##### Table of Contents

---



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-K



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



For the fiscal year ended December 31, 2003



OR



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



Commission file number: 333-43523



---



ELGIN NATIONAL INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)



|                                |  |                    
|------------------------------- |  | -------------------
|Delaware                        |  | 36-3908410         
|(State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization)  |  | Identification No.)



2001 Butterfield
Road, Suite 1020, Downers Grove, Illinois 60515-1050

(Address of principal executive offices)



Telephone Number: 630-434-7243

Registrants telephone number, including area code



Securities registered pursuant to Section 12(b) of the Act:



None



Securities registered pursuant to Section 12(g) of the Act:



None



---



Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.    x  Yes ̈No



Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (SS 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) ̈Yes        x  No



As of March 27, 2004, there were outstanding 6,408.3 shares of Class A Common
Stock and 19,951.7 shares of Preferred Stock. As of June 28, 2003, the aggregate market value of the voting stock held by non-affiliates of the registrant is $0 because all voting stock is held by an affiliate of the registrant.



---



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC.



Table of Contents



|                                                                                              |  |            
|--------------------------------------------------------------------------------------------- |  | -----------
|Item                                                                                          |  | Page Number
|PART I                                                                                        |  |            
|                                                                                              | 
|1.      BUSINESS                                                                              |  | 1          
|                                                                                              | 
|2.      PROPERTIES                                                                            |  | 4          
|                                                                                              | 
|3.      LEGAL PROCEEDINGS                                                                     |  | 4          
|                                                                                              | 
|4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 5          
|                                                                                              | 
|PART II                                                                                       |  |            
|                                                                                              | 
|5.      MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS             |  | 5          
|                                                                                              | 
|6.      SELECTED FINANCIAL DATA                                                               |  | 5          
|                                                                                              | 
|7.      MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 6          
|                                                                                              | 
|7A.   MARKET RISK                                                                             |  | 12         
|                                                                                              | 
|8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           |  | 13         
|                                                                                              | 
|9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 35         
|                                                                                              | 
|9A.   CONTROLS AND PROCEDURES                                                                 |  | 35         
|                                                                                              | 
|PART III                                                                                      |  |            
|                                                                                              | 
|10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                     |  | 36         
|                                                                                              | 
|11.    EXECUTIVE COMPENSATION                                                                 |  | 37         
|                                                                                              | 
|12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                         |  | 39         
|                                                                                              | 
|13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                         |  | 40         
|                                                                                              | 
|PART IV                                                                                       |  |            
|                                                                                              | 
|14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                 |  | 41         
|                                                                                              | 
|15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                       |  | 41         



ii



---

##### Table of Contents

PART I



ITEM 1.    BUSINESS



Overview



Elgin National Industries, Inc.,
incorporated in 1962, was a publicly traded company listed on the NYSE until it was taken private in 1988 through the leveraged acquisition of stock of Elgin National Industries, Inc. by The Jupiter Corporation (Jupiter), a private
diversified holding company. In September 1993, an investor group led by institutional investors and Senior Management (consisting of Fred C. Schulte, Charles D. Hall and Wayne J. Conner) formed ENI Holding Corp. (ENI), and ENI acquired
the capital stock of Elgin National Industries, Inc. from Jupiter in a leveraged buyout. Through the years Elgin National Industries, Inc. has had strategic acquisitions and divestitures assisting the company in reducing leverage and, Management
believes, focusing on strengthening its businesses. In 2001 Elgin National Industries, Inc. acquired Leland Powell Fasteners, Inc., (Leland), a manufacturer of specialty fasteners located in Martin, Tennessee to further strengthen its
Manufactured Products Segment.



On November 5, 1997, ENI and
Elgin National Industries, Inc. completed a recapitalization intended to retire certain existing indebtedness, redeem the equity interests of outside institutional investors, merge Elgin National Industries, Inc. into ENI and vest (directly or
indirectly) in Senior Management ownership of all of the issued and outstanding capital stock of the surviving entity. The components of the recapitalization were (i) the offering of $85,000,000 11% Senior Notes due 2007 (the Offering),
(ii) ENI using part of the proceeds of the Offering to repurchase all of the common stock, preferred stock and common stock warrants of ENI not owned by Senior Management; (iii) Elgin National Industries, Inc. using part of the proceeds of the
Offering to retire all senior subordinated indebtedness, including the payment of prepayment fees; (iv) Elgin National Industries, Inc. merging into ENI, with ENI remaining as the surviving entity; (v) following such merger, ENI changing its name to
Elgin National Industries, Inc. (items (iv) and (v) resulting in the entity referred to herein as the Company or Elgin); and (vi) the Company and certain of its subsidiaries entering into an amended senior credit facility
(the Senior Credit Facility) (the matters described at items (i) through (vi) above being the Recapitalization Transactions.)



Operating Businesses



The Company owns and operates a diversified group of middle-market manufactured products and engineering services businesses. The Company focuses on
operating businesses with leading positions in niche markets, consistent operating profitability, diverse customer bases, efficient production capabilities and broad product lines serving stable industries. The Company is comprised of two operating
segments. Through its Manufactured Products Segment, Elgin is a leading manufacturer and supplier of custom-designed, highly engineered products used by a wide variety of customers in the industrial equipment, durable goods, mining, mineral
processing and electric utility industries. Through its Engineering Services Segment, Elgin provides design, engineering, procurement and construction management services for mineral processing and bulk materials handling systems used in the mining,
mineral processing, electric utility and the rail and marine transportation industries.



The Manufactured Products Segment is comprised of Ohio Rod Products Company (Ohio Rod), Tabor Machine Company (Tabor), Norris Screen and Manufacturing Inc. (Norris), Centrifugal and
Mechanical Industries (CMI), Centrifugal Services, Inc. (CSI), Mining Controls, Inc. (Mining Controls), Chandler Products (Chandler), Clinch River Corporation (Clinch) Vanco International,
Inc. (Vanco), Leland Powell Fasteners, Inc. (Leland) and Best Metal Finishing Inc. (Best Metal). The Engineering Services Segment is comprised of Roberts & Schaefer Company (R&S) and Soros
Associates, Inc. (Soros).



1



---

##### Table of Contents

Manufactured Products Segment



The Manufactured Products Segment, through its eleven business units,
manufactures and markets products used primarily in the industrial equipment, durable goods, mining, mineral processing and electric utility industries. The businesses within the Manufactured Products Segment consist of original equipment
manufacturers (OEM), suppliers of after-market parts and services and manufacturers of components used by original equipment manufacturers. These businesses have supplied their customers with quality products and services for an average
of over 41 years. The Manufactured Products Segment has a broad and diverse customer base, with no single customer accounting for more than 10% of the Companys sales in 2003.



The Manufactured Products Segment products primarily include specialty fasteners, various types of centrifuges, incline and
horizontal vibrating screen systems of varying sizes and capacities, specialty high and low voltage electrical power distribution equipment, electrical switch gear equipment, power factor control and harmonic correction equipment, underground
lighting and electrical connectors and custom fabrication. The Manufactured Products Segment also sells after-market parts and services.



Net sales for the Manufactured Products Segment for the year ended December 31, 2003, were $88.4 million. Products are sold through in-house sales
personnel, as well as independent sales representatives, supported by engineer and technical services support personnel.



The Manufactured Products Segment sells its products primarily based on product quality and overall customer service. The Manufactured Products Segment
can usually respond to custom or small orders quickly and efficiently, minimizing their competition. The Manufactured Products Segment does have competition with larger manufacturers particularly during periods of excess capacity at their production
facilities, as well as small regional shops and independent suppliers.



Engineering Services Segment



The
Engineering Services Segment provides design, engineering, procurement and construction management services principally to the mining, mineral processing, electric utility and rail and marine transportation industries. Depending upon the needs of
the client, these services are provided on either an unbundled (i.e. task-specific) basis or a full project turnkey basis. Historically, the Engineering Services Segment provided its services primarily to the United States coal mining industry. The
Engineering Services Segment continues to diversify into markets, which include electric utility, aggregates, industrial minerals, base metals and precious metals. Today, the Engineering Services Segment has a broad, well-balanced customer base
within these industries and derived approximately 70% of its net sales from customers outside the coal-mining industry during 2003. Net sales for the Engineering Services Segment for the year ended December 31, 2003 were $56.1 million.



The Engineering Services Segment provides engineering services including
evaluating the feasibility of the customers proposal (from both a cost and engineering standpoint), translating the customers concept to a workable design, or providing bankable feasibility studies, detailed engineering drawings and
extensive engineering support in effecting the realization of a design. In turnkey projects, the Engineering Services Segment performs all service activities necessary for project completion, including design, subcontracting, equipment procurement,
construction management and startup. The Engineering Services Segment also provides equipment procurement on behalf of its customers, involving the designation and sourcing of equipment to meet the customers requirements.



Typical mineral processing facilities designed and built by the Engineering
Services Segment include coal preparation plants, gold processing plants, copper processing plants and aggregate and crushed rock processing plants. They also have a special expertise in offshore terminals, involving bulk loading and unloading at
open sea. The Engineering Services Segment also designs bulk materials handling systems for coal-fired electric power plants and for handling multiple commodities at rail terminals, storage facilities, marine terminals and



2



---

##### Table of Contents

ports. These systems consist of loading and unloading equipment to remove the material from or place it into the transportation vehicle (trucks, trains,
ships or barges) and multiple conveying systems to move material to or from stockpiles.



The Engineering Services Segment provides its services, ranging from engineering only services to turnkey project completion, primarily to the mining, mineral processing, electric utility and rail and marine
transportation industries, with a diversified customer base including a number of leading domestic and international mining companies, electric utility companies and transportation companies. Engineering only services range in size from under
$10,000 to several hundred thousand dollars. The Engineering Services Segments turnkey services include full project responsibility for the design and construction of mineral processing and bulk material handling facilities. The Engineering
Services Segment focuses on turnkey projects of less than $25 million, with most such projects significantly smaller. Total backlog for the Engineering Services Segment at December 31, 2003 was $72.3 million.



Management believes that targeting projects in the range of $1 million to $25
million gives the Engineering Services Segment two strategic advantages. First, this is a niche of the mineral processing and material handling markets that generally does not attract larger firms, permitting the Engineering Services Segment to
compete with smaller, local and regional contractors that may lack the Engineering Services Segments experience and capabilities. Second, by maintaining a larger portfolio of smaller projects, the Engineering Services Segment is better able to
manage the risk inherent in its business.



The Engineering
Services Segment has a broad and diversified customer base, having executed projects in the electric utility, aggregates, industrial minerals and base metal industries. The Engineering Services Segment has also been successful in further
diversifying their markets to include international work. During 2003, approximately 28% of the net sales of the Engineering Services Segment were from international projects.



The Engineering Services Segment markets its services through internal marketing and sales groups principally located in
Chicago, Salt Lake City and Brisbane, Australia. Their management and engineering staff participate in the process to adequately price and successfully bid on projects. The Engineering Services Segment also secures projects through partnering or
joint bidding arrangements with larger engineering and construction firms or architectural engineers, particularly in the case of international projects. In such arrangements, the Engineering Services Segment will assume specific responsibility for
a particular component of a larger project.



Generally, the
Engineering Services Segment competes with a large number of specialty engineering firms on the basis of quality of work performed, strength of reputation, responsiveness to customer needs, price and ability to meet deadlines, and the Engineering
Services Segment seeks to differentiate itself from its competitors with respect to each of these factors.



Supplies



The Company
acquires substantially all of its raw materials from outside sources. The basic raw materials primarily used in the Manufactured Products Segment are flat sheet metal, coiled wire or rod and various forms of stainless steel materials. Additionally,
the Manufactured Products Segment acquires circuit breakers, components, transformer cores, motor drive units and purchased finished goods from outside sources. The Company subcontracts certain fabrication work to other suppliers. The Company is
dependent on the ability of such fabrication suppliers for timely delivery, performance and quality specifications. The Engineering Services Segment sources many different types of components in the construction of plant facilities, which in certain
cases are sold directly to the Companys customer by the selected supplier. These include equipment such as vibrating screens, centrifuge dryers, flotation units and other finished products. The Company believes there are numerous sources of
supply for the different materials used in its operations.



3



---

##### Table of Contents

Employees



As of December 31, 2003, the Company had approximately 690 employees. Approximately 17 employees of the Company at CMIs St. Louis, Missouri facility
are represented by District 8 of the International Association of Machinists and Aerospace Workers (IAM) and are covered by a contract between CMI and the IAM effective from March 1, 1998 through March 31, 2003. CMI and IAM signed a new
contract that will be effect from April 1, 2003 through March 31, 2006. Approximately seven employees of TranService, Inc., a wholly owned subsidiary of the Company, are represented by the United Mine Workers of America (UMWA) and are
covered by the National Bituminous Coal Wage Agreement expiring on December 31, 2006. The Company believes that its relations with its employees are generally good.



ITEM 2.    PROPERTIES



The Company and its businesses conduct operations from the following primary facilities:



|                  |  |                     |  |                   |  |              |  |                         
|----------------- |  | ------------------- |  | ----------------- |  | ------------ |  | ------------------------
|Business          |  | Location            |  | PrincipalFunction |  | Owned/Leased |  | ApproximateSquareFootage
|Elgin             |  | Downers Grove, IL   |  | Headquarters      |  | Leased       |  | 6,470                   
|Ohio Rod          |  | Versailles, IN      |  | Manufacturing     |  | Owned        |  | 93,350                  
|Chandler Products |  | Euclid, OH          |  | Manufacturing     |  | Owned        |  | 88,000                  
|Mining Controls   |  | Beckley, WV         |  | Manufacturing     |  | Owned        |  | 44,925                  
|CMI               |  | St. Louis, MO       |  | Manufacturing     |  | Owned        |  | 63,295                  
|CSI               |  | Raleigh, IL         |  | Manufacturing     |  | Owned        |  | 16,166                  
|                  |  |                     |  |                   |  | Leased       |  | 18,245                  
|Tabor             |  | Bluefield, WV       |  | Manufacturing     |  | Owned        |  | 44,000                  
|Norris            |  | Princeton, WV       |  | Manufacturing     |  | Owned        |  | 12,700                  
|Clinch River      |  | Cedar Bluff, VA     |  | Manufacturing     |  | Owned        |  | 56,300                  
|Vanco             |  | Batavia, IL         |  | Distribution      |  | Leased       |  | 30,890                  
|R & S             |  | Chicago, IL &       |  | Office            |  | Leased       |  | 16,200                  
|                  |  | Salt Lake City, UT  |  | Office            |  | Leased       |  | 25,267                  
|R & S Australia   |  | Brisbane, Australia |  | Office            |  | Leased       |  | 1,400                   
|Soros             |  | Chicago, IL         |  | Office            |  | Leased       |  | 5,800                   
|Leland            |  | Martin, Tenn        |  | Manufacturing     |  | Owned        |  | 92,000                  
|Best Metal        |  | Osgood, IN          |  | Manufacturing     |  | Owned        |  | 42,000                  



ITEM 3.    LEGAL PROCEEDINGS



The Company and its subsidiaries are involved in legal proceedings from time to time in the ordinary course of its business. As of the date of this filing, neither the Company nor any of its subsidiaries are a party
to any lawsuit or proceeding which, individually or in the aggregate, in the opinion of management, is reasonably likely to have a material adverse effect on the financial condition, results of operation or cash flow of the Company.



In connection with the 1993 leveraged buyout of the Company, The Jupiter
Corporation (the former ultimate parent entity of the Company) agreed to indemnify the Company against various claims and ongoing litigation and assumed the defense of such litigation. The litigation includes a wrongful death product liability claim
against R&S in connection with an accident at a work site. Although the Company believes that Jupiter and its insurance carrier are performing on the indemnity obligations, there can be no assurance that they will continue to do so or that the
Company would successfully recover on the indemnity in the event of an adverse judgment against R&S or adverse outcomes in any other proceeding. In any such case, the Company would bear the cost of defense and any adverse judgment. One or more
such adverse judgments could materially and adversely effect the Companys business, financial condition, results of operations and debt service capability.



4



---

##### Table of Contents

Environmental



The Company is subject to a variety of foreign, federal, state and local governmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous materials used in its manufacturing processes. The Company has not historically incurred any material adverse effect on its business, financial condition, results of operations or cash flow as a result of the
Companys compliance with U.S. federal, state, provincial, local or foreign environmental laws or regulations or remediation costs. Some risk of environmental liability and other costs is inherent, however, in the nature of the businesses
conducted by the Manufactured Products Segment, which have been in operation for an average of over 41 years and have performed little invasive testing at their sites. In addition, businesses previously operated by the Company have been sold. There
can be no assurance that future identification of contamination at its current or former sites or at third party-owned sites where waste generated by the Company has been disposed of would not have a material adverse effect on the Companys
business, results of operations, financial condition or debt service capability. Any failure by the Company to obtain required permits for, or adequately restrict the discharge of, hazardous substances under present or future regulations could
subject the Company to substantial liability. Such liability could have a material adverse effect on the Companys business, financial condition, results of operations and debt service capability.



The Company has been named as a potentially responsible party by the New York
Department of Environmental Conservation for clean-up costs at the Companys former manufacturing facility in Orangeburg, New York. The Company has obtained the agreement of its former ultimate parent entity to indemnify it against losses,
damages and costs arising out of such action. Although the Company believes that the indemnitor has performed its obligations on this site to date, there can be no assurance that it will continue to do so or that the Company would successfully
recover on the indemnity. In such a case, the Company would bear the cost of any remediation, which costs could be significant and materially and adversely effect the Companys business, financial condition, results of operations and debt
service capability.



ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.



PART II



ITEM 5.    MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED

STOCKHOLDER
MATTERS



There is no established public offering market
for the outstanding common equity of the Company and 100% of its outstanding common equity is beneficially owned by Senior Management.



The ability of the Company to pay dividends is governed by restrictive covenants contained in the indenture governing its publicly-held debt as well as
restrictive covenants contained in the Companys Loan and Security Agreement. As a result of these restrictive covenants, the Company was limited in the amount of dividends it was allowed to pay on December 31, 2003. The Company did not pay any
dividends in the years ended December 31, 2003, 2002 and 2001.



ITEM 6.    SELECTED FINANCIAL DATA



The following table presents selected historical financial information of the Company, as of the dates and for the periods indicated. The historical financial data as of December 31, 1999, 2000, 2001, 2002 and 2003
was derived from the audited consolidated financial statements of the Company. The selected financial information should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of
Operations and the Companys audited consolidated financial statements and notes thereto.



5



---

##### Table of Contents

Selected Financial Data



|                                                                |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                |  | Fiscal Year Ended December 31, |        
|                                                                |  | 1999                           |         |   | 2000 |   |         | 2001 |  |   | 2002    |   |  | 2003 |        
|                                                                |  | (dollars in thousands)         |        
|Statement of Operations Data:                                   |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net sales                                                       |  | $                              | 150,307 |   |      | $ | 163,370 |      |  | $ | 191,551 |   |  | $    | 149,000 |   |  | $ | 144,545 |  
|Cost of sales                                                   |  |                                | 110,917 |   |      |   | 124,378 |      |  |   | 149,988 |   |  |      | 116,730 |   |  |   | 112,056 |  
|                                                                |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Gross profit                                                    |  |                                | 39,390  |   |      |   | 38,992  |      |  |   | 41,563  |   |  |      | 32,270  |   |  |   | 32,489  |  
|Selling, general and administrative expenses(a)                 |  |                                | 24,888  |   |      |   | 24,419  |      |  |   | 24,850  |   |  |      | 27,007  |   |  |   | 24,928  |  
|Goodwill amortization                                           |  |                                | 386     |   |      |   | 419     |      |  |   | 1,088   |   |  |      |         |   |  |   |         |  
|                                                                |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Operating income                                                |  |                                | 14,116  |   |      |   | 14,154  |      |  |   | 15,625  |   |  |      | 5,263   |   |  |   | 7,561   |  
|Other expenses:                                                 |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Interest expense, net                                           |  |                                | 7,844   |   |      |   | 7,676   |      |  |   | 8,810   |   |  |      | 8,747   |   |  |   | 9,975   |  
|                                                                |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) before income taxes                               |  |                                | 6,272   |   |      |   | 6,478   |      |  |   | 6,815   |   |  |      | (3,484  | ) |  |   | (2,414  | )
|Provision (benefit) for income taxes (a)                        |  |                                | 2,758   |   |      |   | 2,605   |      |  |   | 3,309   |   |  |      | (1,501  | ) |  |   | (302    | )
|                                                                |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                                               |  | $                              | 3,514   |   |      | $ | 3,873   |      |  | $ | 3,506   |   |  | $    | (1,983  | ) |  | $ | (2,112  | )
|                                                                |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                                |  |                                |         |   |     
|Other Financial Data:                                           |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Gross margin  %                                                 |  |                                | 26.2    | % |      |   | 23.9    | %    |  |   | 21.7    | % |  |      | 21.7    | % |  |   | 22.5    | %
|Depreciation and amortization                                   |  | $                              | 3,149   |   |      | $ | 3,182   |      |  | $ | 4,604   |   |  | $    | 3,707   |   |  | $ | 4,067   |  
|Capital expenditures                                            |  |                                | 2,600   |   |      |   | 4,337   |      |  |   | 4,440   |   |  |      | 3,572   |   |  |   | 763     |  
|Net cash provided by (used in) operating activities             |  |                                | 7,602   |   |      |   | 10,674  |      |  |   | 5,619   |   |  |      | (2,598  | ) |  |   | 4,488   |  
|Net cash provided by (used in) investing activities             |  |                                | (8,506  | ) |      |   | (6,395  | )    |  |   | (24,780 | ) |  |      | (3,497  | ) |  |   | (717    | )
|Net cash provided by (used in) financing activities             |  |                                | (3,376  | ) |      |   | (6,959  | )    |  |   | 16,140  |   |  |      | 6,095   |   |  |   | (656    | )
|Operating Unit Data:                                            |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net Sales:                                                      |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Manufactured Products Segment                                   |  | $                              | 77,312  |   |      | $ | 80,036  |      |  | $ | 99,080  |   |  | $    | 93,562  |   |  | $ | 88,411  |  
|Engineering Services Segment                                    |  |                                | 72,995  |   |      |   | 83,334  |      |  |   | 92,471  |   |  |      | 55,438  |   |  |   | 56,134  |  
|                                                                |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total Net Sales                                                 |  | $                              | 150,307 |   |      | $ | 163,370 |      |  | $ | 191,551 |   |  | $    | 149,000 |   |  | $ | 144,545 |  
|                                                                |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Balance Sheet Data:                                             |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents                                       |  | $                              | 5,701   |   |      | $ | 3,021   |      |  | $ |         |   |  | $    |         |   |  | $ | 3,391   |  
|Working capital less cash and cash equivalents                  |  |                                | 7,140   |   |      |   | 10,219  |      |  |   | 12,381  |   |  |      | 18,150  |   |  |   | 13,668  |  
|Property, plant and equipment, net                              |  |                                | 15,754  |   |      |   | 17,935  |      |  |   | 22,070  |   |  |      | 22,441  |   |  |   | 20,308  |  
|Total assets                                                    |  |                                | 106,704 |   |      |   | 112,464 |      |  |   | 137,746 |   |  |      | 124,617 |   |  |   | 133,387 |  
|Total debt                                                      |  |                                | 81,059  |   |      |   | 74,100  |      |  |   | 91,234  |   |  |      | 97,329  |   |  |   | 98,760  |  
|Redeemable preferred stock and redeemable preferred stock units |  |                                | 15,080  |   |      |   | 16,006  |      |  |   | 16,933  |   |  |      | 17,860  |   |  |   | 18,787  |  
|Stockholders deficit                                           |  |                                | (26,532 | ) |      |   | (23,305 | )    |  |   | (20,445 | ) |  |      | (23,074 | ) |  |   | (25,560 | )

---

|(a) | In 1999 the gain on early extinguishment of debt resulted from the repurchase of the Companys senior notes net of amortization of related finance costs. The net gain of
$380,000 was reclassified from extraordinary item of which $619,000 was reclassified as a reduction to SG & A expense with offsetting provision of income taxes of $239,000 in accordance with FASB 145.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Overview



Elgin owns and operates a diversified group of middle-market industrial manufacturing and engineering services businesses. The Company focuses on
operating businesses with leading positions in niche markets, consistent profitability, diverse customer bases, efficient production capabilities and broad product lines serving stable industries. The Company is comprised of thirteen business units
that are organized into two operating segments. Through its Manufactured Products Segment, Elgin is a leading manufacturer and supplier of custom-designed, highly engineered products used by a wide variety of customers in the industrial equipment,
durable goods, mining, mineral processing and electric utility industries. Through its Engineering Services Segment, Elgin provides design, engineering, procurement and construction management services for mineral processing and bulk materials
handling systems used in the mining, mineral processing, electric utility and the rail and marine transportation industries.



6



---

##### Table of Contents

Variability of Revenues and Cash Flows



The Engineering Services Segments project base is typically comprised of over 100 projects in process each year. At
any given time, this project base includes a substantial majority of small projects (which the Company defines as producing less than $1.0 million in annual sales) as well as a number of larger projects (which the Company defines as producing $1.0
million or more in annual sales). The Companys revenues from these larger projects tend to fluctuate from year to year depending on the number of such projects in process and the respective status of each project. In addition, these larger
projects often extend over more than one year, causing potential fluctuations in revenues and cash flows. The Company uses the percentage of completion method of accounting for its engineering services contracts. Under this method of accounting, the
degree of completion of each contract is generally determined by comparing the costs incurred to date to the total costs anticipated for the entire contract, taking into account the current estimates of cost to complete the contract. Revenue is
recognized on each contract as a percentage of the total contract revenue in proportion to the degree of the projects completion. Management routinely reviews total estimated costs to complete each contract and revises the estimated gross
margin on the contract accordingly. Losses are recognized in full in the period in which they are determined. Cash flows can vary significantly from period to period, depending on the terms of the larger contracts then in force. In some contracts,
the customers provide full or partial advance cash payments prior to performance by the Company. In other contracts, receipts follow disbursements in varying degrees. As a result, reported operating income of the Engineering Services Segment for any
period is not necessarily indicative of cash flow for that period.



Results
of Operations



The following tables set forth, for the
periods indicated, amounts derived from the Companys consolidated statements of operations and related percentages of net sales. There can be no assurance that the trends in operating results will continue in the future.



Company Consolidated

(dollars in millions)



|                                           |  |                                        |       |  |       |   |  |      |       |   |  |       |   |  |   |       |   |  |       |  
|------------------------------------------ |  | -------------------------------------- | ----- |  | ----- | - |  | ---- | ----- | - |  | ----- | - |  | - | ----- | - |  | ----- | -
|                                           |  | For the Fiscal Year Ended December 31, |      
|                                           |  | 2001                                   |       |  | 2002  |   |  | 2003 |      
|Net sales                                  |  | $                                      | 191.5 |  | 100.0 | % |  | $    | 149.0 |   |  | 100.0 | % |  | $ | 144.5 |   |  | 100.0 | %
|Cost of sales                              |  |                                        | 150.0 |  | 78.3  |   |  |      | 116.7 |   |  | 78.3  |   |  |   | 112.0 |   |  | 77.5  |  
|Gross profit                               |  |                                        | 41.5  |  | 21.7  |   |  |      | 32.3  |   |  | 21.7  |   |  |   | 32.5  |   |  | 22.5  |  
|Selling, general & administrative expenses |  |                                        | 24.8  |  | 12.9  |   |  |      | 27.0  |   |  | 18.1  |   |  |   | 24.9  |   |  | 17.2  |  
|Goodwill amortization                      |  |                                        | 1.1   |  | 0.6   |   |  |      |       |   |  |       |   |  |   |       |   |  |       |  
|Operating income                           |  |                                        | 15.6  |  | 8.2   |   |  |      | 5.3   |   |  | 3.6   |   |  |   | 7.6   |   |  | 5.3   |  
|Interest expense, net                      |  |                                        | 8.8   |  | 4.6   |   |  |      | 8.8   |   |  | 5.9   |   |  |   | 10.0  |   |  | 6.9   |  
|Income (loss) before income taxes          |  |                                        | 6.8   |  | 3.6   |   |  |      | (3.5  | ) |  | (2.3  | ) |  |   | (2.4  | ) |  | (1.6  | )
|Provision (benefit) for income taxes       |  |                                        | 3.3   |  | 1.7   |   |  |      | (1.5  | ) |  | (1.0  | ) |  |   | (0.3  | ) |  | (0.2  | )
|Net income (loss)                          |  |                                        | 3.5   |  | 1.9   |   |  |      | (2.0  | ) |  | (1.3  | ) |  |   | (2.1  | ) |  | (1.4  | )



Manufactured
Products Segment

(dollars in millions)



|              |  |                                        |      |  |       |   |  |      |      |  |       |   |  |   |      |  |       |  
|------------- |  | -------------------------------------- | ---- |  | ----- | - |  | ---- | ---- |  | ----- | - |  | - | ---- |  | ----- | -
|              |  | For the Fiscal Year Ended December 31, |     
|              |  | 2001                                   |      |  | 2002  |   |  | 2003 |     
|Net sales     |  | $                                      | 99.1 |  | 100.0 | % |  | $    | 93.6 |  | 100.0 | % |  | $ | 88.4 |  | 100.0 | %
|Cost of sales |  |                                        | 69.2 |  | 69.8  |   |  |      | 67.1 |  | 71.7  |   |  |   | 61.1 |  | 69.1  |  
|Gross profit  |  |                                        | 29.9 |  | 30.2  |   |  |      | 26.5 |  | 28.3  |   |  |   | 27.3 |  | 30.9  |  



7



---

##### Table of Contents

Engineering Services Segment

(dollars in millions)



|              |  |                                        |      |  |       |   |  |      |      |  |       |   |  |   |      |  |       |  
|------------- |  | -------------------------------------- | ---- |  | ----- | - |  | ---- | ---- |  | ----- | - |  | - | ---- |  | ----- | -
|              |  | For the Fiscal Year Ended December 31, |     
|              |  | 2001                                   |      |  | 2002  |   |  | 2003 |     
|Net sales     |  | $                                      | 92.4 |  | 100.0 | % |  | $    | 55.4 |  | 100.0 | % |  | $ | 56.1 |  | 100.0 | %
|Cost of sales |  |                                        | 80.8 |  | 87.4  |   |  |      | 49.6 |  | 89.6  |   |  |   | 50.9 |  | 90.8  |  
|Gross profit  |  |                                        | 11.6 |  | 12.6  |   |  |      | 5.8  |  | 10.4  |   |  |   | 5.2  |  | 9.2   |  



Year Ended
December 31, 2003 Compared to Year Ended December 31, 2002



Net Sales:    Net sales for the Manufactured Products Segment for the year ended December 31, 2003 decreased $5.2 million, or 5.5%, to $88.4 million from $93.6 million for the corresponding period in 2002.
The decreased sales level was due to decreased sales of fabricated equipment and fasteners.



Net sales for the Engineering Services Segment for the year ended December 31, 2003 increased $0.7 million, or 1.3%, to $56.1 million from $55.4 million for the corresponding period in 2002 due primarily to increased
sales of larger engineering projects with sales greater than $1.0 million, partially offset with decreased sales from smaller jobs. In 2003 the Engineering Services Segment had $46.2 million in sales from ten larger projects compared to $43.2
million from seven larger projects for 2002. Sales from smaller jobs with sales less than $1.0 million each decreased to $9.9 million for the year ended 2003 from $12.2 million for 2002.



Cost of Sales:    Cost of sales for the Manufactured Products Segment for the year ended
December 31, 2003 decreased $6.0 million, or 8.9%, to $61.1 million from $67.1 million for the corresponding period in 2002 due to the decreased sales level. The Manufactured Products Segments cost of sales as a percentage of net sales
decreased to 69.1% for the year ended December 31, 2003 from 71.7% for the corresponding period in 2002 due to higher margins earned on centrifugal dryer sales, screen sales and fasteners, partially offset with costs associated with the new plating
facility which began operations in 2003.



Cost of sales for the
Engineering Services Segment for the year ended December 31, 2003 increased $1.3 million, or 2.5%, to $50.9 million from $49.6 million for the corresponding period in 2002 due to the higher sales level. As a percentage of net sales, the Engineering
Services Segments cost of sales increased to 90.8% for the year ended December 31, 2003 from 89.6% for the corresponding period in 2002 due to higher costs as a percentage of sales associated with the larger projects.



Gross Profit:    Gross profit for the
Manufactured Products Segment for the year ended December 31, 2003 increased $0.8 million, or 3.1%, to $27.3 million from $26.5 million for the corresponding period in 2002 due to the higher margins earned on centrifugal dryers, screens and
fasteners, partially offset with the lower sales level and costs from the plating facility. The Manufactured Products Segments gross profit as a percentage of net sales increased to 30.9% for the year ended December 31, 2003 from 28.3% for the
corresponding period in 2002.



Gross profit of the Engineering
Services Segment for the year ended December 31, 2003 decreased $0.6 million, or 10.3%, to $5.2 million from $5.8 million for the corresponding period in 2002 due to the lower sales level in the year ended December 31, 2003. As a percentage of net
sales, the Engineering Services Segments gross profit decreased to 9.2% for the year ended December 31, 2003 from 10.4% for the corresponding period in 2002 due to lower margins earned on larger projects.



Selling, General and Administrative
Expenses:    Selling, general and administrative expenses of the Company of $24.9 million for the year ended December 31, 2003 represented a decrease of $2.1 million in comparison to $27.0 million for the corresponding
period in 2002 primarily due to non-cash pension expense of $1.1 million incurred in 2002 compared to non-cash pension income of $1.0 million in 2003.



8



---

##### Table of Contents

Operating Income:    Operating income of the Company for the year ended
December 31, 2003 of $7.6 million was $2.3 million higher than the operating income of $5.3 million for the corresponding period in 2002 for the reasons discussed above. Operating income as a percentage of net sales increased to 5.3% for the year
ended December 31, 2003 from 3.6% for the corresponding period in 2002.



Interest Income:    Interest income of the Company for the year ended December 31, 2003 of $0.7 million approximated interest income for the year ended December 31, 2002.



Interest Expense:    Interest expense of the
Company for the year ended December 31, 2003 of $10.6 million was $1.1 million higher than the interest expense of $9.5 million for the year ended December 31, 2002 due to a higher debt level and higher interest rates.



Loss Before Income Taxes:    The Company
incurred a loss before income taxes of $2.4 million for the year ended December 31, 2003, compared to $3.5 million for the year ended December 31, 2002, for the reasons discussed above.



Benefit for Income Taxes:    Benefit for income taxes for the year ended December 31, 2003
was $0.3 million, compared to $1.5 million for the year ended December 31, 2002. The Companys effective tax rate decreased to 13% in 2003 from 43% in 2002 primarily due to foreign losses incurred in 2003 with no current tax benefit.



Net Loss:    The Company had
a net loss of $2.1 million for the year ended December 31, 2003, compared to $2.0 million for the year ended December 31, 2002. This decrease of $0.1 million was due to the reasons discussed above.



Year Ended December 31, 2002 Compared to Year Ended December 31, 2001



Net Sales:    Net
sales for the Manufactured Products Segment for the year ended December 31, 2002 decreased $5.5 million, or 5.6%, to $93.6 million from $99.1 million for the corresponding period in 2001. The decreased sales level was due to decreased sales of
centrifugal dryers and industrial capital equipment, partially offset with increased fastener sales and sales of electronic components.



Net sales for the Engineering Services Segment for the year ended December 31, 2002 decreased $37.0 million, or 40.0%, to $55.4 million from $92.4 million
for the corresponding period in 2001 due primarily to decreased sales of larger engineering jobs with sales greater than $1.0 million. In 2002 the Engineering Services Segment had $43.2 million in sales from seven larger jobs compared to $81.1
million from fifteen jobs for 2001.



Cost of
Sales:    Cost of sales for the Manufactured Products Segment for the year ended December 31, 2002 decreased $2.1 million, or 3.0%, to $67.1 million from $69.2 million for the corresponding period in 2001 due to the
decreased sales level. The Manufactured Products Segments cost of sales as a percentage of net sales increased to 71.7% for the year ended December 31, 2002 from 69.8% for the corresponding period in 2001 due to lower margins earned on
centrifugal dryer sales and steel fabrication work, along with costs associated with the start-up of Best Metal Finishing, a plating facility which will begin operations during the second quarter of 2003.



Cost of sales for the Engineering Services Segment for the year ended
December 31, 2002 decreased $31.2 million, or 38.5%, to $49.6 million from $80.8 million for the corresponding period in 2001 due to the lower sales level, partially offset with a reduction of margin on two larger projects. As a percentage of net
sales, the Engineering Services Segments cost of sales increased to 89.6% for the year ended December 31, 2002 from 87.4% for the corresponding period in 2001.



Gross Profit:    Gross profit for the Manufactured Products Segment for the year ended
December 31, 2002 decreased $3.4 million, or 11.4%, to $26.5 million from $29.9 million for the corresponding period in 2001 due



9



---

##### Table of Contents

to the decreased sales level. The Manufactured Products Segments gross profit as a percentage of net sales decreased to 28.3% for the year ended
December 31, 2002 from 30.2% for the corresponding period in 2001 due to the lower margins earned on centrifugal dryer sales and steel fabrication work, along with costs associated with the start-up of Best Metal Finishing



Gross profit of the Engineering Services Segment for the year ended December
31, 2002 decreased $5.8 million, or 50.5%, to $5.8 million from $11.6 million for the corresponding period in 2001 due to the lower sales level in the year ended December 31, 2002. As a percentage of net sales, the Engineering Services
Segments gross profit decreased to 10.4% for the year ended December 31, 2002 from 12.6% for the corresponding period in 2001 due to a reduction of margin on two larger projects.



Selling, General and Administrative Expenses:    Selling, general and administrative
expenses of the Company of $27.0 million for the year ended December 31, 2002 represented an increase of $2.2 million in comparison to $24.8 million for the corresponding period in 2001 primarily due to non-cash pension expense of $1.1 million
incurred in 2002 compared to non-cash pension income of $1.7 million in 2001.



Goodwill Amortization:    Beginning January 1, 2002 the Company discontinued the amortization of goodwill in accordance with the provisions of Statement of Accounting Standards No.
142Goodwill and Other Intangible Assets. Goodwill amortization was $1.1 million for the year ended December 31, 2001.



Operating Income:    Operating income of the Company for the year ended December 31, 2002 of $5.3 million was $10.3
million lower than the operating income of $15.6 million for the corresponding period in 2001 for the reasons discussed above. Operating income as a percentage of net sales decreased to 3.6% for the year ended December 31, 2002 from 8.2% for the
corresponding period in 2001.



Interest
Income:    Interest income of the Company for the year ended December 31, 2002 of $0.7 million approximated interest income for the year ended December 31, 2001.



Interest Expense    Interest expense of the Company for the year ended December 31, 2002 of $9.5
million approximated interest expense for the year ended December 31, 2001.



(Loss) Income Before Income Taxes:    The Company incurred a loss before income taxes of $3.5 million for the year ended December 31, 2002, compared to income before income taxes of
$6.8 million for the year ended December 31, 2001, for the reasons discussed above. Loss before income taxes, as a percentage of net sales was 2.3% for the year ended December 31, 2002 compared to income before income taxes of 3.6% for the year
ended 2001.



(Benefit) Provision for Income
Taxes:    Benefit for income taxes for the year ended December 31, 2002 was $1.5 million, compared to a provision of $3.3 million for the year ended December 31, 2001. The Companys effective tax rate decreased to 43% in
2002 from 49% in 2001 primarily due to an adjustment to deferred income taxes in 2001.



Net (Loss) Income:    The Company had a net loss of $2.0 million for the year ended December 31, 2002, compared to net income of $3.5 million for the year ended December 31, 2001. This
decrease of $5.5 million was due to the reasons discussed above. Net loss as a percentage of net sales was 1.3% for the year ended December 31, 2002 compared to net income as a percentage of sales of 1.8% for the corresponding year ended 2001.



Critical Accounting Policies:



The Companys consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States. The preparation of our consolidated financial statements requires management to make estimates and judgments that affect both the entitys results of operations as
well as the carrying values of its assets and liabilities. Although our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements, the following discussion is intended to describe those accounting
policies most critical to the preparation of our consolidated financial statements.



10



---

##### Table of Contents

Revenue recognition within the Engineering Services Segment:



Revenues earned through the Engineering Services Segment are recognized on a
percentage-of-completion method measured by comparing costs incurred to date with the total estimated costs on each project. The percentage-of-completion method is the preferable method of revenue recognition as set forth in the American Institute
of Certified Public Accountants (AICPA) Statement of Position 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. Contract costs include engineering costs, direct material and direct
labor along with indirect costs related to contract completion. Items that affect changes in the estimate of revenue recognition can include progress against schedule, project staffing, risks and issues, subcontract management, and incurred and
estimated costs. Management reviews the overall progress on the contract to determine that the revenue recognized is consistent with the effort expended to date.



Percentage-of-completion revenue recognition inherently involves estimation. Examples of estimates include the contemplated
level of effort to accomplish the tasks under contract, the cost of effort, and an ongoing assessment of the Companys progress toward completing the contract. From time to time, as part the Companys standard management processes, facts
develop that require the Company to revise its estimated total costs and revenues. Favorable adjustments to these cost estimates are made and recognized in income over the remaining contract period. Unfavorable adjustments are recorded as soon as
they are apparent. Estimated losses on uncompleted contracts are provided in full within the period in which the losses are determinable.



Liquidity and Capital Resources



Net cash generated from operating activities for the year ended December 31, 2003 of $4.5 million was generated from the net loss adjusted for non-cash
charges, increased accounts payable and accrued expenses, and decreased prepaid expenses and other assets. These increases in cash were partially offset with cash used to increase accounts receivables and inventories. Cash flows from operations for
any specific period are often materially affected by the timing and amounts of payments on contracts of the Engineering Services Segment, and the timing of payments by such Segment for products and services.



Cash used in investing activities for the year ended December 31, 2003 of
$0.7 million consisted of capital expenditures in accordance with the Companys regular practice of upgrading and maintaining its equipment base and facilities.



Cash used financing activities for 2003 was $0.7 million which included repayments of $23.6 million on the Companys
previous credit facility and $2.1 million of debt issuance costs related to a Loan and Security Agreement entered into on February 10, 2003, partially offset with borrowings of $25.0 million on the Loan and Security Agreement.



On February 10, 2003, the Company and its subsidiaries entered into a Loan
and Security Agreement to increase its borrowing capacity. Proceeds from the new Senior Credit Facility were used to repay and retire all amounts outstanding under the existing Senior Credit Facility. The new Senior Credit Facility includes three
term loans, Term Loan A, Term Loan, B and Term Loan C, having original principal amounts of $7,500,000, $2,500,000 and $15,000,000, respectively. The new Senior Credit Facility also includes a revolver loan with a commitment amount of $27,500,000
subject to borrowing base and other restrictions, as well as restrictions under the Companys Indenture. Term Loan A requires monthly principal payments of $0.1 million and Term Loan B requires monthly principal payments of $0.1 million, both
beginning in May 2003. Term C does not require current principal repayments. The Companys assets are pledged under the terms of the new Senior Credit Facility.



As of December 31, 2003 the Company had a calculated borrowing base availability of $15.3 million on its revolver loan less
$2.9 million in standby letters of credit outstanding, leaving a remaining available balance of $12.4 million.



The Companys liquidity requirements, both long term (over one year) and short term, are primarily for debt service, working capital needs and
capital expenditures. The primary source for meeting these needs has been funds provided by operations and funds available under the Loan and Security Agreement. The Company



11



---

##### Table of Contents

anticipates that with improved operating results, funds provided from future operations and available credit should be sufficient to meet its anticipated
debt service requirements, working capital needs and capital expenditures.



The Company has the following contractual cash obligations outstanding as of December 31, 2003:



Contractual Cash Obligations



|                                   |  |                        |         |                 |   |          |  |          |        |              |   |        |  |   |      
|---------------------------------- |  | ---------------------- | ------- | --------------- | - | -------- |  | -------- | ------ | ------------ | - | ------ |  | - | -----
|                                   |  | Payments Due by Period
|                                   |  | Total                  |         | Less than1 Year |   | 1-3Years |  | 4-5Years |        | After 5Years
|                                   |  | (dollars in thousands)
|Long Term Debt                     |  | $                      | 98,760  |                 | $ | 2,019    |  | $        | 17,824 |              | $ | 77,954 |  | $ | 963  
|Operating Leases                   |  |                        | 4,747   |                 |   | 1,752    |  |          | 1,891  |              |   | 812    |  |   | 292  
|                                   |  |                        |         |                 |   |          |  |          |        |              |   |        |  |   |      
|Total Contractual Cash Obligations |  | $                      | 103,507 |                 | $ | 3,771    |  | $        | 19,715 |              | $ | 78,766 |  | $ | 1,255
|                                   |  |                        |         |                 |   |          |  |          |        |              |   |        |  |   |      



Backlog



The Companys backlog consists of that portion of contracts for the
Engineering Services Segment that have been awarded but not performed and also includes open orders for the Manufactured Products Segment. Backlog at December 31, 2003 was $87.2 million. Approximately $14.9 million relates to the Manufactured
Products Segment, with the remaining amount of $72.3 million relating to the Engineering Services Segment. Within the Engineering Services Segments backlog at December 31, 2003, $43.3 million relates to an engineering, procurement and
construction management project for an aggregate processing plant, and $7.5 million relates to the operation of a coal transport system. A majority of the current backlog is expected to be realized within the next twelve months.



Inflation



Historically, general inflation has had only a minor affect on the operations of the Company and its internal and external
sources for liquidity and working capital, and the Company has generally been able to increase prices to reflect cost increases.



Safe Harbor



Statements herein regarding the Companys ability to meet its liquidity requirements and the anticipated benefits from the Companys
capital expenditures, and the Companys expected realization of current backlog constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Act of 1934. Such statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from those projected. Further, statements herein regarding the Companys performance in future periods are subject to risks relating to, deterioration of relationships with,
or the loss of material customers or suppliers, possible product liability claims, decreases in demand for the Companys products, and adverse changes in general market and industry conditions. Management believes these forward looking
statements are reasonable; however, undue reliance should not be placed on such forward looking statements, which are based on current expectations.



ITEM 7A.    MARKET RISK



In 2003, approximately 14% of the Companys net sales were attributable to products sold or services provided outside of the United States. In 2003, the majority of the Companys foreign sales were to
companies located in Australia. A portion of these net sales and cost of sales is derived from international operations which are conducted in foreign currencies. Changes in the value of these foreign currencies relative to the U.S. dollar could
adversely affect the Companys business, financial condition, results of operation and debt service capability. Sales from the Australia office of Roberts & Schaefer are usually donominated in Australian dollars. The majority of the
Companys foreign sales and costs originated from any office other than the Australia office of Roberts & Schaefer are denominated in U.S. dollars. With respect to transactions denominated in foreign currencies, when possible the Company
attempts to mitigate foreign exchange risk by contractually shifting the burden of the risk of currency fluctuations to the other party in the transactions.



12



---

##### Table of Contents

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



Index to Consolidated Financial Statements of Elgin National Industries, Inc.



|                                                                                                                        |  |     
|----------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                        |  | Page
|Report of Independent AuditorsErnst & Young LLP                                                                        |  | 14  
|                                                                                                                        | 
|Consolidated Balance Sheets as of December 31, 2003 and December 31, 2002                                               |  | 15  
|                                                                                                                        | 
|Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001                              |  | 16  
|                                                                                                                        | 
|Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2003, 2002 and 2001             |  | 16  
|                                                                                                                        | 
|Consolidated Statements of Changes in Common Stockholders Deficit for the years ended December 31, 2003, 2002 and 2001 |  | 17  
|                                                                                                                        | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001                              |  | 18  
|                                                                                                                        | 
|Notes to Consolidated Financial Statements                                                                              |  | 19  



13



---

##### Table of Contents

REPORT OF INDEPENDENT AUDITORS



To the Board of Directors and Stockholder

Elgin National Industries, Inc.



We have audited the
consolidated balance sheets of Elgin National Industries, Inc. and Subsidiary Companies as of December 31, 2003 and 2002, and the related consolidated statements of operations, comprehensive income (loss), changes in common stockholders
deficit and cash flows for each of the three years in the period ended December 31, 2003. Our audit also included the financial schedule listed in the index at Item 15b. These financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial position of Elgin National Industries, Inc. and Subsidiary Companies as of December 31, 2003 and 2002 and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule when considered in relation to the
basic financial statements, taken as a whole, presents fairly in all material respects the information set therein.



As discussed in Note 7 to the consolidated financial statements, in the year ended December 31, 2002, the Company changed its method of accounting for
goodwill.



ERNST &
YOUNG LLP



Chicago, Illinois

February 20, 2004



14



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED BALANCE SHEETS



December 31, 2003 and 2002

(in thousands except share data)



|                                                                                                                                               |  |      |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|ASSETS                                                                                                                                         |  | 2003 |         |   | 2002 |  
|Current assets:                                                                                                                                |  |      |         |   |      |   |         |  
|Cash and equivalents                                                                                                                           |  | $    | 3,391   |   |      | $ |         |  
|Accounts receivable, net                                                                                                                       |  |      | 27,062  |   |      |   | 23,196  |  
|Inventories, net                                                                                                                               |  |      | 17,495  |   |      |   | 16,711  |  
|Prepaid expenses and other assets                                                                                                              |  |      | 2,277   |   |      |   | 2,801   |  
|Deferred income taxes                                                                                                                          |  |      | 3,497   |   |      |   | 3,797   |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Total current assets                                                                                                                           |  |      | 53,722  |   |      |   | 46,505  |  
|Property, plant and equipment, net                                                                                                             |  |      | 20,308  |   |      |   | 22,441  |  
|Loans receivable from related parties                                                                                                          |  |      | 10,855  |   |      |   | 10,268  |  
|Other assets                                                                                                                                   |  |      | 29,507  |   |      |   | 26,408  |  
|Goodwill                                                                                                                                       |  |      | 18,995  |   |      |   | 18,995  |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Total assets                                                                                                                                   |  | $    | 133,387 |   |      | $ | 124,617 |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|                                                                                                                                               |  |     
|LIABILITIES AND COMMON STOCKHOLDERS DEFICIT                                                                                                   |  |      |         |   |      |  
|Current liabilities:                                                                                                                           |  |      |         |   |      |   |         |  
|Current portion of long-term debt                                                                                                              |  | $    | 2,019   |   |      | $ | 2,984   |  
|Accounts payable                                                                                                                               |  |      | 25,076  |   |      |   | 16,120  |  
|Accrued expenses                                                                                                                               |  |      | 9,568   |   |      |   | 9,251   |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Total current liabilities                                                                                                                      |  |      | 36,663  |   |      |   | 28,355  |  
|Long-term debt less current portion                                                                                                            |  |      | 96,741  |   |      |   | 94,345  |  
|Other liabilities                                                                                                                              |  |      | 2,345   |   |      |   | 2,323   |  
|Deferred income taxes                                                                                                                          |  |      | 4,411   |   |      |   | 4,808   |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Total liabilities                                                                                                                              |  |      | 140,160 |   |      |   | 129,831 |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Redeemable preferred stock units                                                                                                               |  |      | 14,743  |   |      |   | 14,016  |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Redeemable preferred stock                                                                                                                     |  |      | 4,044   |   |      |   | 3,844   |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Common stockholders deficit:                                                                                                                  |  |      |         |   |      |   |         |  
|Common stock, Class A par value $.01 per share; authorized 23,678 shares; 6,408 shares issued and outstanding as of December 31, 2003 and
2002 |  |      |         |   |      |   |         |  
|Retained deficit                                                                                                                               |  |      | (25,836 | ) |      |   | (23,074 | )
|Accumulated other comprehensive income                                                                                                         |  |      | 276     |   |      |   |         |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Total common stockholders deficit                                                                                                             |  |      | (25,560 | ) |      |   | (23,074 | )
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Total liabilities and stockholders deficit                                                                                                    |  | $    | 133,387 |   |      | $ | 124,617 |  
|                                                                                                                                               |  |      |         |   |      |   |         |  



The accompanying notes
are an integral part of the consolidated financial statements.



15



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED STATEMENTS OF OPERATIONS



For the Years Ended December 31, 2003, 2002 and 2001

(in thousands)



|                                             |  |      |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                             |  | 2003 |         |   | 2002 |   |         | 2001 | 
|Net sales                                    |  | $    | 144,545 |   |      | $ | 149,000 |      |  | $ | 191,551 |  
|Cost of sales                                |  |      | 112,056 |   |      |   | 116,730 |      |  |   | 149,988 |  
|                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Gross profit                                 |  |      | 32,489  |   |      |   | 32,270  |      |  |   | 41,563  |  
|Selling, general and administrative expenses |  |      | 24,928  |   |      |   | 27,007  |      |  |   | 24,850  |  
|Goodwill amortization                        |  |      |         |   |      |   |         |      |  |   | 1,088   |  
|                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Operating income                             |  |      | 7,561   |   |      |   | 5,263   |      |  |   | 15,625  |  
|Other expenses (income)                      |  |      |         |   |      |   |         |      |  |   |         |  
|Interest income                              |  |      | (657    | ) |      |   | (768    | )    |  |   | (741    | )
|Interest expense                             |  |      | 10,632  |   |      |   | 9,515   |      |  |   | 9,551   |  
|                                             |  |      |         |   |      |   |         |      |  |   |         |  
|(Loss) income before income taxes            |  |      | (2,414  | ) |      |   | (3,484  | )    |  |   | 6,815   |  
|(Benefit) provision for income taxes         |  |      | (302    | ) |      |   | (1,501  | )    |  |   | 3,309   |  
|                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Net (loss) income                            |  | $    | (2,112  | ) |      | $ | (1,983  | )    |  | $ | 3,506   |  
|                                             |  |      |         |   |      |   |         |      |  |   |         |  



ELGIN NATIONAL
INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



For the Years
Ended December 31, 2003, 2002 and 2001

(in thousands)



|                                               |  |      |        |   |      |   |        |      |  |   |      
|---------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | -----
|                                               |  | 2003 |        |   | 2002 |   |        | 2001
|Net (loss) income                              |  | $    | (2,112 | ) |      | $ | (1,983 | )    |  | $ | 3,506
|Other comprehensive income, net of tax of $173 |  |      |        |   |      |   |        |      |  |   |      
|Foreign currency translation adjustments       |  |      | 276    |   |      |   |        |      |  |   |      
|                                               |  |      |        |   |      |   |        |      |  |   |      
|Comprehensive (loss) income                    |  | $    | (1,836 | ) |      | $ | (1,983 | )    |  | $ | 3,506
|                                               |  |      |        |   |      |   |        |      |  |   |      





The accompanying notes are an integral part of the consolidated financial statements.



16



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS DEFICIT



For the Years Ended December 31, 2003, 2002 and 2001

(in thousands except share data)



|                                                                          |  |              |   |                    |   |         |                                        |  |                             |     |  |   |         |  
|------------------------------------------------------------------------- |  | ------------ | - | ------------------ | - | ------- | -------------------------------------- |  | --------------------------- | --- |  | - | ------- | -
|                                                                          |  | Common Stock |   | Retained (Deficit) |   |         | Accumulated Other Comprehensive Income |  | Total Stockholders Deficit |    
|Balance as of December 31, 2000                                           |  | $            |  |                    | $ | (23,305 | )                                      |  | $                           |    |  | $ | (23,305 | )
|                                                                          |  |              |   |                    |   |         |                                        |  |                             |     |  |   |         |  
|Net income for the year ended December 31, 2001                           |  |              |   |                    |   | 3,506   |                                        |  |                             |     |  |   | 3,506   |  
|Redeemable preferred stock dividends ( 19,952 shares at $10.00 per share) |  |              |   |                    |   | (200    | )                                      |  |                             |     |  |   | (200    | )
|Redeemable preferred stock unit dividend equivalent,net of tax of $281    |  |              |  |                    |   | (446    | )                                      |  |                             |    |  |   | (446    | )
|                                                                          |  |              |   |                    |   |         |                                        |  |                             |     |  |   |         |  
|Balance as of December 31, 2001                                           |  |              |  |                    |   | (20,445 | )                                      |  |                             |    |  |   | (20,445 | )
|                                                                          |  |              |   |                    |   |         |                                        |  |                             |     |  |   |         |  
|Net income for the year ended December 31, 2002                           |  |              |   |                    |   | (1,983  | )                                      |  |                             |     |  |   | (1,983  | )
|Redeemable preferred stock dividends (19,952 shares at $10.00 per share)  |  |              |   |                    |   | (200    | )                                      |  |                             |     |  |   | (200    | )
|Redeemable preferred stock unit dividend equivalent,net of tax of $281    |  |              |  |                    |   | (446    | )                                      |  |                             |    |  |   | (446    | )
|                                                                          |  |              |   |                    |   |         |                                        |  |                             |     |  |   |         |  
|Balance as of December 31, 2002                                           |  |              |  |                    |   | (23,074 | )                                      |  |                             |    |  |   | (23,074 | )
|                                                                          |  |              |   |                    |   |         |                                        |  |                             |     |  |   |         |  
|Net loss for the year ended December 31, 2003                             |  |              |   |                    |   | (2,112  | )                                      |  |                             |     |  |   | (2,112  | )
|Redeemable preferred stock dividends (19,952 shares at $10.00 per share)  |  |              |   |                    |   | (200    | )                                      |  |                             |     |  |   | (200    | )
|Redeemable preferred stock unit dividend equivalent,net of tax of $277    |  |              |   |                    |   | (450    | )                                      |  |                             |     |  |   | (450    | )
|Foreign currency translation adjustments net of tax of $173               |  |              |  |                    |   |        |                                        |  |                             | 276 |  |   | 276     |  
|                                                                          |  |              |   |                    |   |         |                                        |  |                             |     |  |   |         |  
|Balance as of December 31, 2003                                           |  | $            |  |                    | $ | (25,836 | )                                      |  | $                           | 276 |  | $ | (25,560 | )
|                                                                          |  |              |   |                    |   |         |                                        |  |                             |     |  |   |         |  





The accompanying notes are an integral part of the consolidated financial statements.



17



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



For the Years Ended December 31, 2003, 2002 and 2001

(in thousands)



|                                                                                 |  |      |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                 |  | 2003 |         |   | 2002 |   |         | 2001 | 
|Cash flows from operating activities:                                            |  |      |         |   |      |   |         |      |  |   |         |  
|Net (loss) income                                                                |  | $    | (2,112  | ) |      | $ | (1,983  | )    |  | $ | 3,506   |  
|Adjustments to reconcile net income to net cash provided byoperating activities: |  |      |         |   |      |   |         |      |  |   |         |  
|Depreciation                                                                     |  |      | 2,874   |   |      |   | 3,138   |      |  |   | 2,973   |  
|Goodwill amortization                                                            |  |      |         |   |      |   |         |      |  |   | 1,088   |  
|Amortization of finance costs                                                    |  |      | 1,193   |   |      |   | 569     |      |  |   | 543     |  
|Provision for deferred income taxes                                              |  |      | 1,172   |   |      |   | 1,056   |      |  |   | 352     |  
|Provision (recovery) for doubtful accounts and notes receivable                  |  |      | 47      |   |      |   | 306     |      |  |   | (593    | )
|Provision for inventories                                                        |  |      | 125     |   |      |   | 248     |      |  |   | 392     |  
|(Income) expense from pension overfunding                                        |  |      | (1,000  | ) |      |   | 1,076   |      |  |   | (1,747  | )
|(Gain) loss on the disposal of assets                                            |  |      | (24     | ) |      |   | (12     | )    |  |   | 45      |  
|Changes in assets and liabilities:                                               |  |      |         |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                              |  |      | (3,913  | ) |      |   | 13,790  |      |  |   | (5,248  | )
|Inventories                                                                      |  |      | (909    | ) |      |   | 1,400   |      |  |   | 109     |  
|Prepaid expenses and other assets                                                |  |      | (2,260  | ) |      |   | (3,634  | )    |  |   | 1,696   |  
|Accounts payable, accrued expenses, and other liabilities                        |  |      | 9,295   |   |      |   | (18,552 | )    |  |   | 2,503   |  
|                                                                                 |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash (used in) provided by operating activities                              |  |      | 4,488   |   |      |   | (2,598  | )    |  |   | 5,619   |  
|                                                                                 |  |      |         |   |      |   |         |      |  |   |         |  
|Cash flows from investing activities:                                            |  |      |         |   |      |   |         |      |  |   |         |  
|Proceeds from the sale of assets                                                 |  |      | 46      |   |      |   | 75      |      |  |   | 36      |  
|Purchase of property, plant and equipment                                        |  |      | (763    | ) |      |   | (3,572  | )    |  |   | (4,440  | )
|Business acquired, net of cash                                                   |  |      |        |   |      |   |        |      |  |   | (20,376 | )
|                                                                                 |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash used by investing activities                                            |  |      | (717    | ) |      |   | (3,497  | )    |  |   | (24,780 | )
|                                                                                 |  |      |         |   |      |   |         |      |  |   |         |  
|Cash flows from financing activities:                                            |  |      |         |   |      |   |         |      |  |   |         |  
|Debt issuance costs                                                              |  |      | (2,087  | ) |      |   |         |      |  |   | (994    | )
|Borrowings on short-term debt                                                    |  |      |         |   |      |   |         |      |  |   | 134     |  
|Borrowings on long-term debt                                                     |  |      | 25,000  |   |      |   | 9,361   |      |  |   | 19,300  |  
|Repayments of long-term debt                                                     |  |      | (23,569 | ) |      |   | (3,266  | )    |  |   | (2,300  | )
|                                                                                 |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) financing activities                              |  |      | (656    | ) |      |   | 6,095   |      |  |   | 16,140  |  
|                                                                                 |  |      |         |   |      |   |         |      |  |   |         |  
|Effect of exchange rates on cash                                                 |  |      | 276     |   |      |   |        |      |  |   |        |  
|                                                                                 |  |      |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash                                                  |  |      | 3,391   |   |      |   | 0       |      |  |   | (3,021  | )
|Cash and cash equivalents at beginning of period                                 |  |      | 0       |   |      |   | 0       |      |  |   | 3,021   |  
|                                                                                 |  |      |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of period                                       |  | $    | 3,391   |   |      | $ | 0       |      |  | $ | 0       |  
|                                                                                 |  |      |         |   |      |   |         |      |  |   |         |  



The accompanying notes
are an integral part of the consolidated financial statements.



18



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.    Description of Company



Elgin National Industries, Inc. (the Company) owns and operates
a diversified group of middle-market industrial manufacturing and engineering services businesses. The Company is organized into two operating segments. Through its Manufactured Products Segment, the Company manufactures and supplies
custom-designed, highly engineered products used by a wide variety of customers in the industrial equipment, durable goods, mining, mineral processing and electric utility industries, primarily within the United States. Through its Engineering
Services Segment, the Company provides design, engineering, procurement and construction management services for mineral processing and bulk materials handling systems used in the mining, mineral processing, electric utilities and the rail and
marine transportation industries, both within the United States and internationally.



2.    Summary of Significant Accounting Policies



The significant accounting policies of the Company are summarized below:



(a) Principles of Consolidation



The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances
have been eliminated in consolidation.



(b) Estimates



The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates.



(c) Revenue Recognition



Revenues earned through manufactured products are recognized upon shipment to the customer. Revenues earned through engineering services are recognized on
the percentage-of-completion method measured by comparing costs incurred to date with total estimated costs on each project. The lengths of the Companys construction contracts vary, but are typically longer than one year. However, in
accordance with industry practice, contract-related assets and liabilities are classified as current in the accompanying consolidated balance sheets. Contract costs include direct material and engineering costs along with indirect costs related to
contract performance. Favorable adjustments to these cost estimates are made and recognized in income over the remaining contract period. Unfavorable adjustments are recorded as soon as they are apparent. Estimated losses on uncompleted contracts
are provided in full within the period in which such losses are determinable.



(d) Accounts Receivable



Credit evaluations of customers are ongoing and collateral, or other security is generally not required on accounts receivable. An allowance for doubtful accounts is maintained at a level management believes is sufficient to cover potential
credit losses. Accounts receivable are charged to the allowance for doubtful accounts when we have determined that the receivable will not be collected. Accounts receivable balances are determined to be delinquent when the amount is past due based
on the contractual terms with the customer.



19



---

##### Table of Contents

2.    Summary of Significant Accounting Policies, continued



(e) Inventories



Inventories are valued at the lower of cost or market. Cost is determined on
the first-in, first-out (FIFO) and the average cost bases.



(f) Property, Plant and Equipment



Property,
plant and equipment are stated at cost. Depreciation is computed principally using the straight-line and double declining-balance methods over the estimated useful lives of the related assets which range from 3 to 30 years. Maintenance and repair
costs are charged to earnings as incurred. Costs of major improvements are capitalized.



(g) Goodwill



The
excess of cost over fair value of the net assets acquired is reflected in the consolidated financial statements as goodwill. Effective January 1, 2002, goodwill is no longer amortized, but is subject to annual impairment tests. If an impairment
exists, the amount of such impairment is calculated based on the difference between the carrying value and the estimated fair value of the asset.



(h) Income Taxes



Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and their
financial reporting amounts at December 31, 2003 and 2002 based on tax rates applicable to the periods in which the differences are expected to affect taxable earnings. Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.



(i) Cash
Equivalents



The Company considers all highly liquid
investments with an original maturity of three months or less to be cash equivalents.



(j) Fair Value of Financial Instruments



The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:



Cash and cash equivalents:    The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.



Accounts receivable and accounts payable:    The carrying amounts reported in the balance sheet for accounts receivable and accounts payable approximate their fair value.



Long-term debt:    The fair
values for long-term debt is based on quoted market prices, except current portion which approximates book value.



(k) Shipping Costs



The Company classifies shipping costs incurred to physically move product from the sellers place of business to the buyers designated location
as selling costs. Shipping costs were $760,000, $751,000 and $717,000 for the years ended December 31, 2003, 2002 and 2001 respectively.



(l) Adoption of Accounting Principles



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.
This statement establishes standards for how an issuer classifies



20



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



2.    Summary of Significant Accounting Policies, continued



and measures certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances).



The Company will implement the provision of SFAS No. 150 beginning in the first quarter of 2004. Through the implementation of SFAS No. 150 the Company
will classify its redeemable preferred stock units and redeemable preferred stock as liabilities and the corresponding dividend and other amounts to be paid to holders as interest expense.



(m) Reclassification



Certain amounts in the 2002 and 2001 financial statements have been
reclassified to conform to the 2003 presentation.



3.    Accounts Receivable



Accounts receivable consist of:



|                                                                |  |                |        |      |   |       
|--------------------------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                                                |  | December 31,  
|                                                                |  | 2003           |        | 2002
|                                                                |  | (in thousands)
|Trade accounts                                                  |  | $              | 11,214 |      | $ | 11,595
|                                                                |  |                |        |      |   |       
|Construction contracts:                                         |  |                |        |      |   |       
|Billed                                                          |  |                | 9,468  |      |   | 10,257
|Costs and estimated earnings in excess of billings on Contracts |  |                | 3,734  |      |   | 392   
|Retainage due upon completion of contracts                      |  |                | 2,870  |      |   | 1,486 
|                                                                |  |                |        |      |   |       
|                                                                |  |                | 27,286 |      |   | 23,730
|                                                                |  |                |        |      |   |       
|Other receivables                                               |  |                | 446    |      |   | 311   
|                                                                |  |                |        |      |   |       
|                                                                |  |                | 27,732 |      |   | 24,041
|Less allowance for doubtful accounts                            |  |                | 670    |      |   | 845   
|                                                                |  |                |        |      |   |       
|                                                                |  | $              | 27,062 |      | $ | 23,196
|                                                                |  |                |        |      |   |       



Billings exceeded
related costs and gross profit recognized on certain contracts by $5,333,000 and $5,142,000 as of December 31, 2003 and 2002, respectively. These amounts are classified as current liabilities in the accompanying consolidated balance sheets.



It is estimated that the majority of the retainage due upon
completion of contracts at December 31, 2003 will be collected in 2004.



A significant portion of the Companys business activity is concentrated within the coal mining industry. Accounts receivable at December 31, 2003 and 2002 from companies within the coal mining industry were $12,211,000 and $9,084,000,
respectively.





21



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



4.    Inventories



Inventories consist of:



|                                 |  |                |        |      |   |       
|-------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                 |  | December 31,  
|                                 |  | 2003           |        | 2002
|                                 |  | (in thousands)
|Finished goods                   |  | $              | 11,098 |      | $ | 10,655
|Work-in-process                  |  |                | 2,420  |      |   | 2,007 
|Raw materials                    |  |                | 5,519  |      |   | 5,569 
|                                 |  |                |        |      |   |       
|                                 |  |                | 19,037 |      |   | 18,231
|Less excess and obsolete reserve |  |                | 1,542  |      |   | 1,520 
|                                 |  |                |        |      |   |       
|                                 |  | $              | 17,495 |      | $ | 16,711
|                                 |  |                |        |      |   |       



5.    Property,
Plant and Equipment



Property, plant and equipment, at
cost, consist of:



|                              |  |                |        |      |   |       
|----------------------------- |  | -------------- | ------ | ---- | - | ------
|                              |  | December 31,  
|                              |  | 2003           |        | 2002
|                              |  | (in thousands)
|Land                          |  | $              | 2,266  |      | $ | 2,266 
|Buildings and improvements    |  |                | 13,403 |      |   | 13,289
|Machinery and equipment       |  |                | 28,083 |      |   | 27,726
|                              |  |                |        |      |   |       
|                              |  |                | 43,752 |      |   | 43,281
|Less accumulated depreciation |  |                | 23,444 |      |   | 20,840
|                              |  |                |        |      |   |       
|                              |  | $              | 20,308 |      | $ | 22,441
|                              |  |                |        |      |   |       



Depreciation expense
for the years ended December 31, 2003, 2002 and 2001 was $2,874,000, $3,138,000 and $2,973,000, respectively.



6.    Other Assets



Other assets consist of:



|                     |  |                |        |      |   |       
|-------------------- |  | -------------- | ------ | ---- | - | ------
|                     |  | December 31,  
|                     |  | 2003           |        | 2002
|                     |  | (in thousands)
|Prepaid pension cost |  | $              | 24,227 |      | $ | 23,187
|Financing costs      |  |                | 2,919  |      |   | 2,025 
|Other assets         |  |                | 2,361  |      |   | 1,196 
|                     |  |                |        |      |   |       
|                     |  | $              | 29,507 |      | $ | 26,408
|                     |  |                |        |      |   |       



7.    Goodwill



In June 2001, the Financial Accounting Standards Board
issued Statements of Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets. Under the new rules, goodwill is no longer amortized and is subject to annual impairment tests, or more frequent
testing if circumstances indicate that goodwill may be impaired.



22



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The Company has two reporting segments, Manufactured Products and Engineering Services, goodwill was
allocated to these segments as follows:



|                      |  |                  |       
|--------------------- |  | ---------------- | ------
|                      |  | December 31,2002
|                      |  | (In thousands)  
|Engineering Services  |  | $                | 500   
|Manufactured Products |  |                  | 18,495
|                      |  |                  |       
|Total                 |  | $                | 18,995
|                      |  |                  |       



The proforma impact of
eliminating goodwill amortization on the consolidated statement of operations for the year ended December 31, 2001 is as follows:



|                                  |  |                |      
|--------------------------------- |  | -------------- | -----
|                                  |  | 2001          
|                                  |  | (in thousands)
|Reported net income               |  | $              | 3,506
|Goodwill amortization, net of tax |  |                | 650  
|                                  |  |                |      
|Adjusted net income               |  | $              | 4,156
|                                  |  |                |      



Amortization expense
for goodwill was $1,088,000 for the year ended December 31, 2001.



8.    Accounts Payable and Accrued Expenses



Accounts payable and accrued expenses consist of:



|                                                                     |  |                |        |      |   |       
|-------------------------------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                                                     |  | December 31,  
|                                                                     |  | 2003           |        | 2002
|                                                                     |  | (in thousands)
|Accounts payabletrade                                               |  | $              | 18,315 |      | $ | 7,558 
|Accounts payableother                                               |  |                | 1,428  |      |   | 3,420 
|Billings on contracts in excess of costs and gross profit recognized |  |                | 5,333  |      |   | 5,142 
|Accrued payroll and commissions                                      |  |                | 2,127  |      |   | 2,113 
|Other accruals                                                       |  |                | 7,441  |      |   | 7,138 
|                                                                     |  |                |        |      |   |       
|                                                                     |  | $              | 34,644 |      | $ | 25,371
|                                                                     |  |                |        |      |   |       



23



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



9.    Income Taxes



The types of temporary differences between the tax basis of assets and liabilities and their financial reporting amounts
that give rise to a significant portion of the deferred tax liability and deferred tax asset of which their approximate tax effect are as follows:



|                                       |  |                |        |   |      |   |         |  
|-------------------------------------- |  | -------------- | ------ | - | ---- | - | ------- | -
|                                       |  | December 31,   |       
|                                       |  | 2003           |        |   | 2002 |  
|                                       |  | (in thousands) |       
|Accounts receivable                    |  | $              | 182    |   |      | $ | 281     |  
|Inventories                            |  |                | 568    |   |      |   | 536     |  
|Accrued expenses                       |  |                | 2,227  |   |      |   | 2,070   |  
|Intangibles                            |  |                |        |   |      |   | 637     |  
|Redeemable preferred stock units       |  |                | 5,418  |   |      |   | 5,045   |  
|State net operating loss carry forward |  |                | 520    |   |      |   | 910     |  
|                                       |  |                |        |   |      |   |         |  
|Total deferred tax asset               |  |                | 8,915  |   |      |   | 9,479   |  
|                                       |  |                |        |   |      |   |         |  
|Prepaid pension                        |  |                | (9,341 | ) |      |   | (10,115 | )
|Property plant & equipment             |  |                | (459   | ) |      |   | (375    | )
|Intangibles                            |  |                | (29    | ) |      |   |        |  
|                                       |  |                |        |   |      |   |         |  
|Total deferred tax liability           |  |                | (9,829 | ) |      |   | (10,490 | )
|                                       |  |                |        |   |      |   |         |  
|Net deferred tax liability             |  | $              | (914   | ) |      | $ | (1,011  | )
|                                       |  |                |        |   |      |   |         |  



The components of the
provision (benefit) for income taxes are:



|         |  |                          |        |   |      |   |        |      |  |   |       |  
|-------- |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ----- | -
|         |  | Years Ended December 31, |       
|         |  | 2003                     |        |   | 2002 |   |        | 2001 | 
|         |  | (in thousands)           |       
|Current  |  |                          |        |   |      |   |        |      |  |   |       |  
|Federal  |  | $                        | (1,329 | ) |      | $ | (2,324 | )    |  | $ | 2,051 |  
|State    |  |                          | (168   | ) |      |   | (275   | )    |  |   | 803   |  
|Foreign  |  |                          | 23     |   |      |   | 42     |      |  |   | 103   |  
|Deferred |  |                          |        |   |      |   |        |      |  |   |       |  
|Federal  |  |                          | 640    |   |      |   | 1,244  |      |  |   | 541   |  
|State    |  |                          | 532    |   |      |   | (188   | )    |  |   | (189  | )
|         |  |                          |        |   |      |   |        |      |  |   |       |  
|         |  | $                        | (302   | ) |      | $ | (1,501 | )    |  | $ | 3,309 |  
|         |  |                          |        |   |      |   |        |      |  |   |       |  



The Companys
effective tax rates of 13%, 43% and 49% for the years ended December 31, 2003, 2002 and 2001, respectively, differ from the statutory federal tax rate of 34% as follows:



|                                     |  |                          |        |   |      |   |        |      |  |   |       |  
|------------------------------------ |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ----- | -
|                                     |  | Years Ended December 31, |       
|                                     |  | 2003                     |        |   | 2002 |   |        | 2001 | 
|                                     |  | (in thousands)           |       
|Income before income taxes           |  | $                        | (2,414 | ) |      | $ | (3,484 | )    |  | $ | 6,815 |  
|                                     |  |                          |        |   |      |   |        |      |  |   |       |  
|Statutory federal income tax         |  | $                        | (821   | ) |      | $ | (1,185 | )    |  | $ | 2,317 |  
|State taxes, net of federal benefit  |  |                          | (111   | ) |      |   | (182   | )    |  |   | 376   |  
|Foreign sales corporation income tax |  |                          |        |   |      |   | 41     |      |  |   | 59    |  
|Adjustment to deferred income tax    |  |                          |        |   |      |   |        |      |  |   | 425   |  
|Foreign operations                   |  |                          | 244    |   |      |   | (14    | )    |  |   | 103   |  
|Non-deductible expenses              |  |                          | 220    |   |      |   | 17     |      |  |   | 287   |  
|Other items                          |  |                          | 166    |   |      |   | (178   | )    |  |   | (258  | )
|                                     |  |                          |        |   |      |   |        |      |  |   |       |  
|                                     |  | $                        | (302   | ) |      | $ | (1,501 | )    |  | $ | 3,309 |  
|                                     |  |                          |        |   |      |   |        |      |  |   |       |  



24



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



9.    Income Taxes, continued



The Company made cash payments for income taxes totalling $174,000, $103,000
and $1,501,000 during the years ended December 31, 2003, 2002 and 2001, respectively.



The Company had a loss of $1,021,000 before taxes from foreign operations in 2003, and income before taxes from foreign operations of $652,000 in 2002, respectively. Results from foreign operations were immaterial in
2001.



10.    Long-Term Debt



Long-term debt consists of:



|                                 |  |                                   |                 |  |      |  |                |        |  |   |       
|-------------------------------- |  | --------------------------------- | --------------- |  | ---- |  | -------------- | ------ |  | - | ------
|                                 |  | Interest Rate at December 31,2003 |                 |  |      |  | December 31,  
|Type of Issue                    |  |                                   | Year ofMaturity |  | 2003 |  | 2002          
|                                 |  |                                   |                 |  |      |  | (in thousands)
|Fixed rate:                      |  |                                   |                 |  |      |  |                |        |  |   |       
|Senior notes                     |  | 11.00                             | %               |  | 2007 |  | $              | 73,950 |  | $ | 73,950
|Mortgage payable                 |  | 0.00                              | %               |  | 2003 |  |                |        |  |   | 50    
|Variable rate:                   |  |                                   |                 |  |      |  |                |        |  |   |       
|Term loan                        |  |                                   |                 |  | 2005 |  |                |        |  |   | 6,550 
|Term loan A                      |  |                                   |                 |  | 2008 |  |                | 7,000  |  |   |       
|Term loan B                      |  |                                   |                 |  | 2005 |  |                | 1,667  |  |   |       
|Term loan C                      |  |                                   |                 |  | 2006 |  |                | 15,000 |  |   |       
|Revolver loan                    |  |                                   |                 |  | 2005 |  |                |        |  |   | 15,600
|Mortgage loan                    |  |                                   |                 |  | 2022 |  |                | 1,143  |  |   | 1,179 
|                                 |  |                                   |                 |  |      |  |                |        |  |   |       
|Total long-term debt             |  |                                   |                 |  |      |  |                | 98,760 |  |   | 97,329
|Less current maturities          |  |                                   |                 |  |      |  |                | 2,019  |  |   | 2,984 
|                                 |  |                                   |                 |  |      |  |                |        |  |   |       
|Total non-current long-term debt |  |                                   |                 |  |      |  | $              | 96,741 |  | $ | 94,345
|                                 |  |                                   |                 |  |      |  |                |        |  |   |       



Annual principal
payments on long-term debt at December 31, 2003 were as follows (in thousands):



|                    |  |              |        |            |   |               |  |       |       |  |   |       
|------------------- |  | ------------ | ------ | ---------- | - | ------------- |  | ----- | ----- |  | - | ------
|                    |  | Senior Notes |        | Term Loans |   | Mortgage Loan |  | Total
|2004                |  |              |        |            | $ | 2,000         |  | $     | 19    |  | $ | 2,019 
|2005                |  |              |        |            |   | 1,542         |  |       | 46    |  |   | 1,588 
|2006                |  |              |        |            |   | 16,200        |  |       | 36    |  |   | 16,236
|2007                |  | $            | 73,950 |            |   | 1,200         |  |       | 38    |  |   | 75,188
|2008                |  |              |        |            |   | 2,725         |  |       | 41    |  |   | 2,766 
|2009 and thereafter |  |              |       |            |   |              |  |       | 963   |  |   | 963   
|                    |  |              |        |            |   |               |  |       |       |  |   |       
|                    |  | $            | 73,950 |            | $ | 23,667        |  | $     | 1,143 |  | $ | 98,760
|                    |  |              |        |            |   |               |  |       |       |  |   |       



Under the terms of the
senior notes, the Company is required to make only interest payments until the senior notes maturity in 2007. The senior notes may be redeemed, in whole or in part, at any time at the option of the Company, at the redemption prices as detailed
below, being equal to a percentage of the principal amount of the notes being redeemed, plus accrued and unpaid interest and specified liquidated damages, if any, to the date of redemption.



|                    |  |            |  
|------------------- |  | ---------- | -
|Year                |  | Percentage |  
|2004                |  | 101.833    | %
|2005 and thereafter |  | 100.000    | %



25



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



10.    Long-Term Debt, continued



In addition, in the event of a Change of Control, each holder of the senior
notes will have the right to require the Company to make an offer to purchase such holders notes, in whole or in part, at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest and liquidated damages,
if any, to the date of purchase.



The senior notes contain
certain restrictive covenants, which, among other things, limit the ability of the Company to incur additional indebtedness and make certain restricted payments, grant liens upon its assets, sell certain assets, merge or consolidate.



The senior notes are unsecured obligations and are guaranteed by the
Companys material domestic subsidiaries.



The variable
rate mortgage loan has an interest rate equal to prime with a floor of 7% and a lifetime cap of 10%.



On February 10, 2003, the Company and its subsidiaries entered into a Loan and Security Agreement to increase its borrowing capacity. Proceeds from the
Loan and Security Agreement were used to repay and retire all amounts outstanding under the prior Bank Credit Agreement. The Loan and Security Agreement includes three term loans, Term Loan A, Term Loan B and Term Loan C, having original principal
amounts of $7,500,000, $2,500,000 and $15,000,000, respectively. The Loan and Security Agreement also includes a revolver loan with a commitment amount of $27,500,000 subject to borrowing base and other restrictions, as well as restrictions under
the Companys Indenture. Term Loan A and Term Loan B require monthly principal payments of $104,000 and $63,000, respectively beginning May 2003. Term C does not require current principal repayments and is due in full on February 10, 2006. The
Companys assets are pledged under the terms of the Loan and Security Agreement. The Loan and Security Agreement has a maturity date of February 10, 2008. Term Loan A accrues interest at the prime rate set by Wells Fargos principal office
(Prime Rate) plus a margin determined by a pricing grid. Term Loan B accrues interest at the Prime Rate plus 3.00% per annum. Term Loan C accrues interest at the Prime Rate plus 8.25% per annum. The revolver loan accrues interest at the
Prime Rate plus 1.00% per annum.



Upon refinancing remaining
financing costs related to the prior Bank Credit Agreement of $488,000 were expensed.



The Loan and Security Agreement contains certain restrictive covenants, which, among other things, limit the amount of indebtedness, limit the payment of dividends and require the maintenance of certain financial
ratios.



Along with scheduled principal repayments, the
term loans require additional principal payments after the end of each year based on an excess cash flow calculation.



The Company made cash payments for interest totalling $10,627,000, $9,522,000 and $9,357,000, respectively, during 2003, 2002 and 2001.



The weighted average interest rate on current portion of the long term debt
for 2004 was 6.63%.



Based upon the Companys ability to
obtain financing under similar terms, the estimated fair value of the Companys long-term debt including the current portion was $70,751,000 and $67,934,000 at December 31, 2003 and December 31, 2002, respectively.



26



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



11.    Redeemable Preferred Stock Units



In exchange for amounts owed to certain officers, the Company granted to
them redeemable preferred stock units redeemable on December 31, 2007 with an aggregate principal value of $7,274,000 provided, that, the Companys obligation to make a redemption payment at such time is subject to the restrictions contained in
the agreement governing the 11% senior notes due 2007 and the Loan and Security Agreement dated as of February 10, 2003.



The Company had accrued dividend equivalent amounts equal to $7,469,000 and $6,742,000 at December 31, 2003 and 2002, respectively. The redeemable
preferred stock units accrue at 10% per annum. Principal and accrued dividend equivalent amounts were $14,743,000 and $14,016,000 at December 31, 2003 and 2002, respectively, and will be paid in tandem with the Companys redeemable preferred
stock dividend and redemption payments.



12.    Redeemable Preferred Stock



The Company has 550,000 shares of $1.00 par value redeemable preferred stock authorized with 19,952 shares issued and outstanding at December 31, 2003. The redeemable preferred stock is mandatorily redeemable at $100 per share totalling
$1,995,000 for all shares currently outstanding, plus all accrued and unpaid dividends thereon on December 31, 2007 or upon the occurrence of a qualified public offering or other sale of the Company.



The redeemable preferred stock has a preferential liquidation value of $100
per share and accrues cumulative preferred dividends at 10% per annum of the liquidation value. Dividends accrue cumulatively at a rate of 10% per annum. Redeemable preferred stock has no voting rights.



The Company had accrued dividends of $2,049,000 and $1,849,000 as of December
31, 2003 and 2002, respectively



13.    Pension and
Profit Sharing Plans



The Company has a noncontributory
defined benefit plan which is open to all eligible, full-time, nonunion employees and is salary related and integrated with Social Security. The Companys funding policy for the plan is to fund the minimum annual contribution required by
applicable regulations. The Company does not anticipate any contributions to the Plan in 2004.



In 1995, the Company established a nonqualified supplemental employee retirement plan (SERP) for certain employees whose pension benefits were limited by the Omnibus Budget Reconciliation Act of 1993, the
Employee Retirement Income Security Act (ERISA) and the Uruguay Round General Agreement on Tariffs and Trade (GATT).



27



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



13.    Pension and Profit Sharing Plans, continued



The following information for the years ended December 31, 2003 and 2002 has
been obtained from the actuarial computation using measurement dates of September 30, 2003 and 2002, respectively.



The change in the benefit obligation for the defined benefit plan is as follows for the years ended December 31:



|                                                  |  |                |        |   |      |   |        |  
|------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                  |  | 2003           |        |   | 2002 |  
|                                                  |  | (in thousands) |       
|Projected benefit obligation at beginning of year |  | $              | 25,409 |   |      | $ | 26,158 |  
|Service cost benefits earned during the period   |  |                | 1,092  |   |      |   | 1,058  |  
|Interest cost on projected benefit obligation     |  |                | 1,239  |   |      |   | 1,337  |  
|Actuarial losses                                  |  |                | 797    |   |      |   | 866    |  
|Benefit payments                                  |  |                | (1,885 | ) |      |   | (797   | )
|Settlements                                       |  |                |        |   |      |   | (3,689 | )
|Special termination benefits                      |  |                |       |   |      |   | 476    |  
|                                                  |  |                |        |   |      |   |        |  
|Projected benefit obligation at end of year       |  | $              | 26,652 |   |      | $ | 25,409 |  
|                                                  |  |                |        |   |      |   |        |  



The change in plan
assets is as follows for the years ended December 31:



|                                               |  |                |        |   |      |   |        |  
|---------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                               |  | 2003           |        |   | 2002 |  
|                                               |  | (in thousands) |       
|Fair value of plan assets at beginning of year |  | $              | 30,777 |   |      | $ | 38,039 |  
|Actual return on plan assets                   |  |                | 5,256  |   |      |   | (2,776 | )
|Settlements                                    |  |                |        |   |      |   | (3,689 | )
|Benefit payments                               |  |                | (1,885 | ) |      |   | (797   | )
|                                               |  |                |        |   |      |   |        |  
|Fair value of plan assets at end of year       |  | $              | 34,148 |   |      | $ | 30,777 |  
|                                               |  |                |        |   |      |   |        |  



|                                                       |  |                |        |      |   |       
|------------------------------------------------------ |  | -------------- | ------ | ---- | - | ------
|                                                       |  | 2003           |        | 2002
|                                                       |  | (in thousands)
|Plan assets in excess of projected benefit obligations |  | $              | 7,496  |      | $ | 5,368 
|Unrecognized amounts:                                  |  |                |        |      |   |       
|Prior service cost                                     |  |                | 635    |      |   | 559   
|Net gain                                               |  |                | 14,743 |      |   | 15,906
|                                                       |  |                |        |      |   |       
|Prepaid pension cost                                   |  | $              | 22,874 |      | $ | 21,833
|                                                       |  |                |        |      |   |       



Prepaid pension cost
included in other assets at December 31, 2003 and 2002, was $24,227,000 and $23,187,000, respectively. Pension costs included in other liabilities at December 31, 2003 and 2002, was $1,353,000 and $1,354,000, respectively.



At December 31, 2003 and 2002, respectively, the Companys SERP
projected benefit obligation of $1,246,000 and $995,000 was not funded.



Weighted average assumptions as of December 31:



|                                   |  |      |   |  |      |  
|---------------------------------- |  | ---- | - |  | ---- | -
|                                   |  | 2003 |   |  | 2002 |  
|Settlement rate                    |  | 5.25 | % |  | 5.00 | %
|Long term rate of return on assets |  | 7.50 |   |  | 8.00 |  
|Rate of compensation increase      |  | 4.75 |   |  | 4.75 |  



28



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



13.    Pension and Profit Sharing Plans, continued



Components of net periodic pension expense (benefit) are as follows for the
years ended December 31:



|                                                             |  |                |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------ |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                             |  | 2003           |        |   | 2002 |   |        | 2001 | 
|                                                             |  | (in thousands) |       
|Service costbenefits earned during the period               |  | $              | 1,093  |   |      | $ | 1,058  |      |  | $ | 800    |  
|Interest cost on projected benefit obligation                |  |                | 1,239  |   |      |   | 1,337  |      |  |   | 1,423  |  
|Expected return on assets                                    |  |                | (3,327 | ) |      |   | (4,173 | )    |  |   | (3,900 | )
|Additional pension expense due to settlement                 |  |                |        |   |      |   | 2,420  |      |  |   |        |  
|Additional pension expense due to special termination charge |  |                |        |   |      |   | 476    |      |  |   |        |  
|Net amortization of prior service cost                       |  |                | (76    | ) |      |   | (76    | )    |  |   | (76    | )
|Net amortization of prior losses                             |  |                | 29     |   |      |   |       |      |  |   | 11     |  
|                                                             |  |                |        |   |      |   |        |      |  |   |        |  
|Net periodic pension expense (benefit)                       |  | $              | (1,042 | ) |      | $ | 1,042  |      |  | $ | (1,742 | )
|                                                             |  |                |        |   |      |   |        |      |  |   |        |  



The accumulated
benefit obligation for all pension plans as of the 2003 and 2002 measurement dates was $23,036,000 and $21,393,000, respectively.



The expected long term rate of return on assets of 7.5% is based on the investment allocation of plan assets, along with historical and future expected
returns on the investment allocations. A balanced investment approach targets investment allocations for diversification and risk aversion in order to achieve the long term objectives of the plan and meet liquidity requirements. The Plans
assets are held in mutual funds, and are therefore classified as equity securities. These mutual funds hold both equity and debt instruments.



In addition the Company makes contributions to a union-administered pension plan for certain employees who do not participate in the Companys
pension plan. The Companys aggregate expense for this plan for the years ended December 31, 2003, 2002 and 2001 was $29,000, $43,000 and $44,000, respectively.



The Company has a combined 401(k) employee savings and profit sharing plan for all eligible, full time non-union employees.
Contributions to the plan are based upon managements discretion. The Companys aggregate expense for these plans for the years ended December 31, 2003, 2002 and 2001 was $493,000, $588,000 and $1,292,000, respectively.



In addition the Company established during 1995 a non-qualified profit
sharing plan for certain employees whose 401(k) benefits were also limited to the Omnibus Budget Reconciliation Act of 1993, ERISA and GATT. The Companys expense for this plan in 2003, 2002 and 2001 was $43,000, $63,000 and $55,000,
respectively.



29



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



14.    Leases



The Company has entered into noncancellable operating leases, primarily for office space, vehicles and equipment, that have
initial or remaining terms of more than one year.



Future
minimum annual rental expenditures are as follows:



|                    |  |                |      
|------------------- |  | -------------- | -----
|Year                |  | (in thousands)
|2004                |  | $              | 1,752
|2005                |  |                | 1,284
|2006                |  |                | 607  
|2007                |  |                | 391  
|2008                |  |                | 421  
|2009 and thereafter |  |                | 292  
|                    |  |                |      
|                    |  | $              | 4,747
|                    |  |                |      



Rental expense for the
twelve months ended December 31, 2003, 2002 and 2001 was $1,934,000, $1,791,000 and $1,966,000, respectively.



15.    Related Party Transactions



At December 31, 2003 and 2002, the Company had the following outstanding notes receivable and note payable with related parties:



(I) Two notes receivable from a limited partnership owned by
an officer with principal due on each in the amount of $1,000,000 in December, 2007. Prepayment is required if the value to be paid under the redeemable preferred stock units at the time of payment is less than the aggregate amount of the principal
and interest outstanding. Interest accrues at 5.35% and 6.31%, respectively, and is payable at the earlier of prepayment or maturity. Interest earned for the years ended December 31, 2003, 2002 and 2001 was $173,000, $285,000 and $117,000,
respectively.



(II) Notes receivable from
certain officers in the total principal amount of $1,033,000, $600,000 and $4,200,000 due in December, 2007. Interest accrues at 6.42%, 6.31% and 5.37%, respectively, per annum. Interest earned was $414,000, $462,000, and $330,000, respectively, for
the years ended December 31, 2003, 2002 and 2001.



(III) Subject to an offset agreement, notes receivable and a note payable in the amount of $1,603,000 with a limited partnership owned by an officer. These notes accrue interest at 5.35% annually. All notes are due in December, 2007.



16.    Contingencies



The Company has claims against others, and there are claims by others
against it, in a variety of matters arising out of the conduct of the Companys business. The ultimate resolution of all such claims would not, in the opinion of management, have a material effect on the Companys financial position, cash
flows or results of operations.



In connection with the 1993
leveraged buyout of the Company, The Jupiter Corporation (Jupiter), the previous owner, agreed to indemnify the Company against various claims and ongoing litigation and assumed the defense of such litigation. The litigation includes a
wrongful death product liability claim against one of the



30



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



16.    Contingencies, continued



Companys subsidiaries in connection with an accident at a work site. Although the
Company believes that Jupiter and its insurance carrier are performing on the indemnity obligations, there can be no assurance that they will continue to do so or that the Company would successfully recover on the indemnity in the event of an
adverse judgment against the subsidiary or adverse outcomes in any other proceedings. In any such case, the Company would bear the cost of defense and any adverse judgment. One or more such adverse judgments could materially and adversely affect the
Companys business, financial condition, results of operations and debt service capability.



17.    Segment Information



The Company operates predominantly within the United States, primarily in two industries, Manufactured Products and Engineering Services. The accounting policies of the segments are the same as those described in the
Summary of Significant Accounting Policies. In accordance with the Companys method of internal reporting, corporate-headquarters costs are not allocated to the individual segments. Information about the Company by industry is
presented below for the years ended December 31:



|                                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                        |  | 2003           |         |   | 2002 |   |         | 2001 | 
|                                                                        |  | (In thousands) |        
|Net sales to external customers:                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Manufactured Products                                                   |  | $              | 88,411  |   |      | $ | 93,562  |      |  | $ | 99,080  |  
|Engineering Services                                                    |  |                | 56,134  |   |      |   | 55,438  |      |  |   | 92,471  |  
|                                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Total net sales to external customers                                   |  | $              | 144,545 |   |      | $ | 149,000 |      |  | $ | 191,551 |  
|                                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Net sales to internal customers:                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Manufactured Products                                                   |  | $              | 3,737   |   |      | $ | 3,361   |      |  | $ | 4,960   |  
|Engineering Services                                                    |  |                | 114     |   |      |   | 240     |      |  |   | 493     |  
|                                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Total net sales to internal customers                                   |  | $              | 3,851   |   |      | $ | 3,601   |      |  | $ | 5,453   |  
|                                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Total net sales:                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Manufactured Products                                                   |  | $              | 92,148  |   |      | $ | 96,923  |      |  | $ | 104,040 |  
|Engineering Services                                                    |  |                | 56,248  |   |      |   | 55,678  |      |  |   | 92,964  |  
|                                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Total net sales                                                         |  |                | 148,396 |   |      |   | 152,601 |      |  |   | 197,004 |  
|Elimination of net sales to internal customers                          |  |                | 3,851   |   |      |   | 3,601   |      |  |   | 5,453   |  
|                                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Total consolidated net sales                                            |  | $              | 144,545 |   |      | $ | 149,000 |      |  | $ | 191,551 |  
|                                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Earnings before interest, taxes and goodwill amortization:              |  |                |         |   |      |   |         |      |  |   |         |  
|Manufactured Products                                                   |  | $              | 13,796  |   |      | $ | 12,964  |      |  | $ | 15,784  |  
|Engineering Services                                                    |  |                | 11      |   |      |   | 194     |      |  |   | 6,780   |  
|                                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Total segment earnings before interest, taxes and goodwill amortization |  |                | 13,807  |   |      |   | 13,158  |      |  |   | 22,564  |  
|Goodwill amortization                                                   |  |                |         |   |      |   |         |      |  |   | (1,088  | )
|Interest income                                                         |  |                | 657     |   |      |   | 768     |      |  |   | 741     |  
|Interest expense                                                        |  |                | (10,632 | ) |      |   | (9,515  | )    |  |   | (9,551  | )
|Corporate expenses before interest, taxesand goodwill amortization      |  |                | (6,246  | ) |      |   | (7,895  | )    |  |   | (5,851  | )
|                                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Consolidated (loss) income before income taxes                          |  | $              | (2,414  | ) |      | $ | (3,484  | )    |  | $ | 6,815   |  
|                                                                        |  |                |         |   |      |   |         |      |  |   |         |  



31



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



17.    Segment Information, continued



|                                   |  |                |         |      |   |         |  |   |      
|---------------------------------- |  | -------------- | ------- | ---- | - | ------- |  | - | -----
|                                   |  | 2003           |         | 2002 |   | 2001   
|                                   |  | (In thousands)
|Capital expenditures:              |  |                |         |      |   |         |  |   |      
|Manufactured Products              |  | $              | 638     |      | $ | 3,484   |  | $ | 3,111
|Engineering Services               |  |                | 125     |      |   | 82      |  |   | 185  
|                                   |  |                |         |      |   |         |  |   |      
|Total segment capital expenditures |  |                | 763     |      |   | 3,566   |  |   | 3,296
|Corporate                          |  |                |        |      |   | 6       |  |   | 1,144
|                                   |  |                |         |      |   |         |  |   |      
|Total capital expenditures         |  | $              | 763     |      | $ | 3,572   |  | $ | 4,440
|                                   |  |                |         |      |   |         |  |   |      
|Depreciation:                      |  |                |         |      |   |         |  |   |      
|Manufactured Products              |  | $              | 2,511   |      | $ | 2,646   |  | $ | 2,581
|Engineering Services               |  |                | 124     |      |   | 171     |  |   | 189  
|                                   |  |                |         |      |   |         |  |   |      
|Total segment depreciation         |  |                | 2,635   |      |   | 2,817   |  |   | 2,770
|Corporate                          |  |                | 239     |      |   | 321     |  |   | 203  
|                                   |  |                |         |      |   |         |  |   |      
|Total depreciation                 |  | $              | 2,874   |      | $ | 3,138   |  | $ | 2,973
|                                   |  |                |         |      |   |         |  |   |      
|Assets:                            |  |                |         |      |   |         |  |   |      
|Manufactured Products              |  | $              | 58,518  |      | $ | 61,880  |  |   |      
|Engineering Services               |  |                | 19,125  |      |   | 12,998  |  |   |      
|                                   |  |                |         |      |   |         |  |   |      
|Total segment assets               |  |                | 77,643  |      |   | 74,878  |  |   |      
|Corporate and other                |  |                | 55,744  |      |   | 49,739  |  |   |      
|                                   |  |                |         |      |   |         |  |   |      
|Total assets                       |  | $              | 133,387 |      | $ | 124,617 |  |   |      
|                                   |  |                |         |      |   |         |  |   |      



The following is sales
information by geographic area for the years ended December 31:



|              |  |      |         |      |   |         |  |   |        
|------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|              |  | 2003 |         | 2002 |   | 2001   
|United States |  | $    | 124,758 |      | $ | 129,217 |  | $ | 154,582
|Foreign       |  |      | 19,787  |      |   | 19,783  |  |   | 36,969 
|              |  |      |         |      |   |         |  |   |        
|              |  | $    | 144,545 |      | $ | 149,000 |  | $ | 191,551
|              |  |      |         |      |   |         |  |   |        



Foreign revenue is
based on the final destination of merchandise sold. There were no sales to a single foreign country that were material to the consolidated revenues of the Company.



32



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



18.    Subsidiary Guarantors



The Companys payment obligations under the Senior Notes and revolver
loan are fully and unconditionally guaranteed on a joint and several basis (collectively, Subsidiary Guarantees) by Tabor Machine Company, Norris Screen and Manufacturing, Inc., TranService, Inc., Mining Controls, Inc., Clinch River
Corporation, Centrifugal Services, Inc., Roberts & Schaefer Company, Soros Associates, Inc., Vanco International, Inc., Leland Powell Fasteners, Inc., ENI International, Ltd. and Best Metal Finishing, Inc. (the Guarantors) each a
direct, wholly-owned subsidiary of the Company. The following summarized combined financial data illustrates the composition of the combined Guarantors.



|                    |  |                   |        |                    |   |                           |  |   |                   |   |  |   |        
|------------------- |  | ----------------- | ------ | ------------------ | - | ------------------------- |  | - | ----------------- | - |  | - | -------
|                    |  | December 31, 2003
|                    |  | Parent            |        | CombinedGuarantors |   | Consolidating Adjustments |  |   | ConsolidatedTotal
|                    |  | (in thousands)   
|Current assets      |  | $                 | 16,852 |                    | $ | 36,870                    |  |   |                   |   |  | $ | 53,722 
|Noncurrent assets   |  |                   | 49,824 |                    |   | 49,810                    |  | $ | (19,969           | ) |  |   | 79,665 
|                    |  |                   |        |                    |   |                           |  |   |                   |   |  |   |        
|Total assets        |  | $                 | 66,676 |                    | $ | 86,680                    |  | $ | (19,969           | ) |  | $ | 133,387
|                    |  |                   |        |                    |   |                           |  |   |                   |   |  |   |        
|Current liabilities |  | $                 | 9,761  |                    | $ | 26,902                    |  |   |                   |   |  | $ | 36,663 
|Total liabilities   |  | $                 | 71,387 |                    | $ | 68,773                    |  |   |                   |   |  | $ | 140,160



|                    |  |                   |        |                    |   |                           |  |   |                   |   |  |   |        
|------------------- |  | ----------------- | ------ | ------------------ | - | ------------------------- |  | - | ----------------- | - |  | - | -------
|                    |  | December 31, 2002
|                    |  | Parent            |        | CombinedGuarantors |   | Consolidating Adjustments |  |   | ConsolidatedTotal
|                    |  | (in thousands)   
|Current assets      |  | $                 | 13,492 |                    | $ | 33,013                    |  |   |                   |   |  | $ | 46,505 
|Noncurrent assets   |  |                   | 59,266 |                    |   | 42,325                    |  | $ | (23,479           | ) |  |   | 78,112 
|                    |  |                   |        |                    |   |                           |  |   |                   |   |  |   |        
|Total assets        |  | $                 | 72,758 |                    | $ | 75,338                    |  | $ | (23,479           | ) |  | $ | 124,617
|                    |  |                   |        |                    |   |                           |  |   |                   |   |  |   |        
|Current liabilities |  | $                 | 10,087 |                    | $ | 18,268                    |  |   |                   |   |  | $ | 28,355 
|Total liabilities   |  | $                 | 74,993 |                    | $ | 54,838                    |  |   |                   |   |  | $ | 129,831



|                                      |  |                              |        |   |                    |   |         |                          |  |   |                   |   |  |   |         |  
|------------------------------------- |  | ---------------------------- | ------ | - | ------------------ | - | ------- | ------------------------ |  | - | ----------------- | - |  | - | ------- | -
|                                      |  | Year ended December 31, 2003 |       
|                                      |  | Parent                       |        |   | CombinedGuarantors |   |         | ConsolidatingAdjustments |  |   | ConsolidatedTotal |  
|                                      |  | (in thousands)               |       
|Sales, net                            |  | $                            | 30,255 |   |                    | $ | 115,572 |                          |  | $ | (1,282            | ) |  | $ | 144,545 |  
|Gross profit                          |  |                              | 11,741 |   |                    |   | 20,748  |                          |  |   |                   |   |  |   | 32,489  |  
|(Loss) income before income tax       |  |                              | (2,414 | ) |                    |   | 6,122   |                          |  |   | (6,122            | ) |  |   | (2,414  | )
|Net (loss) income                     |  |                              | (2,112 | ) |                    |   | 4,364   |                          |  |   | (4,364            | ) |  |   | (2,112  | )
|Cash provided by operating activities |  |                              | 4,105  |   |                    |   | 383     |                          |  |   |                   |   |  |   | 4,488   |  
|Cash used by investing activities     |  |                              | (94    | ) |                    |   | (623    | )                        |  |   |                   |   |  |   | (717    | )
|Cash used by financing activities     |  |                              | (620   | ) |                    |   | (36     | )                        |  |   |                   |   |  |   | (656    | )



33



---

##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



18.    Subsidiary Guarantors, continued



|                                             |  |                              |        |   |                    |   |         |                          |  |   |                   |   |  |   |         |  
|-------------------------------------------- |  | ---------------------------- | ------ | - | ------------------ | - | ------- | ------------------------ |  | - | ----------------- | - |  | - | ------- | -
|                                             |  | Year ended December 31, 2002 |       
|                                             |  | Parent                       |        |   | CombinedGuarantors |   |         | ConsolidatingAdjustments |  |   | ConsolidatedTotal |  
|                                             |  | (in thousands)               |       
|Sales, net                                   |  | $                            | 32,104 |   |                    | $ | 117,896 |                          |  | $ | (1,000            | ) |  | $ | 149,000 |  
|Gross profit                                 |  |                              | 11,727 |   |                    |   | 20,543  |                          |  |   |                   |   |  |   | 32,270  |  
|(Loss) income before income tax              |  |                              | (3,484 | ) |                    |   | 4,698   |                          |  |   | (4,698            | ) |  |   | (3,484  | )
|Net (loss) income                            |  |                              | (1,983 | ) |                    |   | 2,859   |                          |  |   | (2,859            | ) |  |   | (1,983  | )
|Cash (used) provided by operating activities |  |                              | (4,882 | ) |                    |   | 2,284   |                          |  |   |                   |   |  |   | (2,598  | )
|Cash used by investing activities            |  |                              | (268   | ) |                    |   | (3,229  | )                        |  |   |                   |   |  |   | (3,497  | )
|Cash provided by financing activities        |  |                              | 5,150  |   |                    |   | 945     |                          |  |   |                   |   |  |   | 6,095   |  



|                                      |  |                              |         |   |                    |   |         |                          |  |   |                   |   |  |   |         |  
|------------------------------------- |  | ---------------------------- | ------- | - | ------------------ | - | ------- | ------------------------ |  | - | ----------------- | - |  | - | ------- | -
|                                      |  | Year ended December 31, 2001 |        
|                                      |  | Parent                       |         |   | CombinedGuarantors |   |         | ConsolidatingAdjustments |  |   | ConsolidatedTotal |  
|                                      |  | (in thousands)               |        
|Sales, net                            |  | $                            | 35,534  |   |                    | $ | 158,172 |                          |  | $ | (2,155            | ) |  | $ | 191,551 |  
|Gross profit                          |  |                              | 18,096  |   |                    |   | 23,467  |                          |  |   |                   |   |  |   | 41,563  |  
|(Loss) income before income tax       |  |                              | (1,286  | ) |                    |   | 8,101   |                          |  |   |                   |   |  |   | 6,815   |  
|Net (loss) income                     |  |                              | (198    | ) |                    |   | 3,704   |                          |  |   |                   |   |  |   | 3,506   |  
|Cash provided by operating activities |  |                              | 3,250   |   |                    |   | 2,369   |                          |  |   |                   |   |  |   | 5,619   |  
|Cash used in investing activities     |  |                              | (22,277 | ) |                    |   | (2,503  | )                        |  |   |                   |   |  |   | (24,780 | )
|Cash provided by financing activities |  |                              | 16,006  |   |                    |   | 134     |                          |  |   |                   |   |  |   | 16,140  |  





The direct and non-direct, non-guarantor subsidiaries, in terms of assets, equity, income, and cash flows, on an individual and combined basis are
inconsequential.



Separate financial statements of the
Guarantors are not presented because management has determined that these would not be material to investors.



19.    Selected Quarterly Data (unaudited)



|                  |  |                  |        |   |                   |   |        |              |  |   |               |   |  |   |        |  
|----------------- |  | ---------------- | ------ | - | ----------------- | - | ------ | ------------ |  | - | ------------- | - |  | - | ------ | -
|                  |  | Quarterended     |        |   | Quarterended      |   |        | Quarterended |  |   | Quarterended  |  
|                  |  | December 31,2003 |        |   | September 30,2003 |   |        | June 30,2003 |  |   | March 31,2003 |  
|Net sales         |  | $                | 50,878 |   |                   | $ | 33,461 |              |  | $ | 31,744        |   |  | $ | 28,462 |  
|Gross profit      |  |                  | 9,690  |   |                   |   | 7,754  |              |  |   | 7,859         |   |  |   | 7,186  |  
|Net (loss) income |  |                  | (244   | ) |                   |   | (713   | )            |  |   | (384          | ) |  |   | (771   | )
|                  |  |                  |        |  
|                  |  | Quarterended     |        |   | Quarterended      |   |        | Quarterended |  |   | Quarterended  |  
|                  |  | December 31,2002 |        |   | September 30,2002 |   |        | June 30,2002 |  |   | March 31,2002 |  
|Net sales         |  | $                | 36,641 |   |                   | $ | 36,863 |              |  | $ | 37,277        |   |  | $ | 38,219 |  
|Gross profit      |  |                  | 9,251  |   |                   |   | 7,912  |              |  |   | 6,751         |   |  |   | 8,356  |  
|Net (loss) income |  |                  | (713   | ) |                   |   | (203   | )            |  |   | (1,129        | ) |  |   | 62     |  



34



---

##### Table of Contents

19.    Selected Quarterly Data (unaudited)



|ITEM 9. |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- |  | ------------------------------------------------------------------------------------



None



ITEM 9A.    CONTROLS AND PROCEDURES



Elgin National Industries, Inc. management, including the Chief Executive Officer and the Chief Financial Officer, have conducted an evaluation of the effectiveness of disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14 as of the end of period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all
material information required to be filed in this annual report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in other factors that could significantly affect internal controls,
subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation.



35



---

##### Table of Contents

PART III



ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



The following table sets forth information regarding the directors and executive officers of the Company:



|                |  |     |  |                                                                 |  |              
|--------------- |  | --- |  | --------------------------------------------------------------- |  | -------------
|Name            |  | Age |  | Position with the Company                                       |  | DirectorSince
|Fred C. Schulte |  | 57  |  | Chairman of the Board, Chief Executive Officer and Director     |  | 1988         
|                |  |     | 
|Charles D. Hall |  | 65  |  | President, Chief Operating Officer and Director                 |  | 1993         
|                |  |     | 
|Wayne J. Conner |  | 51  |  | Vice President, Treasurer, Chief Financial Officer and Director |  | 1993         
|                |  |     | 
|Lynn C. Batory  |  | 45  |  | Vice President, Controller and Secretary                        |  |              
|                |  |     | 
|David Hall      |  | 44  |  | Vice President of Manufacturing                                 |  |              
|                |  |     | 
|Mort Maurer     |  | 86  |  | Director                                                        |  | 1998         



Directors are elected
for one year terms and hold office until their successors are elected and qualified. The executive officers are appointed by and serve at the discretion of the Board of Directors.



A brief description of the employment history of the directors and executive officers of the Company listed above are set
forth below:



Fred C. Schulte is Chairman of the Board, Chief
Executive Officer and a Director of the Company. Mr. Schulte joined the Company as President and CEO in 1988 in connection with the acquisition of the Company by The Jupiter Corporation. Mr. Schulte had joined The Jupiter Corporation earlier
that same year. From 1986 to 1988, Mr. Schulte served as Vice President-Executive Department for Santa Fe Southern Pacific at its headquarters in Chicago. From 1976 to 1986, Mr. Schulte was employed with SF Mineral Company (a
Santa Fe Southern Pacific Company) in Albuquerque, New Mexico. From 1974 to 1976, Mr. Schulte was employed by Kerr McGee Corporation where he held a number of engineering, operating and management positions in the companys
Hard-Minerals Division. Prior to 1974, Mr. Schulte served for five years in the United States Air Force as a pilot and operations officer. Mr. Schulte received an Engineer of Mines degree from the Colorado School of Mines and a Master of
Business Administration degree from Oklahoma City University.



Charles D. Hall is President, Chief Operating Officer and a Director of the Company. Mr. Hall joined the corporate staff of the Company in 1988, serving as Vice President of Operations prior to being named President in 1997. From 1975 to
1988, Mr. Hall was employed by Ohio Rod, initially as Controller and Chief Financial Officer and then, in late 1975, as President, a position he held until 1988. Prior to joining Ohio Rod, Mr. Hall was employed by Walker China in Bedford Heights,
Ohio from 1971 to 1974. Mr. Hall is the father of David Hall, the Companys Vice President of Manufacturing.



Wayne J. Conner is Vice President, Chief Financial Officer, Treasurer and a Director of the Company. Mr. Conner joined the Company in 1989 as Vice
President and Chief Financial Officer. From 1985 to 1989, Mr. Conner was employed by AluChem, Inc. of Cincinnati, Ohio as the Corporate Controller and Chief Financial Officer. From 1984 to 1985, Mr. Conner served as the Vice President of
Finance and Administration for a start-up computer manual writing company, Comware, Incorporated. From 1976 to 1984, Mr. Conner was employed by Ohio Rod as the Controller and Chief Financial Officer. Mr. Conner began his career at the public
accounting firm of Haskins and Sells. Mr. Conner is a graduate of the University of Cincinnati, College of Business Administration and is a Certified Public Accountant.



Lynn C. Batory is Vice President, Controller and Secretary of the Company. Ms. Batory joined the Company in 1983 as an
internal auditor performing operational audits and special projects. Since then, Ms. Batory has held positions of increasing responsibility including Accounting Manager, Assistant Controller and her current position



36



---

##### Table of Contents

of Controller which she attained in 1988. In 1993, Ms. Batory was also named Vice President and Secretary. Prior to joining the Company, Ms. Batory was
employed by NICOR, Inc. of Naperville, Illinois from 1981 to 1983 as a staff accountant providing financial support for ten mining companies and five marine transportation companies. Ms. Batory holds a Bachelor of Science degree in Accounting from
the University of Houston.



David Hall is Vice President of
Manufacturing. Mr. Hall joined the Company in 1995, and is currently responsible for the operations of the Manufactured Products Segment. From 1984 to 1995, Mr. Hall was employed by Consolidated Industries of Lafayette, Indiana where he served in
various positions of increasing responsibility including Assistant Controller, Controller, Vice President of Finance and Administration and, beginning in 1994, General Manager. Mr. Hall has a Bachelor of Science degree in Accounting from Butler
University. David Hall is the son of Charles D. Hall, President, Chief Operating Officer and a director of the Company.



Mort Maurer was elected in January, 1998 to serve as a director of the Company. Mr. Maurer has over 40 years executive managerial experience at large
manufacturing companies, including Northrop Corporation and RCA. From 1983 to 1987, Mr. Maurer served as Executive Vice President of Monogram Industries, a subsidiary of Nortek Industries. From 1970 to 1983, Mr. Maurer served as President of
National Screw and Manufacturing Company, a Division of Monogram Industries. Mr. Maurer holds a Master of Business Administration degree from Pepperdine University.



The Company has not designated a financial expert on the Audit Committee of its Board of Directors.
The Company believes that its internal review processes, and the thorough manner with which the Company prepares and reviews its financial statements, obviates the need to have a designated financial expert on its Audit Committee.



The Company has adopted a Code of Ethics relating
to the conduct of its officers and directors. A copy of this policy will be supplied upon request to the Company.



ITEM 11.    EXECUTIVE COMPENSATION



The following table sets forth certain information concerning compensation of the Companys Chief Executive Officer and for the four other most highly compensated officers of the Company having total annual
salary and bonus in excess of $100,000.



|                                                      |  |      |  |        |         |       |   |                              |  |   |        
|----------------------------------------------------- |  | ---- |  | ------ | ------- | ----- | - | ---------------------------- |  | - | -------
|Name and Principal Position                           |  | Year |  | Salary |         | Bonus |   | All Other AnnualCompensation
|Fred C. Schulte                                       |  | 2003 |  | $      | 407,223 |       | $ | 154,350                      |  | $ | 114,829
|Chairman and Chief Executive Officer                  |  | 2002 |  | $      | 387,831 |       | $ | 114,510                      |  | $ | 118,381
|                                                      |  | 2001 |  | $      | 369,363 |       | $ | 294,930                      |  | $ | 111,591
|                                                      |  |      |  |       
|Charles D. Hall                                       |  | 2003 |  |        | 366,501 |       |   | 154,350                      |  |   | 88,331 
|President and Chief Operating Officer                 |  | 2002 |  |        | 349,049 |       |   | 114,510                      |  |   | 114,520
|                                                      |  | 2001 |  |        | 332,427 |       |   | 294,930                      |  |   | 95,414 
|                                                      |  |      |  |       
|Wayne J. Conner                                       |  | 2003 |  |        | 211,756 |       |   | 154,350                      |  |   | 60,697 
|Vice President, Treasurer and Chief Financial Officer |  | 2002 |  |        | 201,672 |       |   | 114,510                      |  |   | 70,458 
|                                                      |  | 2001 |  |        | 192,069 |       |   | 294,930                      |  |   | 76,958 
|                                                      |  |      |  |       
|Lynn C. Batory                                        |  | 2003 |  |        | 136,869 |       | $ | 88,007                       |  |   | 17,049 
|Vice President, Controller and Secretary              |  | 2002 |  |        | 131,577 |       |   | 62,196                       |  |   | 24,238 
|                                                      |  | 2001 |  |        | 126,515 |       |   | 150,000                      |  |   | 33,802 
|                                                      |  |      |  |       
|David Hall                                            |  | 2003 |  |        | 136,869 |       | $ | 88,007                       |  |   | 13,410 
|Vice President of Manufacturing                       |  | 2002 |  |        | 131,577 |       |   | 62,196                       |  |   | 19,804 
|                                                      |  | 2001 |  |        | 126,515 |       |   | 150,000                      |  |   | 24,101 



37



---

##### Table of Contents

All other annual compensation reflects employer contributions to the Companys Profit Sharing Plan
(as defined) and Supplemental Employee Retirement Plan (as defined), auto, membership, professional fee and travel and medical benefits and the value of term life and disability insurance premiums.



Profit Sharing Plan



The Company maintains the Elgin National Industries, Inc. Master Savings & Profit Sharing Plan (the Profit Sharing
Plan). Generally, all non-union employees of the Company who have completed one year of service are eligible to participate in the Profit Sharing Plan. For any plan year, the Company may make a discretionary contribution to the Profit Sharing
Plan, which is allocated to participants who have completed 1,000 hours of service during the year and who are employed on the last day of the year based on their compensation for that year. Participants vest in their account balances ratably
over five years (in 20 percent increments). Generally, distributions from the Profit Sharing Plan are made following termination of employment.



Supplemental Employee Retirement Plan



The Company maintains the Elgin National Industries, Inc. Supplemental Retirement Plan (the Supplemental Employee Retirement Plan). Employees
are eligible for participation in this plan if they participate in the Profit Sharing Plan or the ENI Pension Plan for Employees of Elgin National Industries, Inc. and Participating Affiliates (the Pension Plan) and have been approved
for participation by the Board of Directors. The Supplemental Employee Retirement Plan provides benefits to participants whose full benefits under the Profit Sharing Plan or the Pension Plan have been limited by certain provisions of the Internal
Revenue Code. Benefits under the Supplemental Plan are generally payable upon termination of employment.



Pension Plan Table (a)



|                 |  |                  |        |    |   |        |  |    |         |    |   |         |  |   |        
|---------------- |  | ---------------- | ------ | -- | - | ------ |  | -- | ------- | -- | - | ------- |  | - | -------
|Remuneration (b) |  | Years of Service
|                 |  | 15               |        | 20 |   | 25     |  | 30 |         | 35
|$200,000         |  | $                | 20,027 |    | $ | 26,702 |  | $  | 33,378  |    | $ | 40,054  |  | $ | 46,729 
|$225,000         |  |                  | 22,839 |    |   | 30,452 |  |    | 38,066  |    |   | 45,679  |  |   | 53,292 
|$250,000         |  |                  | 25,652 |    |   | 34,202 |  |    | 42,753  |    |   | 51,304  |  |   | 59,854 
|$300,000         |  |                  | 31,277 |    |   | 41,702 |  |    | 52,128  |    |   | 62,554  |  |   | 72,979 
|$350,000         |  |                  | 36,902 |    |   | 49,202 |  |    | 61,503  |    |   | 73,804  |  |   | 86,104 
|$400,000         |  |                  | 42,527 |    |   | 56,702 |  |    | 70,878  |    |   | 85,054  |  |   | 99,229 
|$450,000         |  |                  | 48,152 |    |   | 64,202 |  |    | 80,253  |    |   | 96,304  |  |   | 112,354
|$500,000         |  |                  | 53,777 |    |   | 71,702 |  |    | 89,628  |    |   | 107,554 |  |   | 125,479
|$550,000         |  |                  | 59,402 |    |   | 79,202 |  |    | 99,003  |    |   | 118,804 |  |   | 138,604
|$600,000         |  |                  | 65,027 |    |   | 86,702 |  |    | 108,378 |    |   | 130,054 |  |   | 151,729

---

|(a) | The above table illustrates the estimated annual retirement benefits payable to Pension Plan and Supplemental Employee Retirement Plan participants commencing at age 65 in the form
of a single life annuity, not subject to deduction for social security or other offsets. The above information is based on the current pension formula for various levels of compensation and years of service.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | A participants pension benefit is generally based on a percentage of his salary and bonus for the highest five years of his employment and his years of credited service. The
compensation taken into account under the Pension Plan for 2003 was limited to $200,000 in accordance with Internal Revenue Code rules and such limitation may be adjusted periodically in the future in accordance with Section 401(a)(17) of the Code.
Remuneration in the above table is represented as the highest consecutive five-year average salary. The above table does not reflect the current compensation limitation under Code Section 401(a)(17) for qualified pension plans, because the
Supplemental Employee Retirement Plan provides benefits for compensation above the limitation. Credited service under the Pension Plan as of January 1, 2003 for the named executive officers is as follows: Mr. Schulte, 14 years; Mr. C. Hall, 29
years; Mr. Conner, 21 years; Ms. Batory 20 years; and Mr. D. Hall, 7 years.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



38



---

##### Table of Contents

Employment and Non-Competition Agreements



The Company and each of Messrs. Schulte, C. Hall and Conner entered into employment and non-competition agreements, with an
initial term beginning on November 5, 1997, and ending on the fifth anniversary thereof (the Employment Agreements). The terms of the new employment contracts relating to base salary and related increases and annual bonuses are
substantially similar to the terms of the employment agreements negotiated between Senior Management and the Selling Stockholders that were in effect prior to the Recapitalization Transactions. The term of the Employment Agreements is subject to
annual renewal after the initial term unless one party gives written notice of non-renewal to the other party at least 180 days prior to the then current expiration date. Under the terms of the Employment Agreements, Mr. Schulte serves as the Chief
Executive Officer and received a base salary of $407,223 for 2003, and will receive annual increases beginning in 2004 equal to the greater of the change in the applicable consumer price index or 5% per annum; Mr. C. Hall serves as the President and
Chief Operating Officer and received a base salary of $366,501 for 2003, and will receive annual increases beginning in 2004 equal to the greater of the change in the applicable consumer price index or 5% per annum; and Mr. Conner serves as the
Chief Financial Officer and received a base salary of $211,756 for 2003, and will receive annual increases beginning in 2004 equal to the greater of the change in the applicable consumer price index or 5% per annum. Each of the executive officers is
entitled to an annual bonus for 2002 and later years of 1.5% of the Companys consolidated earnings before interest expense, taxes, amortization and the employment agreement bonuses described in this paragraph, subject to certain adjustments.
The Employment Agreements contain a confidentiality covenant and a non-competition covenant that generally applies during the term of employment and for a period of 3 years thereafter.



Each such Employment Agreement will terminate prior to the schedule expiration date in the event of the death or disability
of the named executive officer or upon the sale by such named executive officer of his stock in the Company. In addition, the Company may terminate the employment of any of the named executive officers for cause (as defined in the agreements,
generally commission of certain felonies, material breaches of duty or breaches of the non competition restriction) and any named executive officer may terminate employment in the event the Company materially breaches the provisions of the
Employment Agreement. Upon such a termination by an executive officer or termination by the Company without cause, the terminated executive officer will be entitled to continued payments and benefits for the remainder of the then current term. Upon
the expiration and non-renewal of the Employment Agreement, the executive officer will receive severance payments for one year thereafter equal to the executives base salary, subject to the executives continued compliance with the
non-competition provisions. Under each of the Employment Agreements, the Company has the obligation to maintain life insurance covering each of the named executive officers, with the proceeds thereof to be used to honor any put rights exercised by
the estate of an executive officer.



ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



Partnership Agreement. The issued and outstanding common stock of the Company is owned by SHC Investment Partnership, a Delaware general partnership (the
Partnership). Each of Fern Limited Partnership (a Delaware limited partnership controlled by Fred C. Schulte), Charles D. Hall and Wayne J. Conner holds a 33.33% voting interest in the Partnership. The management of the Partnership is
governed by a partnership agreement (the Partnership Agreement) among Fern, Hall and Conner. The Partnership Agreement requires that partners holding 66.66% of the voting interest in the Partnership must consent to any vote cast by the
Partnership in its capacity as the sole common stockholder of the Company. Pursuant to the Partnership Agreement, each partner agrees to cause the Partnership to vote in favor of the election of Schulte, Hall and Conner as directors of the Company.
Because of the greater number of common shares originally contributed to the Partnership by Fern, Fern will also hold a non-voting preferred equity interest in the Partnership. This preferred equity interest is entitled to a preference in any
distributions until the agreed value of the preferred interest, and all accrued interest thereon, is paid. Generally, the partners are not permitted to transfer their interests in the Partnership, although the Partnership Agreement does permit a
partner to transfer to family members the right to receive revenues due on the Partnership interest. In connection with the Partnership



39



---

##### Table of Contents

Agreement, each of Fern, Hall and Conner have agreed to grant each other a right of first refusal with respect to their respective shares of preferred stock
in the Company. The outstanding preferred stock in the Company will continue to be held by Fern, Hall and Conner individually and will not be held by the Partnership.



The following table sets forth certain information regarding beneficial ownership of the capital stock of the Company by (i)
each stockholder expected to own beneficially more than 5% of the outstanding capital stock of the Company and (ii) each director or executive officer of the Company and all directors and executive officers as a group.



|                                                        |  |                                         |  |         |                                                |  |          |  |         |  
|------------------------------------------------------- |  | --------------------------------------- |  | ------- | ---------------------------------------------- |  | -------- |  | ------- | -
|                                                        |  | Shares of CommonStock BeneficiallyOwned |  |         | Shares of PreferredStock BeneficiallyOwned (a) | 
|Name                                                    |  | Number                                  |  | Percent |                                                |  | Number   |  | Percent |  
|SHC Investment Partnership                              |  | 6,408.3                                 |  | 100     | %                                              |  |         |  |        |  
|Fred C. Schulte                                         |  | 2,136.1                                 |  | 331/3   | %                                              |  | 11,621.7 |  | 58      | %
|Charles D. Hall                                         |  | 2,136.1                                 |  | 331/3   | %                                              |  | 4,165.0  |  | 21      | %
|Wayne J. Conner                                         |  | 2,136.1                                 |  | 331/3   | %                                              |  | 4,165.0  |  | 21      | %
|Lynn C. Batory                                          |  |                                        |  |        |                                                |  |         |  |        |  
|David Hall                                              |  |                                        |  |        |                                                |  |         |  |        |  
|Mort Maurer                                             |  |                                        |  |        |                                                |  |         |  |        |  
|Directors and executive officers as a group (6 persons) |  | 6,408.3                                 |  | 100     | %                                              |  | 19,951.7 |  | 100     | %

---

|(a) | Does not include preferred stock units.
|--- | ---------------------------------------



ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



Members of Senior Management are indebted to the Company in the aggregate net principal amount of $7,833,000, described below.



Fred C. Schulte through his affiliate Fern Limited Partnership, a Delaware
limited partnership controlled by Mr. Schulte, is indebted to the Company in the amount of $1,000,000 evidenced by a promissory note originally dated September 24, 1993 from Fern Limited Partnership, and payable to the Company, bearing interest at
5.35% per annum and maturing in December, 2007, subject to certain mandatory prepayment requirements. Fern Limited Partnership is the obligor on another promissory note dated September 24, 1993 and payable to the Company in the amount of $1,603,000,
bearing interest at 5.35% per annum and maturing in December, 2007. This obligation is offset by two promissory notes from the Company payable to Mr. Schulte in the aggregate amount of $1,603,000 and bearing the same 5.35% interest rate and
December, 2007 maturity date. Fern Limited Partnership is also indebted to the Company in the amount of $1,000,000 evidenced by a promissory note, dated December 23, 1997 bearing interest at 6.31% per annum and maturing in December, 2007.



Fred C. Schulte is indebted to the Company in the amount of
$3,200,000 evidenced by a promissory note, dated June 30, 1999, bearing interest at 5.37% per annum and maturing in December, 2007



Charles D. Hall is indebted to the Company in the amount of $516,500 evidenced by a promissory note, dated September 24, 1993, bearing interest at 6.42%
per annum and maturing in December, 2007, subject to certain mandatory prepayment requirements. Mr. Hall is indebted to the Company in the amount of $300,000 evidenced by a promissory note, dated December 23, 1997 bearing interest at 6.31% per annum
and maturing in December, 2007. Mr. Hall is also indebted to the Company in the amount of $500,000 evidenced by a promissory note, dated June 30, 1999, bearing interest at 5.37% per annum and maturing in December, 2007.



Wayne J. Conner is indebted to the Company in the amount of $516,500
evidenced by a promissory note dated September 24, 1993 bearing interest at 6.42% per annum and maturing in December, 2007, subject to certain mandatory prepayment requirements. Mr. Conner is indebted to the Company in the amount of $300,000



40



---

##### Table of Contents

evidenced by a promissory note, dated December 23, 1997 bearing interest at 6.31% per annum and maturing in December, 2007. Mr. Conner is also indebted to
the Company in the amount of $500,000 evidenced by a promissory note, dated June 30, 1999, bearing interest at 5.37% per annum and maturing in December, 2007.



PART IV



ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES



Audit Fees:



The aggregate fees billed by our independent public accountants, Ernst & Young LLP, for professional services rendered in connection to the audit of
our annual financial statements and review of our interim financial statements including our quarterly reports on Form 10-Q for the fiscal year ended December 31, 2002 were approximately $255,000.



The aggregate fees billed by our independent public accountants, Ernst &
Young LLP, for professional services rendered in connection to the audit of our annual financial statements and review of our interim financial statements including our quarterly reports on Form 10-Q for the fiscal year ended December 31, 2003 were
approximately $223,000.



Audit Related Fees:



Ernst & Young LLP billed us approximately $19,000 and $14,000,
respectively for the years ended December 31, 2002 and 2003 relating to accounting consultations in connection with the Companys Australian operations.



Tax Fees:



Ernst & Young LLP billed us approximately $46,000 for the fiscal year ended December 31, 2002 related to the review of the Companys consolidated
federal tax return. Ernst & Young LLP billed the Company an additional $8,000 related to tax consulting for the year ended December 31, 2002.



Ernst & Young LLP billed us approximately $40,000 for the fiscal year ended December 31, 2003 related to the review of the Companys consolidated
federal tax return. Ernst & Young LLP billed the Company an additional $8,000 related to tax consulting for the year ended December 31, 2003.



Benefits Consulting:



Ernst & Young LLP billed us approximately $120,000 and $61,000, respectively in the years ended December 31, 2002 and 2003 for benefits consulting.



All audit and non-audit related services to be performed for
us by our independent public accountants must be approved in advance by the Audit Committee of our Board of Directors.



ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



(a) Financial Statements



See Index to Consolidated Financial Statements of Elgin National Industries, Inc. set forth in Item 8, Financial
Statements and Supplementary Data.



(b) Financial
Statement Schedule



41



---

##### Table of Contents

Schedule II    Valuation and Qualifying Accounts 45



SCHEDULES OMITTED AS NOT REQUIRED OR INAPPLICABLE



Schedule I  Condensed financial information of
registrant

Schedule III  Real estate and accumulated depreciation

Schedule IV  Mortgage loans on real estate

Schedule V  Supplemental information concerning property-casualty insurance operations





42



---

##### Table of Contents

SCHEDULE II



ELGIN NATIONAL INDUSTRIES, INC.



VALUATION AND QUALIFYING ACCOUNTS

(in thousands)



|                                 |  |                              |  |                                      |  |            |  |                       
|-------------------------------- |  | ---------------------------- |  | ------------------------------------ |  | ---------- |  | ----------------------
|Description                      |  | Balance atBeginningof Period |  | AdditionsCharged toCosts andExpenses |  | Deductions |  | Balance atEnd ofPeriod
|Allowance for doubtful accounts: |  |                              |  |                                      |  |            |  |                       
|Year ended December 31, 2001     |  | 860                          |  | 157                                  |  | 334        |  | 683                   
|Year ended December 31, 2002     |  | 683                          |  | 306                                  |  | 144        |  | 845                   
|Year ended December 31, 2003     |  | 845                          |  | 47                                   |  | 222        |  | 670                   
|Reserve for inventories:         |  |                              |  |                                      |  |            |  |                       
|Year ended December 31, 2001     |  | 1,602                        |  | 392                                  |  | 232        |  | 1,762                 
|Year ended December 31, 2002     |  | 1,762                        |  | 248                                  |  | 490        |  | 1,520                 
|Year ended December 31, 2003     |  | 1,520                        |  | 125                                  |  | 103        |  | 1,542                 



C. Exhibits



(i) A list of exhibits included as part of
this Form 10-K is set forth in the Index to Exhibits that immediately precedes such Exhibits, which is incorporated herein by reference.



(ii) Reports on Form 8-K



None



43



---

##### Table of Contents

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.



ELGIN NATIONAL INDUSTRIES, INC.By

/S/    WAYNE J.
CONNERName: Title:

Wayne J. Conner Vice President, Treasurer, and Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer)




Dated: March 29, 2004



Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 29, 2004.



ELGIN NATIONAL INDUSTRIES, INC.By

/S/    WAYNE J.
CONNERName: Title:

Wayne J. Conner Vice President, Treasurer, and CFO (Duly Authorized Officer and Principal Financial Officer)




Pursuant to
the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and on the dates indicated.



|                                      |  |                                                                 |  |               
|------------------------------------- |  | --------------------------------------------------------------- |  | --------------
|Signature                             |  | Title                                                           |  | Date          
|                                      |  |                                                                
|/S/    FRED C.
SCHULTEFred C.
Schulte |  | Chairman of the Board, Chief Executive Officer and Director     |  | March 29, 2004
|                                      |  |                                                                
|/S/    CHARLES D.
HALLCharles D.
Hall |  | President, Chief Operating Officer and Director                 |  | March 29, 2004
|                                      |  |                                                                
|/S/    WAYNE J.
CONNERWayne J.
Conner |  | Vice President, Treasurer, Chief Financial Officer and Director |  | March 29, 2004
|                                      |  |                                                                
|/S/    LYNN C.
BATORYLynn C.
Batory   |  | Vice President, Controller and Secretary                        |  | March 29, 2004
|                                      |  |                                                                
|/S/    DAVID
HALL                     |  | Vice President of Manufacturing                                 |  | March 29, 2004
|David Hall                            |  |                                                                 |  |               



44



---

##### Table of Contents

INDEX TO EXHIBITS

|              |  |                                                                                                                                                                                                                                                                                                                           |  |                   |  
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                                                                      |  | FootnoteReference |  
|              |  |                                                                                                                                                                                                                                                                                                                          
|3.1           |  | Certificate of Incorporation of Elgin National Industries, Inc.                                                                                                                                                                                                                                                           |  | (3                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|3.2           |  | Bylaws of Elgin National Industries, Inc.                                                                                                                                                                                                                                                                                 |  | (3                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|4.1           |  | Indenture dated November 5, 1997, between Elgin National Industries, Inc., subsidiaries and Norwest Bank Minnesota, as Trustee.                                                                                                                                                                                           |  | (2                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|4.2           |  | Form of 11% Senior Note due 2007 (included in Exhibit 4.1).                                                                                                                                                                                                                                                               |  | (2                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|4.3           |  | Registration Rights Agreement dated November 5, 1997, by and among Elgin National Industries, Inc., certain of its subsidiaries, and BancAmerica Robertson Stephens and CIBC Wood Gundy
Securities Corp.                                                                                                                  |  | (3                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|4.4           |  | Form of Subsidiary Guaranty (included in Exhibit 4.1).                                                                                                                                                                                                                                                                    |  | (2                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|10.1          |  | Credit Agreement dated as of September 24, 1993, as Amended and Restated as of November 5, 1997, by and among Elgin National Industries, Inc., various financial institutions, and Bank of
America National Trust and Savings Association, individually and as agent.                                                     |  | (2                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|10.2          |  | Employment and Non-Competition Agreement dated as of November 5, 1997, between Elgin National Industries, Inc. and Fred C. Schulte.*                                                                                                                                                                                      |  | (2                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|10.3          |  | Employment and Non-Competition Agreement dated as of November 5, 1997, between Elgin National Industries, Inc. and Charles D. Hall.*                                                                                                                                                                                      |  | (2                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|10.4          |  | Employment and Non-Competition Agreement dated as of November 5, 1997, between Elgin National Industries, Inc. and Wayne J. Conner.*                                                                                                                                                                                      |  | (2                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|10.5          |  | The Elgin National Industries, Inc. Supplemental Retirement Plan dated as of 1995, and effective January 1, 1995.*                                                                                                                                                                                                        |  | (3                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|10.6          |  | Credit Agreement dated as of September 24, 1993, as Amended and Restated as of January 18, 2001, by and among Elgin National Industries, Inc., various financial institutions, and PNC Bank,
National Association, individually and as agent.                                                                             |  | (4                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|10.7          |  | First Amendment to Credit Agreement dated as of September 24, 1993, as Amended and Restated as of January 18, 2001, and further amended as of March 1, 2001 by and among Elgin National
Industries, Inc., various financial institutions, and PNC Bank, National Association, individually and as agent.                  |  | (4                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|10.8          |  | Second Amended to Credit Agreement dated as of September 24, 1993, as Amended and Restated as of January 18, 2001, and further amended as of June 28, 2001 by and among Elgin National
Industries, Inc., various financial institutions, and PNC Bank, National Association, individually and as agent.                   |  | (4                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|10.9          |  | Third Amendment to Credit Agreement dated as of September 24, 1993, as Amended and Restated as of January 18, 2001, and further amended as of March 31, 2002 by and among Elgin National
Industries, Inc., various financial institutions, and PNC Bank, National Association, individually and as agent.                 |  | (5                | )
|              |  |                                                                                                                                                                                                                                                                                                                          
|10.10         |  | Waiver and Fourth Amendment to Credit Agreement dated as of September 24, 1993, as Amended and Restated as of January 18, 2001, and further amended as of September 30, 2002 by and among
Elgin National Industries, Inc., various financial institutions, and PNC Bank, National Association, individually and as agent. |  | (6)               |  
|              |  |                                                                                                                                                                                                                                                                                                                          
|10.11         |  | Loan and Security Agreement, dated February 10, 2003 by and among Elgin National Industries, Inc. and each of its subsidiaries and Foothill Capital Corporation, as lender, Arranger and
administrative agent and Ableco Finance LLC, as lender.                                                                          |  | (7)               |  



45



---

##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                     |  |                  
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                |  | FootnoteReference
|              |  |                                                                                                                                                                                                                                                                    
|10.12         |  | Amendment to Employment and Non-Competition Agreement dated as of January 29, 2003, between Elgin National Industries, Inc. and Charles D. Hall.                                                                                                                    |  | (8)              
|              |  |                                                                                                                                                                                                                                                                    
|10.13         |  | Amendment to Employment and Non-Competition Agreement dated as of January 29, 2003, between Elgin National Industries, Inc. and Fred C. Schulte.                                                                                                                    |  | (8)              
|              |  |                                                                                                                                                                                                                                                                    
|10.14         |  | Amendment to Employment and Non-Competition Agreement dated as of January 29, 2003, between Elgin National Industries, Inc. and Wayne J. Conner.                                                                                                                    |  | (8)              
|              |  |                                                                                                                                                                                                                                                                    
|10.15         |  | First Amendment to Loan and Security Agreement, dated February 19, 2004 by and among Elgin National Industries, Inc. and each of its subsidiaries and Foothill Capital Corporation, as lender,
Arranger and administrative agent and Ableco Finance LLC, as lender. |  | (1)              
|              |  |                                                                                                                                                                                                                                                                    
|21            |  | Subsidiaries of Elgin National Industries, Inc.                                                                                                                                                                                                                     |  | (2)              
|              |  |                                                                                                                                                                                                                                                                    
|31.1          |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                             |  | (1)              
|              |  |                                                                                                                                                                                                                                                                    
|31.2          |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                             |  | (1)              
|              |  |                                                                                                                                                                                                                                                                    
|32.1          |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                              |  | (1)              
|              |  |                                                                                                                                                                                                                                                                    
|32.2          |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                              |  | (1)              

---

|(1) | Filed within.
|--- | -------------

|(2) | Incorporated by reference to Pre-Effective Form S-4 Registration Statement of the Company (File No. 333-43523) filed with the Commission on December 30, 1997.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference to Pre-Effective Amendment No. 1 to Form S-4 Registration Statement of the Company (File No. 333-43523) filed with the Commission on January 23, 1998.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference to Form 10-Q of the Company (File No. 001-03771) filed with the Commission on August 10, 2001.
|--- | ------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference to Form 10-Q of the Company (File No. 001-05771) filed with the Commission on May 15, 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated by reference to Form 10-Q of the Company (File No. 001-05771) filed with the Commission on November 12, 2002.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated by reference to Form 8-K of the Company (File No. 001-05771) filed with the Commission on February 18, 2003.
|--- | -------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference to Form 10-K of the Company (File No. 001-05771) filed with the Comission on March 27, 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------

|* | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------



46