S E C U R I T I E S A N D E X C H A N G E C O M M I S S IO N
Washington, D. C. 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the fiscal year ended December 31, 1998.
[ ] 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. (X)
The aggregate market value of registrant's voting stock held
by non-affiliates as of March 11, 1999 was approximately
$168,142,363.
The number of shares of Common Stock, $1.00 par value,
outstanding as of March 11, 1999 was 9,608,135.
Documents Incorporated by Reference
Portions of the Company's Annual Report to Stockholders for
the year ended December 31, 1998 are incorporated by
reference into Parts I and II of this Form 10-K.
Portions of the Company's proxy statement, dated March 30,
1999, filed in connection with its 1999 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 following the signature page.
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PART I
ITEM 1. BUSINESS
General
Gleason Corporation was incorporated in the State of Delaware
in 1984 and in May of 1984, by virtue of a merger, became a holding
company which owns all the outstanding stock of The Gleason Works.
The Gleason Works was incorporated in New York State in 1903 as
successor to the businesses of two corporations and has, with its
predecessors, been in business since 1865. As used herein, unless
the context otherwise indicates, "Company" includes Gleason
Corporation and its subsidiaries and divisions.
In 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
on pages 29 and 30 of the Company's Annual Report to Stockholders for
the year ended December 31, 1998, 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.
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.
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;
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.
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Information about the Company's product sales, regional sales
and major customer financial information is presented in Note 13 of
the Notes to the Consolidated Financial Statements on page 37 of the
Company's Annual Report to Stockholders for the year ended December
31, 1998, which is incorporated herein by reference.
Products
The Company's products and services are focused on providing
design and manufacturing solutions to producers of gears. There are
two major general categories of gears: bevel and hypoid gears and
cylindrical gears.
Bevel Gear Products
The Company believes it is the world leader in the technology,
design, application and methods of production of hypoid and other
bevel gears, and in the manufacture of machines for the production of
these gears.
Hypoid and other bevel gears are used to transmit mechanical
power at an angle, such as from the drive shaft to the rear-driven
axle of an automobile. The gears produced by Gleason machines are
used in drive trains of automobiles, sport utility vehicles, trucks,
buses, aircraft, marine, agricultural and construction machinery, and
must meet a wide range of complex specifications which are determined
by the function required of a particular gear set.
The Company sells over 30 models of machines for the production
and testing of hypoid and other bevel gears. Some of these machines
can produce gears as small as 6mm in diameter, weighing only one-half 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.
The line of PHOENIX(Registered Trademark) gear production machines
incorporates state-of-the-art, full CNC design for the production of
spiral bevel and hypoid gears. CNC machine features include the elimination
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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 the Company's 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.
The acquisitions of Pfauter and Hurth have added complementary
product lines which have significantly strengthened the Company's
position 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 has sales and service locations throughout North
America and Europe, and in Japan, Taiwan, India, China and Australia.
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. In 1999, the Company acquired the remaining 80 percent
interest of OGA Corporation.
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Overseas markets are important to the Company. The percentage
of sales outside the United States was 62 percent and 64 percent in
1998 and 1997, respectively. The majority of overseas sales were to
European and Asian customers. Sales to markets outside of the United
States in 1998 were slightly lower as a percentage of total sales
primarily due to lower shipments to the Asia-Pacific region.
The domestic and foreign automotive and truck industries
accounted for approximately 58 percent of sales in 1998 and 73
percent of sales in 1997. The acquisition of Pfauter has 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 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, 1998 backlog
totaled $132.5 million compared to $177.7 million as of December 31,
1997. The Company expects substantially all of its December 31, 1998
backlog to be shipped by the end of 1999.
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Research and Development
Amounts expended for research and development are presented in
the Consolidated Statements of Operations on page 24 of the Company's
Annual Report to Stockholders for the year ended December 31, 1998,
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, 1998, the Company had 2,608 employees. Many of
the Company's employees possess a high degree of engineering,
technical and mechanical skills. Management believes the Company's
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.
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 interrupt 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.
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ITEM 2. PROPERTIES
The Company's corporate office is located in Rochester, New
York and its manufacturing operations are conducted at plants in
Rochester, 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 Bevel and cylindrical gear
cutting tools
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
Biel, Switzerland 11,000 Cylindrical gear production
machines
Bangalore, India 9,000 Bevel gear cutting tools
</TABLE>
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The Munich, Germany facility is being leased for a term ending
in 2003. The lease for the Bologna, Italy facility may be terminated
at any time upon six months notice. 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'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 is presented on page 39 of the
Company's Annual Report to Stockholders for the year ended December
31, 1998 which is incorporated herein by reference.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented on page 17 of the
Company's Annual Report to Stockholders for the year ended December
31, 1998 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 on pages 18 through 23 of the Company's
Annual Report to Stockholders for the year ended December 31, 1998
and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk arising from its global
operating and financing activities. The Company's results of
operations could be adversely impacted by fluctuations in foreign
exchange rates and interest rates. The Company's exposure to each of
these risks and its methods for managing these risks is addressed
below. The Company does not use derivative financial instruments for
speculative or trading purposes.
Foreign Exchange Risk:
Approximately one-half of the Company's operations consist of
manufacturing plants and sales offices in foreign jurisdictions. The
Company manufactures its products in the United States, Germany, the
United Kingdom, Italy, Switzerland and India and sells its products
to customers in over 35 countries annually. The Company's results of
operations could be significantly affected by such factors as changes
in foreign currency exchange rates or weak economic conditions in
foreign markets. The Company's operating results are exposed to
fluctuations between the U.S. dollar and European currencies, the
most significant of which are the German mark, British pound and
Italian lira. For example, when the U.S. dollar strengthens against
the German mark, the value of sales and net income denominated in German
marks decreases when translated into U.S. dollars for inclusion in the
Company's consolidated results. The Company also is exposed to
foreign currency fluctuations in relation to sales and purchases
denominated in foreign currencies.
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The Company attempts to mitigate the short-term effect of
currency fluctuations by entering into forward exchange contracts to
hedge specific foreign currency transactions entered into in the
ordinary course of business. Gains and losses on such forward
contracts offset the gains and losses on the transactions being
hedged. Further discussion of the Company's hedging activities can
be found in Note 17, Fair Value of Financial Instruments, on page 38
of the Company's Annual Report to Stockholders for the year ended
December 31, 1998 incorporated herein by reference. The Company
performed sensitivity analysis assuming a hypothetical 10% adverse
movement in foreign exchange rates applied to the forward exchange
contracts outstanding at December 31, 1998 and 1997. This analysis
indicated that such an adverse movement in exchange rates would have
resulted in losses on outstanding contracts of $.5 million and $2.1
million in 1998 and 1997, respectively. However, these losses would
have been substantially offset by gains from the revaluation or
settlement of the underlying positions hedged.
Interest Rate Risk:
The Company is exposed to interest rate risk related to its
outstanding debt. The Company utilizes both U.S. dollar denominated
and foreign currency denominated borrowings under its revolving
credit facility and various short-term credit lines to fund its
working capital needs. The revolving credit facility provides for
the Company to borrow on a spread over LIBOR as determined by certain
financial ratios which is adjusted on a quarterly basis. A
hypothetical 50 basis point increase in the worldwide weighted
average borrowing rate in 1998 and 1997 would not have had a material
impact on the Company's results of operations or cash flows for the
years ended December 31, 1998 and 1997, respectively. The Company
currently does not invest in derivative instruments such as interest
rate swaps or options to hedge its exposure to interest rate
fluctuations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and
supplementary data of the Company and its subsidiaries presented on
pages 24 through 39 of the Company's Annual Report to Stockholders
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for the year ended December 31, 1998 are incorporated herein by
reference:
Consolidated Statements of Operations - Years ended December 31,
1998, 1997 and 1996.
Consolidated Balance Sheets - December 31, 1998 and 1997.
Consolidated Statements of Cash Flows - Years ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements - December 31, 1998.
Quarterly Results of Operations (Unaudited) -Years ended
December 31, 1998 and 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information required to be furnished by Items 401 and
405 of Regulation S-K are described in a definitive proxy statement
which will be filed with the Securities and Exchange Commission
pursuant to Regulation 14-A within 120 days after the close of the
fiscal year ended December 31, 1998, 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. 64 1966 Chairman and President since
Gleason 1985.
David J. 44 1992 Executive Vice President since
Burns 1995; Vice President - Machine
Products Group (1992 to 1995).
John B. 57 1986 Vice President - Administration
Kodweis and Human Resources since 1992.
Edward J. 38 1999 Vice President, General Counsel
Pelta & Secretary since 1999;
Assistant Secretary & Corporate
Counsel since 1998; prior thereto
Vice President, General Counsel &
Secretary (1997 to 1998), General
Counsel and Assistant Secretary
(1995 to 1997) and Senior Counsel and
Assistant Secretary (1994 to 1995)
of ALSTOM Signaling Inc.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE POSITIONS AND
OFFICER OFFICES HELD
NAME AGE SINCE IN THE LAST FIVE YEARS
<S> <C> <C> <C>
John J. 38 1993 Vice President - Finance (since
Perrotti 1995) and Treasurer (since 1997);
Vice President - Controller
(1993 to 1995).
John W. 36 1995 Controller since 1995;
Pysnack Director of Accounting and
Reporting (1995); Finance
Manager (1991 to 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, 1998, 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, 1998, which information is incorporated herein by
reference.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Information regarding relationships is included in a definitive
proxy statement which will be filed with the Securities and Exchange
Commission pursuant to Regulation 14-A within 120 days after the end
of the fiscal year ended December 31, 1998, 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, 1998 which are incorporated herein by
reference:
Consolidated Statements of Operations - Years ended
December 31, 1998, 1997 and 1996.
Consolidated Balance Sheets - December 31, 1998 and
1997.
Consolidated Statements of Cash Flows - Years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Stockholders' Equity - Years
ended December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements -
December 31, 1998.
Report of Independent Auditors.
(2) The following consolidated financial statement schedule of
Gleason Corporation and subsidiaries is included in Item 14(d):
Schedule II-Valuation and Qualifying Accounts.
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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 incorporated
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
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reference to Exhibit 10 of Gleason Corporation Form 8-K,
file number 1-8782, dated August 14, 1997.
(b) The Company's 1992 Stock Plan, as amended, is incorporated
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 Compensation
Plan is incorporated by reference to Exhibit 10(a) of
Gleason Corporation Form 10-K, file number 1-8782, for the
year ended December 31, 1994.
(d) Gleason Corporation Supplemental Retirement Plan, as
restated, is incorporated by reference to Exhibit 10(a) of
Gleason Corporation Form 10-Q, file number 1-8782, for
the quarter ended June 30, 1998.
(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(b) of Gleason
Corporation Form 10-Q, file number 1-8782, for the quarter
ended June 30, 1998.
(f) The Company's 1981 Stock Plan, as amended January 23, 1990,
is incorporated by reference to Exhibit I of Gleason
Corporation Form 10-K, file number 1-8782, for the year
ended December 31, 1989.
(g) Trust Agreement for Gleason Corporation executive agreements
and Supplemental Retirement Plan is incorporated by reference to
Exhibit 10(c) of Gleason Corporation Form 10-Q, file number
1-8782, for the quarter ended June 30, 1998.
(h) Gleason Corporation Plan for Deferral of Directors Fees is
incorporated by reference to Exhibit J of Gleason Corporation
Form 10-K, file number 1-8782, for the year ended December
31, 1988.
(i) Gleason Corporation Executive Life Insurance Program is
incorporated by reference to Exhibit L of Gleason Corporation
Form 10-K, file number 1-8782, for the year ended December
31, 1987.
(j) Gleason Corporation Long Term Disability Plan is incorporated
by reference to Exhibit I of Gleason Corporation Form 10-K,
file number 1-8782, for the year ended December 31, 1986.
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(k) Gleason Corporation 1986 Deferred Compensation Plan is
incorporated by reference to Exhibit J of Gleason Corporation
Form 10-K, file number 1-8782, for the year ended December
31, 1986.
(13) Annual Report to Stockholders of the Registrant for the year ended
December 31, 1998. 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 Schedule. Refer to the Index to Exhibits.
(b) Reports on Form 8-K filed in the fourth quarter of 1998: None.
(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 Schedule:
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<TABLE>
Schedule II
Gleason Corporation and Subsidiaries
Valuation and Qualifying Accounts
<CAPTION>
(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 accounts $ 1,171 $1,119 $ 156 $ 884 $ 3,018
Reserve for
inventory valuation $ 7,399 $2,974 $2,505 $7,902 $15,770
Year Ended
December 31, 1997 $ 8,570 $4,093 $2,661 $8,786 $18,788
</TABLE>
<TABLE>
<CAPTION>
Balance at Balance at
beginning end of
Description of period Additions Deductions Other<F2> period
<S> <C> <C> <C> <C> <C>
Allowance for
doubtful accounts $ 3,018 $ 363 $ 576 $ 98 $ 2,903
Reserve for
inventory valuation $15,770 $5,067 $4,955 $1,037 $16,919
Year Ended
December 31, 1998 $18,788 $5,430 $5,531 $1,135 $19,822
<FN>
Note: Information is presented for the years ended December 31, 1997
and December 31, 1998 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. in 1997 and
the impact of changes in currency exchange rates during 1997.
<F2> Includes the impact of changes in currency exchange rates during
1998.
</FN>
</TABLE>
PHOENIX is a registered trademark of The Gleason Works.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
Gleason Corporation
Registrant
James S. Gleason
James S. Gleason
Chairman and President
John J. Perrotti
John J. Perrotti
Vice President - Finance and Treasurer
John W. Pysnack
John W. Pysnack
Controller
Date: March 30, 1999
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 )
David J. Burns )
J. David Cartwright ) Directors
James S. Gleason )
John W. Guffey, Jr. )
Donald D. Lennox )
William P. Montague )
Silas L. Nichols )
Robert L. Smialek )
By Edward J. Pelta
Edward J. Pelta
Attorney in Fact
Date: March 30, 1999
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GLEASON CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
Certain exhibits to this report on Form 10-K have been
incorporated by reference. For a list of these exhibits, see Item 14
hereof.
The following exhibits are being filed herewith:
Exhibit No.
(13) Annual Report to Stockholders of the
Registrant for the year ended
December 31, 1998
(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 Schedule
<TABLE>
Five Year Review
GLEASON CORPORATION AND SUBSIDIARIES
Dollars in thousands,
except per share amounts December31, 1998 1997 1996 1995 1994
Summary of Operations
<S> <C> <C> <C> <C> <C>
Net sales $409,326 $338,673 $248,089 $197,046 $128,462
Income from continuing operations 26,117 24,095 19,660 30,382<Fc> 4,332
Gain on disposal of discontinued operations -- -- -- 445 2,956
Net income 26,117<Fb> 24,095 19,660 30,827 7,288
Basic earnings per common share<Fa>:
Continuing operations 2.52 2.41 1.90 2.94<Fc> .42
Disposal of discontinued operations -- -- -- .04 .29
Net income 2.52<Fb> 2.41 1.90 2.98 .71
Diluted earnings per common share<Fa>:
Continuing operations 2.43 2.32 1.84 2.87<Fc> .42
Disposal of discontinued operations -- -- -- .04 .28
Net income 2.43<Fb> 2.32 1.84 2.91 .70
Cash dividends declared per common share<Fa> .25 .25 .25 .25 .20
Financial Position at Year-End
Cash and equivalents 13,229 12,478 7,199 9,926 3,173
Net property, plant and equipment 132,322 124,373 61,391 60,948 53,604
Total assets 340,469 345,653 190,674 197,198 122,016
Long-term debt 28,906 38,244 4,028 24,841 2,271
Total debt 30,767 45,617 4,363 26,336 2,954
Stockholders' equity 127,971 114,221 84,864 73,291 42,199
Other Data
Capital expenditures 25,754 15,913 10,281 8,309 3,527
Depreciation and amortization 20,948 14,169 10,707 9,992 9,293
New orders 364,140 318,704 246,352 226,107 156,962
Backlog 132,501 177,687 122,843 124,580 54,691
Number of employees 2,608 2,656 1,543 1,455 1,079
<FN>
Notes:
<Fa> Earnings per share amounts have been restated to comply
with FAS 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 1998 included a non-cash,
after-tax loss on the settlement of a pension plan of $1,239,000,
or $.12 per basic share and per diluted share.
<Fc> 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 per basic share
($1.22 per diluted 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 it
serves, the Company believes it is a 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.
The Company's major customers are in the automotive and
truck industries, which accounted for approximately 58% of
its total sales in 1998 (73% in 1997). 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
broader range of non-automotive customers.
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 1998, 62% of total sales
<PAGE>
<PAGE>
were to customers outside the U.S. (including 46% to Europe
and 8% to Asia-Pacific), compared to 64% in 1997. 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
The Pfauter operations which were acquired on July 31,1997
were included for the entire 1998 year versus five months in
1997. This difference, given the material impact of Pfauter
on the Company's financial results, is important in
understanding the Company's results of operations in 1998
compared to 1997 and in 1997 compared to 1996.
Earnings per share for prior periods have been restated to
reflect the Company's two-for-one stock split which occurred in 1997.
1998 Compared to 1997
Earnings: Net income for the 1998 full year was $26.1 million,
or $2.43 per diluted share, compared to $24.1 million, or $2.32
per diluted share, in 1997. Net income in 1998 included a
non-cash after-tax charge of $1.2 million, or $.12 per
diluted share, related to the settlement of a pension plan.
Excluding this charge, net income increased 14% compared to
1997. Operating income (earnings before interest and
taxes), excluding the pension charge, increased 18% in 1998
to $46.3 million, primarily due to the inclusion of the
Pfauter operations for the entire year versus only five
months in 1997.
Orders and Backlog: Order volumes in 1998 were $364.1 million
compared to $318.7 million in 1997. Excluding Pfauter, order
levels on a comparable year-over-year basis decreased 14% compared
to 1997. The decline in orders was attributable to decreased
demand from Asia and fewer significant orders from major
automotive customers.
Backlog at December 31, 1998 was $132.5 million compared
to $177.7 million at December 31, 1997. The decline in backlog
from the 1997 year-end level was primarily due to lower demand
for cylindrical gear production machines from U.S. customers
during 1998.
<PAGE>
<PAGE>
Net Sales: Net sales were $409.3 million in 1998, a 21% increase
from 1997. Sales, excluding Pfauter, decreased 6% in 1998
compared to 1997.
Machine product sales, excluding Pfauter, decreased 9%
compared to 1997. This decrease was attributable to lower
shipments of bevel gear production machines partially offset
by an increase in cylindrical gear production machine sales.
On a regional basis, sales of gear production machines
(excluding Pfauter) were lower to customers in the United
States and Asia-Pacific region and higher to customers in
Europe. The depressed economic conditions in the Asian
markets had a negative impact on the Company's sales, with
customers in this region accounting for 10% of total machine
sales in 1998 compared to 21% in 1997.
Sales of tooling products, excluding Pfauter, were
approximately 6% lower in 1998 compared to 1997 mainly due
to a decline in sales of bevel gear cutting tools. Sales of
other products including spare parts, field service and
software, excluding Pfauter, were comparable to 1997.
Costs and Expenses: Cost of products sold as a percentage of
sales was 68.4% in 1998 compared to 68.9% in 1997. Margins can
be impacted by the mix of products sold. Machines, in general,
tend to carry higher cost of sales percentages than tooling and
other products. Margins were higher in 1998 due to a higher
percentage of tooling and other products in the sales mix
and improved margins on gear production machines.
Selling, general and administrative expenses for 1998 were
$72.8 million, or 17.8% of sales, compared to $58.6 million,
or 17.3% of sales, in 1997. Spending as a percentage of sales
increased due to the inclusion of the Pfauter operations for the
entire year in 1998.
Research and development spending in 1998 was $10.6 million,
or 2.6% of sales, compared to $8.1 million, or 2.4% of sales, in 1997.
Research and development spending in 1998 included new product develop-
ment programs for machine products, including the Company's new GP
series of cylindrical gear hobbing, shaping and grinding machines.
The Company expects shipments of these machines to begin in the first
half of 1999.
<PAGE>
<PAGE>
Other income (net) was $.4 million in 1998 compared to $.9
million in 1997. Other income in 1997 included a $.4 million
gain on the sale of property of one of the Company's former
businesses.
Net interest expense was $1.0 million in 1998 compared to
$1.1 million in the prior year. The decrease is due to lower
average borrowing rates during 1998.
Income Taxes: The Company's provision for income taxes as a
percentage of income before taxes was 39.6% in 1998 compared to
36.9% in 1997. The levels of income generated in different taxing
jurisdictions can impact the Company's consolidated effective tax
rate. The 1998 rate was increased by a greater percentage of income
from its German operations, which have higher statutory tax rates.
The 1998 rate was also higher compared to 1997 due to the utilization
of fewer tax credits and carryforwards in 1998 compared to 1997.
Outlook: Total sales are expected to be lower in 1999 than in 1998
due to a beginning backlog which is 25% lower than in 1998. The
largest decrease in sales is expected to occur in machine shipments
as planned capital spending by many of the Company's major customers
is expected to be lower than in recent years. The Company has been
proactively reviewing its cost structure and staffing levels given the
lower expected sales and made staffing reductions at certain of its
locations in late 1998 and in early 1999. The Company is closely
monitoring the rate of incoming orders in 1999 to determine whether
further actions may be necessary.
Key strategic activities in 1999 will focus on the continuing
restructuring and integration of the Pfauter operations. As part of
the acquisition of Pfauter in 1997, $9.0 million was accrued for the
restructuring of those operations (with approximately $5.8 million
remaining at December 31, 1998) 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.
Another major initiative of the Company in 1999 will be the global
implementation of an enterprise resource planning (ERP) software package.
<PAGE>
<PAGE>
This project, which will extend in to the Year 2000, is expected to
convert all of the Company's major operations to a common integrated
platform for managing the Company's business processes and information
requirements.
1997 Compared to 1996
Earnings: Net income for 1997 increased 23% to $24.1 million, or
$2.32 per diluted share, compared to $19.7 million, or $1.84 per
diluted 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 Pfauter, 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, 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 all products in 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.
Backlog at December 31,1997 was $177.7 million compared to
$122.8 million at December 31,1996. Cylindrical gear products, including
Pfauter, accounted for 73% of backlog at 1997 year-end. Backlog at December
31,1997, excluding Pfauter, declined to $108.9 million. This decrease
compared to 1996 year-end was due to continued progress in shortening
<PAGE>
<PAGE>
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, 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 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.
<PAGE>
<PAGE>
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 Pfauter
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, was comparable to 1996. Development spending
in 1997 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.
Liquidity and Capital Resources
Cash and equivalents increased $.8 million to $13.2 million at December
31, 1998. Borrowings under the Company's revolving credit and term loan
facilities decreased to $28.7 million at December 31, 1998 from $38.0
<PAGE>
<PAGE>
million at 1997 year-end. Available unused short and long-term credit
lines with banks, including revolving credit facilities, totaled
approximately $86.3 million at December 31, 1998. During 1998, the
Company repaid a $25.0 million term loan that was outstanding at
December 31,1997.
Operating activities provided $55.1 million of cash in 1998, compared
to $61.4 million in 1997 and $37.6 million in 1996. Operating cash flows
were lower in 1998 primarily due to a reduction in other current liabilities,
including a reduction in current taxes payable and advance payments
received from customers.
Investing activities used $25.5 million of cash in 1998 compared to
$44.7 million in 1997 and $10.0 million in 1996. Investing activities for
1998 included purchases of equipment to upgrade and modernize production
capabilities and investments in information technology projects, including
the purchase of global enterprise resource planning (ERP) software licenses.
Investing activities for 1997 included $30.6 million of cash used, net of
cash acquired of $6.4 million, for the acquisition of Pfauter. Capital
expenditures for 1999 are expected to exceed depreciation expense with
spending planned for investments in hardware, software and consulting
implementation services to support the ERP project and equipment to upgrade
existing production capabilities. Cash flows from investing activities
in 1997 included $1.5 million in cash received from the sale of the
property of one of the Company's former businesses.
In 1998, the Company used $10.2 million to repurchase 583,200 shares
of Common Stock. In October 1998, the Company's Board of Directors
authorized an additional purchase of up to 10% of the Company's outstanding
shares, of which 749,334 shares remained available for purchase at
December 31,1998. The Company used $1.3 million and $6.2 million of
cash in 1997 and 1996, respectively, to repurchase shares of its Common
Stock under a program authorized by its Board of Directors in July 1996.
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
<PAGE>
<PAGE>
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.
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 $2.6 million, $2.5 million and
$2.6 million in 1998, 1997 and 1996, respectively.
Year 2000 Readiness Disclosure
State of Readiness: Since 1997, the Company has undertaken a Year 2000
Program to ensure that the Company's business critical computer systems
will be able to function without significant disruption because of the
use in the Year 2000 of computer date systems which were designed using
only two digits to identify the year in the date field and without
considering the effect of a change in the century designation. The Company's
Program addresses major information technology and non-information technology
(embedded chips) areas including: business computer systems (such as financial,
manufacturing and sales and marketing systems); manufacturing, warehousing
and servicing equipment (such as manufacturing execution systems and
shop floor controls); technical infrastructure (such as workstations,
mainframes, servers and operating systems); end-user computing (personal
computers); the readiness of suppliers, agents and service providers;
facilities; research and development test facilities; and the Company's
products. The Program includes the following phases: inventory/identi-
fication; impact analysis/risk evaluation; remediation; testing; and
implementation.
The Company is in the process of remediating and testing those of
its major business information systems which are believed to be
non-compliant. Other major equipment, processes and systems have also
been evaluated. Those systems, equipment and processes which have been
identified as non-compliant are being upgraded, modified or replaced so
<PAGE>
<PAGE>
that they will properly process dates beyond December 31, 1999.
The Company's schedule is for all mission critical systems, processes
and equipment to be Year 2000 compliant by June 30, 1999. The Company
continues to be on schedule in its plans to accomplish this objective.
The Company also is in the process of contacting its significant
suppliers and other third parties with whom the Company has relationships
in order to determine whether their operations and the products and services
they provide are Year 2000 compliant. While the actions of these entities are
largely outside the Company's control, where practical, the Company will
attempt to mitigate its risks with respect to the failure of these parties
to be Year 2000 ready. However, such failures remain a possibility and
could have an adverse impact on the Company's results of operations or
financial condition. The Company will continue to evaluate the nature of
these risks, but is unable to determine the probability that any such risk
will occur, or if it does, what the nature, length or other effect, if
any, it may have on the Company.
The Company has evaluated the products it has sold and is currently
selling, to determine if any potential Year 2000 issues exist. The Company
believes, based on its own testing and/or information received from its
suppliers, that all of the products it currently sells are compliant and
that products formerly sold are either compliant or can be made compliant
at a minimal cost.
Cost: The Company estimates that the cumulative cost of its Year
2000 Program will be approximately $1.1 million, of which approximately
$.5 million was incurred through December 31, 1998. The costs, which are
primarily for modifying and upgrading software programs, are being funded
from internally-generated funds, are being expensed as incurred and are
not expected to be material to the Company's financial position. The
Company does not separately track its internal costs, principally payroll
and related expenses of certain information systems personnel, for the Year
2000 Program.
Risks: The Company believes that the activities it is undertaking
in connection with its Year 2000 Program should satisfactorily reduce
the risk of or resolve Year 2000 issues. However, as is true for most
companies, the Year 2000 issue creates a risk for the Company. If
<PAGE>
<PAGE>
date information is not correctly recognized or processed for years after
1999, there could be an adverse impact on the Company's operations and
financial results. Thus, if necessary modifications and upgrades to the
Company's systems and equipment are not operationally effective on a
timely basis, the Year 2000 issue could have a material impact on the
operations and financial results of the Company. Likewise, if a significant
number of suppliers or key vendors of the Company are not Year 2000
compliant, the ability of the Company to obtain necessary materials or to
manufacture, deliver or sell the Company's products could be impaired.
Disruption of the Company's or its suppliers and vendors' information
technology systems and embedded chips, as well as the cost of avoiding
such disruption, could have a material adverse effect upon the Company's
financial condition and results of operations.
The Company is uncertain as to its most reasonably likely worst case
Year 2000 scenario. However, customers not satisfied with the Company's
timetable for its Year 2000 Program or the Company's efforts to remediate
any failure to be Year 2000 compliant may choose to delay or cancel orders
for the Company's products, which could have a material adverse effect on
the Company's business, financial position or results of operations.
Contingency Plans: The Company's believes its Year 2000 Program is designed
to safeguard the interests of the Company and its customers. The Company
believes that this Program will minimize the risk of a Year 2000 issue
serious enough to cause significant operational problems. However, a
failure to timely identify all Year 2000 dependencies in the Company's
systems, equipment or processes, or those of its suppliers or other
third parties, or a delay or failure to remediate any Year 2000 defects,
could have material adverse consequences. The Company is in the process of
considering contingency plans for continuing operations in the event such
problems arise, but there can be no assurance that any such contingency
plans will successfully address all contingencies that may arise.
Euro Conversion
The Company sells products and has operations in several European countries
which will begin conversion in 1999 to the new common currency (the Euro) to
<PAGE>
<PAGE>
be used by members of the European Union. The Company does not anticipate
any significant risk to its operations as a result of the conversion.
Forward Looking Statements
This report and other documents or oral statements which have been and
will be prepared or made in the future contain or may contain forward-
looking statements by or on behalf of the Company. Forward-looking state-
ments 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 1999 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 ability to
implement changes in a manner that does not unduly disrupt business opera-
tions and changing market trends or competitors' actions that may affect
product distribution strategies.
Risk factors associated with the Company's Year 2000 Program include,
but are not limited to, unforeseen Year 2000 issues affecting the Company's
systems, infrastructure, embedded technologies and products, including
issues arising from any inaccuracy in the inventory, assessment, remediation
or testing done by the Company, and the failure of third parties with whom
the Company has relationships to effectively address their Year 2000 issues.
Risk factors associated with the adoption of the Euro currency include,
but are not limited to, delays or unforeseen difficulties in transitioning
the Company's business information systems to be made Euro compliant.
Such delays or difficulties could result in the Company incurring
significant costs or may impact the Company's ability to obtain and process
customer orders.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Dollars in thousands, except per share amounts
Years Ended December 31 1998 1997 1996
<S> <C> <C> <C>
Net sales $409,326 $338,673 $248,089
Costs and expenses
Cost of products sold 280,109 233,495 167,958
Selling, general and
administrative expenses 72,761 58,603 42,614
Research and development expenses 10,558 8,139 7,243
Loss on settlement of pension plan 2,031 -- --
Interest expense--net 979 1,127 513
Other (income)--net (384) (870) (982)
366,054 300,494 217,346
Income before income taxes 43,272 38,179 30,743
Provision for income taxes 17,155 14,084 11,083
Net income $ 26,117 $ 24,095 $ 19,660
Earnings per common share:
Basic $ 2.52 $ 2.41 $ 1.90
Diluted 2.43 2.32 1.84
Weighted average number of common shares
outstanding:
Basic 10,358,854 9,978,569 10,334,720
Diluted 10,737,697 10,382,628 10,681,644
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 1998 1997
<S> <C> <C>
Assets
Current assets
Cash and equivalents $ 13,229 $ 12,478
Trade accounts receivable 89,095 101,024
Inventories 58,614 55,991
Other current assets 16,094 13,367
Total current assets 177,032 182,860
Property, plant and equipment - net 132,322 124,373
Goodwill 16,682 18,036
Other assets 14,433 20,384
Total assets $340,469 $345,653
Liabilities and Stockholders' Equity
Current liabilities
Short-term borrowings $ 1,853 $ 5,760
Current portion of long-term debt 8 1,613
Trade accounts payable 33,421 30,810
Income taxes 6,790 13,640
Other current liabilities 62,485 70,614
Total current liabilities 104,557 122,437
Long-term debt 28,906 38,244
Pension plans and other retiree benefits 66,163 60,235
Other liabilities 12,872 10,516
Total liabilities 212,498 231,432
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 1998 and in 1997 11,594 11,594
Additional paid-in capital 12,443 12,061
Retained earnings 131,323 107,797
Accumulated other comprehensive income (5,688) (4,790)
149,672 126,662
Less treasury stock of 1,650,899 shares in
1998 and 1,169,313 shares in 1997, at cost 21,701 12,441
Total stockholders' equity 127,971 114,221
Total liabilities and stockholders' equity $340,469 $345,653
<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 1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 26,117 $ 24,095 $ 19,660
Adjustments to reconcile net income
to net cash from operating activities:
Loss on settlement of pension plan 2,031 -- --
Depreciation and amortization 20,948 14,169 10,707
(Gain) loss on disposals of property,
plant and equipment 422 (452) 113
Provision for deferred income taxes 3,950 653 2,286
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 14,213 (5,552) (954)
(Increase) decrease in inventories (358) 13,928 374
(Increase) decrease in other current assets (285) 725 1,321
Increase (decrease) in accounts payable (1,193) 3,078 786
Increase (decrease) in other current
operating liabilities (11,808) 10,929 4,318
Other, net 1,092 (165) (1,033)
Net cash provided by operating activities 55,129 61,408 37,578
Cash flows from investing activities:
Capital expenditures (25,754) (15,913) (10,281)
Acquisition of businesses, net of cash acquired -- (30,569) --
Proceeds from disposals of property, plant
and equipment 272 1,720 206
Proceeds from collection of notes receivable 27 71 54
Net cash (used in) investing activities (25,455) (44,691) (10,021)
Cash flows from financing activities:
Net (repayments of) short-term borrowings (4,055) (787) (1,185)
Net proceeds (repayments) under term loan
and revolving credit agreements (11,594) 33,855 (20,646)
Net (repayments of) long-term debt (1,509) (51,337) (5)
Dividends paid (2,591) (2,485) (2,585)
Purchase of treasury stock (10,210) (1,371) (6,219)
Net stock issued 702 11,298 78
Net cash (used in) financing activities (29,257) (10,827) (30,562)
Effect of exchange rate changes on cash
and equivalents 334 (611) 278
Increase (decrease) in cash and equivalents 751 5,279 (2,727)
Cash and equivalents, beginning of year 12,478 7,199 9,926
Cash and equivalents, end of year $ 13,229 $ 12,478 $ 7,199
<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
Accumulated Total
Additional Other Stock-
Common Paid-In Retained Comprehensive Treasury holders'
Stock Capital Earnings Income Stock Equity
<S> <C> <C> <C> <C> <C> <C>
________________________________________________________________________________________________________
Balance at December 31, 1995 $11,593 $ 5,952 $ 69,112 $(3,249) $(10,117) $ 73,291
Shares issued under Stock Plans 1 (221) 298 78
Purchase of treasury stock (6,219) (6,219)
Comprehensive income:
Net income 19,660
Other comprehensive income,
net of tax:
Foreign currency translation
adjustments 7
Change in minimum pension
liability adjustment 632
Total comprehensive income 20,299
Dividends declared (2,585) (2,585)
_________________________________________________________________________________________________________
Balance at December 31, 1996 11,594 5,731 86,187 (2,610) (16,038) 84,864
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
Comprehensive income:
Net income 24,095
Other comprehensive income,
net of tax:
Foreign currency translation
adjustments (1,740)
Change in minimum pension
liability adjustment (440)
Total comprehensive income 21,915
Dividends declared (2,485) (2,485)
_________________________________________________________________________________________________________
Balance at December 31, 1997 11,594 12,061 107,797 (4,790) (12,441) 114,221
Shares issued under Stock Plans (248) 950 702
Income tax benefits realized
from stock option exercises 630 630
Purchase of treasury stock (10,210) (10,210)
Comprehensive income:
Net income 26,117
Other comprehensive income,
net of tax:
Foreign currency translation
adjustments 454
Change in minimum pension
liability adjustment (1,352)
Total comprehensive income 25,219
Dividends declared (2,591) (2,591)
________________________________________________________________________________________________________
Balance at December 31, 1998 $11,594 $12,443 $131,323 $(5,688) $(21,701) $127,971
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
Notes to Consolidated Financial Statements
GLEASON CORPORATION AND SUBSIDIARIES
December 31, 1998
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, designated as
"foreign currency translation adjustments", are reported as a
component of "other comprehensive income" in the stockholders'
equity section of the Company's Consolidated Balance Sheets.
Gains and losses from foreign currency transactions are
reported in operations and had a minimal impact on the Company
in 1998, 1997 and 1996.
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 $2,903,000 and $3,018,000
at December 31, 1998 and 1997, 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
<PAGE>
<PAGE>
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.
Comprehensive Income: Effective January 1, 1998, the Company
adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (FAS No. 130), which
establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income
is comprised of two components: net income and other
comprehensive income. Cumulative foreign currency translation
adjustments and minimum pension liability adjustments are the
components reported in other comprehensive income. Cumulative
foreign currency translation adjustments totaled ($3,435,000)
and ($3,889,000) at December 31, 1998 and 1997, respectively.
Cumulative minimum pension liability adjustments totaled
($2,253,000) and ($901,000), (net of applicable income taxes of
$1,256,000 and $468,000), at December 31, 1998 and 1997,
respectively. Prior year financial statements have been
reclassified to conform to the requirements of FAS No. 130.
The adoption of FAS No. 130 did not have an effect on the
Company's results of operations or financial position.
Internal Use Software: In February 1998, the American
Institute of Certified Public Accountants' Accounting Standards
Executive Committee issued Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP No. 98-1). SOP No. 98-1
requires certain costs incurred during the application
development stage in connection with developing or obtaining
internal-use software to be capitalized and amortized over the
estimated useful life. Costs incurred in other stages are
expensed. The Company adopted SOP 98-1 during 1998, and its
application had no material effect on the Company's financial
position as of December 31, 1998 or its results of operations
for the period then ended.
Recent Accounting Pronouncements: In June 1998, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS No. 133), which
<PAGE>
<PAGE>
provides new guidelines for accounting for derivative
instruments. FAS No. 133 requires companies to recognize all
derivatives on the balance sheet at fair value. Gains or
losses resulting from changes in the values of the derivatives
would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The Company is
currently analyzing what impact the new guideline will have on
the Company. This Statement is effective for fiscal periods
beginning after June 15, 1999.
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 1998
presentation.
Additional accounting policies are described in the applicable
notes.
Note 2 -- Earnings Per Share
The Company adopted Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" (FAS No. 128), effective for
periods ending after December 15, 1997. All earnings per share
amounts have been restated to present basic and diluted
earnings per share. The computation of basic earnings per
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's Plan for Deferral of Directors' Fees.
<PAGE>
<PAGE>
The following table sets forth the computation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share amounts) 1998 1997 1996
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted
earnings per share:
Net income $26,117 $24,095 $19,660
Denominator:
Denominator for basic earnings
per share:
Weighted average shares outstanding 10,358,854 9,978,569 10,334,720
Common share equivalents 378,843 404,059 346,924
Denominator for diluted earnings
per share:
Weighted average shares outstanding 10,737,697 10,382,628 10,681,644
Earnings per share:
Basic $ 2.52 $ 2.41 $ 1.90
Diluted 2.43 2.32 1.84
</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., acutting 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
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 was recorded as goodwill, and is being
<PAGE>
<PAGE>
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. A balance of $5.8
million remained at December 31, 1998 for these restructuring costs. The
Company expects these restructuring activities will be completed in
1999.
In 1998 the Company reduced the goodwill recorded at the time of
acquisition by $1.5 million. This reduction was the result of the Company
realizing certain deferred tax assets related to the Pfauter acquisition
(Refer to Note 9 - Income Taxes).
Results of operations of Pfauter have been included in the Consolidated
Statements of Operations since July 31, 1997. Unaudited pro forma
information for 1997 and 1996 assume that the Pfauter acquisition had taken
place on January 1, 1996.
<TABLE>
<CAPTION>
Pro Forma
(In thousands, (Unaudited)
except per share amounts)
1997 1996
<S> <C> <C>
Net sales $424,285 $426,306
Net income 23,442 21,053
Earnings per share:
Basic $ 2.35 $ 2.04
Diluted 2.26 1.97
</TABLE>
The pro forma financial information is not necessarily
indicative of the results that would have been obtained if the
acquisition had been effected on the assumed date or the
<PAGE>
<PAGE>
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 for the Pfauter operations or synergies of
the combined business.
Note 4 -- Inventories
The components of inventories were as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
<S> <C> <C>
Raw materials and purchased parts $ 12,626 $ 11,215
Work in process 33,508 34,491
Finished products 12,480 10,285
$ 58,614 $ 55,991
</TABLE>
Inventories are valued at the lower of cost or market. Inventories
valued using the last-in, first-out (LIFO) method comprised 27% and 20%
of consolidated inventories at December 31, 1998 and 1997, 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
$26,010,000 and $25,453,000 higher at December 31, 1998 and 1997,
respectively.
Note 5 -- Property, Plant and Equipment
The components of property, plant and equipment were as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
<S> <C> <C>
Land $ 12,881 $ 12,050
Buildings and improvements 62,181 59,998
Machinery and equipment 190,728 170,351
265,790 242,399
Less accumulated depreciation 133,468 118,026
$132,322 $124,373
</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 3 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.
<PAGE>
<PAGE>
Note 6 -- Other Current Liabilities
The components of other current liabilities were as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
<S> <C> <C>
Salaries, wages and related costs $17,776 $17,833
Advance payments from customers 12,479 15,407
Warranty, installation and related costs 12,472 10,477
Pension and other retiree
benefit plan contributions 6,674 7,054
Acquisition and restructuring costs 3,992 6,293
Other current liabilities 9,092 13,550
$62,485 $70,614
</TABLE>
Note 7-Pensions and Other Postretirement Benefits
The Company adopted Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (FAS No. 132) at December 31, 1998.
This statement revises employers' disclosures of pensions and
other postretirement benefits, requires additional information
on changes in benefit obligations and fair value of plan assets
and eliminates certain disclosures.
In 1998, the Company settled its U.S. defined benefit
pension plan which resulted in a write-off of a prepaid pension
asset of $2,031,000. At the time of settlement there was an
increase in the projected benefit obligation of the plan of
$16,544,000 that related to the allocation of the surplus of
plan assets over the benefit obligation to active participants
in the plan. The employees of certain foreign operations
participate in various postemployment benefit arrangements,
some of which are considered to be defined benefit pension
plans for financial reporting purposes.
As part of the acquisition of Pfauter in 1997, the Company
assumed a liability for an unfunded defined benefit pension plan of
$22,577,000.
The following tables show reconciliations of defined benefit
pension plans and postretirement benefit plans as of December
31, 1998 and 1997:
<TABLE>
<CAPTION>
(In thousands) Pension Benefits Other Benefits
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation, January 1 $ 145,638 $110,021 $ 29,898 $ 30,654
Service cost 907 894 119 118
Interest cost 5,356 8,031 2,062 2,044
Participants' contributions 294 226 436 320
Allocation of surplus to plan
participants 16,544 -- -- --
Plan amendments 439 -- -- --
Actuarial (gains) losses (5,780) 12,689 (890) (103)
Business acquired -- 22,577 -- --
Benefits paid (4,775) (8,319) (2,815) (3,135)
Settlement loss 3,538 -- -- --
Settlement payments (111,121) -- -- --
Foreign currency translation
adjustments 2,308 (481) -- --
Benefit obligation, December 31 $ 53,348 $145,638 $ 28,810 $ 29,898
Change in plan assets
Fair value of plan assets, January 1 $ 124,041 $105,462 $ -- $ --
Actual return on plan assets 4,209 25,969 -- --
Company contributions 1,858 1,069 2,379 2,815
Participants' contributions 294 226 436 320
Benefits paid (4,775) (8,319) (2,815) (3,135)
Settlement payments (111,121) -- -- --
Foreign currency translation
adjustments 74 (366) -- --
Fair value of plan assets,
December 31 $ 14,580 $124,041 $ -- $ --
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Reconciliation of funded status
Funded status $ (38,768) $(21,597) $(28,810) $(29,898)
Unrecognized prior service cost 420 651 -- --
Unrecognized net transition
obligation 912 1,050 -- --
Unrecognized actuarial (gains) losses 5,904 (6,314) (5,570) (4,709)
(Accrued) benefit costs prior to
additional minimum liability $ (31,532) $(26,210) $(34,380) $(34,607)
Amounts recognized in Consolidated
Balance Sheets
Prepaid benefit cost $ -- $ 2,031 $ -- $ --
(Accrued) benefit cost (35,706) (29,937) (34,380) (34,607)
Intangible asset 665 327 -- --
Minimum pension liability adjustment 3,509 1,369 -- --
Net amount recognized at December 31 $ (31,532) $(26,210) $(34,380) $(34,607)
Weighted average assumptions as of
December 31
Discount rate 6.4% 6.3% 7.0% 7.0%
Expected return on plan assets 8.9% 9.0% -- --
Rate of compensation increase 3.4% 4.3% -- --
</TABLE>
The following table summarizes the components of the net
periodic benefit costs for defined benefit pension plans and
postretirement benefit plans for the periods ended December
31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
(In thousands) 1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 907 $ 987 $ 598 $ 119 $ 118 $ 111
Interest cost 5,356 8,003 7,281 2,062 2,044 2,105
Expected return on plan assets (5,148) (7,289) (8,100) -- -- --
Amortization of prior service cost 64 109 109 -- -- --
Amortization of transition
obligation 141 141 138 -- -- --
Amortization of (gain) loss 222 116 440 (31) (171) (141)
Settlement loss 3,538 -- -- -- -- --
Net periodic benefit cost $ 5,080 $ 2,067 $ 466 $2,150 $1,991 $2,075
</TABLE>
The amounts applicable to the Company's pension plans with
accumulated benefit obligations in excess of plan assets at
December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
<S> <C> <C>
Projected benefit obligation $53,348 $31,274
Accumulated benefit obligation 50,239 28,245
Fair value of plan assets 14,580 --
</TABLE>
The Company has postretirement benefit plans which provides
health and life insurance benefits for retired employees of
certain of its current and former U.S. subsidiaries. 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 cost of the
health insurance premiums of this plan are shared between the
Company and the retiree. The effect of a one-percentage point
change in assumed health care cost trend rate has no effect on
<PAGE>
<PAGE>
either the total of the service and interest cost components of
expense or the postretirement benefit obligation due the fact
that there are no future increases in the Company's share of
the health insurance premiums.
All U.S. 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 $2,551,000,
$2,056,000 and $1,616,000 in 1998, 1997 and 1996, respectively.
Note 8 -- Debt
Long-term debt at December 31, 1998 and 1997 consisted of the
following:
<TABLE>
<CAPTION>
(In thousands)
1998 1997
<S> <C> <C>
Notes payable to banks under term
loan and revolving credit
agreements $28,664 $37,976
Other obligations 250 1,881
28,914 39,857
Less current maturities 8 1,613
$28,906 $38,244
</TABLE>
At December 31, 1998, the Company had a $100 million
revolving credit facility providing for multi-currency
borrowings, standby letters of credit and bank guarantees. The
revolving credit facility matures on 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 $24.2
million was outstanding at December 31, 1998. 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 certain financial ratios which is
adjusted on a quarterly basis. The weighted average borrowing
rate was 3.78% at December 31, 1998 and 4.44% at December 31, 1997.
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.
<PAGE>
<PAGE>
Lines of credit of the consolidated subsidiaries are
generally in connection with bank overdraft and note facilities
for which there are neither material commitment fees nor
compensating balance requirements. Unused short and long-term
credit lines with banks, including the revolving credit
facility, totaled approximately $86.3 million at December 31,
1998. The weighted average borrowing rates under short-term
credit facilities were 4.93% and 7.73% at December 31, 1998 and
1997, respectively.
Scheduled maturities of long-term debt in each of the next
five years are $8,000, $107,000, $19,000, $28,677,000 and
$103,000 in 1999 through 2003, respectively.
Interest expense for each of the three years in the period
ended December 31, 1998 was $2,129,000, $2,308,000 and
$877,000, respectively.
Note 9 -- Income Taxes
For financial reporting purposes, income before income taxes
included the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
United States $25,348 $24,980 $14,619
Foreign 17,924 13,199 16,124
Total $43,272 $38,179 $30,743
</TABLE>
Provisions (benefits) for income taxes included the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $ 6,940 $ 7,706 $ 1,703
State 1,321 1,612 556
Foreign 4,944 4,113 6,538
Total current $13,205 $13,431 $ 8,797
Deferred:
Federal $ 1,100 $ (938) $ 3,045
State 217 (68) --
Foreign 2,633 1,659 (759)
Total deferred $ 3,950 $ 653 $ 2,286
</TABLE>
<PAGE>
<PAGE>
The differences between the United States federal statutory
income tax rate and the Company's effective tax rate were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
U.S. federal statutory rate 35.0% 35.0% 35.0%
Effect of change in valuation
allowance --% (4.7%) (3.3%)
Effect of consolidating foreign
subsidiaries 3.0% 3.0% 4.2%
State taxes, net of federal benefit 2.3% 2.6% 1.2%
Other (.7%) 1.0% (1.0%)
Effective tax rate 39.6% 36.9% 36.1%
</TABLE>
Deferred tax assets and liabilities were comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
<S> <C> <C>
Deferred tax assets:
Accrued retiree and other
employee benefits $19,183 $17,086
Nondeductible accrued costs 6,434 4,622
Tax credit and loss carryforwards 4,806 5,434
Deferred revenue and other 3,805 5,088
Accrued restructuring costs 2,763 3,724
Total deferred tax assets 36,991 35,954
Less valuation allowance 9,383 10,895
Deferred tax asset 27,608 25,059
Deferred tax liabilities:
Depreciation and amortization 10,544 7,595
Other 3,715 757
Total deferred tax liabilities 14,259 8,352
Net deferred tax asset $13,349 $16,707
</TABLE>
The net deferred tax asset of $13,349,000 at December 31,
1998 ($16,707,000 in 1997) is presented in the Consolidated
Balance Sheets as follows: $9,439,000 ($7,714,000 in 1997) in
other current assets; $7,568,000 ($10,309,000 in 1997) in other
assets (non-current) and $3,658,000 ($1,316,000 in 1997) in
other liabilities (non-current).
<PAGE>
<PAGE>
The valuation allowance decreased by $1.5 million at
December 31, 1998 primarily related to realization of certain
deferred tax assets related to the Pfauter acquisition. This
reduction was applied to reduce goodwill recorded on the
acquisition. A valuation allowance totaling $5.9 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, 1998 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, 1997 was required for these same
issues. Management believes that sufficient income will be
earned in future years to fully realize the net deferred tax
asset.
Foreign tax loss carryforwards totaling $5.1 million are
available to reduce future taxable income, of which $4.8 million
may be carried forward indefinitely, and $.3 million which will expire
in 2001. U.S. tax credits of $2.8 million are also available to reduce
future federal and state income taxes and expire at various dates
through 2008.
Undistributed earnings of the Company's foreign subsidiaries
amounted to approximately $25.8 million at December 31, 1998.
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 10 -- 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
<PAGE>
<PAGE>
to 100% of the market value of the common stock at the date of grant and
may be exercisable beginning six months and ending ten years from the date
of grant. The Executive Compensation Committee of the Company's Board of
Directors at its discretion may at the time of grant of an option provide
further limitations on periods during which options may be exercised. SARs
allow the optionee to surrender the option and receive a number of shares
of common stock, cash, or cash and shares of common stock, as the
Executive Compensation Committee determines, with an aggregate value equal
to the amount by which the fair market value of the shares covered by the
surrendered option exceeds the option price. Increases in the value of SARs
resulting from changes in the market value of common stock will be charged
to expense as they occur. Options automatically carry with them conditional
SARs which are exercisable in the event of a tender offer meeting certain
specified conditions. No SARs have been granted under the Plan.
Under the Plan an option 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 6,675 shares and 12,000 shares of restricted stock were
made in 1998 and 1997, respectively, and restrictions lapsed on 4,000
and 800 shares in 1998 and 1997, respectively. 14,675 restricted shares
were outstanding at December 31, 1998 and 12,000 restricted shares were
outstanding at December 31, 1997.
<PAGE>
<PAGE>
The following is a summary of option transactions under both
Plans:
<TABLE>
<CAPTION>
Shares Price Range
<S> <C> <C>
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
Granted 139,500 $19.03 - $29.78
Exercised (112,562) $ 5.66 - $20.38
Outstanding December 31, 1998 782,590 $ 5.66 - $29.78
Exercisable at December 31:
1998 685,090 $ 5.66 - $29.78
1997 657,652 $ 5.66 - $20.38
1996 594,676 $ 5.66 - $20.38
Available for additional grants
at December 31:
1998 170,025
1997 316,200
1996 464,200
1995 567,200
</TABLE>
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25)
and related interpretations in accounting for its employee stock options
because, as discussed below, the alternative fair value accounting provided
for under FAS No. 123, "Accounting for Stock-Based Compensation," requires
use of option valuation models. 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.
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 5.22% and 5.18% for 1998,
<PAGE>
<PAGE>
5.73% and 5.69% for 1997 and 6.80% and 6.34% for 1996; a dividend yield
of 0.98% for 1998, 1.11% for 1997 and 1.38% for 1996; volatility factors
of the expected market price of the Company's Common Stock of .428, .424
and .486 in 1998, .367, .379 and .402 in 1997 and .313 and .358 in 1996;
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 $14.77 and 7 years, respectively, as of December 31, 1998.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting period.
The Company's pro forma information follows:
<TABLE>
<CAPTION>
(In thousands, except 1998 1997 1996
per share amounts)
<S> <C> <C> <C>
Pro forma net income $25,002 $23,251 $19,209
Pro forma earnings per share:
Basic $ 2.41 $ 2.33 $ 1.86
Diluted 2.33 2.24 1.80
</TABLE>
Note 11 -- 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 two-hundredth of a share of Series A Junior
<PAGE>
<PAGE>
Participating Preferred Stock, par value $1 per share, of the Company. The
Rights become exercisable, subject to certain exceptions, upon announcement
that a person or group has acquired 15% or more of the Company's outstanding
common stock, or 10 days, or such other period as the Board may determine,
following commencement of, or announcement of an intention to commence, a
tender or exchange offer consummation of which would result in a person
or group owning 15% or more of the Company's outstanding common stock,
whichever occurs first. If any person or group becomes the beneficial owner
of 15% of the outstanding common stock, other than pursuant to a Permitted
Offer, as defined in the Plan, holders, other than an Acquiring Person as
defined in the Plan, will have the right to purchase from the Company common
stock (or, in certain circumstances, cash, property or other securities of
the Company or to a reduction in the purchase price) having a value equal to
two times the exercise price of $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 12 -- Supplemental Cash Flow Information
Cash payments for income taxes were $19,129,000, $8,151,000 and $3,188,000
for 1998, 1997 and 1996, respectively. Interest payments were $2,038,000,
$1,470,000 and $963,000 in 1998, 1997 and 1996, respectively.
<PAGE>
<PAGE>
Note 13 -- Segment, Significant Customers and Geographic Information
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information"
(FAS No. 131) at December 31, 1998. This Statement establishes annual and
interim reporting standards for an enterprise's operating segments and
related disclosures about its products, services, geographic areas and major
customers. Operating segments are identified as components of an enterprise
about which separate discrete financial information is available for
evaluation by the chief operating decision maker, or decision making group,
in making decisions on how to allocate resources or assess performance.
The Company's operations are treated as one operating segment. The
principal activity within this operating segment is the design, manufacture
and sale of machinery and equipment for the production of gears. As a
result, the financial information disclosed herein materially represents all
of the financial information related to the Company's principal operating
segment.
Information about the Company's product sales were as follows:
<TABLE>
<CAPTION>
(In thousands)
1998 1997 1996
<S> <C> <C> <C>
Machines $259,620 $228,861 $161,302
All other products and services 149,706 109,812 86,787
Net sales $409,326 $338,673 $248,089
</TABLE>
The Company's operations are primarily located in the United States
and Germany. Sales are attributed to countries based on the location of
the customers. Geographical information regarding sales were as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
<S> <C> <C> <C>
United States $155,820 $123,599 $ 66,244
Germany 72,746 58,026 39,584
Other countries 180,760 157,048 142,261
Net sales $409,326 $338,673 $248,089
</TABLE>
<PAGE>
<PAGE>
Geographical information regarding long-lived assets were as follows:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
<S> <C> <C>
United States $102,253 $105,424
Germany 37,751 34,838
Other countries 12,170 12,028
Corporate assets 3,695 194
Total long-lived assets $155,869 $152,484
</TABLE>
The Company had one customer account for 10% of consolidated net sales
in 1998. A different customer accounted for 10% and 14% of consolidated net
sales in 1997 and 1996, respectively.
Note 14 -- 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 15 - 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
58% and 73% of sales in 1998 and 1997, 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.
<PAGE>
<PAGE>
The Company's markets are worldwide. Approximately 62% and 64% of total
sales in 1998 and 1997, respectively, were to customers outside of the U.S.
This geographical sales distribution offsets, to a degree, the cyclical
fluctuations of regional economies. As such, the Company is not significantly
at risk to the economic cycle of a single region.
Note 16 -- 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 $26.6 million at
December 31, 1998 ($27.0 million at December 31, 1997).
Note 17 -- 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 $3.6 million and $2.4 million at December 31, 1998 and 1997,
respectively. The aggregate value of contracts for the sale of U.S. dollars
in exchange for foreign currencies was $11.7 million and $15.2 million at
December 31, 1998 and 1997, respectively. The aggregate value of contracts
for the exchange of other foreign currencies was $1.1 million and $3.5
million at December 31, 1998 and 1997, 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, 1998 and 1997 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, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express and 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 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, 1998 and
1997, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
Syracuse, New York
January 29, 1999
<PAGE>
Quarterly Information (Unaudited)
Selected quarterly information for the years 1998 and 1997 are
shown below:
<TABLE>
<CAPTION>
Dollars in thousands, 1998
except per share amounts First Second Third Fourth
<S> <C> <C> <C> <C>
Net sales $95,397 $108,171 $96,879 $108,879
Cost of products sold 65,974 75,766 65,531 72,838
Net income 6,210 5,559 5,981 8,367
Earnings per common share:
Basic .59 .53 .57 .84
Diluted .57 .51 .55 .81
Cash dividends declared per
common share .0625 .0625 .0625 .0625
Stock prices
High 35 3/8 35 1/2 30 23 1/4
Low 23 27 16 14 1/4
</TABLE>
<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
<FN>
Notes:
Earnings per share amounts for the first three quarters of 1997
have been restated to comply with FAS No. 128, "Earnings Per
Share." Basic and diluted earnings per share for the first two
quarters of 1997 have been restated to reflect a two-for-one stock split
in 1997.
Second quarter 1998 net income included a non-cash after-tax loss
on the settlement of a pension plan of $1,239,000, or $.12 per
basic share ($.11 per diluted share).
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
1998 and 1997 are shown above. As of December 31, 1998 there were
3,122 holders of record of the Company's Common Stock.
</FN>
</TABLE>
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
Gleason Pfauter Hurth Cutting
Tools Corporation Delaware 100
MECUP S.R.L. Italy 100
</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 Maschinen-
fabrik GmbH Germany 100
Gleason-Pfauter GmbH &
Co. KG Germany 100
Gleason-Pfauter
Verwaltungs GmbH Germany 100
Pfauter Italia S.R.L. Italy 100
Gleason- Pfauter Italia
SpA Italy 100
OGA Corporation Japan 100
OGA Tools Corporation Japan 100
OGA Service Corporation Japan 100
OGA America, Inc. Japan 100
OGA Taiwan Corporation Japan 100
</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 29, 1999, included
in the 1998 Annual Report to Shareholders 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, present 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 29, 1999, with respect to the
consolidated financial statements incorporated herein by reference, and
our report included in the preceding 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 24, 1999
POWER OF ATTORNEY
The undersigned, directors of Gleason Corporation
(the "Company"), hereby constitute and appoint James S.
Gleason and Edward J. Pelta, 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 1998 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 10th day of February,
1999.
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
David J. Burns William P. Montague
David J. Burns William P. Montague
J. David Cartwright Silas L. Nichols
J. David Cartwright Silas L. Nichols
James S. Gleason Robert L. Smialek
James S. Gleason Robert L. Smialek
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS UMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 13229
<SECURITIES> 0
<RECEIVABLES> 91998
<ALLOWANCES> 2903
<INVENTORY> 58614
<CURRENT-ASSETS> 177032
<PP&E> 265790
<DEPRECIATION> 133468
<TOTAL-ASSETS> 340469
<CURRENT-LIABILITIES> 104557
<BONDS> 0
0
0
<COMMON> 11594
<OTHER-SE> 116377
<TOTAL-LIABILITY-AND-EQUITY> 340469
<SALES> 409326
<TOTAL-REVENUES> 409326
<CGS> 280109
<TOTAL-COSTS> 280109
<OTHER-EXPENSES> 84966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 979
<INCOME-PRETAX> 43272
<INCOME-TAX> 17155
<INCOME-CONTINUING> 26117
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26117
<EPS-PRIMARY> 2.52
<EPS-DILUTED> 2.43
</TABLE>
