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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION



Washington, D.C. 20549



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FORM 10-K



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



For the fiscal year ended December 31, 2004



OR



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



Commission file number: 333-43523



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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



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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, 2005, there were outstanding 6,408.3 shares of Class A Common
Stock and 19,951.7 shares of Preferred Stock. As of June 30, 2004, 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.



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##### Table of Contents

ELGIN NATIONAL INDUSTRIES, INC.



Table of Contents



|     |  |                                                                                       |  |           
|---- |  | ------------------------------------------------------------------------------------- |  | ----------
|Item |  |                                                                                       |  | PageNumber
|     |  | 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                                           |  | 14        
|     |  |                                                                                      
|9.   |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 38        
|     |  |                                                                                      
|9A.  |  | CONTROLS AND PROCEDURES                                                               |  | 38        
|     |  |                                                                                      
|     |  | PART III                                                                              |  |           
|     |  |                                                                                      
|10.  |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                    |  | 38        
|     |  |                                                                                      
|11.  |  | EXECUTIVE COMPENSATION                                                                |  | 40        
|     |  |                                                                                      
|12.  |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |  | 42        
|     |  |                                                                                      
|13.  |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |  | 43        
|     |  |                                                                                      
|     |  | PART IV                                                                               |  |           
|     |  |                                                                                      
|14.  |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                |  | 44        
|     |  |                                                                                      
|15.  |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                      |  | 44        



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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).



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



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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 42 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 2004.



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, 2004, were $108.4 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 75% of its net sales from customers outside the coal-mining industry during 2004. Net sales for the Engineering Services Segment for the year ended December 31, 2004 were $99.7 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 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



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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, 2004 was $97.4 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 2004, approximately 25% 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.



Employees



As of December 31, 2004, the Company had approximately 790 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 through March 31, 2006.
Approximately eight 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.



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|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            |  | Tazewell, VA        |  | Manufacturing     |  | Owned        |  | 28,800                  
|                  |  | Princeton, WV       |  |                   |  | 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.



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 42 years and have performed little invasive testing at their sites. In addition, businesses previously operated by the Company have



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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, 2004. The Company did not pay any dividends in the years ended December 31, 2004, 2003 and 2002.



|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, 2000, 2001, 2002, 2003, and 2004 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.



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Selected Financial Data



|                                                                            |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                            |  | Fiscal Year Ended December 31, |        
|                                                                            |  | 2000                           |         |   | 2001 |   |         | 2002 |  |   | 2003    |   |  | 2004 |        
|                                                                            |  | (dollars in thousands)         |        
|Statement of Operations Data:                                               |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net sales                                                                   |  | $                              | 163,370 |   |      | $ | 191,551 |      |  | $ | 149,000 |   |  | $    | 144,545 |   |  | $ | 208,115 |  
|Cost of sales                                                               |  |                                | 124,378 |   |      |   | 149,988 |      |  |   | 116,730 |   |  |      | 112,056 |   |  |   | 173,299 |  
|                                                                            |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Gross profit                                                                |  |                                | 38,992  |   |      |   | 41,563  |      |  |   | 32,270  |   |  |      | 32,489  |   |  |   | 34,816  |  
|Selling, general and administrative expenses                                |  |                                | 24,419  |   |      |   | 24,850  |      |  |   | 27,007  |   |  |      | 24,928  |   |  |   | 26,653  |  
|Goodwill amortization                                                       |  |                                | 419     |   |      |   | 1,088   |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                            |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Operating income                                                            |  |                                | 14,154  |   |      |   | 15,625  |      |  |   | 5,263   |   |  |      | 7,561   |   |  |   | 8,163   |  
|Other expenses:                                                             |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Interest expense, net                                                       |  |                                | 7,676   |   |      |   | 8,810   |      |  |   | 8,747   |   |  |      | 9,975   |   |  |   | 11,137  |  
|                                                                            |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) before income taxes                                           |  |                                | 6,478   |   |      |   | 6,815   |      |  |   | (3,484  | ) |  |      | (2,414  | ) |  |   | (2,974  | )
|Provision (benefit) for income taxes                                        |  |                                | 2,605   |   |      |   | 3,309   |      |  |   | (1,501  | ) |  |      | (302    | ) |  |   | (26     | )
|                                                                            |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                                                           |  | $                              | 3,873   |   |      | $ | 3,506   |      |  | $ | (1,983  | ) |  | $    | (2,112  | ) |  | $ | (2,948  | )
|                                                                            |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                                            |  |                                |         |   |     
|Other Financial Data:                                                       |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Gross margin %                                                              |  |                                | 23.9    | % |      |   | 21.7    | %    |  |   | 21.7    | % |  |      | 22.5    | % |  |   | 16.7    | %
|Depreciation and amortization                                               |  | $                              | 3,182   |   |      | $ | 4,604   |      |  | $ | 3,707   |   |  | $    | 4,067   |   |  | $ | 3,196   |  
|Capital expenditures                                                        |  |                                | 4,337   |   |      |   | 4,440   |      |  |   | 3,572   |   |  |      | 763     |   |  |   | 1,524   |  
|Net cash provided by (used in) operating activities                         |  |                                | 10,674  |   |      |   | 5,619   |      |  |   | (2,598  | ) |  |      | 4,488   |   |  |   | (8,222  | )
|Net cash provided by (used in) investing activities                         |  |                                | (6,395  | ) |      |   | (24,780 | )    |  |   | (3,497  | ) |  |      | (717    | ) |  |   | (1,518  | )
|Net cash provided by (used in) financing activities                         |  |                                | (6,959  | ) |      |   | 16,140  |      |  |   | 6,095   |   |  |      | (656    | ) |  |   | 6,195   |  
|                                                                            |  |                                |         |   |     
|Operating Unit Data:                                                        |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net Sales:                                                                  |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Manufactured Products Segment                                               |  | $                              | 80,036  |   |      | $ | 99,080  |      |  | $ | 93,562  |   |  | $    | 88,411  |   |  | $ | 108,401 |  
|Engineering Services Segment                                                |  |                                | 83,334  |   |      |   | 92,471  |      |  |   | 55,438  |   |  |      | 56,134  |   |  |   | 99,714  |  
|                                                                            |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total Net Sales                                                             |  | $                              | 163,370 |   |      | $ | 191,551 |      |  | $ | 149,000 |   |  | $    | 144,545 |   |  | $ | 208,115 |  
|                                                                            |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|                                                                            |  |                                |         |   |     
|Balance Sheet Data:                                                         |  |                                |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Cash and cash equivalents                                                   |  | $                              | 3,021   |   |      | $ |        |      |  | $ |        |   |  | $    | 3,391   |   |  | $ |        |  
|Working capital less cash and cash equivalents                              |  |                                | 10,219  |   |      |   | 12,381  |      |  |   | 18,150  |   |  |      | 13,668  |   |  |   | 22,019  |  
|Property, plant and equipment, net                                          |  |                                | 17,935  |   |      |   | 22,070  |      |  |   | 22,441  |   |  |      | 20,308  |   |  |   | 19,008  |  
|Total assets                                                                |  |                                | 112,464 |   |      |   | 137,746 |      |  |   | 124,617 |   |  |      | 133,387 |   |  |   | 144,427 |  
|Total debt                                                                  |  |                                | 74,100  |   |      |   | 91,234  |      |  |   | 97,329  |   |  |      | 98,760  |   |  |   | 104,955 |  
|Mandatorily redeemable preferred stock and redeemable preferred stock units |  |                                | 16,006  |   |      |   | 16,933  |      |  |   | 17,860  |   |  |      | 18,787  |   |  |   | 19,714  |  
|Common stockholders deficit                                                |  |                                | (23,305 | ) |      |   | (20,445 | )    |  |   | (23,074 | ) |  |      | (25,560 | ) |  |   | (28,354 | )



|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.



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##### 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, |      
|                                           |  | 2002                                   |       |   | 2003 |       |   | 2004 |  
|Net sales                                  |  | $                                      | 149.0 |   |      | 100.0 | % |      | $ | 144.5 |   |  | 100.0 | % |  | $ | 208.1 |   |  | 100.0 | %
|Cost of sales                              |  |                                        | 116.7 |   |      | 78.3  |   |      |   | 112.0 |   |  | 77.5  |   |  |   | 173.3 |   |  | 83.3  |  
|Gross profit                               |  |                                        | 32.3  |   |      | 21.7  |   |      |   | 32.5  |   |  | 22.5  |   |  |   | 34.8  |   |  | 16.7  |  
|Selling, general & administrative expenses |  |                                        | 27.0  |   |      | 18.1  |   |      |   | 24.9  |   |  | 17.2  |   |  |   | 26.7  |   |  | 12.8  |  
|Operating income                           |  |                                        | 5.3   |   |      | 3.6   |   |      |   | 7.6   |   |  | 5.3   |   |  |   | 8.1   |   |  | 3.9   |  
|Interest expense, net                      |  |                                        | 8.8   |   |      | 5.9   |   |      |   | 10.0  |   |  | 6.9   |   |  |   | 11.1  |   |  | 5.3   |  
|Income (loss) before income taxes          |  |                                        | (3.5  | ) |      | (2.3  | ) |      |   | (2.4  | ) |  | (1.6  | ) |  |   | (3.0  | ) |  | (1.4  | )
|Provision (benefit) for income taxes       |  |                                        | (1.5  | ) |      | (1.0  | ) |      |   | (0.3  | ) |  | (0.2  | ) |  |   | (0.0  | ) |  | (0.0  | )
|Net income (loss)                          |  |                                        | (2.0  | ) |      | (1.3  | ) |      |   | (2.1  | ) |  | (1.4  | ) |  |   | (3.0  | ) |  | (1.4  | )



Manufactured
Products Segment

(dollars in millions)



|              |  |                                        |      |  |       |   |  |      |      |  |       |   |  |   |       |  |       |  
|------------- |  | -------------------------------------- | ---- |  | ----- | - |  | ---- | ---- |  | ----- | - |  | - | ----- |  | ----- | -
|              |  | For the Fiscal Year Ended December 31, |     
|              |  | 2002                                   |      |  | 2003  |   |  | 2004 |     
|Net sales     |  | $                                      | 93.6 |  | 100.0 | % |  | $    | 88.4 |  | 100.0 | % |  | $ | 108.4 |  | 100.0 | %
|Cost of sales |  |                                        | 67.1 |  | 71.7  |   |  |      | 61.1 |  | 69.1  |   |  |   | 76.9  |  | 70.9  |  
|Gross profit  |  |                                        | 26.5 |  | 28.3  |   |  |      | 27.3 |  | 30.9  |   |  |   | 31.5  |  | 29.1  |  



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Engineering Services Segment

(dollars in millions)



|              |  |                                        |      |  |       |   |  |      |      |  |       |   |  |   |      |  |       |  
|------------- |  | -------------------------------------- | ---- |  | ----- | - |  | ---- | ---- |  | ----- | - |  | - | ---- |  | ----- | -
|              |  | For the Fiscal Year Ended December 31, |     
|              |  | 2002                                   |      |  | 2003  |   |  | 2004 |     
|Net sales     |  | $                                      | 55.4 |  | 100.0 | % |  | $    | 56.1 |  | 100.0 | % |  | $ | 99.7 |  | 100.0 | %
|Cost of sales |  |                                        | 49.6 |  | 89.6  |   |  |      | 50.9 |  | 90.8  |   |  |   | 96.4 |  | 96.7  |  
|Gross profit  |  |                                        | 5.8  |  | 10.4  |   |  |      | 5.2  |  | 9.2   |   |  |   | 3.3  |  | 3.3   |  



Year Ended
December 31, 2004 Compared to Year Ended December 31, 2003



Net Sales:    Net sales for the Manufactured Products Segment for the year ended December 31, 2004 increased $20.0 million, or 22.6%, to $108.4 million from $88.4 million for the corresponding period in 2003. The
increased sales level was due to increased sales of equipment and fasteners.



Net sales for the Engineering Services Segment for the year ended December 31, 2004 increased $43.6 million, or 77.6%, to $99.7 million from $56.1 million for the corresponding period in 2003 due primarily to
increased sales of larger engineering projects with sales greater than $1.0 million, and to a lesser extent increased sales from smaller jobs. In 2004 the Engineering Services Segment had $86.2 million in sales from fifteen larger projects compared
to $46.2 million from ten larger projects for 2003. Sales from smaller jobs with sales less than $1.0 million each increased to $13.5 million for the year ended 2004 from $9.9 million for 2003.



Cost of Sales:    Cost of sales for the
Manufactured Products Segment for the year ended December 31, 2004 increased $15.8 million, or 25.9%, to $76.9 million from $61.1 million for the corresponding period in 2003 due to the increased sales level. The Manufactured Products Segments
cost of sales as a percentage of net sales increased to 70.9% for the year ended December 31, 2004 from 69.1% for the corresponding period in 2003 due to lower margins earned on screen sales and fasteners, partially offset with higher margins earned
on steel fabrication and centrifugal dryers.



Cost of sales for
the Engineering Services Segment for the year ended December 31, 2004 increased $45.5 million, or 8.9%, to $96.4 million from $50.9 million for the corresponding period in 2003 due to the higher sales level and lower margins earned on larger
projects. As a percentage of net sales, the Engineering Services Segments cost of sales increased to 96.7% for the year ended December 31, 2004 from 90.8% for the corresponding period in 2003 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, 2004 increased $4.2 million, or 15.3%, to $31.5 million from $27.3 million for the corresponding period in 2003 due to the higher
sales level, partially offset with the lower margins earned. The Manufactured Products Segments gross profit as a percentage of net sales decreased to 29.1% for the year ended December 31, 2004 from 30.9% for the corresponding period in 2003.



Gross profit of the Engineering Services Segment for the year
ended December 31, 2004 decreased $1.9 million, or 35.7%, to $3.3 million from $5.2 million for the corresponding period in 2003 due to the lower margins earned, partially offset with the higher sales level. As a percentage of net sales, the
Engineering Services Segments gross profit decreased to 3.3% for the year ended December 31, 2004 from 9.2% for the corresponding period in 2003 due to lower margins earned on larger projects.



Selling, General and Administrative
Expenses:    Selling, general and administrative expenses of the Company of $26.7 million for the year ended December 31, 2004 represented an increase of $1.8 million in comparison to $24.9 million for the corresponding
period in 2003 primarily due to the higher sales level. As a percentage of sales, selling, general and administrative expenses decreased to 12.8% for 2004 from 17.2% for 2003.



Operating Income:    Operating income of the Company for the year ended December 31, 2004 of $8.1
million was $0.5 million higher than the operating income of $7.6 million for the corresponding period in 2003



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for the reasons discussed above. Operating income as a percentage of net sales decreased to 3.9% for the year ended December 31, 2004 from 5.3% for the
corresponding period in 2003.



Interest
Income:    Interest income of the Company for the year ended December 31, 2004 of $0.7 million approximated interest income for the year ended December 31, 2003.



Interest Expense:    Interest expense of the Company for the year ended December 31, 2004 of
$11.9 million was $1.3 million higher than the interest expense of $10.6 million for the year ended December 31, 2003. The higher interest expense was due to interest recorded on the Companys preferred stock, and preferred stock units
beginning in 2004 in accordance with FASB No. 150, along with a higher debt level.



Loss Before Income Taxes:    The Company incurred a loss before income taxes of $3.0 million for the year ended December 31, 2004, compared to $2.4 million for the year ended December 31,
2003, for the reasons discussed above.



Benefit for Income
Taxes:    Benefit for income taxes for the year ended December 31, 2004 was $0.0 million, compared to $0.3 million for the year ended December 31, 2003. The Companys effective tax rate decreased to 1% in 2004 from 13%
in 2003 primarily due to foreign losses incurred in both 2004 and 2003 without current tax benefit.



Net Loss:    The Company had a net loss of $2.9 million for the year ended December 31, 2004, compared to $2.1 million for the
year ended December 31, 2003. This decrease of $0.8 million was due to the reasons discussed above.



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



9



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##### Table of Contents

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.



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.



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.



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



10



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##### Table of Contents

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 the effort, and an ongoing assessment of the Companys progress toward completing the contract.
From time to time, as part of 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 used in operating activities for the year ended December 31, 2004
of $8.2 million was used to increase accounts receivable and inventories. These decreases in cash were partially offset with cash generated from the net loss adjusted for non-cash charges, increased accounts payable and accrued expenses. 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, 2004 of
$1.5 million consisted of capital expenditures in accordance with the Companys regular practice of upgrading and maintaining its equipment base and facilities.



Cash generated by financing activities for 2004 was $6.2 million which included borrowings of $8.2 million on the Loan and
Security Agreement, partially offset with repayments of $2.0 million of long-term debt.



As of December 31, 2004 the Company had a calculated borrowing base availability of $19.8 million on its revolver loan less $8.2 million outstanding and $4.6 million in standby letters of credit outstanding, leaving a
remaining available balance of $7.0 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 monitors its liquidity position on a regular basis, and is working with their lenders to insure that our credit availability is maximized. The Company anticipates that with
improved operating results, funds provided from future operations and financing arrangements should be sufficient to meet its anticipated debt service requirements, working capital needs and capital expenditures. However, if the Company has lower
than expected earnings, or there are material delays in collections within our accounts receivable, the Companys liquidity could be impaired.



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##### Table of Contents

The Company has the following contractual cash obligations outstanding as of December 31, 2004:



Contractual Cash Obligations



|                    |  |                        |        |                 |   |                |  |                     |  |        |  |   |       
|------------------- |  | ---------------------- | ------ | --------------- | - | -------------- |  | ------------------- |  | ------ |  | - | ------
|                    |  | Payments Due by Period
|                    |  | LongTermDebt           |        | OperatingLeases |   | PreferredStock |  | PreferredStockUnits |  | Total 
|                    |  | (dollars in thousands)
|2005                |  | $                      | 1,575  |                 | $ | 2,175          |  |                    |  |       |  | $ | 3,750 
|2006                |  |                        | 16,237 |                 |   | 1,383          |  |                    |  |       |  |   | 17,620
|2007                |  |                        | 75,189 |                 |   | 1,029          |  | 4,842               |  | 17,653 |  |   | 98,713
|2008                |  |                        | 10,979 |                 |   | 720            |  |                    |  |       |  |   | 11,699
|2009                |  |                        | 45     |                 |   | 685            |  |                    |  |       |  |   | 730   
|2010 and thereafter |  |                        | 930    |                 |   | 493            |  |                    |  |       |  |   | 1,423 



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, 2004 was $113.0 million. Approximately $15.6 million relates to the Manufactured
Products Segment, with the remaining amount of $97.4 million relating to the Engineering Services Segment. Within the Engineering Services Segments backlog at December 31, 2004, $31.1 million relates to four engineering, procurement and
construction management projects for limestone and gypsum handling facilities, and $29.2 million relates to two turnkey projects for material handling systems. 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
2004, approximately 18% of the Companys net sales were attributable to products sold or services provided outside of the United States. In 2004, the majority of the Companys foreign sales were to companies located in Australia and
Indonesia. 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



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##### Table of Contents

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.



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##### Table of Contents

|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------



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



|                                                                                                                        |  |     
|----------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                        |  | Page
|Report of Independent Registered Public Accounting FirmMcGladrey & Pullen LLP.                                         |  | 15  
|                                                                                                                        | 
|Report of Independent Registered Public Accounting FirmErnst & Young LLP                                               |  | 16  
|                                                                                                                        | 
|Consolidated Balance Sheets as of December 31, 2004 and December 31, 2003                                               |  | 17  
|                                                                                                                        | 
|Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002                              |  | 18  
|                                                                                                                        | 
|Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2004, 2003 and 2002             |  | 18  
|                                                                                                                        | 
|Consolidated Statements of Changes in Common Stockholders Deficit for the years ended December 31, 2004, 2003 and 2002 |  | 19  
|                                                                                                                        | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002                              |  | 20  
|                                                                                                                        | 
|Notes to Consolidated Financial Statements                                                                              |  | 21  





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##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors

Elgin National Industries, Inc. and Subsidiaries

Downers Grove, Illinois



We have audited the consolidated balance sheet of Elgin National Industries,
Inc. and Subsidiaries as of December 31, 2004, and the related consolidated statements of operations, comprehensive income (loss), changes in common stockholders deficit and cash flows for the year then ended. These financial statements are
the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.



We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (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 audit provide a reasonable
basis for our opinion.



In our opinion, the 2004 consolidated
financial statements referred to above present fairly, in all material respects, the financial position of Elgin National Industries, Inc. and Subsidiaries as of December 31, 2004, and the results of their operations and their cash flows for the
year then ended, in conformity with accounting principles generally accepted in the United States of America.



As described in Note 2 to the financial statements, the Company changed its method of accounting for certain financial instruments to adopt Statement of
Financial Accounting Standards No. 150.



McGladrey & PULLEN LLP



Schaumburg, Illinois

March 4, 2005





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##### Table of Contents

Repost of Independent Registered Public Accounting Firm



Shareholders and Board of Directors

Elgin National Industries, Inc.



We have audited the accompanying consolidated balance sheet of Elgin National Industries, Inc. and Subsidiary Companies as of December 31, 2003, and the
related consolidated statements of operations, comprehensive income (loss), changes in common stockholders deficit and cash flows for each of the years in the two year period ended December 31, 2003. Our audits also included the financial
statement schedule listed in the Index at Item 15(b) with respect to the information included therein for the years ended December 31, 2003 and 2002. 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 the standards of the Public Company Accounting Oversight Board (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 financial position of Elgin National Industries, Inc. and Subsidiary Companies at December 31, 2003, and the results of their operations and their cash flows for each of the
two years in the period ended December 31, 2003, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the information set forth therein.



/s/ ERNST & YOUNG LLP



Chicago, Illinois

February 20, 2004





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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED BALANCE SHEETS



December 31, 2004 and 2003

(in thousands except share data)



|                                                                                                                                               |  |      |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                                               |  | 2004 |         |   | 2003 |  
|ASSETS                                                                                                                                         |  |      |         |   |      |  
|Current assets:                                                                                                                                |  |      |         |   |      |   |         |  
|Cash and equivalents                                                                                                                           |  | $    |        |   |      | $ | 3,391   |  
|Accounts receivable, net                                                                                                                       |  |      | 39,500  |   |      |   | 27,062  |  
|Inventories, net                                                                                                                               |  |      | 20,343  |   |      |   | 17,495  |  
|Prepaid expenses and other assets                                                                                                              |  |      | 2,463   |   |      |   | 2,277   |  
|Deferred income taxes                                                                                                                          |  |      | 3,078   |   |      |   | 3,497   |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Total current assets                                                                                                                           |  |      | 65,384  |   |      |   | 53,722  |  
|Property, plant and equipment, net                                                                                                             |  |      | 19,008  |   |      |   | 20,308  |  
|Loans receivable from related parties                                                                                                          |  |      | 11,475  |   |      |   | 10,855  |  
|Prepaid pension cost                                                                                                                           |  |      | 24,504  |   |      |   | 24,227  |  
|Other assets                                                                                                                                   |  |      | 5,061   |   |      |   | 5,280   |  
|Goodwill                                                                                                                                       |  |      | 18,995  |   |      |   | 18,995  |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Total assets                                                                                                                                   |  | $    | 144,427 |   |      | $ | 133,387 |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|                                                                                                                                               |  |     
|LIABILITIES AND COMMON STOCKHOLDERS DEFICIT                                                                                                   |  |      |         |   |      |  
|Current liabilities:                                                                                                                           |  |      |         |   |      |   |         |  
|Current portion of long-term debt                                                                                                              |  | $    | 1,575   |   |      | $ | 2,019   |  
|Accounts payable                                                                                                                               |  |      | 29,891  |   |      |   | 25,076  |  
|Accrued expenses                                                                                                                               |  |      | 11,899  |   |      |   | 9,568   |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Total current liabilities                                                                                                                      |  |      | 43,365  |   |      |   | 36,663  |  
|Long-term debt less current portion                                                                                                            |  |      | 103,380 |   |      |   | 96,741  |  
|Mandatorily redeemable preferred stock units                                                                                                   |  |      | 15,471  |   |      |   | 14,743  |  
|Mandatorily redeemable preferred stock                                                                                                         |  |      | 4,243   |   |      |   | 4,044   |  
|Other liabilities                                                                                                                              |  |      | 1,397   |   |      |   | 2,345   |  
|Deferred income taxes                                                                                                                          |  |      | 4,925   |   |      |   | 4,411   |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Total liabilities                                                                                                                              |  |      | 172,781 |   |      |   | 158,947 |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|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, 2004 and
2003 |  |      |        |   |      |   |        |  
|Retained deficit                                                                                                                               |  |      | (28,784 | ) |      |   | (25,836 | )
|Accumulated other comprehensive income                                                                                                         |  |      | 430     |   |      |   | 276     |  
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Total common stockholders deficit                                                                                                             |  |      | (28,354 | ) |      |   | (25,560 | )
|                                                                                                                                               |  |      |         |   |      |   |         |  
|Total liabilities and stockholders deficit                                                                                                    |  | $    | 144,427 |   |      | $ | 133,387 |  
|                                                                                                                                               |  |      |         |   |      |   |         |  



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



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED STATEMENTS OF OPERATIONS



For the Years Ended December 31, 2004, 2003 and 2002

(in thousands)



|                                             |  |      |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                             |  | 2004 |         |   | 2003 |   |         | 2002 | 
|Net sales                                    |  | $    | 208,115 |   |      | $ | 144,545 |      |  | $ | 149,000 |  
|Cost of sales                                |  |      | 173,299 |   |      |   | 112,056 |      |  |   | 116,730 |  
|                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Gross profit                                 |  |      | 34,816  |   |      |   | 32,489  |      |  |   | 32,270  |  
|Selling, general and administrative expenses |  |      | 26,653  |   |      |   | 24,928  |      |  |   | 27,007  |  
|                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Operating income                             |  |      | 8,163   |   |      |   | 7,561   |      |  |   | 5,263   |  
|Other expenses (income)                      |  |      |         |   |      |   |         |      |  |   |         |  
|Interest income                              |  |      | (734    | ) |      |   | (657    | )    |  |   | (768    | )
|Interest expense                             |  |      | 11,871  |   |      |   | 10,632  |      |  |   | 9,515   |  
|                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Loss before income taxes                     |  |      | (2,974  | ) |      |   | (2,414  | )    |  |   | (3,484  | )
|Benefit for income taxes                     |  |      | (26     | ) |      |   | (302    | )    |  |   | (1,501  | )
|                                             |  |      |         |   |      |   |         |      |  |   |         |  
|Net loss                                     |  | $    | (2,948  | ) |      | $ | (2,112  | )    |  | $ | (1,983  | )
|                                             |  |      |         |   |      |   |         |      |  |   |         |  



ELGIN NATIONAL
INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



For the Years
Ended December 31, 2004, 2003 and 2002

(in thousands)



|                                                                          |  |      |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                          |  | 2004 |        |   | 2003 |   |        | 2002 | 
|Net loss                                                                  |  | $    | (2,948 | ) |      | $ | (2,112 | )    |  | $ | (1,983 | )
|Other comprehensive income, net of tax of $97, and $173 for 2004 and 2003 |  |      |        |   |      |   |        |      |  |   |        |  
|Foreign currency translation adjustments                                  |  |      | 154    |   |      |   | 276    |      |  |   |       |  
|                                                                          |  |      |        |   |      |   |        |      |  |   |        |  
|Comprehensive loss                                                        |  | $    | (2,794 | ) |      | $ | (1,836 | )    |  | $ | (1,983 | )
|                                                                          |  |      |        |   |      |   |        |      |  |   |        |  



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



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS DEFICIT



For the Years Ended December 31, 2004, 2003 and 2002

(in thousands except share data)



|                                                                         |  |              |   |                    |   |         |                                        |  |                             |     |  |   |         |  
|------------------------------------------------------------------------ |  | ------------ | - | ------------------ | - | ------- | -------------------------------------- |  | --------------------------- | --- |  | - | ------- | -
|                                                                         |  | Common Stock |   | Retained (Deficit) |   |         | Accumulated Other Comprehensive Income |  | Total Stockholders Deficit |    
|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 | )
|                                                                         |  |              |   |                    |   |         |                                        |  |                             |     |  |   |         |  
|Net loss for the year ended December 31, 2004                            |  |              |   |                    |   | (2,948  | )                                      |  |                             |     |  |   | (2,948  | )
|Foreign currency translation adjustments net of tax of $97               |  |              |  |                    |   |        |                                        |  |                             | 154 |  |   | 154     |  
|                                                                         |  |              |   |                    |   |         |                                        |  |                             |     |  |   |         |  
|Balance as of December 31, 2004                                          |  | $            |  |                    | $ | (28,784 | )                                      |  | $                           | 430 |  | $ | (28,354 | )
|                                                                         |  |              |   |                    |   |         |                                        |  |                             |     |  |   |         |  





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



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



For the Years Ended December 31, 2004, 2003 and 2002

(in thousands)



|                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|----------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                          |  | 2004 |         |   | 2003 |   |         | 2002 | 
|Cash flows from operating activities:                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Net loss                                                                                  |  | $    | (2,948  | ) |      | $ | (2,112  | )    |  | $ | (1,983  | )
|Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |  |      |         |   |      |   |         |      |  |   |         |  
|Depreciation                                                                              |  |      | 2,464   |   |      |   | 2,874   |      |  |   | 3,138   |  
|Amortization of debt issuance costs                                                       |  |      | 732     |   |      |   | 1,193   |      |  |   | 569     |  
|Provision for deferred income taxes                                                       |  |      | 933     |   |      |   | 1,172   |      |  |   | 1,056   |  
|Provision for doubtful accounts and notes receivable                                      |  |      | 179     |   |      |   | 47      |      |  |   | 306     |  
|Provision for inventories                                                                 |  |      | 284     |   |      |   | 125     |      |  |   | 248     |  
|(Income) expense from pension overfunding                                                 |  |      | (277    | ) |      |   | (1,000  | )    |  |   | 1,076   |  
|Loss (gain) on the disposal of assets                                                     |  |      | 14      |   |      |   | (24     | )    |  |   | (12     | )
|Changes in assets and liabilities:                                                        |  |      |         |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                                       |  |      | (12,617 | ) |      |   | (3,913  | )    |  |   | 13,790  |  
|Inventories                                                                               |  |      | (3,132  | ) |      |   | (909    | )    |  |   | 1,400   |  
|Prepaid expenses and other assets                                                         |  |      | (979    | ) |      |   | (2,260  | )    |  |   | (3,634  | )
|Accounts payable, accrued expenses, and other liabilities                                 |  |      | 7,125   |   |      |   | 9,295   |      |  |   | (18,552 | )
|                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash (used in) provided by operating activities                                       |  |      | (8,222  | ) |      |   | 4,488   |      |  |   | (2,598  | )
|                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Cash flows from investing activities:                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Proceeds from the sale of assets                                                          |  |      | 6       |   |      |   | 46      |      |  |   | 75      |  
|Purchase of property, plant and equipment                                                 |  |      | (1,524  | ) |      |   | (763    | )    |  |   | (3,572  | )
|                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash used by investing activities                                                     |  |      | (1,518  | ) |      |   | (717    | )    |  |   | (3,497  | )
|                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Cash flows from financing activities:                                                     |  |      |         |   |      |   |         |      |  |   |         |  
|Debt issuance costs                                                                       |  |      |        |   |      |   | (2,087  | )    |  |   |        |  
|Borrowings on long-term debt                                                              |  |      | 8,212   |   |      |   | 25,000  |      |  |   | 9,361   |  
|Repayments of long-term debt                                                              |  |      | (2,017  | ) |      |   | (23,569 | )    |  |   | (3,266  | )
|                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) financing activities                                       |  |      | 6,195   |   |      |   | (656    | )    |  |   | 6,095   |  
|                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Effect of exchange rates on cash                                                          |  |      | 154     |   |      |   | 276     |      |  |   |        |  
|                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Net (decrease) increase in cash and cash equivalents                                      |  |      | (3,391  | ) |      |   | 3,391   |      |  |   | 0       |  
|Cash and cash equivalents at beginning of period                                          |  |      | 3,391   |   |      |   | 0       |      |  |   | 0       |  
|                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of period                                                |  | $    | 0       |   |      | $ | 3,391   |      |  | $ | 0       |  
|                                                                                          |  |      |         |   |      |   |         |      |  |   |         |  



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



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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. Managements estimation process could have a material effect in the Engineering Services Segment revenues and the Companys financial statements.



(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. Management determines the allowance for doubtful accounts by
identifying troubled accounts and by using historical experience applied to an aging of accounts. Management also periodically evaluates individual customer receivables and considers a customers financial condition, credit



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



history, and the current economic conditions. 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.



(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. An allowance for
obsolescence is maintained at a level management believes is sufficient to cover potential losses. Management determines the allowance for obsolescence by using historical experience applied to an aging of inventory. Inventory is charged to the
allowance for obsolescence when the item is disposed.



(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, which the Company
performs as of December 31st. 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. On December 31, 2002 the Company allocated $500,000 of
goodwill to the Engineering Services Segment, and $18,495,000 of goodwill to the Manufactured Products segment.



(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, 2004 and 2003 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.



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



Preferred stock and preferred stock units:    The fair value of preferred stock and preferred stock units is
based on the fixed future redemption price to be paid in cash to the stockholders at maturity.



(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 $818,000, $760,000 and $751,000 for the years ended December
31, 2004, 2003 and 2002 respectively.



(l) Foreign currency
translation



In accordance with Financial Accounting
Standards No. 52, Foreign Currency Translation, the financial statements of the Companys international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities, the
historical exchange rate for stockholders deficit and a weighted average exchange rate for each period for revenues, expenses, and gains and losses. Translation adjustments are recorded as a separate component of stockholders equity as
the local currency is the functional currency. Foreign currency translation adjustments, along with net income, are components of comprehensive income.



(m) 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 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
implemented the provision of SFAS No. 150 in the first quarter of 2004. Through the implementation of SFAS No. 150 the Company has classified its mandatorily redeemable preferred stock units and mandatorily redeemable preferred stock as liabilities,
which are recorded at fair value. The effect of the adoption was to increase 2004 net loss before income taxes by $927,000 as the corresponding dividend and dividend equivalent amounts accrued to holders are recorded as interest expense in 2004.
There was no cumulative effect upon the adoption of SFAS No. 150 and prior year consolidated financial statements were not restated in accordance with SFAS No. 150.



(n) Reclassification



Certain amounts in the 2003 and 2002 financial statements have been reclassified to conform to the 2004 presentation.



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



3.    Accounts Receivable



Accounts receivable consist of:



|                                                                |  |                |        |      |   |       
|--------------------------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                                                |  | December 31,  
|                                                                |  | 2004           |        | 2003
|                                                                |  | (in thousands)
|Trade accounts                                                  |  | $              | 14,303 |      | $ | 11,214
|                                                                |  |                |        |      |   |       
|Construction contracts:                                         |  |                |        |      |   |       
|Billed                                                          |  |                | 16,422 |      |   | 9,468 
|Costs and estimated earnings in excess of billings on Contracts |  |                | 487    |      |   | 3,734 
|Retainage due upon completion of contracts                      |  |                | 8,226  |      |   | 2,870 
|                                                                |  |                |        |      |   |       
|                                                                |  |                | 25,135 |      |   | 16,072
|                                                                |  |                |        |      |   |       
|Trade accounts and construction contracts                       |  |                | 39,438 |      |   | 27,286
|                                                                |  |                |        |      |   |       
|Other receivables                                               |  |                | 704    |      |   | 446   
|                                                                |  |                |        |      |   |       
|                                                                |  |                | 40,142 |      |   | 27,732
|Less allowance for doubtful accounts                            |  |                | 642    |      |   | 670   
|                                                                |  |                |        |      |   |       
|                                                                |  | $              | 39,500 |      | $ | 27,062
|                                                                |  |                |        |      |   |       



Billings exceeded
related costs and gross profit recognized on certain contracts by $10,830,000 and $5,333,000 as of December 31, 2004 and 2003, 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, 2004 will be collected in 2005.



A significant portion of the Companys business activity is concentrated within the coal mining industry. Accounts receivable at December 31, 2004 and 2003 from companies within the coal mining industry were
$12,831,000 and $12,211,000, respectively.



4.    Inventories



Inventories consist of:



|                                 |  |                |        |      |   |       
|-------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                 |  | December 31,  
|                                 |  | 2004           |        | 2003
|                                 |  | (in thousands)
|Finished goods                   |  | $              | 12,354 |      | $ | 11,098
|Work-in-process                  |  |                | 2,605  |      |   | 2,420 
|Raw materials                    |  |                | 7,139  |      |   | 5,519 
|                                 |  |                |        |      |   |       
|                                 |  |                | 22,098 |      |   | 19,037
|Less excess and obsolete reserve |  |                | 1,755  |      |   | 1,542 
|                                 |  |                |        |      |   |       
|                                 |  | $              | 20,343 |      | $ | 17,495
|                                 |  |                |        |      |   |       



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



5.    Property, Plant and Equipment



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



|                              |  |                |        |      |   |       
|----------------------------- |  | -------------- | ------ | ---- | - | ------
|                              |  | December 31,  
|                              |  | 2004           |        | 2003
|                              |  | (in thousands)
|Land                          |  | $              | 2,325  |      | $ | 2,266 
|Buildings and improvements    |  |                | 13,539 |      |   | 13,403
|Machinery and equipment       |  |                | 28,949 |      |   | 28,083
|                              |  |                |        |      |   |       
|                              |  |                | 44,813 |      |   | 43,752
|Less accumulated depreciation |  |                | 25,805 |      |   | 23,444
|                              |  |                |        |      |   |       
|                              |  | $              | 19,008 |      | $ | 20,308
|                              |  |                |        |      |   |       



Depreciation expense
for the years ended December 31, 2004, 2003 and 2002 was $2,464,000, $2,874,000 and $3,138,000, respectively.



6.    Other Assets



Other assets consist of:



|                |  |                |       |      |   |      
|--------------- |  | -------------- | ----- | ---- | - | -----
|                |  | December 31,  
|                |  | 2004           |       | 2003
|                |  | (in thousands)
|Financing costs |  | $              | 2,187 |      | $ | 2,919
|Other assets    |  |                | 2,874 |      |   | 2,361
|                |  |                |       |      |   |      
|                |  | $              | 5,061 |      | $ | 5,280
|                |  |                |       |      |   |      



7.    Accounts
Payable



Accounts payable consist of:



|                                                                     |  |                |        |      |   |       
|-------------------------------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                                                     |  | December 31,  
|                                                                     |  | 2004           |        | 2003
|                                                                     |  | (in thousands)
|Accounts payabletrade                                               |  | $              | 15,112 |      | $ | 18,315
|Accounts payableother                                               |  |                | 3,949  |      |   | 1,428 
|Billings on contracts in excess of costs and gross profit Recognized |  |                | 10,830 |      |   | 5,333 
|                                                                     |  |                |        |      |   |       
|                                                                     |  | $              | 29,891 |      | $ | 25,076
|                                                                     |  |                |        |      |   |       



8. Accrued Expenses



Accrued expenses consist of:



|                                |  |                |        |      |   |      
|------------------------------- |  | -------------- | ------ | ---- | - | -----
|                                |  | December 31,  
|                                |  | 2004           |        | 2003
|                                |  | (in thousands)
|Accrued payroll and commissions |  |                | 2,876  |      |   | 2,127
|Other accruals                  |  |                | 9,023  |      |   | 7,441
|                                |  |                |        |      |   |      
|                                |  | $              | 11,899 |      | $ | 9,568
|                                |  |                |        |      |   |      



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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,   |        
|                                       |  | 2004           |         |   | 2003 |  
|                                       |  | (in thousands) |        
|Accounts receivable                    |  | $              | 195     |   |      | $ | 182    |  
|Inventories                            |  |                | 657     |   |      |   | 568    |  
|Accrued expenses                       |  |                | 1,706   |   |      |   | 2,227  |  
|Redeemable preferred stock units       |  |                | 5,791   |   |      |   | 5,418  |  
|State net operating loss carry forward |  |                | 520     |   |      |   | 520    |  
|                                       |  |                |         |   |      |   |        |  
|Total deferred tax asset               |  |                | 8,869   |   |      |   | 8,915  |  
|                                       |  |                |         |   |      |   |        |  
|Prepaid pension                        |  |                | (9,463  | ) |      |   | (9,341 | )
|Property plant & equipment             |  |                | (558    | ) |      |   | (459   | )
|Other                                  |  |                | (695    | ) |      |   | (29    | )
|                                       |  |                |         |   |      |   |        |  
|Total deferred tax liability           |  |                | (10,716 | ) |      |   | (9,829 | )
|                                       |  |                |         |   |      |   |        |  
|Net deferred tax liability             |  | $              | (1,847  | ) |      | $ | (914   | )
|                                       |  |                |         |   |      |   |        |  



The components of the
current deferred income tax asset, and long-term deferred income tax liability on the balance sheet are:



|                                        |  |                |        |   |      |   |        |  
|--------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                        |  | December 31,   |       
|                                        |  | 2004           |        |   | 2003 |  
|                                        |  | (in thousands) |       
|Accounts receivable                     |  | $              | 195    |   |      | $ | 182    |  
|Inventories                             |  |                | 657    |   |      |   | 568    |  
|Accrued expenses                        |  |                | 1,706  |   |      |   | 2,227  |  
|State net operating loss carry forward  |  |                | 520    |   |      |   | 520    |  
|                                        |  |                |        |   |      |   |        |  
|Current deferred income tax asset       |  |                | 3,078  |   |      |   | 3,497  |  
|                                        |  |                |        |   |      |   |        |  
|Prepaid pension                         |  |                | (9,463 | ) |      |   | (9,341 | )
|Property plant & equipment              |  |                | (558   | ) |      |   | (459   | )
|Other                                   |  |                | (695   | ) |      |   | (29    | )
|Redeemable preferred stock units        |  |                | 5,791  |   |      |   | 5,418  |  
|                                        |  |                |        |   |      |   |        |  
|Long-term deferred income tax liability |  |                | (4,925 | ) |      |   | (4,411 | )
|                                        |  |                |        |   |      |   |        |  
|Net deferred tax liability              |  | $              | (1,847 | ) |      | $ | (914   | )
|                                        |  |                |        |   |      |   |        |  



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|         |  |                          |      |   |      |   |        |      |  |   |        |  
|-------- |  | ------------------------ | ---- | - | ---- | - | ------ | ---- |  | - | ------ | -
|         |  | Years Ended December 31, |     
|         |  | 2004                     |      |   | 2003 |   |        | 2002 | 
|         |  | (in thousands)           |     
|Current  |  |                          |      |   |      |   |        |      |  |   |        |  
|Federal  |  | $                        | (613 | ) |      | $ | (1,329 | )    |  | $ | (2,324 | )
|State    |  |                          | (160 | ) |      |   | (168   | )    |  |   | (275   | )
|Foreign  |  |                          | (186 | ) |      |   | 23     |      |  |   | 42     |  
|Deferred |  |                          |      |   |      |   |        |      |  |   |        |  
|Federal  |  |                          | 764  |   |      |   | 640    |      |  |   | 1,244  |  
|State    |  |                          | 169  |   |      |   | 532    |      |  |   | (188   | )
|         |  |                          |      |   |      |   |        |      |  |   |        |  
|         |  | $                        | (26  | ) |      | $ | (302   | )    |  | $ | (1,501 | )
|         |  |                          |      |   |      |   |        |      |  |   |        |  



The Companys
effective tax rates of 1%, 13%, and 43% for the years ended December 31, 2004, 2003 and 2002, respectively, differ from the statutory federal tax rate of 34% as follows:



|                                     |  |                          |        |   |      |   |        |      |  |   |        |  
|------------------------------------ |  | ------------------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                     |  | Years Ended December 31, |       
|                                     |  | 2004                     |        |   | 2003 |   |        | 2002 | 
|                                     |  | (in thousands)           |       
|Income before income taxes           |  | $                        | (2,974 | ) |      | $ | (2,414 | )    |  | $ | (3,484 | )
|                                     |  |                          |        |   |      |   |        |      |  |   |        |  
|Statutory federal income tax         |  | $                        | (1,011 | ) |      | $ | (821   | )    |  | $ | (1,185 | )
|State taxes, net of federal benefit  |  |                          | (137   | ) |      |   | (111   | )    |  |   | (182   | )
|Adjustment to deferred income tax    |  |                          |        |   |      |   |        |      |  |   |        |  
|Foreign operations                   |  |                          | 947    |   |      |   | 244    |      |  |   | (14    | )
|Non-deductible expenses              |  |                          | 175    |   |      |   | 220    |      |  |   | 17     |  
|Foreign sales corporation income tax |  |                          |       |   |      |   |       |      |  |   | 41     |  
|Other items                          |  |                          |       |   |      |   | 166    |      |  |   | (178   | )
|                                     |  |                          |        |   |      |   |        |      |  |   |        |  
|                                     |  | $                        | (26    | ) |      | $ | (302   | )    |  | $ | (1,501 | )
|                                     |  |                          |        |   |      |   |        |      |  |   |        |  



The Company made cash
payments for income taxes totalling $187,000, $174,000 and $103,000 during the years ended December 31, 2004, 2003 and 2002, respectively.



The Company had a loss before taxes of $2,933,000 and $1,021,000 respectively from foreign operations in 2004 and 2003, and income before taxes from
foreign operations of $652,000 in 2002.



During the fourth
quarter of 2004, the Company recorded an adjustment of $947,000 which reduced the income tax benefit at December 31, 2004. The adjustment relates to a valuation allowance on the Companys foreign operations.



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



10.    Long-Term Debt



Long-term debt consists of:



|                                 |  |                                    |   |      |                  |      |                |         |  |   |       
|-------------------------------- |  | ---------------------------------- | - | ---- | ---------------- | ---- | -------------- | ------- |  | - | ------
|Type of Issue                    |  | Interest Rate at December 31, 2004 |   |      | Year of Maturity |      | December 31,  
|                                 |  |                                    |   | 2004 |                  | 2003
|                                 |  |                                    |   |      |                  |      | (in thousands)
|Fixed rate:                      |  |                                    |   |      |                  |      |                |         |  |   |       
|Senior notes                     |  | 11.00                              | % |      | 2007             |      | $              | 73,950  |  | $ | 73,950
|Variable rate:                   |  |                                    |   |      |                  |      |                |         |  |   |       
|Term loan A                      |  |                                    |   |      | 2008             |      |                | 6,250   |  |   | 7,000 
|Term loan B                      |  |                                    |   |      | 2005             |      |                | 417     |  |   | 1,667 
|Term loan C                      |  |                                    |   |      | 2006             |      |                | 15,000  |  |   | 15,000
|Revolver loan                    |  |                                    |   |      | 2008             |      |                | 8,212   |  |   |      
|Mortgage loan                    |  |                                    |   |      | 2022             |      |                | 1,126   |  |   | 1,143 
|                                 |  |                                    |   |      |                  |      |                |         |  |   |       
|Total long-term debt             |  |                                    |   |      |                  |      |                | 104,955 |  |   | 98,760
|Less current maturities          |  |                                    |   |      |                  |      |                | 1,575   |  |   | 2,019 
|                                 |  |                                    |   |      |                  |      |                |         |  |   |       
|Total non-current long-term debt |  |                                    |   |      |                  |      | $              | 103,380 |  | $ | 96,741
|                                 |  |                                    |   |      |                  |      |                |         |  |   |       



Annual principal
payments on long-term debt at December 31, 2004 were as follows (in thousands):



|                    |  |              |        |            |   |               |  |               |       |       |   |       |  |   |        
|------------------- |  | ------------ | ------ | ---------- | - | ------------- |  | ------------- | ----- | ----- | - | ----- |  | - | -------
|                    |  | Senior Notes |        | Term Loans |   | Revolver Loan |  | Mortgage Loan |       | Total
|2005                |  |              |       |            | $ | 1,542         |  |               |      |       | $ | 33    |  | $ | 1,575  
|2006                |  |              |       |            |   | 16,200        |  |               |      |       |   | 37    |  |   | 16,237 
|2007                |  | $            | 73,950 |            |   | 1,200         |  |               |      |       |   | 39    |  |   | 75,189 
|2008                |  |              |       |            |   | 2,725         |  | $             | 8,212 |       |   | 42    |  |   | 10,979 
|2009                |  |              |       |            |   |              |  |               |      |       |   | 45    |  |   | 45     
|2010 and thereafter |  |              |       |            |   |              |  |               |      |       |   | 930   |  |   | 930    
|                    |  |              |        |            |   |               |  |               |       |       |   |       |  |   |        
|                    |  | $            | 73,950 |            | $ | 21,667        |  | $             | 8,212 |       | $ | 1,126 |  | $ | 104,955
|                    |  |              |        |            |   |               |  |               |       |       |   |       |  |   |        



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 price 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.



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 (See Note
18).



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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), which was 5.25% at December 31, 2004, plus a margin determined by a pricing grid, which was 2.0%
at December 31, 2004. 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.



As of December 31, 2004 the Company had $4,626,000 in letters of credit
outstanding.



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 $10,855,000, $10,627,000 and $9,522,000, respectively, during 2004, 2003, and 2002.



The weighted average interest rate on current portion of the long term debt
for 2005 was 7.5%.



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 $94,502,000 and $70,751,000 at December 31, 2004 and December 31, 2003, respectively.



11.    Mandatorily Redeemable Preferred Stock Units



In exchange for amounts owed to certain officers, the Company granted to
them mandatorily 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 $8,197,000 and $7,469,000 at December 31, 2004 and 2003, respectively. The mandatorily
redeemable preferred stock units accrue at 10% per annum.



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Principal and accrued dividend equivalent amounts were $15,471,000 and $14,743,000 at December 31, 2004 and 2003, respectively, and will be paid in tandem
with the Companys redeemable preferred stock dividend and redemption payments. The Company recorded $728,000 of interest expense related to this dividend accrual in the year ended December 31, 2004.



12.    Mandatorily Redeemable Preferred Stock



The Company has 550,000 shares of $1.00 par value mandatorily redeemable
preferred stock authorized with 19,952 shares issued and outstanding at December 31, 2004. The mandatorily 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 mandatorily 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. Mandatorily redeemable preferred stock has no voting rights.



The Company had accrued dividends of $2,248,000 and $2,049,000 as of December 31, 2004 and 2003, respectively. The Company recorded $199,000 of interest
expense related to this dividend accrual in the year ended December 31, 2004.



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 2005.



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).



The following information for the years ended December 31, 2004 and 2003 has
been obtained from the actuarial computation using measurement dates of September 30, 2004 and 2003, respectively.



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



|                                                  |  |                |        |   |      |   |        |  
|------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                                  |  | 2004           |        |   | 2003 |  
|                                                  |  | (in thousands) |       
|Projected benefit obligation at beginning of year |  | $              | 26,652 |   |      | $ | 25,409 |  
|Service costbenefits earned during the period    |  |                | 1,011  |   |      |   | 1,092  |  
|Interest cost on projected benefit obligation     |  |                | 1,371  |   |      |   | 1,239  |  
|Amendments                                        |  |                | 755    |   |      |   |       |  
|Actuarial losses                                  |  |                | 135    |   |      |   | 797    |  
|Benefit payments                                  |  |                | (1,565 | ) |      |   | (1,885 | )
|Settlements                                       |  |                | (372   | ) |      |   |       |  
|                                                  |  |                |        |   |      |   |        |  
|Projected benefit obligation at end of year       |  | $              | 27,987 |   |      | $ | 26,652 |  
|                                                  |  |                |        |   |      |   |        |  



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                               |  |                |        |   |      |   |        |  
|---------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                               |  | 2004           |        |   | 2003 |  
|                                               |  | (in thousands) |       
|Fair value of plan assets at beginning of year |  | $              | 34,148 |   |      | $ | 30,777 |  
|Actual return on plan assets                   |  |                | 3,762  |   |      |   | 5,256  |  
|Benefit payments                               |  |                | (1,565 | ) |      |   | (1,885 | )
|                                               |  |                |        |   |      |   |        |  
|Fair value of plan assets at end of year       |  | $              | 36,345 |   |      | $ | 34,148 |  
|                                               |  |                |        |   |      |   |        |  



|                                                       |  |                |        |      |   |       
|------------------------------------------------------ |  | -------------- | ------ | ---- | - | ------
|                                                       |  | 2004           |        | 2003
|                                                       |  | (in thousands)
|Plan assets in excess of projected benefit obligations |  | $              | 8,359  |      | $ | 7,496 
|Unrecognized amounts:                                  |  |                |        |      |   |       
|Prior service cost                                     |  |                | 1,413  |      |   | 635   
|Net loss                                               |  |                | 14,451 |      |   | 14,743
|                                                       |  |                |        |      |   |       
|Prepaid pension cost                                   |  | $              | 24,223 |      | $ | 22,874
|                                                       |  |                |        |      |   |       



Prepaid pension cost
at December 31, 2004 and 2003, was $24,504,000 and $24,227,000, respectively. Pension costs included in other liabilities at December 31, 2004 and 2003 was $281,000 and $1,353,000, respectively.



At December 31, 2004 and 2003, respectively, the Companys SERP
projected benefit obligation of $280,000 and $1,246,000 was not funded. These amounts also represent the accumulated benefit obligation at the respective dates.



In 2004 the Company changed its accounting for unrecognized gains and losses related to the SERP plan. The Company is now recognizing gains and losses
on this plan as they occur. The Company recognized $324,000 of income in 2004 related to this change.



Weighted average assumptions as of December 31:



|                                   |  |      |   |  |      |  
|---------------------------------- |  | ---- | - |  | ---- | -
|                                   |  | 2004 |   |  | 2003 |  
|Discount rate                      |  | 5.25 | % |  | 5.25 | %
|Long term rate of return on assets |  | 7.50 |   |  | 7.50 |  
|Rate of compensation increase      |  | 4.75 |   |  | 4.75 |  



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



|                                                             |  |                |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------ |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                             |  | 2004           |        |   | 2003 |   |        | 2002 | 
|                                                             |  | (in thousands) |       
|Service costbenefits earned during the period               |  | $              | 1,011  |   |      | $ | 1,093  |      |  | $ | 1,058  |  
|Interest cost on projected benefit obligation                |  |                | 1,371  |   |      |   | 1,239  |      |  |   | 1,337  |  
|Expected return on assets                                    |  |                | (2,980 | ) |      |   | (3,327 | )    |  |   | (4,173 | )
|Additional pension expense due to settlement                 |  |                |       |   |      |   |       |      |  |   | 2,420  |  
|Additional pension expense due to special termination charge |  |                |       |   |      |   |       |      |  |   | 476    |  
|Net amortization of prior service cost                       |  |                | (22    | ) |      |   | (76    | )    |  |   | (76    | )
|Net amortization of prior losses                             |  |                | 75     |   |      |   | 29     |      |  |   |       |  
|                                                             |  |                |        |   |      |   |        |      |  |   |        |  
|Net periodic pension expense (benefit)                       |  |                | (546   | ) |      |   | (1,042 | )    |  |   | 1,042  |  
|Settlement cost                                              |  |                | (802   | ) |      |   |       |      |  |   |       |  
|                                                             |  |                |        |   |      |   |        |      |  |   |        |  
|Total benefit cost                                           |  | $              | (1,348 | ) |      | $ | (1,042 | )    |  | $ | 1,042  |  
|                                                             |  |                |        |   |      |   |        |      |  |   |        |  



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The accumulated benefit obligation for all pension plans as of the 2004 and 2003 measurement dates
was $23,868,000 and $23,036,000, 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.



The following pension
benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years:



|            |  |   |      
|----------- |  | - | -----
|2005        |  | $ | 890  
|2006        |  |   | 962  
|2007        |  |   | 1,045
|2008        |  |   | 1,151
|2009        |  |   | 1,247
|2010  2014 |  |   | 7,509



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, 2004, 2003 and 2002
was $45,000, $29,000 and $43,000, 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, 2004, 2003 and 2002 was $815,000, $493,000 and $588,000, 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 2004, 2003 and 2002 was $747,000, $43,000 and $63,000, respectively.



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)
|2005                |  | $              | 2,175
|2006                |  |                | 1,383
|2007                |  |                | 1,029
|2008                |  |                | 720  
|2009                |  |                | 685  
|2010 and thereafter |  |                | 493  
|                    |  |                |      
|                    |  | $              | 6,485
|                    |  |                |      



Rental expense for the
twelve months ended December 31, 2004, 2003 and 2002 was $2,444,000, $1,934,000 and $1,791,000, respectively.



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



15.    Related Party Transactions



At December 31, 2004 and 2003, 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 mandatorily
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, 2004, 2003 and 2002 was $182,000, $173,000 and $285,000, 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.
Prepayment is required on one note for $3,200,000 if the value to be paid under the mandatorily redeemable preferred stock units at the time of payment is less than the aggregate amount of the principal and interest outstanding. Interest accrues at
6.42%, 6.31% and 5.37%, respectively, per annum. Interest earned was $438,000, $414,000, and $462,000, respectively, for the years ended December 31, 2004, 2003 and 2002.



(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 and accrued interest thereon are due in December, 2007.



(IV) Cumulative unpaid interest on the notes receivable discussed above at December 31, 2004, 2003 and 2002 was $3,642,000, $3,022,000,
and $2,435,000, respectively.



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 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 judgement 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 judgements could materially and adversely affect the Companys business, financial condition, results of operations and
debt service capability.



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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:



|                                                 |  |                |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                 |  | 2004           |         |   | 2003 |   |         | 2002 | 
|                                                 |  | (In thousands) |        
|Net sales to external customers:                 |  |                |         |   |      |   |         |      |  |   |         |  
|Manufactured Products                            |  | $              | 108,401 |   |      | $ | 88,411  |      |  | $ | 93,562  |  
|Engineering Services                             |  |                | 99,714  |   |      |   | 56,134  |      |  |   | 55,438  |  
|                                                 |  |                |         |   |      |   |         |      |  |   |         |  
|Total net sales to external customers            |  | $              | 208,115 |   |      | $ | 144,545 |      |  | $ | 149,000 |  
|                                                 |  |                |         |   |      |   |         |      |  |   |         |  
|Net sales to internal customers:                 |  |                |         |   |      |   |         |      |  |   |         |  
|Manufactured Products                            |  | $              | 7,214   |   |      | $ | 3,737   |      |  | $ | 3,361   |  
|Engineering Services                             |  |                | 389     |   |      |   | 114     |      |  |   | 240     |  
|                                                 |  |                |         |   |      |   |         |      |  |   |         |  
|Total net sales to internal customers            |  | $              | 7,603   |   |      | $ | 3,851   |      |  | $ | 3,601   |  
|                                                 |  |                |         |   |      |   |         |      |  |   |         |  
|Total net sales:                                 |  |                |         |   |      |   |         |      |  |   |         |  
|Manufactured Products                            |  | $              | 115,615 |   |      | $ | 92,148  |      |  | $ | 96,923  |  
|Engineering Services                             |  |                | 100,103 |   |      |   | 56,248  |      |  |   | 55,678  |  
|                                                 |  |                |         |   |      |   |         |      |  |   |         |  
|Total net sales                                  |  |                | 215,718 |   |      |   | 148,396 |      |  |   | 152,601 |  
|Elimination of net sales to internal customers   |  |                | 7,603   |   |      |   | 3,851   |      |  |   | 3,601   |  
|                                                 |  |                |         |   |      |   |         |      |  |   |         |  
|Total consolidated net sales                     |  | $              | 208,115 |   |      | $ | 144,545 |      |  | $ | 149,000 |  
|                                                 |  |                |         |   |      |   |         |      |  |   |         |  
|Earnings before interest and taxes:              |  |                |         |   |      |   |         |      |  |   |         |  
|Manufactured Products                            |  | $              | 15,786  |   |      | $ | 13,796  |      |  | $ | 12,964  |  
|Engineering Services                             |  |                | (1,488  | ) |      |   | 11      |      |  |   | 194     |  
|                                                 |  |                |         |   |      |   |         |      |  |   |         |  
|Total segment earnings before interest and taxes |  |                | 14,298  |   |      |   | 13,807  |      |  |   | 13,158  |  
|Interest income                                  |  |                | 734     |   |      |   | 657     |      |  |   | 768     |  
|Interest expense                                 |  |                | (11,871 | ) |      |   | (10,632 | )    |  |   | (9,515  | )
|Corporate expenses before interest and taxes     |  |                | (6,135  | ) |      |   | (6,246  | )    |  |   | (7,895  | )
|                                                 |  |                |         |   |      |   |         |      |  |   |         |  
|Consolidated loss before income taxes            |  | $              | (2,974  | ) |      | $ | (2,414  | )    |  | $ | (3,484  | )
|                                                 |  |                |         |   |      |   |         |      |  |   |         |  



Sales within the
Engineering Services Segment are project oriented and therefore there is no reliance on an individual customer relationship for future sales. Sales to one customer in the Engineering Services Segment were approximately $41,700,000 and $21,100,000
for the years ended December 31, 2004 and 2003, respectively.



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                   |  |      |         |      |   |         |  |   |      
|---------------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -----
|                                   |  | 2004 |         | 2003 |   | 2002   
|Capital expenditures:              |  |      |         |      |   |         |  |   |      
|Manufactured Products              |  | $    | 1,315   |      | $ | 638     |  | $ | 3,484
|Engineering Services               |  |      | 209     |      |   | 125     |  |   | 82   
|                                   |  |      |         |      |   |         |  |   |      
|Total segment capital expenditures |  |      | 1,524   |      |   | 763     |  |   | 3,566
|Corporate                          |  |      |        |      |   |        |  |   | 6    
|                                   |  |      |         |      |   |         |  |   |      
|Total capital expenditures         |  | $    | 1,524   |      | $ | 763     |  | $ | 3,572
|                                   |  |      |         |      |   |         |  |   |      
|Depreciation:                      |  |      |         |      |   |         |  |   |      
|Manufactured Products              |  | $    | 2,170   |      | $ | 2,511   |  | $ | 2,646
|Engineering Services               |  |      | 122     |      |   | 124     |  |   | 171  
|                                   |  |      |         |      |   |         |  |   |      
|Total segment depreciation         |  |      | 2,292   |      |   | 2,635   |  |   | 2,817
|Corporate                          |  |      | 172     |      |   | 239     |  |   | 321  
|                                   |  |      |         |      |   |         |  |   |      
|Total depreciation                 |  | $    | 2,464   |      | $ | 2,874   |  | $ | 3,138
|                                   |  |      |         |      |   |         |  |   |      
|Assets:                            |  |      |         |      |   |         |  |   |      
|Manufactured Products              |  | $    | 65,768  |      | $ | 58,518  |  |   |      
|Engineering Services               |  |      | 27,186  |      |   | 19,125  |  |   |      
|                                   |  |      |         |      |   |         |  |   |      
|Total segment assets               |  |      | 92,954  |      |   | 77,643  |  |   |      
|Corporate and other                |  |      | 51,473  |      |   | 55,744  |  |   |      
|                                   |  |      |         |      |   |         |  |   |      
|Total assets                       |  | $    | 144,427 |      | $ | 133,387 |  |   |      
|                                   |  |      |         |      |   |         |  |   |      



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



|              |  |      |         |      |   |         |  |   |        
|------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|              |  | 2004 |         | 2003 |   | 2002   
|United States |  | $    | 171,134 |      | $ | 124,758 |  | $ | 129,217
|Foreign       |  |      | 36,981  |      |   | 19,787  |  |   | 19,783 
|              |  |      |         |      |   |         |  |   |        
|              |  | $    | 208,115 |      | $ | 144,545 |  | $ | 149,000
|              |  |      |         |      |   |         |  |   |        



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.



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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, 2004
|                    |  | Parent            |        | CombinedGuarantors |   | ConsolidatingAdjustments |  |   | ConsolidatedTotal
|                    |  | (in thousands)   
|Current assets      |  | $                 | 12,642 |                    | $ | 52,742                   |  |   |                   |   |  | $ | 65,384 
|Noncurrent assets   |  |                   | 52,745 |                    |   | 41,545                   |  | $ | (15,247           | ) |  |   | 79,043 
|                    |  |                   |        |                    |   |                          |  |   |                   |   |  |   |        
|Total assets        |  | $                 | 65,387 |                    | $ | 94,287                   |  | $ | (15,247           | ) |  | $ | 144,427
|                    |  |                   |        |                    |   |                          |  |   |                   |   |  |   |        
|Current liabilities |  | $                 | 7,942  |                    | $ | 35,423                   |  |   |                   |   |  | $ | 43,365 
|Total liabilities   |  | $                 | 91,309 |                    | $ | 81,472                   |  |   |                   |   |  | $ | 172,781



|                    |  |                   |        |                    |   |                          |  |   |                   |   |  |   |        
|------------------- |  | ----------------- | ------ | ------------------ | - | ------------------------ |  | - | ----------------- | - |  | - | -------
|                    |  | December 31, 2003
|                    |  | Parent            |        | CombinedGuarantors |   | ConsolidatingAdjustments |  |   | 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   |  | $                 | 90,174 |                    | $ | 68,773                   |  |   |                   |   |  | $ | 158,947





|                                                |  |                              |        |   |                    |   |         |                          |  |   |                   |   |  |   |         |  
|----------------------------------------------- |  | ---------------------------- | ------ | - | ------------------ | - | ------- | ------------------------ |  | - | ----------------- | - |  | - | ------- | -
|                                                | 
|                                                |  | Year ended December 31, 2004 |       
|                                                |  | Parent                       |        |   | CombinedGuarantors |   |         | ConsolidatingAdjustments |  |   | ConsolidatedTotal |  
|                                                |  | (in thousands)               |       
|Sales, net                                      |  | $                            | 34,604 |   |                    | $ | 175,930 |                          |  | $ | (2,419            | ) |  | $ | 208,115 |  
|Gross profit                                    |  |                              | 11,856 |   |                    |   | 22,960  |                          |  |   |                   |   |  |   | 34,816  |  
|(Loss) income before income tax                 |  |                              | (2,974 | ) |                    |   | 7,004   |                          |  |   | (7,004            | ) |  |   | (2,974  | )
|Net (loss) income                               |  |                              | (2,948 | ) |                    |   | 2,273   |                          |  |   | (2,273            | ) |  |   | (2,948  | )
|Cash (used in) provided by operating activities |  |                              | (9,347 | ) |                    |   | 1,125   |                          |  |   |                   |   |  |   | (8,222  | )
|Cash used in investing activities               |  |                              | (256   | ) |                    |   | (1,262  | )                        |  |   |                   |   |  |   | (1,518  | )
|Cash provided by (used in) financing activities |  |                              | 6,212  |   |                    |   | (17     | )                        |  |   |                   |   |  |   | 6,195   |  



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ELGIN NATIONAL INDUSTRIES, INC. AND SUBSIDIARY COMPANIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                                |  |                              |        |   |                    |   |         |                          |  |   |                   |   |  |   |         |  
|----------------------------------------------- |  | ---------------------------- | ------ | - | ------------------ | - | ------- | ------------------------ |  | - | ----------------- | - |  | - | ------- | -
|                                                |  | 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 in investing activities               |  |                              | (94    | ) |                    |   | (623    | )                        |  |   |                   |   |  |   | (717    | )
|Cash used in financing activities               |  |                              | (620   | ) |                    |   | (36     | )                        |  |   |                   |   |  |   | (656    | )
|                                                | 
|                                                |  | 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 in) provided by operating activities |  |                              | (4,882 | ) |                    |   | 2,284   |                          |  |   |                   |   |  |   | (2,598  | )
|Cash used in investing activities               |  |                              | (268   | ) |                    |   | (3,229  | )                        |  |   |                   |   |  |   | (3,497  | )
|Cash provided by financing activities           |  |                              | 5,150  |   |                    |   | 945     |                          |  |   |                   |   |  |   | 6,095   |  



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)



|                  |  |                                |        |   |                                 |   |        |                            |  |   |                             |   |  |   |       
|----------------- |  | ------------------------------ | ------ | - | ------------------------------- | - | ------ | -------------------------- |  | - | --------------------------- | - |  | - | ------
|                  |  | Quarter endedDecember 31, 2004 |        |   | Quarter endedSeptember 30, 2004 |   |        | Quarter endedJune 30, 2004 |  |   | Quarter endedMarch 31, 2004
|Net sales         |  | $                              | 52,900 |   |                                 | $ | 51,991 |                            |  | $ | 50,828                      |   |  | $ | 52,396
|Gross profit      |  |                                | 7,980  |   |                                 |   | 8,605  |                            |  |   | 8,932                       |   |  |   | 9,299 
|Net (loss) income |  |                                | (1,826 | ) |                                 |   | (698   | )                          |  |   | (426                        | ) |  |   | 2     



|             |  |                                |        |   |                                 |   |        |                            |  |   |                             |   |  |   |        |  
|------------ |  | ------------------------------ | ------ | - | ------------------------------- | - | ------ | -------------------------- |  | - | --------------------------- | - |  | - | ------ | -
|             |  | Quarter endedDecember 31, 2003 |        |   | Quarter endedSeptember 30, 2003 |   |        | Quarter endedJune 30, 2003 |  |   | Quarter endedMarch 31, 2003 |  
|Net sales    |  | $                              | 50,878 |   |                                 | $ | 33,461 |                            |  | $ | 31,744                      |   |  | $ | 28,462 |  
|Gross profit |  |                                | 9,690  |   |                                 |   | 7,754  |                            |  |   | 7,859                       |   |  |   | 7,186  |  
|Net loss     |  |                                | (244   | ) |                                 |   | (713   | )                          |  |   | (384                        | ) |  |   | (771   | )



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|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.



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 |  | 58  |  | Chairman of the Board, Chief Executive Officer and Director     |  | 1988         
|                |  |     | 
|Charles D. Hall |  | 66  |  | President, Chief Operating Officer and Director                 |  | 1993         
|                |  |     | 
|Wayne J. Conner |  | 52  |  | Vice President, Treasurer, Chief Financial Officer and Director |  | 1993         
|                |  |     | 
|Lynn C. Batory  |  | 46  |  | Vice President, Controller and Secretary                        |  |              
|                |  |     | 
|David Hall      |  | 45  |  | Vice President of Manufacturing                                 |  |              
|                |  |     | 
|Mort Maurer     |  | 87  |  | 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 JupiterCorporation. 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. From1976 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.



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##### Table of Contents

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 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.



39



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##### Table of Contents

|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                               |  | 2004 |  | $      | 427,584 |       | $ | 151,920                      |  | $ | 126,563
|Chairman and Chief Executive Officer          |  | 2003 |  | $      | 407,223 |       | $ | 154,350                      |  | $ | 114,829
|                                              |  | 2002 |  | $      | 387,831 |       | $ | 114,510                      |  | $ | 118,381
|                                              |  |      |  |       
|Charles D. Hall                               |  | 2004 |  |        | 384,826 |       |   | 151,920                      |  |   | 97,046 
|President and Chief Operating Officer         |  | 2003 |  |        | 366,501 |       |   | 154,350                      |  |   | 88,331 
|                                              |  | 2002 |  |        | 349,049 |       |   | 114,510                      |  |   | 114,520
|                                              |  |      |  |       
|Wayne J. Conner                               |  | 2004 |  |        | 222,345 |       |   | 151,920                      |  |   | 55,243 
|Vice President, Treasurer and Chief Financial |  | 2003 |  |        | 211,756 |       |   | 154,350                      |  |   | 60,697 
|Officer                                       |  | 2002 |  |        | 201,672 |       |   | 114,510                      |  |   | 70,458 
|                                              |  |      |  |       
|Lynn C. Batory                                |  | 2004 |  | $      | 142,403 |       | $ | 86,618                       |  | $ | 26,590 
|Vice President, Controller and Secretary      |  | 2003 |  | $      | 136,869 |       | $ | 88,007                       |  | $ | 17,049 
|                                              |  | 2002 |  | $      | 131,577 |       |   | 62,196                       |  | $ | 24,238 
|                                              |  |      |  |       
|David Hall                                    |  | 2004 |  |        | 142,403 |       | $ | 86,618                       |  |   | 23,884 
|Vice President of Manufacturing               |  | 2003 |  |        | 136,869 |       | $ | 88,007                       |  |   | 13,410 
|                                              |  | 2002 |  |        | 131,577 |       |   | 62,196                       |  |   | 19,804 



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.



40



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##### Table of Contents

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         |    | $                | 19,897 |  | $  | 26,529 |    | $ | 33,161  |  | $ | 39,793  |  | $ | 46,425 
|$225,000         |    |                  | 22,709 |  |    | 30,279 |    |   | 37,848  |  |   | 45,418  |  |   | 52,988 
|$250,000         |    |                  | 25,522 |  |    | 34,029 |    |   | 42,536  |  |   | 51,043  |  |   | 59,550 
|$300,000         |    |                  | 31,147 |  |    | 41,529 |    |   | 51,911  |  |   | 62,293  |  |   | 72,675 
|$350,000         |    |                  | 36,772 |  |    | 49,029 |    |   | 61,286  |  |   | 73,543  |  |   | 85,800 
|$400,000         |    |                  | 42,397 |  |    | 56,529 |    |   | 70,661  |  |   | 84,793  |  |   | 98,925 
|$450,000         |    |                  | 48,022 |  |    | 64,029 |    |   | 80,036  |  |   | 96,043  |  |   | 112,050
|$500,000         |    |                  | 53,647 |  |    | 71,529 |    |   | 89,411  |  |   | 107,293 |  |   | 125,175
|$550,000         |    |                  | 59,272 |  |    | 79,029 |    |   | 98,786  |  |   | 118,543 |  |   | 138,300
|$600,000         |    |                  | 64,897 |  |    | 86,529 |    |   | 108,161 |  |   | 129,793 |  |   | 151,425

---

|(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, 15 years; Mr. C. Hall, 30
years; Mr. Conner, 22 years; Ms. Batory 21 years; and Mr. D. Hall, 8 years.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 $427,584 for 2004, and will receive annual increases
beginning in 2005 equal to the greater of the change in the applicable consumer price index or 5% per annum; Mr. C. Hall



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##### Table of Contents

serves as the President and Chief Operating Officer and received a base salary of $384,826 for 2004, and will receive annual increases beginning in 2005
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 $222,345 for 2004, and will receive annual increases beginning in 2005
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 2004 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 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.



42



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##### Table of Contents

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 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.



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##### Table of Contents

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, 2004 were approximately $150,000.



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:



McGladrey & Pullen LLP performed audit services totalling $177,000
during the period covering the fiscal year ended December 31, 2004.



Ernst & Young LLP billed us approximately $14,000 for the year ended December 31, 2 2003 relating to accounting consultations in connection with the Companys Australian operations.



Tax Fees:



RSM GcGladrey, Inc. performed tax services totaling $9,000 during the period
covering the fiscal year ended December 31, 2004.



Ernst &
Young LLP billed us approximately $21,000 for the fiscal year ended December 31, 2004 related to the review of the Companys consolidated federal tax return.



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 $31,000 and $61,000, respectively in the years ended December 31, 2004 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
| | --- | ----------------------------



Schedule II    Valuation and Qualifying Accounts
47



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##### Table of Contents

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



45



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

On the Supplementary Schedule



To the Board of Directors

Elgin National Industries, Inc. and Subsidiaries

Downers Grove, Illinois



Our audit of the consolidated financial statements of Elgin National Industries, Inc. and Subsidiaries included Schedule II, contained herein, for the
year ended December 31, 2004. Such schedule is presented for purposes of complying with the Securities and Exchange Commissions rule and is not a required part of the basic consolidated financial statements. In our opinion, such schedule
presents fairly the information set forth therein, in conformity with accounting principles generally accepted in the United States of America.



/s/    McGladrey & Pullen LLP



Schaumburg, Illinois

March 4, 2005



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##### 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, 2002     |  | 683                          |  | 306                                  |  | 144        |  | 845                   
|Year ended December 31, 2003     |  | 845                          |  | 47                                   |  | 222        |  | 670                   
|Year ended December 31, 2004     |  | 670                          |  | 179                                  |  | 207        |  | 642                   
|Reserve for inventories:         |  |                              |  |                                      |  |            |  |                       
|Year ended December 31, 2002     |  | 1,762                        |  | 248                                  |  | 490        |  | 1,520                 
|Year ended December 31, 2003     |  | 1,520                        |  | 125                                  |  | 103        |  | 1,542                 
|Year ended December 31, 2004     |  | 1,542                        |  | 284                                  |  | 71         |  | 1,755                 



| | 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



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##### 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:

Wayne J. ConnerTitle:

Vice President, Treasurer, and Chief Financial Officer(Duly Authorized Officer and Principal Financial Officer)




Dated: March 31, 2005



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 31, 2005.



ELGIN NATIONAL INDUSTRIES, INC.By

/S/    WAYNE J.
CONNERName:

Wayne J. ConnerTitle:

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 31, 2005
|                                      |  |                                                                
|/S/    CHARLES D.
HALLCharles D.
Hall |  | President, Chief OperatingOfficer and Director                  |  | March 31, 2005
|                                      |  |                                                                
|/S/    WAYNE J. CONNERWayne J. Conner |  | Vice President, Treasurer, Chief Financial Officer and Director |  | March 31, 2005
|                                      |  |                                                                
|/S/    LYNN C. BATORYLynn C. Batory   |  | Vice President, Controller and Secretary                        |  | March 31, 2005
|                                      |  |                                                                
|/S/    DAVID HALLDavid Hall           |  | Vice President of Manufacturing                                 |  | March 31, 2005



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##### Table of Contents

INDEX TO EXHIBITS



|              |  |                                                                                                                                                                                                                                                                                                                           |  |                    |  
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | -
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                                                                      |  | Footnote Reference |  
|              |  |                                                                                                                                                                                                                                                                                                                          
|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                 | )



49



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##### Table of Contents

|              |  |                                                                                                                                                                                                                                                                     |  |                   
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|ExhibitNumber |  | Document Description                                                                                                                                                                                                                                                |  | Footnote Reference
|              |  |                                                                                                                                                                                                                                                                    
|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. |  | (9)               
|              |  |                                                                                                                                                                                                                                                                    
|10.16         |  | Second Amendment to Loan and Security Agreement, dated June 30, 2004 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.      |  | (10)              
|              |  |                                                                                                                                                                                                                                                                    
|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 Commission on March 27, 2003
|--- | ----------------------------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference to Form 10-K of the Company (File No. 001-05771) filed with the Commission on March 27, 2004
|--- | ----------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference to Form 10-Q of the Company (File No. 001-05771) filed with the Commission On August 13, 2004
|---- | -----------------------------------------------------------------------------------------------------------------------

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



50