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 I O 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, 1997.
[ ] 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 12, 1998 was approximately
$341,178,370.
The number of shares of Common Stock, $1.00 par value,
outstanding as of March 12, 1998 was 10,497,796.
Documents Incorporated by Reference
Portions of the Company's Annual Report to Stockholders for
the year ended December 31, 1997 are incorporated by
reference into Parts I and II of this Form 10-K.
Portions of the Company's proxy statement, dated March 30,
1998, filed in connection with its 1998 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 appears follows the signature page.
<PAGE>
<PAGE>
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 1997, the Company completed the acquisition of the Hermann
Pfauter Group ("Pfauter"), a world leader in cylindrical gear
production equipment based in Ludwigsburg, Germany, which included
Pfauter-Maag, a leading cutting tool manufacturer based in Rockford,
Illinois. Further information regarding this acquisition 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, 1997, which is incorporated herein by reference.
In 1995, the Company acquired certain assets and technology of
Hurth Maschinen und Werkzeuge GmbH ("Hurth"), 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 3 of the Notes to the Consolidated Financial Statements
in the Company's Annual Report to Stockholders for the year ended
December 31, 1997, which is incorporated herein by reference.
In 1994, the Company ceased operations at Alliance Metal
Stamping and Fabricating (one of the Company's former Components
Group divisions) and sold the machinery and equipment located at this
division's facility. Further information regarding discontinued
operations is presented in Note 4 of the Notes to the Consolidated
Financial Statements in the Company's Annual Report to Stockholders
for the year ended December 31, 1997, which is incorporated herein
by reference.
<PAGE>
<PAGE>
In the fourth quarter of 1993, the Company sold its former
Belgian manufacturing operation to a new company owned by former
employees of the Company. The successor company serves as a contract
manufacturer for some of the Company's products.
Description of Business
The Company operates within one business segment. The Company's
principal business activity is the development, manufacture
and sale of gear production machinery and related equipment. The
Company has manufacturing operations in Rochester, New York and
Rockford, Illinois; Plymouth, England; Munich and Ludwigsburg,
Germany; Bologna and Porretta Terme, Italy; Bangalore, India and
Biel, Switzerland. The Company has sales and service offices
throughout the United States and Europe and in the Asia-Pacific
region.
Foreign and domestic operations, export sales and major
customer financial information is presented in Note 15 of the Notes
to the Consolidated Financial Statements in the Company's Annual
Report to Stockholders for the year ended December 31, 1997, which is
incorporated herein by reference.
Products
The gear production industry is comprised of two markets, the
bevel gear market and the cylindrical gear market.
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.
<PAGE>
<PAGE>
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 6mm in diameter, weighing only 1/2 ounce,
while others can produce gears as large as 1,000mm in diameter,
weighing more than 1,000 pounds. The latest design of 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, for use on its bevel gear production
machines. Other products include spare parts, service, and gear design
and inspection software.
Cylindrical Gear Products
The Company also manufactures machines for the production of
spur and helical gears ranging from 6mm to 4,000mm 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 acquisitions of Pfauter and Hurth have added complementary
product lines which have significantly strengthened the Company's position
<PAGE>
<PAGE>
in the cylindrical gear equipment market. Pfauter is recognized as a leader
in cylindrical gear production equipment and cylindrical gear cutting
tools. 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.
Marketing
The Company's sales and service functions in North America,
Europe, India, China and Australia are generally 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 64 percent and 73 percent in
1997 and 1996, respectively. The majority of overseas sales were to
European and Asian customers. Sales to markets outside of the United
States in 1997 were lower as a percentage of total sales primarily
due to higher shipments to customers within the United States and
lower shipments to the Asia-Pacific and South American regions.
The domestic and foreign automotive and truck industries
accounted for approximately 73 percent of sales in 1997 and 76
percent of sales in 1996. The acquisition of Pfauter expanded the
Company's customer base to include a broader range of non-automotive
customers.
The Company has no contracts or subcontracts with U.S. government
agencies that are significant.
Competition
The markets in which the Company participates are competitive.
Many of the programs for which the Company competes require bids or
proposals from multiple vendors. The Company's competitors include
<PAGE>
<PAGE>
manufacturers of gear production equipment, principally in Europe and
Japan, some of which have greater financial resources than the
Company. In addition, the Company may face competition from new
entrants into these markets and increased competition from existing
competitors through their own product development efforts.
Competition is also encountered from alternative manufacturing
processes for the production of gears, such as forging, forming and
molding of plastic or powder metal. The Company believes its product
lines compete effectively in its markets.
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, 1997 backlog
totaled $177.7 million compared to $122.8 million as of December 31,
1996. Backlog at December 31, 1997, excluding Pfauter operations,
declined to $108.9 million. The Company expects substantially all of
the December 31, 1997 backlog to be shipped by the end of 1998.
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, 1997,
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, 1997, the Company had 2,656 employees. Many of
the Company's employees possess a high degree of engineering,
technical and mechanical skills. Management believes its
relationships with its employees are good. With the exception of
operations in Germany and Italy, the Company's employees are not represented
by any collective bargaining agent.
<PAGE>
<PAGE>
Other Information
Certain of the components used in the Company's products are
purchased from third parties and are available from a limited number
of sources. The loss of any one supplier or an inability of
suppliers to provide the Company with the required quantity or
quality of these components could have an interruptive effect on the
Company's business until such time as an alternative source of supply
is found.
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.
<PAGE>
<PAGE>
ITEM 2. PROPERTIES
The Company's corporate office is located in Rochester, New
York and its manufacturing operations are conducted at plants in
Rochester, New York; Rockford, Illinois; Munich and Ludwigsburg,
Germany; Bologna and Porretta Terme, Italy; Plymouth, England;
Bangalore, India; and Biel, Switzerland.
A table of the major facilities and products manufactured is
displayed below:
<TABLE>
<CAPTION>
Plant Principal
Location Square Footage Products
<S> <C> <C>
Owned Facilities
Rochester, New York 721,000 Bevel and cylindrical gear
production machines and
workholding equipment
Ludwigsburg, Germany 285,000 Cylindrical gear production
machines
Rockford, Illinois 250,000 Cylindrical gear cutting
tools, gear production
machine assembly
Plymouth, England 106,000 Bevel gear cutting tools
Leased Facilities
Munich, Germany 248,000 Cylindrical gear production
machines and cutting tools
Bologna, Italy 202,000 Cylindrical gear production
machines
Porretta Terme, Italy 46,000 Cylindrical gear production
machines
Bologna, Italy 15,000 Cylindrical gear cutting
tools
Biel, Switzerland 11,000 Cylindrical gear production
machine assembly
Bangalore, India 9,000 Bevel gear cutting tools
</TABLE>
<PAGE>
<PAGE>
The Munich facility is being leased for a term ending in 2001.
The lease for the 202,000-square foot facility in Bologna, Italy
expires in September, 1998. 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 leases the
land and building of a former subsidiary to the new owners of that
business.
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.
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, 1997 is
incorporated herein by reference.
<PAGE>
<PAGE>
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, 1997
is incorporated herein by reference.
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, 1997 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, 1997 are
incorporated herein by reference:
Consolidated Statements of Operations - Years ended December 31,
1997, 1996 and 1995.
Consolidated Balance Sheets - December 31, 1997 and 1996.
Consolidated Statements of Cash Flows - Years ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements - December 31, 1997.
Quarterly Results of Operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE>
<PAGE>
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, 1997, which information is
incorporated herein by reference. Additional information required to
be furnished by Item 401 of Regulation S-K is as follows:
<TABLE>
<CAPTION>
List of Executive Officers of the Registrant
EXECUTIVE POSITIONS AND
OFFICER OFFICES HELD
NAME AGE SINCE IN THE LAST FIVE YEARS
<S> <C> <C> <C>
James S. 63 1966 Chairman and President since
Gleason 1985.
David J. 43 1992 Executive Vice President since
Burns 1995; Vice President - Machine
Products Group (1992 to 1995).
John B. 56 1986 Vice President - Administration
Kodweis and Human Resources since
1992.
Ralph E. 64 1989 Vice President, Secretary
Harper & Corporate Counsel since
1992; and Treasurer 1993-1997.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE POSITIONS AND
OFFICER OFFICES HELD
NAME AGE SINCE IN THE LAST FIVE YEARS
<S> <C> <C> <C>
John J. 37 1993 Vice President - Finance (since
Perrotti 1995) and Treasurer (since 1997);
Vice President - Controller (1993
- 1995).
John W. 35 1995 Controller since 1995;
Pysnack Director of Accounting and
Reporting (1995); Finance Manager
(1991 - 1994).
</TABLE>
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, 1997, 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, 1997, which information is incorporated herein by
reference.
<PAGE>
<PAGE>
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, 1997, which information is
incorporated herein by reference.
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, 1997 which are incorporated herein by
reference:
Consolidated Statements of Operations - Years ended
December 31, 1997, 1996 and 1995.
Consolidated Balance Sheets - December 31, 1997 and
1996.
Consolidated Statements of Cash Flows - Years
ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity - Years
ended December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements -
December 31, 1997.
Report of Independent Auditors.
(2) The following consolidated financial statement schedules of Gleason
Corporation and subsidiaries are included in Item 14(d): Schedule II -
Valuation and Qualifying Accounts.
<PAGE>
<PAGE>
All other 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 Gleason Corporation Form 10-Q for the quarter
ended March 31, 1987.
(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 incorpo-
rated by reference to Exhibit 3 of Gleason Corporation
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 Gleason Corporation
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) Credit Agreement dated July 31, 1997 among Gleason
Corporation, and its affiliates named therein, as
Borrowers, The Chase Manhattan Bank as Administrative
Agent, and The Chase Manhattan Bank, Corestates Bank,
N.A., The Bank of Nova Scotia, First Union National Bank,
Marine Midland Bank, Manufacturers and Traders Trust
Company, PNC Bank N.A., Sudwestdeutsche Landesbank,
Mellon Bank and Banca Monte Paschi di Siena, SpA, as
Lenders, is incorporated by reference to Exhibit 10 of
Gleason Corporation Form 8-K, file number 1-8782, dated
August 14, 1997.
<PAGE>
<PAGE>
(b) The Company's 1992 Stock Plan, as amended, is incorpo-
rated by reference to Exhibit 3 of Gleason Corporation
Form 10-Q, file number 1-8782, for the quarter ended
March 31, 1997.
(c) Gleason Corporation Annual Management Incentive Compen-
sation 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.
(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 agree-
ments 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 incorp-
orated by reference to Exhibit I of Gleason Corporation
Form 10-K, file number 1-8782, for the year ended Decem-
ber 31, 1986.
<PAGE>
<PAGE>
(k) Gleason Corporation 1986 Deferred Compensation Plan is
incorporated by reference to Exhibit J of Gleason Corpor-
ation Form 10-K, file number 1-8782, for the year ended
December 31, 1986.
(13) Annual Report to Stockholders of the Registrant for the year
ended December 31, 1997. Except for those portions of such
Annual Report to Stockholders expressly incorporated by
reference into this Report, such Annual Report to Stockholders
is furnished solely for the information of the Securities
and Exchange Commission and shall not be deemed a
"filed" document. 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.
(b) Reports on Form 8-K filed in the fourth quarter of 1997:
Amendment No. 2 to the Current Report on Form 8-K dated August
14, 1997 was filed on Form 8-K/A dated October 2, 1997 for Items
7(a) and (b) related to the Company's acquisition of Hermann
Pfauter GmbH & Co. including the following financial statements:
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
Pro Forma Consolidated Financial Statements of Gleason
Corporation and Hermann Pfauter GmbH & Co (Unaudited)
<PAGE>
<PAGE>
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
The Company's Current Report on Form 8-K dated October 2,
1997 for Item 5 was filed on October 3, 1997.
(c) 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.
(d) Financial Statement Schedules:
<TABLE>
<CAPTION>
Schedule II
Gleason Corporation and Subsidiaries
Valuation and Qualifying Accounts
(Dollars in thousands)
Balance at Balance at
beginning Acquisitions/ end of
Description of period Additions Deductions Other <F1> period
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful acccounts $1,171 $1,119 $ 156 $ 884 $ 3,018
Reserve for
inventory valuation $7,399 $2,724 $2,505 $7,902 $15,520
Year Ended
December 31, 1997 $8,570 $3,843 $2,661 $8,786 $18,538
<FN>
Note: Information is presented for the year ended December 31, 1997 only.
Prior year amounts were not material.
<F1> Includes balances associated with the acquisition of Hermann Pfauter
GmbH & Co. and Pfauter-Maag Cutting Tools L.P. and the impact of changes
in currency exchange rates during the year.
</FN>
</TABLE>
PHOENIX is a registered trademark of The Gleason Works.
<PAGE>
<PAGE>
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 and Treasurer
John W. Pysnack
John W. Pysnack
Controller
Date: March 26, 1998
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 )
David J. Burns )
J. David Cartwright ) Directors
James S. Gleason )
John W. Guffey, Jr. )
Donald D. Lennox )
William P. Montague )
Robert A. Sherman )
Robert L. Smialek )
By: Ralph E. Harper
Ralph E. Harper
Attorney in Fact
Date: March 26, 1998
<PAGE>
<PAGE>
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.
(13) Annual Report to Stockholders of the
Registrant for the year ended
December 31, 1997
(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
(a) Financial Data Schedule for the Year Ended
December 31, 1997
(b) Financial Data Schedule for the Year Ended
December 31, 1996
(c) Financial Data Schedule for the Year Ended
December 31, 1995
<TABLE>
Five Year Review
GLEASON CORPORATION AND SUBSIDIARIES
<CAPTION>
Dollars in thousands,
except per share amounts December 31, 1997 1996 1995 1994 1993
Summary of Operations
<S> <C> <C> <C> <C> <C>
Net sales $338,673 $248,089 $197,046 $128,462 $103,870
Income (loss) from continuing operations 24,095 19,660 30,382<Fb> 4,332 (2,873)
Gain on disposal of discontinued operations -- -- 445 2,956 --
Net income (loss) 24,095 19,660 30,827 7,288 (2,873)
Basic earnings (loss) per common share<Fa>:
Continuing operations 2.41 1.90 2.94<Fb> .42 (.28)
Disposal of discontinued operations -- -- .04 .29 --
Net income (loss) 2.41 1.90 2.98 .71 (.28)
Diluted earnings (loss) per common share<Fa>:
Continuing operations 2.32 1.84 2.87<Fb> .42 (.28)
Disposal of discontinued operations -- -- .04 .28 --
Net income (loss) 2.32 1.84 2.91 .70 (.28)
Cash dividends declared per common share<Fa> .25 .25 .25 .20 .20
Financial Position at Year-End
Cash and equivalents 12,478 7,199 9,926 3,173 4,155
Net property, plant and equipment 124,373 61,391 60,948 53,604 60,286
Total assets 345,653 190,674 197,198 122,016 121,849
Long-term debt 38,244 4,028 24,841 2,271 14,315
Total debt 45,617 4,363 26,336 2,954 14,855
Stockholders' equity 114,221 84,864 73,291 42,199 35,009
Other Data
Capital expenditures 15,913 10,281 8,309 3,527 5,587
Depreciation and amortization 14,169 10,707 9,992 9,293 9,221
New orders 318,704 246,352 226,107 156,962 94,970
Backlog 177,687 122,843 124,580 54,691 26,191
Number of employees 2,656 1,543 1,455 1,079 1,049
<FN>
Notes:
<Fa> Earnings per share amounts have been restated to comply with Financial
Accounting Standards No. 128, "Earnings Per Share". Per share amounts
have been restated to reflect a two-for-one stock split in 1997.
<Fb> 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 $1.25 basic earnings per share ($1.22
diluted earnings per share).
</FN>
</TABLE>
<PAGE>
<PAGE>
Management's Discussion and Analysis
of Results of Operations and Financial Condition
About the Company
Founded in 1865, the Company operates within one business segment. The
Company's principal business activity is the development, manufacture and sale
of gear production machinery and related equipment. There are two major types
of gears, bevel and cylindrical. Bevel gears transmit power at a right angle,
such as from the drive shaft of a vehicle to its rear-wheel drive-axle.
Cylindrical gears transmit power in parallel axes of rotation and have a wider
variety of applications, including as components in the transmissions of
vehicles. The Company's extensive product line includes machinery for the
production, finishing and testing of bevel and cylindrical gears. In addition,
the Company offers a global support system providing tooling, replacement
parts, field service, application development services, gear design and
inspection software, training programs, engineering support and machine rebuild
and upgrade services. Based on its knowledge of the markets is serves, the
Company believes it is the worldwide leader in the sale of gear production
equipment.
On July 31, 1997, the Company completed its acquisition of the Hermann Pfauter
Group ("Pfauter") based in Ludwigsburg, Germany, which included Pfauter-Maag
Cutting Tools L.P., a leading cutting tool manufacturer based in Rockford,
Illinois. This acquisition added an extensive line of cylindrical gear
production machinery, tooling and services to the Company's product offerings
in this market. On July 1, 1995, the Company acquired the technology and
certain assets of Hurth Maschinen und Werkzeuge GmbH ("Hurth") in Munich,
Germany adding complementary product lines in cylindrical gear finishing.
The Company's major customers are in the automotive and truck industries, which
accounted for approximately 73% of its total sales in 1997 (76% in 1996). Other
industries served include aerospace, agriculture, construction, industrial
machinery, marine, power tool and gear jobbers who sell to a wide variety of
industries. The acquisition of Pfauter expanded the Company's customer base to
include a broad range of non-automotive customers.
<PAGE>
<PAGE>
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
1997, 64% of total sales were to customers outside the U.S. (including 41% to
Europe and 17% to Asia-Pacific), compared to 73% in 1996. 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
All references to earnings per share reflect basic earnings per share. Basic
and diluted earnings per share for prior periods have been restated to reflect
the Company's two-for-one stock split which occurred in 1997.
1997 Compared to 1996
Earnings: Net income for 1997 increased 23% to $24.1 million, or $2.41 per
share, compared to $19.7 million, or $1.90 per share, in 1996. Operating
income (earnings before interest and taxes) increased 26% in 1997 to $39.3
million, or 11.6% of sales, compared to $31.3 million, or 12.6% of sales, in
1996. The increase in operating income was attributable to the higher
operating volumes and the inclusion of Pfauter operations for the last five
months of 1997. Operating income was lower as a percentage of sales due to
lower operating margins from the Pfauter operations. Operating margins,
excluding the Pfauter operations, would have increased to 12.8% of sales.
Orders and Backlog: Order volumes in 1997 were $318.7 million compared to
$246.4 million in 1996. Order levels, excluding Pfauter operations, increased
slightly compared to 1996 to $249.1 million with significantly higher order
levels for cylindrical gear production machines which were largely offset by
a decline in orders for bevel gear machinery. Excluding Pfauter, order volumes
for cylindrical gear production machines were higher in all geographic regions.
Order levels for bevel gear production machines were significantly higher in
Europe, but lower in the U.S. and Asia compared to 1996. Tooling orders,
excluding Pfauter and foreign currency translation effects, were down slightly
in 1997 compared to 1996. Order levels for 1997 were negatively impacted by
foreign currency translation effects of approximately $10.9 million due to
the stronger U.S. dollar versus the German mark.
<PAGE>
<PAGE>
Backlog at December 31,1997 was $177.7 million compared to $122.8 million at
December 31,1996. Cylindrical gear products, including Pfauter operations,
accounted for 73% of backlog at 1997 year-end. Backlog at December 31, 1997
consisted of the following regional breakdown: Europe - 49%, Americas - 43%,
Asia-Pacific - 8%. Backlog at December 31,1997, excluding Pfauter operations,
declined to $108.9 million. This decrease compared to 1996 year-end was due to
continued progress in shortening machine delivery cycle times and a reduced
number of large orders in backlog with extended delivery schedules.
Net Sales: Net sales were $338.7 million in 1997, a 36% increase from 1996.
Sales, excluding Pfauter operations, increased 6% compared to 1996 primarily
due to higher shipments of bevel gear production machines to the U.S. market.
Sales for 1997 were negatively impacted by foreign exchange translation effects
of $7.4 million resulting from the stronger U.S. dollar versus the German mark.
Machine product sales, excluding Pfauter, increased 11% compared to 1996.
Higher shipments of bevel gear machinery offset lower shipments of cylindrical
gear production machines. Bevel gear production machine sales were higher in
1997 largely due to increased shipments to customers in the United States, who
continued to upgrade their production capabilities with the replacement of
older equipment with the Company's advanced line of PHOENIX gear cutting
machinery. This increase in sales to the U.S. market was partially offset by a
reduction in sales of bevel gear production machines to the Asian market due to
lower shipments to Japan and South Korea. Cylindrical gear production machine
sales, excluding Pfauter, were down slightly compared to 1996 primarily due to
the negative foreign exchange translation effects of the stronger U.S. dollar
versus the German mark.
Net sales of tooling products, excluding Pfauter, were approximately 5% lower
in 1997 compared to 1996 principally due to negative foreign currency
translation effects. Sales of other products, including replacement parts,
field service and software, excluding Pfauter, were comparable to 1996.
Costs and Expenses: Cost of goods sold as a percentage of sales was 68.9%
compared to 67.7% in 1996. Margins can be significantly impacted by the mix
of products sold. For example, machines generally tend to carry higher cost
<PAGE>
<PAGE>
of sales percentages than tooling or other products. Margins were lower in
1997 due to the higher percentage of machines in the overall sales mix,
decreased margins on tooling sales, and lower margins for the Pfauter
operations. Tooling margins were lower in 1997 with increased price
discounting in certain markets, in part due to the currency effects of the
higher U.S. dollar and British pound compared to other currencies.
Selling, general and administrative expenses were $58.6 million, or 17.3% of
sales, compared to $42.6 million, or 17.2% of sales, in 1996. Spending as a
percentage of sales increased with the addition of the Pfauter operations for
the last five months of 1997. Excluding Pfauter, spending as a percentage of
sales was lower in 1997 due to lower commission expense. The reduction in
commission expense was due to decreased sales to regions where the Company is
represented by independent dealers.
Research and development spending in 1997 was $8.1 million, or 2.4% of sales,
compared to $7.2 million, or 2.9% of sales, in 1996. Development spending,
excluding Pfauter operations, was comparable to 1996. Development spending
included new product development for both bevel and cylindrical gear production
equipment and manufacturing technology initiatives for the Company's tooling
operations.
Other income (net) was $.9 million in 1997 compared to $1.0 million in 1996.
Other income in 1997 included a $.4 million gain on the sale of property of one
of the Company's former Components Group businesses which had been leased to
the purchaser since the sale of that business in 1992. This was offset by $.4
million of costs for the relocation of the Company's sales office in Stuttgart,
Germany to the Pfauter offices in Ludwigsburg, Germany.
Net interest expense totaled $1.1 million in 1997 compared to $.5 million in
1996. The increase was due to the higher outstanding debt associated with the
acquisition of Pfauter partially offset by lower average borrowing rates.
Income Taxes: The Company's provision for income taxes as a percentage of
income before taxes was 36.9% in 1997 compared to 36.1% in 1996. These
percentages for both 1997 and 1996 approximated the U.S. statutory rate. The
impact of higher statutory rates on foreign earnings (primarily in Germany)
was offset by the utilization of certain foreign tax credits and foreign
operating loss carryforwards in 1997 and 1996. The Company expects the
effective tax rate to be higher in 1998 than in 1997 due to a decrease in
available tax credit carryforwards.
<PAGE>
<PAGE>
Outlook: Total sales will be higher in 1998 than in 1997 with the addition
of the Pfauter operations for the full year. Given the higher backlog at
December 31, 1997 for cylindrical gear products and the addition of Pfauter,
the Company is expecting a shift to a higher percentage of cylindrical gear
products in the overall sales mix in 1998. Because of the lower backlog for
bevel gear products at December 31, 1997 the Company is expecting some
reduction in sales of bevel gear production machines in 1998 compared to 1997.
Key strategic activities in 1998 will focus on the continuing restructuring and
integration of the Pfauter operations. As part of the acquisition of Pfauter,
$9.0 million was accrued for the restructuring of those operations (with
approximately $8.0 million remaining at December 31, 1997) planned to
occur over a two-year period. Management believes that upon completion of the
restructuring efforts the Company should achieve annual cost savings of
approximately $9.0 million.
In December 1997, the Company began the process to terminate its domestic
defined benefit retirement plan which had stopped accruing benefits in
1990. Upon settlement of the plan, which is expected to occur in the
second quarter of 1998, the Company will write off a prepaid pension asset
of $2.0 million. See Note 8 of the Notes to the Consolidated Financial
Statements.
Forward-looking statements are subject to a number of factors that could cause
actual results to differ materially from those expected. Risk factors
associated with future sales include, but are not limited to, competitors'
actions which may affect the Company's ability to obtain orders, possible
delays in the development of new products that the Company is planning for
shipment in 1998, and less favorable economic conditions in the major
industrial markets which the Company serves. Risk factors associated with the
expected future benefits from restructuring the Pfauter operations include the
risk of not realizing fully the anticipated cost reductions and operating
efficiencies, the inability to implement changes in a manner that does not
unduly disrupt business operations, and changing market trends or competitors'
actions that may affect product distribution strategies. Risk factors
associated with the termination of the Company's domestic defined benefit
retirement plan include obtaining necessary regulatory approvals and that the
plan's assets will be adequate to settle the plan's obligations once finally
determined.
<PAGE>
<PAGE>
1996 Compared to 1995
Earnings: Operating income (earnings before interest and taxes) increased 45%
in 1996 to $31.3 million, or 12.6% of sales, compared to $21.5 million, or
10.9% 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 Company's Gleason-Hurth operation.
Net income for 1996 was $19.7 million, or $1.90 per share, compared to $30.8
million, or $2.98 per share, in 1995. Net income for 1995 was increased 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 $1.29 per share. Net income for 1995 also included a gain on the
disposal of discontinued operations of $.4 million, or $.04 per share.
Orders and Backlog: Order levels in 1996 were $246.4 million, an increase of
9% from 1995. New orders, excluding the Company's Gleason-Hurth subsidiary
which was acquired in mid-1995, increased 5% compared to 1995. Order volumes
were higher primarily due to a 25% increase in orders for bevel gear production
machinery, partially offset by lower incoming orders for cylindrical gear
production equipment and tooling products. Bevel gear machinery orders
increased in 1996 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 produc-
tion equipment with the Company's 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 production machines increased
during 1996, with orders in the second half more than double the first half
level. Tooling orders, excluding Gleason-Hurth, were down 7% in 1996 due to
lower orders for bevel gear cutting tools.
<PAGE>
<PAGE>
Backlog was $122.8 million at December 31, 1996 compared to $124.6 million at
December 31, 1995. Bevel gear production machinery accounted for about 60% of
total machine backlog at December 31, 1996 compared to 42% at 1995 year-end.
Net Sales: Net sales were $248.1 million in 1996, a 26% increase from 1995.
Sales, excluding Gleason-Hurth, increased 8% compared to 1995. This increase
in sales was primarily a result of higher shipments of gear production machines.
Machine product sales, excluding Gleason-Hurth, increased 15% compared to 1995.
Higher shipments of bevel gear machinery more than offset lower shipments of
cylindrical gear production machines. Bevel gear production 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 Gleason-
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% in 1996
compared to 1995.
Sales of the Company's tooling products, excluding Gleason-Hurth, were
comparable to those in 1995. Workholding equipment sales, which increased 10%,
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 in 1996 compared to 1995.
Costs and Expenses: Cost of goods sold as a percentage of sales was 67.7%
compared to 69.8% 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 Gleason-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
<PAGE>
<PAGE>
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% of
sales, compared to $33.8 million, or 17.1% 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 in 1996 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.
Research and development spending in 1996 was $7.2 million, or 2.9% of sales,
compared to $5.6 million, or 2.9% 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 36.1%. In 1995,
the Company recorded a net tax benefit of $9.4 million for continuing opera-
tions 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 FAS No. 109, in the amount of the
deferred tax asset it had been able to record.
<PAGE>
<PAGE>
Liquidity and Capital Resources
Cash and equivalents increased $5.3 million to $12.5 million at December 31,
1997. Borrowings under the Company's term loan and revolving credit facilities
increased to $38.0 million at December 31, 1997 from $3.9 million at 1996 year-
end. Available unused short and long-term credit lines with banks, including
the term loan and revolving credit facilities, totaled approximately $86.7
million at December 31, 1997.
Operating activities provided $61.4 million of cash in 1997, compared to $37.6
million in 1996 and $4.9 million in 1995. Operating cash flows were
significantly higher in 1997 primarily due to higher operating earnings before
depreciation and amortization, and reductions in working capital, primarily
lower inventories and higher current liabilities.
Investing activities used $44.7 million of cash in 1997 compared to $10.0
million in 1996 and $18.6 million in 1995. Investing activities for 1997
included $30.6 million of cash used, net of cash acquired of $6.4 million, for
the acquisition of Pfauter. The purchase of Gleason-Hurth used $10.6 million
of cash in 1995. Capital expenditures in 1997 increased to $15.9 million,
compared to $10.3 million in 1996 and $8.3 million in 1995. Capital
expenditures for 1998 are expected to exceed depreciation expense with
spending planned for investments in information technology and equipment to
upgrade existing production capabilities. Cash flows from investing activities
in 1997 also included $1.5 million in cash received from the sale of the
property of one of the Company's former businesses.
In 1997, the Company used $1.4 million in cash to repurchase shares of its
Common Stock under a program authorized by its Board of Directors in July 1996.
As of December 31, 1997, the Company had used approximately $7.6 million in
cash to repurchase 491,600 shares under this program.
In December 1997, a stock offering for the sale of 1,724,484 of Company
shares was completed. The sale consisted of 770,104 shares sold by The
Retirement Plan of The Gleason Works, 494,380 shares sold by Gleason
Foundation and 460,000 shares sold by the Company. The Company used the
$11.0 million net proceeds from the sale of its shares to pay down a
portion of the debt incurred in connection with the Pfauter acquisition.
<PAGE>
<PAGE>
Management believes that the Company's cash balances, borrowing capacity under
its lines of credit, and anticipated funds from operations will be sufficient
to meet its near-term operating and investing activities and that it will be
able to obtain additional long-term financing if such financing is required.
Dividends: Total dividend payments were $2,485,000 in 1997, and $2,585,000 in
1996 and 1995.
Year 2000 Computer Systems: The Company continues to evaluate the implications
of the Year 2000 computer systems issue which relates to the potential inability
of computer programs to correctly recognize the Year 2000 date change. Systems
that are not Year 2000 compliant may be unable to read dates correctly after
the year 1999 which may cause system failures resulting in the disruption of
operations. The Company is reviewing possible changes which may be required
to its existing computer systems, the impact of this issue on products which
it sells, and potential impacts on the Company of third party compliance with
the Year 2000 issue. Costs associated with updating computer systems to
provide compliance with the Year 2000 are expensed as incurred. At this time,
the Company does not believe that compliance with the Year 2000 will have a
material adverse effect on its results of operations or financial position.
G-TECH is a registered trademark of The Gleason Works.
<PAGE>
<PAGE>
<TABLE>
Consolidated Statements of Operations
GLEASON CORPORATION AND SUBSIDIARIES
<CAPTION>
______________________________________________________________________________
Dollars in thousands, except per share amounts
Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Net sales $338,673 $248,089 $197,046
Costs and expenses
Cost of products sold 233,495 167,958 137,461
Selling, general and
administrative expenses 58,603 42,614 33,789
Research and development expenses 8,139 7,243 5,617
Interest expense--net 1,127 513 527
Other (income)--net (870) (982) (1,328)
300,494 217,346 176,066
Income from continuing operations
before income taxes 38,179 30,743 20,980
Provision (benefit) for income taxes 14,084 11,083 (9,402)
Income from continuing operations 24,095 19,660 30,382
Gain on disposal of discontinued
operations -- -- 445
Net income $ 24,095 $ 19,660 $ 30,827
Basic earnings per common share:
Income from continuing operations $ 2.41 $ 1.90 $ 2.94
Gain on disposal of discontinued
operations -- -- .04
Net income $ 2.41 $ 1.90 $ 2.98
Diluted earnings per common share:
Income from continuing operations $ 2.32 $ 1.84 $ 2.87
Gain on disposal of discontinued
operations -- -- .04
Net income $ 2.32 $ 1.84 $ 2.91
Weighted average number of common shares
outstanding:
Basic 9,978,569 10,334,720 10,341,782
Diluted 10,382,628 10,681,644 10,600,234
Cash dividends declared per common share $ .25 $ .25 $ .25
<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, 1997 1996
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 12,478 $ 7,199
Trade accounts receivable 101,024 65,583
Inventories 55,991 27,986
Other current assets 13,367 10,932
Total current assets 182,860 111,700
Property, plant and equipment-net 124,373 61,391
Goodwill 18,036 --
Other assets 20,384 17,583
Total assets $345,653 $190,674
Liabilities and Stockholders' Equity
Current liabilities
Short-term borrowings $ 5,760 $ 329
Current portion of long-term debt 1,613 6
Trade accounts payable 30,810 16,972
Income taxes 13,640 10,224
Other current liabilities 70,614 30,335
Total current liabilities 122,437 57,866
Long-term debt 38,244 4,028
Pension plans and other retiree benefits 60,235 38,220
Other liabilities 10,516 5,696
Total liabilities 231,432 105,810
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:
11,594,140 shares in 1997 and in 1996 11,594 11,594
Additional paid-in capital 12,061 5,731
Retained earnings 107,797 86,187
Cumulative foreign currency translation
adjustment (3,889) (2,149)
Minimum pension liability adjustment (901) (461)
126,662 100,902
Less treasury stock of 1,169,313 shares
in 1997 and 1,603,594 shares in 1996, at cost 12,441 16,038
Total stockholders' equity 114,221 84,864
Total liabilities and stockholders' equity $345,653 $190,674
<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
Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 24,095 $ 19,660 $ 30,827
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation and amortization 14,169 10,707 9,992
(Gain) loss on disposals of property,
plant and equipment (452) 113 (23)
Provision (benefit) for deferred
income taxes 653 2,286 (14,836)
Changes in operating assets and liabilities:
(Increase) in accounts receivable (5,552) (954) (23,134)
(Increase) decrease in inventories 13,928 374 (10,170)
(Increase) decrease in other current
assets 725 1,321 (2,979)
Increase in accounts payable 3,078 786 5,821
Increase in other current operating
liabilities 10,929 4,318 8,114
Other, net (165) (1,033) 1,247
Net cash provided by operating activities 61,408 37,578 4,859
Cash flows from investing activities:
Capital expenditures (15,913) (10,281) (8,309)
Acquisition of businesses, net of cash acquired (30,569) -- (10,582)
Proceeds from asset disposals 1,720 206 100
Proceeds from collection of notes receivable 71 54 199
Net cash (used in) investing activities (44,691) (10,021) (18,592)
Cash flows from financing activities:
Net proceeds from (repayments of)
short-term borrowings (787) (1,185) 876
Net proceeds (repayments) under term
loan and revolving credit agreements 33,855 (20,646) 22,490
Net repayment of long-term debt (51,337) (5) (68)
Dividends paid (2,485) (2,585) (2,585)
Purchase of treasury stock (1,371) (6,219) (59)
Net stock issued 11,298 78 232
Net cash provided by (used in)
financing activities (10,827) (30,562) 20,886
Effect of exchange rate changes on cash
and equivalents (611) 278 (400)
Increase (decrease) in cash and equivalents 5,279 (2,727) 6,753
Cash and equivalents, beginning of year 7,199 9,926 3,173
Cash and equivalents, end of year $ 12,478 $ 7,199 $ 9,926
<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
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, 1994 $11,593 $ 6,112 $ 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
Purchase of treasury stock (59) (59)
Other shares issued to employees (13) 72 59
Foreign currency translation
adjustments (1,239) (1,239)
Change in minimum pension
liability adjustment 3,916 3,916
__________________________________________________________________________________________________________________
Balance at December 31, 1995 11,593 5,952 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
Purchase of treasury stock (6,219) (6,219)
Foreign currency translation
adjustments 7 7
Change in minimum pension
liability adjustment 632 632
__________________________________________________________________________________________________________________
Balance at December 31, 1996 11,594 5,731 86,187 (2,149) (461) (16,038) 84,864
Net income 24,095 24,095
Dividends declared (2,485) (2,485)
Shares issued under Stock Plans (293) 634 341
Purchase of treasury stock (1,371) (1,371)
Net proceeds from stock offering 6,623 4,334 10,957
Foreign currency translation
adjustments (1,740) (1,740)
Change in minimum pension
liability adjustment (440) (440)
__________________________________________________________________________________________________________________
Balance at December 31, 1997 $11,594 $12,061 $107,797 $(3,889) $ (901) $(12,441) $114,221
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<PAGE>
Notes to Consolidated Financial Statements
GLEASON CORPORATION AND SUBSIDIARIES
December 31, 1997
Note 1 - Summary of Significant Accounting Policies
Consolidation: The consolidated financial statements include the accounts
of the Company and its wholly-owned and majority-owned subsidiaries. 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 1997,
1996 and 1995.
Cash and Equivalents: The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents.
Trade Accounts Receivable: Trade accounts receivable are shown net of
allowances for doubtful accounts of $3,018,000 and $1,171,000 at December
31, 1997 and 1996, respectively.
Stock Split: On August 28, 1997 the Company's Board of Directors declared
a two-for-one (2-for-1) stock split on the Company's Common Stock,
including shares held in treasury, effected in the form of a 100% common
stock distribution payable on September 26, 1997 to holders of record on
September 12, 1997. The distribution increased the number of shares issued
from 5,797,070 to 11,594,140, which included an increase in treasury stock
from 814,614 to 1,629,228. As a result of the stock split, $5,797,070 was
transferred from additional paid-in capital to common stock, representing
the par value of the additional shares issued. Common stock, additional
paid-in capital and all share and per share data have been restated to
reflect the stock split.
New Accounting Pronouncements: In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting on Comprehensive Income" (FAS No. 130), and Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
<PAGE>
<PAGE>
Enterprise and Related Information" (FAS No. 131). FAS No. 130 establishes
standards for reporting and display of comprehensive income and its
components. FAS No. 131 establishes standards for reporting information
about operating segments and related disclosures about products and
services, geographic areas, and major customers. These statements are
effective for financial statements for fiscal years beginning after
December 15, 1997. These standards expand or modify disclosures and,
accordingly, have no impact on the Company's consolidated results of
operations, financial position or cash flows. FAS No. 131 may impact the
Company's disclosure of segment information.
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 1997 presentation.
Additional accounting policies are described in the applicable notes.
Note 2 - Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share",
which is effective for both interim and annual financial statements for
periods ending after December 15, 1997. This method was used to calculate
earnings per share for the current year and to restate prior periods. Under
the new requirements for calculating basic earnings per share, the dilutive
effect of stock options is excluded. The computation of basic earnings per
common share is determined by dividing the weighted average number of common
shares outstanding during the year into net earnings. Diluted earnings per
share reflect the additional dilution related to common share equivalents.
Common share equivalents include stock options and hypothetical shares
associated with the Company Plan for Deferral of Directors' Fees.
<PAGE>
<PAGE>
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1997 1996 1995
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings
per share:
Income from continuing operations $24,095 $19,660 $30,382
Gain on disposal of discontinued
operations -- -- 445
Net income $24,095 $19,660 $30,827
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding 9,978,569 10,334,720 10,341,782
Common share equivalents 404,059 346,924 258,452
Denominator for diluted earnings per
share:
Adjusted weighted-average shares
outstanding 10,382,628 10,681,644 10,600,234
Basic earnings per share:
Income from continuing operations $ 2.41 $ 1.90 $ 2.94
Gain on disposal of discontinued
operations -- -- .04
Net income $ 2.41 $ 1.90 $ 2.98
Diluted earnings per share:
Income from continuing operations $ 2.32 $ 1.84 $ 2.87
Gain on disposal of discontinued
operations -- -- .04
Net income $ 2.32 $ 1.84 $ 2.91
</TABLE>
Note 3 - Acquisitions
On July 31, 1997, the Company purchased all of the general and limited
partnership interests of Hermann Pfauter GmbH & Co., a manufacturer of
cylindrical gear production equipment, and Pfauter-Maag Cutting Tools L.P.,
a cutting tool manufacturer (collectively referred to as "Pfauter").
Pfauter has major operations in Germany, Italy and the United States.
The acquisition was completed for a total consideration of $91.8
million, including $34.8 million in cash and the assumption of $57.0
million in bank debt. The acquisition was financed through the Company's
term loan and revolving credit facility.
The Company accounted for the acquisition under the purchase method.
The aggregate cost of the acquisition, including professional fees and
<PAGE>
<PAGE>
other related costs totaling $2.8 million, was allocated to assets
purchased and liabilities assumed based upon the fair values at the date of
acquisition. The excess of the purchase price over the fair values of the
net assets acquired was $18.1 million, which has been recorded as goodwill,
and is being amortized on a straight-line basis over 30 years. The
aggregate cost of the acquisition was allocated as follows:
(In thousands)
Current assets, excluding cash $ 77,605
Property, plant and equipment 63,595
Other assets 3,219
Goodwill 18,122
Current liabilities, including short-term
borrowings (75,776)
Long-term debt (29,384)
Pension and other retiree benefits (21,218)
Other liabilities (5,034)
Total acquisition cost, net of cash acquired $ 31,129
In the allocation of the acquisition costs, current liabilities and
other liabilities included $7.0 million and $2.0 million, respectively, of
costs associated with the restructuring of Pfauter's operations. These
costs represent the Company's estimate of the expenses associated with the
consolidation of certain sales and manufacturing operations and elimination
of redundant activities. The Company expects these restructuring
activities will take approximately two years to complete.
Effective July 1, 1995, the Company acquired, for $10.6 million 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. The Company acquired patents,
trademarks, rights to technology and know-how, machinery and equipment, and
inventories, and retained approximately 280 employees. 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 ($8.4 million), machinery and equipment ($9.3 million),
technology ($1.4 million), current liabilities ($6.4 million), long-term
pension and other employee benefits ($2.1 million). The acquisition was
funded from the Company's revolving credit facility.
<PAGE>
<PAGE>
Results of operations of Hurth are included in the Consolidated
Statements of Operations since July 1, 1995. Results of operations of
Pfauter are included in the Consolidated Statements of Operations since
July 31, 1997. Unaudited pro forma information for 1995 assumes that the
Hurth acquisition had taken place at the beginning of 1995. Unaudited pro
forma information for 1997 and 1996 assume that the Pfauter acquisition
had taken place at the beginning of 1996.
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
(In thousands, except per share amounts) 1997 1996 1995
<S> <C> <C> <C>
Net sales $424,285 $426,306 $212,823
Income from continuing operations 23,442 21,053 28,535
Net income 23,442 21,053 28,980
Basic earnings per common share:
Income from continuing operations $ 2.35 $ 2.04 $ 2.76
Net income 2.35 2.04 2.80
Diluted earnings per common share:
Income from continuing operations $ 2.26 $ 1.97 $ 2.69
Net income 2.26 1.97 2.73
</TABLE>
The pro forma financial information is not necessarily indicative of
the results that would have been obtained if the transactions had been
effected on the assumed dates or the results that may be achieved by the
Company in the future. Pro forma net income for 1997 and 1996 do not
include any adjustments for cost savings expected to be realized from the
restructuring plans of the Pfauter operations or synergies of the combined
business.
Note 4 - 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.
Note 5 - Inventories
The components of inventories were as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
Raw materials and purchased parts $11,215 $ 5,269
Work in process 34,491 18,063
Finished products 10,285 4,654
$55,991 $27,986
</TABLE>
<PAGE>
<PAGE>
Inventories are valued at the lower of cost or market. Inventories
valued using the last-in, first-out (LIFO) method comprised 20% and 59% of
consolidated inventories at December 31, 1997 and 1996, respectively.
Inventories not valued using the LIFO method are determined on the first-
in, first-out (FIFO) method. If the valuation of all inventories had
been determined on the FIFO accounting method, inventories would have been
$25,453,000 and $24,929,000 higher at December 31, 1997 and 1996,
respectively.
Note 6 - Property, Plant and Equipment
The components of property, plant and equipment were as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
Land $ 12,050 $ 848
Buildings and improvements 59,998 49,620
Machinery and equipment 170,351 119,616
242,399 170,084
Less accumulated depreciation 118,026 108,693
$124,373 $ 61,391
</TABLE>
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.
Note 7 - Other Current Liabilities
The components of other current liabilities were as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
Salaries, wages and related costs $17,833 $11,095
Advance payments from customers 15,407 6,177
Warranty, installation and related costs 10,477 4,603
Pension and other retiree
benefit plan contributions 7,054 4,614
Acquisition and restructuring costs 6,293 --
Other current liabilities 13,550 3,846
$70,614 $30,335
</TABLE>
<PAGE>
<PAGE>
Note 8 - Employee Retirement Plans
The Company has defined contribution retirement plans 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 a defined contribution plan effective
January 1, 1991.
In December, 1997, the Company filed for termination of its domestic
defined benefit plan. The liability under the plan is expected to be
settled in the second quarter of 1998. Upon settlement, the Company will
write off the prepaid pension asset of $2,031,000.
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) 1997 1996 1995
<S> <C> <C> <C>
Interest cost on projected
benefit obligation $ 6,240 $ 6,292 $ 6,625
(Positive) return on plan
assets (24,052) (9,288) (25,171)
Net amortization and
deferral 17,812 2,517 19,117
Net periodic pension (income)
expense $ -- $ (479) $ 571
</TABLE>
The expected long-term rate of return on plan assets used in determining
net periodic pension costs was 9.0% for 1997, 1996 and 1995.
<PAGE>
<PAGE>
The following table sets forth the domestic defined benefit plan's
funded status and amounts recognized in the Company's consolidated
financial statements at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands)
1997 1996
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation
including vested benefits of
$90,360 in 1997 and
$88,279 in 1996 $103,185 $92,707
Projected benefit obligation $103,185 $92,707
Plan assets at market value 111,659 94,680
Projected benefit obligation
(lower than) plan assets (8,474) (1,973)
Unrecognized prior service cost (651) (760)
Unrecognized net gain 7,094 702
(Prepaid pension asset) recognized in
the consolidated balance sheets $ (2,031) $(2,031)
</TABLE>
The discount rates used in determining the projected benefit obligation
were 6.0% and 7.0% for December 31, 1997 and 1996, respectively. 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.
The plan's assets at December 31, 1997 were invested in U.S. treasury
securities, commercial paper and cash equivalents. At December 31, 1996
the plan's assets were invested in a tactical asset allocation fund, cash
equivalents and 770,104 shares of the Company's Common Stock which had a
market value of $12,707,000 at December 31, 1996. In December 1997, the
plan divested of its holding in the Company's Common Stock as part of a
public stock offering. Dividends paid on the Company's Common Stock were
$192,500 in 1997 and 1996.
The Company has both funded and unfunded defined benefit retirement
plans for employees at certain of its foreign operations. The following
table sets forth the foreign defined benefit plans' funded status and
<PAGE>
<PAGE>
amounts recognized in the Company's consolidated financial statements at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
(In thousands) Funded Plan Unfunded Plans
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation $ 9,499 $ 9,608 $24,009 $3,331
Accumulated benefit obligation 9,499 9,608 25,232 3,415
Projected benefit obligation 11,179 10,566 27,072 4,162
Plan assets at market value 12,382 10,782 -- --
Projected benefit obligation
(lower than) in excess of
plan assets (1,203) (216) 27,072 4,162
Unrecognized transition obligation (723) (810) -- --
Unrecognized net (gain) loss 2,299 1,481 (522) (987)
Pension liability recognized
in the consolidated balance
sheets $ 373 $ 455 $26,550 $3,175
</TABLE>
The discount rate used in determining the projected benefit obligation
was 8.25% for the funded plan for December 31, 1997 and 1996 and 6.50% for
the unfunded plans for December 31, 1997 and 1996. The net periodic pension
expenses for these foreign defined benefit plans were $1,673,000, $648,000 and
$694,000 in 1997, 1996 and 1995, 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. At December 31, 1997, the
Company recorded a minimum pension liability of $3,014,000 ($2,119,000 in
1996), an intangible asset of $327,000 ($409,000 in 1996) and an equity
reduction of $901,000 ($461,000 in 1996). The Company recognized pension
expense of $394,000, $297,000 and $272,000 for this plan in 1997, 1996 and
1995, respectively.
All domestic employees participate in defined contribution retirement
plans. Amounts contributed under these plans are based upon a percentage
of compensation for eligible employees. The amounts expensed under these
plans were $2,056,000, $1,616,000 and $1,490,000 in 1997, 1996 and 1995,
respectively.
<PAGE>
<PAGE>
Note 9 - Postretirement Health and Life Insurance Benefits
The Company provides certain health and life insurance benefits for
retired employees of certain of its current and former domestic
subsidiaries. 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 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) 1997 1996 1995
<S> <C> <C> <C>
Service cost for benefits
earned during the year $ 118 $ 111 $ 87
Interest cost on the
accumulated postretirement
benefit obligation 2,044 2,105 2,563
Net amortization of prior
(gains) (171) (141) (289)
Total expense $1,991 $2,075 $2,361
</TABLE>
The recorded liabilities for this unfunded postretirement benefit plan
were as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $24,013 $25,264
Fully eligible active plan participants 2,770 2,587
Other active plan participants 3,115 2,803
Total accumulated postretirement benefit
obligation 29,898 30,654
Unrecognized net gain 4,709 4,777
Total liability for postretirement health
and life insurance benefits 34,607 35,431
Less current portion 2,960 2,960
Noncurrent liability for postretirement
health and life insurance benefits $31,647 $32,471
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.0% at December 31, 1997 and 1996. The decrease in
the total accumulated postretirement benefit obligation was primarily
attributable to a decrease in the number of retiree participants.
<PAGE>
<PAGE>
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.
Note 10 - Debt
Long-term debt at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
Notes payable to banks under term loan
and revolving credit agreements $37,976 $3,900
Other obligations 1,881 134
39,857 4,034
Less current maturities 1,613 6
$38,244 $4,028
</TABLE>
At December 31, 1997, the Company had a $135 million term loan and
revolving credit facility providing for multi-currency borrowings, standby
letters of credit and bank guarantees. The revolving credit portion of the
facility was $110 million and matures on July 1, 2002. The term portion of
the facility was $25 million and requires repayment in equal quarterly
installments from October 1, 1999 through July 1, 2002. Up to $40 million
of the revolving credit facility is available for issuance of letters of
credit or bank guarantees of which $26.5 million was outstanding at
December 31, 1997. The credit facility is unsecured (except for pledges of
65% of the stock of certain designated foreign subsidiaries of the Company)
and there are no prepayment penalties. The revolving credit facility
provides the Company the option to borrow on a spread over LIBOR as
determined by a financial ratio which is adjusted on a quarterly
basis. The weighted average borrowing rate was 4.44% at December 31, 1997
and 6.53% at December 31, 1996. The credit agreement relating to the
facility contains customary financial ratio covenants and provisions which
restrict the Company's ability to pay dividends in the event of default.
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 term loan
and revolving credit facility, totaled approximately $86.7 million at
December 31, 1997. The weighted average borrowing rates under short-term
credit facilities were 7.73% and 10.70% at December 31, 1997 and 1996,
respectively.
<PAGE>
<PAGE>
Scheduled maturities of long-term debt in each of the next five years
are $1,613,000, $2,237,000, $8,339,000, $8,339,000 and $19,232,000
in 1998 through 2002, respectively.
Interest expense for each of the three years in the period ended
December 31, 1997 was $2,308,000, $877,000 and $950,000, respectively.
Note 11 - Income Taxes
For financial reporting purposes, income from continuing operations before
income taxes included the following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
United States $24,980 $14,619 $12,144
Foreign 13,199 16,124 8,836
Total $38,179 $30,743 $20,980
</TABLE>
Provisions (benefits) for income taxes included the following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Current:
Continuing operations:
Federal $ 7,706 $ 1,703 $ 1,781
State 1,612 556 600
Foreign 4,113 6,538 3,053
13,431 8,797 5,434
Discontinued operations -- -- 229
Total current $13,431 $ 8,797 $ 5,663
Deferred:
Federal $ (938) $ 3,045 $(13,038)
State (68) -- (2,311)
Foreign 1,659 (759) 513
Total deferred $ 653 $ 2,286 $(14,836)
</TABLE>
The differences between the United States federal statutory income tax rate
and the Company's effective tax rate were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
U.S. federal statutory rate 35.0% 35.0% 35.0%
Change in valuation allowance (4.7%) (3.3%) (73.4%)
Effect of consolidating foreign
subsidiaries 3.0% 4.2% (3.3%)
State taxes net, of federal benefit 2.6% 1.2% --
Other 1.0% (1.0%) (3.1%)
Effective tax rate 36.9% 36.1% (44.8%)
</TABLE>
<PAGE>
<PAGE>
Deferred tax assets and liabilities were comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996
<S> <C> <C>
Deferred tax assets:
Accrued retiree and other
employee benefits $17,086 $15,737
Restructuring accruals 3,724 --
Deferred revenue 3,185 787
Federal and state tax credits 3,012 7,365
Foreign tax loss carryforwards 2,422 1,000
Nondeductible accruals and other 6,525 5,319
Total deferred tax assets 35,954 30,208
Less valuation allowance 10,895 6,000
Deferred tax asset 25,059 24,208
Deferred tax liabilities:
Depreciation 7,595 7,940
Other 757 757
Total deferred tax liabilities 8,352 8,697
Net deferred tax asset $16,707 $15,511
</TABLE>
The net deferred tax asset of $16,707,000 at December 31, 1997
($15,511,000 in 1996) is presented in the Consolidated Balance Sheets as
follows: $7,714,000 ($6,894,000 in 1996) in other current assets;
$10,309,000 ($10,013,000 in 1996) in other assets (non-current) and
$1,316,000 ($1,396,000 in 1996) in other liabilities (non-current).
The valuation allowance increased by $4.9 million at December 31, 1997
for deferred tax assets related to the acquisition of Pfauter, less a
reduction for the utilization of certain domestic tax credit carryforwards
in 1997. A valuation allowance totaling $7.4 million related to the
Pfauter acquisition will be applied to reduce goodwill when, and if, these
tax benefits are realized. The remaining valuation allowance at December
31, 1997 was required 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. The valuation allowance at
December 31, 1996 was required for these same issues. During 1996, the
valuation allowance decreased as a result of utilization of certain German
tax loss carryforwards. Management believes that sufficient income will be
earned in future years to fully realize the net deferred tax asset.
Foreign tax loss carryforwards totaling $6.2 million are available to
reduce future taxable income, of which $3.6 million may be carried forward
indefinitely, and $2.6 million which will expire at various dates through
2001. Domestic tax credits of $3.0 million are also available to reduce
<PAGE>
<PAGE>
future federal and state income taxes and expire at various dates through
2007.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $20.2 million at December 31, 1997. 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 12 - Stock Plan
The Company's 1992 Stock Plan is a successor to the Company's 1981 Stock
Plan. No additional awards could be made under the 1981 Stock Plan after
December 16, 1991.
Under the Company's 1992 Stock Plan, 1,000,000 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. 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. No SARs have been granted under
the Plan.
Under the Plan an option to purchase 6,000 shares is granted each year
to each director of the Company who 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 12,000 shares of restricted stock were made during 1997
and restrictions lapsed on 800 shares during 1997. 12,000 restricted
<PAGE>
<PAGE>
shares were outstanding at December 31, 1997 and 800 restricted shares were
outstanding at December 31, 1996.
The following is a summary of option transactions under both Plans:
<TABLE>
<CAPTION>
Shares Price Range
<S> <C> <C>
Outstanding December 31, 1994 628,406 $ 5.66 - $ 9.69
Granted 81,000 $10.59 - $17.41
Forfeited (20,000) $ 6.81
Exercised (54,908) $ 6.25 - $ 7.94
Outstanding December 31, 1995 634,498 $ 5.66 - $17.41
Granted 103,000 $14.85 - $20.38
Exercised (53,822) $ 7.00 - $ 9.38
Outstanding December 31, 1996 683,676 $ 5.66 - $20.38
Granted 140,000 $18.91 - $26.03
Forfeited (4,000) $ 7.47
Exercised (64,024) $ 5.66 - $17.41
Outstanding December 31, 1997 755,652 $ 5.66 - $26.03
Exercisable at December 31:
1997 657,652 $ 5.66 - $20.38
1996 594,676 $ 5.66 - $20.38
1995 567,498 $ 5.66 - $10.59
Available for additional grants
at December 31:
1997 316,200
1996 464,200
1995 567,200
1994 649,000
</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. Under APB 25,
because the exercise price 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.
The alternative fair value accounting provided for under FAS No. 123,
"Accounting for Stock-Based Compensation" requires use of option valuation
models. Pro forma information regarding net income and earnings per share is
required by FAS 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 5.73% and 5.69% for 1997, 6.80%
and 6.34% for 1996 and 6.12% and 5.65% for 1995; a dividend yield of 1.11%
<PAGE>
<PAGE>
for 1997, 1.38% for 1996 and 1995; volatility factors of the expected market
price of the Company's Common Stock of .367, .379 and .402 in 1997, .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 $12.50 and 7 years, respectively as of
December 31, 1997.
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>
Pro Forma
(In thousands, except per share amounts) 1997 1996 1995
<S> <C> <C> <C>
Net income $22,986 $19,079 $30,765
Earnings per share:
Basic $ 2.30 $ 1.85 $ 2.97
Diluted 2.21 1.79 2.90
</TABLE>
Note 13 - 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
Company for $22.50 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
<PAGE>
<PAGE>
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 $22.50, 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 ($22.50) 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 $.005 per
Right.
Note 14 - Supplemental Cash Flow Information
Cash payments for income taxes were $8,151,000, $3,188,000 and $4,378,000
for 1997, 1996 and 1995, respectively. Interest payments were $1,470,000,
$963,000 and $837,000 in 1997, 1996 and 1995, respectively.
Non-cash investing activities in 1995 included notes receivable of
$2,100,000 from the sale of real estate. Refer to Note 4 - Discontinued
Operations.
Note 15 - 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
tooling 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 Germany. Information
<PAGE>
<PAGE>
about the Company's operations in the United States, Germany and other
countries for 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Net sales to unaffiliated customers
United States $220,242 $162,305 $146,344
Germany 82,657 69,171 33,638
Other 35,774 16,613 17,064
$338,673 $248,089 $197,046
Interarea sales and transfers
United States $ 2,164 $ 399 $ 468
Germany 7,675 1,455 388
Other 12,715 7,322 7,386
$ 22,554 $ 9,176 $ 8,242
Total sales
United States $222,406 $162,704 $146,812
Germany 90,332 70,626 34,026
Other 48,489 23,935 24,450
361,227 257,265 205,288
Less interarea sales 22,554 9,176 8,242
$338,673 $248,089 $197,046
Operating income
United States $ 28,819 $ 17,642 $ 14,296
Germany 10,120 13,103 4,175
Other 4,442 3,646 5,447
43,381 34,391 23,918
Less:
Interest expense -- net 1,127 513 527
Corporate and other non-allocable
expenses 4,075 3,135 2,411
Income from continuing
operations before income taxes $ 38,179 $ 30,743 $ 20,980
Identifiable assets
United States $208,442 $136,349 $137,683
Germany 80,204 34,067 38,150
Other 44,171 13,048 11,428
332,817 183,464 187,261
Corporate assets 12,836 7,210 9,937
Total assets $345,653 $190,674 $197,198
</TABLE>
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 1997, 1996 and 1995 included
<PAGE>
<PAGE>
export sales (exclusive of intercompany sales) to the following geographic
areas:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
<S> <C> <C> <C>
Europe $39,468 $33,662 $37,392
Asia-Pacific 39,706 49,105 29,197
Americas 15,662 14,025 10,829
Other 1,807 230 144
$96,643 $97,022 $77,562
</TABLE>
One customer accounted for 10% of consolidated sales in 1997 and 14% in
1996.
Note 16 - Environmental Matters
Environmental expenditures 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 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 17 - 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, agriculture, construction, industrial machinery, marine and
power tool industries. Customers in the automotive and truck industries
accounted for 73% and 76% of sales in 1997 and 1996, respectively. A
decline in automotive or truck production could result in a decline in the
Company's results of operations or a deterioration in the Company's
financial position.
The Company's markets are worldwide. Approximately 64% and 73% of total
sales in 1997 and 1996, 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.
<PAGE>
<PAGE>
Note 18 - 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 and
bank guarantees issued in the normal course of business for $26.5 million
at December 31, 1997 ($8.9 million at December 31, 1996).
Note 19 - 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 equivalents: The carrying amount reported in the balance
sheet for cash and 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's use of derivative
financial instruments is substantially limited to the use of forward
exchange contracts to hedge foreign currency transactions entered into in
the ordinary course of business and not to engage in currency speculation.
The Company's forward exchange contracts do not subject the Company to risk
from exchange rate movements because gains and losses on such contracts
offset gains and losses on the transactions being hedged. Accordingly, the
unrealized gains and losses are deferred and included in the measurement of
the related foreign currency transaction. The forward exchange contracts
generally have maturities which coincide with the settlement dates of the
related transactions and generally do not exceed one year. The exchange
rates are agreed to at the inception of the contracts. The aggregate
contract value of agreements to sell foreign currencies in exchange for
U.S. dollars was $2.4 million and $2.7 million at December 31, 1997 and
1996, respectively. The aggregate value of contracts for the sale of U.S.
dollars in exchange for foreign currencies was $15.2 million and $7.1
million at December 31, 1997 and 1996, respectively. The aggregate value
of contracts for the exchange of other foreign currencies was $3.5 million
and $0.9 million at December 31, 1997 and 1996, respectively. 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, 1997 and 1996, 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, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31,
1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Gleason Corporation and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
Syracuse, New York
January 30, 1998
<PAGE>
<PAGE>
Quarterly Information (Unaudited)
Selected quarterly information for the years 1997 and 1996 are shown below:
<TABLE>
<CAPTION>
Dollars in thousands, 1997
except per share amounts First Second Third Fourth
<S> <C> <C> <C> <C>
Net sales $60,335 $62,384 $89,713 $126,241
Cost of products sold 41,016 42,683 63,084 86,712
Net income 5,194 5,577 4,995 8,329
Earnings per common share:
Basic .52 .56 .50 .83
Diluted .50 .54 .48 .79
Cash dividends declared per
common share .0625 .0625 .0625 .0625
Stock prices
High 18 15/16 23 1/4 29 21/32 29 1/4
Low 16 1/8 15 9/16 23 1/8 24 5/16
</TABLE>
<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
Net income 4,600 4,738 3,765 6,557
Earnings per common share:
Basic .44 .46 .36 .64
Diluted .43 .44 .35 .62
Cash dividends declared per
common share .0625 .0625 .0625 .0625
Stock prices
High 21 1/2 21 3/8 20 1/2 19 7/8
Low 13 5/8 18 15 1/2 14 1/8
</TABLE>
Notes:
Earnings per share amounts have been restated to comply with Financial
Accounting Standards No. 128, "Earnings Per Share". Per share amounts for
1996 and the first two quarters of 1997 have been restated to reflect a
two-for-one stock split in 1997.
Third quarter 1997 results included two months of activity of the Pfauter
operations which the Company acquired on July 31, 1997.
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 1997 and 1996
are shown above. As of December 31, 1997 there were 3,246 holders of
record of the Company's Common Stock.
Exhibit (21)
<TABLE>
GLEASON CORPORATION AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
<CAPTION>
State or Country Percent
Subsidiary of Incorporation Ownership
<S> <C> <C>
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 Corporation Sales Michigan 100
Gleason International Marketing
Corporation Delaware 100
Gleason Australia (Services)
Pty. Limited Australia 100
Gleason Works (India) Private
Limited India 100
Gleason Works Acquisition
Corporation Delaware 100
G.W. Acquisition Corporation Delaware 100
Pfauter-Maag Cutting Tools L.P. Illinois 100
Pfauter Cutting Tools, Inc. Illinois 100
American Pfauter L.P. Delaware 100
American Pfauter Management Inc. Delaware 100
MECUP S.R.L. Italy 99
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
State or Country Percent
Subsidiary of Incorporation Ownership
<S> <C> <C>
Gleason (Germany) Holdings GmbH Germany 100
Gleason-Hurth Maschinen
und Werkzeuge GmbH Germany 100
Gleason-Pfauter Maschinenfabrik
GmbH Germany 100
Gleason-Pfauter GmbH & Co. Germany 100
Gleason-Pfauter Verwaltungs
GmbH Germany 100
Pfauter Italia S.R.L. Italy 100
Pfauter Italia SpA Italy 100
Pfauter France S.A.R.L. France 85
</TABLE>
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, 1998, included in the 1997 Annual Report
to Stockholders of Gleason Corporation.
Our audits also included the financial statement schedule of
Gleason Corporation listed in Item 14(a). This schedule is
the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
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) of Gleason Corporation of our report dated
January 30, 1998, with respect to the consolidated financial
statements incorporated herein by reference, and our report
included in the preceeding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-
K) of Gleason Corporation.
Ernst & Young LLP
Syracuse, New York
March 25, 1998
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 1997 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 11th day of February,
1998.
Martin L. Anderson John W. Guffey, Jr.
Martin L. Anderson John W. Guffey, Jr.
Julian W. Atwater Donald D. Lennox
Julian W. Atwater Donald D. Lennox
Robert W. Bjork William P. Montague
Robert W. Bjork William P. Montague
David J. Burns Robert A. Sherman
David J. Burns Robert A. Sherman
J. David Cartwright Robert L. Smialek
J. David Cartwright Robert L. Smialek
James S. Gleason
James S. Gleason
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000743239
<NAME> GLEASON CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 12478
<SECURITIES> 0
<RECEIVABLES> 104042
<ALLOWANCES> 3018
<INVENTORY> 55991
<CURRENT-ASSETS> 182860
<PP&E> 242399
<DEPRECIATION> 118026
<TOTAL-ASSETS> 345653
<CURRENT-LIABILITIES> 122437
<BONDS> 0
0
0
<COMMON> 11594
<OTHER-SE> 102627
<TOTAL-LIABILITY-AND-EQUITY> 345653
<SALES> 338673
<TOTAL-REVENUES> 338673
<CGS> 233495
<TOTAL-COSTS> 233495
<OTHER-EXPENSES> 65872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1127
<INCOME-PRETAX> 38179
<INCOME-TAX> 14084
<INCOME-CONTINUING> 24095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24095
<EPS-PRIMARY> 2.41
<EPS-DILUTED> 2.32
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED 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. EARNINGS PER SHARE HAVE BEEN
RESTATED TO COMPLY WITH FINANCIAL ACCOUNTING STANDARDS NO. 128 "EARNINGS PER
SHARE" AND TO REFLECT A TWO-FOR-ONE STOCK SPLIT IN 1997.
</LEGEND>
<RESTATED>
<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
0
0
<COMMON> 11594
<OTHER-SE> 73270
<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> 1.90
<EPS-DILUTED> 1.84
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS. EARNINGS PER SHARE HAVE BEEN
RESTATED TO COMPLY WITH FINANCIAL ACCOUNTING STANDARDS NO. 128 "EARNINGS PER
SHARE" AND TO REFLECT A TWO-FOR-ONE STOCK SPLIT IN 1997.
</LEGEND>
<RESTATED>
<CIK> 0000743239
<NAME> GLEASON CORPORATION
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 9926
<SECURITIES> 0
<RECEIVABLES> 65288
<ALLOWANCES> 0
<INVENTORY> 29565
<CURRENT-ASSETS> 114360
<PP&E> 161699
<DEPRECIATION> 100751
<TOTAL-ASSETS> 197198
<CURRENT-LIABILITIES> 53951
<BONDS> 0
0
0
<COMMON> 11593
<OTHER-SE> 61698
<TOTAL-LIABILITY-AND-EQUITY> 197198
<SALES> 197046
<TOTAL-REVENUES> 197046
<CGS> 137461
<TOTAL-COSTS> 137461
<OTHER-EXPENSES> 38078
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 527
<INCOME-PRETAX> 20980
<INCOME-TAX> (9402)
<INCOME-CONTINUING> 30382
<DISCONTINUED> 445
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30827
<EPS-PRIMARY> 2.98
<EPS-DILUTED> 2.91
</TABLE>
