UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
____________________
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: AUGUST 14, 1997
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
____________________
<PAGE>
<PAGE>
Item 2. Acquisition of Assets
No change.
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired
The following financial statements of the business acquired
are filed herewith:
See Index to Financial Statements
(b) Pro forma financial information
The following pro forma financial information with regard to
the business acquired are filed herewith:
See Index to Financial Statements
(c) Exhibits
(2) Plan of Acquisition
No change.
(10) Material Contracts
No change.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
GLEASON CORPORATION
Registrant
DATE: September 24, 1997
John J. Perrotti
John J. Perrotti
Vice President-Finance
(Chief Financial Officer)
<PAGE>
<PAGE>
Index To Financial Statements to Form 8-K/A
Item 7 (a) Hermann Pfauter GmbH & Co Audited Financial Statements
Report of Ernst & Young GmbH
Reports of Dugan & Lopatka
Consolidated Balance Sheets as of December 31, 1996
and 1995
Consolidated Income Statements for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996 and 1995
Notes to the Consolidated Financial Statements
Directors' Report - Review of 1994 through 1996
Item 7 (b) Pro Forma Consolidated Financial Statements of Gleason
Corporation and Hermann Pfauter GmbH & Co (Unaudited)
Balance Sheet at June 30, 1997
Statement of Operations for the Year Ended December
31, 1996
Statement of Operations for the Six Months Ended June
30, 1997
Notes to Pro Forma Consolidated Financial Statements
<PAGE>
<PAGE>
ITEM 7 (a):
Consolidated Financial Statements
Hermann Pfauter GmbH & Co
Ludwigsburg
Federal Republic of Germany
December 31, 1996
<PAGE>
<PAGE>
Independent Auditors' Report
The Board of Directors
Hermann Pfauter GmbH & Co and its Consolidated Subsidiaries
We have audited the accompanying consolidated balance sheets of Hermann
Pfauter GmbH & Co and its consolidated subsidiaries, listed in Note 2,
as of December 31, 1996 and 1995, the related consolidated statements of
cash flows for the years then ended and the related consolidated
statements of income for the years ended December 31, 1996, 1995 and
1994, all expressed in Deutsch Marks. 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
did not audit the financial statements of all of the Company's
subsidiaries at December 31, 1995 and 1994 and the years then ended.
Those companies, listed in Note 2, whose statements represent 47.9% of
the total assets as of December 31, 1995 and 49.8% and 60.1% of revenue
(individual revenue as a % of consolidated revenue) for the years ended
December 31, 1995 and 1994, were audited by other auditors whose reports
have been furnished to us, and our opinion, insofar as it relates to data
included for these above mentioned companies, is based solely on the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards in the United States and Germany. 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 and the reports of the
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors,
the financial statements referred to above, expressed in Deutsch Marks,
present fairly, in all material respects, the consolidated financial
position of Hermann Pfauter GmbH & Co and its consolidated subsidiaries
at December 31, 1996 and 1995, the consolidated cash flows for each of
the two years then ended and the results of operations for the years
ended December 31, 1996, 1995 and 1994 in conformity with accounting
principles generally accepted in Germany, which differ in certain
respects from accounting principles generally accepted in the United
States (see Note 14 to the consolidated financial statements).
March 27, 1997, except for Note 14.g.,
as to which the date is June 4, 1997
Ernst & Young GmbH
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners of American Pfauter L.P.:
We have audited the accompanying balance sheet of American Pfauter L.P.
(a Delaware limited partnership) as of December 31, 1995 and 1994, and the
related statements of income and cash flows for the years then ended. These
financial statements are the responsiblity 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 financial position of American Pfauter L.P. as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles.
Dugan & Lopatka
Wheaton, Illinois
February 22, 1996
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners of Pfauter-MAAG Cutting Tools Limited Partnership:
We have audited the accompanying balance sheet of Pfauter-MAAG Cutting
Tools Limited Partnership (an Illinois Limited Partnership) as of December
30, 1995 (52 weeks) and December 31, 1994 (52 weeks) and the related
statements of income and cash flows for the years then ended. 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 financial position of Pfauter-MAAG Cutting Tools
Limited Partnership as of December 30, 1995 (52 weeks) and December 31, 1994
(52 weeks) and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
Dugan & Lopatka
Wheaton, Illinois
January 31, 1996
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of Pfauter Cutting Tools Inc.:
We have audited the accompanying balance sheet of Pfauter Cutting
Tools Inc. (an Illinois corporation) as of December 31, 1995 and 1994,
and the related statements of income and cash flows for the years then
ended. 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 financial position of Pfauter Cutting
Tools Inc. as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Dugan & Lopatka
Wheaton, Illinois
January 31, 1996
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board oif Directors of American Pfauter Management Inc.:
We have audited the accompanying balance sheet of American Pfauter
Management Inc. (a Delaware corporation) as of December 31, 1995 and 1994,
and the related statements of operations and cash flows for the years then
ended. 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 financial position of American
Pfauter Management Inc. as of December 31, 1995 and 1994, and the results
of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Dugan & Lopatka
Wheaton, Illinois
February 22, 1996
<PAGE>
<PAGE>
<TABLE>
Hermann Pfauter GmbH & Co
Consolidated Balance Sheets as of December 31, 1996 and 1995
<CAPTION>
(amounts shown in thousands)
December 31, December 31,
ASSETS 1996 1995
DM DM
<S> <C> <C>
A. FIXED ASSETS
I. Intangible assets
1. License rights and goodwill 12,406 5,892
2. Deposits 0 15
12,406 5,907
II. Property, plant and equipment
1. Land and buildings 15,978 14,518
2. Technical equipment and machinery 22,414 18,100
3. Other property, plant and equipment 6,156 5,669
4. Deposits and construction in process 1,255 2,278
45,803 40,565
III. Financial assets
Investments in affiliates 741 2,994
58,950 49,466
B. CURRENT ASSETS
I. Inventory
1. Raw materials and supplies 20,386 20,843
2. Work in process parts and machines 30,949 25,425
3. Finished parts and products 7,722 9,244
4. Deposits paid to suppliers 683 2,166
5. Deposits received from customers -14,213 -19,545
45,527 38,133
II. Receivables and other
1. Trade accounts receivable 70,347 93,198
2. Receivables from unconsolidated
subsidiaries 176 0
3. Receivables from affiliates 857 894
4. Other assets 6,537 1,729
77,917 95,821
III. Cash and banks 6,820 5,521
130,264 139,475
C. PREPAID EXPENSES 2,234 1,574
191,448 190,515
<FN>
(The accompanying notes are an integral part of these consolidated
financial statements.)
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Hermann Pfauter GmbH & Co
Consolidated Balance Sheets as of December 31, 1996 and 1995
<CAPTION>
(amounts shown in thousands)
December 31, December 31,
PARTNERS' CAPITAL AND LIABILITIES 1996 1995
DM DM
<S> <C> <C>
A. PARTNERS' CAPITAL
I. Registered capital 20,001 20,001
II. Partner accounts -6,213 -5,663
III. Capital reserves -346 -346
IV. Retained deficit -11,327 -11,381
V. Cumulative translation adjustment -1,681 -3,207
434 -596
VI. MINORITY INTEREST 1,506 9,197
1,940 8,601
B. SPECIAL ACCOUNT CONTAINING CAPITAL
RESERVE 204 195
C. ACCRUALS
1. Pension and other post-employment
benefit obligations 32,311 31,082
2. Tax accruals 781 746
3. Other accruals 21,931 21,453
55,023 53,281
D. LIABILITIES
1. Liabilities to financial institutions 88,098 79,465
2. Trade accounts payable 25,154 28,967
3. Liabilities from bills of exchange 1,743 3,073
4. Liabilities to unconsolidated subsidiaries 343 249
4. Liabilities to affiliated companies 70 33
5. Other liabilities 17,058 15,743
132,466 127,530
E. DEFERRED INCOME 1,815 908
191,448 190,515
<FN>
(The accompanying notes are an integral part of these consolidated
financial statements.)
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Hermann Pfauter GmbH & Co
Consolidated Income Statements
for the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
(amounts shown in thousands)
For the Years Ended
December 31, December 31, December 31,
1996 1995 1994
DM DM DM
<S> <C> <C> <C>
1. Sales 264,864 256,045 220,083
2. Cost of sales -204,896 -198,250 -177,160
3. Gross margin 59,968 57,795 42,923
4. Other operating income 2,659 3,193 4,322
5. Selling and marketing expenses 32,355 31,712 29,539
6. General and administrative
expenses 15,052 12,141 12,788
7. Other operating expenses 1,597 1,850 1,427
8. Interest and related income 1,546 312 772
9. Write-downs of investments and
loans 2,368 1,789 0
10. Expense from profit sharing
agreement 4 5 1
11. Income from profit sharing
agreement 0 0 4
12. Interest and related expenses 7,624 7,024 7,000
13. Operating income/(loss) 5,173 6,779 -2,734
14. Extraordinary income 0 87 10
15. Extraordinary expense 23 0 0
16. Income taxes 425 766 248
17. Other taxes 145 90 163
18. Income/(loss) before minority
interest 4,580 6,010 -3,135
19. Minority interest in income -2,180 -4,495 -3,281
20. Net income/(loss) 2,400 1,515 -6,416
<FN>
(The accompanying notes are an integral part of these consolidated
financial statements.)
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Hermann Pfauter GmbH & Co
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1996 and 1995
<CAPTION>
(amounts shown in thousands)
For the Years Ended
December 31, December 31,
1996 1995
DM DM
<S> <C> <C>
Cash Flows from Operating Activities:
Net income 2,400 1,515
Adjustments to reconcile net income to net cash
provided from operating activities:
Minority interest in net income 2,180 4,495
Depreciation and amortization expenses 13,350 11,915
Pension expense for defined benefit plans 3,353 4,130
Gains on sales of tangible assets -598 0
Currency losses (gains) on remeasurement -1,115 1,310
Equity earnings in affiliates 522 98
Write-off of investments net of cost
reimbursements 700 1,441
Decrease (increase) in assets:
Inventory (including deposits) -5,039 14,181
Notes and accounts receivable 27,207 -20,177
Prepaid expenses and other assets -5,167 1,405
Increase (decrease) in accruals and liabilities:
Pension and post-employment obligations -2,660 -2,045
Tax and other accruals 674 582
Trade accounts payable -5,801 -3,507
Other liabilities and deferred income -1,732 736
28,274 16,079
Cash Flows from Investing Activities:
Purchases of property, plant and equipment -14,608 -13,127
Proceeds from disposal of property, plant
and equipment 1,415 0
Purchases of intangible assets -1,148 -1,548
Investments in affiliates 0 50
-14,341 -14,625
Cash Flows from Financing Activities:
Increase (decrease) in short term debts and
liabilities from bills of exchange 5,713 4,134
Proceeds from long-term debt 10,000 4,000
Repayments of long-term debt -8,886 -4,183
Partnership distributions -4,084 -3,189
Redemption of shareholder interest -15,825 0
-13,082 762
Effect of exchange rate changes on cash 448 -191
Cash and cash equivalents at beginning of year 5,521 3,496
Cash and Cash Equivalents at End of Year 6,820 5,521
<FN>
(The accompanying notes are an integral part of these consolidated
financial statements)
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
Supplemental cash flow information:
<CAPTION>
(amounts shown in thousands)
1996 1995
DM DM
<S> <C> <C>
Cash paid during the years for:
Interest 6,852 6,446
Income taxes - net of refunds 390 766
<FN>
(The accompanying notes are an integral part of these consolidated
financial statements)
</FN>
</TABLE>
<PAGE>
<PAGE>
Notes to the Consolidated Financial Statements of
Hermann Pfauter GmbH & Co Ludwigsburg/Germany
(amounts shown in thousands, except where specified)
1. General
The annual consolidated financial statements of Hermann Pfauter GmbH & Co
were prepared according to the statutory accounting requirements of the
German commercial code.
The profit and loss account was prepared on the basis of the cost of
sales model.
The German commercial code normally requires presentation of balance
sheets and income statements and related notes for two comparative years.
However, for purposes of this presentation, balance sheets and cash flow
statements have been shown for two comparative years whereas the income
statements reflect three comparative years with appropriate notes for the
respective years included.
2. Scope of consolidation
The following domestic and foreign subsidiaries of Pfauter GmbH & Co are
fully consolidated with the respective minority interests disclosed.
<TABLE>
<CAPTION>
% Ownership
within
% Ownership consolidated
Name and Location of the by Pfauter Pfauter GmbH
Company Share capital GmbH & Co & Co
<S> <C> <C> <C> <C>
Domestic
Pfauter Verwaltungs GmbH, DM 66 100% 100%
Ludwigsburg
Foreign
a) American Pfauter
Management * US$ 16 100% 100%
Inc., Rockford/USA
(=APMI)
b) American Pfauter
L.P. Rockford, USA (=APL) * US$ 2,120 99% 100%
c) Pfauter Cutting Tools
Inc. * US$ 215 100% 100%
Rockford, USA (=PCTI)
d) Pfauter Maag Cutting
Tools L.P.,* US$ 3,000 1994: 50% 1994: 51%
Rockford, USA (=PMCT) 1995: 50% 1995: 51%
1996: 75% 1996: 76%
e) SARK Pfauter France FFr 200 85% 85%
Le Vesinet, France
f) Pfauter Italia S.R.L.
Porretta Terme, Italy Lit 500,000 100% 100%
g) Pfauter Italia S.p.A.
Villanova di Lit 2,566,000 100% 100%
Castenaso, Italy
</TABLE>
<PAGE>
<PAGE>
(amounts shown in thousands, except where specified)
* - The financial statements of the four American subsidiaries have
been audited by other auditors as of and for the years ended
December 31, 1995 and 1994.
In accordance with Section 296, paragraph 2 of the German Commercial
Code, the subsidiary German Machine Tool Service center Ltd., as shown
below, has not been consolidated but rather is reflected as an investment
at cost.
In addition, the investment in Engrenasa Maquinas Operatitizes Ltd. has
also been reflected at cost net of write downs. The company was not
consolidated or accounted for by applying the equity method since the
investment was being held for sale (Section 296, paragraph 1, number 3 of
the German Commercial Code).
<TABLE>
<CAPTION>
Net
book
Name and Location of the % value
Company Share Capital Ownership DM
<S> <C> <C> <C> <C>
Foreign
a) Engrenasa Maquinas
Operatirizes Ltd.,
Sorocaba, Brazil
1994 CR$ 110,036 40% 3,249
1995 R$ 1,882 40% 1,700
1996 R$ 1,882 57% 0
b) German Machine Tool Service
Center Co. Ltd. Tianjin,
China DM 400 25% 150
</TABLE>
In addition, through its consolidated subsidiary Pfauter Maag Cutting
Tools L.P., the group has a 45.6% share (1995: 30.6%) in Mecup S.R.L.
Bologna, Italy (share capital: Lit 1,150,000) which has been accounted
for using the equity method. In 1995 and 1996, extraordinary write downs
amounting to DM 1,549 and DM 1,700 respectively were booked to reflect
the declining value of the investment.
3. Consolidation principles
In accordance with German commercial law, for the subsidiaries already
belonging to the group on December 31, 1989 the capital consolidation was
made in the consolidated financial statements on that closing date in
accordance with the so-called "German method" whereby the differences
between the equity of the subsidiaries and the carrying value of the
investments were defined as goodwill and recorded directly to capital
reserves by exercising the option right according to the transitional
regulation of Sec. 27.1 of the EU Commercial Code. For subsidiaries or
parts of subsidiaries purchased and consolidated after December 31, 1989,
the capital consolidation is carried out according to the "book value
method" (purchase accounting) pursuant to Sec. 301 of the Commercial
code.
The classification of the balance sheet and income statement as well as
the valuation of principles applied have been adjusted to conform with
the current German Commercial Code if the deviation was material.
<PAGE>
<PAGE>
(amounts shown in thousands, except where specified)
Profits, revenues and expenses and receivable and payable balances
arising from transactions between consolidated companies have been
eliminated in consolidation.
4. Accounting policies
Goodwill and other intangible assets are stated on the basis of cost and
are amortized, principally on a straight-line basis, over the estimated
future periods to be benefited (not more than 15 years).
Property, plant and equipment are stated at cost, less allowances for
depreciation. Property, plant and equipment are depreciated principally
by using the double declining method over the estimated useful lives of
the assets.
Investments in affiliates with less than 50% share ownership are recorded
using the equity method. Investments in insignificant unconsolidated
subsidiaries are recorded at cost.
Inventories are valued at the lower of cost or market. Cost for purchased
parts and merchandise are determined on the basis of average cost or
first-in, first-out methods. However, for certain inventories, cost is
determined on the last-in, first-out method. Finished goods and work-in-
process is at manufacturing cost considering direct material and wages
and appropriate allocations of manufacturing overhead.
Accounts receivable and other assets are stated at nominal values with
appropriate allowances for collectibility risks.
The cost of pension and post-employment plans are computed on the basis
of accepted actuarial methods.
German foreign income taxes concerning partnerships within the
consolidated group are borne by the individual partners.
The Company has applied the use of special reserves, which are not
taxable until use or liquidation according to tax law. In addition, the
Company has applied the use of accelerated depreciation and provisions
allowed by tax law, when the recognition for taxation purposes is
dependent on whether they are used for commercial purposes.
5. Currency translation
The translation of the balance sheets of subsidiaries denominated in
foreign currencies is made at the year end rate. Income statement
balances denominated in foreign currencies are translated at the average
annual exchange rate.
According to German Commercial Code, receivables from third parties and
unconsolidated subsidiaries and affiliates are valued at the lower of the
transaction date exchange rate or the year end rate. Payables to third
parties and unconsolidated subsidiaries and affiliates are valued at the
higher of the transaction or year end exchange rate.
Futures contracts to hedge third party firm sales commitments and
receivables are valued at the respective future rates.
<PAGE>
<PAGE>
(amounts shown in thousands, except where specified)
NOTES TO THE BALANCE SHEETS
6. Tangible assets
Tools and devices are included at a fixed amount of DM 970 for the years
reported.
<TABLE>
Fixed assets movements schedule 1996 <F1>
<CAPTION>
Historical
purchase Dis- Accumu- Net book
production posals lated value Annual
costs Jan. Addi- Adjust- at depre- Dec. depre-
1, 1996 tions ments cost ciation 31, 1996 ciation
DM DM DM DM DM DM DM
<S> <C> <C> <C> <C> <C> <C> <C>
I. Intangible
Assets
1. License
rights and
goodwill 11,693 8,185 331 0 7,803 12,406 1,755
2. Deposits 331 0 -331 0 0 0 0
12,024 8,185 0 0 7,803 12,406 1,755
II. Tangible Assets
1. Land &
buildings 31,242 1,712 0 545 16,431 15,978 871
2. Technical
machinery and
equipment 71,698 10,564 1,503 5,370 55,981 22,414 8,729
3. Other
property, plant
and equipment 33,093 2,349 0 879 28,407 6,156 2,141
4. Deposits and
construction in
progress 2,656 102 -1,503 0 0 1,255 0
138,689 14,727 0 6,794 100,819 45,803 11,741
III.Financial
Assets
1.Investments
in uncon-
solidated
subsidiaries 3,323 0 0 0 3,323 0 1,700
2. Investments
in affiliates 1,659 40 0 0 958 741 692
4,982 40 0 0 4,281 741 2,392
</TABLE>
<PAGE>
<PAGE>
(amounts shown in thousands, except where specified)
<TABLE>
Fixed assets movements schedule 1995 <F1>
<CAPTION>
Historical
purchase/ Dis- Accumu- Net book
production posals ulated value Annual
costs Addi- Adjust- at depre- Dec. 31, deprec-
Jan.1,1995 tions ments cost ciation 1995 ciation
DM DM DM DM DM DM DM
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Assets
I. Intangible
Assets
1. License
rights and
goodwill 9,653 1,535 941 256 5,981 5,892 1,635
2. Deposits 1,258 15 -941 0 317 15 317
10,911 1,550 0 256 6,298 5,907 1,952
II. Tangible Assets
1. Land &
buildings 30,446 244 0 187 15,985 14,518 736
2. Technical
machinery and
equipment 58,315 9,666 118 620 49,379 18,100 6,417
3. Other
property, plant
and equipment 33,170 1,472 105 2,563 26,515 5,669 2,541
4. Deposits and
construction in
progress 1,814 687 -223 0 0 2,278 0
123,745 12,069 0 3,370 91,879 40,565 9,694
III.Financial
Assets
1.Investments
in uncon-
solidated
subsidiaries 0 0 0 0 0 0 0
2. Investments
in affiliates 4,811 50 0 0 1,867 2,994 1,793
4,811 50 0 0 1,867 2,994 1,793
<FN>
<F1> - Amounts shown in the 1996 and 1995 fixed assets movement schedules
preceding represent consolidated balances applying the 1996 and 1995
year-end exchange rates respectively for translating all balances and
account movements of foreign subsidiaries.
</FN>
</TABLE>
<PAGE>
<PAGE>
(amounts in thousands, except where specified)
7. Accounts receivable
<TABLE>
<CAPTION>
December 31, 1996 Receivables due within
Total amount up to more than
Dec. 31, 1996 1 year 1 year
DM DM DM
<S> <C> <C> <C>
1. Trade accounts receivable 70,347 70,203 144
2. Accounts receivable from
unconsolidated subsidiaries and
affiliates 1,033 1,033 0
3. Other assets 6,537 3,472 3,065
77,917 74,708 3,209
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 Receivables due within
Total amount up to 1 more than
Dec. 31, 1995 year 1 year
DM DM DM
<S> <C> <C> <C>
1. Trade accounts receivable 93,198 93,198 0
2. Accounts receivable from
unconsolidated subsidiaries and
affiliates 894 894 0
3. Other assets 1,729 1,701 28
95,821 95,793 28
</TABLE>
8. Special reserves which are not taxed until use or liquidation
This position is a reserve recorded by Pfauter Italia S.p.A. which was
allowed in accordance with Italian tax law and civil code for accelerated
depreciation.
9. Accruals
The accruals for pension and other post-employment benefits represent
obligations of Hermann Pfauter GmbH & Co from defined benefit pension
plans as well as termination indemnity obligations of Pfauter Italia
S.p.A. Pension accruals were not set up for former general managers and
surviving spouses amounting to TDM 6,146 and TDM 6,041 in 1996 and 1995
respectively due to the fact that these may not be set up for German tax
purposes. The other accrued expenses are primarily set up for personnel
related matters, warranty, contingent losses from open sales contracts
and outstanding invoices.
<PAGE>
<PAGE>
(amounts in thousands, except where specified)
10. Liabilities
Liabilities at December 31, 1996 and 1995 comprised the following.
<TABLE>
<CAPTION>
December 31, 1996 of which
Payable within secured
Total Up to 1 1-5 years more
amount year than
Dec. 31, 5 years
1996
DM DM DM DM DM
<S> <C> <C> <C> <C> <C>
1. Liabilities to
financial
institutions 88,098 44,385 39,260 4,453 85,486
2. Trade accounts
payable 25,154 24,377 777 0 0
3. Liabilities from
bills of exchange 1,743 1,743 0 0 0
4. Liabilities to
unconsolidated
subsidiaries and
affiliates 413 413 0 0 0
5. Other liabilities 17,058 13,492 3,506 60 864
thereof:
Social security (1,929)
Taxes (1,844)
132,466 84,410 43,543 4,513 86,350
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 of which
Payable within secured
Total Up to 1 1-5 years more
amount year than
Dec. 31, 5 years
1995
DM DM DM DM DM
<S> <C> <C> <C> <C> <C>
1. Liabilities to
financial
institutions 79,465 45,422 30,353 3,690 67,192
2. Trade accounts
payable 28,967 28,967 0 0 0
3. Liabilities from
bills of exchange 3,073 3,073 0 0 0
4. Liabilities to
unconsolidated
subsidiaries and
affiliates 282 282 0 0 0
5. Other liabilities 15,743 13,545 2,138 60 1,242
thereof:
Social security (1,818)
Taxes (2,211)
127,530 91,289 32,491 3,750 68,434
</TABLE>
The liabilities to financial institutions are secured mainly by
mortgages, fixed assets and partly by receivable balances.
The other liabilities which are secured concern Pfauter Italia S.p.A.
machines acting as a lien for a special state subsidy.
<PAGE>
<PAGE>
(amounts shown in thousands, except where specified)
11. Commitments and contingent liabilities
The following table shows financial commitments and contingent
liabilities which are not disclosed in the balance sheet:
<TABLE>
<CAPTION>
Dec. 31, 1996 Dec. 31, 1995
Total Total
DM DM
<S> <C> <C>
Contingent liabilities:
Contingent liabilities from issuing and
transfer of bills 0 735
Contingent liabilities from guarantees
granted for third parties 3,285 <F1> 0
Other contingent liabilities 3,677 2,775
Other financial commitments:
Purchase commitments from open capital
expenditures 1,099 9,466
Long-term rent and leasing contract
commitments for the next five years 1,778 2,564
<FN>
<F1> DM 1,710 of this amount concerns Mecup S.r.l., Bologna, Italy
</FN>
</TABLE>
As a result of agreements with American banks, Hermann Pfauter GmbH & Co.
is obliged to maintain a minimum trade accounts receivable balance with
American Pfauter L.P.
As of December 31, 1996 and 1995 open foreign exchange forward contracts
totaled DM 9,671 and DM 28,585 respectively.
In accordance with German tax law requirements, pension obligations to
partners and their surviving relatives amounting to DM 6,146 as of
December 31, 1996 and DM 6,241 as of December 31, 1995 were not accrued.
<PAGE>
<PAGE>
(amounts shown in thousands, except where specified)
NOTES TO THE INCOME STATEMENTS
12. Sales
The sales comprise:
<TABLE>
<CAPTION>
1996 1995 1994
by segment: DM million DM million DM million
<S> <C> <C> <C>
Hobbing machines 74.5 71.1 60.1
Grinding machines 22.7 24.5 17.9
Bieler machines 9.3 9.9 5.9
Other revenues 43.0 50.1 43.0
Shapers 23.5 11.8 7.3
Honing machines 2.9 3.1 3.3
Merchandise 29.8 27.7 37.6
Tools 59.2 57.8 44.9
264.9 256.0 220.0
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
by geographical market: DM million DM million DM million
<S> <C> <C> <C>
Germany 43.5 52.7 35.7
Rest of Western Europe 74.1 67.4 50.0
Eastern Europe 3.6 0 0.3
North America 113.7 109.0 121.3
Latin America 15.4 1.1 1.6
Asia 14.5 16.4 10.4
Other countries 0.1 9.4 0.7
264.9 256.0 220.0
</TABLE>
13. Personnel expenses
The personnel expenses comprise:
<TABLE>
<CAPTION>
1996 1995 1994
DM DM DM
million million million
<S> <C> <C> <C>
Salaries and wages 79.1 74.4 65.1
Social security 13.4 12.3 11.4
Pension costs 4.6 5.2 4.5
Total 97.1 91.9 81.0
</TABLE>
The personnel structure is as follows:
<TABLE>
<CAPTION>
Average Number of Employeess
1996 1995 1994
<S> <C> <C> <C>
Production 780 766 723
Sales 108 110 106
Research & Development 43 41 37
General Administration and Other 105 100 94
Apprentices 30 34 46
1,066 1,051 1,006
</TABLE>
<PAGE>
<PAGE>
(amounts in thousands, except where specified)
14. Accounting Principles Generally Accepted in the United States
Hermann Pfauter GmbH & Co complies with German accounting principles,
which differ in certain significant respects from accounting principles
currently accepted in the United States (US GAAP). The significant
differences that affect the consolidated net income and partners' capital
of Hermann Pfauter GmbH & Co are set out below.
a. Pensions and Anniversary Awards:
According to Financial Accounting Standard ("FAS") 87, "Employers'
Accounting for Pensions", future salary increases, inflation and other
factors must be taken into account for computation of the projected
benefit obligation using the projected unit credit method. The computed
German provision for Hermann Pfauter GmbH & Co pension obligations is not
adjusted for future salary increases and has been computed using the
entry age normal method. In addition, certain pension obligations of
Hermann Pfauter GmbH & Co have not been recorded as pension liabilities
in the consolidated financial statements, as allowed under German
accounting law. Such pension obligations are required to be recorded
according to FAS 87.
US GAAP also requires anniversary award obligations to be recorded for
using a computation method similar to that for pensions as noted above.
Certain anniversary award commitments of Hermann Pfauter GmbH & Co have
not been recorded in the consolidated financial statements.
b. Depreciation of Buildings:
US GAAP requires property, plant and equipment to be systematically
depreciated over the economic useful lives of the assets. However, in the
consolidated financial statements, depreciation on certain buildings
belonging to Hermann Pfauter GmbH & Co includes additional special
depreciation charges allowed for tax purposes which are not a part of
normal depreciation.
c. Provisions for Trade Accounts Receivable:
In the consolidated financial statements, certain adjustments have been
made to establish additional general bad debt and other provisions for
subsidiaries in the United States and other foreign subsidiaries which
would be in excess of amounts allowed under US GAAP.
d. Foreign Currency Hedge Contracts:
Hermann Pfauter GmbH & Co sells to group companies in US Dollar and
Italian Lire denominated invoices. In order to hedge the related
receivables and firm sales commitments, the Company enters into foreign
exchange forward contracts. Receivables from such group companies are
recorded by Hermann Pfauter GmbH & Co at the forward contract rate. As
the subsidiary payable balances are translated at the year end rate in
consolidation, differences arise in eliminating intercompany balances
which are recorded directly into retained earnings.
Under US GAAP, the foreign currency denominated receivables would be
remeasured at the year end rate and the hedge contracts would be recorded
in the balance sheet at market values effectively offsetting the
receivable remeasurement gains and losses.
<PAGE>
<PAGE>
(amounts in thousands, except where specified)
e. Special Reserves:
Under tax law, the Company has deferred a portion of the gain on assets sold
in years prior to 1994 and has reflected this deferral as a "special
account containing capital reserves" in the balance sheet. Under US GAAP,
such gains should be recognized at the time of sale.
f. Minority Interest:
Minority interest is considered a part of partners' capital under German
accounting rules whereby under US GAAP minority interest is to be shown
separately outside of the partner capital balances.
g. Consolidation of Engrenasa Maquinas Operatirizes Ltd.:
The 57% investment (40% in 1995 and 1994) in Engrenasa Maquinas
Operatirizes Ltd., Sorocaba, Brazil (Engrenasa), has been reflected in
the consolidated financial statements as an investment at cost (net of
value write downs) of DM 0.0 million (1995: 1.7 million and 1994: 3.2
million.) US GAAP normally requires the consolidation of such investments
(applying the equity method in 1995 and 1994). However, on June 4, 1997,
the investment was sold for one Deutschmark. As such, in order to reflect
the historical financial statement US GAAP balances of the continuing
business, adjustments have been made following to exclude the investment
values and related income effects of the Engrenasa operations.
Net Income and Partners' Capital:
The application of US GAAP, as described above, would have the following
approximate effects on consolidated net income and partners' capital.
<TABLE>
<CAPTION>
Net Income:
Year ended December 31
1996 1995 1994
(in millions) DM DM DM
<S> <C> <C> <C>
Net income (loss) as reported 2.4 1.5 -6.4
Items increasing (decreasing) reported
net income:
a. Pensions and anniversary awards -0.7 0.4 -0.5
b. Building depreciation 0.1 0.0 0.3
c. Provisions for accounts receivable -0.2 0.0 0.2
g. Engrenasa investment 1.7 0.0 0.0
Net income in accordance with US GAAP
(excluding the Engrenasa business) 3.3 1.9 -6.4
</TABLE>
<PAGE>
<PAGE>
(amounts in thousands, except where specified)
<TABLE>
<CAPTION>
Partners' capital:
Year ended December 31
1996 1995 1994
(in millions) DM DM DM
<S> <C> <C> <C>
Partners' capital as reported 1.9 8.6 6.8
Items increasing (decreasing) reported
partners' capital:
a. Pensions and anniversary awards -12.1 -11.4 -11.8
b. Building depreciation 1.1 1.0 1.0
c. Provisions for accounts
receivable 0.4 0.6 0.6
d. Foreign exchange contracts -0.4 0.0 0.4
e. Special reserves 0.2 0.2 0.2
f. Minority interest -1.5 -9.2 -7.2
-10.4 -10.2 -10.0
g. Effect of exclusion of net
Engrenasa investment 0.0 -1.7 -1.7
Partners' capital (deficit) in accordance
with US GAAP (excluding the net investment
in the Engrenasa business) -10.4 -11.9 -11.7
</TABLE>
Summarized consolidated balance sheet data:
Below is summarized balance sheet data in conformity with US GAAP.
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
(in millions) DM DM
<S> <C> <C>
Assets:
Current assets 143.9 161.2
Goodwill 6.7 0.0
Property, plant and equipment 46.9 41.6
Other long-term assets 9.6 7.2
Total assets 207.1 210.0
Liabilities and partners' capital
Current liabilities 125.8 136.0
Long-term liabilities 90.2 76.7
Minority interest 1.5 9.2
Partners' capital -10.4 -11.9
Total liabilities and partners' capital 207.1 210.0
</TABLE>
The figures above reflect exclusion of the net investment in the
Engrenasa business.
<PAGE>
<PAGE>
(amounts in thousands, except where specified)
15. Management and Management Board Remunerations
The total compensation of the general management of Hermann Pfauter GmbH
& Co amounted to DM 1,133 in 1996, DM 1,162 in 1995, and DM 1,096 in
1994. The remuneration of the Board of Directors for their activities as
legal representatives of associated companies amounted to DM 24 in 1996,
DM 23 in 1995 and DM 25 in 1994.
The compensation for the advisory council of the parent company amounted
to DM 130 for each of the years shown.
The total compensation for former general managers or their surviving
dependents amounted to DM 379 for 1996, DM 376 for 1995, and DM 367 for
1994.
The actuarial report for group pension obligations shows a necessary
accrual amounting to DM 3,071 for 1996, DM 3,289 for 1995, and DM 3,268.
<PAGE>
<PAGE>
Directors' Report
Review of 1994 through 1996
1996 reflected positive operating and financial developments in the Group
with order intake of DM 239 million and a consolidated sales volume of
DM 265 million for the year. This positive trend is also reflected in the
growing profits being shown in the 1996 financial statements. The order
backlog at December 31, 1996 totaled DM 106 million.
In 1996 only 28% of the total sales volume was attributable to sales of
the original Pfauter hobbing machine product line whereas the importance
of the new product lines being offered since 1987 have grown to
contribute to 35% of the sales volume.
44% of sales were made in Western and Central Europe, a similar
percentage in North American, whereby only 12% of sales were made to
customers in the rest of the world.
Reflecting back on the past three years, 1994 results were the result of
the negative effects of the economic recession in the machine-tool
industry. The small backlog carried over from 1993 and the reduction of
new orders in the first half of 1994 meant that the Company's sales were
low despite expansion of the merchandising business in this year.
Although cost cutting exercises were completed, sales price reductions
together with further reductions in capacity utilization meant that the
losses incurred could not be further minimized.
However, due to the takeover of the gear-cutting division of the machine
manufacturer Mikron AG in Biel, Switzerland in 1994, the foreign
activities of the Pfauter Group could be extended considerably in Italy
and Switzerland.
Although Pfauter SrL also incurred a loss in 1994, it should be noted
that its activities were transferred at the time to the newly founded
Pfauter Italia SpA which reported approximate break-even results.
The American Pfauter Group developed positively in 1994 with positive
earnings being reported after incurring a loss in the previous year.
Pfauter-Maag Cutting Tools also showed improvement with increasing
profits in 1994.
1995 brought considerable improvements in sales volumes, and, contrary to
1994, the Group was able to show a profit in 1995. 1996 saw a further
growth in operating results and net income as noted previously.
The capital resources increased in 1996 by DM 2 million whereas the total
assets of the company remained relatively unchanged at DM 191 million.
In 1996, in a share redemption transaction $10.3 million net was paid out
by Pfauter-Maag Cutting Tools to other shareholders with the group share
of the remaining Pfauter-Maag Cutting Tools capital being 76.1%.
Excluding the financing needed to carry out this transaction, bank
liabilities and total liabilities declined substantially in 1996.
<PAGE>
<PAGE>
General Situation
The tooling business continues to develop postively despite a few smaller
negative influences (lower contract intake in 1996, and the loss by the
Italian affiliate, Mecup). Since the beginning of 1997, order volumes
have increased considerably with an extrapolated sales volume for 1997 of
$50 million.
On the other hand, the machine business, particularly in the automobile
industry, continues to be sluggish. A drop in average sales prices per
unit of 30% from 1992 to 1996 for the smaller hobbing machines was
experienced. This, accompanied by a 13% increase in personnel costs in
Germany since 1992 has made it especially difficult to report positive
results for the Hermann Pfauter GmbH & Co German business. It is however
hoped that the consolidated results for 1997 for the hobbing, shaping and
grinding machine businesses will be positive.
The competitors continue to exercise extremely elastic pricing policies.
Despite the 20% cost reduction achieved through the redesign of the P100
machine, it will be difficult to maintain the market share in this
sector. On the other hand, more selective acceptance of orders based on
projected margins has resulted in improved profits in 1996.
The grinding machine product line will be extended in both directions in
1997. One order for a 3m grinding machine and another one pending
together with our cooperation with Kapp has allowed the Company to invest
approximately DM 3 million in 1996 and 1997 in this new machine line. In
addition, in 1996 a machine variation of the already successful P100 was
developed in order to strengthen the Company's carbide hobbing position
with 75 machines already sold.
Unfortunately, this trend has resulted in a drastic reduction in the
number of required machines by customers (up to 50% reductions) whereas
the tooling business has automatically picked up to the advantage of
Pfauter-Maag Cutting Tools.
The expansion of the grinding machine product line has also opened up new
opportunities for Pfauter-Maag Cutting Tools since, through cooperation
with the company - Dr. Winter, a new plated grinding wheel is being
introduced to the market which will compete with Kapp.
In conclusion, the prospects for the tooling business are very positive
whereas the shrinking market for machines will continue to cause an
increasingly competitive marketplace for the Company's products.
Personnel
The Company's total workforce has increased by 60 persons between 1994
and 1996 to 1,066. The related personnel costs amounted to DM 97.1
million in 1996. It is anticipated that 1997 will bring a slight decrease
in the employee levels in the Pfauter Group.
<PAGE>
<PAGE>
Research and Development
Research and development continues to play an important role in the
Pfauter Group with total expenses for 1996 amounting to DM 8.5 million.
This relates mainly to development performed at the Hermann Pfauter GmbH
& Co in Germany. Development was made primarily with regard to two
automobile machine types; a new shaping unit for a combined hobbing and
shaping machine SHOBBER and the future advancement of the grinding
machine online application.
Gleason
As announced to the public in August 1996, Pfauter Group shareholders are
currently negotiating with Gleason Corporation to sell the entire Pfauter
Group business to Gleason. Negotiations for this transaction continue and
are expected to be completed in the near future.
<PAGE>
<PAGE>
Item 7(b):
<TABLE>
GLEASON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
(In thousands)
<CAPTION>
Gleason Pro forma Pro forma
Corporation Pfauter Combined Adjustments Results
(C)
Assets
<S> <C> <C> <C> <C> <C>
Current assets
Cash and equivalents $ 20,437 $ 2,022 $ 22,459 $ (21,000) $ 1,459
Trade accounts receivable 57,937 30,593 88,530 (212) 88,318
Inventories 31,037 41,741 72,778 3,279 76,057
Deferred income taxes 6,894 -- 6,894 -- 6,894
Other current assets 4,414 5,407 9,821 (3,376) 6,445
Total current assets 120,719 79,763 200,482 (21,309) 179,173
Property, plant and equipment,
net 58,838 30,188 89,026 34,821 123,847
Other assets 7,798 5,891 13,689 13,962 27,651
Deferred income taxes 10,013 -- 10,013 1,700 11,713
Total assets $ 197,368 $ 115,842 $ 313,210 $ 29,174 $ 342,384
<FN>
See notes to pro forma financial information
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
GLEASON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
(In thousands)
<CAPTION>
Gleason Pro forma Pro forma
Corporation Pfauter Combined Adjustments Results
(C)
Liabilities and Stockholders' Equity
<S> <C> <C> <C> <C> <C>
Current liabilities
Short-term borrowings $ 2,145 $ 26,926 $ 29,071 $ (25,500) $ 3,571
Current portion of long-
term debt 4 6,431 6,435 (6,431) 4
Trade accounts payable 17,461 12,235 29,696 -- 29,696
Income taxes 10,385 343 10,728 -- 10,728
Other current liabilities 29,645 27,737 57,382 10,879 68,261
Total current liabilities 59,640 73,672 133,312 (21,052) 112,260
Long-term debt 2,793 23,600 26,393 43,652 70,045
Pension plans and other retiree
benefits 37,705 21,867 59,572 -- 59,572
Other liabilities 5,670 4,517 10,187 (1,240) 8,947
Total liabilities 105,808 123,656 229,464 21,360 250,824
Stockholders' equity
Common stock 5,797 -- 5,797 -- 5,797
Additional paid-in capital 11,454 -- 11,454 -- 11,454
Retained earnings 95,716 -- 95,716 -- 95,716
Partners' equity -- (7,814) (7,814) 7,814 --
Cumulative foreign currency
translation adjustment (3,648) -- (3,648) -- (3,648)
Minimum pension liability
adjustment (461) -- (461) -- (461)
108,858 (7,814) 101,044 7,814 108,858
Less treasury stock, at cost 17,298 -- 17,298 -- 17,298
Total stockholders' equity 91,560 (7,814) 83,746 7,814 91,560
Total liabilities and
stockholders' equity $ 197,368 $ 115,842 $ 313,210 $ 29,174 $ 342,384
<FN>
See notes to pro forma financial information
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
GLEASON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(In thousands, except per share amounts)
<CAPTION>
Gleason Pro forma Pro forma
Corporation Pfauter Combined Adjustments Results
( D )
<S> <C> <C> <C> <C> <C>
Net sales $ 248,089 $ 178,217 $ 426,306 $ -- $ 426,306
Costs and expenses
Cost of products sold 167,958 133,246 301,204 128 301,332
Selling, general and
administrative expenses 42,614 33,412 76,026 353 76,379
Research and development
expenses 7,243 4,011 11,254 -- 11,254
Interest expense 513 4,055 4,568 1,545 6,113
Other (income) (982) (427) (1,409) (154) (1,563)
Income (loss) before income
taxes and minority interest 30,743 3,920 34,663 (1,872) 32,791
Provision for income taxes 11,083 281 11,364 374 11,738
Income (loss) before
minority interest 19,660 3,639 23,299 (2,246) 21,053
Minority interest -- (1,444) (1,444) 1,444 --
Net income (loss) $ 19,660 $ 2,195 $ 21,855 $ (802) $ 21,053
Weighted average number of
common shares outstanding 5,340,822 5,340,822 5,340,822 5,340,822 5,340,822
Income (loss) before
minority interest $ 3.68 $ 0.68 $ 4.36 $ (0.42) $ 3.94
Minority interest $ -- $ (0.27) $ (0.27) $ 0.27 $ --
Net income (loss) $ 3.68 $ 0.41 $ 4.09 $ (0.15) $ 3.94
<FN>
See notes to pro forma financial information
</FN>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
GLEASON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(In thousands, except per share amounts)
<CAPTION>
Gleason Pro forma Pro forma
Corporation Pfauter Combined Adjustments Results
( D )
<S> <C> <C> <C> <C> <C>
Net sales $ 122,719 $ 67,628 $ 190,347 $ -- $ 190,347
Costs and expenses
Cost of products sold 83,699 51,575 135,274 67 135,341
Selling, general and
administrative expenses 19,622 14,386 34,008 197 34,205
Research and development
expenses 3,634 1,796 5,430 -- 5,430
Interest (income) expense (121) 1,762 1,641 782 2,423
Other (income) (825) (648) (1,473) (110) (1,583)
Income (loss) before income
taxes and minority interest 16,710 (1,243) 15,467 (936) 14,531
Provision for income taxes 5,939 206 6,145 (1,230) 4,915
Income (loss) before
minority interest 10,771 (1,449) 9,322 294 9,616
Minority interest -- (799) (799) 799 --
Net income (loss) $ 10,771 $ (2,248) $ 8,523 $ 1,093 $ 9,616
Weighted average number of
common shares outstanding 5,158,454 5,158,454 5,158,454 5,158,454 5,158,454
Income (loss) before
minority interest $ 2.09 $ (0.28) $ 1.81 $ 0.06 $ 1.87
Minority interest $ -- $ (0.16) $ (0.16) $ 0.16 $ --
Net income (loss) $ 2.09 $ (0.44) $ 1.65 $ 0.22 $ 1.87
<FN>
See notes to pro forma financial information
</FN>
</TABLE>
<PAGE>
<PAGE>
Item 7(b)
Notes to Pro Forma Financial Information
(Unaudited)
(A) The pro forma consolidated balance sheet (unaudited) at June 30,
1997 and pro forma consolidated statements of operations (unaudited)
for the year ended December 31, 1996 and the six months ended June
30, 1997 give pro forma effect to the acquisition by Gleason
Corporation ("Gleason") of Hermann Pfauter GmbH & Co. ("Pfauter") and
Pfauter-MaaG Cutting Tools Limited Partnership ("PMCT"). The pro
forma consolidated statements of operations for the year ended
December 31, 1996 and the six months ended June 30, 1997 present the
results of operations of Gleason as if the acquisition had been
consummated as of January 1, 1996. The pro forma consolidated balance
sheet as of June 30, 1997 has been prepared as if the transaction had
occurred on that date.
The pro forma financial information is based on the historical
financial statements of Gleason and Pfauter, giving effect to the
acquisition under the purchase method of accounting and the
assumptions and adjustments set forth in these notes. The pro forma
information and accompanying notes should be read in conjunction with
the historical financial statements on which they are based. This
pro forma financial information may not be indicative of either
future results of operations or the results that actually would have
occurred if the acquisition had been consummated on the dates
indicated.
(B) Amounts for Pfauter have been translated from Deutsche Marks to
U.S. dollars as follows:
Balance Sheet - at the exchange rate in effect as of June 30, 1997
($1 = DM 1.75)
Statements of Operations - at the approximate average exchange rates
in effect during the year ended December 31, 1996 ($1 = DM 1.51)
and the six months ended June 30, 1997 ($1 = DM 1.69)
(C) Under purchase accounting, the assets and liabilities of the
acquired business are required to be adjusted from historical amounts
to their estimated fair values. Purchase accounting adjustments have
been preliminarily estimated by Gleason's management based upon
available information and are believed by management to be
reasonable. There can be no assurance, however, that the final
purchase accounting adjustments that will ultimately be determined by
Gleason's management will not differ from these estimates. The
following pro forma adjustments have been made to reflect the
estimated fair values of the assets and liabilities of Pfauter
assumed in the acquisition:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Adjustments: (in thousands)
Increase
(Decrease)
<S> <C>
Cash and equivalents ($21,000) <F1>
Trade accounts receivable (212) <F2>
Inventories 3,279 <F2>
Other current assets (3,376) <F3>
Property, plant and equipment 34,821 <F2>
Other assets 13,962 <F4>
Deferred income taxes 1,700 <F5>
Short-term borrowings (25,500) <F1>
Current portion of long-term debt (6,431) <F1>
Other current liabilities 10,879 <F6>
Long-term debt 43,652 <F1>
Other liabilities (1,240) <F7>
Partners equity 7,814 <F8>
<FN>
<F1> The reduction in cash and equivalents represents the use of
available cash on hand as of June 30, 1997 to reduce the debt
associated with the acquisition. The reductions in short-term
borrowings and current portion of long-term debt represent the
repayment of certain Pfauter debt as part of the acquisition and the
refinancing of other outstanding Pfauter debt under Gleason's new
revolving and term credit facility. The increase in long-term debt
includes Gleason's financing of the $34.8 million purchase price
(partially offset by the use of the cash on hand at June 30) and the
refinancing of Pfauter's short-term borrowings and current portion of
long-term debt under Gleason's revolving and term credit facility.
<F2> The reduction in trade accounts receivable and increases in
inventories and property, plant and equipment represent the
adjustments required to record the assets of Pfauter at estimated
fair market values. The increase in property, plant and equipment
includes an increase to the carrying value of land of $9.4 million
based on independent market appraisals.
<F3> The reduction in other current assets includes the
reclassification of $1.2 million of acquisition costs incurred by
Gleason through June 30, 1997 which, under purchase accounting, are
considered to be part of the purchase price. The reduction in other
current assets also includes the elimination of a note receivable due
from the minority interest partners of PMCT which was included in
Pfauter's June 30 balance sheet. This note was repaid by the partners
to the partnership as part of the acquisition.
<F4> The increase in other assets represents the net adjustment
required to reduce certain license rights and goodwill recorded in
Pfauter's balance sheet at June 30, 1997 to estimated fair market
values under Gleason's ownership (a reduction of approximately $4.7
million) and the recognition of goodwill associated with the
acquisition (approximately $18.7 million). The goodwill will be
amortized on a straight-line basis over a period of 30 years.
<PAGE>
<PAGE>
<F5> The increase in deferred income taxes (a non-current asset)
represents the estimated tax effect associated with the recording
of the acquired assets and liabilities.
<F6> The increase in other current liabilities includes $9.0 million
for the rationalization of the Pfauter business into Gleason's
existing operations. These costs have been included as a component
of the purchase price based on Gleason's intention to consolidate
certain Pfauter operating activities into Gleason operations. This
amount represents a preliminary estimate based on currently available
information and may be adjusted as more specific plans become
finalized. The increase in other current liabilities also includes
accruals for estimated additional costs (including legal and
accounting fees) associated with the acquisition.
<F7> The reduction in other liabilities represents the elimination of the
minority interest liability of PMCT (Pfauter owned 76 percent of the equity
of PMCT). Gleason acquired 100 percent ownership interest in PMCT in
the acquisition.
<F8> The increase in partners equity represents the removal of the
net deficit in Pfauter Partners' equity as of June 30, 1997.
</FN>
</TABLE>
(D) For purposes of determining the estimated pro forma effect of
the acquisition of Pfauter on the Gleason Consolidated Statement of
Operations, the following pro forma adjustments have been made:
<TABLE>
<CAPTION>
Increase (Decrease) Net Income
(in thousands) Year ended Six Months Ended
12/31/96 6/30/97
<S> <C> <C>
Lower dealer commission expense
due to termination of dealer contracts $ 323 $ 142
Higher depreciation resulting from
adjustments to fair value of
property, plant and equipment (151) (79)
Higher amortization expense resulting
from the recognition of goodwill
associated with the acquisition (499) (217)
Higher net interest expense associated
with higher debt due to the acquisition
financing, partially offset by a reduction
of the interest expense due to lower rates
under refinanced debt (1,545) (782)
Income tax (provision) benefit on Pfauter
operations and pro forma adjustments (374) 1,230
Minority interest removal 1,444 799
Total adjustment to net income $ (802) $ 1,093
</TABLE>
<PAGE>
<PAGE>
With the acquisition, certain of Pfauter's outside dealer
representative relationships have been terminated. The reduction in
commission expense represents the estimated savings for 1996 and six
months of 1997 due to the replacement of these outside dealers with
existing Gleason direct sales representation.
The higher expenses for depreciation and amortization are the result
of the increase in bases of both tangible assets (plant and
equipment) and intangible assets (goodwill). The higher depreciation
expense due to the increase in basis of plant and equipment was
partially offset by a reduction to expense due to the change from
accelerated to straight-line depreciation methods for the Pfauter
operations. The higher amortization expense associated with goodwill
recorded in the acquisition was partially offset by the removal of
amortization of intangibles which were included in Pfauter operating
results but which were removed from the opening balance sheet.
The increase in interest expense consists of two components.
Interest expense increased with the additional outstanding debt (and
lower cash balances) due to the acquisition financing. This increase was
partially offset with a reduction in Pfauter's interest expense due
to the refinancing, at lower average borrowing rates, of Pfauter's
debt under the Company's revolving and term credit facilities.
Interest rate assumptions used in the calculation of this pro forma
adjustment were based on current average borrowing rates. Management
estimated interest expense on the additional debt using an average
borrowing cost of 5.25%. The reduction of interest expense on Pfauter
historical borrowings was based on an estimated 1.0% reduction in
average borrowing rates due to the refinancing of the Pfauter debt.
The provision for income taxes represents the adjustment to record
income taxes for the inclusion of Pfauter operations within the
consolidated operations of Gleason Corporation and subsidiaries.
Management has estimated the tax provision considering the Pfauter
operational results and pro forma adjustments for the relevant taxing
jurisdictions.
The minority interest reduction to net income was eliminated due to
the fact that, as part of the acquisition, Gleason acquired 100 percent
ownership interest in PMCT. As such, there is no minority interest in
PMCT operating results under Gleason ownership.
The pro forma adjustments to the Statement of Operations do not
include any positive adjustments for increased sales or additional
cost reductions associated with the synergies of the combined
business. In addition, there are no positive adjustments included
for benefits expected from the rationalization of the Pfauter
operations. These effects are considered to be of a forecasted
nature and as such, are not permissible as pro forma adjustments.
