Notes to Financial Statements
December 31, 2016 and 2015, and
Year Ended December 31, 2016
1.
Description of the Plan
The following description of The Gorman–Rupp Company 401(k) Plan (Plan) provides only general information. Participants
should refer to the Summary Plan Description for a more complete description of the Plan’s provisions.
General
The Plan is a defined contribution plan covering substantially all employees of the Corporate, Mansfield and Industries Divisions of The Gorman–Rupp
Company (Company and Plan Administrator) and Patterson Pump Company, a subsidiary of the Company. Bank of America Merrill Lynch is the trustee and record keeper of the Plan. The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA). The Plan was amended and restated effective January 1, 2016 to amend for recent law changes and incorporate previous amendments.
Contributions
Each year, participants may contribute up
to 40% of pretax annual compensation (15% for highly compensated employees), as defined in the Plan. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans. The Company
contributes 40% of the first 4% of compensation that a participant contributes to the Plan provided such participant was hired prior to January 1, 2008. For employees hired after January 1, 2008, the Company contributes 50% of the first 6%
of compensation that a participant contributes to the Plan. The Company also contributes a percentage of the employee’s income based on the age of the employee and the years of service with the Company for employees hired on or after
January 1, 2008.
Full-time employees are eligible to participate in the Plan upon hiring. The additional Company contribution for employees hired on
or after January 1, 2008 has a 90 day waiting period.
Upon enrollment, a participant may direct employee contributions in whole increments to any of
the investment fund options offered by the Plan. Employees may elect to transfer all or a portion (in 1% increments) of their account balance to any fund offered in the Plan, based on the value of their account on the immediately preceding valuation
date. Rollovers are currently allowed by the Plan.
4
The Gorman-Rupp Company 401(k) Plan
Notes to Financial Statements
1. Description of the Plan (continued)
Participant Accounts
Each participant’s account is credited with the participant’s contributions and allocations of the Company’s contributions and allocations of
Plan earnings. Allocations are based on participant earnings or account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.
Vesting
Participants are immediately vested in their
contributions plus actual earnings thereon. Participants are also fully vested in the Company contribution portion of their accounts plus actual earnings thereon. Vesting in the Company age and service contribution is based on years of continuous
service; a participant is 100% vested after three years of service.
Forfeitures
Upon termination of employment, participants forfeit their nonvested balances. If a participant is rehired within a five year period, the forfeited
contributions are reinstated. Forfeited balances of terminated participant’s nonvested accounts are used to reduce future Company contributions. Unallocated forfeitures balances as of December 31, 2016 and 2015 were $378 and $362,
respectively.
Notes Receivable From Participants
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance.
The term of the loan shall not exceed 5 years, or 20 years for the purchase of a primary residence. A participant may not have more than one loan at any point in time. The loans are secured by the balance in the participant’s account and bear
interest at the prime rate, as quoted in
The Wall
Street Journal
at the date of loan origination. Principal and interest is paid ratably through payroll deductions.
5
The Gorman-Rupp Company 401(k) Plan
Notes to Financial Statements
December 31, 2016 and 2015, and
Year Ended December 31, 2016
1. Description of the Plan (continued)
Payment of Benefits
Upon retirement or termination of employment, a participant may receive a
lump-sum
amount equal to the vested value of
his or her account. A
lump-sum
payment is required at a participant’s death. Participants may also receive payments upon reaching the age of 59
1
⁄
2
or with proof of hardship as determined by the Plan Administrator.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event the Plan terminates, participants will become 100 percent vested in their accounts.
2.
Summary of Significant Accounting Policies
New Accounting Pronouncements
The financial standards board issued Accounting Standard Update (ASU)
2015-07
Disclosures for Investments in Certain
Entities that Calculate Net Asset Value (NAV) per share which is effective for fiscal years beginning after 12/15/15 (public entities) and 2016 (other entities). The ASU eliminates the requirement to categorize investments for which Fair Value
is measured at NAV per share as a practical expedient. Plan management adopted this ASU for the 2016 financial statement disclosures and determined there was no impact on the disclosures.
Basis of Accounting
The financial statements have been
prepared on the accrual basis of accounting.
Notes Receivable from Participants
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balance plus any accrued but unpaid interest.
Interest income on notes receivable from participants is recorded when it is earned. Related fees are recorded as administrative expenses and are expensed when they are incurred.
6
The Gorman-Rupp Company 401(k) Plan
Notes to Financial Statements
2. Summary of Significant Accounting Policies (continued)
Notes Receivable from Participants (continued)
No allowance for credit losses has been recorded as of December 31, 2016 or 2015. If a participant ceases to make loan repayments and the plan administrator deems the participant loan to be
a distribution, the participant loan balance is reduced and a benefit payment is recorded.
Common Collective Trust
The Federated Capital Preservation Fund (Class R6) is a common collective trust. The Fund Holds guaranteed investment contracts (traditional GICs), separate
account guaranteed investment contracts (separate account GICs) and synthetic guaranteed investment contracts (synthetic GICs). The fair value of traditional GICs is determined based on the present value of the contract’s expected cash flows,
discounted by current market interest rates for like-duration and like-quality investments. The fair value of a separate account GIC and a synthetic GIC is determined based on the fair value of the securities underlying each GIC. The Fund attempts
to maintain a stable price per unit of $10.00, however, there can be no assurance that the value of the units in the Fund will not fluctuate. Participants can transact with the trust on a daily basis.
Investment Valuation and Income Recognition
The
Plan’s investments are stated at fair value. The shares of registered investment companies are valued at quoted market prices which represent the net asset values of shares held by the Plan at
year-end.
The Company stock is valued at its quoted market price as of the last business day of the Plan’s year.
In accordance with ASC 820,
Fair Value
Measurements,
assets and liabilities measured at fair value are categorized into the following fair value hierarchy:
Level 1 – Fair value is based on unadjusted quoted prices for identical assets or liabilities in an active market that the Plan
has the ability to access at the measurement date.
Level 2 – Fair value is based on quoted prices in markets that are not
active, quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level 2 inputs
include the following:
7
The Gorman-Rupp Company 401(k) Plan
Notes to Financial Statements
2. Summary of Significant Accounting Policies (continued)
Investment Valuation and Income Recognition (continued)
|
|
•
|
|
Quoted prices for similar assets or liabilities in active markets
|
|
|
•
|
|
Quoted prices for identical or similar assets or liabilities in inactive markets
|
|
|
•
|
|
Observable inputs other than quoted prices that are used in the valuation of the asset or liabilities (e.g., interest rate and yield curve quotes at commonly quoted intervals)
|
|
|
•
|
|
Inputs that are derived from or corroborated by observable market data by correlation or other means
|
Level 3 – Fair value is based on prices or valuation techniques that require inputs that are both significant to the fair value
measurement and unobservable. These inputs reflect management’s judgment about the assumptions that a market participant would use in pricing the investment and are based on the best available information, some of which may be internally
developed.
Purchase and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded
on the
ex-dividend
date. Net appreciation includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
Use of Estimates
The preparation of financial
statements in conformity with generally accepted accounting principles requires management to make estimates that affect the amounts reported in the financial statements and accompanying notes and supplemental schedules. Actual results could differ
from those estimates.
Subsequent Events
Management
evaluated subsequent events for the Plan through the date the financial statements were available to be issued.
8
The Gorman-Rupp Company 401(k) Plan
Notes to Financial Statements
3. Fair Value Measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (i.e., an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The level of 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.
The following is a description of the valuation methodologies used for major categories of assets measured at fair value by the plan. There have been no
changes in the methodologies used at December 31, 2016 and 2015.
Fair Value for Level 1 is based upon quoted market prices of common stock
(unitized fund), money market and mutual funds.
Fair Value for Level 2 is determined by dividing the common collective trust’s net assets by
its units outstanding at the valuation dates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2016
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
The Gorman-Rupp Company Stock Fund
|
|
$
|
14,609,479
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
14,609,479
|
|
|
Mutual Funds
|
|
|
38,387,578
|
|
|
|
–
|
|
|
|
–
|
|
|
|
38,387,578
|
|
|
Stable Value Fund
|
|
|
–
|
|
|
|
5,014,169
|
|
|
|
–
|
|
|
|
5,014,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
52,997,057
|
|
|
$
|
5,014,169
|
|
|
$
|
–
|
|
|
$
|
58,011,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of December 31, 2015
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
The Gorman-Rupp Company Stock Fund
|
|
$
|
14,262,433
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
14,262,433
|
|
|
Mutual Funds
|
|
|
34,916,046
|
|
|
|
–
|
|
|
|
–
|
|
|
|
34,916,046
|
|
|
Stable Value Fund
|
|
|
–
|
|
|
|
3,374,786
|
|
|
|
–
|
|
|
|
3,374,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
49,178,479
|
|
|
$
|
3,374,786
|
|
|
$
|
–
|
|
|
$
|
52,553,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
The Gorman-Rupp Company 401(k) Plan
Notes to Financial Statements
4. Party in Interest Transactions
The investments held in The Gorman-Rupp Company Stock Fund received dividends on the shares from the Plan Sponsor.
5. Administrative Costs
Fees for legal, accounting and
other services rendered to the Plan are paid by the Company.
6. Risks and Uncertainties
The Plan has investments in The Gorman-Rupp Company Stock Fund of $14,609,479 or 24.5% of net assets as of December 31, 2016.
Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain
investment securities, it is at least reasonably possible that changes in the values of the investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported
in the statements of net assets available for benefits.
7. Income Tax Status
The Plan has received a determination letter from the Internal Revenue Service dated March 29, 2017, stating that the Plan is qualified under section
401(a) of the Internal Revenue Code (Code) and, therefore, the related trust is exempt from taxation. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification.
Accounting principles generally accepted in the United States require plan management to evaluate uncertain tax positions taken by the Plan. The financial
statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The plan administrator has analyzed the tax positions taken by the Plan, and
has concluded that as of December 31, 2016, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing
jurisdictions; however, there are currently no audits for any tax periods in progress.
10
The Gorman-Rupp Company 401(k) Plan
EIN:
34-0253990 Plan
Number: 005
Schedule H, Line 4i – Schedule of Assets
(Held at End of Year)
December 31, 2016