PART I

Safe Harbor Statement

Cautionary Note Regarding Forward-Looking Statements

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 on Form10-K contains various forward-looking statements based on assumptions concerning The Gorman-Rupp Company’s operations, future results and prospects. These forward-looking statements are based on current expectations about important economic, political, and technological factors, among others, and are subject to risks and uncertainties, which could cause the actual results or events to differ materially from those set forth in or implied by the forward-looking statements and related assumptions.

Such factors include, but are not limited to: company specific risk factors including (1) loss of key personnel; (2) intellectual property security; (3) acquisition performance and integration; (4) impairment in the value of intangible assets, including goodwill; (5) defined benefit pension plan settlement expense; and (6) family ownership of common equity; and general risk factors including; (7) continuation of the current and projected future business environment; (2)environment, including the duration and scope of the COVID-19 pandemic, the impact of the pandemic and actions taken in response to the pandemic; (8) highly competitive markets; (3)(9) availability and costs of raw materials; (4) loss of key management; (5)materials and labor; (10) cyber security threats; (6) acquisition performance and integration; (7)(11) compliance with, and costs related to, a variety of import and export laws and regulations; (8)(12) environmental compliance costs and liabilities; (9)(13) exposure to fluctuations in foreign currency exchange rates; (10)(14) conditions in foreign countries in which The Gorman-Rupp Company conducts business; (11)(15) changes in our tax rates and exposure to additional income tax liabilities; (12) impairment in the value of intangible assets, including goodwill; (13) defined benefit pension plan settlement expense; (14) family ownership of common equity; and (15)(16) risks described from time to time in our reports filed with the Securities and Exchange Commission. Except to the extent required by law, we do not undertake and specifically decline any obligation to review or update any forward-looking statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments or otherwise.

The Gorman-Rupp Company (“Registrant”, “Gorman-Rupp”, the “Company”, “we” or the “Company”“our”) 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 sale of pumps and pump systems. The following table sets forth, for the years 20152019 through 2017,2021, the total net sales, income before income taxes andyear-end total assets of the Company.

The Company’s 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,mixed-flow, vertical turbine line shaft, submersible, high pressurehigh-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 integratedfully-integrated water and wastewater pumping stations. In certain cases, units are designed for the inclusion of customer-supplied drives.

The Company’s larger pumps are sold principally for use in the construction, industrial, 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 Company’s pumps are also utilized for dewatering purposes. Additionally, pumps manufactured for fire protection are used for sprinklerback-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 Company’s smallest pumps are sold to customers for incorporation into such products as food processing, chemical processing, photo processing, medical and otherapplications, waste treatment, HVAC equipment, appliances and solar heating.

MARKETING

The Company’s pumps are marketed in the United States and worldwide through a broad network of distributors, through manufacturers’ representatives (for sales to many original equipment manufacturers), through third-party distributor catalogs, direct sales, and by ecommerce.commerce. The Company regularly seeks alliances with distributors and other partners to further enhance marketing opportunities. Export sales are made primarily through foreign distributors and representatives. The Company has long-standing relationships with many of the leading independent distributors in the markets it serves and provides specialized training programs to distributors on a regular basis.basis with a focus on meeting the world’s water and wastewater pumping needs.

During 2017, 20162021, 2020 and 2015,2019, there were no shipments to any single customer that exceeded 10% of total net sales. Gorman-Rupp continued to actively pursue international business opportunities and, in 2017,2021, shipped its pumps to approximately 150135 countries around the world. No sales made to customers in any one foreign country amounted to more than 5% of total net sales for 2017, 20162021, 2020 or 2015.2019.

Approximately $137.6 million of 2017 sales were shipped outside the United States, as compared to $131.2 million in 2016 and $136.5 million in 2015. International sales represented 36% of total net sales in year 2017 and 34% of total net sales in each of the years 2016 and 2015. See Note 9 to the Consolidated Financial Statements, Business Segment Information. The Company continued its efforts to penetrate international markets principally by its increased global investments and its focus on meeting the world’s water and wastewater pumping needs.

COMPETITION

The pump industry is highly fragmented and therefore Gorman-Rupp competes with a large number of businesses. Numerous pump competitors exist as subsidiaries, divisions or departments within significantly larger corporations. Foreign-sourcedThe Company also faces increased competition from foreign-sourced pumps have also increasingly penetrated intoin most of the Company’s domestic markets.

Most commercial and industrial pumps are specifically designed and engineered for a particular customer’s 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. In the sale of products and services, the Company benefits from its large base of previously installed base,products, which requiresperiodically require replacement parts due to the critical application and nature of the products and the conditions under which they operate.

PURCHASING AND PRODUCTION

Substantially all of the 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 madeThe Company does not purchase materials 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 motor components for its large submersible pumps, and motors and engines for its pump systems, from a limited number of suppliers, while motors for its polypropylene bellows pumps and magnetic drive pumps are purchased from several alternative vendors. Products requiring small motors are also 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 some small motors and a few minor components, and the assembling, painting and testing of its products. Substantially all of the Company’s products are tested prior to shipment.

OTHER ASPECTS

HUMAN CAPITAL

As of December 31, 2017,2021, the Company employed approximately 1,1651,150 persons, of whom approximately 660650 were hourly employees. The majority of the Company’s manufacturing operations take place in the United States, as evidenced by 85% of its employees being in the Company’s U.S. locations and 15% of its employees being in its international locations.

Our approach is to develop talent from within and supplement with external hires. We invest resources to develop the talent needed to remain a leading designer and manufacturer of pumps and pump systems. We provide our employees with training opportunities and educational benefits to assist in the expansion of their careers and skills. This approach has resulted in a deep understanding among our employee base of our business, products, and customers.  We believe that our average tenure of 12 years, as of the end of 2021, reflects both the strong engagement of our employees and our positive workplace culture.  The Company has no collective bargaining agreements and has never experienced a work stoppagestoppage.

We provide competitive compensation and considers its labor relationsbenefits programs to help meet the needs of our employees.  In addition to salaries, these programs (which vary by country and region) include profit sharing, a 401(k) plan, medical insurance and benefits, health savings accounts, domestic care and flexible savings accounts, paid time off, and tuition assistance, among others.  Certain domestic employees hired prior to January 1, 2008 participate in a defined benefit plan.  Employees hired after this date, in eligible locations, participate in an enhanced 401(k) plan instead of the defined benefit plan.  To create performance incentives and to encourage share ownership by our employees, we have implemented an employee stock purchase plan, which enables eligible employees worldwide to purchase the Company’s common shares at a discount through payroll contributions.

The health and safety of our workforce is fundamental to the success of our business.  We provide our employees upfront and ongoing safety training to ensure that safety policies and procedures are effectively communicated and implemented. We also provide personal protective equipment to those employees who need it to perform their job functions safely.  We have experienced personnel on-site at each of our manufacturing locations who are tasked with environmental, health and personal safety education and compliance, and in certain locations we have an on-site nurse available to our employees for medical needs.

In response to the COVID-19 pandemic, we have enabled employees to work from home where possible.  Because our business involves the manufacturing of essential products, many of our employees are unable to work from home.  In an effort to keep our employees safe and to maintain operations during the pandemic, we have implemented a number of health-related measures, including social distancing, increased cleaning and sanitation measures, providing additional personal protective equipment, restricting visitor access to our facilities, and limiting in-person meetings and other gatherings.

We are committed to upholding fundamental human rights and believe that all human beings should be satisfactory.treated with dignity, fairness and respect.  This commitment is outlined in our Human Rights Policy which applies to all employees worldwide including part time and temporary workers. We communicated our expectation that suppliers also adhere to our Human Rights Policy through our Supplier Code of Conduct. We strive to promote inclusion and diversity in the workplace, engage with our communities, and encourage our suppliers to treat their employees in a manner that respects human rights.  We utilize an on-line platform to provide training to all employees worldwide in key areas such as harassment and discrimination prevention, human rights, and our code of conduct.  We also internally publicize the availability of an anonymous ethics hotline through which any employee may report any ethics, safety or other employment concerns.

OTHER ASPECTS

Although the Company owns a number of patents, and several of themwhich are important to its business, Gorman-Rupp believes that the business of the Company isdoes not consider its business to be materially dependent upon any one or more patents. The Company’s patents, trademarks and other intellectual property are adequate for its business purposes.

The backlog of orders at December 31, 2017 was $114.0 million compared to $98.8 million at December 31, 2016, an increase of 15.4%. Approximately 95% of the Company’s backlog of unfilled orders is scheduled to be shipped during 2018, with the remainder principally during the first half of 2019. The increase in backlog from 2016 is due primarily to an improvement in overall business conditions with notable increases in the fire protection, municipal and construction markets.

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 reportsProxy Statement, its annual report on Form10-K, its quarterly reports on Form10-Q, and its current reports on Form8-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 Company’s website is not a part of this Form10-K or any other report filed with or furnished to the Commission.

A paper copy of the Company’s Form10-K is also available free of charge upon written request to the Company’s Corporate Secretary.

Gorman-Rupp’s business and financial performance are subject to various risks and uncertainties, some of which are beyond its control. In addition to the risks discussed elsewhere in this Form10-K, the following risks and uncertainties could materially adversely affect the Company’s business, prospects, financial condition, results of operations, liquidity and access to capital markets. These risks could cause the Company’s actual results to differ materially from its historical experience and from expected results discussed in forward-looking statements made by the Company related to conditions or events that it anticipates may occur in the future.

Continuation of current and projected future business environmentCOMPANY SPECIFIC RISK FACTORS

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 Company’s products and services is affected by the level of new capital investment and planned maintenance expenditures by its customers. The level of such investment and expenditures by our customers depends, in turn, on factors such as general economic conditions, availability of credit, economic conditions within their respective industries and expectations of future market behavior. Volatility in prices of commodities such as oil and agricultural products can negatively affect the levels of investment and expenditures of certain customers and result in postponement of capital spending decisions or the delay or cancellation of existing orders which may negatively impact the Company’s sales.

Highly competitive markets

Gorman-Rupp sells products in highly competitive markets. Maintaining and improving the Company’s competitive position requires periodic investment in manufacturing, engineering, quality standards, marketing, customer service and support, and distribution networks. Even with such investment, the Company may not be successful in maintaining its competitive position. The Company’s competitors may develop products that are superior to its products, or may develop methods of more efficiently and effectively providing products and services, or may adapt more quickly to new technologies or evolving customer requirements. Pricing pressures may require the Company to adjust the prices of its products downward to stay competitive. The Company may not be able to compete successfully with its existing competitors or with new competitors. Failure to compete successfully could reduce the Company’s sales, operating margins and overall financial performance.

Availability of raw materials

The Company could be adversely affected by raw material price volatility and any inability of suppliers to meet quality and delivery requirements. Additionally, raw material and energy expenses are substantive drivers of costs in the manufacture of pumps and changes in these costs are often unpredictable. The Company may not be able to pass along any increased material costs to customers for competitive or other reasons. While the Company manufactures certain parts and components used in its products, the Company’s business requires substantial amounts of raw materials, parts and components that are purchased from suppliers. The availability and prices of raw materials, parts and components may be subject to curtailment or change due to, among other things, suppliers’ allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates and prevailing price levels. Any change in the availability of, or increases in the price for, these raw materials, parts and components could materially affect our business, financial condition, results of operations or cash flows.

Loss of key managementpersonnel

The Company’s success depends to a significant extent on the continued service of its executive management team and the ability to recruit, hire and retain other key management personnel to support the Company’s growth and operational initiatives and replace executives who retire or resign. Failure to retain key management personnel and attract and retain other highly-skilled personnel could limit the Company’s global growth and ability to execute operational initiatives, or may result in inefficient and ineffective management and operations, which could harm the Company’s revenues, operations and product development efforts and could eventually result in a decrease in profitability.

CyberIntellectual property security threats

Increased global information technology security threats

The Company possesses a wide array of intellectual property rights, including patents, trademarks, copyrights, and more sophisticated and targeted computer crime poseapplications for the above, as well as other proprietary information. There is a risk that third parties would attempt to copy, in full or in part, the Company’s products, technologies or industrial designs, or to obtain unauthorized access and use of Company technological know-how or other protected intellectual property rights. Also, other companies could successfully develop technologies, products or industrial designs similar to the security of Gorman-Rupp’s systemsCompany’s, and networks andthus potentially compete with the Company. From time to time, the confidentiality, availability, and

integrityCompany has been faced with instances where competitors have infringed or unfairly used its intellectual property or taken advantage of its data. Whiledesign and development efforts. The ability to protect and enforce intellectual property rights varies across jurisdictions. Competitors who may attempt to copy the Company’s products, technologies or industrial designs are becoming more prevalent, particularly in Asia. If the Company attemptsis unable to mitigate these risks by employing a number of measures, including employee training, comprehensive monitoring ofadequately enforce and protect its networksintellectual property rights, it could adversely affect its revenues and systems,profits and hamper its ability to grow.

Competitors and others may also challenge the deployment of backup and protective systems, the Company’s systems, networks, proprietary information, products, solutions and services remain potentially vulnerable to advanced persistent threats. Depending on their nature and scope, such threats could potentially lead to damages or destruction including, but not limited to, the compromising of confidential information relating to customer, supplier, or employee data, improper usevalidity of the Company’s systemsintellectual property or allege that it has infringed their intellectual property, including through litigation. The Company may be required to pay substantial damages if it is determined its products infringe the intellectual property of others. The Company may also be required to develop an alternative, non-infringing product that could be costly and networks, manipulationtime-consuming, or acquire a license (if available) on terms that are not favorable to it. Regardless of whether infringement claims against the Company are successful, defending against such claims could significantly increase the Company’s costs, divert management’s time and destruction of data, defective products, production downtimesattention away from other business matters, and operational disruptions which, in turn, couldotherwise adversely affect Gorman-Rupp’s reputation, competitiveness, andthe Company’s results of operations.operations and financial condition.

Acquisition performance and integration

The Company’s historical growth has depended, and its future growth is likely to continue to depend, in part on its acquisition strategy and the successful integration of acquired businesses into existing operations. The Company intends to continue to seek additional domestic and international acquisition opportunities that have the potential to support and strengthen its operations. The Company cannot assure it will be able to successfully identify suitable acquisition opportunities, prevail against competing potential acquirers, negotiate appropriate acquisition terms, obtain financing that may be needed to consummate such acquisitions, complete proposed acquisitions, successfully integrate acquired businesses into existing operations or expand into new markets. In addition, the Company cannot assure that any acquisition, onceeven if successfully integrated, will perform as planned, be accretive to earnings, or prove to be beneficial to the Company’s operations and cash flows.

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.

Environmental compliance costs and liabilities

The Company’s operations and properties are subject to various, and increasingly numerous, 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 andnon-governmental bodies and may require changes in operational practices, standards and expectations and, in turn, increase the Company’s 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. If the Company is required to incur increased compliance costs or violates environmental laws or regulations, future environmental compliance expenditures or liabilities could have a material adverse effect on our financial condition, results of operations or cash flows.

Exposure to fluctuations in foreign currency exchange rates

The Company is exposed to fluctuations in foreign currency exchange rates, particularly with respect to the Euro, Canadian Dollar, South African Rand and the British Pound. Any significant change in the value of these currencies could affect the Company’s ability to sell products competitively and control its cost structure, which could have a material effect on its financial condition, results of operations or cash flows.

Conditions in foreign countries in which the Company conducts business

In 2017, 36% of the Company’s sales were to customers outside the United States. The Company expects its international and export sales to continue to be a significant portion of its revenue and it has placed a particular emphasis on increasing its growth and presence internationally. The Company’s sales from international operations and export sales are subject, in varying degrees, to risks inherent to doing business outside the United States. These risks include the following, some of which are further addressed in our other Risk Factors:

Any of these events could have an adverse impact on the Company’s business and operations.

Changes in our tax rates and exposure to additional income tax liabilities

Our future effective income tax rates could be unfavorably affected by various factors, including changes in the tax rates as well as rules and regulations in jurisdictions in which we generate income. During the fourth quarter of 2017 the Company recorded, on a provisional basis, the transitional impact of the U.S. Tax Cuts and Jobs Act (“Tax Act”) that was enacted on December 22, 2017. Given the significant complexity of the Tax Act, and potential future guidance from the U.S. Treasury, the Securities and Exchange Commission and the Financial Accounting Standards Board, these estimates may be adjusted in 2018. In addition, the amount of income taxes we pay is subject to ongoing audits by U.S. federal, state and local tax authorities and bynon-U.S. authorities. If these audits result in assessments different from amounts recorded, our future financial results may include unfavorable adjustments.

Impairment in the value of intangible assets, including goodwill

The Company’s total assets reflect goodwill from acquisitions, representing the excess cost over the fair value of the identifiable net assets acquired, including other indefinite-lived and finite-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. Finite-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recovered through future net cash flows generated by the assets. If future operating performance at one or more of the Company’s reporting units were to fall significantly below forecast levels or if market conditions for one or more of its acquired businesses were to decline, the Company could be required to incur anon-cash charge to operating income for impairment. Any impairment in the value of these assets could have an adversenon-cash impact on the Company’s reported results of operations.

In 2017 and 2016, the Company recordedpre-taxnon-cash goodwill and other intangible impairment charges of $4.1 million and $1.8 million, respectively, related to the Company’s Bayou City Pump Company reporting unit. There was no goodwill or other intangible impairment charges recorded in 2015. See Note 8 to the Consolidated Financial Statements, Goodwill and Other Intangible Assets.

The Company’s annual impairment analysis concluded that the fair value of the Company’s National Pump Company reporting (“National”) unit exceeded its carrying value be approximately 7%. A sensitivity analysis was performed for the National reporting unit, assuming a hypothetical 50 basis point decrease in the expected long-term growth rate or a hypothetical 50 basis point increase in the weighted average cost of capital, and both scenarios independently yielded an estimated fair value for the National reporting unit slightly above carrying value. While the result of this test indicated that no impairment existed at National, if recently depressed U.S. agricultural conditions continue for an extended time, the agricultural market’s growth and profitability assumptions may reduce National’s indicated fair value in the future, which could result in an impairment charge. See Note 8 to the Consolidated Financial Statements, Goodwill and Other Intangible Assets.

Defined benefit pension plan settlement expense

The Company sponsors a defined benefit pension plan covering certain domestic employees and accrues amounts for funding of its obligations under the plan. The defined benefit pension plan allows eligible retiring employees to receive alump-sum distribution for benefits earned in lieu of annual payments and most of the Company’s retirees historically have elected this option. Under applicable accounting rules, if thelump-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 be required to recognize for that year’s results of operations settlement expense for the resulting unrecognized actuarial loss. The Company has been required to make such adjustments in some prior years, and, if suchnon-cash adjustments are necessary in future periods, they may negatively impact the Company’s operating results.

In 20172021 and 2015,2020, the Company recordedpre-taxnon-cash pre-tax non-cash pension settlement charges of $4.0$2.3 million and $3.8$4.6 million, respectively, driven bylump-sum distributions discussed above. There was no pension settlement charge recorded in 2016.2019. See Note 79 to the Consolidated Financial Statements, Pensions and Other Postretirement Benefits.

Family ownership of common equity

A substantial percentage of the Company’s Common Sharescommon shares is held by various members of the Gorman and Rupp familiesfamily and their respective affiliates. Because of this concentrated ownership relative to many other publicly-traded companies, the market price of the Company’s common shares may be influenced by lower trading volume and therefore more susceptible to price fluctuations than many other companies’ shares. If any one or more of the Company’s significant shareholders were to sell all or a portion of their holdings of Company common shares at once or within short periods of time, or there was an expectation that such a sale was imminent, then the market price of the Company’s common shares could be negatively affected.

GENERAL RISK FACTORS

The COVID-19 Pandemic

Our business has been, and may continue to be, materially and adversely affected by the present coronavirus (or COVID-19) pandemic. The pandemic has disrupted our operations and may continue to affect our business, including through government imposed mandatory closures, work-from-home orders, social distancing protocols, increased employee absenteeism due to illness and/or quarantine requirements, voluntary facility closures and other government restrictions that, to the extent required, could materially adversely affect our ability to adequately staff and maintain our operations. While we have largely avoided facility closures and production disruptions thus far, we may experience temporary facility closures in response to government mandates in certain jurisdictions in which we operate or in response to positive diagnoses for COVID-19 in certain facilities for the safety of our employees. Our supply chain has thus far remained largely intact, however, if the COVID-19 pandemic persists or worsens, it may increase disruption to our supply chain and the operations of our suppliers and materially adversely impact the availability and cost of supplies for our facilities and production, and to provide personal protective equipment for our employees, which could materially adversely affect our operations. There may also be long-term negative economic effects on our customers in, and the economies of, affected countries. Any of the foregoing within the countries in which we or our customers and suppliers operate may severely disrupt our operations and have a material adverse effect on our business, results of operations, cash flows and financial condition. In addition, future changes in the Company’s cost of capital, expected cash flows, or other factors as a result of the above may cause the Company’s goodwill to be impaired, resulting in a non-cash charge against results of operations to write down goodwill for the amount of the impairment. The negative financial impact to our future results cannot be reasonably estimated, but could be material.

Our internal controls may also be impacted by the COVID-19 pandemic. A large portion of our financial and accounting personnel have been required to work from home for extended periods due to the pandemic, requiring them to adapt to new or modified processes, procedures, and controls. These family holdings historically havechanges could potentially negatively impact our internal controls over financial reporting.

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 Company’s products and services is affected by the level of new capital investment and planned maintenance expenditures by its customers. The level of such investment and expenditures by our customers depends, in turn, on factors such as general economic conditions, availability of credit, economic conditions within their respective industries and expectations of future market behavior. Volatility or sustained increases in prices of commodities such as oil and agricultural products can negatively affect the levels of investment and expenditures of certain customers and result in postponement of capital investment decisions or the delay or cancellation of existing orders. Inflationary economic conditions may further increase prices and exacerbate these risks. Any of these developments may negatively impact the Company’s sales.

Highly competitive markets

Gorman-Rupp sells its products in highly competitive markets. Maintaining and improving the Company’s competitive position requires periodic investment in manufacturing, engineering, quality standards, marketing, customer service and support, and distribution networks. Even with such investment, the Company may not been frequently traded; therefore,be successful in maintaining its competitive position. The Company’s competitors may develop products that are superior to its products, or may develop methods of more efficiently and effectively providing products and services, or may adapt more quickly to new technologies or evolving customer requirements. Pricing pressures may require the Common Shares,Company to adjust the prices of its products downward to stay competitive. The Company may not be able to compete successfully with its existing competitors or with new competitors. Failure to compete successfully could negatively impact the Company’s sales, operating margins and overall financial performance.

Availability and costs of raw materials and labor

The Company could be adversely affected by raw material price volatility or an inability of its suppliers to meet quality and delivery requirements. We are required to maintain sufficient inventories to accommodate the needs of our customers, often with short lead times. Our business could be adversely affected if we fail to source and maintain adequate inventory levels. Raw material and energy expenses are substantial drivers of costs in the manufacture of pumps and changes in these costs are often unpredictable. While the Company manufactures certain parts and components used in its products, the Company’s business requires substantial amounts of raw materials, parts and components to be purchased from suppliers. The availability and prices of raw materials, parts and components purchased from the Company’s suppliers may be subject to curtailment or change due to, among other things, suppliers’ allocations to other purchasers, interruptions in production or deliveries by suppliers, changes in exchange rates, tariffs, changes in duty rates and changes in other trade barriers and import and export licensing requirements.

The Company's business depends, in part, becauseupon the adequate recruitment and retention, and continued service of, key managerial, engineering, marketing, sales and technical and operational personnel. Economic conditions may cause an increasingly competitive labor market, which could lead to labor shortages or increased turnover rates within, or increased labor costs to maintain, the Company’s employee base.

These considerations may also impact the operations of the Company’s suppliers, who may seek to pass along any increased costs to the Company. Inflationary economic conditions may further increase these various costs. The Company may not be able to pass along any increased material or labor costs to customers for competitive or other reasons. A change in the availability of, or increases in the costs associated with raw materials, parts and components or labor and workforce could materially affect our business, financial condition, results of operations or cash flows.

Cyber security threats

Increased global information technology security threats and more sophisticated and targeted computer crime pose a risk to the security of Gorman-Rupp’s systems and networks and to the confidentiality, availability, and integrity of its data. While the Company attempts to mitigate these risks by employing a number of measures, including employee training, comprehensive monitoring of its networks and systems, and the deployment of backup and protective systems, the Company’s systems, networks, proprietary information, products, solutions and services remain potentially vulnerable to advanced persistent threats. Depending on their nature and scope, such threats could potentially lead to liability for damages or the loss of confidential information including as a result of, but not limited to, the compromising of confidential information relating to customer, supplier, or employee data, improper use of the Company’s systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions which, in turn, could adversely affect Gorman-Rupp’s reputation, competitiveness and results of operations.

Compliance with, and costs related to, a variety of import and export laws and regulations

The Company is subject to a variety of laws and regulations regarding international operations, including regulations issued by the U.S. Department of Commerce Bureau of Industry and Security and various other domestic and foreign governmental agencies. Actual or alleged violations of import-export laws could result in enforcement actions and/or 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 or regulations might be administered or interpreted. Future legislation or 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.

Environmental compliance costs and liabilities

The Company’s operations and properties are subject to numerous domestic and foreign environmental laws and regulations which can impose operating and/or 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 to the Company’s operational practices, standards and expectations and, in turn, increase the Company’s compliance costs. Periodically, the Company has incurred, and it 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. If the Company is required to incur increased compliance costs or violates environmental laws or regulations, future environmental compliance expenditures or liabilities could have a material adverse effect on our financial condition, results of operations or cash flows.

Exposure to fluctuations in foreign currency exchange rates

The Company is exposed to fluctuations in foreign currency exchange rates, particularly with respect to the Euro, Canadian Dollar, South African Rand and British Pound. Any significant change in the value of these circumstances, generallycurrencies could affect the Company’s ability to sell products competitively and control its cost structure, which could have a historymaterial effect on its financial condition, results of relatively low volume trading experiencesoperations or cash flows.

Conditions in foreign countries in which the Company conducts business

In 2021, 31% of the Company’s net sales were to customers outside the United States. The Company expects its international and export sales to continue to be a significant portion of its revenue and it has placed a particular emphasis on increasing its growth and presence internationally. The Company’s sales from international operations and export sales are subject, in varying degrees, to risks inherent to doing business outside the United States. These risks include, but are not limited to, the following, some of which are further addressed in our other Risk Factors:

Any of these events could have an adverse impact on the NYSE.Company’s business and operations.

Changes in our tax rates and exposure to additional income tax liabilities

Gorman-Rupp is subject to income and other taxes in the United States federal jurisdiction and various local, state and foreign jurisdictions. The Company’s future effective income tax rates could be unfavorably affected by various factors, including changes in the tax rates as well as rules and regulations in relevant jurisdictions. In addition, the amount of income taxes paid is subject to ongoing audits by U.S. federal, state and local tax authorities and by non-U.S. authorities.  If these audits result in assessments different from amounts recorded, the Company’s future financial results may include unfavorable adjustments.

None.

The Company’s 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’s principal production operations are:

The Company owns a facility in Dallas, Texas comprising a training center and warehouse. In addition, the Company leases a warehouse facility in Jebal Ali, Dubai.

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.

For more than fifteenover twenty 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. Since 2001, the Company and some of its subsidiaries have been involved in this mass-scaled litigation, typically as one of manyco-defendants in a particular proceeding. The allegations in the lawsuits involving the Company and/or its subsidiaries have been vague, general and speculative. Most of these lawsuits have been dismissed without advancing beyond the early stage of discovery, some as a result of nominal monetary settlements recommended for payment by the Company’sCompany's insurers. The claims and related legal expenses generally have been covered by the Company’sCompany's insurance, subject to applicable deductibles and limitations. Accordingly, this series of lawsuits has not, cumulatively or individually, had a material adverse impact on the Company’sCompany's consolidated results of operations, liquidity or financial condition, nor is it expected to have any such impact in the future, based on the current knowledge of the Company.

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 will materially impact the Company’s consolidated results of operations, liquidity or financial condition.

Not applicable.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information with respect to the executive officers of the Company as of January 31, 2018:2022: 

Mr. J. C. Gorman served aswas elected Chairman of the Company’s President from 1964 until 1989, andBoard on April 25, 2019. He served 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 to December 31, 2021 and as President from 1998 to 2020 after having served as Senior Vice President since 1996. Mr. J. S. Gorman also held the position of General Manager of the Mansfield DivisionGorman-Rupp Pumps USA 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. King was elected Chief Executive Officer effective January 1, 2022 in addition to his role as President. Mr. King served as President and Chief Operating Officer since January 1, 2021 after previously serving as Vice President and Chief Operating Officer since April 25, 2019. Mr. King also previously served as Vice President of Operations effective March 1, 2018 and as Vice President from April 1, 2017 to February 28, 2018. Mr. King previously held positions with the Gorman-Rupp Pumps USA division of the Company as Vice President and General Manager from January 1, 2014 until March 31, 2017, Vice President of Operations from June 1, 2010 until December 31, 2013, Director of Manufacturing from July 1, 2007 until May 31, 2010 and Manufacturing Manager from November 1, 2004 until June 30, 2007.

Mr. Kerr was elected Executive Vice President and Chief Financial Officer effective January 1, 2021 after previously serving as Vice President and Chief Financial Officer since March 1, 2018. Mr. Kerr previously served as Chief Financial Officer effective January 1, 2017 and previously served as Vice President of Finance from July 18, 2016 to December 31, 2016. Prior to 2016, Mr. Kerr previously served as both Executive Vice President and Chief Financial Officer of Jo-Ann Stores from 2006 to 2015 and as Vice President, Controller of Jo-Ann Stores from 1998 to 2006 forJo-Ann Stores.2006.

Ms. Burnell was elected Senior Vice President, General Counsel and Corporate Secretary effective January 1, 2021 after previously serving as Vice President, General Counsel and Corporate Secretary since March 1, 2018. Ms. Burnell previously served as General Counsel effective May 1, 2015 and was electedas Corporate Secretary effective May 1, 2014. Ms. Burnell previously served as Corporate Counsel effective May 1, 2014. Ms. Burnell joined the Company as Corporate Attorney on January 2, 2014. Prior to 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 servedand 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.

PART II

MARKET INFORMATION

The following tables set forth the high and low sale prices and dividends per share for the Company’s Common Shares as reported by the New York Stock Exchange (“NYSE”) for the periods indicated:

The Company’s Common Stock is listed on the NYSENew York Stock Exchange under the ticker symbol “GRC”. On May 16, 2017, the Company moved its stock exchange listing to the NYSE from the NYSE MKT. On February 1, 2018,2022, there were approximately 7,600 shareholders, of which 1,600 were1,532 registered holders of Common Shares.the Company’s common shares.

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

PERFORMANCE GRAPH

Set forth below is a line

The following stock price performance graph comparing the yearly percentage change inand related table compares the cumulative total shareholder return, including reinvested cash dividends,returns (assuming reinvestment of dividends) on $100 invested on December 31, 2016 through December 31, 2021 in the Company’s common shares, against the cumulative total return of each of the NYSE Composite andIndex, the NYSE American as well asIndex and a peer group index for the period of five fiscal years commencing January 1, 2013 and ending December 31, 2017. The issuerscompanies in the peer group SIC Code 3561 Index were selected on aline-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., The Gorman-Rupp Company, Graco Inc., Idex Corp., ITT Corp., and Xylem Inc. The graph assumes that the value of the investment in the Company’s Common Stock, in each index, and in the peer group (including reinvestment of dividends) was $100 on 12/31/2012 and tracks it through 12/31/2017.

Comparison of5-Year Cumulative Total Shareholder Return Among The Gorman-Rupp Company,

NYSE Composite Index, NYSE American Index and SIC Code 3561

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among The Gorman-Rupp Company, the NYSE American Index,

the NYSE Composite Index and SIC Code 3561

*$100 invested on 12/31/12 in stock or index, including reinvestment of dividends.

Fiscal year ending December 31.

The stock price performance included in this graph and related table is not necessarily indicative of future stock priceinvestment performance.

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

Executive Overview

The following discussion of Results of Operations includes certainnon-GAAP financial data and measures such as adjusted earnings before interest, taxes, depreciation and amortization and adjusted earnings per share amounts which excludenon-cash pension settlement charges in 20172021 and 2015 andnon-cash impairment charges in 2017 and 2016 relating to goodwill and other intangible assets.2020. Management utilizes these adjusted financial data and measures to assess comparative operations against those of prior periods without the distortion ofnon-comparable factors. The Gorman-Rupp Company believes that thesenon-GAAP financial data and measures also will be useful to investors as well as to assessin assessing the continuing strength of the Company’s underlying operations from period to period. Provided below is a reconciliation of adjusted earnings per share amounts and adjusted earnings before interest, taxes, depreciation and amortization.

The Gorman-Rupp Company (“we”, “our”, “Gorman-Rupp” or the “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 seeks to develop initiatives to improve performance in these key areas.

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

We regularly invest in training for our employees, in new product development and in modern manufacturing equipment, technology and facilities all designed to increase production efficiency and capacity and drive growth by delivering innovative solutions to our customers. We believe that the diversity of our markets is a major contributor to the generally stable financial growth we have produced over the past 80 plusfor more than 85 years.

The Company places a strong emphasis on cash flow generation and havingmaintaining excellent liquidity and financial flexibility. This focus has afforded us the ability to reinvest our cash resources and preserve a strong balance sheet to position us for future acquisition and product development opportunities. The Company had no bank debt as of December 31, 2017.2021. The $137.4$158.8 million of aggregate cash generated by operating activities over the past three years was utilized primarily to pay dividends fundand the Company’s defined benefit pension plan, purchase of productivity-enhancing capital equipment, entirely repay acquisitions-related short-term debt and fund growth-oriented acquisitions.equipment. The Company’s cash position increased $22.1$17.0 million during 20172021 to $79.7$125.2 million at December 31, 2017.2021.

The Company generated $62.6$51.5 million in adjusted earnings before interest, taxes, depreciation and amortization during 2017.2021. From these earnings, the Company invested $7.8$9.8 million primarily in buildings, machinery and equipment and returned $12.3$16.6 million in dividends to shareholders.

Capital additionsexpenditures for 20182022 are presently planned to be in the range of $15-$10-$1520 million primarily for building expansion and machinery and equipment purchases, and are expected to be financed through internally-generated funds and existing lines of credit.funds.

Net sales for the year ended December 31, 20172021 were $379.4$378.3 million compared to $382.1$349.0 million for 2016, a decrease2020, an increase of 0.7%8.4% or $2.7 million. Excluding sales from the PCCP project of $0.7 million in 2017 and $9.9 million in 2016, net sales in 2017 increased 1.8% or $6.5$29.3 million. Domestic sales excluding PCCP,of $260.7 million increased $0.1 million5.6% while international sales of $117.6 million increased 4.9% or $6.4 million.15.3% compared to 2020.

Gross profit was $98.7$95.9 million for 2017,2021, resulting in gross margin of 26.0%25.3%, compared to gross profit of $92.0$89.6 million and gross margin of 24.1%25.7% for 2016. Gross2020. The 40 basis point decrease in gross margin was driven by a 140 basis point increase in cost of material, which included anon-cash pension settlement chargean unfavorable LIFO impact of $2.6 million or 70180 basis points, in 2017 which did not occur in 2016. Excluding thenon-cash pension settlement charge, gross marginpartially offset by a 100 basis point improvement on labor and overhead resulting from increased by 260 basis points due principally to favorable sales mix.volume.

SG&A was $56.8expenses were $56.5 million and 15.0%14.9% of net sales for 20172021 compared to $54.5$53.8 million and 14.3%15.4% of net sales for 2016.2020. SG&A includedexpenses increased 5.1% or $2.7 million as anon-cash pension settlement charge result of $1.4 million or 40compensation, travel and other expense items returning closer to pre-pandemic levels as operational activities return to normal but improved 50 basis points in 2017 which did not occur last year. SG&A included a gain on the sale of property, plant and equipment of $1.0 million or 30 basis points in 2016. Excluding these items, SG&A decreased slightly compared to last year and as a percentage of sales was flat.primarily as a result of leverage on fixed costs from increased sales volume.

Operating income was $37.9$39.4 million for 2021, resulting in an operating margin of 10.0% for the 2017,10.4%, compared to operating income of $35.7$35.8 million and operating margin of 9.3%10.2% for 2016. In 2017, operating income includednon-cash impairment charges of $4.1 million or 1002020. Operating margin improved 20 basis points andprimarily as a result of improved leverage on fixed costs from increased sales volume partially offset by an unfavorable LIFO impact.

Other income (expense), net was $2.1 million of expense for 2021 compared to expense of $4.5 million for the same period in 2020. The decrease in expense was due primarily to a non-cash pension settlement charge of $4.0$2.3 million or 110 basis points. In 2016, operating income includedin 2021 compared to anon-cash impairment charge of $1.8$4.6 million or 50 basis points and a gain on the sale of property, plant and equipment of $0.6 million or 20 basis points. Excluding these items, operating income improved $9.1 million or 250 basis points due principally to improved gross margin.in 2020.

Net income was $26.6$29.9 million for 20172021 compared to $24.9$25.2 million in 2016,2020, and earnings per share were $1.02$1.14 for 2021 and $0.95$0.97 for the respective periods.2020. Earnings per share for 2017 includednon-cash impairment pension settlement charges of $0.10 per share$0.07 and anon-cash pension settlement charge of $0.10 per share. Earnings$0.14 per share for 20162021 and 2020, respectively. In 2021, earnings included anon-cash impairment chargean unfavorable LIFO impact of $0.05$0.20 per share.share compared to $0.03 per share in 2020.

The Company’s backlog of orders was $114.0$186.0 million at December 31, 20172021 compared to $98.8$113.1 million at December 31, 2016,2020, an increase of 15.4%64.4%. The increaseApproximately 92.0% of the Company’s backlog of unfilled orders is scheduled to be shipped during 2022, with the remainder principally during the first half of 2023.

Incoming orders increased 26.9% for the full year and increased 33.0% for the fourth quarter of 2021 compared to the same periods in backlog was primarily due to increases in2020. Incoming orders were up across most markets the fire protection, municipal and construction markets principally driven by improved economic conditions both domestically and internationally.Company serves.

On January 25, 2018,27, 2022, the Board of Directors authorized the payment of a quarterly dividend of $0.125$0.17 per share, representing the 272nd288th consecutive quarterly dividend to be paid by the Company. During 2017,2021, the

Company again paid increased dividends and thereby attained its 45th49th consecutive year of increased dividends. These consecutive years of increases continue to position Gorman-Rupp in the top 50 of all U.S. public companies with respect to number of years of increased dividend payments. The regular dividend yield at December 31, 20172021 was 1.5%.

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

Outlook

Overall businessOn October 29, 2021, the Company announced a share repurchase program of up to $50.0 million of the Company’s common shares. Shares may be repurchased from time to time by the Company through a variety of methods, which may include open-market transactions, pre-set trading plans designed in accordance with Rule 10b5-1, privately negotiated transactions, accelerated share repurchase transactions, or any combination of such methods. The actual number of shares repurchased will depend on prevailing market conditions, have continued to improve during 2017alternative uses of capital and we are optimistic about our incoming order rate as we enter 2018. However, we continue to experience some softness in the agricultureother factors, and certain oil and gas driven markets. Increased emphasis on infrastructure improvementswill be determined at both the federal and state levels coupled with the newly enacted U.S. tax legislation could be additional positive factors over the next several years.management’s discretion. The Company remains focused on operational efficienciesis not obligated to make any purchases under the program, and the program may be suspended or discontinued at any time. The program does not have an expiration date.

Effective January 1, 2022, the role of Chief Executive Officer transitioned from Jeffrey S. Gorman to Scott A. King, who served as the Company’s President and Chief Operating Officer. Mr. Gorman served as CEO since 1998 and following the CEO transition, will continue to manage expenses closely. Our underlying fundamentals remain strong and we remain well positionedserve as the Company’s Executive Chairman of the Board to drive long-term growth. Our strong balance sheet provides usassist with the flexibilityCompany’s overall strategy and acquisition efforts. Mr. King has been with the Company since 2004 and has held various operational leadership roles of increasing responsibility during this time.

Outlook

Our incoming order trend continues to continue to evaluate acquisition opportunities and new product development that we expect will help add value to our operations over the longer-term.

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Tax Act”) was enacted. The Tax Act reduces the federal corporate tax rate on U.S. earnings to 21% and moves from a global taxation regime to a modified territorial regime. As part of the Tax Act, U.S. companies are required to pay a tax on historical earnings generated offshore that have not been repatriated to the U.S. Companies are required tore-measure their deferred tax assets and liabilities to reflect the lower federal base rate of 21%. These transitional impacts resulted in a provisional net tax expense of $0.4 million forbe very strong while sales during the fourth quarter of 2017, comprised2021 were somewhat impacted by customer-initiated shipment delays. Our team has continued to do a good job of managing the ongoing global supply chain challenges that the COVID-19 pandemic has caused and, as a result, we have seen minimal disruption. We have passed on price increases to offset inflationary pressures on material costs and wages and have leveraged our SG&A expenses as sales volumes have increased.  

We enter 2022 with a very healthy backlog and are well positioned to continue to deliver top-line growth.  We remain optimistic about the long-term outlook and believe our diverse markets, strong balance sheet, and highly-skilled workforce position us well to continue to deliver shareholder value.

Results of Operations – 2021 Compared to 2020:

Net Sales

Net sales for 2021 were $378.3 million compared to $349.0 million for 2020, an estimated repatriation tax expenseincrease of $2.08.4% or $29.3 million. Domestic sales of $260.7 million (which includes U.S. repatriation taxesincreased 5.6% while international sales of $117.6 million increased 15.3% compared to 2020.

Sales in our water markets increased 7.7% or $19.2 million in 2021 compared to 2020. Sales increased $10.1 million in the fire market, $9.2 million in the construction market, $7.7 million in the repair market, and foreign withholding taxes)$2.2 million in the agriculture market. Partially offsetting these increases was a decrease of $10.0 million in the municipal market. The decrease in municipal market sales is primarily due to timing, as both incoming orders and a net deferred tax benefitbacklog have increased compared to the prior year.

Sales in our non-water markets increased 10.2% or $10.1 million in 2021 compared to 2020. Sales in the OEM market increased $6.5 million, sales in the petroleum market increased $2.2 million, and sales in the industrial market increased $1.4 million.

International sales were $117.6 million in 2021 compared to $102.1 million in 2020 and represented 31% and 29% of approximately $1.6 million. The provisional estimates are based ontotal sales for the Company’s initial analysis ofCompany, respectively. As the Tax Act. Given the significant complexity of the Tax Act, anticipated guidanceglobal economy continues to recover from the U. S. Treasury about implementing the Tax Act,COVID-19 pandemic, international sales have increased across nearly all of our markets.

Cost of Products Sold and the potentialGross Profit

Gross profit was $95.9 million for additional guidance2021, resulting in gross margin of 25.3%, compared to gross profit of $89.6 million and gross margin of 25.7% for 2020. The 40 basis point decrease in gross margin was driven by a 140 basis point increase in cost of material, which included an unfavorable LIFO impact of 180 basis points, partially offset by a 100 basis point improvement on labor and overhead resulting from the Securitiesincreased sales volume.

Selling, General and Exchange CommissionAdministrative (SG&A) Expenses

SG&A expenses were $56.5 million and 14.9% of net sales for 2021 compared to $53.8 million and 15.4% of net sales for 2020. SG&A expenses increased 5.1% or the Financial Accounting Standards Board related$2.7 million as a result of compensation, travel and other expense items returning closer to the Tax Act, these estimates may be adjusted during 2018. pre-pandemic levels as operational activities return to normal but improved 50 basis points as a percentage of sales primarily as a result of leverage on fixed costs from increased sales volume.

Operating Income

Operating income was $39.4 million for 2021, resulting in an operating margin of 10.4%, compared to operating income of $35.8 million and operating margin of 10.2% for 2020. Operating margin improved 20 basis points primarily as a result of improved leverage on fixed costs from increased sales volume partially offset by an unfavorable LIFO impact.

Net Income

The Company’s preliminary estimate of its future effective tax rate attributablewas 19.9% for 2021 compared to the Tax Act is19.4% for 2020. The effective tax rate for 2021 was impacted by decreased benefits from credits and permanent items with higher pretax income. We expect our effective tax rate for 2022 to be between 23%20.0% and 26%22.0%.

The Company continuesincrease of $4.7 million in net income in 2021 compared to evaluate the2020 was due primarily to increased sales.

Earnings per share included non-cash pension settlement charges of $0.07 and $0.14 per share for 2021 and 2020, respectively. In 2021, earnings included an unfavorable LIFO impact of the Tax Act, and will update its estimates as appropriate.$0.20 per share compared to $0.03 per share in 2020.

Results of Operations – 2017 2020 Compared to 2016:2019:

In 2017, due

Net Sales

Net sales for 2020 were $349.0 million compared to $398.2 million for 2019, a decrease of 12.4% or $49.2 million. Domestic sales decreased 10.3% or $28.4 million while international sales decreased 17.0% or $20.8 million compared to 2019. From 2019 to 2020 sales decreased across most of our markets primarily toas a result of the continued decreased demand for barge pumps for the marine transportation market driven by low oil prices and overcapacity of inland barges, the Bayou City Pump Company (“Bayou”) reporting unit recordedpre-taxnon-cash goodwill and intangible asset impairment charges of $4.1 million. In 2016, due primarily to the prolonged downturnCOVID-19 pandemic, along with a slowdown in the oil and gas industry, the Bayou reporting unit recorded apre-taxnon-cash goodwill impairment charge of $1.8 million. There were no impairment charges recorded in 2015. See Note 8, Goodwill and Other Intangible Assets.

In 2017, due to increased employee retirements and related lump sum pension payments, the Company recorded a U.S. GAAP-required and actuarially-determined $4.0 millionnon-cash pension settlement charge. The value of lump sum pension payments was less in 2016 and anon-cash pension settlement charge was not required.

Net Salesindustry.

Net sales for the year ended December 31, 2017 were $379.4 million compared to $382.1 million for 2016, a decrease of 0.7% or $2.7 million. Excluding sales from the PCCP project of $0.7 million in 2017 and $9.9 million in 2016, net sales in 2017 increased 1.8% or $6.5 million. Domestic sales, excluding PCCP, increased $0.1 million while international sales increased 4.9% or $6.4 million.

Sales in our larger water markets excluding PCCP, decreased 0.4%9.4% or $1.1$25.9 million in 20172020 compared to 2016.2019. Sales in the agriculture market increased $1.5 million. This increase was offset by decreases in the construction market increased $10.4of $11.3 million duedriven primarily to sales to rental market customers,by softness in oil and sales of repair parts increased $2.4 million. These increases were offset by decreased salesgas drilling activity. Decreases in the repair market of $5.6 million, municipal market decreased $7.3of $5.3 million, principally driven by decreased shipments attributable to flood control projects. In addition, sales in theand fire protection market decreased $4.2of $5.2 million principally due to market softness inwere a result of the Middle East, and sales in the agriculture market decreased $2.4 million principally due to low farm income and competitive pricing pressure.COVID-19 pandemic.

Sales in ournon-water markets increased 6.9%decreased 18.9% or $7.6$23.3 million in 20172020 compared to 2016. Sales increased $7.7 million in2019 primarily as a result of the industrial market driven by an increaseCOVID-19 pandemic, along with reduced demand from midstream and downstream oil and gas customers and softness in oil and gas drilling activity. Sales in the OEM market increased $2.5decreased $8.3 million, primarily related to power generation equipmentsales in the industrial market decreased $7.8 million and new customers associated with transportation and alternative energy applications. These increases were partially offset by decreased shipments of $2.6 millionsales in the petroleum market driven by challenging market conditions.decreased $7.2 million.

International sales were $137.6$102.1 million in 20172020 compared to $131.2$122.9 million in 2016. International sales2019 and represented 36%29% and 34%31% of total sales for the Company, in each of the years 2017 and 2016, respectively. InternationalIn 2020, international sales increased in the construction and industrial markets and continued to be softerdecreased most notably in the fire protection market due to sluggish economic conditions in the Middle East.and all non-water markets.

Cost of Products Sold and Gross Profit

Gross profit was $98.7$89.6 million for 2017,2020, resulting in gross margin of 26.0%25.7%, compared to gross profit of $92.0$102.7 million and gross margin of 24.1%25.8% for 2016.2019. Gross margin included anon-cash pension settlement charge of $2.6 million or 70in 2020 decreased 10 basis points in 2017 which did not occur in 2016. Excluding thenon-cash pension settlement charge, gross margin increased by 260largely due to an unfavorable LIFO impact of 60 basis points due principallycompared to favorable2019 and decreased 120 basis points from the loss of leverage on fixed labor and overhead attributable to lower sales mix.volume. Largely offsetting these items were lower material costs of 170 basis points compared to 2019.

Selling, General and Administrative Expenses (SG&A) Expenses

SG&A was $56.8expenses were $53.8 million and 15.0%15.4% of net sales for 20172020 compared to $54.5$58.8 million and 14.3%14.8% of net sales for 2016.2019. SG&A included anon-cash pension settlement charge of $1.4expenses decreased 8.6% or $5.0 million or 40 basis points in 2017 which did not occur last year.due to reduced payroll related and travel expenses combined with overall expense management. SG&A included a gain on the sale of property, plant and equipment of $1.0 million or 30 basis points in 2016. Excluding these items, SG&A decreased slightly compared to last year andexpenses as a percentage of sales was flat.

Operating Income

Operating income was $37.9$35.8 million for 2020, resulting in an operating margin of 10.0% for 2017,10.2%, compared to operating income of $35.7$43.8 million and operating margin of 9.3%11.0% for 2016. In 2017, operating2019. Operating margin includednon-cash impairment charges of $4.1 million or 100decreased 80 basis points primarily as a result of loss of leverage from lower sales volume.

Net Income

The Company’s effective tax rate was 19.4% for 2020 compared to 20.7% for 2019. The effective tax rate for 2020 was impacted by an increased benefit from credits and permanent items over a lower pretax income as well as a favorable tax rate benefit on foreign operations.

The decrease of $10.6 million in net income in 2020 compared to 2019 was due primarily to lower sales volume and anon-cash pension settlement charge of $4.0 million or 110 basis points. In 2016, operating margin included anon-cash impairment charge of $1.8 million or 50 basis points and a gain on the sale of property, plant and equipment of $0.6 million or 20 basis points. Excluding these items, operating income improved $9.1 million or 250 basis points due principally to improved gross margin.

Net Income

The increase in net income in 2017 compared to 2016 was due primarily to improved gross margin partially offset by anon-cash pension settlement charge in 2017 of $2.7 million, net of income taxes, andnon-cash impairment charges of $2.7$3.7 million net of income taxes. Net income in 20162019 included anon-cash impairment charge of $1.2 million, net of income taxes. The effective tax rate in 2017 included $0.4 million net favorable LIFO impact of the Tax Act enacted on December 22, 2017.$0.9 million.

Earnings per share for 2017in 2020 included a non-cash impairment charges of $0.10 per share and anon-cash pension settlement charge of $0.10$0.14 per share. Earnings per share for 2016 includedIn 2019, earnings benefited from anon-cash impairment charge of $0.05 per share partially offset by a gain on the sale of property, plant and equipment of $0.02 per share.    

Results of Operations – 2016 Compared to 2015:

In 2016, due primarily to the decreased demand for barge pumps for the marine transportation market driven by low oil prices and overcapacity of inland barges, the Bayou reporting unit recorded apre-taxnon-cash goodwill impairment charge of $1.8 million. There was no goodwill impairment charge recorded in 2015. See Note 8, Goodwill and Other Intangible Assets.

In 2015, due to increased employee retirements and related lump sum pension payments, the Company recorded a U.S. GAAP-required and actuarially-determined $3.8 millionnon-cash pension settlement charge. The value of lump sum pension payments was less in 2016 and anon-cash pension settlement charge was not required.

Net Sales

Net sales for the year ended December 31, 2016 were $382.1 million compared to $406.2 million for 2015, a decrease of 5.9% or $24.1 million. Excluding sales from the PCCP project of $9.9 million in 2016 and $37.7 million in 2015, net sales in 2016 increased 1.0% or $3.7 million. Domestic sales, excluding PCCP, increased 3.9% or $9.0 million and international sales decreased 3.9% or $5.3 million. Of the total decrease in net sales in 2016, approximately $0.9 million was due to unfavorable foreign currency translation.

Sales in our larger water markets, excluding PCCP, increased 3.6% or $9.1 million in 2016 compared to 2015. Sales in the municipal market, excluding PCCP, increased $15.1 million driven by increased shipments attributable to other flood control projects, clean water and wastewater applications. Sales in the construction market increased $2.7 million due primarily to sales to rental businesses and sales to new customers. However, sales decreased $3.7 million in the fire protection market largely due to market softness domestically and in the Middle East, and $2.3 million in the agriculture market principally due to wet weather conditions in many domestic locations and decreased farm income. In addition, sales of repair parts decreased $2.8 million.

Sales decreased 4.6% or $5.4 million innon-water markets for 2016 compared to 2015. Increased sales of $3.2 million in the OEM market related to power generation equipment and services were offset by a decrease of $7.7 million in the industrial market largely attributable to the slowdown in oil and gas production.

International sales were $131.2 million in 2016 compared to $136.5 million in 2015. International sales represented 34% of total sales for the Company in each of the years 2016 and 2015. Sales continued to be somewhat softer in Europe and in the Middle East due to sluggish economic conditions primarily affecting the fire protection and OEM markets.

Cost of Products Sold and Gross Profit

The gross margin increase in 2016 compared to 2015 was due principally to favorable sales mix changes, most notably within the municipal market and lower LIFO inventory expense of 50 basis points. Also, anon-cash pension settlement charge of 60 basis points was recognized in 2015 which did not recur in 2016. Conversely, health care expenses increased 30 basis points in 2016 primarily due to higher claims.

Selling, General and Administrative Expenses (SG&A)

The increase in SG&A expenses as a percentage of net sales in 2016 compared to 2015 was due principally to loss of leverage due to lower sales volume and increased professional services fees of approximately 30 basis points related largely to costs incurred in connection with acquired businesses during the previous two years. Offsetting these variances were a gain on the sale of property, plant and equipment in 2016 of 30 basis points and anon-cash pension settlement charge of 30 basis points in 2015 which did not recur in 2016.

Operating Income

The change in operating margin was impacted by the variances mentioned above, including anon-cash goodwill impairment charge in 2016 of 50 basis points and anon-cash pension settlement charge totaling 90 basis points in 2015 which did not recur in 2016.

Net Income

The decreases in net income and earnings per share in 2016 compared to 2015 were due primarily to sales volume decreases and anon-cash goodwill impairment charge in 2016 of $1.2 million, net of income taxes. These unfavorable variances were offset by a gain on the sale of property, plant and equipment, lower LIFO inventory expense and lower pension expense due to a pension settlement charge of $2.5 million, net of income taxes, in 2015 which did not recur in 2016. The decrease in the effective tax rate between the two periods was due primarily to changes in the estimated domestic production activities deduction and the impact of more income in jurisdictions with lower tax rates.$0.04 per share.

Liquidity and Sources of Capital

Cash and cash equivalents totaled $79.7$125.2 million and there was no outstanding bank debt at December 31, 2017.2021. In addition, at December 31, 2021, the Company had $21.8$23.2 million of borrowing capacity available in bank lines of credit after deducting $9.2$6.3 million in outstanding letters of credit primarily related to customer orders. The Company was in compliance with its debt covenants, including limits on additional borrowings and maintenance of certain operating and financial ratios, at all times in 20172021 and 2016.2020.

Capital expenditures for 2018,2022, which are expected to consist principally of building expansion and machinery and equipment purchases, are estimated to be in the range of$10-$15 $15 - $20 million and are expected to be financed through internally generated fundsfunds. During 2021, 2020 and existing lines of credit. During 2017, 2016 and 2015,2019, the Company financed its capital improvements and working capital requirements principally through internally generated funds.

We expect to continue to generate cash in excess of our operating needs. We believe we have adequate funds on hand and sufficient borrowing capacity to execute our financial and operating strategy.

The Company expects to contribute up to $2.0 million to its defined benefit pension plan in 2022.

Free cash flow, anon-GAAP measure for reporting cash flow, is defined by the Company as adjusted earnings before interest, income taxes and depreciation and amortization, less capital expenditures and dividends. The Company believes free cash flow provides investors with an important perspective on cash available for investments, acquisitions and working capital requirements.

The following table reconciles adjusted earnings before interest, income taxes and depreciation and amortization as reconciled above to free cash flow:

Financial Cash Flow

The change in cash provided by operating activities in 20172021 compared to 20162020 was primarily due to increased accounts receivable compared to a decrease in the prior period. The change in accounts receivable more thanwas partially offset by increased inventories and decreased commissionsan increase in net income, an increase in accounts payable, and benefit obligations.an increase in prepaid assets. The change in cash provided by operating activities in 20162020 compared to 20152019 was primarily due to reductionslower income in inventories2020 compared to 2019 driven by decreased sales. Cash outflows increased in 2020 due to a reduction in accounts payable primarily from reduced SG&A spend, increased inventory to prepare for customer demand, and increased pension contributions. These cash outflows were offset by cash inflows from reduced accounts receivable driven by lowerdecreased sales volume, partially offset by contributions to the Company’s defined benefit pension plan.and a higher deferred tax provision.

During 2017,2021, investing activities of $10.4$9.1 million primarily consisted of a $3.0 million increase in short-term investments and $7.8$9.8 million of capital expenditures for buildings, machinery and equipment offset by $0.3 million of proceeds from the sale of property, plant and equipment. During 2016,2020, investing activities of $8.5$7.7 million primarily consisted of $8.0 million of capital expenditures for buildings, machinery and equipment, a new operations facility in Africa, and other building improvements totaling $6.9 million as well as a payment for an acquisition, net of cash acquired, of $3.0 million, offset by proceeds from the sale of property, plant, and equipment of $1.4 million.equipment. During 2015,2019, investing activities of $11.2$10.8 million primarily consisted of $10.9 million of capital expenditures for building, building improvements andbuildings, machinery and equipment totaling $8.3 million as well as payments for acquisitions, net of cash acquired, of $3.4 million, offset by proceeds from the sale of property, plant, and equipment of $0.5 million.equipment.

Net cash used for

During 2021, financing activities of $18.6 million consisted primarily of dividend payments of $12.3 million, $11.2$16.6 million and $10.6open market share repurchases of $1.2 million. During 2020, financing activities of $16.1 million during 2017, 2016consisted primarily of dividend payments of $15.4 million. During 2019, financing activities of $17.4 million consisted primarily of dividend payments of $14.4 million and 2015, respectively. During 2015, the Company also paid off its $12.0 million of short-term bank borrowings and $1.9 million of assumed acquisition debt and made a privately-arranged market value purchase of Company shares in the amount of $4.6$2.5 million from a Rupp family estate.

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

Contractual Obligations

Capital commitments in the table below include contractual commitments to purchase machinery and equipment that have been approved by the Board of Directors. 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, 2017.2021. Also, the Company has some operating leases and two financing leases for certain offices, manufacturing facilities, land, office equipment and automobiles. Rental expenses relating to these leases were $0.9 million in 2017, $1.12021, $0.9 million in 20162020 and $1.0 million in 2015.2019.

The following table summarizes the Company’s contractual obligations at December 31, 2017:2021: