Commission File Number:  0-4791 

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

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K:    [X] 

The aggregate market value of the voting stock of the Registrant held by nonaffiliates on February 28, 2003, was $32,170,649.  As of March 7, 2003, there were 1,185,071 shares of common stock, $1 par value, of the Registrant outstanding. 

Portions of the Proxy Statement for the annual meeting of shareholders to be held May 5, 2003, are incorporated by reference into Part III. 

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ITEM 2.  --  PROPERTIES  

The Registrant's primary domestic manufacturing facilities are located in Springfield, Missouri, and occupy approximately 721,000 square feet on 50 acres of land.  These facilities are owned by the Registrant, as is all of the equipment it uses.  The original section of the present Springfield plant was built in 1950 and consisted of 23,720 square feet.  Since then, the Registrant has added to this facility many times in the course of a continuing program for enlarging and modernizing its facilities and increasing its capabilities.  An addition of approximately 14,100 square feet was made in 1981.  The latest addition of about 6,000 square feet was made in 1999. 

In February 1987, the Registrant acquired an additional manufacturing facility in Osceola, Iowa, which contains approximately 213,000 square feet. 

In February 1997, the Registrant purchased land and a building, which contains about 21,000 square feet, in downtown Springfield, Missouri, for the purpose of operating a microbrewery and brewpub. 

ITEM 3.  --  LEGAL PROCEEDINGS  

There are no material pending legal proceedings, other than ordinary routine litigation incidental to the business or matters for which insurance coverage is adequate, which involves the Registrant, nor is any director, officer, or any management security holder involved in any litigation that could adversely affect the Registrant. 

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

The Registrant did not submit any matter to a vote of security holders, through a solicitation of proxies or otherwise, during the fourth quarter of 2002. 

ITEM 10.  (from PART III)  --  EXECUTIVE OFFICERS OF THE REGISTRANT  

Each of the above officers was elected to serve until the next annual meeting of the Board of Directors, which will be held on May 5, 2003, and until his successor shall have been duly elected and qualified or until his earlier resignation or removal. 

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PART II  

ITEM 5.  --  MARKET PRICE FOR THE REGISTRANT'S COMMON STOCK AND 
                     RELATED SECURITY HOLDER MATTERS  

The Registrant's common stock is traded on The Nasdaq Stock Market (Registered) under the symbol MUEL.  As of December 31, 2002, there were approximately 230 shareholders of record and approximately 600 beneficial shareholders. 

Market high and low prices and quarterly cash dividends in 2002 and 2001 were as follows: 

ITEM 6.  --  SELECTED FINANCIAL DATA  

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ITEM 7.  --  MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
                     OPERATING RESULTS AND FINANCIAL CONDITION  

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS -- This Management's Discussion and Analysis of Operating Results and Financial Condition and other portions of this Form 10-K contain certain statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.  All statements regarding future performance, growth, sales and earnings projections, conditions, or developments are forward-looking statements.  Words such as "anticipates," "believes," "intends," "expects," "may," "will," "should," "could," "plans," "forecasts," "estimates," "predicts," "projects," "potential," "continue," "outlook" and similar expressions may be intended to identify forward-looking statements. 

Actual future results may differ materially from those described in the forward-looking statements due to a variety of factors, including the fact that the economy generally, and the dairy farm equipment, industrial equipment and field-fabrication markets specifically, have recently been in a state of uncertainty, making it difficult to determine if past experience is a good guide to the future.  A downturn in the Registrant's business segments could adversely affect the Registrant's revenues and results of operations.  Other factors affecting forward-looking statements, some of which are identified in the discussion relating to such forward-looking statements, include, but are not limited to, the following: specific economic conditions in the food, dairy, beverage, chemical, pharmaceutical, biotechnological, and other process industries, and the dairy farm equipment market and the impact of such conditions on the Registrant's customers in such markets; the cyclical nature of some of the Registr ant's markets; milk prices, feed costs, weather conditions, dairy farm consolidation, and other factors affecting the profitability of dairy farmers; the price of stainless steel; the highly competitive nature of the markets for the Registrant's products, as well as pricing pressures that may result from such competitive conditions; business relationships with major customers and suppliers; the continued operation and viability of the Registrant's major customers; the Registrant's execution of internal performance plans; difficulties or delays in manufacturing; cost-reduction and productivity efforts; competing technologies and difficulties entering new markets, both domestic and foreign; changes in product mix; future levels of indebtedness and capital spending; claims, including, without limitation, warranty claims, product liability claims, charges or dispute resolutions; ability of suppliers to provide materials as needed and the Registrant's ability to recover any price increases for materials and produ ct pricing; the Registrant's ability to attract and retain key technical and other personnel; labor relations; the failure of customers to make timely payment; any inadequacy of the Registrant's intellectual property protection or the potential for third-party claims of infringement; global economic factors, including currency exchange rates; general economic conditions, including interest rates, the rate of inflation, and commercial and consumer confidence; energy prices; governmental laws and regulations affecting domestic and foreign operation, including tax obligations; changes in accounting standards; worldwide political stability; the effects of terrorist activities and resulting political or economic instability, including U. S. military action overseas; and the effect of acquisitions, divestitures, restructurings, product withdrawals, and other unusual events. 

The Registrant cautions the reader that these lists of cautionary statements and risk factors may not be exhaustive.  The Registrant expressly disclaims any obligation or undertaking to release publicly any updates or changes to these forward-looking statements that may be made to reflect any future events or circumstances. 

SALES  --  Comparative consolidated sales for the past three years were $114,149,000 for 2002, $94,288,000 for 2001, and $105,182,000 for 2000.  The higher level of sales achieved during 2002 was the most significant factor contributing to the variance in results between 2002 and 2001. 

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Sales by segment for the three years ended December 31, 2002, were: 

Sales of Dairy Farm Equipment were higher in both the domestic and international markets during 2002 compared to 2001.  Domestic sales improved by 13% from the prior year, while export sales were higher by approximately 10%.  This was consistent with the increase in milk-cooler unit sales between 2002 and 2001 and the increase of 16% in the average size of the Registrant's milk coolers sold in the domestic market. 

Although the average milk price during 2002 was 20% less than the prior year and order entry was down 4% from 2001, sales of domestic Dairy Farm Equipment were higher.  A significant contributor to the increase in sales was a beginning backlog for 2002, which was $2,910,000, or an increase of 65% over the backlog at the beginning of 2001.  Also, milk prices were favorable for the first half of 2002 and averaged about $11.00 per cwt.; and feed costs remained reasonable for most of 2002.  Both factors contributed to investment in new milk-cooling and storage capacity.  Furthermore, during 2002, annual milk production increased by 2.7% over milk production during 2001, which also contributed to the need for additional storage capacity. 

Although the U.S. dollar remained strong during 2002 and the economies remained sluggish in many of our export markets, export sales of Dairy Farm Equipment were slightly higher during 2002 compared to 2001.  The main areas of increase were in Asia, Europe, and South America. 

During 2001 compared to 2000, sales of Dairy Farm Equipment were lower both in the domestic and international markets.  Domestic sales were down by 22% from the prior year, while export sales were lower by 30%.  This was consistent with a reduction in milk-cooling unit sales, which were down 31% and 34%, respectively. 

Although the milk price was very favorable during 2001, there were other factors that contributed to the decrease in domestic sales of Dairy Farm Equipment.  The backlog at the beginning of 2001 was $1,759,000, which represented a 72% decrease from the prior year backlog.  Milk production for 2001 was lower than during 2000 due to weather conditions that adversely affected both the production per cow and the quality of feed available.  Also, very aggressive pricing for Dairy Farm Equipment by a competitor during the year had an adverse effect on sales.  Furthermore, the very high cost of replacement heifers limited the expansion of dairy operations and the need for additional milk-cooling and storage capacity. 

The strength of the U.S. dollar was the significant factor contributing to the decline in export sales of Dairy Farm Equipment during 2001 compared to 2000.  In addition, the outbreak of foot-and-mouth disease in Europe effectively closed those markets for Dairy Farm Equipment for most of 2001.  A substantially lower backlog at the beginning of 2001 compared to the previous year also contributed to lower sales. 

The outlook for 2003 is for domestic milk prices to remain weak; and milk production is expected to increase again, but at a slower rate.  Milk prices will remain low until production can be brought more in line with the demand for dairy products.  Large supplies of dairy products are available and this contributes to suppressed milk prices.  Although somewhat higher milk prices are expected during 2003, projections are for only modest gains over the 2002 average all-milk price, which was at a twenty-year low at year end.  Additionally, feed costs are expected to be 10% to 15% higher during 2003 primarily due to the drought conditions in the Midwest.  These factors will put economic pressure on dairymen and, as a result, could limit the expansion of dairies and the acquisition of capital equipment during 2003.  This would have an adverse effect on 2003 order entry for Dairy Farm Equipment and, coupled with a significantly lower starting backlog of $956,000, would reduce the likelihood that domestic sales for 2003 would reach the level achieved during 2002.  Export sales of Dairy Farm Equipment, which average about 30% of annual domestic Dairy Farm Equipment sales, are expected to improve somewhat over 2002.  Increased sales opportunities are expected in Asia, Mexico, and Europe due to a decline in the strength of the U.S. dollar, improved economic conditions, and government-sponsored programs in some areas of Europe. 

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In the domestic Dairy Farm Equipment market, the number of dairy farms continues to decline, as small high-production-cost dairies are being eliminated.  This process leaves fewer but larger dairy farm operations that will require larger milk-cooling and storage capacity.  The Registrant is well positioned to meet the milk-cooling and storage requirements of this change in the marketplace; and any impact on revenues and profitability will depend upon the rate at which farm consolidation continues. 

With the size of the domestic market for dairy farm equipment continuing to decline, competition will increase among the equipment suppliers.  The three major competitors of the Registrant in the dairy farm equipment market are full-line suppliers, whereas the Registrant's offering is limited to milk-cooling and storage equipment.  The Registrant shares dealers with its competitors, and those dealers will be encouraged by the competitors to sell their product lines exclusively, to the exclusion of the Registrant's products.  This will be the case particularly on projects that involve a complete new dairy where the competitors are able to offer a total package and more flexible pricing.  In spite of the increased competition, the Registrant has been able to maintain a significant market share; and it is well positioned for the trend toward larger dairy operations. 

Sales for the Industrial Equipment segment were $78,239,000 for 2002 versus $64,519,000 for 2001, an increase of 21%.  Virtually all of the increase in sales was due to the biopharm systems product line, as sales were $23,400,000 higher during the past year compared to 2001.  The increase in sales was due to a 260% increase in order entry for the biopharm systems product line during 2002 compared to 2001.  Sales during 2002 included a modular system that was completed and shipped during the third quarter of 2002, the first bioreactor system for a biotechnology firm, and sales recognized under the percentage-of-completion method of accounting for two long-term contracts for large modular projects secured during 2002 that will be completed during the second half of 2003.  Sales of virtually all products within the biopharm systems product line were higher during 2002 compared to 2001.  In contrast, sales in the processing equipment and heat transfer product lines within the Industri al Equipment segment were down 20% and 12%, respectively.  These product lines have been particularly affected by the steep declining trend in industrial capital expenditures that has occurred over the past few years.  Also, due to reduced capital spending, conditions were very competitive for the projects that were available during 2002, which adversely affected prices, margins, and profitability for the Industrial Equipment segment. 

Sales for the Industrial Equipment segment were $64,519,000 for 2001 versus $74,139,000 for 2000, a decline of 13%.  The decline in the Industrial Equipment segment sales during 2001 was exclusively due to a significant reduction in capital expenditures during 2001 and an order entry level that was 7% lower for 2001 compared to 2000.  The decline was the most significant in processing equipment, where projects were competitively bid among several fabricators; and order entry was down by 25%.  Conditions were extremely competitive for projects that were available, which put pressure on prices and margins and adversely affected profitability.  Another major factor affecting 2001 sales was the beginning backlog for the Industrial Equipment segment.  Exclusive of shop work for the Field Fabrication segment, the backlog was $17,718,000 as of December 31, 2000, down from $27,434,000 for the prior year-end.  The backlog level at the end of 2000 reflected the recessionary c onditions that began during the year.  The lower starting backlog, coupled with a decrease in order entry for 2001, led to a reduction in sales for the year compared to 2000. 

Looking forward to 2003, the backlog for the Industrial Equipment segment was $47,564,000 as of December 31, 2002, an increase of about 89% over the beginning backlog for 2002.  However, over 75% of this backlog is attributable to the biopharm systems product line, while the backlog for the other product lines within the segment (principally processing equipment and heat transfer equipment) is down by 31% from the prior year.  The outlook for projects in the biopharm market for 2003 continues to be favorable, as many firms are continuing to expand their operations and construct new facilities.  Although growth in the pharmaceutical industry is expected to continue, it will be at a slower rate than prior estimates.  However, for the other product lines, overall growth in the economy and particularly the level of industrial capital expenditures will play a key role in the level of business that will be obtained.  There are predictions that the economic recovery will continue, b ut at a modest growth rate.  Corporate capital expenditures are expected to recover somewhat during 2003, but they are expected to be sluggish.  The low industrial capacity utilization rate, the mediocre profit outlook, the uncertainty about future demand, and the potential conflict with Iraq are factors that are adversely affecting the level of industrial capital expenditures.  A tepid recovery for capital spending by industrial firms will suppress order entry and put pressure on prices and margins for our processing and heat transfer products during 2003; and management expects that this will continue until the economy strengthens further. 

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The price of stainless steel is expected to continue to increase during 2003.  The increase is driven principally by surcharges that are the result of the volatility in the market price of nickel, a key material used in the production of stainless steel.  The surcharge continues to increase and is higher by more than $0.05 per pound since December 31, 2002, for our most commonly used grades of stainless steel. 

Field Fabrication segment sales for 2002 were $14,939,000, a decrease of $758,000 from 2001.  The backlog at the beginning of 2002 was only $318,000; and although order entry was over $20,000,000 for the year, the timing for the start of fabrication was such that only a portion of the major projects was recognized as sales during 2002 based on the use of percentage-of-completion accounting. 

Field Fabrication segment sales for 2001 were $15,698,000, an increase over 2000 when sales were $7,374,000.  The primary factor contributing to the increase in sales was the backlog at the beginning of 2001, which was $12,226,000.  Also, sales improved during 2000 to $7,374,000 from $6,215,000 for 1999 (the first full year for the field-fabrication activities).  Sales have grown, as customers have recognized the capabilities and the skills that are available for field-fabrication projects from Mueller Field Operations, Inc., a wholly owned subsidiary, which comprises the Field Fabrication segment. 

Consolidated sales backlog totaled $54,023,000 at December 31, 2002, versus $28,450,000 and $31,703,000 at the end of 2001 and 2000, respectively.  The backlog for the Industrial Equipment segment, exclusive of shop work for the Field Fabrication segment, was $47,564,000, $25,222,000, and $17,718,000 at the end of 2002, 2001, and 2000, respectively.  The backlog for the Dairy Farm Equipment segment was $956,000, $2,910,000, and $1,759,000 at the end of 2002, 2001, and 2000, respectively.  The Field Fabrication segment backlog was $5,503,000, $318,000, and $12,226,000 at the end of 2002, 2001, and 2000, respectively.  The increase in the Industrial Equipment segment backlog was exclusively due to the biopharm systems product line that consists of pure-water/pure-steam generating equipment, pharmaceutical tanks and vessels, bioreactors, and modular systems for the pharmaceutical and biotechnological industries.  Approximately 83% of the December 31, 2002, consolidated backlog will b e recognized as sales over the next twelve months, and the balance is attributable to long-term projects for the biopharm systems product line. 

OPERATING INCOME  --  Operating income for 2002 was $2,438,000 compared to a consolidated operating loss of $2,696,000 for 2001.  The major factor contributing to the improved performance was an increase in sales of approximately $19,861,000.  The consolidated gross profit rate for 2002 was 19.9% compared to 17.2% for 2001.  The improvement in the consolidated gross profit rate was directly related to the higher sales volume, coupled with an increase in the gross margin rate (which is a measure of the variable profit margin) for all segments during 2002 compared to 2001.  Operating expenses were 11% higher during 2002 compared to 2001, as the level of manufacturing burden and selling, general, and administrative expense was greater.  Manufacturing burden was higher for 2002 compared to the prior year, as the variable component of manufacturing burden was higher due to the positive 21% change in sales volume.  Additionally during 2002, over 100 new production employe es were added to the Springfield facility to handle the workload necessitated by the 52% increase in order entry during 2002 compared to 2001.  A significant investment was made to obtain a sufficient number of plant employees and to provide the extensive training and certification necessary to enhance their skills and abilities; and the cost of this process contributed to higher manufacturing burden.  Selling, general, and administrative expense was 7% more for 2002 compared to 2001.  Expenditures were higher for personnel, insurance, and legal fees; and there were increased provisions for specific potential warranty claims and specific potential uncollectible accounts. 

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On a segment basis, operating income (loss) was as follows for the three years ended December 31, 2002: 

The increased operating income for the Dairy Farm Equipment segment during 2002 versus 2001 was the result of a 12% increase in sales, coupled with an increase in the gross margin rate. 

The reduction in the operating loss for the Industrial Equipment segment was $2,563,000, or a reduction of 48% between 2001 and 2002.  The most significant factor contributing to the reduced loss was an improvement in sales of $13,700,000.  As previously mentioned, the increase in sales was tied to the improvement in order entry for the biopharm systems product line, as sales for this product line were higher by $23,400,000.  Additionally, two large module projects were obtained during the year; and sales revenue was recognized on the percentage-of-completion basis of accounting for these projects, which also contributed to the increase in sales.  Although the biopharm systems product line experienced a significant increase in sales, it was not sufficient to overcome the effect on segment profitability of the decreases in sales for processing equipment and heat transfer products.  Operating expenses were higher for the Industrial Equipment segment for both manufacturing burden and selling, general, and administrative expenses.  The increase in the manufacturing burden was directly related to the increase in sales, as the variable component of manufacturing burden was higher due to the increased volume.  Additionally, there was increased expense to acquire and train over 100 new employees for the workforce during 2002, which also increased manufacturing burden.  The increase in selling, general, and administrative expenses related to the additional sales personnel and higher provisions for potential warranty claims and potential uncollectible accounts. 

The Field Fabrication segment's operating income was $1,400,000 for 2002 compared to $1,294,000 for 2001.  Although sales were lower by $758,000, the gross margin rate was higher due to improved efficiency in the field.  The Field Fabrication segment began 2002 with a backlog of only $318,000; but strong order entry during 2002 provided some major long-term contracts for fabrication.  Sales revenue from the long-term contracts obtained during 2002 was recognized under the percentage-of-completion method of accounting. 

During 2001, the consolidated loss from operations was $2,696,000 versus a consolidated operating income of $4,517,000 for 2000.  The major factor contributing to the operating loss was the decrease in sales of approximately $10,900,000 compared to the prior year.  The consolidated gross profit rate for 2001 was 17.2% compared to 22.2% for 2000.  The decline in the gross profit rate was directly related to the lower sales volume, coupled with a significant decrease in the gross margin rate during 2001 compared to 2000.  The decline in the gross margin rate was directly related to very competitive conditions during 2001, particularly in the Industrial Equipment segment where several competitors bid on projects.  Operating expenses were comparable between 2001 and 2000, and the difference was less than 1%.  During 2001, there was a reduction in the LIFO reserve that had the effect of reducing the operating loss by $883,000.  In contrast, during 2000, the LIFO res erve was increased by $474,000, which reduced operating income. 

The decrease in the operating income for the Dairy Farm Equipment segment during 2001 compared to 2000 was solely related to the decrease in sales volume of $5,700,000, as the gross margin rates remained comparable. 

The significant decline in the operating income of the Industrial Equipment segment during 2001 compared to 2000 was directly related to the significant decline in sales of approximately $9,600,000 and a decrease in the gross margin rate.  The reduction in sales volume was directly related to the recession and the decline in industrial capital expenditures.  The decline in the gross margin rate was directly related to the very competitive pricing conditions.  The increase in the operating income of the Field Fabrication segment during 2001 compared to 2000 was solely related to the significant increase in sales volume. 

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The profitability of the Industrial Equipment segment is lower than for the other segments, as this segment is more resource-intensive and pricing tends to be very competitive.  Generally, all Industrial Equipment projects are engineered to order; and the projects require much greater support from the sales, engineering, and manufacturing areas, as well as a high degree of skill to fabricate.  Also, the risks of manufacturing are greater because the products are custom designed and built; and the chance of misinterpretation, errors, and mistakes, in general, is much greater than with our other products.  Many of the Industrial Equipment projects are bid among several possible suppliers, which tends to make pricing very competitive. 

Inflation is a factor that affects the cost of operations, and the Registrant seeks ways to minimize the effect on their operating results.  To the extent permitted by competitive conditions, higher material prices, labor costs, and operating costs are passed on to the customer by increasing prices.  The Registrant uses the LIFO method of accounting for inventories; and under this method, the cost of products sold, as reported in the financial statements, approximates the current replacement cost.  Additionally, the Registrant uses accelerated depreciation methods in charging depreciation expense to current operations, which, to a certain extent, reflects the effect of the increased cost of replacement productive capacity. 

OTHER INCOME (EXPENSE)  --  Interest income was $89,000 for 2002 versus $199,000 for 2001.  The decline in interest income was due to a significantly lower average interest rate on investable funds during 2002.  The 2001 average level of investable funds and average interest rate were lower than during 2000, which resulted in lower interest income.  Other, net for 2002 was comparable for 2001, while other, net for 2001 included miscellaneous expense items. 

PROVISION FOR INCOME TAXES  --  The effective tax rates for 2002, 2001, and 2000 were 33.9%, (43.1%), and 21.2%, respectively.  The rates for 2001 and 2000 were below the statutory rate (34%) due primarily to tax credits. 

JOINT VENTURE  --  The Registrant's share of the income from the 50%-owned Mexican joint venture for 2002 was $4,900 compared to the Registrant's share of the loss for 2001 of $99,000.  Although sales were lower during 2002, an improvement in margins and a reduction in expenses contributed to the improved performance. 

For 2001, the loss from the 50%-owned joint venture was the result of a decrease in sales due to the very competitive conditions, with the result that profitability suffered.  For 2000, the results of the joint venture were favorable due to a high level of sales and favorable margins. 

FINANCIAL CONDITION 

LIQUIDITY -- CAPITAL RESOURCES  --  Working capital was $11,392,000 as of December 31, 2002, compared to $12,666,000 as of December 31, 2001.  The current ratio, a measure of liquidity, was 1.40 as of December 31, 2002, versus 1.74 as of December 31, 2001.  The Registrant has no significant amount of long-term debt. 

Net cash provided by operations was $1,045,000 for 2002 compared to $8,088,000 for 2001 and $4,525,000 for 2000.  The 2002 cash flow was adversely affected by increases in accounts receivable ($6,150,000), costs in excess of estimated earnings and billings ($2,995,000) and in inventories ($2,765,000).  The increases in these current asset categories are directly related to the increase in consolidated order entry of about 54% during 2002 compared to 2001 and the related demands for additional working capital. 

The 2001 cash flow was primarily attributable to depreciation, decreases in accounts receivable and inventory, and an increase in advance billings.  The 2000 cash flow was primarily attributable to net income, depreciation and amortization, and an increase in accounts payable. 

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Capital expenditures for the most recent three years were $4,800,000 for 2002, $4,900,000 for 2001, and $3,500,000 for 2000.  Capital expenditures during the three years ended December 31, 2002, included a substantial portion to improve production efficiency and reduce throughput time.  The level of capital expenditures for 2003 is initially planned at approximately $1,500,000.  Anticipated expenditures will be primarily for critical equipment to enhance capabilities, maintain quality, and improve efficiency.  Depending on the level of order entry and operating needs, it may be necessary to request authorization from the Board of Directors for additional expenditures. 

Increases in the Registrant's pension benefit obligations, combined with market losses in 2002 and 2001, have negatively affected the funded status of the Registrant's pension plans.  Required pension contributions will be $915,400 during 2003 and $2,190,800 during 2004. 

The Registrant has a $5,000,000 bank borrowing facility that expires May 31, 2003.  As of December 31, 2002, borrowings under the facility were $4,183,200; and there were no borrowings under the facility at December 31, 2001.  The Registrant also has a $2,750,000 standby letter-of-credit facility; and as of December 31, 2002, there were standby letters-of-credit totaling $2,212,000 issued under the facility, with all but $62,800 to expire within one year.  Management intends to renew the bank facility for borrowing and letters of credit prior to the expiration date.  Management believes that the cash flow provided from operations will continue to be sufficient to satisfy the Registrant's working capital requirements, normal capital expenditure levels, and anticipated dividends.  A policy of requiring down payments and/or progress payments on large projects provides a favorable effect on cash flow.  Management believes the bank borrowing facility can be increased if necessary to provide additional liquidity. 

The Registrant has a long-term note outstanding as of December 31, 2002, in the principal amount of $1,146,750.  The note is repayable over three years in quarterly installments, with the final installment due August 2, 2005.  The note is secured by equipment with a cost of $1,563,000. 

A significant economic downturn or reduction in the number of long-term contracts acquired in the biopharm systems product line or in the Field Fabrication segment could lead to contraction of the business, which would have an adverse impact on liquidity.  If that was to occur, the Registrant would restructure its operations to insure that cash flow from operations would be sufficient to maintain an appropriate level of liquidity. 

The following tables contain disclosures concerning certain contractual obligations and commercial commitments outstanding as of December 31, 2002: 

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Market risks relating to the Registrant's operations result primarily from changes in foreign-exchange rates, stainless steel prices, and interest rates.  The Registrant periodically enters into foreign-exchange forward or spot contracts to hedge the exposure to foreign-currency-denominated purchase transactions.  Forward contracts generally have maturities of less than three months.  The foreign-currency-denominated purchases were approximately $1,500,000, $1,900,000, and $2,800,000 for 2002, 2001, and 2000, respectively.  There were no foreign-exchange forward contracts outstanding or foreign currencies held at December 31, 2002 or 2001.  The risk of significant changes in stainless steel pricing for large projects that extend over several months is managed by contracting for the stainless steel at the time the project is obtained.  The risk of changes in interest rates on borrowings would not be material to the results of operations as the amount of borrowin gs is not significant as of December 31, 2002. 

Concentration of credit risk, with respect to receivables, is limited due to the large number of customers and their dispersion across a wide geographic area.  Management performs credit evaluations of all new customers and periodically reviews the financial condition of existing customers.  For large projects, down payments and/or progress payments are generally required based on the dollar value of the order and customer creditworthiness.  Foreign receivables generally are secured by irrevocable letters of credit confirmed by a major U.S. bank. 

ACCOUNTING POLICIES  --  The critical accounting policies with respect to the Registrant's financial statements are those related to revenue recognition, pensions, inventories, and depreciation. 

Revenue from sales of fabricated products is recognized upon passage of title to the customer.  Passage of title may occur at the time of shipment from the Registrant's dock, at the time of delivery at the customer's location, or when tanks are completed in the field and accepted by the customer.  For large multi-unit projects that are fabricated in the plant, revenue is recognized under the units-of-delivery method, which is a modification of the percentage-of-completion method of accounting for contracts.  Under this method, revenue is recognized as units are completed and shipped or delivered to the customer (as determined by the contract).  The applicable manufacturing cost of each unit is identified and charged to the cost of sales as the revenue is recognized.  Additionally, reviews are performed monthly to insure that there are no realization problems for projects that are in process.  If there are, the projected loss is recognized and recorded at the time it is identi fied.  Down payments and progress payments made by customers under certain contracts are included in advance billings on the Consolidated Balance Sheets.  The advance billings are not recognized as sales until the product is shipped, delivered, or accepted by the customer in accordance with the applicable contract. 

Revenues from long-term contracts that involve only a few deliverables and that meet the requirements of Statement of Position 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts," are recognized on the percentage-of-completion method of accounting.  For plant-fabricated projects, percentage of completion is determined by comparing total manufacturing hours incurred to date for each project to the estimated total manufacturing hours for each project.  For field-fabricated projects, percentage of completion is determined by comparing cost incurred to date for each contract to the estimated total cost for each contract at completion.  Estimates of total manufacturing hours and total contract costs for relevant contracts are reviewed periodically and, if necessary, updated to properly state the estimates.  Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined.  Costs and estima ted earnings in excess of billings on uncompleted contracts arise when revenues have been recorded, but the amounts are not yet billable under the terms of the contract.  Such amounts are recoverable from customers upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of the contract.  Billings in excess of costs and estimated earnings on uncompleted contracts arise as a result of advanced and progress billings on contracts. 

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Revenues and profit recognized during 2002 under the percentage-of-completion method of accounting for the long-term contracts that are still in process as of December 31, 2002, were based on management's estimates of total manufacturing hours at completion for plant-fabricated projects and total cost for each contract at completion for field-fabricated projects.  Although 2002 was the first year that the percentage-of-completion method of revenue recognition was utilized, management has extensive experience in preparing estimates for projects.  The Registrant' sales include a significant number of custom-designed and built projects that require estimates of the resources required to complete the project and to determine the appropriate pricing.  The estimates of hours to complete and total cost to complete, respectively, were developed by management based on the information available for the projects and management's past experience with similar projects.  In developing the estimates, management considers project performance to date, job conditions, and other factors that may affect performance during the completion of the contracts.  As estimates are subject to change due to many factors, management constantly monitors the performance of each long-term contract to insure that the estimates are current and accurately reflect the estimate of total hours to complete contracts or total costs to complete contracts. 

The Registrant has defined benefit pension plans covering substantially all employees.  The pension benefits are accounted for using actuarial methods based on numerous estimates, including employee turnover, mortality, retirement ages, expected return on plan assets, discount rates, and future salary increases.  The two most critical of these factors, due to their potential impact on pension expense, are return on plan assets and the discount rate. 

The return on plan assets represents a long-term assumption for the pension portfolios that can impact pension expense and cash funding requirements.  The expected rate of return for 2002, 2001, and 2000 was 8.5%, and it was representative of past performance of the pension portfolios over time.  Although plan investments are subject to short-term market volatility, the portfolios are well diversified and closely managed.  The asset allocation as of December 31, 2002, consisted of 61% in equities, 36% in fixed income, and 3% in cash and equivalents.  This allocation is consistent with the long-term asset allocation for the plans.  In view of the market performance over the past few years, the long-term rate of return assumption has been lowered to 8% to determine the 2003 pension expense. 

The discount rate is the interest rate used to discount estimated future benefit payments that have been earned to their present value as of the measurement date (December 31).  The present value of future benefit payments is the benefit obligation, and it will impact the following year's pension expense.  The discount rate used is based on indexes of interest rates for high-grade corporate bonds and can fluctuate considerably over periods depending on the overall economic conditions that impact long-term corporate bond yields.  Based on current interest rate levels, the discount rate was reduced to calculate the December 31, 2002, benefit obligation.  As of December 31, 2002 and 2001, discount rates of 6.5% and 7.0%, respectively, were used to determine the benefit obligation. 

The Registrant's inventories are recorded at the lower of cost on a last-in, first-out ("LIFO") basis, or market.  Cost of subsidiary inventories is determined on a first-in, first-out ("FIFO") basis; and they are not significant to the consolidated inventory.  The LIFO method provides a better match of current costs with current revenues in the statement of income.  Additionally, the LIFO method may produce substantial current tax savings, with the effects of inflation flowing through cost of sales.  Because the inventory determination under the LIFO method can only be made at the end of each year based on inventory quantities and costs at that time, interim LIFO determinations must necessarily be based on management's estimate of expected year-end inventory levels and costs.  Interim financial results are subject to final year-end LIFO inventory amounts; and due to the volatility of stainless steel prices and potential fluctuation in inventory quantities, it is difficult to accu rately estimate the appropriate LIFO inventory adjustment for each year. 

The Registrant provides for depreciation expense for property, plant, and equipment using principally declining-balance methods for new items and the straight-line method for used items.  Under the declining-balance methods, depreciation expense is charged to the statement of income on an accelerated basis and, at the same time, produces current tax savings. 

Statement of Financial Accounting Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure," was adopted during 2002.  Statement No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternate methods of transition for entities that voluntarily change to the fair-value-based method of accounting for stock-based employee compensation.  It also amends disclosure provisions of Statement No. 123 to require prominent annual and interim disclosures regarding the pro forma effects on reported net income for stock-based compensation. 

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Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," issued in June 2002 and effective for the Registrant's 2003 calendar year, is not expected to have a material effect on the Registrant's financial position or results of operations. 

NONAUDIT SERVICES OF INDEPENDENT AUDITORS -- Pursuant to Section 10A(i)(2) of the Securities Exchange Act of 1934, as added by Section 202 of the Sarbanes-Oxley Act of 2002, we are responsible for disclosing to investors the nonaudit services approved by our Audit Committee to be performed by KPMG LLP, our independent auditors.  Nonaudit services are defined in the law as services other than those provided in connection with an audit or review of the financial statements of the Registrant.  The Audit Committee approved (a) nonaudit tax compliance services in connection with the preparation of the Registrant's tax returns and (b) research and consultation on various federal, state, and local tax issues. 

ITEM 7.A.  --  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK  

Certain information concerning market risk is set forth in Item 7, pages 13 and 14, and is incorporated herein by reference.  Other disclosure requirements are not submitted because they are not applicable or they are not material. 

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ITEM 8.  --  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA  

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To the Board of Directors of Paul Mueller Company: 

We have audited the accompanying consolidated balance sheet of PAUL MUELLER COMPANY (a Missouri corporation) AND SUBSIDIARIES as of December 31, 2002, and the related consolidated statements of income, shareholders' investment, and cash flows for the year then ended.  In connection with our audit of the 2002 financial statements, we have also audited the 2002 financial statement schedule.  These consolidated financial statements and financial statement schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.  The accompanying consolidated financial statements and financial statement schedule of the Company as of December 31, 2001, and for each of the years in the two-year period then ended were audited by other auditors who have ceased operations.  Those auditors expressed an unqualified opinion on those consolidated finan cial statements and financial statement schedule in their report dated February 15, 2002. 

We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  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 provides a reasonable basis for our opinion. 

In our opinion, the 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Paul Mueller Company and Subsidiaries as of December 31, 2002, 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.  Also in our opinion, the related 2002 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/ KPMG LLP 

Kansas City, Missouri, 

February 18, 2003 

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To the Board of Directors of Paul Mueller Company: 

We have audited the accompanying consolidated balance sheets of PAUL MUELLER COMPANY (a Missouri corporation) AND SUBSIDIARIES as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders' investment, and cash flows for each of the three years in the period ended December 31, 2001.  These financial statements are the responsibility of the Registrant's management.  Our responsibility is to express an opinion on these financial statements based on our audits. 

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

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In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Paul Mueller Company and Subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. 

Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole.  Schedule II is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements.  This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. 

/S/ ARTHUR ANDERSEN LLP 

Kansas City, Missouri, 

February 15, 2002 

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

The Audit Committee of the Board of Directors (the "Board")of Paul Mueller Company (the "Registrant") decided to no longer engage Arthur Andersen LLP as the Registrant's independent public accountant effective May 15, 2002. 

The report of Arthur Andersen LLP on the Registrant's financial statements for 2000 and 2001 did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. 

During 2000 and 2001 and any subsequent interim period preceding the replacement of Arthur Andersen LLP as the Registrant's independent public accountants, there were no disagreements between the Registrant and Arthur Andersen LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would have caused Arthur Andersen LLP to make reference to the subject matter of the disagreements in connection with its reports.  None of the "reportable events" described in paragraphs A through D of Clause (v) of Item 304(a)(1) of regulation S-K of the Securities and Exchange Commission occurred during 2000 or 2001 or any subsequent interim period preceding the replacement of Arthur Andersen LLP as independent public accountants for the Registrant. 

The Audit Committee recommended to the Board and the Board ratified the appointment of KPMG LLP as the Registrant's independent auditor effective May 24, 2002. 

During 2000 and 2001 and any subsequent interim period preceding the replacement of Arthur Andersen LLP as the Registrant's independent public accountants, the Registrant did not consult KPMG LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Registrant's Consolidated Financial Statements, or any other matters or reportable events listed in items 304(a)(2)(i) or (ii) of Regulation S-K of the Securities and Exchange Commission. 

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PART III  

ITEM 10.  --  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 

Information as to Directors of the Registrant required by Item 10 is included on pages 5 and 6 of the Registrant's Proxy Statement for the annual meeting of shareholders to be held May 5, 2003, and is incorporated herein by reference.  The information concerning executive officers is set forth on page 5 of Part I hereof. 

ITEM 11.  --  EXECUTIVE COMPENSATION 

Information as to executive compensation required by Item 11 is included on pages 10, 11, 12, and 13 of the Registrant's Proxy Statement for the annual meeting of shareholders to be held May 5, 2003, and is incorporated herein by reference. 

ITEM 12.  --  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                      OWNERS AND MANAGEMENT  

Information as to security ownership of certain beneficial owners and management required by Item 12 is included on pages 3 and 5 of the Registrant's Proxy Statement for the annual meeting of shareholders to be held May 5, 2003, and is incorporated herein by reference. 

Information as to equity compensation plans required by Item 12 is included on page 13 of the Proxy Statement for the annual meeting of shareholders to be held May 5, 2003, and is incorporated herein by reference. 

ITEM 13.  --  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  

Information as to certain relationships and related transactions required by Item 13 is included on pages 5 and 6 of the Registrant's Proxy Statement for the annual meeting of shareholders to be held May 5, 2003, and is incorporated herein by reference. 

ITEM 14.  --  CONTROLS AND PROCEDURES  

Within 90 days prior to the date of this report, the Registrant carried out an evaluation, under the supervision and with the participation of the Registrant's Chief Executive Officer and Chief Financial Officer, of the effectiveness and operation of the Registrant's disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 ("Exchange Act").  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Registrant's disclosure controls and procedures are effective to insure that information required to be disclosed in the reports that the Registrant files or submits under the Exchange Act is recorded, processed, summarized, and reported as required and within the time periods specified in the Securities and Exchange Commission's rules and forms.  There have been no significant changes in the Registrant's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation discussed in this Item 14. 

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