S E C U R I T I E S A N D E X C H A N G E C O M M I S S IO N
Washington, D. C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the fiscal year ended December 31, 1996.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $1.00 Par Value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of registrant's voting stock held
by non-affiliates as of March 13, 1997 was approximately
$132,209,521.
The number of shares of Common Stock, $1.00 par value,
outstanding as of March 13, 1997 was 4,979,880.
Documents Incorporated by Reference
Portions of the Company's Annual Report to Stockholders for
the year ended December 31, 1996 are incorporated by
reference into Parts I and II of this Form 10-K.
Portions of the Company's proxy statement, dated March 31,
1997, filed in connection with its 1997 Annual Meeting of
Stockholders are incorporated by reference into Part III of
this Form 10-K. Certain documents previously filed with the
SEC have been incorporated by reference into Part IV of this
Form 10-K.
The exhibit index follows the signature page.
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PART I
ITEM 1. BUSINESS
General
Gleason Corporation was incorporated in the State of Delaware
in 1984 and in May of 1984, by virtue of a merger, became a holding
company which owns all the outstanding stock of The Gleason Works.
The Gleason Works was incorporated in New York State in 1903 as
successor to the businesses of two corporations and has, with its
predecessors, been in business since 1865. As used herein, unless
the context otherwise indicates, "Company" includes Gleason
Corporation and its subsidiaries and divisions.
In 1995, the Company acquired certain assets and technology of
Hurth Maschinen und Werkzeuge GmbH, a Munich, Germany-based leader in
the design and production of cylindrical gear machinery and tooling.
Further information regarding the acquisition is presented in Note 2
of the Notes to the Consolidated Financial Statements in the Company's
Annual Report to Stockholders for the year ended December 31, 1996,
which is incorporated herein by reference.
In 1989, the Company announced that its Components Group, which
consisted of four businesses that manufacture industrial products
including powder metal parts, metal stampings and precision plastic
parts, was for sale. In December 1991, the Company sold Pennsylvania
Pressed Metals, Inc., the largest of its four Components Group
operations. In 1992, the Company sold two of the three remaining
businesses, Alliance Precision Plastics and Alliance Carolina Tool
and Mold. In 1994, the Company ceased operations at the last
remaining Components Group business, Alliance Metal Stamping and
Fabricating, and sold the machinery and equipment located at this
division's facility. Further information regarding discontinued
operations is presented in Note 3 of the Notes to the Consolidated
Financial Statements in the Company's Annual Report to Stockholders
for the year ended December 31, 1996, which is incorporated herein
by reference.
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Description of Business
The Company operates in one business segment engaged in the
design, manufacture and sale of gear production machinery and
equipment. The Company has manufacturing operations in Rochester,
New York, Munich, Germany, and Plymouth, England. In 1996, the
Company began the establishment of a manufacturing facility at its
operation in Bangalore, India. The Company sold its former Belgian
manufacturing operation to a new company owned by former employees of
the Company in the fourth quarter of 1993. The successor company
serves as a contract manufacturer for some of the Company's products.
Foreign and domestic operations, export sales and major
customer financial information is presented in Note 14 of the Notes
to the Consolidated Financial Statements in the Company's Annual Report
to Stockholders for the year ended December 31, 1996, which is incorporated
herein by reference.
Products
Bevel Gear Products
The Company believes it is the world leader in the technology,
design, application and methods of production of hypoid and other
bevel gears, and in the manufacture of machines for the production of
these gears.
Hypoid and other bevel gears are used to transmit mechanical
power at an angle, such as from the drive shaft to the rear-driven
axle of an automobile. The gears produced by Gleason machines are
used in drive trains of automobiles, sport utility vehicles, trucks,
buses, aircraft, marine, agricultural and construction machinery, and
must meet a wide range of complex specifications which are determined
by the function required of a particular gear set.
The Company sells over 30 models of machines for the production
and testing of hypoid and other bevel gears. Some of these machines
can produce gears as small as 1/4 of an inch in diameter, weighing
only 1/2 ounce, while others can produce gears as large as 36 inches
in diameter, weighing more than 1,000 pounds. The latest design of
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these machines incorporates full computer numerical controls (CNC)
which contribute to improved quality and productivity.
In December 1989, the Company sold its first PHOENIX (Registered
Trademark) gear production machine. This line of machines incorporates
state-of-the-art, full CNC design for the production of spiral bevel and
hypoid gears. CNC machine features include the elimination of manual set-
ups, permitting a significant reduction in the overall cost of
manufacturing spiral bevel and hypoid gears. PHOENIX products now
account for the vast majority of bevel gear machine sales.
The Company designs and produces tooling, including cutting
tools and workholding equipment, principally for use on its bevel
gear production machines. Other products include spare parts,
service, and gear design software.
Cylindrical Gear Products
The Company also manufactures machines for the production of
spur and helical gears up to 20 inches in diameter. Spur and helical
or cylindrical gears are used for the straight-line or parallel
transmission of mechanical power. This type of gearing has a broad
range of applications, such as the main drive axles of passenger cars
with front-wheel-drive and transverse mounted engines, automotive
transmissions, speed reducers, pumps and gear motors.
In 1993, the Company began making shipments of its first
PHOENIX machine for cylindrical gear production. This machine, the
125GH gear hobber has significantly increased the Company's sales in
this market.
The acquisition of Hurth in 1995 added complementary product
lines which strengthen the Company's position in the cylindrical gear
equipment market. Hurth has been a leader in the technology and
production processes for shaving and fine finishing of cylindrical
gears. Similar to the Company's other gear equipment, the Company
offers tooling, spare parts and field service for its cylindrical
gear machines.
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Marketing
The Company's sales and service functions in North America and
Europe are performed directly by employees of the Company. Sales in
other territories are generally handled by independent foreign
machinery dealers.
In 1994, the Company acquired a 20 percent interest in OGA
Corporation, its exclusive sales and service representative in Japan
and Taiwan, in order to strengthen its presence and enhance growth in
that region.
Overseas markets are important to the Company. The percentage
of sales outside the United States was 73 percent and 65 percent in
1996 and 1995, respectively. The majority of overseas sales were to
European and Asian customers. Sales to overseas markets in 1996 were
higher as a percentage of total sales primarily due to higher
shipments to the Asia-Pacific region and the full year addition of
Hurth sales which were more heavily concentrated outside the U.S.
The domestic and foreign automotive and truck industries
accounted for approximately 76 percent and 74 percent of sales in
1996 and 1995, respectively.
The Company has no contracts or subcontracts with U.S.
government agencies that are significant.
Competition
The Company believes that it produces the largest number and
greatest variety of machines for the manufacture of bevel and hypoid
gears. However, it does have competition from other producers of
such machinery, particularly foreign producers, as well as from
producers of equipment for the production of bevel and hypoid gears
by processes other than machining, such as forging and sintered
powder metal processes.
The Company faces greater competition from manufacturers of
spur and helical gear equipment. Competition is primarily from
Japanese and German companies.
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Backlog
Backlog (unshipped orders), is an important measure of short-
term business activity. Because of the nature of the industry,
backlog is subject to fluctuation. As of December 31, 1996 backlog
totaled $122.8 million compared to $124.5 million as of December
31, 1995. The Company expects substantially all of the December 31,
1996 backlog to be shipped by the end of 1997.
Research and Development
Amounts expended for research and development are presented in
the Consolidated Statements of Operations in the Company's Annual Report
to Stockholders for the year ended December 31, 1996, which is
incorporated herein by reference.
Patents
The Company owns a substantial number of United States and
foreign patents and patent applications. The Company is not
significantly dependent upon any one patent or group of patents for
its business.
Employees
At December 31, 1996, the Company had 1,543 employees. Many
employees possess a high degree of engineering, technical and
mechanical skills. Employee relations are considered good. With the
exception of government-mandated Workers Council representation in
Germany, the Company's employees are not represented by any
collective bargaining agent.
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Other Information
The Company is not significantly dependent on any one source
for raw materials essential to its business.
The Company is not aware of any federal, state or local
provisions which have been enacted or adopted regarding discharge of
material into the environment, compliance with which might have a
material effect on the consolidated capital expenditures, earnings or
competitive position of the Company. The Company makes expenditures
for environmental control equipment on an ongoing basis in its
efforts to comply with applicable environmental regulations.
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ITEM 2. PROPERTIES
The Company's corporate office is located in Rochester, New
York and its manufacturing operations are conducted at plants in
Rochester, Munich, Germany and Plymouth, England. In 1996, the
Company began the establishment of a manufacturing facility at its
operation in Bangalore, India. The activity at this location was not
material to overall operations in 1996.
A table of the major facilities and products manufactured is
displayed below:
Plant Principal
Location Square Footage Products
Owned Facilities
Rochester, New York 721,400 Gear production machines,
workholding equipment and
cutting tools
Plymouth, England 106,000 Cutting tools
Leased Facilities
Munich, Germany 248,000 Cylindrical gear production
machines and tooling
The Munich facility is being leased for a term ending in 2001.
The Company owns approximately 250 acres of undeveloped land in
Monroe County, New York and leases office space in various locations
around the world. The Company retained ownership of the land and
buildings of Alliance Precision Plastics and Alliance Carolina Tool
and Mold, which were sold in 1992, and leased these properties to
the new owners of these businesses. In March of 1997, the Company sold
the Alliance Carolina Tool and Mold property to the lessee. In 1995,
the Company sold the land and building of its former Alliance Metal
Stamping and Fabricating division.
The Company's plants consist of well-lighted, well-maintained
buildings and provide good working conditions. Production machinery
and equipment are generally owned by the Company and suited to its
manufacturing requirements.
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ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to
any material pending legal proceedings required to be disclosed under
this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
Information regarding the market for the Company's Common Stock
and related stockholder matters presented in the Company's Annual Report
to Stockholders for the year ended December 31, 1996 is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented in the Five Year Review in the
Company's Annual Report to Stockholders for the year ended December
31, 1996 is incorporated herein by reference.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion of Financial Condition and Results of
Operations is presented in the Company's Annual Report to Stockholders
for the year ended December 31, 1996 and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and
supplementary data of the Company and its subsidiaries presented
in the Company's Annual Report to Stockholders for the year ended
December 31, 1996 are incorporated herein by reference:
Consolidated Statements of Operations - Years ended December 31,
1996, 1995 and 1994.
Consolidated Balance Sheets - December 31, 1996 and 1995.
Consolidated Statements of Cash Flows - Years ended December 31,
1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements - December 31, 1996.
Quarterly Results of Operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information required to be furnished by Items 401 and
405 of Regulation S-K are described in a definitive proxy statement
which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14-A within 120 days after the close of the
fiscal year ended December 31, 1996, which information is
incorporated herein by reference. Additional information required to
be furnished by Item 401 of Regulation S-K is as follows:
List of Executive Officers of the Registrant
EXECUTIVE
OFFICER POSITIONS AND
NAME AGE SINCE OFFICES HELD
James S. 62 1966 Chairman and President since
Gleason January 1985.
David J. 42 1992 Executive Vice President since
Burns August 1995; Vice President - Machine
Products Group from November 1992 to
July 1995; General Manager - Standard
Products Group from February 1991 to
October 1992.
John B. 55 1986 Vice President - Administration
Kodweis and Human Resources since 1992.
Ralph E. 63 1989 Vice President, Secretary
Harper & Treasurer since August 1993; Vice
President, Secretary & Corporate
Counsel since 1992.
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EXECUTIVE
OFFICER POSITIONS AND
NAME AGE SINCE OFFICES HELD
John J. 36 1993 Vice President - Finance since
Perrotti August 1995; Vice President -
Controller from August 1993 to July
1995; Controller from 1992 to
July 1993.
John W. 34 1995 Controller since August 1995;
Pysnack Director of Accounting and Reporting
from January 1995 to July 1995;
Finance Manager from October 1991
to December 1994.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished by Item 402 of
Regulation S-K is included in a definitive proxy statement which will
be filed with the Securities and Exchange Commission pursuant to
Regulation 14-A within 120 days after the end of the fiscal year
ended December 31, 1996, which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Certain information regarding security ownership of certain
beneficial owners and management required to be furnished by Item 403
of Regulation S-K is included in a definitive proxy statement which
will be filed with the Securities and Exchange Commission pursuant to
Regulation 14-A within 120 days after the end of the fiscal year
ended December 31, 1996, which information is incorporated herein by
reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Information regarding relationships is included in a definitive
proxy statement which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14-A within 120 days after the end
of the fiscal year ended December 31, 1996, which information is
incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(a) (1) The following is a list of the consolidated financial
statements of the Company and its subsidiaries and Report of
Independent Auditors presented in its Annual Report to Stockholders
for the year ended December 31, 1996 which are incorporated herein by
reference:
Consolidated Statements of Operations - Years ended
December 31, 1996, 1995 and 1994.
Consolidated Balance Sheets - December 31, 1996 and
1995.
Consolidated Statements of Cash Flows - Years
ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity - Years
ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements -
December 31, 1996.
Report of Independent Auditors.
(2) All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
(3) Exhibits required to be listed including exhibits
incorporated by reference under this Item and filed as exhibits under
(c) of this Item 14 pursuant to Item 601 Table I of Regulation S-K
are as follows:
(3) Articles of Incorporation and By-Laws.
(a) The Restated Certificate of Incorporation of Gleason
Corporation, as filed with the Delaware Secretary of
State on May 5, 1987, is incorporated by reference to
Exhibit A of the Registrant's Form 10-Q for the quarter
ended March 31, 1987.
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(b) The Certificate of Amendment of the Certificate of
Incorporation of Gleason Corporation as filed with the
Delaware Secretary of State on May 8, 1996 is
incorporated by reference to Exhibit 3 of the
Registrants Form 10-Q for the quarter ended
March 31, 1996.
(c) By-laws, as amended, are incorporated by reference
to Exhibit 3(b) of Gleason Corporation Form 10-K,
file number 1-8782, for the year ended December 31,
1991.
(4) Instruments defining the rights of security holders,
including indentures.
(a) See 3(a), 3(b) and 3(c) above.
(b) Gleason Corporation Preferred Stock Purchase Rights
Agreement, dated as of June 8, 1989, as amended, is
incorporated by reference to the Registrant's Form 8-A
Registration Statement dated June 8, 1989, Form 8
Amendment No. 1, dated March 2, 1990, and Form 8
Amendment No. 2, dated February 6, 1992.
(10) Material contracts.
(a) The Company's 1992 Stock Plan, as amended, is filed
as an exhibit to this Form 10-K. Refer to the Index to
Exhibits.
(b) Loan Agreement between Gleason Corporation and Chase
Manhattan Bank, N.A. and NBD Bank, dated September 29,
1995 is incorporated by reference to Exhibit 6(a) of
Gleason Form 10-Q, file number 1-8782, for the quarter
ended September 30, 1995.
(c) Gleason Corporation Annual Management Incentive
Compensation Plan is incorporated by reference to
Exhibit 10(a) of Gleason Corporation Form 10-K, file
number 1-8782, for the year ended December 31, 1994.
(d) Gleason Corporation Supplemental Retirement Plan, as
restated, is incorporated by reference to Exhibit 10(c)
of Gleason Corporation Form 10-K, file number 1-8782,
for the year ended December 31, 1993.
(e) Executive Agreement between the Company and its
executive officers (for which there are identical
agreements for those officers listed in Part III, Item
10 of this Form 10-K) is incorporated by reference to
Exhibit 10(c) of Gleason Corporation Form 10-K, file
number 1-8782, for the year ended December 31, 1991.
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(f) The Company's 1981 Stock Plan, as amended January 23,
1990, is incorporated by reference to Exhibit I of
Gleason Corporation Form 10-K, file number 1-8782, for
the year ended December 31, 1989.
(g) Trust Agreement for Gleason Corporation executive
agreements and Supplemental Retirement Plan is
incorporated by reference to Exhibit L of Gleason
Corporation Form 10-K, file number 1-8782, for the
year ended December 31,1989.
(h) Gleason Corporation Plan for Deferral of Directors Fees
is incorporated by reference to Exhibit J of Gleason
Corporation Form 10-K, file number 1-8782, for the year
ended December 31, 1988.
(i) Gleason Corporation Executive Life Insurance Program is
incorporated by reference to Exhibit L of Gleason
Corporation Form 10-K, file number 1-8782, for the year
ended December 31, 1987.
(j) Gleason Corporation Long Term Disability Plan is
incorporated by reference to Exhibit I of Gleason
Corporation Form 10-K, file number 1-8782, for the year
ended December 31, 1986.
(k) Gleason Corporation 1986 Deferred Compensation Plan is
incorporated by reference to Exhibit J of Gleason
Corporation Form 10-K, file number 1-8782, for the year
ended December 31, 1986.
(11) Computation of Per Share Earnings. Refer to the Index
to Exhibits.
(13) Annual Report to Stockholders of the registrant for the year
ended December 31, 1996 expressly incorporated by
reference into this Report. Refer to the Index to Exhibits.
(21) Subsidiaries of the registrant. Refer to the Index to
Exhibits.
(23) Consent of Independent Auditors. Refer to the Index to
Exhibits.
(24) Power of Attorney. Refer to the Index to Exhibits.
(27) Financial Data Schedules. Refer to the Index to Exhibits.
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(b) Reports on Form 8-K filed in the fourth quarter of 1996:
None.
(c) and (d) Exhibits required by Item 601 of Regulation S-K and
required by Article 5 of Regulation S-X under Item 8 are filed
as exhibits to this Report on Form 10-K.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
Gleason Corporation
Registrant
James S. Gleason
James S. Gleason
Chairman and President
John J. Perrotti
John J. Perrotti
Vice President - Finance
John W. Pysnack
John W. Pysnack
Controller
Date: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
each of the following named directors has personally authorized the
signing of this report on their behalf by the Attorney in Fact named
below.
Martin L. Anderson )
Julian W. Atwater )
Robert W. Bjork )
J. David Cartwright ) Directors
James S. Gleason )
John W. Guffey, Jr. )
Donald D. Lennox )
Robert A. Sherman )
By: Ralph E. Harper
Ralph E. Harper
Attorney in Fact
Date: March 27, 1997
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GLEASON CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
Certain exhibits to this report on Form 10-K have been
incorporated by reference. For a list of these exhibits, see Item 14
hereof.
The following exhibits are being filed herewith:
Exhibit
No.
(10) Gleason Corporation 1992 Stock Plan as amended
(11) Computation of Per Share Earnings
(13) Portions of the Annual Report to Stockholders
of the Registrant for the year ended December 31,
1996 expressly incorporated by reference into the
Form 10-K.
(21) Subsidiaries of the Registrant
(23) Consents of Experts and Counsel
(a) Consent of Ernst & Young LLP,
Independent Auditors
(24) Power of Attorney
(27) Financial Data Schedules
GLEASON CORPORATION
1992 STOCK PLAN
(as amended through 2/13/97)
1. DEFINITIONS
The terms defined in this Section 1 shall, for all purposes
of this Plan, have the meanings herein specified:
"Affiliate" shall mean any corporation which directly or
indirectly controls, is controlled by, or is under common
control with the Company.
"Award" shall mean a designation of an individual as
recipient of either Options (with or without Stock
Appreciation Rights) or Restricted Stock pursuant to the
Plan.
"Board of Directors" shall mean not less than a quorum of
the whole Board of Directors of the Company.
"Cause" shall mean an act of dishonesty, moral turpitude or
an intentional or grossly negligent act detrimental to the
best interests of the Company or a Subsidiary.
"Change of Control" shall mean any purchase of the Company's
Common Stock pursuant to a tender or exchange offer by any
person, entity or group (other than the Company) owning less
than 30% of the outstanding Common Stock if upon termination
of such offer such person, entity or group owns 30% or more
of the outstanding Common Stock.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Common Stock" shall mean the Company's presently authorized
Common Stock, par value $1.00 per share, except as this
definition may be modified as provided in Section 12.
"Company" shall mean Gleason Corporation, a Delaware
corporation.
"Compensation Committee" shall mean the Executive
Compensation Committee of the Board of Directors, which
shall consist of at least three directors who are Non-
Employee Directors, as defined in Rule 16b-3(b)(3)(i)
pursuant to the Securities Exchange Act of 1934; provided
that, if such committee has any additional members who are
not Non-Employee Directors, as defined in such Rule, any
such members who are not Non-Employee Directors shall
abstain or recuse themselves from any action involving a
grant or award to any person who is subject to Section 16 of
the Securities Exchange Act, as provided in the SEC No-
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Action Letter to the American Society of Corporate
Secretaries (December 11, 1996).
"Derivative Security" shall mean any Option, Stock
Appreciation Right or Special Right.
"Employee" shall mean a person (who may also be a director
or officer) who is employed by the Company or a Subsidiary
thereof on a full-time basis and compensated for such
employment by a regular salary.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
"Fair Market Value" as of a specified date shall be
determined by the Compensation Committee, but whenever
possible shall mean the mean between the highest and the
lowest sale price of the Common Stock on the New York Stock
Exchange Consolidated Tape on such date or, if there are no
sales on such date, the mean of the bid and asked prices for
the Common Stock on the New York Stock Exchange on such
date.
"Grant" shall mean a grant of Restricted Stock.
"Grantee" shall mean an Employee who is granted Restricted
Stock.
"Incentive Option" shall mean only an Option which is
specifically designated as an incentive stock option by the
Compensation Committee at the time of grant and which
qualifies as an "incentive stock option" as defined in
Section 422 of the Code.
"Non-Statutory Option" shall mean any Option other than an
Incentive Option.
"Option" shall mean either an Incentive or Non-Statutory
Option granted by the Company pursuant to the Plan to
purchase shares of Common Stock.
"Option Price" shall mean the price to be paid for a share
of Common Stock pursuant to a Stock Option Agreement.
"Optionee" shall mean an Employee or director who is granted
an Option.
"Plan" shall mean the Gleason Corporation 1992 Stock Plan.
"Restricted Period" shall mean the period established by the
Compensation Committee during which shares of Common Stock
granted to an Employee as described in Section 11 shall be
Restricted Stock.
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"Restricted Stock" shall mean Common Stock subject to the
restrictions described in Section 11.
"Retirement" shall mean retirement from active service with
the Company or a Subsidiary after attaining age 55 and
completion of at least five years of continuous employment
with the Company and its Subsidiaries.
"Special Right" shall mean the right to receive cash or
Common Stock upon exercise of an Option or upon exercise of
Stock Appreciation Rights in connection with a Change of
Control as described in Section 8(B).
"Stock Appreciation Right" shall mean the right to receive
cash or Common Stock with respect to shares of Common Stock
subject to an Option in lieu of exercising such Option, as
described in Section 8.
"Stock Option Agreement" shall mean the written agreement
between the Company and Optionee confirming the Option and
setting forth the terms and conditions upon which it may be
exercised.
"Stock Option Committee" shall mean the Stock Option
Committee appointed pursuant to Section 4.
"Subsidiary" shall mean any corporation in which the Company
owns, directly or indirectly through one or more
Subsidiaries, at least 50% of the total combined voting
power of all classes of stock.
"Successor" shall mean the person or persons entitled to
exercise an Option or receive formerly Restricted Stock,
including a guardian or other duly appointed legal
representative of an Optionee or Grantee who has been
declared incompetent, and in the case of a deceased Optionee
or Grantee a person named as beneficiary under a designation
filed with the Stock Option Committee by the Optionee or
Grantee or, if no designation has been filed, the person or
persons so entitled under the will of the Optionee or
Grantee or, if the Optionee or Grantee shall have failed to
make testamentary disposition of such Award or shall have
died intestate, the legal representative or representatives
of the Optionee or Grantee.
References herein to the masculine gender shall be deemed to
include references to the feminine gender and the singular
form shall include the plural.
2. PURPOSES
The purposes of the Plan are to promote the growth and
profitability of the Company by enabling it to attract and
retain the best available personnel for positions of
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substantial responsibility, and to provide directors and key
Employees with an opportunity for investment in the
Company's Common Stock and give them an additional incentive
to increase their efforts on behalf of the Company and its
Subsidiaries.
3. EFFECTIVE DATE AND TERMINATION
The effective date of the Plan is May 5, 1992, the date on
which the Plan was approved by the shareholders of the
Company. No Award may be granted under the Plan after
May 4, 2002, the date 10 years after the effective date.
4. ADMINISTRATION
(A) The Plan shall be administered by the Compensation
Committee, which, in its discretion, may delegate such
of its administrative functions as it deems appropriate
to a Stock Option Committee, consisting of at least
three Employees of the Company appointed by the
Compensation Committee, provided, however, that, except
for Options granted pursuant to Section 16, the
selection of Employees to receive a Grant or Award and
the timing, pricing and amount of any Grant or Award to
an Employee shall be determined only by decision of the
Compensation Committee. References herein to the
Compensation Committee shall include the Stock Option
Committee to the extent of delegation to it of
administrative functions by the Compensation Committee.
The Stock Option Committee shall make recommendations
to the Compensation Committee concerning the grant of
Options and Restricted Stock.
(B) Membership on the Compensation Committee shall not
affect or impair such member's rights under any Award
granted to him more than one year prior to his becoming
a member of the Committee or granted to him under
Section 16.
(C) In any matters respecting action under this Plan,
the Compensation and Stock Option Committees shall keep
minutes of their meetings; a majority of each Committee
shall constitute a quorum thereof and the acts of a
majority of the members present at any meeting at which
quorum is present, or acts approved in writing by the
entire Committee, shall be the acts of the Committee.
5. ELIGIBILITY
Subject to the provisions of the Plan, the Compensation
Committee shall from time to time determine and designate
those key Employees of the Company or its Subsidiaries to
whom Awards are to be made and the number of shares of
<PAGE>
<PAGE>
Common Stock to be optioned and/or the size of a Restricted
Stock Grant to each such individual. In determining the
eligibility of an Employee to receive an Award and the
number and type of Options to be awarded or shares to be
granted to such Employee, the Compensation Committee shall
consider the position and responsibilities of the Employee,
the nature and value to the Company or a Subsidiary of his
services and accomplishments, his present and potential
contribution to the success of the Company or its
Subsidiaries and such other factors as the Committee may
deem relevant. More than one Award (whether of the same or
different types) may be granted to an individual, but:
(A) An Incentive Option granted to an individual who,
at the time of such grant "owns" (as defined in
Sections 422 and 424 of the Code) stock possessing more
than 10% of the total combined voting power of all
classes of stock of the Company or a Subsidiary shall
have an Option Price of at least 110% of Fair Market
Value and a term of not more than 5 years, or such
lesser price (but not less than Fair Market Value) or
longer term (but not more than 10 years) as may at the
time of such grant be permitted by the Code, or the
regulations thereunder, for an Incentive Option granted
to such an individual.
(B) The aggregate Fair Market Value (determined as of
the date of grant) of the stock with respect to which
Incentive Options are exercisable for the first time by
an Employee during any calendar year under the Plan and
all other stock option plans of the Company and any
Subsidiaries shall not exceed $100,000, or such other
sum as may from time to time be permitted under
Section 422 of the Code.
6. NUMBER OF SHARES SUBJECT TO AWARDS
Subject to possible adjustment under Section 12 of the Plan,
500,000 shares of Common Stock may be issued pursuant to
Awards under the Plan, but no more than 150,000 shares of
Common Stock may be granted as Restricted Stock. Shares
issued pursuant to Awards under the Plan may be authorized
and unissued shares or may be treasury shares. If an Option
granted under the Plan upon expiration or cancellation
thereof remains unexercised as to any shares, they may be
the subject of further Award; however, to the extent that
Stock Appreciation Rights granted in conjunction with an
Option are exercised, such Option shall be deemed to have
been exercised and the shares of Common Stock which
otherwise would have been issued upon the exercise of such
Option shall not be subject to further Award. The number of
shares available for Award under the Plan shall be reduced
to the extent of any shares issued in fulfillment of Special
Rights upon exercise of an Option, and to the extent, if
any, that shares issued in fulfillment of Special rights
<PAGE>
<PAGE>
upon exercise of Stock Appreciation Rights, when added to
the number of shares covered by the Option with respect to
which the Stock Appreciation Rights were exercised. Shares
which are forfeited to the Company by reason of termination
of employment as provided in Section 11, shares received by
the Company in payment for exercise of an Option as
permitted by Section 9(C)(4)(a) and shares withheld by the
Company to satisfy tax withholding requirements as provided
in Section 15 may not be the subject of further Award.
The Committee cannot approve cancellation of an Option
granted under the Plan prior to its expiration and the
substitution therefor of a new Option at a lower Option
price.
7. TYPES OF OPTIONS AND RELATED RIGHTS
(A) The Compensation Committee shall have full and
complete authority in its discretion, subject to
Section 16 and the other provisions of the Plan, to
grant Options containing such terms and conditions as
shall be requisite, in its judgment, to constitute
either Incentive Options or Non-Statutory Options.
(B) The Compensation Committee may grant Stock
Appreciation Rights (as provided by Section 8 hereof)
in connection with an Option, except for Options
granted pursuant to Section 16, at the time of grant of
the Option or, in the case of a Non-Statutory Option,
at a later date.
(C) If Stock Appreciation Rights are not specifically
granted by the Compensation Committee, the grant of an
Option shall carry with it conditional Stock
Appreciation Rights which shall be exercisable by the
Optionee only during the 30 days after termination of a
tender or exchange offer which results in a Change of
Control.
(D) All Option grants shall also be deemed to include
associated Special Rights.
8. STOCK APPRECIATION RIGHTS AND SPECIAL RIGHTS
(A) Stock Appreciation Rights shall entitle the holder
of an Option in connection with which such Stock
Appreciation Rights are granted, upon exercise of the
Stock Appreciation Rights, to surrender the Option, or
any applicable portion thereof, to the extent
unexercised, and to receive a number of shares of
Common Stock, cash, or cash and shares of Common Stock,
determined pursuant to subparagraph (C)(2) and
paragraph (D) of this Section 8.
<PAGE>
<PAGE>
(B) Special Rights shall entitle the holder of an
Option to the additional compensation described below.
If there has been outstanding, within 30 days prior to
the date on which an Option or related Stock
Appreciation Right is exercised, a tender or exchange
offer which resulted in a Change of Control, then upon
exercise of such Option, without any payment by the
holder thereof other than the Option Price, or upon
exercise of such Stock Appreciation Rights, the
Optionee's Special Rights shall also be deemed to have
been exercised and shall entitle him, in addition to
the shares to which he is entitled upon such exercise,
to receive as additional compensation such additional
number of shares (subject to the limitations of
Section 6) as shall be equal in aggregate Fair Market
Value to the product of multiplying the number of
shares in respect of which the Option or Stock
Appreciation Rights shall have been exercised times the
amount, if any, by which the highest price paid per
share pursuant to such tender or exchange offer
exceeded the Fair Market Value per share on the date of
exercise.
(C) Stock Appreciation Rights shall be subject to the
following terms and conditions and to such other terms
and conditions not inconsistent with the Plan as shall
from time to time be approved by the Compensation
Committee:
(1) Stock Appreciation Rights shall be exercisable only by
such person or persons, at such time or times, and to the
extent, that the Option to which they relate shall be
exercisable, and only when the Fair Market Value
per share exceeds the Option Price per share.
(2) Upon exercise of Stock Appreciation Rights, the holder
thereof shall be entitled to receive such number of shares,
and cash for any fractional share, as shall be equal
in aggregate Fair Market Value to the amount by
which the Fair Market Value per share on the date
of such exercise shall exceed the Option Price per
share of the related Option, multiplied by the
number of shares in respect of which the Stock
Appreciation Rights shall have been exercised.
(3) To the extent that Stock Appreciation Rights are exercised,
the Option in connection with which such Stock Appreciation
Rights were granted shall be deemed to have been exercised.
(D) The Company may settle all or any part of its
obligation arising out of an exercise of Stock
Appreciation Rights and Special Rights by the payment
of cash in an amount equal to the aggregate Fair Market
Value of shares (including a fraction of a share)
<PAGE>
<PAGE>
determined on the date of exercise that it would
otherwise be obligated to deliver under paragraph (B)
or subparagraph (C)(2), or both, but for the cash
payment. Such cash settlement may be made either
(i) in the sole discretion of the Committee or
(ii) pursuant to an election by the Optionee approved
by the Committee.
9. TERMS OF OPTIONS
The grant of each Option shall be confirmed by a Stock
Option Agreement (in the form prescribed by the Compensation
Committee) which shall be executed by the Company and the
Optionee as promptly as practicable after such grant. The
Stock Option Agreement shall expressly state whether the
Option is an Incentive Option or a Non-Statutory Option and
shall incorporate by reference the provisions of this Plan.
(A) The Option Price in all cases shall be 100% of the
Fair Market Value of the Company's Common Stock on the
date the Option is granted, subject to adjustment as
provided in Section 12, and except as specified in
Section 5(A).
(B) The term of each Option granted under this Plan,
except for Options granted pursuant to Section 16,
shall be for such period as the Compensation Committee
shall determine, but not more than 10 years from the
date of grant thereof (or such lesser period is
specified in Section 5(A)), subject to earlier
termination of the Option as provided in Subsection D
of this Section 9.
(C) Each Option granted under this Plan may be
exercised during its term for such number of shares as
shall be prescribed by the provisions of the Stock
Option Agreement evidencing such Option, provided that:
(1) An Option granted under this Plan may not be exercised
to any extent until at least six months after the date of
the grant of the Option, provided that an Option may be
exercised in full within 30 days following
termination of a tender or exchange which results
in a Change of Control, subject to the provisions
of Sections 5(B) and 10(A).
(2) An Option granted pursuant to Section 16 may during its
term be exercised by the Optionee during the continuance
of the Optionee's service as a director of the
Company and for three months after termination of
service as a director. If an Optionee holding an
Option granted pursuant to Section 16 dies while a
<PAGE>
<PAGE>
Director or within three months after cessation of
service as a Director, any outstanding Options may
be exercised by the Successor of the Optionee at
any time prior to the expiration date of such
Options or within one year of the date of the
Optionee's death, whichever is the shorter period.
Any other Option may during its term be exercised
by the Optionee (a) during the continuance of the
Optionee's employment by the Company or a
Subsidiary or (b) after cessation of the
Optionee's employment by the Company or a
Subsidiary to the extent provided in Subsection D
of this Article 9.
(3) An Option may be exercised by the Optionee or a Successor
only by written notice to the Company (in the form
prescribed by the Compensation Committee)
specifying the number of shares to be purchased,
together with payment or payment arrangements in
accordance with paragraph (4) below.
(4) The aggregate Option Price of the shares as to which an
Option is exercised shall be, in the discretion of the
Compensation Committee (a) paid in full by any one
or any combination of the following: cash,
personal check, or delivery of Common Stock
certificates endorsed in blank or accompanied by
executed stock powers with signatures guaranteed
by a national bank or trust company or a member of
a national securities exchange evidencing shares
of Common Stock having an aggregate Fair Market
Value on the date of exercise equal to or greater
than the Option Price, (b) paid on a deferred
basis upon such terms and conditions, including
provisions for securing payment as the
Compensation Committee, in its discretion, shall
specify, or (c) deemed to be paid in full provided
the notice of exercise of the Option is
accompanied by a copy of irrevocable instructions
to a broker (in a form satisfactory to the Stock
Option Committee) to promptly deliver to the
Company the amount of sale or loan proceeds
sufficient to cover the Option Price. Payment of
the Option Price with certificates evidencing
shares of Common Stock as provided above shall not
increase the number of shares available for Award
under the Plan.
(D) If an Optionee ceases to be employed by the
Company or any Subsidiary the following rules shall
apply to any outstanding Options then held by the
Optionee or his or her Successor:
<PAGE>
<PAGE>
(1) If the employment of an Optionee is terminated for Cause,
his rights under any then outstanding Options shall terminate
at the time of such termination of employment.
(2) If the employment of an Optionee is terminated by the Company
or a Subsidiary because, in the opinion of the
Compensation Committee, the Optionee has become
physically incapacitated, any outstanding Options
may be exercised at any time prior to the
expiration date of such Options or within three
months after the date of such disability
termination, whichever is the shorter period,
whether or not such Options were exercisable on
the date of such termination under the provisions
of the applicable Stock Option Agreements relating
thereto. The question whether the termination of
employment shall be considered a disability
termination caused by physical incapacity shall be
determined in each case by the Compensation
Committee and such determination shall be final.
(3) If an Optionee dies while an Employee or within three months
after termination of employment for disability, any
outstanding Options may be exercised by the
Successor of the Optionee at any time prior to the
expiration date of such Options or within one year
of the date of the Optionee's death, whichever is
the shorter period, whether or not such Options
were exercisable on the date of the Optionee's
death under the provisions of the applicable Stock
Option Agreements relating thereto. If an
Optionee dies within three months after his
Retirement or other termination of his employment
without Cause, any outstanding Options may be
exercised by the Successor of the Optionee at any
time prior to the expiration date of such options
or within one year of the Date of the Optionee's
death, whichever is the shorter period, provided
that such Options were exercisable on the date of
the Optionee's termination of employment under the
provisions of the applicable Stock Option
Agreement relating thereto or the Compensation
Committee specifically waives any restrictions
relating to exercisability contained therein.
(4) If the employment of an Optionee is terminated without
Cause for reasons other than those described in paragraphs
(2) and (3), whether by reason of Retirement of the
Optionee or by reason of any other termination
without Cause, any outstanding Options may be
exercised by the Optionee at any time prior to the
expiration date of such Options or within three
months after the date of such termination,
whichever is the shorter period, provided such
<PAGE>
<PAGE>
Options were exercisable on the date of such
termination under the provisions of the applicable
Stock Option Agreement relating thereto or the
Compensation Committee specifically waives any
restrictions relating to exercisability contained
therein.
(5) Anything herein to the contrary notwithstanding, unless
written notification to the contrary is given to the
Optionee or Successor by the Compensation
Committee within 30 days after the Optionee's
death, Retirement, or other termination of
employment without Cause, paragraphs (2) through
(4) above shall be applied as if all references in
such paragraphs to three months were references to
three years.
(E) Options granted pursuant to the Plan shall contain
such other terms, provisions and conditions not
inconsistent herewith as shall be determined by the
Compensation Committee.
10. ISSUANCE AND DELIVERY OF SHARES
(A) As soon as practicable after receipt by the Company of notice
of exercise and of payment in full of the Option Price of shares
with respect to which an Option has been exercised, or upon
exercise of Stock Appreciation Rights or Special Rights, a
certificate or certificates representing the appropriate number
of shares registered in the name or names of the Optionee
or his Successor shall be delivered to the Optionee or
his Successor.
(B) An Optionee shall have no rights as a stockholder
with respect to any shares for which he is granted an
option until the date of issuance to him of a stock
certificate for such shares and no adjustment shall be
made for any dividends or, except as provided in
Section 12, other rights the record date for which is
prior to the date such stock certificate is issued.
(C) If at any time the Board of Directors shall determine,
in its discretion, that the listing, registration or
qualification of any of the shares subject to Options
under the Plan upon any securities exchange or under any
state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable
as a condition of or in connection with the purchase or
issue of shares thereunder, no outstanding Options may be
exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been
effected or obtained free of any conditions not
acceptable to the Board of Directors. The Board of
<PAGE>
<PAGE>
Directors may require any person exercising an Option
to make such representations and furnish such
information as it may consider appropriate in
connection with the issuance or delivery of the shares
in compliance with applicable law and shall have the
authority to cause the Company at its expense to take
any action related to the Plan which may be required in
connection with such listing, registration, qualification,
consent or approval.
11. RESTRICTED STOCK GRANTS
The Compensation Committee shall have the authority to make
Grants to Employees upon such terms and conditions as it
shall establish, subject to the following provisions:
(A) Except as expressly provided below, Restricted
Stock shall not be sold, transferred, assigned, pledged
or otherwise disposed of by the Grantee during the
Restricted Period established by the Compensation
Committee. The Compensation Committee may establish
different Restricted Periods applicable to different
shares of Restricted Stock evidenced by a single Grant
as it deems appropriate. No Restricted Period shall be
less than one year or more than ten years from the date
of Grant.
(B) Restricted Stock shall be issued as of the date of
the Grant and the certificate evidencing shares shall
be delivered by the Company to the Grantee within a
reasonable period of time after it ceases to be
Restricted Stock upon expiration of the applicable
Restricted Period. The Grantee shall be entitled to
vote and to receive cash dividends on his shares of
Restricted Stock.
(C) In the event of termination of employment of a
Grantee, except termination by reason of death or
disability, and except as the Compensation Committee
may otherwise determine in the case of termination
subsequent to his 55th birthday pursuant to an early
separation plan of the Company, his shares of Restricted
Stock and all rights therein shall be forfeited to the
Company.
(D) In the event of termination of employment of a
Grantee by reason of death or disability, the Grantee
or his Successor shall be entitled to receive a
certificate for a number of shares of Common Stock
equal to that portion of his Restricted Stock remaining
from any Grant determined by multiplying the total
number of shares of Restricted Stock remaining from
such Grant by a fraction, the numerator of which shall
be the number of days of employment from the date of
the Grant to the date of termination, and the
denominator of which shall be the number of days from
the date of the Grant to the date of expiration of the
<PAGE>
<PAGE>
last to expire of the Restricted Periods applicable to
that Grant. All rights of the Grantee in the balance
of the shares of Restricted Stock remaining from such
grant shall be forfeited to the Company.
(E) The effect of approved leaves of absence on the
running of applicable Restricted Periods shall be
determined by the Compensation Committee, provided,
however, that no Restricted Period shall expire during
an approved leave of absence unless expressly so
provided by the Committee.
(F) If a tender or exchange offer results in a Change
of Control, any Restricted Period shall immediately
expire for all Restricted Stock.
12. ADJUSTMENTS
In the event that a dividend shall be declared upon the
Common Stock payable in shares (other than treasury shares)
of Common Stock, the number of shares of Common Stock then
subject to any Award outstanding under the Plan and the
number of shares available for Award pursuant to the Plan
but not yet subject to Award shall be adjusted by adding to
each such share the number of shares which would be
distributable in respect thereof if such shares had been
outstanding on the date fixed for determining the
stockholders of the Company entitled to receive such stock
dividend. In the event that the outstanding shares of
Common Stock shall be changed into or exchanged for a
different number or kind of shares of stock or other
securities of the Company or of another corporation, whether
through reorganization, recapitalization, stock split-up,
combination of shares, merger or consolidation, then there
shall be substituted for each share of Common Stock subject
to any such Award and for each share of Common Stock
available for Award pursuant to the Plan but not yet subject
to Award the number and kind of shares of stock or other
securities into which each outstanding share of Common Stock
shall have been so changed or for which each such share
shall have been exchanged. In the event there shall be any
change, other than as specified above in this Section 12, in
the number or kind of outstanding shares of Common Stock or
of any stock or other securities into which such Common
Stock shall have been changed or for which it shall have
been exchanged, then if the Board of Directors shall in its
sole discretion determine that such change equitably
requires an adjustment in the number or kinds of shares
theretofore available for Award pursuant to the Plan but not
yet subject to Award and of the shares then subject to any
Award then outstanding under the Plan, such adjustment shall
be made by the Board of Directors and shall be effective and
binding for all purposes of the Plan and of each Award
outstanding thereunder. In the case of any such
substitution or adjustment as provided for in this
Section 12, the Option Price set forth in each outstanding
<PAGE>
<PAGE>
Option for each share covered thereby prior to such
substitution or adjustment will be the Option Price for all
shares of stock or other securities which shall have been
substituted for such share or to which such share shall have
been adjusted pursuant to this Section 12. Upon any
adjustment made pursuant to this Section 12 the Company
will, upon request, deliver to the Optionee or his Successor
a certificate of its Secretary setting forth the Option
Price thereafter in effect and the number and kind of shares
or other securities thereafter purchasable on the exercise
of such Option.
13. INTERPRETATION, AMENDMENTS AND TERMINATION
(A) The Compensation Committee may make such rules and
regulations and establish such procedures for the
administration of the Plan as it deems appropriate. In
the event of any dispute or disagreement as to the
interpretation of this Plan or of any rule, regulation
or procedure, or as to any question, right or
obligation arising from or related to the Plan, the
decision of the Compensation Committee shall be final
and binding upon all persons.
(B) The Board of Directors may amend this Plan as it
shall deem advisable, except that the Board of
Directors may not, without further approval of the
stockholders of the Company (a) materially increase the
benefits accruing to Insiders under the Plan,
(b) materially increase the total number of shares for
which Awards may be made to Insiders under the Plan,
either in the aggregate or to any individual Insider,
(c) materially change the class of eligible Insiders,
except to comport with changes in the Code, ERISA or
rules or regulations thereunder, or (d) materially
change the provisions of Section 16 regarding automatic
director Options. The provisions of Section 16 may not
be amended more than once in any six month period even
with approval of the stockholders except to comport
with changes in the Code, ERISA or rules or regulations
thereunder.
(C) The Board of Directors may, in its discretion,
terminate this Plan at any time.
(D) Amendment or termination of the Plan shall not
without their consent adversely affect the rights of
Optionees, Grantees or their Successors under any
outstanding Award.
14. NO EMPLOYMENT RIGHTS
The Plan and any Award granted under the Plan shall not
confer upon any Optionee or Grantee any right with respect
<PAGE>
<PAGE>
to continuance of employment by the Company or a Subsidiary,
nor shall interfere in any way with the right of the Company
or a Subsidiary by which an Optionee or Grantee is employed
to terminate his employment at any time.
15. WITHHOLDING TAXES
The Company unilaterally or by arrangement with the Optionee
or Grantee shall make appropriate provision for the
satisfaction of withholding taxes in the case of any Award,
Grant, exercise or other event which gives rise to a
withholding requirement. An Optionee, Grantee or other
person receiving shares upon exercise of a Non-Statutory
Option or expiration of the Restricted Period on shares of
Restricted Stock shall be required to pay the Company or any
Subsidiary in cash the amount of any taxes which the Company
or Subsidiary is required to withhold by reason of such
exercise or expiration. Notwithstanding the preceding
sentence, in the case of Options or Restricted Stock, other
than Options granted pursuant to Section 16, the
Compensation Committee in its discretion, and subject to
such rules and limitations as it shall adopt, may permit an
Optionee or Grantee to elect to have shares of Common Stock
which are issuable, transferable or deliverable to him upon
such exercise or expiration withheld to satisfy in whole or
part the minimum federal, state and local withholding tax
requirements with respect to such exercise or expiration.
The portion of any withholding tax represented by a
fractional share must be paid in cash.
16. DIRECTOR OPTIONS
(A) Each director of the Company who is not an
employee of the Company or any subsidiary shall, on the
first business day of June which first occurs following
the director's election at the annual meeting of
stockholders, commencing with June 1, 1992, and on the
first business day of each June thereafter during such
director's term, automatically be granted a
Non-Statutory Option to purchase 1,000 shares of Common
Stock. A director's Option granted hereunder shall not
be exercisable until six months after the date of
grant. Thereafter such an Option shall be exercisable
at any time within 10 years after the date of grant
provided it remains exercisable pursuant to the rules
of Section 9(C)(2).
(B) Automatic director Option grants shall only be
made if, as of each date of grant, the director (i) is
not otherwise an employee of the Company or any
subsidiary, (ii) has not been an employee of the
Company or any subsidiary for any part of the preceding
fiscal year, and (iii) has served on the Board of
Directors continuously since the commencement of his
term.
<PAGE>
<PAGE>
(C) Options granted automatically to directors
pursuant to this Section 16 shall automatically include
conditional Stock Appreciation Rights and Special
Rights, as described in Section 7(C) and in
Section 7(D).
(D) In the event that the number of shares of Common
Stock available for grant under the Plan is
insufficient to make all automatic grants required to
be made on any date pursuant to this Section 16, an
Option shall be granted to each non-employee director
entitled to a grant on such date for that number of
shares equal to the number of shares of Common Stock
then available for grant under the Plan divided by the
number of directors eligible on such date to receive
such grants.
(E) Except as provided in this Section 16, non-employee
director Options shall be subject to the terms and
conditions of Section 9 for Non-Statutory Options.
17. NONTRANSFERABILITY OF DERIVATIVE SECURITIES
Each Derivative Security awarded under the Plan shall be
nontransferable by the Optionee except by will or the laws
of descent and distribution, or pursuant to a valid
beneficiary designation, and except that the Compensation
Committee may at the time of grant, or any time thereafter,
authorize the transfer in whole or part of Non-Statutory
Options held by an officer of the Company to one or more of
his spouse and/or children and/or grandchildren. Each
Option granted under the Plan shall be exercisable during
the Optionee's lifetime only:
(A) by the Optionee or his or her guardian or other
legal representative;
(B) by such other means as the Compensation Committee
may approve from time to time that is not inconsistent
with or contrary to Section 16(b) of the Securities
Exchange Act of 1934 or Rule 16b-3 thereunder.
Any Stock Appreciation Right granted in conjunction with an
Incentive Option is transferable only when such Option is
transferable and under the same conditions.
18. NOTICES
All notices under the Plan shall be in writing, and if to
the Company, shall be delivered to the Secretary of the
Company or mailed to its principal office, 1000 University
Avenue, Rochester, New York 14692-2970, addressed to the
attention of the Secretary; and if to the Optionee or
Grantee at the address appearing in the payroll records of
the Company or a Subsidiary. Such addresses may be changed
at any time by written notice to the other party.
EXHIBIT (11)
<TABLE>
GLEASON CORPORATION
COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
(In thousands, except per share amounts)
1996 1995 1994
<S> <C> <C> <C>
Primary
Average shares outstanding 5,167 5,171 5,163
Net effect of dilutive stock
options - based on the treasury
stock method using average
market price 151 110 --
Hypothetical shares for the
deferral of directors' fees 23 19 --
Total 5,341 5,300 5,163
Net income $19,660 $30,827 $ 7,228
Per share amount $ 3.68 $ 5.82 $ 1.41
Fully Diluted
Average shares outstanding 5,167 5,171 5,163
Net effect of dilutive stock
options - based on the treasury
stock method using the higher of
the average or ending market price 151 150 --
Hypothetical shares for the
deferral of directors' fees
23 19 --
Total 5,341 5,340 5,163
Net income $19,660 $30,827 $ 7,228
Per share amount $ 3.68 $ 5.77 $ 1.41
</TABLE>
<TABLE>
Five Year Review
GLEASON CORPORATION AND SUBSIDIARIES
<CAPTION>
Dollars in thousands,
except per share amounts 1996 1995 1994 1993 1992
Summary of Operations
<S> <C> <C> <C> <C> <C>
Net sales $248,089 $197,046 $128,462 $103,870 $147,274
Income (loss) from continuing operations 19,660 30,382<Fa> 4,332 (2,873) (23,764)<Fb>
Gain on disposal of discontinued operations -- 445 2,956 -- --
Cumulative effect of change in accounting
for postretirement benefits other than
pensions -- -- -- -- (37,472)<Fc>
Net income (loss) 19,660 30,827 7,288 (2,873) (61,236)
Primary earnings (loss) per common share:
Continuing operations 3.68 5.74<Fa> .84 (.56) (4.35)<Fb>
Disposal of discontinued operations -- .08 .57 -- --
Cumulative effect of change in accounting
for postretirement benefits other than
pensions -- -- -- -- (6.86)<Fc>
Net income (loss) 3.68 5.82 1.41 (.56) (11.21)
Cash dividends declared per common share .50 .50 .40 .40 .40
Financial Position at Year-End
Cash and equivalents 7,199 9,926 3,173 4,155 7,105
Net property, plant and equipment 61,391 60,948 53,604 60,286 67,479
Total assets 190,674 197,198 122,016 121,849 140,089
Long-term debt 4,506 25,315 2,600 14,575 6,172
Total debt 4,841 26,810 3,283 15,115 7,388
Stockholders' equity 84,864 73,291 42,199 35,009 41,458
Other Data
Capital expenditures 10,281 8,309 3,527 5,587 24,526
Depreciation and amortization 10,707 9,992 9,293 9,221 9,641
New orders 246,352 226,107 156,962 94,970 108,274
Backlog 122,800 124,500 54,700 26,200 35,100
Number of employees (continuing operations) 1,543 1,455 1,079 1,049 1,420
<FN>
Notes:
<Fa> Income from continuing operations for 1995 included positive adjustments
to record deferred tax assets not previously recognized. Income from
continuing operations for 1995 using normalized tax rates would have been
approximately $12.9 million, or $2.43 per share.
<Fb> (Loss) from continuing operations for 1992 included restructuring costs
of $26.0 million, or $4.76 per share, and environmental costs of $2.9
million, or $.52 per share.
<Fc> No tax benefit was recorded on the cumulative effect of accounting
change in 1992.
</FN>
</TABLE>
<PAGE>
<PAGE>
Management's Discussion and Analysis
of Results of Operations and Financial Condition
About the Company
The Company operates within one business segment. The principal
activity is the design, manufacture and sale of machinery and equipment for
the production of bevel and cylindrical gears. The Company manufactures a
complete line of machines and tooling for bevel gears. Bevel gears transmit
power at an angle, such as from the drive shaft to the rear-driven axle of a
vehicle. The Company also manufactures machines and tooling for producing
cylindrical gears. Cylindrical gears transmit power in a parallel path and
have a variety of applications, including transmissions of vehicles. On
July 1, 1995, the Company acquired the technology and certain assets of Hurth
Maschinen und Werkzeuge GmbH ("Hurth") in Munich, Germany adding complemen-
tary product lines which strengthen its position in the cylindrical gear
equipment market.
The Company's major customers are in the automotive and truck industries,
which normally account for three-fourths of its total sales each year. Other
industries served include aerospace, construction, farm and marine.
The Company's markets are worldwide; historically two-thirds of total
sales each year have been to customers located outside of the United States.
In 1996, over 73 percent of total sales were to customers outside the U.S.,
compared to 65 percent in 1995. Because of the Company's dependence on these
global markets, economic conditions and trends in the world's major industrial
markets can significantly influence overall sales and operating results.
Results of Operations
1996 Compared to 1995
Earnings
Operating income (earnings before interest and taxes) increased 45
percent in 1996 to $31.3 million, or 12.6 percent of sales, compared to $21.5
million, or 10.9 percent of sales, in 1995. This improvement in operating
income was primarily attributable to benefits from higher operating volumes,
improved margins and incremental earnings from the Hurth operation.
Net income for 1996 was $19.7 million, or $3.68 per share, compared to
$30.8 million, or $5.82 per share, in 1995. Net income for 1995 was increased
<PAGE>
<PAGE>
by significant tax benefits related to the recognition of deferred tax assets
associated with charges recorded in prior years. Management estimates that
net income for 1995 using normalized tax rates would have been approximately
$13.3 million, or $2.51 per share. Net income for 1995 also included a gain
on the disposal of discontinued operations of $0.4 million, or $.08 per share.
Orders and Backlog
Order levels in 1996 were $246.4 million, an increase of 9 percent from
1995. New orders, excluding the Company's Gleason-Hurth subsidiary which was
acquired in mid-1995, increased 5 percent compared to 1995. Order volumes were
higher primarily due to a 25 percent increase in orders for bevel gear
production machinery, partially offset by lower incoming orders for cylind-
rical gear production equipment and tooling products. Bevel gear machinery
orders increased with the continued strong demand for rear-wheel and all-
wheel drive vehicles, which use bevel gears, and the advantages for these
vehicle producers to replace their older installed base of bevel gear
production equipment with the Company's newer PHOENIX line of products.
Order levels for cylindrical gear machinery were lower than in 1995 primarily
due to a reduction in orders from Europe. Orders in 1995 included multiple
machine orders from European vehicle producers related to transmission
production expansion programs. The order rate for cylindrical gear produc-
tion machines increased during 1996, with orders in the second half more than
double the first half level. Tooling orders, excluding Hurth, were down 7
percent in 1996 due to lower orders for bevel gear cutting tools.
Backlog was $122.8 million at December 31, 1996 compared to $124.5
million at December 31, 1995. Bevel gear production machinery accounted for
about 60 percent of total machine backlog at December 31, 1996 compared to
42 percent at 1995 year-end.
Net Sales
Net sales were $248.1 million in 1996, a 26 percent increase from 1995.
Sales, excluding Hurth, increased 8 percent compared to the prior year. This
increase in sales was primarily a result of higher shipments of gear produc-
tion machines.
Machine product sales, excluding Hurth machines, increased 15 percent
compared to 1995. Higher shipments of bevel gear machinery more than offset
lower shipments of cylindrical gear production machines. Bevel gear produc-
<PAGE>
<PAGE>
tion machine sales were higher largely due to increased sales to the Asian
market. The majority of this increase was attributable to capital spending
programs associated with new or expanding capacity requirements for vehicle
producers in that region. The reduction in cylindrical gear production
machine sales, excluding Hurth, was primarily due to lower shipments of the
Company's G-TECH (Registered Trademark) gear hobbing machines. Sales of
these products were negatively impacted by the introduction, in 1996, of a
new PHOENIX medium sized gear hobbing machine, for which shipments began in
early 1997. Shipments of the Company's PHOENIX cylindrical gear cutting
machines increased 13 percent in 1996 compared to 1995.
Sales of the Company's tooling products, excluding Hurth, were
comparable to those in 1995. Workholding equipment sales, which increased 10
percent, were offset by a decrease in shipments of bevel gear cutting tools to
customers in the U.S. Sales of other products including spare parts, field
service and software were down slightly from 1995.
Costs and Expenses
Cost of goods sold as a percentage of sales was 67.7 percent compared to
69.8 percent in 1995. The lower cost of sales percentage for 1996 was
primarily due to increased margins across all major machine product lines and a
more favorable sales mix of higher margin machine products including bevel
gear and Hurth gear shaving machines. Margins on machine products, in general,
were positively impacted by the higher production volumes which increased the
coverage of fixed operating costs. This was partially offset by a higher
percentage of machines in the overall sales mix. Generally, machine products
have lower margins than tooling or other products.
Selling, general and administrative expenses were $42.6 million, or
17.2 percent of sales, compared to $33.8 million, or 17.1 percent of sales,
in 1995. Spending as a percentage of sales was basically flat year over year,
however commission expense as a percentage of sales increased compared to
1995. Commissions paid to dealers increased due to higher shipments into the
Asia-Pacific and South American regions where the Company is represented by
independent machine dealers.
<PAGE>
<PAGE>
Research and development spending in 1996 was $7.2 million, or 2.9
percent of sales, compared to $5.6 million, or 2.9 percent of sales, in 1995.
Development spending in 1996 exceeded 1995 levels because of increased
spending for new product development for both bevel and cylindrical gear
production equipment and manufacturing technology initiatives for the
Company's tooling operations.
Other income decreased to $1.0 million in 1996 from $1.3 million in
1995 primarily due to lower outside commission income.
Income Taxes
In 1996, the Company recorded a tax provision of $11.1 million on
pre-tax income of $30.7 million, or an effective rate of 36 percent. In
1995, the Company recorded a net tax benefit of $9.4 million for continuing
operations on pre-tax income of $21.0 million. 1995 income taxes were
lowered by significant deferred tax benefits resulting from a reduction in
the valuation allowance recorded for deferred tax assets. This reduction in
the valuation allowance resulted in an increase in the net deferred tax
asset recorded on the Company's Consolidated Balance Sheet at December 31,
1995 to $18.2 million from $2.8 million at December 31, 1994. The Company
had previously been limited, under the provisions of FASB Statement No. 109,
in the amount of the deferred tax asset it had been able to record.
Outlook
The Company's prospects for further growth in 1997 remain positive.
While sales of cylindrical gear equipment are not forecasted to increase from
1996, shipments of bevel gear machinery, which serve the popular light truck
and sport utility vehicle markets, should increase from 1996 given the higher
starting backlog for these products. In the second quarter of 1996, the
Company received two large orders totaling $24 million for bevel gear
production equipment from U.S. vehicle and axle manufacturers. These orders
provide a good example of the large market potential for replacement of the
older installed base of bevel gear production equipment with the Company's
more advanced line of PHOENIX products. These orders are expected to ship
in 1997.
These forward-looking statements are subject to a number of factors
that could cause actual results to differ materially from those expected.
These risk factors include, but are not limited to, failure to receive
customer orders to support the sales projections, possible delays in the
development of new products that are planned for shipment in 1997, and
economic conditions in the major industrial markets which the Company serves.
<PAGE>
<PAGE>
1995 Compared to 1994
Earnings
Operating income (earnings before interest and taxes) in 1995 improved
to $21.5 million, or 10.9 percent of sales, from $5.2 million, or 4.0 percent
of sales, in 1994. The improvement in operating income from 1994 resulted
from higher sales, improved margins and incremental earnings from the Hurth
operation.
The Company had income from continuing operations of $30.4 million, or
$5.74 per share, in 1995, compared to $4.3 million, or $.84 per share, in
1994. Income from continuing operations for 1995 was increased by positive
adjustments related to the recognition of deferred tax assets associated with
charges recorded in prior years. Management estimates that income from
continuing operations for 1995 using normalized tax rates would have been
approximately $12.9 million, or $2.43 per share. Net income for the year was
$30.8 million, or $5.82 per share, including an after-tax gain from
discontinued operations of $0.4 million, or $.08 per share. Net income for
1994 was $7.3 million, or $1.41 per share, which included an after-tax gain
from discontinued operations of $3.0 million, or $.57 per share.
Orders and Backlog
Order levels in 1995 increased 44 percent over 1994 to $226.1 million.
Orders for the Hurth operation totaled $41.2 million for the six-month period
from the acquisition to December 31, 1995. New orders, excluding Hurth,
increased 18 percent compared to 1994. This increase primarily resulted from
higher order levels for PHOENIX bevel gear machinery and bevel gear cutting
tools. The higher order rate was attributable to improved demand from the
Company's overseas markets.
Backlog was $124.5 million at December 31, 1995, compared to $54.7
million at December 31, 1994. This increase in backlog of $69.8 million
included $49.3 million for the Hurth operation. The remaining increase of
$20.5 million in backlog was principally for bevel gear machinery.
Net Sales
Net sales were $197.0 million in 1995, a 53 percent increase from 1994.
Sales for the Hurth operation totaled $32.8 million, accounting for
approximately 48 percent of the total increase. The remaining increase in
sales of $35.8 million, represented a 28 percent improvement from 1994
shipment levels. Sales of all product lines increased compared to 1994 with
higher machine sales accounting for the largest portion of the improvement.
<PAGE>
<PAGE>
Machine product sales, excluding Hurth machines, increased $26.8 million
compared to 1994. This increase was divided relatively equally between bevel
and cylindrical gear machinery. Higher shipments of the Company's PHOENIX
gear hobbing machines accounted for the majority of the increase in cylind-
rical gear machine sales. Shipments to customers in the United States
accounted for approximately 60 percent of the 1995 full year total cylindri-
cal gear machine sales and the largest portion of the year over year increase.
Bevel gear machine sales were higher largely due to increased sales to the
Asian market, primarily China and India.
Sales of the Company's tooling products also showed strong improvement.
Tooling sales were $8.1 million higher, excluding the Hurth operation, with
the greatest increase coming from overseas markets which accounted for
approximately 70 percent of the increase.
Costs and Expenses
Cost of goods sold as a percentage of sales was 69.8 percent compared
to 73.9 percent in 1994. The lower percentage was primarily attributable to
improved margins on machine products. Margin improvement on these products
resulted from lower direct product costs on most machine product lines and
the effect of higher production volumes, which increased capacity utilization
and coverage of fixed operating costs. Margins on tooling products also
increased compared to 1994. The Hurth operation contributed favorably to
the overall gross margin percentage from its acquisition through December
31, 1995.
Selling, general and administrative expenses were $33.8 million, or
17.1 percent of sales, compared to $24.5 million, or 19.1 percent of sales,
in 1994. Spending decreased as a percentage of sales due to the higher sales
volumes. Total spending increased in 1995 with the inclusion of the Hurth
operation in the second half of 1995 and increased variable selling expenses,
including warranty and commissions. Variable selling expenses as a percentage
of sales were similar to 1994.
Research and development spending in 1995 was $5.6 million, or 2.9
percent of sales, compared to $4.7 million, or 3.7 percent of sales, in 1994.
Major development programs in 1995 included a new CNC gear testing machine,
shipments of which began in the 1995 fourth quarter. In addition, spending
for development programs associated with new product design and manufacturing
technology initiatives for the Company's tooling operations increased in 1995
compared to 1994.
<PAGE>
<PAGE>
Income Taxes
In 1995, the Company recorded a net tax benefit of $9.4 million for
continuing operations on pre-tax income of $21.0 million. In 1994, the
Company recorded a tax provision of $0.8 million for continuing operations on
pre-tax income of $5.2 million. The 1995 tax benefit included a net deferred
benefit of $14.8 million primarily resulting from a reduction in the valuation
allowance recorded for deferred tax assets. This reduction in the valuation
allowance resulted in an increase in the net deferred tax asset recorded on
the Company's Consolidated Balance Sheet at December 31, 1995 to $18.2 million
from $2.8 million at December 31, 1994. Under the provisions of FASB
Statement No. 109, the Company had been limited, primarily due to its prior
domestic operating losses, in the amount of the deferred tax asset it had
been able to record. Significant improvements in domestic operating perfor-
mance and available tax planning strategies provided the necessary positive
evidence that it was more likely than not that future income would be
sufficient to fully realize the deferred tax asset recorded at December 31,
1995. A valuation allowance for deferred tax assets of $7.0 million remained
at December 31, 1995 for certain tax credits and net foreign operating loss
carryforwards for which realization could not be anticipated at that time.
Liquidity and Capital Resources
Borrowings under the Company's revolving credit facilities decreased to
$3.9 million at December 31, 1996 from $24.7 million at 1995 year-end.
Available unused short and long-term credit lines with banks, including
revolving credit facilities, totaled approximately $35 million at December
31, 1996. Cash and equivalents decreased to $7.2 million at December 31, 1996
from $9.9 million at December 31, 1995.
Operating activities provided $37.6 million of net cash in 1996,
compared to $4.7 million in 1995. Operating cash flows were higher in 1996
primarily due to higher operating earnings and significantly lower increases
in working capital, primarily accounts receivable and inventories.
Investing activities used $10.0 million of net cash in 1996 compared to
$18.6 million of net cash used in 1995. The purchase of Hurth accounted for
$10.6 million of the cash used in investing activities in 1995. Capital
expenditures in 1996 increased to $10.3 million, compared to $8.3 million in
1995 and $3.5 million in 1994. This increase in capital spending included the
purchase of equipment for the Company's tooling operations associated with the
<PAGE>
<PAGE>
modernization program underway. Capital expenditures for 1997 are expected to
exceed depreciation expense with the majority of this spending planned for
further investments to upgrade existing production capabilities.
In July 1996, the Company's Board of Directors authorized the repurchase
of up to 10 percent of the Company's currently outstanding common stock in
open market or privately negotiated transactions. In 1996, the Company used
$6.2 million in cash to repurchase shares.
In the third quarter of 1996, the Company announced its intention to
acquire the operations of The Hermann Pfauter Group for cash, with an
option for the seller to receive up to 25 percent of the consideration in
shares of the Company's Common Stock. 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. As of March 7, 1997, the Company had not entered into a definitive
agreement for the acquisition.
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. Management expects these credit facilities to be in
place at the time of closing on the acquisition.
Dividends
In January 1995, the Board of Directors approved a 25 percent increase
in the Company's quarterly dividend from $.10 per share to $.125 per share.
Total dividend payments were $2,585,000 for 1996 and 1995 and $2,065,000 for
1994.
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements of Operations
GLEASON CORPORATION AND SUBSIDIARIES
<CAPTION>
__________________________________________________________________________
Dollars in thousands, except per share amounts
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Net sales $248,089 $197,046 $128,462
Costs and expenses
Cost of products sold 167,958 137,461 94,935
Selling, general and
administrative expenses 42,614 33,789 24,539
Research and development expenses 7,243 5,617 4,729
Interest expense--net 513 527 11
Other (income)--net (982) (1,328) (909)
217,346 176,066 123,305
Income from continuing operations
before income taxes 30,743 20,980 5,157
Provision (benefit) for income taxes 11,083 (9,402) 825
Income from continuing operations 19,660 30,382 4,332
Gain on disposal of discontinued
operations -- 445 2,956
Net income $ 19,660 $ 30,827 $ 7,288
Primary earnings per common share:
Income from continuing operations $ 3.68 $ 5.74 $ .84
Gain on disposal of discontinued
operations -- .08 .57
Net income $ 3.68 $ 5.82 $ 1.41
Fully diluted earnings per common share:
Income from continuing operations $ 3.68 $ 5.69 $ .84
Gain on disposal of discontinued
operations -- .08 .57
Net income $ 3.68 $ 5.77 $ 1.41
Weighted average number of common shares
outstanding:
Primary 5,340,822 5,300,117 5,162,877
Fully diluted 5,340,822 5,339,871 5,162,877
Cash dividends declared per common share $ .50 $ .50 $ .40
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Balance Sheets
GLEASON CORPORATION AND SUBSIDIARIES
<CAPTION>
Dollars in thousands
December 31 1996 1995
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 7,199 $ 9,926
Trade accounts receivable 65,583 65,288
Inventories 27,986 29,565
Deferred tax asset 6,894 4,113
Other current assets 4,038 5,468
Total current assets 111,700 114,360
Property, plant and equipment - net 61,391 60,948
Deferred tax asset 10,013 14,755
Other assets 7,570 7,135
Total assets $190,674 $197,198
Liabilities and Stockholders' Equity
Current liabilities
Short-term borrowings $ 329 $ 1,489
Current portion of long-term debt 6 6
Trade accounts payable 16,972 16,153
Income taxes 10,224 2,335
Other current liabilities 30,335 33,968
Total current liabilities 57,866 53,951
Long-term debt 4,506 25,315
Pension plans and other retiree benefits 38,220 38,876
Other liabilities 5,218 5,765
Total liabilities 105,810 123,907
Stockholders' equity
Preferred Stock, par value $1 per share;
authorized 500,000 shares; issued: none
Common Stock, par value $1 per share;
authorized 20,000,000 shares; issued:
5,797,070 shares in 1996 and 5,796,446
shares in 1995 5,797 5,796
Additional paid-in capital 11,528 11,749
Retained earnings 86,187 69,112
Cumulative foreign currency translation
adjustment (2,149) (2,156)
Minimum pension liability adjustment (461) (1,093)
100,902 83,408
Less treasury stock of 801,797 shares
in 1996 and 614,591 shares in 1995, at cost 16,038 10,117
Total stockholders' equity 84,864 73,291
Total liabilities and stockholders' equity $190,674 $197,198
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
GLEASON CORPORATION AND SUBSIDIARIES
<CAPTION>
Dollars in thousands
Year Ended December 31 1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 19,660 $ 30,827 $ 7,288
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 10,707 9,992 9,293
(Gain) loss on disposals of property,
plant and equipment 113 (23) (36)
Provision (benefit) for deferred
income taxes 2,286 (14,836) (1,426)
Changes in operating assets and
liabilities:
(Increase) in accounts receivable (954) (23,134) (13,774)
(Increase) decrease in inventories 374 (10,170) 3,288
(Increase) decrease in other
current assets 1,321 (2,979) 901
Increase in accounts payable 786 5,821 3,355
Increase in all other current
operating liabilities 4,318 8,114 3,261
Other, net (1,037) 1,102 (1,366)
Net cash provided by operating activities 37,574 4,714 10,784
Cash flows from investing activities:
Capital expenditures (10,281) (8,309) (3,527)
Investment in unconsolidated affiliate -- -- (1,489)
Investment in subsidiary -- (10,582) --
Proceeds from sales of businesses and
asset disposals 206 100 3,787
Proceeds from collection of notes
receivable 54 199 3,281
Net cash provided by (used in)
investing activities (10,021) (18,592) 2,052
Cash flows from financing activities:
Net proceeds from (repayments of)
short-term borrowings (1,185) 876 183
Net proceeds (repayments) under
revolving credit agreements (20,646) 22,490 (12,148)
Proceeds from long-term debt 130 145 83
Repayment of long-term debt (131) (68) (139)
Dividends paid (2,585) (2,585) (2,065)
Purchase of treasury stock (6,219) (59) (7)
Net stock issued 78 232 --
Net cash provided by (used in) financing
activities (30,558) 21,031 (14,093)
Effect of exchange rate changes on cash
and equivalents 278 (400) 275
Increase (decrease) in cash and equivalents (2,727) 6,753 (982)
Cash and equivalents, beginning of year 9,926 3,173 4,155
Cash and equivalents, end of year $ 7,199 $ 9,926 $ 3,173
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity
GLEASON CORPORATION AND SUBSIDIARIES
<CAPTION>
Dollars in thousands Years Ended December 31, 1996, 1995 and 1994
Cumulative
Foreign Minimum Total
Additional Currency Pension Stock-
Common Paid-in Retained Translation Liability Treasury holders'
Stock Capital Earnings Adjustment Adjustment Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $5,796 $11,909 $35,647 $(1,315) $(6,585) $(10,443) $35,009
Net income 7,288 7,288
Dividends declared (2,065) (2,065)
Foreign currency translation
adjustments 398 398
Change in minimum pension
liability adjustment 1,576 1,576
Purchase of treasury stock (7) (7)
_________________________________________________________________________________________________________________
Balance at December 31, 1994 5,796 11,909 40,870 (917) (5,009) (10,450) 42,199
Net income 30,827 30,827
Dividends declared (2,585) (2,585)
Shares issued under Stock Plans (147) 320 173
Foreign currency translation
adjustments (1,239) (1,239)
Change in minimum pension
liability adjustment 3,916 3,916
Purchase of treasury stock (59) (59)
Other shares issued to employees (13) 72 59
_________________________________________________________________________________________________________________
Balance at December 31, 1995 5,796 11,749 69,112 (2,156) (1,093) (10,117) 73,291
Net income 19,660 19,660
Dividends declared (2,585) (2,585)
Shares issued under Stock Plans 1 (221) 298 78
Foreign currency translation
adjustments 7 7
Change in minimum pension
liability adjustment 632 632
Purchase of treasury stock (6,219) (6,219)
_________________________________________________________________________________________________________________
Balance at December 31, 1996 $5,797 $11,528 $86,187 $(2,149) $ (461) $(16,038) $84,864
<FN>
See Notes to Consolidated Fnancial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
Notes to Consolidated Financial Statements
GLEASON CORPORATION AND SUBSIDIARIES
December 31, 1996
Note 1 -- Summary of Significant Accounting Policies
Consolidation: The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly-
owned. All significant intercompany transactions are eliminated in
consolidation.
Revenue Recognition: Sales generally are recognized by the Company
when products are shipped or services have been provided. Sales are
reported net of returns and allowances.
Foreign Currency Translation: All asset and liability accounts of
foreign operations are translated at the current exchange rate, income
statement items are translated at average exchange rates, and the
resulting translation adjustments are made directly to a separate
component of stockholders' equity designated as "cumulative foreign
currency translation adjustment." Gains and losses from foreign
currency transactions are reported in operations and had a minimal
impact on the Company in 1996, 1995 and 1994.
Cash and Equivalents: The Company considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents.
Inventories: Inventories are valued at the lower of cost or market.
Inventories valued using the last-in, first-out (LIFO) method
comprised 59% and 61% of consolidated inventories at December 31, 1996
and 1995, respectively. Inventories not valued using the LIFO method
are determined on the first-in, first-out (FIFO) method.
Property and Depreciation: Property, plant and equipment are recorded
at cost. Depreciation is computed on the straight-line method over
estimated useful lives of 10 to 32 years for buildings and
improvements and 4 to 12 years for machinery and equipment. Upon
retirement or disposal of an asset, the asset and related accumulated
depreciation are eliminated with any gain or loss reported in
earnings.
Earnings Per Share: The computation of primary earnings per common
share is determined by dividing the weighted average number of common
shares and (in periods in which they have a dilutive effect) common
share equivalents outstanding during the year into net earnings.
Common share equivalents include stock options and hypothetical shares
associated with the Company Plan for Deferral of Directors' Fees.
Fully diluted earnings per share in 1995 reflected the additional
dilution related to stock options due to the use of the market price
of the Company's Common Stock at the end of the period, which was
<PAGE>
<PAGE>
higher than the average price for the period, in the calculation of
the number of common share equivalents.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Estimates are based on currently available information. Actual results
could differ from the estimates.
Reclassification: Certain reclassifications have been made to prior
years' financial statements to conform to the 1996 presentation.
Additional accounting policies are described in the applicable notes.
Note 2 -- Hurth Acquisition
Effective July 1, 1995, the Company acquired, for $10,582,000 in
cash, certain assets of Hurth Maschinen und Werkzeuge GmbH ("Hurth"), a
Munich, Germany-based leader in the design and production of
cylindrical gear machinery and tooling. The Company purchased the
assets from the receiver in bankruptcy proceedings. Hurth, which
entered bankruptcy on May 31, 1995, had experienced financial losses
during 1994 and 1993 due to the economic recession in Europe. The
Company acquired patents, trademarks, rights to technology and know-
how, machinery and equipment, and inventories, and retained
approximately 280 employees at the Munich location. Under the
agreement, the Company assumed existing obligations for installation
and warranty of machines previously sold and completion of customer
orders in backlog.
The Company accounted for the acquisition under the purchase
accounting method. The purchase included, stated at fair value,
inventories ($8,350,000), machinery and equipment ($9,310,000),
technology ($1,450,000), current liabilities ($6,428,000), long-term
pension and other employee benefits ($2,100,000). The acquisition was
funded from the Company's revolving credit facility.
Results of operations after the acquisition date are included in
the Consolidated Statements of Operations. The following unaudited
pro forma information has been prepared assuming that this acquisition
had taken place at the beginning of 1995 and 1994. The pro forma
<PAGE>
<PAGE>
information includes adjustments for lower personnel costs associated
with the reduction in headcount and lower fixed costs associated with
rental of the Munich facility, additional depreciation and
amortization based on the fair market value of machinery, equipment
and technology acquired, elimination of a Hurth investment in
subsidiary loss for 1994, lower outside dealer commission expense due
to contract terminations and higher interest expense that would have
been incurred to finance the acquisition. The pro forma financial
information is not necessarily indicative of the results of operations
as they would have been had the transaction been effected on the
assumed dates.
<TABLE>
<CAPTION>
(Unaudited)
(In thousands, except per share amounts)
Year ended December 31 1995 1994
<S> <C> <C>
Net sales $212,823 $166,724
Income from continuing operations 28,535 1,989
Net income 28,980 4,945
Income from continuing operations
per common share $ 5.38 $ .39
Net income per common share 5.46 .96
</TABLE>
Note 3 -- Discontinued Operations
In the fourth quarter of 1995, the Company sold the land and
building of its former Alliance Metal Stamping and Fabricating
division and recognized a gain on this disposal of $445,000 (net of
applicable income taxes of $229,000). Proceeds from the sale included
an interest bearing note receivable of $2,100,000 due five years from
the date of sale.
During 1994, the Company ceased operations at the Alliance Metal
Stamping and Fabricating division and sold the machinery and equipment
located at this division's facility for $3,550,000. The Company
recognized a gain from discontinued operations of $2,956,000 (net of
applicable income taxes of $400,000), as the loss for the disposition
of this division was lower than the amount previously estimated. Net
sales for this discontinued operation were $7,508,000 for the year
ended December 31, 1994.
Accrued costs related to discontinued operations at December 31,
1996 are presented in the Consolidated Balance Sheets as follows:
$200,000 ($1,179,000 in 1995) in other current liabilities, and
$2,077,000 ($1,500,000 in 1995) in other liabilities. These
<PAGE>
<PAGE>
liabilities principally consisted of estimated expenses for
environmental matters related to the properties of the Company's
former Components Group businesses. Refer to Note 15 - Environmental
Matters for further discussion.
Note 4 -- Inventories
The components of inventories were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
<S> <C> <C>
Raw materials and purchased parts $ 5,269 $ 5,373
Work in process 18,063 18,889
Finished products 4,654 5,303
$27,986 $29,565
</TABLE>
If the valuation of all inventories had been determined on the FIFO
accounting method, inventories would have been $24,929,000 and
$24,209,000 higher at December 31, 1996 and 1995, respectively.
Note 5 -- Property, Plant and Equipment
The components of property, plant and equipment were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
<S> <C> <C>
Land $ 848 $ 838
Buildings and improvements 49,620 48,821
Machinery and equipment 119,616 112,040
170,084 161,699
Less accumulated depreciation 108,693 100,751
$ 61,391 $ 60,948
</TABLE>
Note 6 -- Other Current Liabilities
The components of other current liabilities were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
<S> <C> <C>
Salaries, wages and related costs $11,095 $ 8,109
Advance payments from customers 6,177 8,286
Pension and other retiree
benefit plan contributions 4,614 6,673
Warranty, installation and related costs 4,603 5,184
Other current liabilities 3,846 5,716
$30,335 $33,968
</TABLE>
<PAGE>
<PAGE>
Note 7 -- Employee Retirement Plans
The Company has a defined contribution retirement plan and a defined
benefit retirement plan which cover most domestic employees. The employees
of certain foreign operations participate in various postemployment benefit
arrangements, some of which are considered to be defined benefit plans for
financial reporting purposes.
Effective December 31, 1990, the Company amended its domestic defined
benefit plan to provide for the freezing of all active employee accrued
defined benefits and full vesting of all active employees in the plan. In
addition, the plan amendment provides that upon settlement of the plan, if
the fair value of plan assets exceeds the accrued defined benefit
obligation, any surplus will be distributed on a pro rata basis as
additional benefits to active employees. If the plan assets are not
sufficient to fund the accrued defined benefit obligation, the Company will
make any required additional contributions. All active employees in the
defined benefit plan were enrolled in the defined contribution plan
effective January 1, 1991.
The Company's funding policy is to contribute amounts to the plan
sufficient to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974, plus such additional
amounts as the Company may determine to be appropriate from time to time.
A summary of the components of net periodic pension costs relating to
the domestic defined benefit plan is presented below:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
Interest cost on projected
benefit obligation $ 6,292 $ 6,625 $ 6,387
(Positive) negative return
on plan assets (9,288) (25,171) 2,012
Net amortization and
deferral 2,517 19,117 (8,249)
Net periodic pension
(income) expense $ (479) $ 571 $ 150
</TABLE>
The expected long-term rate of return on plan assets used in determining
net periodic pension costs was 9.0% for 1996 and 1995, and 8.25% for 1994.
The following table sets forth the domestic defined benefit plan's
<PAGE>
<PAGE>
funded status and amounts recognized in the Company's consolidated
financial statements at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation
including vested benefits of
$88,279 in 1996 and $88,690
in 1995 $92,707 $92,900
Projected benefit obligation $92,707 $92,900
Plan assets at market value 94,680 90,430
Projected benefit obligation
(lower than) in excess of plan
assets (1,973) 2,470
Unrecognized prior service cost (760) (868)
Unrecognized net gain (loss) 702 (1,163)
Adjustment to recognize minimum
pension liability -- 2,031
(Prepaid pension asset) pension
liability recognized in the
consolidated balance sheets $(2,031) $ 2,470
</TABLE>
The discount rate used in determining the projected benefit obligation
was 7.0% for December 31, 1996 and 1995. The nonvested portion of the
accumulated benefit obligation primarily represents certain early
retirement benefits for individuals not currently eligible. The
accumulated benefit obligation is calculated using the 1983 Group Annuity
Mortality Table.
In accordance with FASB Statement No. 87, "Employers' Accounting for
Pensions," the Company must recognize a pension liability at least equal to
the minimum pension liability. The minimum pension liability is the excess
of the accumulated benefit obligation over plan assets. A corresponding
amount is recognized as either an intangible asset or a reduction of
equity. At December 31, 1996 the Company recognized a prepaid pension
asset of $2,031,000. In 1995 the Company recorded an additional liability
of $2,031,000, an intangible asset of $868,000 and an equity reduction of
$768,000. The current portion of the pension liability recognized in the
Consolidated Balance Sheets was $1,972,000 at December 31, 1995. The
decrease in the minimum pension liability adjustment and resulting prepaid
pension asset in 1996 was primarily due to an increase in the market value
of plan assets.
The plan's assets at December 31, 1996 were primarily invested in a
tactical asset allocation fund, cash equivalents and 385,052 shares of the
Company's Common Stock which had a market value of $12,707,000 and
$12,514,000 at December 31, 1996 and 1995, respectively. Dividends paid on
the Company's Common Stock were $192,500 in 1996 and 1995.
<PAGE>
<PAGE>
All domestic employees participate in the defined contribution
retirement plan. Amounts contributed under this plan are based upon 4% of
compensation for eligible employees. The amounts expensed under this plan
for continuing operations were $1,616,000, $1,490,000 and $1,267,000 in
1996, 1995 and 1994, respectively.
The Company also has an unfunded supplemental defined benefit retirement
plan to provide certain executives a minimum level of retirement pay, up to
a maximum of 55% of final average earnings. In accordance with the
provisions of FASB Statement No. 87, the Company recognized pension expense
of $297,000, $272,000 and $210,000 in 1996, 1995 and 1994, respectively.
At December 31, 1996, the Company recorded a minimum pension liability of
$2,119,000 ($1,779,000 in 1995), an intangible asset of $409,000 ($490,000
in 1995) and an equity reduction of $461,000 ($325,000 in 1995).
The Company has a funded defined benefit pension plan which covers
employees at its U.K. subsidiary. The accumulated benefit obligation for
this plan calculated under the provisions of FASB Statement No. 87 at
December 31, 1996 was $9,608,000 ($8,615,000 in 1995). The discount rate
used in determining the accumulated benefit obligation was 8.25% in 1996
and 1995. The fair market value of plan assets at December 31, 1996
totaled $10,782,000 ($8,522,000 in 1995). The Company had a liability for
this plan on its Consolidated Balance Sheets at December 31, 1996 of
$455,000 ($326,000 in 1995). The expense associated with this plan totaled
$430,000, $463,000 and $457,000 in 1996, 1995 and 1994, respectively.
The Company also has unfunded retirement benefit plans for employees at
certain other foreign operations, including its Gleason-Hurth subsidiary.
The costs of these foreign benefit plans were $218,000, $231,000 and
$177,000 for 1996, 1995 and 1994, respectively. The liabilities included
in the Consolidated Balance Sheets for these plans were $3,175,000 and
$3,200,000 at December 31, 1996 and 1995, respectively.
Note 8 -- Postretirement Health and Life Insurance Benefits
The Company provides certain health and life insurance benefits for
retired domestic employees. Employees hired prior to January 1, 1993
generally become eligible for these benefits if they retire while working
for the Company at age 62 with a minimum of 15 years of service with the
<PAGE>
<PAGE>
Company. Employees hired after this date are not eligible to receive
benefits. Health benefits are provided through supplemental insurance
policies whose premiums are based on group rates. Life insurance benefits
are paid directly by the Company.
The components of periodic expense for postretirement benefits were as
follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
Service cost for benefits
earned during the year $ 111 $ 87 $ 141
Interest cost on the
accumulated postretirement
benefit obligation 2,105 2,563 2,599
Net amortization of prior
(gains) (141) (289) --
Total expense $2,075 $2,361 $2,740
</TABLE>
The recorded liabilities for this unfunded postretirement benefit plan
were as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $25,264 $26,714
Fully eligible active plan participants 2,587 2,440
Other active plan participants 2,803 2,542
Total accumulated postretirement
benefit obligation 30,654 31,696
Unrecognized net gain 4,777 4,578
Total liability for postretirement health
and life insurance benefits 35,431 36,274
Less current portion 2,960 3,200
Noncurrent liability for postretirement
health and life insurance benefits $32,471 $33,074
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.0% at December 31, 1996 and 1995. The decrease in
the total accumulated postretirement benefit obligation was primarily
attributable to a decrease in the number of retiree participants.
The cost of health insurance premiums of this plan are shared between
the Company and the retiree. There are no future increases in the
Company's share of health insurance premiums.
<PAGE>
<PAGE>
Note 9 -- Debt
Long-term debt at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
<S> <C> <C>
Notes payable to banks under revolving
loan agreements $3,900 $24,709
Other obligations 612 612
4,512 25,321
Less current maturities 6 6
$4,506 $25,315
</TABLE>
At December 31, 1996, the Company had unsecured borrowing facilities
that provided for borrowings up to a combined $40 million on a revolving
loan basis through September 29, 1998. Approximately $11 million of the
total was allocated for borrowings outside the U.S. Available borrowings
under these facilities were reduced by approximately $8.8 million at
December 31, 1996 for bank guarantees and standby letters of credit issued
in the normal course of business. These revolving credit facilities
provide the Company the option to borrow at rates no higher than the
prevailing prime rate (weighted average borrowing rate was 6.53% at
December 31, 1996 and 5.77% at December 31, 1995). The agreements contain
covenants with respect to maintenance of working capital, interest
coverage, the level of indebtedness, tangible net worth and cash flow as a
percentage of indebtedness.
Lines of credit of the consolidated subsidiaries are generally in
connection with bank overdraft and note facilities for which there are
neither material commitment fees nor compensating balance requirements.
Unused short and long-term credit lines with banks, including the revolving
credit facilities, totaled approximately $34,981,000 at December 31, 1996.
The weighted average borrowing rates under short-term credit facilities
were 10.70% and 6.50% at December 31, 1996 and 1995, respectively.
Scheduled maturities of long-term debt in each of the next five years
are $6,000, $3,930,000, $4,000, $4,000 and $4,000 in 1997 through 2001,
respectively.
Interest expense for each of the three years in the period ended
December 31, 1996 was $877,000, $950,000 and $415,000, respectively.
<PAGE>
<PAGE>
Note 10 -- Income Taxes
For financial reporting purposes, income from continuing operations
before income taxes included the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
United States $14,619 $12,144 $ 815
Foreign 16,124 8,836 4,342
Total $30,743 $20,980 $5,157
</TABLE>
Provisions (benefits) for income taxes included the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
Current:
Continuing operations:
Federal $1,703 $ 1,781 $ 1,000
State 556 600 148
Foreign 6,538 3,053 1,103
8,797 5,434 2,251
Discontinued operations -- 229 400
Total current $8,797 $ 5,663 $ 2,651
Deferred:
Continuing operations:
Federal $3,045 $(13,038) $(1,447)
State -- (2,311) --
Foreign (759) 513 21
Total deferred $2,286 $(14,836) $(1,426)
</TABLE>
The differences between the provision (benefit) for income taxes
attributable to continuing operations at the United States
federal statutory income tax rate and the tax provision (benefit) were as
follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
U.S. federal statutory rate 34% 34% 34%
Taxes at statutory rate $10,453 $ 7,133 $1,753
Provision (benefit) resulting from:
Change in valuation allowance (1,000) (15,400) (880)
Effect of consolidating foreign
subsidiaries 1,297 (695) (352)
Foreign Sales Corporation (396) (304) --
Other 729 (136) 304
Tax provision (benefit) $11,083 $ (9,402) $ 825
</TABLE>
<PAGE>
<PAGE>
Deferred tax assets and liabilities were comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1996 1995
<S> <C> <C>
Deferred tax assets:
Accrued retiree and other
employee benefits $15,737 $15,497
Foreign tax loss carryforwards 1,000 2,000
Federal and state tax credits 7,365 10,701
Discontinued operations 819 1,000
Other 5,287 4,441
Total deferred tax assets 30,208 33,639
Less valuation allowance 6,000 7,000
Deferred tax asset 24,208 26,639
Deferred tax liabilities:
Depreciation 7,940 7,526
Other 757 912
Total deferred tax liabilities 8,697 8,438
Net deferred tax asset $15,511 $18,201
</TABLE>
The 1995 provision for income taxes was lowered by significant
deferred tax benefits resulting from a reduction in the valuation allowance
recorded against deferred tax assets. The Company determined that it was
more likely than not that there would be sufficient future domestic taxable
income to recognize deferred temporary differences which had previously
been offset by a valuation allowance. Accordingly, the Company reduced the
valuation allowance and increased the net deferred tax asset to $18,201,000
at December 31, 1995. A valuation allowance of $7,000,000 was still
required at December 31, 1995 for domestic tax credits which could expire
before they are utilized and a German loss carryforward that could not be
recognized due to a history of recent losses and certain limitations on its
usage. The valuation allowance of $6,000,000 at December 31, 1996 is still
required for these same issues. The decrease in the allowance during 1996
was a result of the utilization of certain German tax loss carryforwards in
the current period. The net deferred tax asset was $15,511,000 at December
31, 1996. Management believes that sufficient income will be earned in the
future to fully realize the net deferred tax asset.
The net deferred tax asset of $15,511,000 at December 31, 1996
($18,201,000 in 1995) is presented in the Consolidated Balance Sheets as
follows: $6,894,000 ($4,113,000 in 1995) in current assets; $10,013,000
($14,755,000 in 1995) in non-current assets and $1,396,000 ($667,000 in
1995) in other liabilities.
<PAGE>
<PAGE>
Foreign loss carryforwards totaling $2.2 million, which may be carried
forward indefinitely, are available to reduce future taxable income. Domestic
tax credits of $7.4 million are also available to reduce future federal and
state income taxes and expire at various dates through 2004, with the
exception of the federal alternative minimum tax credits which can be carried
forward indefinitely.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $13.1 million at December 31, 1996. Those earnings are
considered to be indefinitely reinvested and accordingly no provisions for
U.S. federal or state income taxes have been provided thereon. Upon
distribution of these earnings, the Company would be subject to both U.S.
income tax (potentially offset by foreign tax credits) and withholding
taxes payable to the foreign country. It is not practicable to estimate
the amount of additional tax that might be payable on the foreign earnings.
Note 11 -- Stock Plan
The Company's 1992 Stock Plan, which became effective May 5, 1992, is a
successor to the Company's 1981 Stock Plan. No additional grants of
options could be made under the 1981 Stock Plan after December 16, 1991.
Under the Company's 1992 Stock Plan, 500,000 common shares have been
reserved for granting of options, stock appreciation rights (SARs) and
restricted stock to key employees. Options are granted at prices equal to
100% of the market value of the common stock at the date of grant and may
be exercisable beginning six months and ending ten years from the date of
grant. The Executive Compensation Committee of the Company's Board of
Directors at its discretion may at the time of grant of an option provide
further limitations on periods during which options may be exercised. SARs
allow the optionee to surrender the option and receive a number of shares
of common stock, cash, or cash and shares of common stock, as the Executive
Compensation Committee determines, with an aggregate value equal to the
amount by which the fair market value of the shares covered by the
surrendered option exceeds the option price. Increases in the value of
SARs resulting from changes in the market value of common stock will be
charged to expense as they occur. Options automatically carry with them
conditional SARs which are exercisable in the event of a tender offer
meeting certain specified conditions. No SARs have been granted under the
Plan.
Under the Plan an option, which is exercisable beginning six months from
the date of grant, to purchase 1,000 shares at the market value per share on
the date of grant, is granted each year to each director of the Company who
<PAGE>
<PAGE>
is not, and has not been an employee of the Company since the beginning of
the preceding year.
Grants of restricted stock entitle the grantee to vote and receive cash
dividends on the shares, but not to transfer or otherwise dispose of such
shares while they are subject to restrictions. The restriction period
cannot be less than one year or more than ten years from the date of grant.
As restrictions lapse, the difference between the market value on the date
of grant and the grant price, if any, is charged to expense. Any dividends
paid to the grantee during the restriction period are also charged to
expense. Grants of 400 shares of restricted stock were made during 1995
and restrictions lapsed on 2,000 shares during 1995. At December 31, 1996
and 1995, 400 restricted shares were outstanding.
The following is a summary of option transactions under both Plans:
<TABLE>
<CAPTION>
Shares Price Range
<S> <C> <C>
Outstanding December 31, 1993 260,203 $12.50 - $19.37
Granted 70,000 $11.31 - $15.12
Forfeited (16,000) $13.12 - $18.62
Outstanding December 31, 1994 314,203 $11.31 - $19.37
Granted 40,500 $21.18 - $34.81
Forfeited (10,000) $13.62
Exercised (27,454) $12.50 - $15.87
Outstanding December 31, 1995 317,249 $11.31 - $34.81
Granted 51,500 $29.69 - $40.75
Exercised (26,911) $14.00 - $18.75
Outstanding December 31, 1996 341,838 $11.31 - $40.75
Exercisable at December 31:
1996 297,338 $11.31 - $40.75
1995 283,749 $11.31 - $21.18
1994 249,203 $11.31 - $19.37
Available for additional grants
at December 31:
1996 232,100
1995 283,600
1994 324,500
1993 392,500
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-Based Compensation" requires
use of option valuation models. Under APB 25, because the exercise price
<PAGE>
<PAGE>
of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, which also requires that the
information be determined as if the Company had accounted for its stock
options granted subsequent to December 31,1994 under the fair value method
of that Statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: risk free interest rates of 6.80% and 6.34%
for 1996 and 6.12% and 5.65% for 1995; a dividend yield of 1.38%;
volatility factors of the expected market price of the Company's Common
Stock of .313 and .358 in 1996 and .345 and .335 in 1995; and a weighted
average expected life of the options of 7 years. The weighted average
exercise price and remaining contractual life of these options were $19.46
and 7 years, respectively as of December 31, 1996.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
(In thousands, except 1996 1995
per share amounts)
<S> <C> <C>
Pro forma net income $19,079 $30,765
Pro forma earnings per share:
Primary $ 3.57 $ 5.80
Fully diluted $ 3.57 $ 5.76
</TABLE>
Note 12 -- Preferred Stock Purchase Rights
Pursuant to the Company's Shareholder Rights Plan, each outstanding share
of the Company's common stock carries one Preferred Stock purchase right.
Each right, when exercisable, entitles the holder to purchase from the
<PAGE>
<PAGE>
Company for $45, one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $1 per share, of the Company. The
Rights become exercisable, subject to certain exceptions, upon announcement
that a person or group has acquired 15% or more of the Company's
outstanding common stock, or 10 days, or such other period as the Board may
determine, following commencement of, or announcement of an intention to
commence, a tender or exchange offer consummation of which would result in
a person or group owning 15% or more of the Company's outstanding common
stock, whichever occurs first. If any person or group becomes the
beneficial owner of 15% of the outstanding common stock, other than
pursuant to a Permitted Offer, as defined in the Plan, holders, other than
an Acquiring Person as defined in the Plan, will have the right to purchase
from the Company common stock (or, in certain circumstances, cash, property
or other securities of the Company or to a reduction in the purchase price)
having a value equal to two times the exercise price of $45, or the Board
may elect to issue without any payment common stock and/or equivalents of
the Company with a value equal to the exercise price. If a person or group
becomes beneficial owner of 15% or more of the Company's outstanding common
stock and the Company is thereafter acquired by another entity, by merger,
consolidation, or transfer of 50% or more of the Company's assets, in one
or more transactions, holders of Rights, other than an Acquiring Person,
will have the right to receive, upon exercise common shares of the
acquiring company (including the Company if it is the surviving company)
having a value two times the exercise price ($45) of the Right. The Rights
will expire on June 15, 1999, unless exercised by the holder or redeemed by
the Company prior to that date. The Company may, subject to certain
conditions, redeem the Rights at a price of $.01 per Right.
Note 13 -- Supplemental Cash Flow Information
Cash payments (net refunds) for income taxes were $3,188,000, $4,378,000
and ($1,188,000) for 1996, 1995 and 1994, respectively. Interest payments
were $963,000, $837,000 and $444,000 in 1996, 1995 and 1994, respectively.
Non-cash investing activities in 1995 included notes receivable of
$2,100,000 from the sale of the land and building of Alliance Metal
Stamping and Fabricating. Refer to Note 3 - Discontinued Operations.
<PAGE>
<PAGE>
Note 14 -- Business Segment and Foreign Operations
The Company's operations are conducted within one business segment.
The principal activity is the design, manufacture and sale of machinery and
equipment for the production of gears.
The Company's sales in North America and Europe are in general made
directly by employees of the Company. Sales in other territories are
handled by independent foreign machine dealers.
The Company's major foreign operations are located in Western Europe.
Information about the Company's operations in the United States and Western
Europe for 1996, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
Net sales to unaffiliated customers
United States $162,305 $146,344 $113,304
Western Europe 85,784 50,702 15,158
$248,089 $197,046 $128,462
Interarea sales and transfers
United States $ 399 $ 468 $ 431
Western Europe 8,777 7,774 6,844
$ 9,176 $ 8,242 $ 7,275
Total sales
United States $162,704 $146,812 $113,735
Western Europe 94,561 58,476 22,002
257,265 205,288 135,737
Less interarea sales 9,176 8,242 7,275
$248,089 $197,046 $128,462
_______________________________________________________________________
Operating income
United States $ 17,642 $ 14,296 $ 3,250
Western Europe 16,749 9,622 4,011
34,391 23,918 7,261
Less:
Interest expense -- net 513 527 11
Corporate and other non-allocable
expenses 3,135 2,411 2,093
Income from continuing
operations before income taxes $ 30,743 $ 20,980 $ 5,157
_______________________________________________________________________
Identifiable assets
United States $136,349 $137,683 $103,871
Western Europe 47,115 49,578 13,416
183,464 187,261 117,287
Corporate assets 7,210 9,937 3,199
Assets of discontinued operations -- -- 1,530
Total assets $190,674 $197,198 $122,016
</TABLE>
<PAGE>
<PAGE>
Interarea sales and transfers are generally accounted for at prices to
yield normal returns to the selling company in relation to the costs of
production. Identifiable assets represent assets directly identified with
each geographic region. Corporate assets consist primarily of cash and
equivalents.
United States continuing operations for 1996, 1995 and 1994 included
export sales (exclusive of intercompany sales) to the following geographic
areas:
<TABLE>
<CAPTION>
(In thousands) 1996 1995 1994
<S> <C> <C> <C>
Europe / Africa $33,892 $37,536 $27,938
Asia / Pacific 49,105 29,197 19,114
Americas 14,025 10,829 5,660
$97,022 $77,562 $52,712
</TABLE>
During 1996, one single customer accounted for 14% of consolidated sales.
Note 15 -- Environmental Matters
Environmental expenditures that relate to continuing operations are
expensed or capitalized in accordance with generally accepted accounting
principles. Liabilities are recorded when environmental assessments and/or
remedial efforts are probable, and the costs can be reasonably estimated.
The Company has made provisions for environmental matters at certain
discontinued operations for which the Company retains responsibility.
These provisions were recorded in discontinued operations in 1991 and are
believed to be adequate based upon information known at this time.
The Company is subject to federal, state and local laws and regulations
concerning the environment, and is currently participating in
administrative proceedings involving different sites under these laws, as a
participant in a group of potentially responsible parties. These
proceedings are at various stages, and it is impossible to estimate with
any certainty the ultimate cost, timing and extent of remedial actions
which may be required by governmental authorities, or the amount of the
liability, if any, of the Company alone or in relation to that of the other
responsible parties. Based on the facts presently known, the Company does
not believe that the outcome of any of these proceedings will have a
material adverse effect on its results of operations or financial position.
Note 16 -- Concentrations of Risk
The Company's major customers are predominately in the automotive and
truck industries. Other markets utilizing the Company's products include
aerospace, manufacturers of power tools, marine, farm and construction
<PAGE>
<PAGE>
equipment. The Company's markets are worldwide. Approximately 73% and 65%
of total sales in 1996 and 1995, respectively, were to customers outside of
the U.S. This geographical sales distribution offsets, to a degree, the
cyclical fluctuations of regional economies. As such, the Company is not
significantly at risk to the economic cycle of a single region.
Note 17 -- Commitments and Contingencies
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, the ultimate liability, if any,
resulting from such actions will not have a material impact on the
Company's future results of operations or financial position.
The Company was contingently liable under standby letters of credit
issued in the normal course of business for $8.9 million at December 31,
1996.
Note 18 -- Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Long and short-term debt: The carrying amounts of the Company's short-
term borrowings and variable rate long-term debt approximate their fair
value.
Foreign currency exchange contracts: The Company enters into foreign
currency forward contracts to hedge transactions involving foreign
currencies primarily for firm commitments to buy or sell goods. The
aggregate contract value of agreements to sell foreign currencies in
exchange for U.S. dollars was $2.7 million and $12.5 million at December
31, 1996 and 1995, respectively. The aggregate value of contracts for the
sale of U.S. dollars in exchange for foreign currencies was $7.1 million
and $1.3 million at December 31, 1996 and 1995, respectively. The
aggregate value of contracts for the exchange of other foreign currencies
was $1.4 million at December 31, 1996. The fair values of these contracts,
representing the difference between the contract values and the estimated
settlement values based on the quoted market prices of comparable contracts
at December 31, 1996 and 1995, were not material.
<PAGE>
<PAGE>
Report of Independent Auditors
Stockholders and Board of Directors
of Gleason Corporation
We have audited the accompanying consolidated balance sheets of Gleason
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Gleason Corporation and subsidiaries at December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Syracuse, New York
January 30, 1997 Ernst & Young LLP
<PAGE>
<PAGE>
Quarterly Information (Unaudited)
Selected quarterly information for the years 1996 and 1995 are shown below:
<TABLE>
<CAPTION>
Dollars in thousands, 1996
except per share amounts First Second Third Fourth
<S> <C> <C> <C> <C>
Net sales $59,510 $65,157 $53,467 $69,955
Cost of products sold 40,371 44,488 35,722 47,377
Income from continuing
operations 4,600 4,738 3,765 6,557
Net income 4,600 4,738 3,765 6,557
Primary earnings per common share:
Income from continuing
operations .86 .88 .70 1.24
Net income .86 .88 .70 1.24
Fully diluted earnings per common
share:
Income from continuing
operations .86 .88 .70 1.24
Net income .86 .88 .70 1.24
Cash dividends declared per
common share .125 .125 .125 .125
Stock prices
High 43 42 3/4 41 39 3/4
Low 27 1/4 36 31 28 1/4
</TABLE>
<TABLE>
<CAPTION>
Dollars in thousands, 1995
except per share amounts First Second Third Fourth
<S> <C> <C> <C> <C>
Net sales $31,901 $40,604 $54,550 $69,991
Cost of products sold 21,394 28,429 38,472 49,166
Income from continuing
operations 2,913 3,643 3,772 20,054
Net income 2,913 3,643 3,772 20,499
Primary earnings per common share:
Income from continuing operations .56 .70 .73 3.75
Net income .56 .70 .73 3.83
Fully diluted earnings per common
share:
Income from continuing
operations .56 .70 .73 3.75
Net income .56 .70 .73 3.83
Cash dividends declared per
common share .125 .125 .125 .125
Stock prices
High 19 25 1/2 37 1/4 35 7/8
Low 14 5/8 17 3/4 22 27 3/8
</TABLE>
Notes: Income from continuing operations for the 1995 fourth quarter
included a $13.7 million, or $2.59 per share, positive adjustment to record
deferred tax assets not previously recognized. Income from continuing
operations for the 1995 full year using normalized tax rates would have
been approximately $12.9 million, or $2.43 per share.
Net income in 1995 included a gain on the disposal of discontinued
operations of $445,000, or $.08 per share, in the fourth quarter.
The Company's Common Stock (symbol GLE) is traded on the New York Stock
Exchange. The high and low sales price in each quarter of 1996 and 1995
are shown above. As of December 31, 1996 there were 3,203 holders of
record of the Company's Common Stock.
EXHIBIT (21)
GLEASON CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
State or Country Percent
Subsidiary of Incorporation Ownership
Gleason Foreign Sales Corporation Barbados 100
The Gleason Works New York 100
Alliance Tool Corporation New York 100
Gleason Works (Holdings) Limited United Kingdom 100
Gleason Works Limited United Kingdom 100
Gleason International
Marketing Corporation Delaware 100
Gleason Corporation Sales Michigan 100
Gleason Australia (Services)
Pty. Limited Australia 100
Gleason - Hurth Maschinen
und Werkzeuge GmbH Germany 100
Gleason Works (India) Private
Limited India 100
Ernst & Young LLP
1800 One MONY Plaza Phone: 315 425-8011
Syracuse, New York 13202 Fax: 315 422-5226
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Gleason Corporation of our report
dated January 30, 1997, included in the 1996 Annual Report
to Stockholders of Gleason Corporation.
We also consent to the incorporation by reference in the
Registration Statements (Form S-8 No. 2-91656 and Form S-8
No. 33-62447) and Registration Statement (Form S-3 No. 2-84220)
of Gleason Corporation of our report dated January 30, 1997, with
respect to the consolidated financial statements of Gleason
Corporation and subsidiaries incorporated by reference in
the Annual Report (Form 10-K) for the year ended December
31, 1996.
Ernst & Young LLP
Syracuse, New York
March 24, 1997
POWER OF ATTORNEY
The undersigned, directors of Gleason Corporation
("Company"), hereby constitute and appoint James S.
Gleason and Ralph E. Harper, or either of them, their
respective true and lawful attorneys and agents, each
with full power and authority to act as such without the
other, to sign the name of the undersigned to the
Company's fiscal 1996 Annual Report on Form 10-K, and to
any amendment thereto, to be filed with the Securities
and Exchange Commission under the Securities Exchange Act
of 1934 and the related rules and regulations thereunder,
the undersigned hereby ratifying and confirming all that
said attorneys and agents, or either one of them, shall
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have signed and
delivered these presents as of this 13th day of February,
1997.
Martin L. Anderson Julian W. Atwater
__________________ ___________________
Martin L. Anderson Julian W. Atwater
Robert W. Bjork J. David Cartwright
__________________ ___________________
Robert W. Bjork J. David Cartwright
James S. Gleason John W. Guffey, Jr.
__________________ ___________________
James S. Gleason John W. Guffey, Jr.
Donald D. Lennox Robert A. Sherman
__________________ ___________________
Donald D. Lennox Robert A. Sherman
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000743239
<NAME> GLEASON CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 7199
<SECURITIES> 0
<RECEIVABLES> 65583
<ALLOWANCES> 0
<INVENTORY> 27986
<CURRENT-ASSETS> 111700
<PP&E> 170084
<DEPRECIATION> 108693
<TOTAL-ASSETS> 190674
<CURRENT-LIABILITIES> 57866
<BONDS> 0
<COMMON> 5797
0
0
<OTHER-SE> 79067
<TOTAL-LIABILITY-AND-EQUITY> 190674
<SALES> 248089
<TOTAL-REVENUES> 248089
<CGS> 167958
<TOTAL-COSTS> 167958
<OTHER-EXPENSES> 48875
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 513
<INCOME-PRETAX> 30743
<INCOME-TAX> 11083
<INCOME-CONTINUING> 19660
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19660
<EPS-PRIMARY> 3.68
<EPS-DILUTED> 3.68
</TABLE>
