GLEASON CORP /DE/, 8-K/A, 1995-08-24

GLEASON CORP /DE/
8-K/A, 1995-08-24
MACHINE TOOLS, METAL CUTTING TYPES

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT

REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

DATE OF REPORT: JUNE 30, 1995

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

ITEM 2. Acquisition of Assets
No change.

ITEM 7. Financial Statements and Exhibits

(a) Financial Statements of Business Acquired
The following financial statements of the business
acquired are filed herewith:
See Index to Financial Statements

(b) Pro Forma Financial Information
The following pro forma financial information with
regard to the business acquired are filed herewith:
See Index to Financial Statements

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.

GLEASON CORPORATION
Registrant

DATE: August 24, 1995

John J. Perrotti
John J. Perrotti
Vice President-Finance
(Chief Financial Officer)

Index to Financial Statements to Form 8-K/A

Item 7 (a) Hurth Maschinen und Werkzeuge GmbH Financial Statements
Audited Financial Statements for the 1991, 1992, and
1993 Fiscal Years
Unaudited Interim Financial Statements for the Year Ended
December 31, 1994

(i) Report of BBMS Treuhandgesellschaft mbH
Balance Sheet at December 31, 1991
Statement of Income for the Year Ended December 31, 1991
Statement of Cash Flows for the Year Ended December 31, 1991
Notes to the Financial Statements as of December 31, 1991
Management's Situation Report

(ii) Report of Arthur Anderson & Co. GmbH
Balance Sheet at December 31, 1992
Earnings Statement for the Fiscal Year Ended
December 31, 1992
Statement of Cash Flows for the Year Ended December 31, 1992
Notes to Financial Statements as of December 31, 1992
Management's Situation Report

(iii) Report of Arthur Anderson & Co. GmbH
Balance Sheet at December 31, 1993
Earnings Statement for the Fiscal Year Ended
December 31, 1993
Statement of Cash Flows for the Year Ended December 31, 1993
Notes to Financial Statements as of December 31, 1993
Management's Situation Report

(iv) Hurth Maschinen und Werkzeuge GmbH Interim Financial
Statements (Unaudited)
Balance Sheet at December 31, 1994
Statement of Income for the Year Ended December 31, 1994
Statement of Cash Flows for the Year Ended
December 31, 1994
Notes to Financial Statements as of December 31, 1994

Item 7(b) Pro Forma Consolidated Financial Statements of Gleason
Corporation and Hurth Maschinen und Werkzeuge GmbH (Unaudited)
Balance Sheet at March 31, 1995
Statement of Operations for the Year Ended December 31, 1994
Statement of Operations for the Three Months Ended
March 31, 1995
Notes to Pro Forma Financial Information

<PAGE>
<PAGE>
Item 7(a) (i):
-1-

BBMS TREUHANDGESELLSCHAFT mbH
WIRTSCHAFTSPRUFUNGSGESELLSCHAFT
MUNCHEN HOF

To the Shareholder of
Hurth Maschinen und Werkzeuge GmbH

We have examined the accompanying balance sheet of Hurth Maschinen und
Werkzeuge GmbH (a German Corporation) as of December 31, 1991 and the
related statements of income and cash flows for the year then ended. Our
examinations were made in accordance with German generally accepted
auditing standards and, accordingly, included such tests of the accounting
records and such other auditing procedures as we considered necessary under
the circumstances.

The Company prepares its financial statements on the basis of accounting
principles generally accepted in Germany. These principles differ in some
respects from accounting principles generally accepted in the United States
of America. Accordingly, the accompanying financial statements are not
intended to present the Company's financial position and results of
operations in conformity with the accounting principles generally accepted
in the United States of America. Note 1 summarizes the material differences
between accounting principles generally accepted in Germany and the United
States of America, as they relate to the accompanying financial statements.

In our opinion, the accompanying financial statements present fairly the
financial position of Hurth Maschinen und Werkzeuge GmbH as of December 31,
1991 and the results of operations and cash flows for the year then ended
in accordance with accounting principles generally accepted in Germany.

Munich, May 27, 1992

BBMS Treuhandgesellschaft mbH
Wirtschaftsprufungsgesellschaft

Markus Bernreuther
Markus Bernreuther
Wirtschaftsprufer

Hurth Maschinen und Werkzeuge GmbH
Munich

Balance Sheet as of December 31, 1991

<CAPTION>
A S S E T S
DM DM
<S> <C> <C>
A. FIXED ASSETS

I. INTANGIBLE FIXED ASSETS 361,723.00

II. TANGIBLE FIXED ASSETS
1 Technical Systems and Machinery 1,987,773.00
2. Other Systems, Furniture and Fixtures 1,044,948.00
3. Systems Under Construction 6,800.00 3,039,521.00

B. CURRENT ASSETS

I. INVENTORIES
1. Raw Materials and Supplies 3,592,371.00
2. Semifinished Products, Services 16,083,187.00
3. Finished Products and Merchandise 191,979.00
4. Down Payments Made 36,915.00 19,904,452.00

II. RECEIVABLES AND OTHER ASSETS
1. Accounts Receivable 29,038,407.32
2. Affiliates Receivable 14,989,937.59
3. Other Receivables 167,410.71 44,195,755.62

III. CASH ON HAND 3,758.88

C. PREPAID EXPENSES 236,250.00

67,741,460.50
</TABLE>

See Accompanying Notes.

<PAGE>
<PAGE>
<TABLE>
-2-

Hurth Maschinen und Werkzeuge GmbH
Munich

Balance Sheet as of December 31, 1991

E Q U I T Y & L I A B I L I T I E S
DM DM
<S> <C> <C>
A. EQUITY

I. SUBSCRIBED CAPITAL STOCK 650,000.00

II. CAPITAL OF SILENT PARTNERS 13,278,621.00

III. LOSS CARRY OVER (1,410.26)

IV. ANNUAL SURPLUS 286,955.55 14,214,166.29

B. PROVISIONS

1. For Pensions and Similar
Obligations 8,285,705.00
2. For Taxes 1,008,341.00
3. Other Provisions 19,966,175.00 29,260,221.00

C. LIABILITIES

1. Bank Debts 11,085,011.96
2. Down Payments on Orders 2,973,288.47
3. Accounts Payable 4,605,614.39
4. Other Liabilities 5,603,158.39 24,267,073.21

67,741,460.50
</TABLE>

See Accompanying Notes.

<PAGE>
<PAGE>
<TABLE>
-3-

Hurth Maschinen und Werkzeuge GmbH
Munich
Statement of Income for the Year Ended December 31, 1991

DM DM

<S> <C> <C>
1. Sales Revenues 102,477,789.42

2. Increase in Inventory of Finished
and Semifinished Products 16,275,166.00

3. Other Capitalized In-plant Services 28,015.65

4. Other Operating Income 4,377,809.73

5. Material Expenses
Raw Materials and Supplies and
Purchased Merchandise 52,185,985.25

6. Payroll Expenses
a)Wages and Salaries 36,493,843.91
b)Social Costs and Expense for
Old Age Pension and Relief
- incl. Old Age Pension:
DM 824,721.15 6,925,242.66 43,419,086.57

7. Depreciation on Intangible and
Tangible Fixed Assets 1,680,040.24

8. Other Operating Expenses 22,132,759.09

9. Other Interest and Similar Income 930,094.18

10. Interest and Similar Expenses 1,347,420.88

11. Earnings from Regular Business Activities 3,323,582.95

12. Taxes on Income and Earnings 1,008,341.00

13. Other Taxes 149,665.40

14. Silent Partners' Profit Shares 1,878,621.00

15. Net Income 286,955.55

</TABLE>

See Accompanying Notes.

<PAGE>
<PAGE>
<TABLE>
-4-

Hurth Maschinen und Werkzeuge GmbH
Munich
Statement of Cash Flows for the Year Ended December 31, 1991

<CAPTION>
1991
TDM
<S> <C>
Net expenditures relating to business activities

Net income before silent partners' profit shares 2,166

Corrections to revenues/expenditures for transfer
of net income

Depreciation on intangible assets 82
Depreciation on tangible fixed assets 1,598
Net allocations to provisions for pension
and similar obligations 813

Increase/decrease of assets and equity/liabilities

Inventories 9,759
Accounts Receivable (6,031)
Affiliates Receivable (14,204)
Other assets (166)
Prepaid expense 291
Provisions for taxes 1,008
Other provisions (898)
Accounts Payable (4,724)

Total corrections (12,472)

Net expenditures relating to business
activities (10,306)

</TABLE>

See Accompanying Notes.

<PAGE>
<PAGE>
<TABLE>
-5-

Hurth Maschinen und Werkzeuge GmbH
Munich
Statement of Cash Flows for the Year Ended December 31, 1991

<CAPTION>
1991
TDM

<S> <C>
Net expenditures relating to business activities

Net expenditures relating to investment activities

Investments for intangible assets (318)
Investments of fixed tangible assets (1,502)
Fixed assets retired (at net book values) 81

Net expenditures relating to investment activities (1,739)

Net revenues relating to financial activities

Silent partners' capital contribution 13,278
Increase in subscribed capital stock 600
Silent partners' profit shares (1,879)

Net revenues relating to financial activities 11,999

Cash decrease (46)

Cash at fiscal year start 50
Cash at fiscal year end 4

Cash decrease (46)

</TABLE>

See Accompanying Notes.

<PAGE>
<PAGE>
-6-

BBMS Treuhandgesellschaft mbH
Notes to the Financial Statements as of December 31, 1991 of
Hurth Maschinen und Werkzeuge GmbH

1. Material Differences between German and United States Generally
Accepted Accounting Principles

The accompanying financial statements have been prepared in
conformity with accounting principles generally accepted in
Germany. Such principles differ in a number of respects from
accounting principles generally accepted in the United States of
America. The significant differences with respect to the Company's
financial statements are described in this note.

a. Pension Provision

The Company provides two schemes for its employees: a direct
pension commitment and an indirect commitment in the form of a
support fund. In accordance with German GAAP, the indirect support
fund obligation has not been accrued for (see Note 7. a. for a
description of the Company's contingent liability with respect to
such support fund).

The restatement of the pension accrual was prepared by the
actuaries Wyatt Bode Grabner GmbH, considering the support fund
obligation being fully accrued. The liability for both
commitments, as calculated in accordance with SFAS 87 is as
follows:

<TABLE>
<CAPTION>
German GAAP U.S. GAAP Difference
TDM TDM TDM
<S> <C> <C> <C>
Net periodic pension costs 813 1,188 375
Accrued pension costs 8,286
Support fund obligation 2,357
10,643 11,216 573
</TABLE>
<PAGE>
<PAGE>
-7-

b. Other Provisions

As of December 31, 1991, the Company has accrued a provision for
maintenance and repair costs incurred during the first quarter of
1992 in the amount of TDM 300, which may not be accrued under U.S.
GAAP. The removal of such provision from the Company's balance
sheet as of December 31, 1991 would result in a gain of TDM 300 for
the year ended December 31, 1991 and an expense in the same amount
for the year ended December 31, 1992.

c. Effect on Net Income

The application of U.S. GAAP, as described above, would have the
following effect on the Company's net income:

TDM

German GAAP net income before taxes 3,324
Net periodic pension costs (375)
Provision for maintenance and repair costs 300

Approximate U.S. GAAP net income before taxes 3,249
Income taxes, adjusted 986
Other taxes 150
Silent partners' profit shares, adjusted 1,834

Approximate U.S. GAAP net income 279

-8-

d. Effect on Shareholder's and Silent Partners' Equity

The application of U.S. GAAP, as described above, would have the
following effect on shareholders' and silent partners' equity:

TDM

Shareholder's and silent partners' equity as
reported on the German GAAP balance sheet 14,214
Items decreasing shareholder's and silent partners' equity
Net periodic pension costs (375)
Items increasing shareholder's and silent partners' equity
Provision for maintenance and repair costs 300
Decrease in income taxes 22

Approximate U.S. GAAP shareholder's
and silent partners' equity 14,161

2. Statement of Cash Flows

The statement of cash flows, which shows the development of the
cash situation and the financial strength of the Company, has been
prepared using the indirect method. The figures for 1991 are based
on the transfer values of the Machines and Tooling sector of Carl
Hurth Maschinen und Zahnradfabrik GmbH & Co., Munich, as of
January 1, 1991.

3. General Explanations

The Company was founded by notarized document of October 30, 1990,
and commenced doing business on January 1, 1991, by continuing the
business sector Machines and Tooling of Carl Hurth Maschinen- und
Zahnradfabrik GmbH & Co., Munich. Disclosure of amounts pertaining
to the financial statements as of December 31, 1990 was waived for
lack of comparability.

<PAGE>
<PAGE>
-9-

The Company is a major stock company as defined in the Commercial
Code. The format of the financial statements meets the requirements
of Sec. 265, 266, 268, 275 and 277 Commercial Code. The total
expense method was applied in preparing the profit and loss
statements.

The financial statements were prepared observing the valuation
rules according to Sec. 252 through 256 Commercial Code.

4. Principles of Capitalization and Valuation

a. Intangible Assets

Intangible assets were valued at their cost of purchase, reduced by
systematic linear depreciation. The start of depreciation is
calculated in proportion of time.

b. Tangible Assets

Tangible assets are valued at cost of purchase or manufacture
reduced by depreciation. Depreciation expense is basically
calculated degressively over a service life of three to ten years.
In the case of mobile fixed assets, the full annual amount of
depreciation is applied for additions posted in the first half of
the fiscal year, while one-half the annual amount is applied for
additions posted in the second half of the year. Assets with
purchase cost of less than DM 800 are depreciated fully in the year
of addition.

c. Inventories

Raw materials and supplies are valued at sliding average cost of
purchase, which is determined based on the additions to inventory
during the year. If the market value at the effective balance sheet
date is below the average cost or inventory value of the previous
year, the market value applies. Range deductions are made to arrive
at the lower applicable value at the effective closing date.

<PAGE>
<PAGE>
-10-
Semifinished products in the shops are valued at the order-specific
manufacturing costs. These include, in addition to direct material
and direct manufacturing costs, also material and manufacturing
overhead expense including depreciation.

In costing finished products, tools were valued at order-specific
manufacturing costs. Machines were costed at manufacturing costs.

d. Accounts Receivable

Recognizable bad-debt risks were allowed for by direct corrections,
the general credit risk by a global correction.

e. Provisions

Pension provisions were entered at the actuarial cash value of the
current and vested pensions.

Other provisions allow for all apparent risks and uncertain
obligations in the amount of the expected claim.

f. Foreign Currency Conversion

Liabilities in foreign currency have been converted at the rates of
their month of creation.

5. Explanations to the Balance Sheet

a. Fixed Assets

The development of the fixed assets in the fiscal year and their
breakdown by cost of purchase or manufacture and accrued
depreciation are presented in the following analysis:

<PAGE>
<PAGE>
-11-

<TABLE>
AT PURCHASE COST

<CAPTION>
Additions
Balance fr. GmbH&Co. Regular Balance
01/01/91 01/01/91 Additions Retired 12/31/91
DM DM DM DM DM
<S> <C> <C> <C> <C> <C>
I. INTANGIBLE ASSETS 0.00 124,808.00 318,453.80 0.00 443,261.80

II.TANGIBLE ASSETS

1. Technical Systems
and Machines 0.00 1,862,162.00 978,834.57 5.00 2,840,991.57
2. Other Systems,
Furniture, and
Fixtures 0.00 1,348,033.00 490,384.85 90,008.00 1,748,409.85
3. Systems Under
Construction 0.00 6,800.00 0.00 0.00 6,800.00
4. Low-value Items
(less than DM 800 ea.) 0.00 0.00 32,817.66 32,817.66 0.00

TOTALS 0.00 3,341,803.00 1,820,490.88 122,830.66 5,039,463.22
</TABLE>
<PAGE>
<PAGE>
<TABLE>
ACCRUED DEPRECIATION
<CAPTION>
Balance Balance Residual
01/01/91 Additions Retired 12/31/91 Book Value
DM DM DM DM DM
<S> <C> <C> <C> <C> <C>
I. INTANGIBLE ASSETS 0.00 81,538.80 0.00 81,538.80 361,723.00

II. TANGIBLE ASSETS

1. Technical Systems
and Machines 0.00 853,219.88 1.31 853,218.57 1,987,773.00
2. Other Systems,
Furniture, and
Fixtures 0.00 712,463.90 9,002.05 703,461.85 1,044,948.00
3. Systems Under
Construction 0.00 0.00 0.00 0.00 6,800.00
4. Low-value Items
(less than DM 800 ea) 0.00 32,817.66 32,817.66 0.00 0.00

TOTALS 0.00 1,680,040.24 41,821.02 1,638,219.22 3,401,244.00

</TABLE>

<PAGE>
<PAGE>
-12-

b. Prepaid Expenses

The Prepaid expenses include the amount of discount for two current
loans.

c. Other Provisions

Other provisions include, among others, provisions for warranty,
unclaimed vacation, commissions, social plan, losses looming from
pending transactions as well as anniversary expenses.

d. Bank Debts

The liabilities to banks are secured by the shareholder.

The remaining lives are shown in the overview of liabilities following
further down.

e. Other Liabilities

This item includes DM 1,840,817.42 in payroll tax and church tax and
DM 8,761.33 in social security contributions.

The remaining lives are shown in the folowing overview of liabilities.

<TABLE>
<CAPTION>
Residual Life

Type of Liability Up to 1 Year 1 to 5 Years Over 5 Years Total
per Balance Sheet DM DM DM DM
Format
<S> <C> <C> <C> <C>
1. Banks 3,931,556.00 2,153,456.00 5,000,000.00 11,085,012.00
2. Down Payments
on Orders 0.00 2,973,288.00 0.00 2,973,288.00
3. Accounts Payable 4,605,614.00 0.00 0.00 4,605,614.00
4. Other Liabilities 5,603,158.00 0.00 0.00 5,603,158.00

Total 14,140,328.00 5,126,744.00 5,000,000.00 24,267,072.00
</TABLE>

<PAGE>
<PAGE>
-13-

6. Explanations on the Statement of Income

a. Sales Revenues

Breakdown by activity sectors:
DM

Loading Systems 10,884,095.06
Gear Shaving Machines 28,993,228.69
Shaving Cutter Grinders 11,248,182.36
Gear Tooth Chamfering and Deburring Machines 15,476,691.14
Tooling 18,327,987.80
Automatic Precision Gear Cutting Machines 8,332,841.55
Gear Deburring Machines 2,510,805.79
Assemblies 1,820,651.05
Miscellaneous 4,696,156.08

*) 102,290,639.52

Breakdown by regions: DM

Domestic 32,493,477.77
Western Europe 38,678,105.56
America 5,766,774.15
Asia 19,970,440.04
Other 5,381,842.00

102,290,639.52

*) Breakdown of sales revenues before revenue reductions and not
including royalties and recycling proceeds.

-14-

b. Other Operating Income

Shown under this item are primarily assumed costs, income from the
dissolution of provisions and proceeds from sales of fixed assets.

c. Other Operating Expenses

This item includes essentially commissions, development costs,
rent, data processing maintenance, lease expenses for technical
systems and allocations to receivables' direct corrections for bad
debts.

d. Interest Income

Interest income includes DM 766,980.00 from Carl Hurth Maschinen-
und Zahnradfabrik GmbH & Co., an affiliated company.

e. Interest Expense

This item includes DM 38,288.00 to Hurth Getriebe und Zahnrader
GmbH.

7. Other Explanations

a. Other Financial Obligations Not Evident from the Balance Sheet

aa. The Company is obligated to assume the funding shortfall of the
Carl Hurth Maschinen- und Zahnradfabrik GmbH & Co. Relief Fund,
prorated for the employees transferred to its payroll, amounting to
DM 2,356,962.00 as of December 31, 1991. In case claims are
asserted against the Company on grounds of its subsidiary liability
or funds are transferred to the Relief Fund, an offset claim
accrues to the Company against Carl Hurth Maschinen- und
Zahnradfabrik GmbH & Co., up to maximally DM 2,005,759.00.

-15-

The amounts have been determined by opinion of Dr. Bode, Dr.
Grabner & Partners, Actuaries.

In case of insolvency of the Relief Fund, the Company, as carrier
entity, must assume the payments for the existing pensions.

bb. Rental and Leasing Obligations

The Company has annual rental and leasing obligations amounting to
TDM 3,985.5, including TDM 3,581.7 to Carl Hurth Maschinen- und
Zahnradfabrik GmbH & Co.

b. Employees

The average number of employees during the 1991 fiscal year
amounted to:

White collar workers 295
Blue collar workers 234
Apprentices/Job trainees 75
Total 604

c. Management

Managing Directors of the Company are:

Dr. Horst Gohren, Munich
Dipl.-Kfm. Winfried Otto, Munich - acting

Total earnings of the Managing Directors amounted to DM 531,196.12
for the fiscal year 1991.

-16-

HURTH
Maschinen und Werkzeuge G.m.b.H., Munich

Management's Situation Report

Preface

Founded in October, 1990, Hurth Maschinen und Werkzeuge GmbH has taken
over from Carl Hurth Maschinen und Zahnradfabrik GmbH & Co., effective
January 1, 1991, the activities relating to the manufacture and
marketing of machines and tools for gear processing. The period of
January 1, 1991 through December 31, 1991 is the first fiscal year of
the Company.

Accordingly, there are no figures for comparison with previous years
available. As far as comparisons are cited nonetheless in the situation
report, these relate to references pertaining to the former business
sectors Machines and Systems as well as Tooling and Applications of Carl
Hurth Maschinen und Zahnradfabrik GmbH & Co.

1991 Business Development

The fiscal year closed has brought for the machine building industry,
and notably the machine tool sector in Germany, a considerable downturn
of business, which expressed itself negatively in order receipts, sales,
in employment and also in earnings situation.

The firm Hurth Maschinen und Werkzeuge GmbH has been hit as well. For
example, order receipts in Machines and Systems, of nearly 84.7 million
DM in 1990, declined by about 20 % to 67.3 million DM in 1991. In
contrast, a rise in order receipts was achieved in Tooling and
Applications, from 16.5 million DM (1990) by about 7 % to 17.6 million
DM (1991).

Owing to the favorable order inventory at the start of the fiscal year,
however, it was possible nonetheless to increase external sales (without
sales to affiliates) by about 11 %, to 102.5 million DM, including 63.1%
exports and 36.9 % domestic sales.

The order inventory at the close of 1991 amounted to 75.2 million DM.

Due to the take-over of semifinished and finished products from Carl
Hurth Maschinen und Zahnradfabrik GmbH & Co., an inventory increase of
about 16.3 million DM appears as of December 31, 1991 on the books of
Hurth Maschinen und Werkzeuge GmbH. Compared to the inventories taken
over on January 1, 1991, however, this means a reduction in semifinished
and finished products by 5.4 million DM.

-17-

Corrected by the take-over effect, the expense for material and
purchased services amounted to 30.1 million DM and, thus, less than 30 %
of total revenues.

Owing to the unfavorable cost to revenues ratio and the poor earnings
situation resulting thereof, an economization program had been launched
at Carl Hurth Maschinen und Zahnradfabrik GmbH & Co., already in 1990.
In addition to design changes affecting our production cost share, also
a social plan was introduced, which will be in effect through July 31,
1992 and in the framework of which the work force of Hurth Maschinen und
Werkzeuge GmbH was reduced from 610 (January 1, 1991) to 586 (December
31, 1991) already in 1991.

Due to the comparatively low investment activities of Carl Hurth
Maschinen und Zahnradfabrik GmbH & Co., the value of the fixed assets
taken over as of January 1, 1991 amounted to only about 3.3 million DM.
As a result of the still relatively uncertain liquidity situation at the
start of the year as well as the necessary lead time for developing
adequate investment concepts, investments of only about 1.8 million DM
were made in the fiscal year close. These investments were financed
nearly completely from depreciations. In addition to a cautious
supplementation of our machinery, especially expenditures for data
processing hardware (CAD) and software (accounting) are to be cited
here, aiming to bring about an appreciable improvement of organizational
systems.

Organizational changes in the area of material management/logistics made
it possible to achieve by way of shortening production lead times and of
just-in-time purchasing a distinct reduction of inventories. This has
freed considerable funds which previously were tied up in current
assets.

This freeing of funds in conjunction with the positive annual earnings
result entailed, as compared to mid-year, a distinctly improved
liquidity situation for the Company. Therefore, despite the high level
of interest rates, interest expense was kept within limits, at 1.3
million DM.

With earnings from regular business activities in the amount of 3.3
million DM, Hurth Maschinen und Werkzeuge GmbH has achieved in the first
year of its existence a quite satisfactory result. This is true notably
before the backdrop of the general business situation within the
industry.

Outlook

In view of sales and earnings, a contraction will ensue in the year
1992. Despite the weak order receipts of the first months, the available
order inventory will enable annual sales ranging about at the level of
1991.

-18-

While the business development in the Tooling and Applications sector
can be described as stable, we are facing a distinctly reduced demand in
Machines and Systems. This relates notably to the technology of
precision hard processing, where a final breakthrough in the marketplace
has not been accomplished yet despite great efforts.

While sales for the year 1992 appear secured, we expect in terms of
employment a distinctly reduced capacity utilization already in the
second half of 1992. This is true especially for the mechanical
production (components), which is situated at the start of the
production sequence.

We are going to meet this situation, for one, by a well-aimed further
work force reduction in the framework of the existing social plan and,
for another, as far as necessary, also short hours in the areas that are
especially affected.

The objective is being able to close also the 1993 fiscal year, in which
we must expect a distinct sales drop, with a positive earnings result.
Serving this objective are also distinctly elevated investments, among
others in technical systems and machinery, which will allow urgently
needed streamlining in production.

With the development of a new machine type for precision hard
processing, completion of which is expected for the first half of 1993,
we intend to regain lost territory in this area in order to be able to
put our production program on a broader basis.

Particular attention will be devoted also to the regional expansion of
our markets. Prominent here are notably the Far East as well as North
and South America.

Certain impulses may be expected also from the opening of Eastern
European markets; but these will bear out slowly, due to the economic
situation prevailing there. Presently it is established western
automobile manufacturers who gradually involve themselves there and,
accordingly, have demand for machinery and tooling.

With a distinct improvement of the business cycle not to be expected in
the short term, further cost reduction measures are required. Besides
the social and financial burdens associated with it, however, we see
here also a possibility to move the structure of the Company to a level
that meets the present and the future and will result in a strengthening
of our earnings capacity.

<PAGE>
<PAGE>
Item 7 (a) (ii):

-1-

Arthur Anderson & Co. G.m.b.H.
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft
Nymphenburger Straise 1
80335 Munchen

LETTER TO THE SHAREHOLDER

To the Shareholder of
Hurth Maschinen und Werkzeuge GmbH

We have examined the accompanying balance sheet of Hurth Maschinen und
Werkzeuge GmbH (a German Corporation) as of December 31, 1992 and the
related statements of income and cash flows for the year then ended. Our
examinations were made in accordance with German generally accepted
auditing standards and, accordingly, included such tests of the
accounting records and such other auditing procedures as we considered
necessary under the circumstances. At the conclusion of our work we
rendered an unqualified opinion on the statutory financial statements as
of December 31, 1992, we refer to our report dated April 2, 1993.

The Company prepares its financial statements on the basis of accounting
principles generally accepted in Germany. These principles differ in
some respects from accounting principles generally accepted in the
United States of America. Accordingly, the accompanying financial
statements are not intended to present the Company's financial position
and results of operations in conformity with the accounting principles
generally accepted in the United States of America. Material differences
between accounting principles generally accepted in Germany and the
United States of America, as they relate to the accompanying financial
statements, are described at the beginning of page 16.

The management of Hurth Maschinen und Werkzeuge GmbH has declared
bankruptcy proceedings in 1995. As agreed with the shareholder of Hurth
Maschinen und Werkzeuge GmbH our work is performed under the going
concern assumption of para. 252 sect. 1 no. 2 Commercial Code.

In our opinion, taking into account before said, the accompanying
financial statements present fairly the financial position of Hurth
Maschinen und Werkzeuge GmbH as of December 31, 1992 and the results of
operations and cash flows for the year then ended in accordance with
accounting principles generally accepted in Germany.

Munich, August 14, 1995

Arthur Andersen & Co. G.m.b.H.
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft

Thomas Eberhard Ulrich Bayer
Thomas Eberhard Ulrich Bayer
Wirtschaftsprufer Wirtschaftsprufer

HURTH MASCHINEN UND WERKZEUGE G.M.B.H., MUNCHEN
BALANCE SHEET AS OF DECEMBER 31, 1992

A S S E T S 1992 1991
DM DM
<S> <C> <C>
A. FIXED ASSETS

I. Intangible Fixed Assets
Franchises, Patents and Similar
Rights and Values,Licenses to Such
Rights and Values 890,586.00 361,723.00

II. Tangible Assets
1 Technical Systems and Machinery 3,749,165.00 1,987,773.00
2. Other Systems, Furniture and
Fixtures 1,639,208.00 1,044,948.00
3. Systems Under Construction 14,694.61 6,800.00
5,403,067.61 3,039,521.00

III. Long-term Investments
Shares in Affiliates 15,339.00 0.00

6,308,992.61 3,401,244.00

B. CURRENT ASSETS

I. Inventories
1. Raw Materials and Supplies 2,733,347.00 3,592,371.00
2. Semifinished Products, Services 7,301,666.00 16,083,187.00
3. Finished Products and
Merchandise 115,893.00 191,979.00
4. Down Payments Made 0.00 36,915.00
10,150,906.00 19,904,452.00

II. Receivables and Other Assets
1. Accounts Receivables 29,536,849.73 29,038,407.32
2. Affiliates Receivables 15,422,848.20 14,989,937.59
3. Other Receivables 219,960.38 167,410.71
45,179,658.31 44,195,755.62

III. Checks, Cash on Hand, Postal and
Bank Checking Accounts 8,172,097.30 3,758.88
63,502,661.61 64,103,966.50

C. PREPAID EXPENSE 201,420.00 236,250.00

70,013,074.22 67,741,460.50

</TABLE>
<PAGE>
<PAGE>

-2-
<TABLE>

HURTH MASCHINEN UND WERKZEUGE G.M.B.H., MUNCHEN
BALANCE SHEET AS OF DECEMBER 31, 1992

<CAPTION>
E Q U I T Y & L I A B I L I T I E S 1992 1991
DM DM
<S> <C> <C>
A. EQUITY

I. Subscribed Capital Stock 650,000.00 650,000.00
II. Capital of Silent Partners 17,955,291.34 13,278,621.00
III. Surplus/Loss 1,005,103.94 285,545.29
19,610,395.28 14,214,166.29

B. PROVISIONS

1. For Pensions and Similar
Obligations 9,603,898.00 8,285,705.00
2. For Taxes 4,156,879.00 1,008,341.00
3. Other Provisions 19,415,674.70 19,966,175.00
33,176,451.70 29,260,221.00

C. LIABILITIES

1. Bank Debts 6,238,555.62 11,085,011.96
2. Down Payments on Orders 982,121.57 2,973,288.47
3. Accounts Payable 6,112,678.09 4,605,614.39
4. Liabilities to Affiliates 1,184,406.57 2,885,514.09
5. Other Liabilities 2,708,465.39 2,717,644.30
- Incl.Taxes: DM 1,479,059.46
(1991: DM 1,840,817.42)
- Incl. Social Safety Net:
DM 872,348.66
(1991: DM 8,761.33)
17,226,227.24 24,267,073.21

70,013,074.22 67,741,460.50
</TABLE>
<PAGE>
<PAGE>
<TABLE>

-3-

HURTH MASCHINEN UND WERKZEUGE G.M.B.H.
MUNICH

EARNINGS STATEMENT FOR THE FISCAL YEAR 1992
<CAPTION>

1992 1991
DM DM

<S> <C> <C>
1. Sales Revenue 102,229,503.49 102,477,789.42
2. Inventories Increase or Reduction
Finished and Unfinished Products (8,857,607.00) 16,275,166.00
3. Other Capitalized In-plant Services 77,227.81 28,015.65
4. Other Operating Income 7,880,805.27 4,377,809.73
5. Material Expense:
a)Raw Materials and Supplies and
Purchased Merchandise (14,831,995.53)(52,185,985.25)
b)Purchased Services (9,032,237.04) 0.00
6. Payroll:
a)Wages and Salaries (40,827,437.89)(36,493,843.91)
b)Social Costs and Expense for Old Age
Pension and Relief (7,700,619.94) (6,925,242.66)
- incl. Old Age Pension:
DM 1,772,506.16
(1991: DM 824,721.15)
7. Depreciation on Intangible and Tangible
Fixed Assets (2,224,533.09) (1,680,040.24)
8. Other Operating Expense (17,195,554.09)(22,132,759.09)
9. Other Interest and Similar Income 1,814,318.86 930,094.18
- incl. from Affiliates:
DM 1,575,230.36 (1991:
DM 766,980.00)
10. Write-offs on Long-term Investments (350,000.00) 0.00
11. Interest and Similar Expense (1,043,677.76) (1,347,420.88)
- incl. to Affiliates
DM 0.00 (1991: DM 32,288.00)

12. Earnings from Regular Business
ActivitieS 9,938,193.09 3,323,582.95

13. Taxes on Income and Earnings (2,786,690.00) (1,008,341.00)
14. Other Taxes (368,883.00) (149,665.40)

15. Annual Surplus/Loss 6,782,620.09 2,165,576.55

16. Surplus to New Account 285,545.29 (1,410.26)
17. Surplus/Loss Shared By Silent Partners (6,063,061.44) (1,878,621.00)

18. Earnings/Loss As Shown in Balance Sheet 1,005,103.94 285,545.29

</TABLE>
<PAGE>
<PAGE>
<TABLE>

-4-

HURTH MASCHINEN UND WERKZEUGE GMBH
MUNICH
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1992

The development of the cash situation and financial strength of the Company
is shown in the following cash flow statement, which is geared to the
variations in cash. It shows revenues and expenditures for business,
investments and financial activities sectors, with the indirect method having
been chosen. The figures for 1991 are based on the transfer values of the
Machines and Tooling sector of Carl Hurth Maschinen- und Zahnradfabrik
G.m.b.H. & Co., Munich, as of January 1, 1991.

<CAPTION>
1992 1991
TDM TDM

<S> <C> <C>
Revenues/Expenditures from Business Activities

Annual surplus 6,783 2,166

Corrections to revenues/expenditures for transfer
of annual surplus/loss

Depreciation on intangible assets 219 82
Depreciation on tangible fixed assets 2,006 1,598
Write-offs on business interests 350 --
Net allocations to provisions for pensions
and similar obligations 1,318 813
Surplus shares of silent partners (6,063) (1,879)

Increase/decrease of assets and equity/liabilities

Inventories 9,753 9,759
Accounts Receivables (499) (6,031)
Affiliates Receivables (433) (14,204)
Other assets (53) (166)
Prepaid expense 35 291
Equity of silent partners 6,210 0
Provisions for taxes 3,149 1,008
Other provisions (551) (898)
Accounts Payable 1,507 (4,724)
Down payments received on orders (1,991) 0
Liabilities to affiliates (1,701) 0
Other liabilities (10) 0

Total corrections 13,246 (14,351)

Net revenue/expenditures relating to business
activities 20,029 (12,185)

</TABLE>
<PAGE>
<PAGE>
<TABLE>
-5-
<CAPTION>

1992 1991
TDM TDM
<S> <C> <C>
Revenue/expenditures relating to investment activities

Investments for intangible assets (751) (318)
Investments of fixed tangible assets (4,394) (1,502)
Financial investments (365) 0
Fixed assets retired (at net book values) 28 82

Net expenditures for investments activities (5,482) (1,739)

Revenue/expenditures relating to financial activities

Increase/decrease in bank debts (4,846) 0
Shareholders subscriptions 0 13,278
Capital increase 0 600
Surplus distribution silent partners (1,533) 0

Net increase/decrease relating to financial
activities (6,379) 13,878

8,168 (46)

Cash increase/decrease

Cash at fiscal year start 4 50
Cash at fiscal year end 8,172 4

Cash increase/decrease 8,168 (46)

</TABLE>
<PAGE>
<PAGE>

-6-

HURTH MASCHINEN UND WERKZEUGE GMBH

MUNICH

NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 1992

I. General References

The Company was founded by notary document of October 30, 1990, and commenced
doing business on January 1, 1991, by continuing the business sector Machines
and Tooling of Carl Hurth Maschinen- und Zahnradfabrik GmbH & Co., Munich.

The Company is a major stock company in the sense of Para. 267 Sect. 3
Commercial Code. The total expense method has been used for the Profit & Loss
Statement.

II. Adjustment and comparability of previous year figures

In variation from the approved annual book closing as of December 31, 1991,
the previous year figures shown for 1991 were adjusted in the year-end book
closing as of December 31, 1992.

In the Earnings Statement for the 1991 fiscal year an amount of DM
1,878,621.00 was shown under "Expense from Partial Surplus Surrender
Agreements" from the surplus share for the fiscal year 1991.

This same amount is now shown under "Capital of Silent Partners."

Included in "Other Liabilities" as of December 31, 1991, is an amount of DM
2,885,514.09 as liabilities of affiliates.

This same amount appears now under "Liabilities to Affiliates."

III. Capital of the silent partners

Silent partners atypically hold an interest in the Company with a cash
investment totaling DM 11,400,000.00.

The agreement covering the founding of the silent partnership provides for a
notice the first time on February 1, 1993, and thereafter to the end of each
fiscal year. No notice was pending at the effective date of the balance
sheet.

The silent partners share the loss of the Company and entered in a second-
rank agreement to the effect that the silent partner can demand payment of
its investment balance only when such is possible from net assets not
required for capital stock maintenance or from liquidation surplus.
Therefore, the silent partners' capital is being shown under "Equity."

-7-

The silent partners are entitled to make on their Private Account withdrawals
against the good balance.

The Company is entitled to repay the good balance of the silent partners in
the private accounts at any time, wholly or in part.

IV. Principles of capitalization and valuation

1. Intangible Assets

Intangible assets acquired against pay are valued at their cost of purchase,
reduced by depreciation. The start of depreciation is calculated in
proportion of time.

2. Tangible Assets

Tangible assets are valued at cost of purchase or manufacture reduced by
systematic depreciation. The depreciations are calculated according to tax
regulations, basically degressively over a customary service life of three to
ten years. In the case of mobile fixed assets, the full annual amount of
depreciation is applied for additions posted in the first half of the fiscal
year, while one-half the annual amount is applied for additions in the second
half of the year. Assets with purchase cost of less than DM 800 are
depreciated fully in the year of addition.

3. Long-term Investments

Long-term investments are shown at cost of acquisition, reduced by
extraordinary write-offs.

4. Inventories

Inventories have been valued at cost of purchase or manufacture or at the
lower applicable value.

5. Accounts Receivable

Accounts receivable were valued at the lowest applicable value at the date of
book closing.

Recognizable risks of loss were allowed for by individual corrections and the
general credit risk by a global correction.

-8-

6. Provisions

Pension provisions were entered at the actuary cash value of the current and
vested pensions in keeping with tax provisions.

Other provisions allow for all apparent risks and uncertain obligations in
the amount of expected claim.

Not established was a provision for compensation claims of agents according
to Para. 89b Commercial Code. Basing on the annual commissions of past years,
a maximum risk of DM 2.5 million is calculated, which, modeled on tax
treatment, is not being carried as liability and, thus, correlates itself
since so far no claims have been asserted or any arising compensations will
be assumed by the agents joining newly.

Basing on the present situation, a concrete claim by agents is not expected.

7. Currency Conversion

Liabilities in foreign currency have been converted at the rates of their
month of creation or under observance of an imparity principle at the higher
rate on the effective date.

V. Explanation on the Balance Sheet

1. Fixed Assets

The development of the fixed assets in the fiscal year and their breakdown by
cost of purchase or manufacture and accrued depreciation are presented in the
overview on page 9.

-9-

HURTH MASCHINEN UND WERKZEUGE G.M.B.H., MUNICH

DEVELOPMENTS OF FIXED ASSETS IN 1992 FISCAL YEAR

<CAPTION>
PURCHASE COST
Balance Balance
01/01/92 Additions Retired 12/31/92
DM DM DM DM
<S> <C> <C> <C> <C>
I. INTANGIBLE ASSETS 443,261.80 751,163.72 16,939.00 1,177,486.52

II.TANGIBLE ASSETS

1. Technical Systems
and Machines 2,840,990.57 2,980,367.87 24,527.00 5,796,831.44
2. Other Systems,
Furniture, and
Fixtures 1,748,408.85 1,405,839.50 158,442.78 2,995,805.57
3. Systems Under
Construction 6,800.00 7,894.61 0.00 14,694.61

III.LONG TERM INVEST-
MENTS
Shares in Affiliates 0.00 365,339.00 0.00 365,339.00

5,039,461.22 5,510,604.70 199,908.78 10,350,157.14
</TABLE>
<TABLE>

ACCRUED DEPRECIATION
<CAPTION>
Balance Balance
01/01/92 Additions Retired 12/31/92
DM DM DM DM
<S> <C> <C> <C> <C>
I. INTANGIBLE ASSETS 81,538.80 219,079.72 13,718.00 286,900.52

II.TANGIBLE ASSETS

1. Technical Systems
and Machines 853,217.57 1,218,975.87 24,527.00 2,047,666.44
2. Other Systems,
Furniture, and
Fixtures 703,460.85 786,477.50 133,340.78 1,356,597.57
3. Systems Under
Construction 0.00 0.00 0.00 0.00

III.LONG TERM INVEST-
MENTS
Shares in Affiliates 0.00 350,000.00 0.00 350,000.00

1,638,217.22 2,574,533.09 171,585.78 4,041,164.53
</TABLE>
<PAGE>
<PAGE>
<TABLE>

HURTH MASCHINEN UND WERKZEUGE G.M.B.H., MUNICH

DEVELOPMENTS OF FIXED ASSETS IN 1992 FISCAL YEAR

<CAPTION>
NET BOOK VALUE

1992 1991
DM DM
<S> <C> <C>
I. INTANGIBLE ASSETS 890,586.00 361,723.00

II.TANGIBLE ASSETS

1. Technical Systems
and Machines 3,749,165.00 1,987,773.00
2. Other Systems,
Furniture, and
Fixtures 1,639,208.00 1,044,948.00
3. Systems Under
Construction 14,694.61 6,800.00

III.LONG TERM INVEST-
MENTS
Shares in Affiliates 15,339.00 0.00

6,308,992.61 3,401,244.00
</TABLE>
<PAGE>
<PAGE>

-10-

2. Prepaid Expense

The prepaid expense item includes the discount of two current loans.

3. Provisions

The development of provisions can be seen from the overview on page 11.

5. Remaining Lives

Receivables and other assets have a remaining life of less than 1 year.

The remaining lives of the liabilities can be seen from the following
liabilities overview.

<TABLE>

LIABILITIES OVERVIEW

<CAPTION>
Thereof Residual Life

Type of Liability Total Amount Up to 1 Year 1 to 5 Years Over 5 Years
<S> <C> <C> <C> <C>
Banks 6,238,555.62 984,244.60 2,129,311.02 3,125,000.00
Down Payments
Received 982,121.57 982,121.57 0.00 0.00
Accounts Payable 6,112,678.09 6,112,678.09 0.00 0.00
Affiliates Payable 1,184,406.57 1,184,406.57 0.00 0.00
Other Liabilities 2,708,465.39 2,708,465.39 0.00 0.00

Total 17,226,227.24 11,971,916.22 2,129,311.02 3,125,000.00
</TABLE>
<TABLE>
<CAPTION>
Type of Liability Secured Security Total Include. Life
Amount Type 12/31/91 < 1 Yr.
<S> <C> <C> <C> <C>
Banks 0.00 - 11,085,011.96 3,931,556.00
Down Payments
Received 0.00 - 2,973,288.47 0.00
Accounts Payable 0.00 - 4,605,614.39 4,605,614.00
Affiliates Payable 0.00 - 2,885,514.09 2,885,514.09
Other Liabilities 0.00 - 2,717,644.30 2,717,644.30

Total 0.00 - 24,267,073.21 14,140,328.39

</TABLE>
<PAGE>
<PAGE>

-11-
<TABLE>

Provisions Overview:

<CAPTION>
Balance Used Released Built Balance
Jan. 1, 1992 Back Dec. 31,1992

<S> <C> <C> <C> <C> <C>
Pension Provisions 8,285,705.00 0.00 0.00 1,318,193.00 9,603,898.00

Tax Provisions
- Trade Tax on Earnings 694,064.00 0.00 0.00 1,938,966.00 2,633,030.00
- Corporate Income Tax 314,277.00 0.00 0.00 847,724.00 1,162,001.00
- Trade Tax on Capital 0.00 0.00 0.00 256,848.00 256,848.00
- Property Tax 0.00 0.00 0.00 105,000.00 105,000.00
1,008,341.00 0.00 0.00 3,148,538.00 4,156,879.00

Other Provisions
- Looming Losses 4,588,000.00 1,712,800.00 0.00 0.00 2,875,200.00
- First Operation
Warranty 2,306,334.00 0.00 0.00 548,055.00 2,854,389.00
- Guarantee 3,491,345.00 0.00 760,345.00 0.00 2,731,000.00
- Commissions 2,317,300.00 2,317,300.00 0.00 2,247,228.70 2,247,228.70
- Management Bonus 300,000.00 300,000.00 0.00 2,005,000.00 2,005,000.00
- Social Plan/Downsizing 1,948,488.00 0.00 1,948,488.00 1,800,000.00 1,800,000.00
- Anniversaries 1,192,694.00 0.00 0.00 72,959.00 1,265,653.00
- Unclaimed Vacations 1,159,470.00 1,159,470.00 0.00 958,454.00 958,454.00
- Accident Prevention
Agency 330,000.00 0.00 0.00 360,000.00 690,000.00
- Nonfulfillment Penalties 795,544.00 99,886.00 55,658.00 0.00 640,000.00
- Maintenance 300,000.00 300,000.00 0.00 400,000.00 400,000.00
- Incentives 0.00 0.00 0.00 293,750.00 293,750.00
- Book Closing 120,000.00 120,000.00 0.00 190,000.00 190,000.00
- Loan Charges 140,000.00 0.00 0.00 0.00 140,000.00
- Legal Expense 100,000.00 9,621.70 0.00 9,621.70 100,000.00
- Invoices Outstanding 84,000.00 84,000.00 0.00 100,000.00 100,000.00
- Flextime Overhang 70,000.00 70,000.00 0.00 70,000.00 70,000.00
- Fair Expense 55,000.00 0.00 0.00 0.00 55,000.00
- Starcut Order 238,000.00 238,000.00 0.00 0.00 0.00
- Wera Damages 430,000.00 118,554.26 311,445.74 0.00 0.00

19,966,175.00 6,529,631.96 3,075,936.74 9,055,068.40 19,415,674.70
</TABLE>
<PAGE>
<PAGE>

-12-

VI. Explanations on Earnings Statement

1. Sales Revenue

Breakdown by Activity Sectors:
1992 1991
DM DM

Gear Shaving Machines 34,113,280.04 28,993,228.69
Tooling 16,785,635.97 18,327,987.80
Loading Systems 13,407,844.64 10,884,095.06
Shaving Cutter Grinders 11,607,416.24 11,248,182.36
Automatic Precision Gear Cutting
Machines 11,100,926.50 8,332,841.55
Gear Deburring Machines 5,712,963.70 2,510,805.79
Gear Tooth Chamfering and Deburring
Machines 3,092,294.75 15,476,691.14
Gear Testing Machines 2,295,954.08 0.00
Assemblies 1,031,611.60 1,820,651.05
Miscellaneous 3,081,575.97 4,883,305.98

102,229,503.49 102,477,789.42

1992 1991
Breakdown by Regions: DM DM

Western Europe 45,912,978.71 38,678,105.56
Domestic 35,670,171.43 32,493,477.77
Asia 16,971,599.53 19,970,440.04
America 2,340,169.91 5,766,774.15
Others 1,334,583.91 5,568,991.90

102,229,503.49 102,477,789.42

2. Other Operating Income

Shown under this item, for the most, are expense assumptions, income from
the dissolution of provisions, and proceeds from the sale of fixed assets.

3. Other Operating Expense

This item includes essentially commissions, development costs, rent, data
processing maintenance, lease expense for technical systems, travel
allowances and allocations to receivables direct corrections for bad debts.

-13-

VII. Other References

1. Other Financial Obligations Not Evident from the Balance Sheet

a) Relief Fund of Carl Hurth Maschinen- und Zahnradfabrik GmbH & Co.,
Munich

The Company is obligated to assume the funding shortfall of the Carl Hurth
Maschinen- und Zahnradfabrik GmbH & Co. Relief Fund, prorated for the
employees transferred to its payroll, amounting to DM 2,356,962.00 as of
December 31, 1991. In case claims are asserted against the Company on
grounds of its subsidiary liability or funds are transferred to the Relief
Fund, an offset claim accrues to the Company against Carl Hurth Maschinen-
und Zahnradfabrik GmbH & Co., up to maximally DM 2,005,759.00.

The amounts for the fiscal year 1991 have been determined by opinion of Dr.
Bode, Dr. Grabner & Partners, Actuaries. The opinion for 1992 was not
available yet at the preparation date of the year-end book closing.

In case of insolvency of the Relief Fund, the Company, as carrier entity,
must assume the payments for the existing pensions. As of the end of 1992,
the cash of the Relief Fund is almost completely depleted.

b) Rental and Leasing Obligations

The Company has rental and leasing obligations in the amount of TDM 1,697
covering data processing software and hardware, telephone system, copiers
and janitorial services. The Company closed with its parent company, Carl
Hurth Maschinen- und Zahnradfabrik GmbH & Co., a lease contract through the
year 2000. The annual lease amounts to TDM 3,444.

The lease contract is presently being negotiated newly with the parent
company; an amended contract is not available yet.

-14-

2. Work Force

The average number of employees during the 1992 fiscal year amount to:

White collar workers 271
Blue collar workers 231

Total 502

3. Management

General Managers of the Company are:

Dr. Horst Gohren, Munich
Mr. Winfried Otto, Munich - acting through August 12, 1992;
General Manager from August 13, 1992

Total earnings of the General Managers amounted to DM 2,289,188.51 for the
fiscal year 1992.

Total earnings of the general managers for the 1993 fiscal year amounted to
TDM 607.

4. Appurtenance Note According to Para. 42 Sect. 3 GmbH Law

Affiliates receivables include receivables against the shareholder totaling
DM 15,000,000.00 (previous year: DM 14,989,937.59).

Liabilities to affiliates include liabilities to the shareholder in the
amount of DM 1,184,408.57 (previous year: DM 1,192,454.25).

5. Joint Venture

The Company holds an interest in Kerschl Automation GmbH, Mammendorf,
equaling 70% of the subscribed capital of DM 625,000.00.

As of December 31, 1992, Kerschl Automation's books show a preliminary
annual shortfall of DM 387,687.75 and a shortfall of DM 252,360.14 not
covered by equity.

To avoid a bookkeeping over extension of the venture, the Company has
issued a lower-rank declaration in the amount of DM 257,154.06 concerning
its granted loan.

-15-

6. Liability Situation

With purchase contract of December 18, 1992, the company acquired from
Treuhandanstalt, Anstalt des offentlichen Rechts, Berlin (Trust
Corporation), along with another previous owner, the shares in Modul GmbH,
Chemnitz, effective January 1, 1993.

With the same contract the Company agreed, in addition to the joint
venture, to exempt the previous owners from any environmental pollution
claims.

-16-

Material Differences between German and United States Generally Accepted
Accounting Principles

The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in Germany. Such principles
differ in a number of respects from accounting principles generally
accepted in the United States of America. The significant differences with
respect to the Company's financial statements are described in the
following notes.

a. Pension Provision

The Company provides two schemes for its employees: a direct pension com-
mitment and an indirect commitment in the form of a support fund. In
accordance with German GAAP the indirect support fund obligation has not
been accrued for.

The liability for both commitments, as calculated in accordance with SFAS
87 is as follows:

<TABLE>
<CAPTION>
(amounts in TDM)

German GAAP U.S. GAAP Difference
12/31/92
<S> <C> <C> <C>
Net periodic pension costs 1,475 1,196 279

Accrued pension costs 9,604
Support fund obligation 2,514
12,118 12,374 (256)

</TABLE>

The restatement between German- and US- GAAP pension accrual was prepared
by the actuary Wyatt Bode Grabner GmbH. In his calculation he considered
the support fund being fully accrued. The difference between the total of
accrued pension costs and support fund obligations as of January 1, 1991
and the projected benefit obligation as of the same date has been
amortized over 15 years.

b. Accrual for Repairs and Maintenance Expense

In accordance with German GAAP, the Company recorded an accrual for
repairs and maintenance expense amounting to TDM 300 and TDM 400 for the
years ended 12/31/91 and 12/31/92, respectively.

-17-
As these accruals are not permitted under US GAAP, the following reversals
are necessary:

1992

Accrual for repairs and maintenance expense (dr.) TDM 400
Retained earnings opening (cr.) TDM 300
Repair and maintenance expense (cr.) TDM 100

In order to properly reverse the 1992 accrual for repairs and maintenance
expense.

c. Effect on Net Income

A reconciliation of the Company's net income from German GAAP to US GAAP
for the year 1992 is as follows:

(amounts in TDM) 1992

German GAAP shareholder's and silent partners
net income before taxes 9,938

Adjustments:
Net periodic pension costs 279
Reversal of accrual for repairs & maintenance
expense 100

Approximate US GAAP income before taxes 10,317

Income taxes after adjustments (2,900)
Other taxes after adjustments (369)

Approximate US GAAP shareholder's and silent
partners' net income 7,048

-18-

d. Effect on Shareholder's and Silent Partners' Equity

A reconciliation of the Company's shareholder's and silent partners'
equity for the year ended 1992 is as follows:

(amounts in TDM) 1992

German GAAP shareholder's and silent partners'
equity as of December 31, 1992 19,610
Adjustments:
Net periodic pension costs (96)
Reversal of accrual for repairs & maintenance
expense 400
Change in income taxes (91)

Approximate US GAAP shareholder's and silent
partners' equity as of December 31, 1992 19,823

<PAGE>
<PAGE>
-19-

HURTH MASCHINEN UND WERKZEUGE GMBH

MUNICH

SITUATION REPORT

1992 Business Development

Evidencing itself already in 1991, the worldwide downturn of business in
the machine tool industry has continued also in 1992. This development has
been fortified yet by the reduced utilization at the automobile producers,
where the demand for capital goods has thus declined greatly.

The firm Hurth Maschinen und Werkzeuge GmbH being highly dependent on the
investment activities of the worldwide automobile and automotive parts
industry, order receipts have lagged appreciably behind expectations in
the fiscal year completed. Following nearly DM 85 million in 1991, order
receipts in 1992 amounted to only about DM 57.8 million. This means a drop
by nearly 32%. Hit especially hard was the machine sector, while the
decline in orders received for tooling remained within bearable limits.

Since the order inventory at the start of the year amounted to DM 75.2
million, it was possible to keep sales in the year reviewed, with DM 102.2
million, nearly at the same level as in the previous year (DM 102.5
million).

Of these sales 61.4% (previous year 63.1%) fell to exports and 38.6%
(previous year 36.9%) to domestic markets.

An order inventory amounting to about DM 31 million remained at the end of
1992.

Initiated already in 1990/1991 and continued also in the completed year,
the economization measures conducted in all sectors of the Company had an
extraordinarily positive effect on both the monetary and earnings
situation.

Engineering improvements on our products, a tightened purchasing policy
and the reduction of completion times allowed a distinct reduction of
inventories both in unfinished and finished products (-DM 8.9 million) as
well as in raw materials and supplies (-DM 0.9 million).

Expense for material and purchased services has dropped at the same time
from nearly 30% to about 25.5% of the Company's total revenues.

A social plan entered into in 1990 has expired as of 7/31/92. Within the
scope of this social plan, but additionally also by individual agreements,
the work force of the Company has been reduced further, amounting at the
end of 1992 to 561 employees (end of 1991: 586) including 76 apprentices
and job trainees.

-20-

Despite this further reduction in personnel, payroll expense has risen in
total to about DM 48.5 million (+11.2%). In addition to contractual
increases in the year 1992, especially attendant expenses in conjunction
with the illustrated work force reduction, higher expense for allocations
to pensions provisions, precautionary measures for the year 1993 as well
as increased earnings-dependent pay had an effect here.

A total of DM 5.5 million was spent on investments, with DM 5.1 million
going to tangible fixed assets and intangible assets (notably data
processing programs) and DM 0.4 million to the acquisition of an interest
in Kerschl Automation GmbH, Mammendorf.

Based on the new investments, depreciation has increased to DM 2.2 million
(previous year DM 1.7 million).

Both reductions in the operating expense area and restruc
turings/assignments of individual types of expense as required on grounds
of the introduction of a new industrial schedule of accounts have caused
other operating expense to drop from DM 22.1 million (1991) to DM 16.9
million (1992).

Stemming especially from the declined inventories and improved earnings
result, the distinctly improved liquidity situation of the Company shows
also in the interest result, amounting in 1992 to +TDM 771 (previous year
-TDM 417).

Due to the weak order situation, it became necessary to adopt short hours
in various areas of the Company, from November 1992. Despite the resulting
reduced output and appreciable precautionary measures for the future that
were taken within the scope of tax- and balance-sheet-related leeway,
earnings from regular business activities of roughly DM 10.4 million were
achieved in the 1992 fiscal year (previous year about DM 3.3 million). Net
cash flow (after taxes) of DM 11.0 million reached 10.8% of sales.

Outlook

The very low order inventory at the beginning of the current fiscal year
and the prevailing market development will result in a distinct decline of
sales in 1993. Basically, signs of this development have been appearing
for some time already, while the actual extent of the present market
weakness became evident only by and by.

The resulting low utilization forced us to expand the scope of short work
begun already in 1992, extending it to additional areas which so far had
been spared. Since an appreciable market revival is presently not
foreseeable, we must assume that this measure will need to be upheld deep
in to 1993.

As far as possible within the scope of social regulations and Company
necessities, the work force will be reduced further also in 1993. Asso
ciated with it, in terms of cost, is a distinct relief which, however,
will be fully effective only in future years. To the extent possible, the
expense associated with the work force reduction has been allowed for
already in the 1992 book closing.

-21-

We'll continue the current streamlining measures. This concerns both
internal procedures and also a steady advancement of our product line with
the aim of cost reductions.

A large step toward expansion of our product line has been taken with the
acquisition of Modul GmbH, Chemnitz (now Hurth Modul GmbH), a renowned
maker of hobbing and gear cutting machines, effective 1/1/1993, which is a
100% subsidiary of Hurth Maschinen und Werkzeuge GmbH, Munich. The
products of Hurth Modul GmbH are being offered worldwide through the same
marketing channels as our existing line.

As well in early 1993 we have acquired the remaining interest in Kerschl
Automation GmbH (now Hurth Automation GmbH), so that this facility now is
owned 100% by Hurth Maschinen und Werkzeuge GmbH, Munich. Meanwhile, the
facility has relocated to Munich, to the site of the parent company. With
this acquisition we combine the intention to strengthen by enhancement of
the activities in the field of manipulating and automation technology also
the sale of machines, both of the Munich and Chemnitz product lines.

Investments of totally DM 13.9 million are contemplated for the year 1993,
of which about DM 5.6 million will fall to fixed tangible assets. The
liquidity surplus earned as of late 1992 ensures that these investments
can be financed on our own.

Before the backdrop of an economic situation that is as weak as it is
uncertain, a prediction of earnings expected in 1993 is very difficult.
Management assumption is that continued streamlining will make it possible
to lower the break-even point of the Company. Therefore, along with the
precautionary measures taken in 1992, at least a break-even should be
achievable despite heavily declining sales.

Munich, April 2, 1993

The Management

<PAGE>
<PAGE>
Item 7 (a) (iii):
-1-

Arthur Anderson & Co. G.m.b.H.
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft
Nymphenburger Straise 1
80335 Munchen

LETTER TO THE SHAREHOLDER

To the Shareholder of
Hurth Maschinen und Werkzeuge GmbH

We have examined the accompanying balance sheet of Hurth Maschinen und
Werkzeuge GmbH (a German Corporation) as of December 31, 1993 and the
related statements of income and cash flows for the year then ended. Our
examinations were made in accordance with German generally accepted
auditing standards and, accordingly, included such tests of the accounting
records and such other auditing procedures as we considered necessary under
the circumstances. At the conclusion of our work we rendered an unqualified
opinion on the statutory financial statements as of December 31, 1993, we
refer to our report dated March 24, 1994.

The Company prepares its financial statements on the basis of accounting
principles generally accepted in Germany. These principles differ in some
respects from accounting principles generally accepted in the United States
of America. Accordingly, the accompanying financial statements are not
intended to present the Company's financial position and results of
operations in conformity with the accounting principles generally accepted
in the United States of America. Material differences between accounting
principles generally accepted in Germany and the United States of America,
as they relate to the accompanying financial statements, are described at
the beginning of page 17.

The management of Hurth Maschinen und Werkzeuge GmbH has declared
bankruptcy proceedings in 1995. As agreed with the shareholder of Hurth
Maschinen und Werkzeuge GmbH our work is performed under the going concern
assumption of para. 252 sect. 1 no. 2 Commercial Code.

In our opinion, taking into account before said, the accompanying financial
statements present fairly the financial position of Hurth Maschinen und
Werkzeuge GmbH as of December 31, 1993 and the results of operations and
cash flows for the year then ended in accordance with accounting principles
generally accepted in Germany.

Munich, August 14, 1995

Arthur Andersen & Co. G.m.b.H.
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft

Thomas Eberhard Ulrich Bayer
Thomas Eberhard Ulrich Bayer
Wirtschaftsprufer Wirtschaftsprufer

-2-
<TABLE>

HURTH MASCHINEN UND WERKZEUGE G.M.B.H., MUNCHEN
BALANCE SHEET AS OF DECEMBER 31, 1993

<CAPTION>
A S S E T S 1993 1992
DM DM

<S> <C> <C>
A. FIXED ASSETS

I. Intangible Fixed Assets
Franchises, Patents and Similar
Rights and Values,Licenses to
Such Rights and Values 794,865.00 890,586.00

II. Tangible Assets
1. Technical Systems and Machinery 3,045,581.00 3,794,165.00
2. Other Systems, Furniture and
Fixtures 3,416,847.00 1,639,208.00
3. Systems Under Construction 14,694.61 14,694.61
6,477,122.61 5,403,067.61

III. Long-term Investments
Shares in Affiliates 8,315,340.00 15,339.00

15,587,327.61 6,308,992.61

B. CURRENT ASSETS

I. Inventories
1. Raw Materials and Supplies 1,739,498.00 2,733,347.00
2. Semifinished Products, Services 6,924,311.00 7,301,666.00
3. Finished Products and
Merchandise 494,487.00 115,893.00
9,158,296.00 10,150,906.00

II. Receivables and Other Assets
1. Accounts Receivables 16,705,134.70 29,536,849.73
2. Affiliates Receivables 8,639,535.16 15,422,848.20
3. Other Receivables 214,961.07 219,960.38
25,559,630.93 45,179,658.31

III. Checks, Cash on Hand, Postal and
Bank Checking Accounts 1,223,939.50 8,172,097.30
35,941,866.43 63,502,661.61

C. PREPAID EXPENSE 193,970.08 201,420.00

51,723,164.12 70,013,074.22

</TABLE>
<PAGE>
<PAGE>
-2-

<TABLE>
HURTH MASCHINEN UND WERKZEUGE G.M.B.H., MUNCHEN

BALANCE SHEET AS OF DECEMBER 31, 1993

<CAPTION>
E Q U I T Y & L I A B I L I T I E S 1993 1992
DM DM
<S> <C> <C>
A. EQUITY

I. Subscribed Capital Stock 650,000.00 650,000.00
II. Capital Reserve 964,000.00 0.00
III. Capital of Silent Partners 10,009,571.66 17,955,291.34
IV. Surplus/Loss (1,900,312.21) 1,005,103.94
9,723,259.45 19,610,395.28

B. PROVISIONS

1. For Pensions and Similar
Obligations 9,318,090.00 9,603,898.00
2. For Taxes 4,089,368.00 4,156,879.00
3. Other Provisions 11,937,744.00 19,415,674.70
25,345,202.00 33,176,451.70

C. LIABILITIES

1. Bank Debts 11,091,839.66 6,238,555.62
2. Down Payments on Orders 4,231.80 982,121.57
3. Accounts Payable 3,985,971.46 6,112,678.09
4. Liabilities to Affiliates 0.00 1,184,406.57
5. Other Liabilities 1,572,659.75 2,708,465.39
- Incl.Taxes: DM 621,919.70
(1992: DM 1,479,059.46)
- Incl. Social Safety Net:
DM 774,414.00
(1992: DM 872,348.66)
16,654,702.67 17,226,227.24

51,723,164.12 70,013,074.22

</TABLE>
<PAGE>
<PAGE>

-3-
<TABLE>
HURTH MASCHINEN UND WERKZEUGE GMBH
MUNICH
EARNINGS STATEMENT FOR THE FISCAL YEAR 1993

<CAPTION>
1993 1992
DM DM

<S> <C> <C>
1. Sales Revenue 54,233,337.85 102,229,503.49
2. Inventories Increase or Reduction
Finished and Unfinished Products 1,239.00 (8,857,607.00)
3. Other Capitalized In-plant Services 386,067.92 77,227.81
4. Other Operating Income 8,992,713.18 7,880,805.27
5. Material Expense:
a) Raw Materials and Supplies and
Purchased Merchandise (11,698,498.81)(14,831,995.53)
b) Purchased Services (6,874,476.41) (9,032,237.04)
6. Payroll:
a) Wages and Salaries (30,967,825.68)(40,827,437.89)
b) Social Costs and Expense for
Old Age Pension and Relief (5,927,749.50) (7,700,619.94)
- incl. Old Age Pension:
DM 503,792.57
(1992: DM 1,772,506.16)
7. Depreciation on Intangible and Tangible
Fixed Assets (3,012,853.18) (2,224,533.09)
8. Other Operating Expense (15,276,301.59)(17,195,554.09)
9. Other Interest and Similar Income 1,401,363.08 1,814,318.86
- incl. from Affiliates:
DM 1,211,543.04
(1992: DM 1,575,230.36)
10. Write-offs on Long-term Investments 0.00 (350,000.00)
11. Interest and Similar Expense (1,809,058.73) (1,043,677.76)
- incl. to Affiliates
DM 0.00 (1992: DM 0.00)

12. Earnings from Regular Business
Activities (10,552,042.87) 9,938,193.09

13. Taxes on Income and Earnings 218,247.84 (2,786,690.00)
14. Other Taxes (167,766.00) (368,883.00)

15. Annual Surplus/Loss (10,501,561.03) 6,782,620.09

16. Surplus/Loss to New Account 1,005,103.94 285,545.29
17. Distribution (1,005,103.94) 0.00
18. Surplus/Loss Shared By Silent Partners 8,601,248.82 (6,063,061.44)

19. Earnings as shown in Balance Sheet (1,900,312.21) 1,005,103.94

</TABLE>
<PAGE>
<PAGE>

-4-

HURTH MASCHINEN UND WERKZEUGE GMBH

MUNICH

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1993

The development of the cash situation and financial strength of the Company
is shown in the following cash flow statements, which is geared to the
variations in cash. It shows revenues and expenditures for business,
investments and financial activities sectors, with the indirect method
having been chosen.

<TABLE>
<CAPTION>
1993 1992
TDM TDM
<S> <C> <C>
Revenues/Expenditures from Business Activities

Annual surplus (10,502) 6,783

Corrections to revenues/expenditures for transfer
of annual surplus/loss

Depreciation on intangible assets and
tangible fixed assets 3,013 2,225
Write-offs on business interests 0 350
Surplus shares of silent partnership 8,601 (6,063)

Increase/decrease of assets and equity/liabilities

Inventories 993 9,753
Accounts receivables 12,832 (499)
Affiliates receivables 6,783 (433)
Other assets 5 (53)
Prepaid expense 7 35
Provisions for taxes (68) 3,149
Other provisions (7,478) (551)
Accounts Payable (2,127) 1,507
Down payments received on orders (978) (1,991)
Liabilities to affiliates (1,184) (1,701)
Other liabilities (1,136) (10)

Total corrections 19,263 5,718

Cash surplus/shortfall from business activities 8,761 12,501

</TABLE>
<PAGE>
<PAGE>

-5-

<TABLE>
<CAPTION>
1993 1992
TDM TDM
<S> <C> <C>
Cash flow from investment activities

Investments for intangible assets (189) (751)
Investments for tangible fixed assets (3,861) (4,394)
Variation in affiliate business interests (8,300) (365)
Assets retired at book value 59 28

Cash shortfall from investment activities (12,291) (5,482)

Cash flow from financial activities

Variation in pension provisions (285) 1,318
Variation in liabilities to banks 4,854 (4,846)
Distribution of dividends (1,005) 0
Allocation to capital reserve 964 0
Variation in shareholders capital (7,946) 4,677

Cash shortfall/surplus from financial activities (3,418) 1,149

Cash increase/decrease (6,948) 8,168

Cash at fiscal year start 8,172 4
Cash at fiscal year end 1,224 8,172

Cash increase/decrease (6,948) 8,168

</TABLE>
<PAGE>
<PAGE>

-6-

HURTH MASCHINEN UND WERKZEUGE GMBH

MUNICH

NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 1993

I. General References

The Company was founded by notary document of October 30, 1990, and
commenced doing business on January 1, 1991, by continuing the business
sector Machines and Tooling of Carl Hurth Maschinen- und Zahnradfabrik GmbH
& Co., Munich.

The Company is a major stock company in the sense of Para. 267 Sect. 3
Commercial Code. The total expense method has been used for the Profit &
Loss Statement.

II. Capital of the Silent Partners

Silent partners atypically hold an interest in the Company with a cash
investment totaling DM 11,400,000.00.

The agreement covering the founding of the silent partnership provides for
a notice the first time on February 1, 1993, and thereafter to the end of
each fiscal year. No notice was pending at the effective date of the
balance sheet.

The silent partners are entitled to make on their Private Account
withdrawals against the good balance.

The Company is entitled to repay the good balance of the silent partners in
the private accounts at any time, wholly or in part.

III. Principles of capitalization and valuation

1. Intangible Assets

Intangible assets acquired against pay are valued at their cost of
purchase, reduced by depreciation. The start of depreciation is calculated
in proportion of time.

-7-

2. Tangible Assets

Tangible assets are valued at cost of purchase or manufacture reduced by
systematic depreciation. The depreciations are calculated according to tax
regulations, basically degressively over a customary service life of three
to ten years. In the case of mobile fixed assets, the full annual amount of
depreciation is applied for additions posted in the first half of the
fiscal year, while one-half the annual amount is applied for additions in
the second half of the year. Assets with purchase cost of less than DM 800
are depreciated fully in the year of addition.

3. Long-term Investments

Long-term investments are shown at cost of acquisition, reduced by
extraordinary write-offs.

4. Inventories

Inventories have been valued at cost of purchase or manufacture or at the
lower applicable value.

5. Accounts Receivable

Accounts receivable were valued at the lowest applicable value at the date
of book closing.

Recognizable risks of loss were allowed for by individual corrections and
the general credit risk by a global correction.

6. Provisions

Pension provisions were entered at the actuary cash value of the current
and vested pensions in keeping with tax provisions.

Other provisions allow for all apparent risks and uncertain obligations in
the amount of expected claim.

Not established was a provision for compensation claims of agents according
to Para. 89b Commercial Code. Basing on the annual commissions of past
years, a maximum risk of DM 2.5 million is calculated, which, modeled on
tax treatment, is not being carried as liability and, thus, correlates
itself since so far no claims have been asserted or any arising
compensations will be assumed by the agents joining newly.

Basing on the present situation, a concrete claim by agents is not
expected.

-8-

7. Currency Conversion

Liabilities in foreign currency have been converted at
the rates of their month of creation or under observance of an imparity
principle at the higher rate on the effective date.

V. Explanation on the Balance Sheet

1. Fixed Assets

The development of the fixed assets in the fiscal year and their breakdown
by cost of purchase or manufacture and accrued depreciation are presented
in the overview on page 9.

-9-

HURTH MASCHINEN UND WERKZEUGE G.M.B.H., MUNCHEN
DEVELOPMENTS OF FIXED ASSETS IN 1993 FISCAL YEAR
<TABLE>
<CAPTION>
PURCHASE COST

Balance Balance
01/01/93 Additions Retired 12/31/93
DM DM DM DM
<S> <C> <C> <C> <C>
I. INTANGIBLE ASSETS 1,177,486.52 188,963.30 0.00 1,366,449.82

II.TANGIBLE ASSETS
1. Technical Systems
and Machines 5,796,831.44 773,818.66 (45,776.00) 6,524,874.10
2. Other Systems,
Furniture, and
Fixtures 2,995,805.57 3,087,288.22 (125,982.00) 5,957,111.79
3. Systems Under
Construction 14,694.61 0.00 0.00 14,694.61

8,807,331.62 3,861,106.88 (171,758.00)12,496,680.50
III.LONG TERM INVEST-
MENTS
Shares in Affiliates 365,339.00 8,300,001.00 0.00 8,665,340.00

10,350,157.14 12,350,071.18 (171,758.00)22,528,470.32
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED DEPRECIATION

Balance Balance
01/01/93 Additions Retired 12/31/93
DM DM DM DM
<S> <C> <C> <C> <C>
I. INTANGIBLE ASSETS 286,900.52 284,684.30 0.00 571,584.82

II.TANGIBLE ASSETS
1. Technical Systems
and Machines 2,047,666.44 1,459,548.66 (27,922.00) 3,479,293.10
2. Other Systems,
Furniture, and
Fixtures 1,356,597.57 1,268,620.22 (84,953.00) 2,540,264.79
3. Systems Under
Construction 0.00 0.00 0.00 0.00

3,404,264.01 2,728,168.88 (112,875.00) 6,019,557.89
III.LONG TERM INVEST-
MENTS
Shares in Affiliates 350,000.00 0.00 0.00 350,000.00

4,041,164.53 3,012,853.18 (112,875.00) 6,941,142.71
</TABLE>
<PAGE>
<PAGE>
<TABLE>
HURTH MASCHINEN UND WERKZEUGE G.M.B.H., MUNCHEN
DEVELOPMENTS OF FIXED ASSETS IN 1993 FISCAL YEAR
<CAPTION>

NET BOOK VALUE

1993 1992
DM DM
<S> <C> <C>
I. INTANGIBLE ASSETS 794,865.00 890,586.00

II.TANGIBLE ASSETS

1. Technical Systems
and Machines 3,045,581.00 3,749,165.00
2. Other Systems,
Furniture, and
Fixtures 3,416,847.00 1,639,208.00
3. Systems Under
Construction 14,694.61 14,694.61

6,477,122.61 5,403,067.61

III. LONG TERM INVEST-
MENTS
Shares in Affiliates 8,315,340.00 15,339.00

15,587,327.61 6,308,992.61

</TABLE>
<PAGE>
<PAGE>

-10-

2. Prepaid Expense

The prepaid expense item includes the discount of two current loans and the
premiums to the FBU insurance.

3. Capital Reserve

According to shareholders vote of July 9, 1993, the shareholder Carl Hurth
Maschinen- und Zahnradfabrik GmbH & Co., Munich, made DM 964,000.00
available as capital reserve.

4. Provisions

The development of provisions can be seen from the overview on page 13.

5. Remaining Lives

Receivables and other assets have a remaining life of less than 1 year.

The remaining lives of the liabilities can be seen from the liabilities
overview on page 12.

-11-

VI. Explanations on Earnings Statement

1. Sales Revenue

Breakdown by Activity Sectors:
1993 1992
DM DM

Tooling 13,531,148.23 16,785,635.97
Gear Shaving Machines 13,020,558.18 34,113,280.04
Gear Tooth Chamfering and Deburring
Machines 8,687,309.65 3,092,294.75
Shaving Cutter Grinders 7,795,980.50 11,607,416.24
Loading Systems 4,217,099.95 13,407,844.64
Assemblies 1,788,825.50 1,031,611.60
Gear Deburring Machines 1,268,479.30 5,712,963.70
Automatic Precision Gear Cutting
Machines 695,761.38 11,100,926.50
Gear Testing Machines 311,486.63 2,295,954.08
Miscellaneous 2,916,688.53 3,081,575.97

54,233,337.85 102,229,503.49

Breakdown by Regions:

Abroad (excl. European Community) 22,519,518.88 20,646,353.35
Domestic 17,072,063.43 35,670,171.43
EC (European Community) 14,641,755.54 45,912,978.71

54,233,337.85 102,229,503.49

-12-

Liabilities Detail
<TABLE>
<CAPTION>

Thereof Residual Life

Type of Liability Total Amount Up to 1 Year 1 to 5 Years Over 5 Years
<S> <C> <C> <C> <C>
Banks 11,091,839.66 7,498,089.66 2,656,250.00 937,500.00
Down Payments
Received 4,231.80 4,231.80 0.00 0.00
Accounts Payable 3,985,971.46 3,985,971.46 0.00 0.00
Other Liabilities 1,572,659.75 1,572,659.75 0.00 0.00

Total 16,654,702.67 13,060,952.67 2,656,250.00 937,500.00

</TABLE>

Use of the bank credit lines is made with application to two underlying
loan agreements granted to the Hurth Group of Companies by Bayerische
Vereinsbank AG, Munich, and Dresdner Bank AG, Munich.

The credit line is secured essentially by:

- Mortgaging the business property of Carl Hurth Maschinen- und
Zahnradfabrik GmbH & Co., Munich, at TDM 75,000.

- DM 5 million unlimited absolute guarantee by Carl Hurth Maschinen- und
Zahnradfabrik GmbH & Co., valid also for Hurth Modul GmbH, Chemnitz,
in favor of Bayerische Vereinsbank AG, Munich.

- Secondary-rank declaration and fixed capital obligations of the
atypical silent partners, to Bayerische Vereinsbank AG, Munich.

- DM 7.5 million unlimited guarantee by Carl Hurth Getriebe und Zahnrader
GmbH to Dresdner Bank AG, Munich.

- Patronage declaration by Mr. Fritz Hurth to Dresdner Bank AG, Munich.

- Fixed-loan and secondary-rank declaration of silent partners to
Dresdner Bank AG, Munich.

<PAGE>
<PAGE>
-13-

Provisions Detail
<TABLE>
<CAPTION>
Balance Used Released Built Balance
Jan. 1, 1993 Back Dec. 31,1993

<S> <C> <C> <C> <C> <C>
Pension Provisions 9,603,898.00 0.00 285,808.00 0.00 9,318,090.00

Tax Provisions
- Trade Tax on Earnings 2,633,030.00 0.00 0.00 0.00 2,633,030.00
- Corporate Income Tax 1,162,001.00 0.00 228,111.00 0.00 933,890.00
- Trade Tax on Capital 256,848.00 0.00 0.00 252,000.00 508,848.00
- Property Tax 105,000.00 0.00 99,000.00 7,600.00 13,600.00
4,156,879.00 0.00 327,111.00 259,600.00 4,089,368.00

Other Provision
- Social Plan/
Downsizing 1,800,000.00 729,496.00 148,845.00 905,323.00 1,826,982.00
- Commissions 2,247,228.70 1,419,150.97 100,000.00 929,062.27 1,657,140.00
- Looming Losses 2,875,200.00 1,455,220.00 1,419,980.00 1,419,980.00 1,419,980.00
- Anniversaries 1,265,653.00 0.00 0.00 57,099.00 1,322,752.00
- Unclaimed Vacation 958,454.00 958,454.00 0.00 1,248,773.00 1,248,773.00
- First Operation
Warranties 2,854,389.00 2,665,011.00 0.00 870,739.00 1,060,117.00
- Accident Prevention
Agencies 690,000.00 0.00 0.00 330,000.00 1,020,000.00
- Guarantee 2,731,000.00 2,557,000.00 174,000.00 925,000.00 925,000.00
- Flex time
Overhang 70,000.00 70,000.00 0.00 440,000.00 440,000.00
- Management Bonus 2,005,000.00 1,742,500.00 0.00 165,000.00 427,500.00
- Year-end Book
Closing 190,000.00 180,000.00 0.00 210,000.00 220,000.00
- Pension Assurance
Association 0.00 0.00 0.00 200,000.00 200,000.00
- Bad Debts 100,000.00 0.00 0.00 15,000.00 115,000.00
- Loan Charges 140,000.00 0.00 100,000.00 0.00 40,000.00
- Nonfulfillment
Penalties 640,000.00 7,250.00 618,250.00 0.00 14,500.00
- Maintenance 400,000.00 400,000.00 0.00 0.00 0.00
- Incentives 293,750.00 30,575.00 263,175.00 0.00 0.00
- Legal Fees 100,000.00 0.00 100,000.00 0.00 0.00
- Fair Expense 55,000.00 55,000.00 0.00 0.00 0.00

19,415,674.70 12,269,656.97 2,924,250.00 7,715,976.27 11,937,744.00

</TABLE>

2. Other Operating Income

Shown under this item are primarily services to affiliates and income from
provision releases.

3. Other Operating Expense

This item includes essentially space costs, data processing costs,
commissions, maintenance and travel allowances.

<PAGE>
<PAGE>
-14-

VI. Other References

1. Other Financial Obligations Not Evident from the Balance Sheet

a) Relief Fund of Carl Hurth Maschinen- und Zahnradfabrik GmbH &
Co., Munich

The Company agreed to assume upon insolvency of the relief fund of Carl
Hurth Maschinen- und Zahnradfabrik GmbH & Co. the current payments, as
carrier company, for the existing pensions. As of December 31, 1993, the
cash value of this obligation is DM 2,324,798.00. In case claims are
asserted against the Company on grounds of the subsidiary liability, an
offset claim accrues in its favor against Carl Hurth Maschinen- und
Zahnradfabrik GmbH & Co. up to maximally DM 2,170,485.00.

The amounts for the 1993 fiscal year have been determined by an opinion of
Dr. Bode, Dr. Grabner & Partners, Actuaries.

The relief fund was completely exhausted at the end of 1993.

b) Rental and Leasing Obligations

For the next five years, the Company carries rental and leasing obligations
from various contracts covering data processing software and hardware,
telephone system, copiers, passenger cars and janitorial service totaling
TDM 3,174. The Company closed with its parent company, Carl Hurth Maschinen-
und Zahnradfabrik GmbH & Co., a lease contract through the year 2000. The
annual lease amounts currently to TDM 3,549.

c) Social Plan Obligations

In mid-1993 the Company entered with the works council into a social plan
agreement which, for the time being, has a fixed budget. On the proviso of
the postponing condition that the City of Munich will for the major part of
the company property at the Munich site allow a floor area index of at
least 1.75, the social plan would increment by a definitive factor. This
incremental obligation has occurred neither at the effective date of the
balance sheet nor the date of balance sheet preparation, since no notice by
the City of Munich has been issued so far.

In case of issuance of the above floor area index, the social plan
obligations of the Company would increase by about TDM 300.

-15-

2. Work Force

The average number of employees during the 1993 fiscal year amount to:

White collar workers 263
Blue collar workers 186

Total 449

3. Management

General Managers of the Company are:

Dr. Horst Gohren, Chemnitz
Mr. Winfried Otto, Renchen

Total earnings of the general managers for the 1993 fiscal year amounted to
TDM 607.

4. Appurtenance Note According to Para. 42 Sect. 3 GmbH Law

Affiliates receivables include receivables against the shareholder totaling
DM 8,639,535.16 (previous year: DM 15,000,000.00).

5. Concern and Investment Situation

100% of the capital stock of the Company is being held by Carl Hurth
Maschinen- und Zahnradfabrik GmbH & Co., Munich.

The Company is thus an affiliate of Carl Hurth Maschinen- und Zahnrad GmbH
& Co., Munich, and its direct and indirect subsidiaries.

Carl Hurth Maschinen- und Zahnradfabrik GmbH & Co., Munich, prepares an
exempting book closing, which is available at parent headquarters, in
Munich.

-16-

In turn, the Company itself held financial interests in:
<TABLE>
<CAPTION>
Share Subscribed Capital Equity Annual Earnings
Name, Domicile % DM as of DM as of DM for
<S> <C> <C> <C> <C> <C> <C> <C>
Hurth Modul GmbH 100 5,000,000.00 12/31/93 6,113,255.00 12/31/93 (6,690,518.00) 1993
Chemnitz
Hurth Automation 100 625,000.00 12/31/93 152,326.52 12/31/93 104,686.66 1993
GmbH, Munich
</TABLE>

6. Liability Situation

a) Acquisition of Modul GmbH, Chemnitz

The Company assumed by said contract the following obligations:

- Exemption of previous owner from pollution cleanup.
- Guarantee for 250 permanent jobs.
- Continuation of facility through at least December 31, 1997.
- Investment guarantee amounting to DM 20 million.
- Surplus surrender at sale of land and buildings.

No claim is recognizable to loom from any of these obligations at the
effective balance sheet date.

b) Transfer of Pension Liabilities

Effective April 1, 1993, Hurth Automation GmbH, Munich, has taken over
employees from Hurth Maschinen und Werkzeuge GmbH. Transferred as well were
the pension promises, internally, to Hurth Automation. A liability relation
amounting to DM 260,605.00 accrues thereof to Hurth Maschinen und Werkzeuge
GmbH.

-17-

I. Material Differences between German and United States Generally Accep-
ted Accounting Principles

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in Germany. Such principles differ
in a number of respects from accounting principles generally accepted in
the United States of America. The significant differences with respect to
the Company's financial statements are described in the following notes.

a. Pension Provision

The Company provides two schemes for its employees: a direct pension com
mitment and an indirect commitment in the form of a support fund. In
accordance with German GAAP the indirect support fund obligation has not
been accrued for.

The liability for both commitments, as calculated in accordance with SFAS
87 is as follows:

<TABLE>
<CAPTION>
(amounts in TDM)

German GAAP U.S. GAAP Difference

<S> <C> <C> <C>
12/31/93
Net periodic pension costs (210) 1,350 (1,560)

Accrued pension costs 9,318
Support fund obligation 2,325
Other indirect obligations 265
11,908 13,616 (1,708)
</TABLE>

<PAGE>
<PAGE>
-18-

b. Accrual for Repairs and Maintenance Expense

In accordance with German GAAP, the Company recorded an accrual for repairs
and maintenance expense amounting to TDM 300 and TDM 400 for the years
ended 12/31/91 and 12/31/92, respectively. No such accrual was recorded in
the year ended 12/31/93.

As these accruals are not permitted under US GAAP, the following reversals
are necessary:

1993

Repairs and maintenance expense (dr.) TDM 400
Retained earnings opening (cr.) TDM 400

In order to properly reverse the 1993 accrual for repairs and maintenance
expense.

c. Adjustment from Cost to Equity Method

1993

In 1993, the Company acquired 100% of the shares of Hurth Modul GmbH,
Chemnitz. Hurth Modul GmbH incurred a net loss of TDM 6,691 in the 1993
fiscal year. Under German GAAP, this investment was accounted for by the
Company using the cost method (i.e. the loss did not impact the Company's
net income). Under US GAAP, the equity method should be used to valuate
the Company's investment in Hurth Modul GmbH. Thus, under the equity
method, the following entry is required:

Loss on investment in Hurth Modul GmbH (dr.) TDM 6,691
Investment in affiliated company (cr.) TDM 6,691
<PAGE>
<PAGE>

-19-

d. Effect on Net Income

A reconciliation of the Company's net income from German GAAP to US GAAP
for the year 1993 is as follows:

(amounts in TDM) 1993
German GAAP shareholder's and silent partners'
net income before taxes (10,552)

Adjustments:
Net periodic pension costs (1,560)
Reversal of accrual for repairs & maintenance
expense (400)
Adjustment from cost to equity method (6,691)

Approximate US GAAP income before taxes (19,203)

Income taxes after adjustments 257
Other taxes after adjustments (168)

Approximate US GAAP shareholder's and silent
partners' net income (19,114)

e. Effect on Shareholder's and Silent Partners' Equity

A reconciliation of the Company's shareholder's and silent partners' equity
for the year ended 1993 is as follows:

(amounts in TDM) 1993
German GAAP shareholder's and silent partners'
equity as of December 31, 1993 9,723
Adjustments:
Net periodic pension costs (1,656)
Adjustment from cost to equity method (6,691)
Change in income taxes (52)
Approximate US GAAP shareholder's and silent
partners' equity as of December 31, 1993 1,324

-20-

HURTH MASCHINEN UND WERKZEUGE GMBH

MUNICH

SITUATION REPORT

1993 Business Development

The worldwide downturn of the business cycle in the machine tool industry
has continued increasingly in the 1993 fiscal year. Having experienced a
drop in order receipts by roughly 32% to only DM 57.8 million in 1992,
Hurth Maschinen und Werkzeuge GmbH posted in 1993 a further reduction to
only DM 40.6 million. Thus, the order volume decreased within two years by
more than 52%.

As a result of the low order receipts, in conjunction with an order
inventory heavily reduced already at the start of the year, the already low
sales expectations required further downward correction in the course of
the year. Compared to 1992 (DM 102.2 million), sales dropped in the year
under review by 47% to only DM 54.2 million. The export share amounted to
68.6% (previous year: 61.4%). With only DM 13.1 million, order inventory as
of 12/31/93 was the lowest since decades.

Caused by the weak demand and thereby insufficient employment, also at our
competitors', extreme competition prevails on the market, entailing in
addition to the volume reduction a drastic deterioration of earnings. This
effect is fortified yet by a distinct and for us unfavorable variation of
the DM currency exchange rate. Economizations achieved in previous years
are being more than consumed thereby.

Rolling market-induced rebates which we had to allow on our products over
to suppliers was possible only in part. Therefore, despite utter thrift,
expenses for material and purchased services increased to 34% of total
revenues (previous year: 25.5%).

Started as early as 1992, short hours were extended heavily in 1993. But
this measure was not sufficient to compensate for the dramatic drop in
employment. Therefore, further reduction in personnel became inevitable at
considerable extent. A social plan agreed upon by mid-year provides for the
dismissal of 80 employees. Utilized additionally were the natural
fluctuations as well as contractual elimination agreements for reduction of
the work force. Unfortunately, in this situation it is not possible either
for those completing apprenticeship in the spring of 1994 to be hired in
permanent employment.

The illustrated measures made it possible to reduce payroll (including
social plan costs and severance pay) to DM 36.9 million (previous year: DM
48.5 million). Overall, the Company still had 490 employees on payroll as
of 12/31/93 (including 57 apprentices and job trainees) (12/31/92: 561
employees)

-21-

Among investments, which in 1993 amounted to about DM 12.4 million
(previous year: DM 5.5 million), especially the acquisition of Hurth Modul
GmbH in Chemnitz deserves mention, which - along with boosting the equity
of said company - involved an amount of DM 8 million. The firm Kerschl
Automation, in which we held a 70% interest at the end of 1992, has been
taken over outright by us, injecting further capital of DM 0.3 million. The
company has since been operating under the name "Hurth Automation GmbH." In
the area of tangible assets and intangible objects, in contrast, we limited
ourselves to the absolutely necessary investment, due to the business
situation. The DM 4.1 million expended here concerned primarily systems for
production and logistics, data processing hardware and software as well as
production tooling.

Write-offs on long-term investments were not required in 1993. Depreciation
on tangible assets amounted to DM 3.0 million.

Despite all cost reduction efforts, the extreme sales decline in 1993 led
to an extraordinarily poor earnings result. In November, 1993, management
was therefore forced to announce in keeping with par. 49 GmbH law the loss
of more than one-half the capital stock.

Very positive at the start of the year, the cash situation that enabled
both financing the accrued losses and also the investments completely on
our own has deteriorated appreciably also in the course of the year. Since
a loan good balance with Carl Hurth KG was unable to repatriated, outside
finances had to be used at appreciable extent, resulting in increased
interest expense.

Cash flow (after taxes) was distinctly negative with DM -7.7 million
(previous year: DM +11.0 million).

Outlook

The 1994 fiscal year will be marked by continued efforts to achieve again
an increase in order receipts and thus an improvement in the employment
situation. Positive signs in this direction have been recognizable since
the start of the year, signaling for the first time in nearly two years
again an upward market movement. This is true notably for the overseas
growth markets in America and Asia, where we steadily boost our activities
by personnel and organizational supplementations. Overall, we expect
moderate increases in order receipts and sales as compared to 1993.

Parallel to it we'll resolutely continue the already initiated
restructuring measures aiming to lower the profits threshold. This concerns
all parts of the Company. Thus, space needs will be reduced once again by
further concentration of both office jobs and manufacturing areas.

Slated within the scope of the social plan agreed upon, the work force
reduction provides for decreasing employment by the end of 1994 from 417
(including 38 apprentices and job trainees) to 391 by the end of 1995
(including 32 apprentices and job trainees). This will be accompanied by a
further reduction in payroll.

-22-

Investments will be made only to the extent at which they benefit the
sought-after economizing goal in the short term, or to the extent they are
being forced for technical reasons.

In the medium term we are striving for a company structure which enables
breaking even at sales of DM 70 million.

A further cost reduction potential we view in the intensified integration
of our subsidiaries, particularly Hurth Modul GmbH in Chemnitz, with which
we achieve better systems utilization and thus higher margins by
interfacility labor division.

In 1994 it will presumably not be possible yet to break even. But as
compared to 1993 we are starting out with a distinctly reduced shortfall
and expect that continued cost reductions will in conjunction with
stabilizing markets enable a further improvement of our earnings result in
1995.

Munich, March 24, 1994

The Management

<PAGE>
<PAGE>
Item 7 (a) (iv):

-1-
<TABLE>

Hurth Maschinen und Werkzeuge GmbH
Balance Sheet as of December 31, 1994
(Unaudited)

<CAPTION>
Assets 12/31/94
DM
<S> <C> <C>
A. Fixed Assets

I. Intangible Assets 684,192.00

II. Tangible Assets
Technical equipment, plant and
machinery 2,444,094.00
Other equipment, factory and
office equipment 2,704,004.00
Advance payments and assets
under construction 46,121.01 5,194,219.01

III. Financial Assets
Shares in affiliated companies 8,015,339.00

B. Current Assets

I. Inventories
Raw Materials and supplies 2,178,246.00
Work-in-process 12,356,078.00
Finished goods and trading stock 35,221.00 14,569,545.00

II. Acounts receivables and
other assets
Trade receivables 22,323,093.17
Receivables from affiliated
companies 894,547.41
Other assets 104,789.94 23,322,430.52

III. Checks, cash on hand, bank balances 6,262,718.71

C. Deferred charges and
prepaid expenses 175,309,.24

D. Capital Deficit 6,331,376.79

64,555,130.27

</TABLE>
<PAGE>
<PAGE>
-1-
<TABLE>

Hurth Maschinen und Werkzeuge GmbH
Balance Sheet as of December 31, 1994
(Unaudited)

<CAPTION>
Liabilities and shareholders' equity 12/31/94
DM

<S> <C> <C>
A. Shareholders' equity

I. Subscribed capital 650,000.00

II. Capital surplus 964,000.00

III. Capital of silent partners 10,009,571.66

IV. Accumulated deficit brought forward (1,900,312.21)

V. Net loss (16,054,636.24)

Capital deficit 6,331,376.79 0.00

B. Provisions

I. Accruals for pensions and
similar obligations 9,439,440.00
II. Tax accruals 2,673,068.37
III. Other accruals 14,312,731.87 26,425,240.24

C. Liabilities

I. Liabilities due to banks 14,703,997.06
II. Advance payments received on
account of orders 1,432,366.79
III. Trade payables 8,650,429.90
IV. Payable to affiliated companies 10,252,753.73
V. Other liabilities 3,090,342.55 38,129,890.03

64,555,130.27
</TABLE>
<PAGE>
<PAGE>
-2-
<TABLE>

Hurth Maschinen und Werkzeuge GmbH
Statement of Income for the Year ended December 31, 1994
(Unaudited)

<CAPTION>
DM

<S> <C> <C>
1. Sales 61,983,506.92

2. Increase of finished goods
and work-in-process 4,972,501.00

3. Own work capitalized 77,094.27

4. Other operating income 3,386,026.36

5. Cost of materials:
a) Cost of raw materials, supplies
and purchased merchandise (16,585,171.98)
b) Cost of purchased services (6,495,349.28) (23,080,521.26)

6. Personnel expenses
a) Wages and salaries (38,196,765.34)
b) Social security and other
pension costs of which in
respect of old age pensions:
DM 298,014.54 (6,164,891.61) (44,361,656.95)

7. Depreciation (2,364,548.19)

8. Other operating expenses (14,891,754.81)

9. Other interest and similar income 36,886.71

10. Write-off of financial assets and
marketable securities (300,001.00)

11. Interest and similar expenses (1,302,770.64)

12. Result from ordinary activities (15,845,237.59)

13. Taxes on income (204,519,.64)

14. Other taxes (4,879.01) (209,398.65)

15. Net loss (16,054,636.24)

</TABLE>
<PAGE>
<PAGE>

-3-
<TABLE>

Hurth Machinen und Werkzeuge GmbH
Statement of Cash Flows for the Year ended December 31, 1994
(Unaudited)

<CAPTION>
DM
<S> <C>
Net loss (16,054,636.24)
+ Depreciation expense 2,364,548.19
+ Increase of accruals 1,080,038.24
- Income from disposals of assets (100,708.98)
- Increase of assets (3,155,387.75)
+ Increase of liabilities 17,863,029.96

cash flow from operating activities 1,996,883.42

+ Receipts from disposals 116,609.59
- Disbursements for investments (986,872.20)

cash flow from investing activities (870,262.61)

+ Depreciation financial assets 300,001.00
+ Increase of liabilities due to banks 3,612,157.40

cash flow from financing activities 3,912,158.40

increase in cash 5,038,779.21

+ cash, beginning of year 1,223,939.50

cash, end of year 6,262,718.71
</TABLE>
<PAGE>
<PAGE>

-4-

Notes to the Unaudited Financial Statements

Hurth Maschinen und Werkzeuge GmbH

for the Year ended December 31, 1994

I. MATERIAL DIFFERENCES BETWEEN GERMAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES

The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in Germany. Those principles
differ in a number of respects from accounting principles generally
accepted in the United States of America. The significant differences
affecting the Company's financial statements are described below.

a. Pension Provision

The Company provides two schemes for its employees: a direct pension com
mitment and an indirect commitment in the form of a support fund. In
accordance with German GAAP the support fund obligation has not been
accrued for.

The liability for both commitments as calculated with an actuarial
valuation under FAS 87 has resulted in the following differences:

<TABLE>
<CAPTION>
December 31, 1994

German GAAP US-GAAP Difference
KDM KDM KDM
<S> <C> <C> <C>
Net periodic pension costs 121 1,261 1,140

Accrued pension cost 9,439
Support fund obligation 2,325
11,764 14,684 2,920
</TABLE>
<PAGE>
<PAGE>

-5-

The restatement between German- and US-GAAP pension accrual was prepared by
the actuary Wyatt Bode Grabner GmbH. In his calculation he considered the
support fund being fully accrued. The difference between the total of
accrued pension costs and support fund obligations as of January 1, 1991
and the projected benefit obligation as of the same date has been amortized
over 15 years.

b. Investments - Adjustments from Cost to Equity Method

Due to the accounting for investments followed by Hurth, the following
difference has to be considered in evaluating the financial statements.

This position is comprised of investments in two companies, Hurth
Automation GmbH and Hurth Modul GmbH.

As of December 31, 1994 the investment in Hurth Automation GmbH has been
written down to DM 1 in the statutory financial statements. The company's
initial cost was DM 652,002.

The investment in Hurth Modul GmbH was originally valued at cost at DM
8,015,338. Using the equity method of accounting, this investment would
have to be written down to DM 0 in the US-GAAP financial statements as at
December 31, 1994.

KDM

Investment value at Cost 8,015
Net Loss 1993 (6,691)
Loss 1994 (1,324)
0

Although Hurth Maschinen und Werkzeuge owns 100% of Hurth Automation GmbH
and Hurth Modul GmbH respectively, the company did not consolidate these
companies in its financial statements. Due to the net equity position at
Hurth Automation GmbH of approximately KDM (1,128) and Hurth Modul GmbH of
approximately KDM (721) as at December 31, 1994, a full consolidation of
these two companies in accordance with US GAAP would have resulted in a
lower net equity position of approximately KDM (1,849) in the US-GAAP
financial statements.

-6-

c. Effect on Net Income

The application of US GAAP, as described above, would have had the
following effect on reported net loss for fiscal year 1994:

KDM

German GAAP Net Loss as reported in the
Income Statement (16,055)

Write down of investment (1,324)

Pension Calculation under FAS 87 (1,140)

Approximate US GAAP Net Loss (18,519)

d. Effect on Stockholders' and Silent Partners' Equity

The application of US GAAP, as described above, would have had the
following approximate effect on Stockholders' and Silent Partners' equity
as of December 31, 1994:
KDM

German GAAP Stockholders' and Silent Partners'
Equity as reported in the Balance Sheet (6,331)

Pension Calculation under FAS 87
- prior years (1,656)
- current year (1,140)

Investments at equity
- prior years (6,691)
- current year (1,324)

Change in Income Taxes
- prior years (52)

Approximate US-GAAP Stockholders' and
Silent Partners' equity (17,194)

-7-

2. GENERAL REFERENCES

The Company was founded by notary document of October 30, 1990, and
commenced doing business on January 1, 1991, by continuing the business
sector Machines and Tooling of Carl Hurth Maschinen- und Zahnradfabrik GmbH
& Co., Munich.

The Company is a major stock company in the sense of Art. 267 par. 3
Commercial Code. The total expense method has been used for the Profit &
Loss Statement.

3. GOING CONCERN

On May 31, 1995 for Hurth Maschinen und Werkzeuge GmbH, bankruptcy
proceedings were initiated. Mr. E. Muller-Heydenreich, attorney of law, was
appointed as receiver.

4. CAPITAL OF THE SILENT PARTNERS

Silent partners atypically hold an interest in the Company with a cash
investment totaling DM 11,400,000.00.

The agreement covering the founding of the silent partnership provides for
a notice the first time on February 1, 1993, and thereafter to the end of
each fiscal year. No notice was pending at the effective date of the
balance sheet.

-8-

The silent partners are entitled to make on their Private Account
withdrawals against the good balance.

The Company is entitled to repay the good balance of the silent partners in
the private accounts at any time, wholly or in part.

5. PRINCIPLES OF CAPITALIZATION AND VALUATION

a. Intangible Assets

Intangible assets acquired are valued at their cost of purchase, reduced by
depreciation. The start of depreciation is calculated in proportion of
time.

b. Tangible Assets

Tangible assets are valued at cost of purchase or manufacture reduced by
systematic depreciation. The depreciations are calculated according to tax
regulations, basically degressively over a customary service life of three
to ten years. In the case of mobile fixed assets, the full annual amount of
depreciation is applied for additions posted in the first half of the
fiscal year, while one-half of the annual amount is applied for additions
in the second half of the year. Assets with purchase cost of less than DM
800 are depreciated fully in the year of addition.

c. Long-term Investments

Long-term investments are shown at cost of acquisition, reduced by
extraordinary write-offs.

-9-

d. Inventories

Inventories have been valued at cost of purchase or manufacture or at the
lower applicable value.

e. Accounts Receivable

Accounts receivable were valued at the lowest applicable value at the date
of book closing.

Recognizable risks of loss were allowed for by individual corrections and
the general credit risk by a global correction.

f. Provisions

Pension provisions were entered at the actuary cash value of the current
and vested pensions in keeping with tax provisions.

Other provisions allow for all apparent risks and uncertain obligations in
the amount of expected claim.

g. Currency Conversion

Accounts receivable or payable in foreign currency have been converted at
the rates of their month of creation or under observance of an imparity
principle at the higher rate on the effective date.

6. EXPLANATION ON THE BALANCE SHEET

a. Fixed Assets

The development of the fixed assets in the fiscal year and their breakdown
by cost of purchase of manufacture and accrued depreciation are presented
in the overview on page 16 of the notes.

-10-

b. Prepaid Expense

The prepaid expense item includes the discount of two current loans and the
premiums to the FBU insurance.

c. Capital Reserve

According to shareholders vote of July 9, 1993, the shareholder Carl Hurth
Maschinen- und Zahnradfabrik GmbH & Co., Munich, made DM 964,000.00
available as capital reserve.

d. Accruals

The development of accruals can be seen from the overview on page 12 of the
notes.

e. Remaining Lives

Receivables and other assets have a remaining life of less than 1 year.

The remaining lives of the liabilities can be seen from the liabilities
overview on page 11 of the notes.

-11-
f.

LIABILITIES OVERVIEW

AS OF DECEMBER 31, 1994

HURTH MASCHINEN UND WERKZEUGE G.M.B.H.

Type of Liabilities Total Amount Up to 1 Year
DM DM

Banks 14,703,997.06 14,703,997.06
Down Payments Received 1,432,366.79 1,432,366.79
Accounts Payable 8,650,429.90 8,650,429.90
Other Liabilities 3,090,342.55 3,090,342.55
Intercompany payabilities 10,252,753.73 10,252,753.73

38,129,890.03 38,129,890.03

The Hurth Group companies was granted as a whole credit lines of DM 70
Million by the banks. A breakdown of the credit line to the individual
companies of the Hurth Group has not been performed so far. The credit
lines were reduced to DM 50 Million in the 4th Quarter of 1994.

The credit line is secured essentially by:

- Mortgaging the business property of Carl Hurth Maschinen- und
Zahnradfabrik GmbH & Co., Munich, at 75,000 TDM.

- DM 5 million unlimited absolute guarantee by Carl Hurth Maschinen-
und Zahnradfabrik GmbH & Co., valid also for Hurth Modul GmbH,
Chemnitz, in favor of Bayerische Vereinsbank AG, Munich.

- Secondary-rank declaration and fixed-capital obligations of the
atypical silent partners, to Bayerische Vereinsbank AG, Munich.

- DM 7.5 million unlimited guarantee by Carl Hurth Getriebe und
Zahnrader GmbH to Dresdner Bank AG, Munich.

- Patronage declaration by Mr. Fritz Hurth to Dresdner Bank AG,
Munich.

- Fixed-loan and secondary-rank declaration of silent partners to
Dresdner Bank AG, Munich.

g.
ACCRUALS OVERVIEW

AS OF DECEMBER 31, 1994

HURTH MASCHINEN UND WERKZEUGE G.M.B.H.

<CAPTION>
Balance Balance
January 1, 1994 December 31,1994

<S> <C> <C>
Pension Provisions 9,318,090.00 9,439,440.00

Tax Provisions
- Trade Tax 3,141,878.00 2,399,364.00
- Corporate Income Tax 933,890.00 269,150.37
- Property Tax 13,600.00 4,554.00
4,089,368.00 2,673,068.37

Other Provisions
- Looming Losses 1,419,980.00 3,057,164.00
- Outstanding Installation 1,060,117.00 2,455,380.00
- Social Plan/Downsizing 1,826,982.00 1,607,448.00
- Anniversaries 1,322,752.00 1,309,061.00
- Commissions 1,657,140.00 1,204,000.00
- Warranty 925,000.00 1,165,000.00
- Unclaimed Vacation 1,248,773.00 1,030,800.00
- Workmen's Compensation 1,020,000.00 992,361.87
- Flextime Carryforward 440,000.00 796,300.00
- Pension Assurance 200,000.00 200,000.00
- Management Bonus 427,500.00 197,575.00
- Year-end Book Closing 220,000.00 172,500.00
- Bad Debts 115,000.00 115,000.00
- Loan Charges 40,000.00 10,142.00
- Nonfulfillment Penalties 14,500.00 0.00

11,937,744.00 14,312,731.87
</TABLE>
<PAGE>
<PAGE>

-13-

6. EXPLANATIONS ON INCOME STATEMENT

a. Sales Revenue

1994 1993
DM DM

61,983,506.92 54,233,337.85

b. Other Operating Income

Shown under this item are primarily income from accrual releases.

c. Other Operating Expense

This item includes essentially space costs, commissions, travel allowances
and lease fees.

7. OTHER REFERENCES

a. OTHER FINANCIAL OBLIGATIONS NOT EVIDENT FROM THE BALANCE SHEET

aa) Rental and Leasing Obligations

-14-

ab) Social Plan Obligations

In mid-1993 the Company entered with the works council into a social plan
agreement which, for the time being, has a fixed budget. Under the
condition that the City of Munich will for the major part of the company
property at the Munich site allow a floor area index of at least 1.75, the
social plan would increment by a definitive factor. This incremental
obligation has occurred neither at the effective date of the balance sheet
nor the date of balance sheet preparation, since no notice by the City of
Munich has been issued so far. In case of issuance of the above floor area
index, the social plan obligations of the Company would increase by about
KDM 300.

b. Work Force

The average number of employees during the 1994 fiscal year amount to:

1994 1993

White collar workers 243 263
Blue collar workers 201 186

Total 444 449

c. Management

General Managers of the Company are:

Dr. Horst Gohren, Chemnitz
Mr. Winfried Otto, Renchen (up to 5/30/1994)
Mr. Franz Zoller, Dusseldorf (since 5/30/94)
Mr. Bernd Holzhauer, Starnberg (since 11/29/1994)

Total earnings of the general managers for the 1994 fiscal year amounted to
KDM 761.

-15-

d. Concern and Investment Situation

100% of the capital stock of the Company is being held by Carl Hurth
Maschinen- und Zahnradfabrik GmbH & Co., Munich.

The Company is thus an affiliate of Carl Hurth Maschinen- und Zahnrad GmbH
& Co., Munich, and its direct and indirect subsidiaries.

Carl Hurth Maschinen- und Zahnradfabrik GmbH & Co., Munich, prepares an
exempting book closing, which is available at parent headquarters, in
Munich.

In turn, the Company itself held financial interests in:

Share Subscribed Capital Equity Annual Earnings
Name, Domicile % DM as of DM as of DM for
<S> <C> <C> <C> <C> <C> <C> <C>
Hurth Modul GmbH 100 5,000,000.00 12/31/94 1,018,975.53 12/31/94 (11,119,002.94) 1994
Chemnitz
Hurth Automation 100 625,000.00 12/31/94 (1,127,959.23) 12/31/94 (1,280,205.75) 1994
GmbH, Munich

</TABLE>
<PAGE>
<PAGE>
-16-
<TABLE>

HURTH MASCHINEN UND WERKZEUGE G.M.B.H., MUNICH
DEVELOPMENTS OF FIXED ASSETS IN FISCAL YEAR 1994

<CAPTION>
PURCHASE COST
Balance Balance
01/01/94 Additions Retired 12/31/94
DM DM DM DM
<S> <C> <C> <C> <C>
I. INTANGIBLE ASSETS 1,366,449.82 166,878.75 0.00 1,533,328.57

II.TANGIBLE ASSETS

1. Technical Systems
and Machines 6,524,874.10 493,697.84 9,446.00 7,009,125.94
2. Other Systems,
Furniture, and
Fixtures 5,957,111.79 272,021.01 175,407.00 6,053,725.80
3. Low Value Assets 24,187.28 14,953.59 0.00 39,140.87
3. Systems Under
Construction 14,694.61 39,321.01 7,894.61 46,121,.01

III.LONG TERM INVEST-
MENTS
Shares in Affiliates 8,665,340.00 0.00 0.00 8,665,340.00

22,552,657.60 986,872.20 192,747.61 23,346,782.19

</TABLE>
<TABLE>
<CAPTION>
ACCRUED DEPRECIATION
Balance Balance
01/01/94 Additions Retired 12/31/94
DM DM DM DM
<S> <C> <C> <C> <C>
I. INTANGIBLE ASSETS 571,584.82 277,551.75 0.00 849,136.57

II.TANGIBLE ASSETS

1. Technical Systems
and Machines 3,479,293.10 1,095,184.84 9,446.00 4,565,031.94
2. Other Systems,
Furniture, and
Fixtures 2,540,264.79 976,858.01 167,401.00 3,349,721.80
3. Low Value Assets 24,187.28 14,953.59 0.00 39,140.87
4. Systems Under
Construction 0.00 0.00 0.00 0.00

III.LONG TERM INVEST-
MENTS
Shares in Affiliates 350,000.00 300,001.00 0.00 650,001.00

6,965,329.99 2,664,549.19 176,847.00 9,453,032.18

</TABLE>
<TABLE>
HURTH MASCHINEN UND WERKZEUGE G.M.B.H., MUNICH
DEVELOPMENTS OF FIXED ASSETS IN FISCAL YEAR 1994

NET BOOK VALUE

1994 1993
DM DM
<S> <C> <C>
I. INTANGIBLE ASSETS 684,192.00 794,865.00

II.TANGIBLE ASSETS

1. Technical Systems
and Machines 2,444,094.00 3,045,581.00
2. Other Systems,
Furniture, and
Fixtures 2,704,004.00 3,416,847.00
3. Low Value Assets 0.00 0.00
4. Systems Under
Construction 46,121.01 14,694.61

5,878,411.01 6,477,172.61

III. LONG TERM INVEST-
MENTS
Shares in Affiliates 8,015,939.00 8,315,340.00

13,893,750.01 15,587,377.61

</TABLE>
<PAGE>
<PAGE>
Item 7(b)
<TABLE>

GLEASON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1995
(Unaudited)
(In thousands)

<CAPTION>
Pro forma Pro forma
Gleason Hurth Combined Adjustments Results
Assets
<S> <C> <C> <C> <C> <C>
Current assets
Cash and equivalents $ 7,293 $ 116 $ 7,409 $ (116)(C) $ 7,293
Trade accounts receivable 32,698 11,908 44,606 (11,908)(C) 32,698
Inventories 21,009 10,558 31,567 (2,035)(D) 29,532
Refundable income taxes 629 -- 629 -- 629
Other current assets 5,758 609 6,367 (609)(C) 5,758
Total current assets 67,387 23,191 90,578 (14,668) 75,910

Property, plant and equipment,
net 52,681 3,959 56,640 5,460 (D) 62,100

Other assets 6,610 -- 6,610 1,708 (D) 8,318
Net assets of discontinued
operations 1,492 -- 1,492 -- 1,492

Total assets $128,170 $ 27,150 $155,320 $ (7,500) $147,820

</TABLE>
See notes to pro forma financial information.
<PAGE>
<PAGE>
<TABLE>

Item 7(b)
GLEASON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1995
(Unaudited)
(In thousands)
<CAPTION>
Pro forma Pro forma
Gleason Hurth Combined Adjustments Results

Liabilities and Stockholders' Equity
<S> <C> <C> <C> <C> <C>
Current liabilities
Short-term borrowings $ 2,501 $ -- $ 2,501 $ -- $ 2,501
Current portion of long-
term debt 2,230 5,750 7,980 (5,750)(C) 2,230
Trade accounts payable 12,232 11,853 24,085 (11,853)(C) 12,232
Income taxes 1,326 -- 1,326 -- 1,326
Other current liabilities 19,446 13,569 33,015 (6,817)(D) 26,198
Total current liabilities 37,735 31,172 68,907 (24,420) 44,487

Long-term debt 502 -- 502 10,794 (E) 11,296
Pension plans and other retiree
benefits 42,518 9,093 51,611 (7,641)(D) 43,970
Other liabilities 2,872 949 3,821 (297)(D) 3,524

Total liabilities 83,627 41,214 124,841 (21,564) 103,277

Stockholders' equity
Common stock 5,796 471 6,267 (471)(D) 5,796
Additional paid-in capital 11,874 699 12,573 (699)(D) 11,874
Retained earnings 43,137 (15,234) 27,903 15,234 (D) 43,137
Cumulative foreign currency
translation adjustment (916) -- (916) -- (916)
Minimum pension liability
adjustment (5,009) -- (5,009) -- (5,009)
54,882 (14,064) 40,818 14,064 54,882
Less treasury stock, at cost 10,339 -- 10,339 -- 10,339

Total stockholders' equity 44,543 (14,064) 30,479 14,064 44,543

Total liabilities and
stockholders' equity $ 128,170 $ 27,150 $155,320 $ (7,500) $147,820

</TABLE>
See notes to pro forma financial information.
<PAGE>
<PAGE>
<TABLE>

Item 7(b)
GLEASON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(Unaudited)
(In thousands, except per share amounts)

<CAPTION>
Proforma Pro forma
Gleason Hurth Combined Adjustments Results
<S> <C> <C> <C> <C> <C>
Net sales $ 128,462 $ 38,262 $ 166,724 $ -- $ 166,724

Costs and expenses
Cost of products sold 94,935 33,588 128,523 (5,599)(F) 122,924
Selling, general and
administrative expenses 24,539 12,910 37,449 (2,525)(F) 34,924
Research and development
expenses 4,729 1,041 5,770 (210)(F) 5,560
Interest expense 11 781 792 340 (F) 1,132
Other (income) expense (909) 1,373 464 (1,094)(F) (630)

Income (loss) from continuing
operations before income taxes 5,157 (11,431) (6,274) 9,088 2,814

Provision for income taxes 825 -- 825 -- 825
Income (loss) from continuing
operations 4,332 (11,431) (7,099) 9,088 1,989

Gain on disposal of discontinued
operations 2,956 -- 2,956 -- 2,956

Net income (loss) $ 7,288 $ (11,431) $ (4,143) $ 9,088 $ 4,945

Weighted average number of common
shares outstanding 5,162,877 5,162,877

Income per common share:
Income from continuing
operations $ 0.84 $ 0.39
Gain on disposal of discontinued
operations 0.57 0.57
Net income $ 1.41 $ 0.96

</TABLE>
See notes to pro forma financial information.
<PAGE>
<PAGE>

<TABLE>
Item 7(b)
GLEASON CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Proforma Pro forma
Gleason Hurth Combined Adjustments Results
<S> <C> <C> <C> <C> <C>
Net sales $ 31,901 $ 7,525 $ 39,426 $ -- $ 39,426

Costs and expenses
Cost of products sold 21,394 6,438 27,832 (686)(F) 27,146
Selling, general and
administrative expenses 5,986 2,259 8,245 (332)(F) 7,913
Research and development
expenses 1,419 177 1,596 (23)(F) 1,573
Interest (income) expense (53) 153 100 167 (F) 267
Other (income) expense (166) 5 (161) -- (161)

Income (loss) before income taxes 3,321 (1,507) 1,814 874 2,688

Provision for income taxes 408 -- 408 -- 408

Net income (loss) $ 2,913 $ (1,507) $ 1,406 $ 874 $ 2,280

Weighted average number of common
shares outstanding 5,164,951 5,164,951

Net income per common share $ 0.56 $ 0.44

</TABLE>
See note to pro forma financial information.
<PAGE>
<PAGE>

Item 7(b)
Notes to Pro Forma Financial Information
(Unaudited)

(A) The pro forma consolidated balance sheet (unaudited) at March 31,
1995 and pro forma consolidated statements of operations (unaudited) for
the year ended December 31, 1994 and the three months ended March 31,
1995 give pro forma effect to the acquisition by Gleason Corporation and
Subsidiaries ("Gleason") of certain assets of Hurth Maschinen und
Werkzeuge GmbH ("Hurth"). The pro forma consolidated statements of
operations for the year ended December 31, 1994 and the three months
ended March 31, 1995, present the results of operations of Gleason as if
the acquisition were consummated as of January 1, 1994. The pro forma
consolidated balance sheet as of March 31, 1995 has been prepared as if
the transaction had occurred on that date.

The pro forma financial information is based on the historical financial
statements of Gleason and Hurth, giving effect to the acquisition under
the purchase method of accounting and the assumptions and adjustments set
forth in these notes. The pro forma information and accompanying notes
should be read in conjunction with the historical financial statements on
which they are based. This pro forma financial information may not be
indicative of either future results of operations or the results that
actually would have occurred if the acquisition had been consummated on
the dates indicated.

(B) Amounts for Hurth have been translated from Deutsche Marks to U.S.
dollars as follows:
Balance Sheet - at the exchange rate in effect as of March 31, 1995
($1 = DM 1.38)
Statements of Operations - at the approximate average exchange rates
in effect during the year ended December 31, 1994 ($1 = DM 1.62)
and the three months ended March 31, 1995 ($1 = DM 1.47)

(C) Reflects the removal of assets not purchased and liabilities not
assumed by Gleason under the agreement with the receiver in bankruptcy
over the assets of Hurth. Under the agreement, Gleason acquired patents,
trademarks, company name, industrial and intellectual property rights and
know-how, machinery and equipment and inventories of Hurth. Gleason
assumed responsibility for installation and warranty of machines
previously sold by Hurth and retained approximately 280 employees. Hurth
entered bankruptcy on May 31, 1995 as a result of large financial losses
sustained by it in 1993 and 1994 due to the economic recession in Europe.

(D) Under purchase accounting, the assets and liabilities of the
acquired business are required to be adjusted from historical amounts to
their estimated fair values. Purchase accounting adjustments have been
preliminarily estimated by Gleason's management based upon available
information and are believed by management to be reasonable. There can
be no assurance, however, that the final purchase accounting adjustments
that will ultimately be determined by Gleason's management will not
differ from these estimates. The following pro forma adjustments have
been made to reflect the estimated fair values of the assets and
liabilities of Hurth assumed in the acquisition:

Increase
Adjustments: (in thousands) (Decrease)
Inventories $ (2,035)
Machinery and equipment 5,460
Intangible assets 1,708
Other current liabilities (6,817)
Pension plans and other retiree benefits (7,641)
Other liabilities (297)
Total stockholders' equity 14,064

The reduction to inventories is primarily due to the planned
discontinuation of certain of Hurth's older less profitable product lines
and revaluation to fair values. The increase to stockholders' equity
represents the elimination of the capital stock and the accumulated
deficit of Hurth.

(E) Represents increase to borrowings under the Company's revolving
credit facility for the acquisition cash based on the preliminary
purchase price calculation.

(F) For purposes of determining the estimated pro forma effect of the
acquisition of Hurth on the Gleason Consolidated Statement of Operations,
the following pro forma adjustments have been made:

Increase (Decrease) Net Income
(in thousands) Year ended Three Months Ended
12/31/94 3/31/95
Lower personnel costs associated
with reduction in headcount $7,012 $ 769

Lower fixed costs associated with
the rental of the facility 1,540 347

Eliminate loss associated with
Hurth investment in subsidiary 817 --

Lower dealer commission expense
due to termination of dealer
contracts 352 88

Higher depreciation and amortization
resulting from adjustments to
fair value of machinery and equipment
and intangible assets (293) (163)

Interest expense associated with
higher debt levels due to acquisition
and working capital requirements
of Hurth (340) (167)
______ _____
Total adjustment to net income $9,088 $ 874
<PAGE>
<PAGE>

The reduction in personnel costs is due to the reduction in headcount
from approximately 450 in 1994 and 400 in 1995 to the level assumed by
Gleason in the acquisition of approximately 280 people. The reduction in
facility rental is primarily attributable to a reduction in rent and
facilities administration formerly charged to Hurth on an intercompany
basis. The Hurth loss from subsidiary in 1994 was removed as Gleason did
not acquire this subsidiary. The reduction in commissions was
attributable to the assumed utilization of Gleason's direct sales
personnel in place of outside dealer representatives on a portion of
Hurth's sales.

The pro forma adjustments to the Statement of Operations did not include
any positive adjustments for increased sales or additional cost
reductions associated with the synergies of the combined business. In
addition, there were no positive adjustments for improved operating
margins through the discontinuation of the older, less profitable product
lines. These effects have not yet been quantified by management.

There were no income tax impacts associated with these pro forma
adjustments as the adjustments were essentially attributed to the Hurth
operation which, due to the magnitude of its operating losses, recorded
no tax benefits on its pre tax losses.