ITEM 1. BUSINESS
General
Gleason Corporation was incorporated in the State of Delaware in 1984 and in May of 1984, by virtue of a merger, became a holding company which owns all the outstanding stock of The Gleason Works. The Gleason Works was incorporated in New York State in 1903 as successor to the businesses of two corporations and has, with its predecessors, been in business since 1865. As used herein, unless the context otherwise indicates, "Company" includes Gleason Corporation and its subsidiaries and divisions.
In 1995, the Company acquired certain assets and technology of Hurth Maschinen und Werkzeuge GmbH, a Munich, Germany-based leader in the design and production of cylindrical gear machinery and tooling. Further information regarding the acquisition is presented in Note 2 of the Notes to the Consolidated Financial Statements in the Company's Annual Report to Stockholders for the year ended December 31, 1996, which is incorporated herein by reference.
In 1989, the Company announced that its Components Group, which consisted of four businesses that manufacture industrial products including powder metal parts, metal stampings and precision plastic parts, was for sale. In December 1991, the Company sold Pennsylvania Pressed Metals, Inc., the largest of its four Components Group operations. In 1992, the Company sold two of the three remaining businesses, Alliance Precision Plastics and Alliance Carolina Tool and Mold. In 1994, the Company ceased operations at the last remaining Components Group business, Alliance Metal Stamping and Fabricating, and sold the machinery and equipment located at this division's facility. Further information regarding discontinued operations is presented in Note 3 of the Notes to the Consolidated Financial Statements in the Company's Annual Report to Stockholders for the year ended December 31, 1996, which is incorporated herein by reference.
Description of Business
The Company operates in one business segment engaged in the design, manufacture and sale of gear production machinery and equipment. The Company has manufacturing operations in Rochester, New York, Munich, Germany, and Plymouth, England. In 1996, the Company began the establishment of a manufacturing facility at its operation in Bangalore, India. The Company sold its former Belgian manufacturing operation to a new company owned by former employees of the Company in the fourth quarter of 1993. The successor company serves as a contract manufacturer for some of the Company's products.
Foreign and domestic operations, export sales and major customer financial information is presented in Note 14 of the Notes to the Consolidated Financial Statements in the Company's Annual Report to Stockholders for the year ended December 31, 1996, which is incorporated herein by reference.
Products
Bevel Gear Products
The Company believes it is the world leader in the technology, design, application and methods of production of hypoid and other bevel gears, and in the manufacture of machines for the production of these gears.
Hypoid and other bevel gears are used to transmit mechanical power at an angle, such as from the drive shaft to the rear-driven axle of an automobile. The gears produced by Gleason machines are used in drive trains of automobiles, sport utility vehicles, trucks, buses, aircraft, marine, agricultural and construction machinery, and must meet a wide range of complex specifications which are determined by the function required of a particular gear set.
The Company sells over 30 models of machines for the production and testing of hypoid and other bevel gears. Some of these machines can produce gears as small as 1/4 of an inch in diameter, weighing only 1/2 ounce, while others can produce gears as large as 36 inches in diameter, weighing more than 1,000 pounds. The latest design of
these machines incorporates full computer numerical controls (CNC) which contribute to improved quality and productivity.
In December 1989, the Company sold its first PHOENIX (Registered Trademark) gear production machine. This line of machines incorporates state-of-the-art, full CNC design for the production of spiral bevel and hypoid gears. CNC machine features include the elimination of manual set- ups, permitting a significant reduction in the overall cost of manufacturing spiral bevel and hypoid gears. PHOENIX products now account for the vast majority of bevel gear machine sales.
The Company designs and produces tooling, including cutting tools and workholding equipment, principally for use on its bevel gear production machines. Other products include spare parts, service, and gear design software.
Cylindrical Gear Products
The Company also manufactures machines for the production of spur and helical gears up to 20 inches in diameter. Spur and helical or cylindrical gears are used for the straight-line or parallel transmission of mechanical power. This type of gearing has a broad range of applications, such as the main drive axles of passenger cars with front-wheel-drive and transverse mounted engines, automotive transmissions, speed reducers, pumps and gear motors.
In 1993, the Company began making shipments of its first PHOENIX machine for cylindrical gear production. This machine, the 125GH gear hobber has significantly increased the Company's sales in this market.
The acquisition of Hurth in 1995 added complementary product lines which strengthen the Company's position in the cylindrical gear equipment market. Hurth has been a leader in the technology and production processes for shaving and fine finishing of cylindrical gears. Similar to the Company's other gear equipment, the Company offers tooling, spare parts and field service for its cylindrical gear machines.
Marketing
The Company's sales and service functions in North America and Europe are performed directly by employees of the Company. Sales in other territories are generally handled by independent foreign machinery dealers.
In 1994, the Company acquired a 20 percent interest in OGA Corporation, its exclusive sales and service representative in Japan and Taiwan, in order to strengthen its presence and enhance growth in that region.
Overseas markets are important to the Company. The percentage of sales outside the United States was 73 percent and 65 percent in 1996 and 1995, respectively. The majority of overseas sales were to European and Asian customers. Sales to overseas markets in 1996 were higher as a percentage of total sales primarily due to higher shipments to the Asia-Pacific region and the full year addition of Hurth sales which were more heavily concentrated outside the U.S.
The domestic and foreign automotive and truck industries accounted for approximately 76 percent and 74 percent of sales in 1996 and 1995, respectively.
The Company has no contracts or subcontracts with U.S. government agencies that are significant.
Competition
The Company believes that it produces the largest number and greatest variety of machines for the manufacture of bevel and hypoid gears. However, it does have competition from other producers of such machinery, particularly foreign producers, as well as from producers of equipment for the production of bevel and hypoid gears by processes other than machining, such as forging and sintered powder metal processes.
The Company faces greater competition from manufacturers of spur and helical gear equipment. Competition is primarily from Japanese and German companies.
Backlog
Backlog (unshipped orders), is an important measure of short- term business activity. Because of the nature of the industry, backlog is subject to fluctuation. As of December 31, 1996 backlog totaled $122.8 million compared to $124.5 million as of December 31, 1995. The Company expects substantially all of the December 31, 1996 backlog to be shipped by the end of 1997.
Research and Development
Amounts expended for research and development are presented in the Consolidated Statements of Operations in the Company's Annual Report to Stockholders for the year ended December 31, 1996, which is incorporated herein by reference.
Patents
The Company owns a substantial number of United States and foreign patents and patent applications. The Company is not significantly dependent upon any one patent or group of patents for its business.
Employees
At December 31, 1996, the Company had 1,543 employees. Many employees possess a high degree of engineering, technical and mechanical skills. Employee relations are considered good. With the exception of government-mandated Workers Council representation in Germany, the Company's employees are not represented by any collective bargaining agent.
Other Information
The Company is not significantly dependent on any one source for raw materials essential to its business.
The Company is not aware of any federal, state or local provisions which have been enacted or adopted regarding discharge of material into the environment, compliance with which might have a material effect on the consolidated capital expenditures, earnings or competitive position of the Company. The Company makes expenditures for environmental control equipment on an ongoing basis in its efforts to comply with applicable environmental regulations.
ITEM 2.
ITEM 2. PROPERTIES
The Company's corporate office is located in Rochester, New York and its manufacturing operations are conducted at plants in Rochester, Munich, Germany and Plymouth, England. In 1996, the Company began the establishment of a manufacturing facility at its operation in Bangalore, India. The activity at this location was not material to overall operations in 1996.
A table of the major facilities and products manufactured is displayed below:
Plant Principal Location Square Footage Products
Owned Facilities
Rochester, New York 721,400 Gear production machines, workholding equipment and cutting tools
Plymouth, England 106,000 Cutting tools
Leased Facilities
Munich, Germany 248,000 Cylindrical gear production machines and tooling
The Munich facility is being leased for a term ending in 2001. The Company owns approximately 250 acres of undeveloped land in Monroe County, New York and leases office space in various locations around the world. The Company retained ownership of the land and buildings of Alliance Precision Plastics and Alliance Carolina Tool and Mold, which were sold in 1992, and leased these properties to the new owners of these businesses. In March of 1997, the Company sold the Alliance Carolina Tool and Mold property to the lessee. In 1995, the Company sold the land and building of its former Alliance Metal Stamping and Fabricating division.
The Company's plants consist of well-lighted, well-maintained buildings and provide good working conditions. Production machinery and equipment are generally owned by the Company and suited to its manufacturing requirements.
ITEM 3.
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.
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.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Information regarding the market for the Company's Common Stock and related stockholder matters presented in the Company's Annual Report to Stockholders for the year ended December 31, 1996 is incorporated herein by reference.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented in the Five Year Review in the Company's Annual Report to Stockholders for the year ended December 31, 1996 is incorporated herein by reference.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion of Financial Condition and Results of Operations is presented in the Company's Annual Report to Stockholders for the year ended December 31, 1996 and is incorporated herein by reference.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and supplementary data of the Company and its subsidiaries presented in the Company's Annual Report to Stockholders for the year ended December 31, 1996 are incorporated herein by reference:
Consolidated Statements of Operations - Years ended December 31, 1996, 1995 and 1994.
Consolidated Balance Sheets - December 31, 1996 and 1995.
Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity - Years ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements - December 31, 1996.
Quarterly Results of Operations.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information required to be furnished by Items 401 and 405 of Regulation S-K are described in a definitive proxy statement which will be filed with the Securities and Exchange Commission pursuant to Regulation 14-A within 120 days after the close of the fiscal year ended December 31, 1996, which information is incorporated herein by reference. Additional information required to be furnished by Item 401 of Regulation S-K is as follows:
List of Executive Officers of the Registrant
EXECUTIVE OFFICER POSITIONS AND NAME AGE SINCE OFFICES HELD
James S. 62 1966 Chairman and President since Gleason January 1985.
David J. 42 1992 Executive Vice President since Burns August 1995; Vice President - Machine Products Group from November 1992 to July 1995; General Manager - Standard Products Group from February 1991 to October 1992.
John B. 55 1986 Vice President - Administration Kodweis and Human Resources since 1992.
Ralph E. 63 1989 Vice President, Secretary Harper & Treasurer since August 1993; Vice President, Secretary & Corporate Counsel since 1992.
EXECUTIVE OFFICER POSITIONS AND NAME AGE SINCE OFFICES HELD
John J. 36 1993 Vice President - Finance since Perrotti August 1995; Vice President - Controller from August 1993 to July 1995; Controller from 1992 to July 1993.
John W. 34 1995 Controller since August 1995; Pysnack Director of Accounting and Reporting from January 1995 to July 1995; Finance Manager from October 1991 to December 1994.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished by Item 402 of Regulation S-K is included in a definitive proxy statement which will be filed with the Securities and Exchange Commission pursuant to Regulation 14-A within 120 days after the end of the fiscal year ended December 31, 1996, which information is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain information regarding security ownership of certain beneficial owners and management required to be furnished by Item 403 of Regulation S-K is included in a definitive proxy statement which will be filed with the Securities and Exchange Commission pursuant to Regulation 14-A within 120 days after the end of the fiscal year ended December 31, 1996, which information is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding relationships is included in a definitive proxy statement which will be filed with the Securities and Exchange Commission pursuant to Regulation 14-A within 120 days after the end of the fiscal year ended December 31, 1996, which information is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following is a list of the consolidated financial statements of the Company and its subsidiaries and Report of Independent Auditors presented in its Annual Report to Stockholders for the year ended December 31, 1996 which are incorporated herein by reference:
Consolidated Statements of Operations - Years ended December 31, 1996, 1995 and 1994.
Consolidated Balance Sheets - December 31, 1996 and 1995.
Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity - Years ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements - December 31, 1996.
Report of Independent Auditors.
(2) All schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
(3) Exhibits required to be listed including exhibits incorporated by reference under this Item and filed as exhibits under (c) of this Item 14 pursuant to Item 601 Table I of Regulation S-K are as follows:
(3) Articles of Incorporation and By-Laws.
(a) The Restated Certificate of Incorporation of Gleason Corporation, as filed with the Delaware Secretary of State on May 5, 1987, is incorporated by reference to Exhibit A of the Registrant's Form 10-Q for the quarter ended March 31, 1987.
(b) The Certificate of Amendment of the Certificate of Incorporation of Gleason Corporation as filed with the Delaware Secretary of State on May 8, 1996 is incorporated by reference to Exhibit 3 of the Registrants Form 10-Q for the quarter ended March 31, 1996.
(c) By-laws, as amended, are incorporated by reference to Exhibit 3(b) of Gleason Corporation Form 10-K, file number 1-8782, for the year ended December 31, 1991.
(4) Instruments defining the rights of security holders, including indentures.
(a) See 3(a), 3(b) and 3(c) above.
(b) Gleason Corporation Preferred Stock Purchase Rights Agreement, dated as of June 8, 1989, as amended, is incorporated by reference to the Registrant's Form 8-A Registration Statement dated June 8, 1989, Form 8 Amendment No. 1, dated March 2, 1990, and Form 8 Amendment No. 2, dated February 6, 1992.
(10) Material contracts.
(a) The Company's 1992 Stock Plan, as amended, is filed as an exhibit to this Form 10-K. Refer to the Index to Exhibits.
(b) Loan Agreement between Gleason Corporation and Chase Manhattan Bank, N.A. and NBD Bank, dated September 29, 1995 is incorporated by reference to Exhibit 6(a) of Gleason Form 10-Q, file number 1-8782, for the quarter ended September 30, 1995.
(c) Gleason Corporation Annual Management Incentive Compensation Plan is incorporated by reference to Exhibit 10(a) of Gleason Corporation Form 10-K, file number 1-8782, for the year ended December 31, 1994.
(d) Gleason Corporation Supplemental Retirement Plan, as restated, is incorporated by reference to Exhibit 10(c) of Gleason Corporation Form 10-K, file number 1-8782, for the year ended December 31, 1993.
(e) Executive Agreement between the Company and its executive officers (for which there are identical agreements for those officers listed in Part III, Item 10 of this Form 10-K) is incorporated by reference to Exhibit 10(c) of Gleason Corporation Form 10-K, file number 1-8782, for the year ended December 31, 1991.
(f) The Company's 1981 Stock Plan, as amended January 23, 1990, is incorporated by reference to Exhibit I of Gleason Corporation Form 10-K, file number 1-8782, for the year ended December 31, 1989.
(g) Trust Agreement for Gleason Corporation executive agreements and Supplemental Retirement Plan is incorporated by reference to Exhibit L of Gleason Corporation Form 10-K, file number 1-8782, for the year ended December 31,1989.
(h) Gleason Corporation Plan for Deferral of Directors Fees is incorporated by reference to Exhibit J of Gleason Corporation Form 10-K, file number 1-8782, for the year ended December 31, 1988.
(i) Gleason Corporation Executive Life Insurance Program is incorporated by reference to Exhibit L of Gleason Corporation Form 10-K, file number 1-8782, for the year ended December 31, 1987.
(j) Gleason Corporation Long Term Disability Plan is incorporated by reference to Exhibit I of Gleason Corporation Form 10-K, file number 1-8782, for the year ended December 31, 1986.
(k) Gleason Corporation 1986 Deferred Compensation Plan is incorporated by reference to Exhibit J of Gleason Corporation Form 10-K, file number 1-8782, for the year ended December 31, 1986.
(11) Computation of Per Share Earnings. Refer to the Index to Exhibits.
(13) Annual Report to Stockholders of the registrant for the year ended December 31, 1996 expressly incorporated by reference into this Report. Refer to the Index to Exhibits.
(21) Subsidiaries of the registrant. Refer to the Index to Exhibits.
(23) Consent of Independent Auditors. Refer to the Index to Exhibits.
(24) Power of Attorney. Refer to the Index to Exhibits.
(27) Financial Data Schedules. Refer to the Index to Exhibits.
(b) Reports on Form 8-K filed in the fourth quarter of 1996: None.
(c) and (d) Exhibits required by Item 601 of Regulation S-K and required by Article 5 of Regulation S-X under Item 8 are filed as exhibits to this Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Gleason Corporation Registrant
James S. Gleason James S. Gleason Chairman and President
John J. Perrotti John J. Perrotti Vice President - Finance
John W. Pysnack John W. Pysnack Controller
Date: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the following named directors has personally authorized the signing of this report on their behalf by the Attorney in Fact named below.
Martin L. Anderson ) Julian W. Atwater ) Robert W. Bjork ) J. David Cartwright ) Directors James S. Gleason ) John W. Guffey, Jr. ) Donald D. Lennox ) Robert A. Sherman )
By: Ralph E. Harper Ralph E. Harper Attorney in Fact
Date: March 27, 1997
GLEASON CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS
Certain exhibits to this report on Form 10-K have been incorporated by reference. For a list of these exhibits, see Item 14 hereof.
The following exhibits are being filed herewith:
Exhibit No.
(10) Gleason Corporation 1992 Stock Plan as amended
(11) Computation of Per Share Earnings
(13) Portions of the Annual Report to Stockholders of the Registrant for the year ended December 31, 1996 expressly incorporated by reference into the Form 10-K.
(21) Subsidiaries of the Registrant
(23) Consents of Experts and Counsel
(a) Consent of Ernst & Young LLP, Independent Auditors
(24) Power of Attorney
(27) Financial Data Schedules