as amended, the Companys 2014 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, Wayne L. Knabel, Brigette A. Burnell and Douglas A. Neary, and each of them, hereby are appointed attorneys for the Company, with full power of substitution and resubstitution, for and in the name, place and stead of the Company, to sign and file the Companys 2014 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 Executive 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 this 9th day of March, 2015.
/ S / BRIGETTE A. BURNELL |
Brigette A. Burnell Corporate Secretary |
POWER OF ATTORNEY
The undersigned, The Gorman-Rupp Company (the Company), by the undersigned Executive Officer of the Company hereunto duly authorized, hereby appoints Jeffrey S. Gorman, Wayne L. Knabel, Brigette A. Burnell and Douglas A. Neary, and each of them, as attorneys for the Company, with full power of substitution and resubstitution, 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 Companys 2014 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 9th day of March 2015.
THE GORMAN-RUPP COMPANY
BY: | / S / BRIGETTE A. BURNELL | |
Brigette A. Burnell |
||
Corporate Secretary |
POWER OF ATTORNEY
The undersigned Directors and Executive Officers of The Gorman-Rupp Company (the Company) hereby appoint Jeffrey S. Gorman, Wayne L. Knabel, Brigette A. Burnell and Douglas A. Neary, and each of them, as attorneys for each of the undersigned, with full power of substitution and resubstitution, 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 Companys 2014 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 as of the 26th day of February, 2015
/s/ JEFFREY S. GORMAN |
President and Chief Executive Officer and Director | |||
Jeffrey S. Gorman |
(Principal Executive Officer) | |||
/s/ WAYNE L. KNABEL |
Chief Financial Officer | |||
Wayne L. Knabel |
(Principal Financial and Accounting Officer) | |||
/s/ JAMES C. GORMAN |
Director | |||
James C. Gorman |
||||
/s/ M. ANN HARLAN |
Director | |||
M. Ann Harlan |
||||
/s/ THOMAS E. HOAGLIN |
Director | |||
Thomas E. Hoaglin |
||||
/s/ CHRISTOPHER H. LAKE |
Director | |||
Christopher H. Lake |
||||
/s/ KENNETH R. REYNOLDS |
Director | |||
Kenneth R. Reynolds |
||||
/s/ RICK R. TAYLOR |
Director | |||
Rick R. Taylor |
||||
/s/ W. WAYNE WALSTON |
Director | |||
W. Wayne Walston |
Exhibit (31)(a)
CERTIFICATIONS
I, Jeffrey S. Gorman, certify that:
1. | I have reviewed this annual report on Form 10-K of The Gorman-Rupp Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: March 9, 2015
/s/ JEFFREY S. GORMAN |
Jeffrey S. Gorman |
President and Chief Executive Officer |
The Gorman-Rupp Company |
(Principal Executive Officer) |
Exhibit (31)(b)
CERTIFICATIONS
I, | Wayne L. Knabel, certify that: |
1. | I have reviewed this annual report on Form 10-K of The Gorman-Rupp Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: March 9, 2015
/s/ WAYNE L. KNABEL |
Wayne L. Knabel |
Chief Financial Officer |
The Gorman-Rupp Company |
(Principal Financial Officer) |
Exhibit (32)
Certification Pursuant to 18 U. S. C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of The Gorman-Rupp Company on Form 10-K for the year ended December 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of the Company certifies, pursuant to 18 U. S. C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that, to such officers knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934 as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. |
Date: March 9, 2015
/s/ JEFFREY S. GORMAN |
Jeffrey S. Gorman |
President and Chief Executive Officer |
(Principal Executive Officer) |
/s/ WAYNE L. KNABEL |
Wayne L. Knabel |
Chief Financial Officer |
(Principal Financial Officer) |
The foregoing certification is being furnished solely pursuant to 18 U. S. C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.