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ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
                 FINANCIAL CONDITION AND RESULTS OF OPERATION 

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition.  The discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. 

The Company is a manufacturer of high-quality stainless steel tanks and vessels and process systems and equipment.  The Company's products are used on dairy farms and in a wide variety of industrial applications, including food, dairy, and beverage processing; pharmaceutical, biotechnological, and chemical processing; water distillation; heat transfer; HVAC; commercial refrigeration; heat recovery; process cooling; and thermal-energy storage.  The Company has two manufacturing facilities located in Springfield, Missouri, and Osceola, Iowa, which occupy 730,000 square feet and 215,000 square feet, respectively. 

The Company has four reportable segments:  Industrial Equipment, Dairy Farm Equipment, Field Fabrication, and Transportation.  The Industrial Equipment segment produces custom designed and built processing equipment, biopharmaceutical equipment, heat transfer equipment, thermal products, and commercial refrigeration products.  The Dairy Farm Equipment segment produces milk-cooling and storage equipment and accessories for use by dairy farmers.  The Field Fabrication segment provides very large, field-fabricated tanks and vessels and systems that cannot be built and shipped from the factory.  The Transportation segment is a trucking operation that provides delivery of products to customers and the backhaul of materials and components.  The Company's reportable segments are managed separately because they offer different products and serve different markets. 

The largest segment is Industrial Equipment, and it is located in the Springfield, Missouri, facility.  This segment's product lines include processing equipment, biopharm systems, heat transfer products, commercial refrigeration products, and thermal storage equipment.  The profitability of the Industrial Equipment segment historically has been lower than the Dairy Farm Equipment segment (the other main segment), as the Industrial Equipment segment is more resource-intensive and the markets served are extremely competitive.  Projects are generally engineered to order and 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, error, and mistakes is much greater than with standard products.  Ordinarily, Industrial Equipment projects are bid among several supp liers, which tends to make pricing very competitive. 

The Company's Springfield, Missouri, facility for the Industrial Equipment segment is particularly well suited to large projects.  The Company has the engineering capability and the manufacturing facilities to efficiently execute large projects.  However, due to a long sales cycle, these large projects tend to be acquired on a periodic rather than on a consistent basis.  This factor leads to significant swings in the level of sales and profitability between years for the Industrial Equipment segment. 

During the past few years, the biopharm systems product line sales personnel have been successful in securing large bioreactor and modular projects that involve the fabrication and factory testing of complete process systems comprised of vessels, interconnected piping, instrumentation, and controls.  These projects are well suited to the Company's engineering and fabrication capabilities and its facilities. 

Sales organizations for each product line within the Industrial Equipment segment sell directly to end users or to large engineering firms who are acting on behalf of their clients. 

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Competition is particularly intense for the processing equipment product line as there are numerous competitors, all of which are smaller than the Company.  The Company's strategy is to provide comprehensive capabilities to serve its customers in the markets in which the Company competes.  The capabilities include extensive engineering and design, shop fabrication of equipment and systems, on-site fabrication of equipment and systems, field installation of piping and other equipment, start-up, and commissioning.  In addition, there is the capability within the Field Fabrication segment to act as a general contractor to erect buildings and related facilities to house equipment and tanks that are shop- or field-fabricated; and the Company's Transportation segment can handle transportation of the shop-fabricated tanks, equipment, and components.  The Company has the capability of working with the customer from conceptual design through the startup phase of a proj ect.  This combination of available services provides a one-stop solution for the customer and offers a competitive advantage for certain projects. 

For the Industrial Equipment segment, 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 Company's plant, at the time of delivery to the customer, or when projects 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.  The units-of-delivery method recognizes as revenue the contract price of the units completed and shipped or delivered to the customer (as determined by the contract).  Revenues from long-term contracts that involve only a few deliverables are recognized on the percentage-of-completion method of accounting.  For plant-fabricated projects, percentage of completion is determined by comparing total manufacturing hours inc urred to date for each project to estimated total manufacturing hours required for each project. 

A portion of the Springfield plant employees are covered by a union contract with Sheet Metal Workers International -- Local 208.  A new three-year contract was signed effective April 17, 2004. 

Dairy Farm Equipment is the second largest segment in terms of sales and its products are manufactured at the Company's Osceola, Iowa, facility.  Dairy Farm Equipment is sold domestically and internationally to about 270 independent dealers for resale to dairy farmers.  A significant portion of the dealers are located in the continental United States.  Dairy Farm Equipment segment sales are most directly affected by milk prices paid to farmers, the cost of feed, and the level of milk production.  Revenue for the Dairy Farm Equipment segment is recognized at the time title to the equipment is transferred, which generally occurs upon shipment from the plant. 

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

As the size of the domestic market for Dairy Farm Equipment continues to decline, competition will increase among the equipment suppliers.  The three major competitors of the Company in the Dairy Farm Equipment market are full-line suppliers, whereas the Company's offering is limited to milk-cooling and storage equipment.  The Company 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 Company's products.  This is more often the case on projects involving a complete new dairy where the competitors are able to offer a total package and greater pricing flexibility.  However, in spite of the pressure of reduced sales, the Company has been able to maintain its market share and is well positioned for the trend toward larger dairy operations. 

The Field Fabrication segment was established in 1998, when Mueller Field Operations, Inc., was incorporated as a wholly owned subsidiary; and it expanded the Company's product offering by providing the capability to completely fabricate and assemble large stainless steel tanks in the field.  This segment also offers a turnkey solution to the customer that includes not only building erection and equipment installation, but also on-site fabrication and installation of piping, other equipment startup, and commissioning, and the capability to modify and/or repair existing equipment operating at a customer's facility.  The Field Fabrication segment purchases components from the Industrial Equipment segment, and those sales are eliminated in the preparation of the Consolidated Condensed Financial Statements.  Revenue for the Field Fabrication segment is recognized on the percentage-of-completion method of accounting.  Generally, projects are competitively bid among a fe w competitors. 

The Transportation segment includes the activities of Mueller Transportation, Inc., a wholly owned trucking subsidiary.  This segment provides outbound transportation of products for customers of the Industrial Equipment and Dairy Farm Equipment segments and provides transportation services to the Field Fabrication segment for components that are shipped to the field.  Revenues are also obtained by performing contract carriage for third parties.  Services provided by the segment are those of a specialized carrier, as a significant number of loads are oversized in dimension and weight.  This segment operates with a fleet of 15 tractors and 40 specialized trailers to transport oversized loads.  The Field Fabrication segment utilizes transportation services from the Transportation segment, and those sales are eliminated in preparation of the Consolidated Condensed Financial Statements. 

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The Industrial Equipment and Field Fabrication segments provide capital equipment to industrial customers; and consequently, the level of sales for each segment is directly affected by the growth in the general economy, capital expenditure levels, capacity utilization in the industries served, and interest rates. 

Management evaluates performance of each of the segments based on profit and loss from operations before income taxes.  Accounting policies for the segments are the same as those described in the Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. 

The Company incurred losses of $5,324,000 and $9,420,000 for the three months and nine months ended September 30, 2004, respectively.  The recorded losses were the result of weak sales volume, lower profit margins, and a valuation allowance established for the Company's net deferred tax assets during the third quarter of 2004. 

Sales for 2004 were adversely affected, as the year began with a backlog that was 29% lower than the beginning backlog for 2003.  Additionally, market conditions (particularly for the Industrial Equipment segment) remain very sluggish, as capital expenditures continue to be relatively flat for the markets served.  The market conditions have contributed to a low rate of capacity utilization for the fabricated metal products industry, as capacity utilization remains below historical levels.  The low capacity utilization has contributed to aggressive pricing for the projects that are available, which has put added pressure on profit margins.  Additionally, stainless steel prices have continued to increase during 2004, as base prices and surcharges have maintained an upward trend.  With the significantly higher stainless steel prices, coupled with extremely competitive conditions, there is a lack of pricing power; and profit margins have suffered.  The higher stai nless steel prices have also required larger increases to the LIFO reserve during 2004 as compared to 2003, further reducing profit margins.  The Company has incurred a consolidated cumulative loss before tax of $2,646,000 during the three-year period ended September 30, 2004; and in accordance with Statement of Financial Accounting Standards (SFAS) No. 109 -- "Accounting for Income Taxes," a valuation allowance is required for net deferred tax assets in such circumstances unless the ultimate realization of these net deferred tax assets is more likely than not.  The Company recorded a $5,047,000 non-cash charge during the third quarter of 2004 to establish a valuation allowance for all of the Company's net deferred tax assets; and the charge has been included in the tax provisions for the three months and nine months ended September 30, 2004, on the accompanying Consolidated Condensed Statements of Income. 

Sales -- Consolidated results for the three months and nine months ended September 30, 2004 and 2003, were: 

Although sales were higher by $4,228,000 when comparing the third quarter of 2004 to the third quarter of 2003, the results were adversely affected by lower profit margins and the valuation allowance. 

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The gross profit rate for the third quarter of 2004 was 11.2% compared to a gross profit rate of 23.6% for the third quarter of 2003.  There were several factors that contributed to the decline in the gross profit rate.  A significant reason for this reduction in the gross profit rate was the gross margin rate (a measure of the variable profit margin) was lower for the third quarter of 2004 compared to the third quarter of 2003.  This was primarily due to a change in the mix of sales for the third quarter of 2004 compared to the third quarter of 2003.  Biopharm systems sales were 20% lower during the third quarter of 2004 versus the third quarter of 2003 due primarily to a decline in large modular project sales.  During the third quarter of 2003, there were four large modular projects in fabrication in the Springfield, Missouri, facility.  During the third quarter of 2004, there was virtually no activity related to modular projects.  The lack of larg e factory-fabricated modular projects during the third quarter of 2004 was a significant factor that adversely affected the overall gross margin rate for the Industrial Equipment segment.  The gross margin was also adversely affected during 2004 due to cost overruns on some very complicated and complex projects.  Additionally, for the past few years, the market has remained extremely competitive for Industrial Equipment segment products (particularly processing equipment), which has contributed to a lack of pricing power and lower gross margins for projects that have been secured.  Also, as a result of the increasing stainless steel prices, the gross profit rate for the third quarter of 2004 was adversely affected by an increase in the LIFO reserve.  The effect of the increase to the LIFO reserve was to reduce the gross profit by $700,000 when comparing the third quarter of 2004 to the third quarter of 2003. 

Selling, general, and administrative expenses were less during the third quarter of 2004 versus the third quarter of 2003; and this reflects, to some extent, the effect of cost reduction measures taken during April 2004.  Expenses were less during the third quarter of 2004 versus the third quarter of 2003 for personnel costs, warranty, bad debts, travel, and legal fees. 

Other income (expense) was $76,000 higher for the third quarter of 2004 versus the third quarter of 2003 due to lower interest expense and higher miscellaneous income items. 

The tax provision for the third quarter of 2004 includes the $5,047,000 non-cash charge to establish a valuation allowance for all of the Company's net deferred tax assets that was discussed above.  The effective tax rate for the three months ended September 30, 2003, was 31.5% and varied from the statutory rate (34%) due to tax credits. 

The Company's share of the 50%-owned joint venture results for the third quarter of 2004 was a loss of $21,000 compared to income of $15,000 for the third quarter of 2003.  The reduced performance was the result of lower sales and lower gross profit margins for 2004 compared to 2003. 

The variance in year-to-date results for September 30, 2004, versus September 30, 2003, was primarily due to a $9,611,000 (11%) decline in sales, lower profit margins, and the effect of the charge recorded to establish a valuation allowance for net deferred tax assets.  The reduction in sales was solely attributable to the Industrial Equipment segment, as sales were lower by $10,078,000.  The consolidated backlog was 29% lower at the beginning of 2004 compared to the beginning of 2003, and this was a major contributor to the reduction in sales.  The most significant change in backlog was in the Industrial Equipment segment, where the backlog was $11,313,000 less at the beginning of 2004 compared to the beginning of 2003.  Additionally, within the Industrial Equipment segment, the backlog for biopharm systems was $13,663,000 less at the beginning of 2004 compared to the beginning of 2003. 

The gross profit rate for the first nine months of 2004 was 9.6% compared to a gross profit rate of 22.4% for the first nine months of 2003.  A significant reason for this reduction in the gross profit rate was the reduction in sales volume when comparing comparable periods for 2004 to 2003.  The gross margin rate (which is a measure of the variable profit margin) was also lower for the first nine months of 2004 compared to the first nine months of 2003.  This was primarily the result of the change in the mix of sales for the first nine months of 2004 compared to the first nine months of 2003.  Biopharm systems sales were 38% lower during the first nine months of 2004 compared to the first nine months of 2003, with virtually all of the variance due to a decline in large modular project sales.  During the first nine months of 2003, there were four large modular projects in fabrication in the Springfield, Missouri, facility.  During the first nine months of 2004, we were primarily completing the field installation of two large modular projects, which represented substantially less sales volume.  The lack of large factory-fabricated modular projects was a significant factor that adversely affected the overall gross margin rate for the Industrial Equipment segment for 2004.  The gross margin for 2004 was also adversely affected by cost overruns on some sophisticated and complex projects mentioned above.  The markets served by the Industrial Equipment segment have remained extremely competitive over the past few years, which has contributed to a lack of pricing power and lower gross margins, particularly for the processing equipment projects that have been secured.  The gross profit rate for the first nine months of 2004 was also adversely affected by an increase to the LIFO reserve due to higher stainless steel prices.  The effect of the increase in the LIFO reserve was to reduce gross profit by $1,378,000 when comparing the fi rst nine months of 2004 to the first nine months of 2003. 

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Selling, general, and administrative expenses were $857,000 lower for the first nine months of 2004 compared to the first nine months of 2003.  The reduction in expenses reflects the cost-reduction measures that were implemented in April 2004.  Expenses were lower for the first nine months of 2004 versus the first nine months of 2003 for personnel costs, warranty, bad debts, and legal fees.

The tax provision for the first nine months of 2004 included the $5,047,000 non-cash charge to establish a valuation allowance for all of the Company's net deferred tax assets mentioned above.  The effective tax rate for the nine months ended September 30, 2003, was 35.7% and varied from the statutory rate (34%) primarily due to the effect of state income taxes and nondeductible meals and entertainment expenses. 

The Company's share of the 50%-owned joint venture results for the first nine months of 2004 was a loss of $52,000 compared to an income of $13,000 for the first nine months of 2003.  The results were adversely affected by lower sales and lower gross profit margins for 2004 versus 2003. 

Outlook -- The price of stainless steel has continued to increase since the beginning of 2004 as a result of increases in the base price and surcharges.  Surcharges, which are assessed at the time of shipment from the vendor, have been implemented due to the increases in and the volatility of the market prices of nickel, chromium, and molybdenum (materials used in the production of stainless steel).  Additionally, the price of carbon steel has risen dramatically, and this could also have an adverse effect on the cost of manufacturing.  The effect of higher prices for stainless steel and carbon steel may delay the placement of orders by customers or reduce profitability for orders obtained if the steel price increases cannot be passed along in the form of higher prices to customers.  The outlook is for further increases in the surcharges during the balance of the year.  The higher stainless steel and carbon steel prices anticipated for the balance of t he year may require additional increases to the LIFO reserve, which would have the effect of reducing profitability. 

The Company's consolidated order entry for the first nine months of 2004 was $1,588,000 higher than the consolidated order entry for the comparable period of 2003.  The Field Fabrication segment order entry was $15,700,000 higher due to the acquisition of a few significant projects.  Dairy Farm Equipment order entry improved by $2,095,000 for the first nine months of 2004 compared to the first nine months of 2003, as the average price for milk paid to dairy farmers was 43% higher for the first nine months of 2004 compared to the first nine months of 2003.  However, order entry for the Industrial Equipment segment for the first nine months of 2004 was $16,207,000 less than order entry for the first nine months of 2003.  Market conditions, particularly for the Industrial Equipment segment, remain very sluggish; and there have not been strong indications of an increase in business capital expenditures in the markets we serve.  These factors are consistent with the low rate of capacity utilization for the fabricated metal products industry, which was 69.8% for the second quarter of 2004 or 7.1% less than the average rate for the 32-year period ended December 31, 2003, based on Federal Reserve Board data.  With low capacity utilization continuing among fabricators, pricing will be extremely competitive for projects that are available within the Industrial Equipment segment. 

As a result of the performance in the first quarter of 2004 when a loss of $2,371,000 was incurred, management undertook measures in April 2004 to reduce certain operating expenses to restructure the operation in view of the anticipated sales volume.  In spite of the measures taken, a loss is expected for the year.  Through the first nine months of 2004, the loss before income taxes has been $7,038,000.  Additionally, during the third quarter, a $5,047,000 non-cash charge was recorded to establish a valuation allowance for all of the Company's net deferred tax assets. 

In general, the Company's business is not subject to seasonal variation in the demand for its products.  However, because orders for certain products can be very large in terms of sales dollars, a small number of large orders can have a significant impact on the Company's sales in any one particular quarter.  As a result, a relatively small reduction or delay in the number of orders shipped or delivered can have a material effect on the Company's sales rate in a particular quarter.  Gross margins may vary from quarter to quarter due to variations in the profitability of large orders, as well as the mix of the various products shipped or fabricated by the Company.  Accordingly, the results of operations for the Company for any one particular quarter are not necessarily indicative of the results that may be expected for any subsequent quarter of the calendar year. 

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Backlog -- Backlog represents the contract value of projects acquired by the Company that have not been recognized as sales revenue because the projects are in various stages of engineering or fabrication.  The level of backlog is an important metric because it is a measure of sales revenues yet to be recognized by the Company.  Lead times on projects can vary from a few weeks to over a year, depending on the size and complexity of the project.  Backlog is reviewed at each quarter end to insure that projects included in the reported backlog are valid and have not been cancelled or put on indefinite hold by the customer.  During the third quarter of 2004, a modular project placed on indefinite hold during 2003 was reinstated by the customer; and this increased the September 30, 2004, backlog by $6,351,000.

Consolidated sales backlog totaled $52,541,000 at September 30, 2004, compared to $46,461,000 at September 30, 2003.  The backlog for the Industrial Equipment segment (exclusive of shop work for the Field Fabrication segment) was $36,250,000 and $44,204,000 at September 30, 2004 and 2003, respectively.  The backlog for the Dairy Farm Equipment segment was $2,367,000 and $1,654,000 at September 30, 2004 and 2003, respectively.  The Field Fabrication segment backlog was $13,924,000 at September 30, 2004, versus $603,000 at September 30, 2003.  The reduction in the Industrial Equipment segment backlog between September 30, 2004 and 2003, was almost exclusively related to the biopharm product line, which consists of pure-water/pure-steam generating equipment, pharmaceutical tanks and vessels, modular systems, and bioreactors for the pharmaceutical and biotechnology industries.  All of the September 30, 2004, consolidated backlog is expected to be recognized a s sales during the next twelve months. 

The level of backlog at any particular point in time is not necessarily indicative of the future operating performance of the Company in the following quarter due to the extensive engineering time and the long manufacturing or fabrication cycles that are required for certain projects.  Orders in backlog can be subject to delays during the fabrication process due to the complex nature of many projects.  Also, orders in backlog are subject to delays in completion and/or shipment dates requested by customers.  The Company may be unable to recognize sales for orders in backlog when initially scheduled due to delays and contingencies, and this could have a significant impact on the level of sales and results for a particular quarter. 

Liquidity -- Capital Resources -- Cash provided by operations was $4,590,000 for the first nine months of 2003 compared to cash required by operations of $1,689,000 for the first nine months of 2004.  The primary reason for the reduced cash flow for the first nine months of 2004 was the net loss of $9,420,000.  The cash flow for the first nine months of 2003 was favorably affected by net income of $2,719,000 and an increase in Advance Billings. 

The Company's primary ongoing cash requirements will be for operating needs, capital expenditures, and dividends.  The Company's primary source of liquidity is internally generated cash flow.  The Company also maintains a $5,000,000 bank borrowing facility to cover short-term working capital needs when the level of production activity is particularly high.  The Company expects that the ongoing requirements for operating expenses, capital expenditures, and dividends will be funded from these sources.  A policy of requiring down payments and/or progress payments on large projects also provides a favorable effect on cash flow.  These payments are included in Advance Billings or in Billings in Excess of Costs and Estimated Earnings on the Consolidated Condensed Balance Sheets and will be included in sales as the projects are completed and revenue is recognized.  The Company also has an Income Tax Receivable of $1,686,000, which includes the tax bene fit of a portion of the operating loss for 2004 that can be carried back to prior years and the tax refunds for 2003.  A significant economic downturn or a reduction in the number of large contracts could lead to a contraction of the business, which would have an adverse effect on liquidity.  In view of the performance for the first quarter of 2004 and the lower backlog level at March 31, 2004, the Company implemented certain cost reduction measures, including laying off approximately 120 employees and reducing certain operating expenses in April of 2004. 

The level of capital expenditures planned for 2004 is projected to be $1,500,000, which is lower than in prior years.  Due to year-to-date results, expenditures will be limited to 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 to increase the level of expenditures. 

The Company has a $5,000,000 bank borrowing facility that expires May 31, 2005.  As of September 30, 2004, borrowings under the facility were $2,291,000.  Management believes the bank borrowing facility can be increased, if necessary, to provide additional liquidity.  The Company also has a $5,000,000 standby letter-of-credit facility; and as of September 30, 2004, there were standby letters of credit totaling $4,474,960 issued under the facility and all will expire within one year. 

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Market risks relating to the Company's operations result primarily from changes in stainless steel prices and changes in foreign exchange rates.  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 Company periodically enters into foreign-exchange forward or spot contracts to hedge the exposure to foreign-currency-denominated purchase transactions.  Foreign-currency-denominated purchases were approximately $305,000 and $316,000 for the nine months ended September 30, 2004 and 2003, respectively.  There were no foreign exchange forward contracts outstanding as of September 30, 2004 or 2003.  There was no foreign currency held as of September 30, 2004, and there was approximately $94,000 of foreign currency held at September 30, 2003. 

Contractual Cash Obligations and Other Commercial Commitments -- The following table contains disclosures concerning certain contractual cash obligations and other commercial commitments outstanding as of September 30, 2004:

The preparation of financial statements, in conformity with generally accepted accounting principles in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 

Critical accounting policies are those that are most important to the presentation of the Company's financial condition and results of operations and require management's most difficult subjective and complex judgments and involved uncertainties.  The Company's most critical accounting policies pertain to revenue recognition, pensions, insurance reserves, warranties, inventories, depreciation, and reserves for doubtful accounts.  Each of these critical accounting policies and the application of the critical accounting policies and estimates were discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2003.  There have been no significant changes in the application of critical accounting policies or estimates during the third quarter of 2004.  Management must use informed judgments and best estimates to properly apply these critical accounting policies.  Because of the uncertainty of these estimates, actual results could differ from the estimates used in applying the critical accounting policies.  Management is not aware of any reasonably likely events or circumstances which results in different amounts being reported that would materially affect its financial condition or results of operations. 

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A non-cash charge of $5,047,000 was recorded during the third quarter of 2004 to establish a valuation allowance for all of the Company's net deferred tax assets as of September 30, 2004.  The charge has been included in the tax provisions in the accompanying Consolidated Condensed Statements of Income for the three-month and nine-month periods ended September 30, 2004.  The Company incurred a consolidated cumulative loss before tax of $2,646,000 for the three-year period ended September 30, 2004.  The consolidated cumulative loss before tax is attributable principally to LIFO provisions recorded during the three-year period, which reduced taxable income by $3,701,000.  The significant increase in stainless steel prices during 2003 and 2004 was the primary reason for the LIFO provisions.  The net deferred tax assets, including the tax benefit from net operating losses, can be carried forward for twenty years.  We have reason to believe that the Company wi ll generate taxable income over this period sufficient to utilize the net deferred tax assets.  However, the cumulative three-year loss is sufficient objective evidence to preclude the assertion that the ultimate realization of the net deferred tax assets is more likely than not, and a full valuation allowance is required under the provisions of Statement of Financial Accounting Standards (SFAS) No. 109 -- "Accounting for Income Taxes." 

This Management's Discussion and Analysis of Operating Results and Financial Condition contains 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.  Although the economy in general seems to be improving, the industrial equipment and field-fabrication markets currently remain very competitive and subject to uncertainty.  A downturn in the Company's business segments could adversely affect the Company'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 Company's customers in such markets; the cyclical nature of some of the Company's markets; milk prices, feed costs, weather conditions, dairy farm consoli dation, and other factors affecting the profitability of dairy farmers; the price of stainless steel; the highly competitive nature of the markets for the Company'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 Company's major customers; the Company's execution of internal performance plans; difficulties or delays in manufacturing; cost-reduction and productivity efforts; competing technologies and difficulties in 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 Company's ability to recover any price increases for materials and product pricing; the Company's ability to attract and retain key technical and other pe rsonnel; labor relations; the failure of customers to make timely payment; any inadequacy of the Company'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 operations, 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 Company cautions the reader that these lists of cautionary statements and risk factors may not be exhaustive.  The Company 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. 

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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 Company.  The Audit Committee approved no nonaudit services during the three months ended September 30, 2004. 

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

Certain information concerning market risk is set forth in Item 2 on pages 16 and 17 of this Form 10-Q and is incorporated herein by reference.  Other disclosure requirements are not submitted because they are not applicable or they are not material. 

ITEM 4.   CONTROLS AND PROCEDURES 

The Company carried out an evaluation, under the supervision and with the participation of the Company's Chief Executive and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of September 30, 2004 (the evaluation date).  Based on such evaluation, the Chief Executive and Chief Financial Officer have concluded that, as of the evaluation date, the Company's disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company required to be included in the Company's reports filed or submitted under the Exchange Act.  There have been no significant changes in the Company's internal control over financial reporting during the Company's quarter ended September 30, 2004, which has materially affected or is reasonably likely to materially affect such internal control over financial reporting. 

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PART II    --    OTHER INFORMATION

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