UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
__________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8782
GLEASON CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 16-1224655
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 University Avenue, Rochester, New York 14692
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 473-1000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( ).
The number of shares outstanding of the registrant's Common
stock, par value $1 per share, at June 30, 1997 was 4,956,285
shares.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
(Dollars in thousands)
JUNE 30 DECEMBER 31
1997 1996
Assets
<S> <C> <C>
Current assets
Cash and equivalents $ 20,437 $ 7,199
Trade accounts receivable 57,937 65,583
Inventories 31,037 27,986
Deferred income taxes 6,894 6,894
Other current assets 4,414 4,038
Total current assets 120,719 111,700
Property, plant and equipment, at cost 169,451 170,084
Less accumulated depreciation 110,613 108,693
58,838 61,391
Deferred income taxes 10,013 10,013
Other assets 7,798 7,570
Total assets $ 197,368 $ 190,674
Liabilities and Stockholders' Equity
Current liabilities
Short-term borrowings $ 2,145 $ 329
Current portion of long-term debt 4 6
Trade accounts payable 17,461 16,972
Income taxes 10,385 10,224
Other current liabilities 29,645 30,335
Total current liabilities 59,640 57,866
Long-term debt 2,793 4,506
Pension plans and other retiree benefits 37,705 38,220
Other liabilities 5,670 5,218
Total liabilities 105,808 105,810
Stockholders' equity
Common stock 5,797 5,797
Additional paid-in capital 11,454 11,528
Retained earnings 95,716 86,187
Cumulative foreign currency
translation adjustment (3,648) (2,149)
Minimum pension liability adjustment (461) (461)
108,858 100,902
Less treasury stock, at cost 17,298 16,038
Total stockholders' equity 91,560 84,864
Total liabilities and stockholders' equity $ 197,368 $ 190,674
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
(Dollars in thousands, except
per share amounts)
THREE MONTHS ENDED
JUNE 30
1997 1996
<S> <C> <C>
Net sales $ 62,384 $ 65,157
Costs and expenses
Cost of products sold 42,683 44,488
Selling, general and
administrative expenses 9,759 11,376
Research and development expenses 1,660 1,998
Interest (income) expense --net (120) 186
Other (income)--net (285) (289)
Income before income taxes 8,687 7,398
Provision for income taxes 3,110 2,660
Net income $ 5,577 $ 4,738
Primary earnings per common share $ 1.08 $ .88
Fully diluted earnings per common share $ 1.08 $ .88
Weighted average number of common shares
outstanding:
Primary 5,153,177 5,383,030
Fully diluted 5,184,163 5,383,030
Cash dividends declared per common share $ .125 $ .125
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
(Dollars in thousands, except
per share amounts)
SIX MONTHS ENDED
JUNE 30
1997 1996
<S> <C> <C>
Net sales $ 122,719 $ 124,667
Costs and expenses
Cost of products sold 83,699 84,859
Selling, general and
administrative expenses 19,622 21,576
Research and development expenses 3,634 3,786
Interest (income) expense--net (121) 527
Other (income)--net (825) (617)
Income before income taxes 16,710 14,536
Provision for income taxes 5,939 5,198
Net income $ 10,771 $ 9,338
Primary earnings per common share $ 2.09 $ 1.74
Fully diluted earnings per common share $ 2.07 $ 1.74
Weighted average number of common shares
outstanding:
Primary 5,158,454 5,369,534
Fully diluted 5,194,488 5,375,783
Cash dividends declared per common share $ .25 $ .25
</TABLE>
See notes to consolidated financial statements.
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<TABLE>
GLEASON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
(Dollars in thousands)
SIX MONTHS ENDED
JUNE 30
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,771 $ 9,338
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,535 5,545
(Gain) on disposals of property, plant
and equipment (462) (10)
Provision for deferred income taxes 278 908
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 6,068 (9,728)
(Increase) in inventories (4,201) (2,528)
(Increase) in other current assets (617) (579)
Increase (decrease) in trade accounts payable 797 (1,698)
Increase (decrease) in all other current
operating liabilities 1,644 (2,026)
Other, net (59) 2,415
Net cash provided by operating activities 19,754 1,637
Cash flows from investing activities:
Capital expenditures (5,424) (3,145)
Proceeds from asset disposals 1,554 26
Proceeds from collection of notes receivable 36 54
Net cash (used in) investing activities (3,834) (3,065)
Cash flows from financing activities:
Proceeds from short-term borrowings 1,820 486
Net (repayments) under revolving
credit agreements (1,795) (5,413)
Proceeds from long-term debt 134 85
(Repayment) of long-term debt (6) (3)
Purchase of treasury stock (1,360) --
Net stock issues 26 30
Dividends paid (1,242) (1,297)
Net cash (used in) financing activities (2,423) (6,112)
Effect of exchange rate changes on cash
and equivalents (259) (35)
Increase (decrease) in cash and equivalents 13,238 (7,575)
Cash and equivalents, beginning 7,199 9,926
Cash and equivalents, ending $ 20,437 $ 2,351
</TABLE>
See notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Unaudited)
1. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
necessary to present fairly (a) the results of operations
for the three and six-month periods ended June 30, 1997 and
1996 (b) the financial position at June 30, 1997 and
December 31, 1996, and (c) the cash flows for the six-month
periods ended June 30, 1997 and 1996, of Gleason Corporation
and subsidiaries.
2. The results of operations for the three and six-month
periods ended June 30, 1997 are not necessarily indicative
of the results to be expected for the full year.
3. All significant intercompany transactions are eliminated in
consolidation.
4. The components of inventories were as follows:
(In thousands) 6/30/97 12/31/96
Raw materials and
purchased parts $ 5,114 $ 5,269
Work in process 20,730 18,063
Finished goods 5,193 4,654
$ 31,037 $ 27,986
5. Net cash payments for income taxes were $4,158,000 and
$1,231,000 for the six months ended June 30, 1997 and 1996,
respectively. Interest payments were $79,000 and $694,000
for the six months ended June 30, 1997 and 1996,
respectively.
6. In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which is
effective for both interim and annual financial statements
for periods ending after December 15, 1997. At that time,
the Company will be required to change the method currently
being used to compute earnings per share and to restate all
prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock
options will be excluded. The impact of this accounting
pronouncement would have resulted in an increase in primary
earnings per share of $.04 and $.03 for the three-month
periods ended June 30, 1997 and June 30, 1996, respectively,
and an increase in primary earnings per share of $.08 and
$.06 for the six-month periods ended June 30, 1997 and June
30, 1996, respectively. There would have been no impact on
fully diluted earnings per share for the periods presented
due to Statement 128.
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GLEASON CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition
The following are management's comments relating to significant
changes in the results of operations for the three and six-month
periods ended June 30, 1997 and 1996 and in the Company's
financial condition during the six months ended June 30, 1997.
Results of Operations
The Company had net income for the second quarter ended June 30,
1997 of $5.6 million, or $1.08 per share, compared to $4.7
million, or $.88 per share, for the 1996 second quarter.
Operating income before interest and taxes for the second quarter
was $8.6 million, or 13.7% of sales, compared to $7.6 million, or
11.6% of sales, in the 1996 second quarter.
Net income for the six months ended June 30, 1997 was $10.8
million, or $2.09 per share, compared to $9.3 million, or $1.74
per share for the 1996 first half. Operating income before
interest and taxes for the 1997 six-month period was $16.6
million, or 13.5% of sales, compared to $15.1 million, or 12.1%
of sales, for the 1996 period. The improvement in operating
earnings from 1996 was primarily attributable to lower selling
expenses in 1997.
New orders totaled $74.6 million for the second quarter compared
to $55.4 million in the 1997 first quarter and $79.4 million in
the 1996 second quarter. Order levels for the 1997 six-month
period were $130.0 million compared to $134.5 million in the 1996
first half. Order levels for the first half of 1997, when
compared to the 1996 first half, for the Company's foreign
operations, as stated in U.S. dollars, were negatively impacted
by a foreign exchange translation effect of approximately $5.8
million primarily due to the stronger dollar versus the German
mark.
Cylindrical gear production machine orders increased 70% in the
1997 first half compared to 1996, accounting for more than 50% of
total machine orders. Incoming orders for the six months were
higher across all cylindrical gear product categories, including
a single order of $14 million received in the second quarter.
This order has deliveries scheduled for late 1997, 1998 and 1999.
Order levels for bevel gear production machines for the six
months declined 40% compared to last year's first half primarily
due to lower order levels from U.S. customers. In the 1996
second quarter, the Company received large orders totaling $24
million from two U.S. vehicle and axle manufacturers. Bevel gear
machine orders, while lower than last year's first half, were
higher than in the last six months of 1996. The Company expects
that its major U.S. customers will continue with their planned
capital investment programs to modernize their production
capabilities. Consolidated backlog was $130.1 million at June
30, 1997 compared to $122.8 million at December 31, 1996 and
$134.4 million at June 30, 1996.
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Net sales were $62.4 million and $122.7 million for the three and
six-month periods ended June 30, 1997, compared to $65.2 million
and $124.7 million in the prior year periods. Sales were down
slightly in both the three and six-month periods of 1997 compared
to 1996 largely due to translation effects of the weaker German
mark to U.S. dollar and lower shipments of cylindrical gear
products. Foreign exchange translation effects negatively
impacted sales by approximately $1.2 million and $2.8 million for
the three and six-month periods respectively.
Sales of machine products were slightly lower in the second
quarter and first half of 1997 compared to the 1996 periods.
Bevel gear production machine sales in the first half increased
20% over 1996 primarily due to higher shipments to customers in
the United States. Bevel gear machine sales in the 1997 first
half included shipments associated with the large orders received
in the second quarter of 1996. Cylindrical gear production
machine sales decreased in the three and six-month periods of
1997 compared to the prior year periods primarily due to lower
shipments of Gleason-Hurth gear shaving machines. Sales in the
1996 first half included higher Gleason-Hurth machine shipments
to South America associated with the establishment of a new
production facility for a customer in that region.
Sales of tooling products for the second quarter and first half
were down approximately 10% and 7%, respectively, compared to
the 1996 periods largely due to lower workholding sales and the
negative foreign exchange impact on the translation of Hurth
tooling sales. Bevel cutting tool sales were down approximately
7% in the second quarter and 3% in the first six months of 1997
due to lower shipments to customers in Europe and the Asia-
Pacific regions, partially offset by higher shipments to
customers in the U.S. Other products sales, including spare
parts, service and software, in the 1997 first half were
slightly higher than in 1996.
Cost of products sold as a percentage of sales was 68.4 percent
and 68.2 percent for the three and six-month periods ended June
30, 1997 compared to 68.3 percent and 68.1 percent for the three
and six-month periods ended June 30, 1996, respectively.
Margins can be significantly impacted by the mix of products
sold. For example, machines generally tend to carry higher cost
of sales percentages than tooling or other products. Also,
bevel gear machines typically carry higher margins than cylindrical gear
machines. Overall, margins for both the second quarter and first
half of 1997 approximated those of the 1996 periods. The
favorable impact on margins of a higher percentage of bevel
machines in the sales mix was offset by the negative impact on
margins of lower tooling product sales.
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Selling, general and administrative expenses for the second
quarter were $9.8 million, or 15.6 percent of sales, compared to
$11.4 million, or 17.5 percent of sales in the 1996 second
quarter. For the first half of 1997, these expenses totaled
$19.6 million, or 16.0 percent of sales, compared to $21.6
million, or 17.3 percent of sales, for the prior year period.
These decreases for both the three and six-month periods were
primarily attributable to lower commissions paid to outside
dealers. The lower commission payments were due to a decrease in
sales to the Asia-Pacific and South American regions where the
Company is represented by independent dealers.
Research and development expenses were $1.7 million and $3.6
million in the three and six-month periods of 1997, compared to
$2.0 million and $3.8 million in the respective prior year
periods. Development spending in 1997 includes new product
development for both bevel and cylindrical gear production
equipment and manufacturing technology initiatives for the
Company's tooling operations.
Other income totaled $0.8 million in the first six months of 1997
compared to $0.6 million in the prior year's first half. Other
income included a $0.4 million gain on the sale of property
associated with one of the Company's former Components Group
businesses. The property had been leased to the purchaser of
that operation since its sale in 1992.
Net interest income totaled $0.1 million in the 1997 first half
compared to net interest expense of $0.5 million in the 1996 six-
month period. The decrease in interest expense was due to lower
average borrowings outstanding under the Company's revolving
credit facilities and higher balances in cash and equivalents.
The Company generated significantly higher operating cash flows
during the six-month period of 1997 compared to 1996, with
improved earnings, reductions in accounts receivable and
increases in advance payments received from customers. This
resulted in an increase in cash and a reduction in outstanding
debt during the 1997 first half.
The Company recorded a tax provision of $5.9 million, or an
effective tax rate of 35.5 percent, in the first six months of
1997, compared to $5.2 million, or an effective tax rate of 35.8
percent, for the prior year six month period. The effective tax
rates for both the 1997 and 1996 periods approximated the U.S.
statutory rate. The impact of the higher statutory rates on
foreign earnings (primarily in Germany) was offset by the
utilization of certain foreign tax credits and foreign operating
loss carryforwards in 1997 and 1996.
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Liquidity and Capital Resources
Borrowings under the Company's revolving credit facilities
decreased to $2.1 million at June 30, 1997 from $3.9 million at
December 31, 1996. Cash and cash equivalents increased $13.2
million in the first six months of 1997 to $20.4 million at June
30, 1997. Available unused short and long-term credit lines
with banks, including revolving credit facilities, totaled $36.7
million at June 30, 1997. Dividend payments to stockholders
totaled $1.2 million in the first half.
Operating activities provided cash of $19.8 million in the first
half of 1997 compared to $1.6 million in the 1996 period.
Operating cash flows were higher in the first six months of 1997
due to higher earnings and lower working capital requirements,
partially offset by an increase in income tax payments. Net
working capital decreased primarily due to a decrease in accounts
receivable, and increases in accounts payable and receipts of
down payments from customers.
Investing activities used $3.8 million of cash in the 1997 first
half versus $3.1 million in the comparable prior year period.
Capital expenditures totaled $5.4 million compared to $3.1
million in the 1996 period. Capital expenditures for the 1997
full year are planned to increase from last year's level of $10.3
million, with the majority of the spending planned for further
investments to upgrade existing production capabilities. Cash
flows from investing activities in the 1997 first half also
included $1.5 million in cash received from the sale of the
property of one of the former Components Group businesses.
During the first six months of 1997, the Company used $1.4
million in cash to repurchase shares of its common stock under a
program authorized by its Board of Directors in July of 1996. As
of June 30, 1997, the Company had used approximately $7.6 million
in cash to repurchase 245,800 shares under this program.
In the second quarter, the Company reported that it had
reached agreement on all terms to acquire, for approximately
$36 million in cash, the operations of the Hermann Pfauter
Group ("Pfauter"). Pfauter is a leading manufacturer of
cylindrical gear production equipment headquartered in
Ludwigsburg, Germany with major operating locations in
Germany, the United States and Italy. The acquisition
includes all assets and liabilities, including the
assumption of approximately $56 million in bank debt. The
Company expects the acquisition to close on July 31, 1997.
The Company is in the process of restructuring its credit
facilities to finance the acquisition of Pfauter and its other
investment and working capital requirements. This syndicated bank
financing will be led by Chase Manhattan Bank. This will be a new
multi-currency facility including term loans, revolving credit
facilities and stand-by letters of credit totaling up to $170 million.
Management expects these credit facilities to be in place at the time
of closing on the acquisition.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27: Financial Data Schedule
(b Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
GLEASON CORPORATION
Registrant
DATE: July 30, 1997 John J. Perrotti
John J. Perrotti
Vice President - Finance
(Chief Financial Officer)
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<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-Q FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000743239
<NAME> GLEASON CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 20437
<SECURITIES> 0
<RECEIVABLES> 57937
<ALLOWANCES> 0
<INVENTORY> 31037
<CURRENT-ASSETS> 120719
<PP&E> 169451
<DEPRECIATION> 110613
<TOTAL-ASSETS> 197368
<CURRENT-LIABILITIES> 59640
<BONDS> 0
0
0
<COMMON> 5797
<OTHER-SE> 85763
<TOTAL-LIABILITY-AND-EQUITY> 197368
<SALES> 122719
<TOTAL-REVENUES> 122719
<CGS> 83699
<TOTAL-COSTS> 83699
<OTHER-EXPENSES> 22431
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (121)
<INCOME-PRETAX> 16710
<INCOME-TAX> 5939
<INCOME-CONTINUING> 10771
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<CHANGES> 0
<NET-INCOME> 10771
<EPS-PRIMARY> 2.09
<EPS-DILUTED> 2.07
</TABLE>
