(Mark One)

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] 

Indicate by check whether the Registrant is an accelerated filer (as defined in Exchange Rule 12b-2).  Yes  [   ]      No  [X] 

The aggregate market value of the voting stock of the Registrant held by nonaffiliates on June 30, 2003, was $41,853,753.  As of March 17, 2004, there were 1,193,771 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 3, 2004, are incorporated by reference into Part III. 

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ITEM 1.  --  DESCRIPTION OF BUSINESS

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ITEM 2.  --  PROPERTIES 

The Registrant's primary domestic manufacturing facilities are located in Springfield, Missouri, and occupy approximately 730,000 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 215,000 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. 

As previously reported, a lawsuit was filed in May 2002 against the Registrant alleging breach of contract / breach of express warranty in connection with the sale of a heat exchanger in October 2000.  The plaintiff alleged in the suit that it had suffered direct, consequential, and incidental damages in excess of $3,100,000.  On March 5, 2004, the parties reached an out-of-court settlement of the lawsuit.  Under the settlement, the plaintiff will receive $600,000.  The Registrant will be responsible for $300,000 of the settlement, and the balance will be covered by the Registrant's product liability carrier.  The Registrant's liability of $300,000 has been reflected in the results for the year 2003.  The effect on the 2003 results was to reduce net income by $189,000, net of tax, or $0.16 per share on a diluted basis. 

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 2003. 

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 3, 2004, 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, 2003, there were approximately 230 shareholders of record and approximately 620 beneficial shareholders. 

Market high and low prices and quarterly cash dividends in 2003 and 2002 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 

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Registrant'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. 

Paul Mueller Company ("Registrant") is a manufacturer of high-quality stainless steel tanks and vessels and process systems and equipment.  The Registrant'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 Registrant has two manufacturing facilities located in Springfield, Missouri, and Osceola, Iowa, with about 730,000 square feet and 215,000 square feet, respectively. 

The Registrant 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 Registrant's reportable segments are managed separately because they offer different products and serve different markets. 

The largest segment is the Industrial Equipment segment, and it is located at 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 suppliers, which tends to make pricing very competitive. 

The Registrant's facilities for the Industrial Equipment segment are particularly well suited to large projects.  The Registrant 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 two years, the biopharm systems product line sales personnel have been successful in securing large modular projects that involve the fabrication and factory testing of complete process modules comprised of vessels, interconnected piping, instrumentation, and controls.  These projects are well suited to the Registrant's engineering and fabrication capabilities and its facilities; and they have contributed to the improved performance of the segment. 

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 Registrant.  The Registrant's strategy is to provide comprehensive capabilities to serve its customers in the markets in which the Registrant 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 of acting as a general contractor to erect buildings and related facilities to house equipment and tanks that are shop- or field-fabricated; and the Registrant's Transportation segment can handle transportation of the shop-fabricated tanks, equipment, and components.  The Registrant has the capability of working with the customer from conceptual design through the startup phase o f a project.  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 Registrant'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 incur red to date for each project to estimated total manufacturing hours for each project. 

A portion of the Springfield plant employees are covered by a union contract with Sheet Metal Workers International -- Local 208.  The current contract will expire on April 7, 2004; and management expects to achieve a new contract.

Dairy Farm Equipment is the second largest segment in terms of sales and is located at the Registrant'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 high-cost-production dairies are being eliminated.  Advances in dairy farming techniques have created an excess of milk production in the United States, with low milk prices and relatively flat milk consumption; and it continues to drive many smaller dairy farms out of business.  This process leaves fewer, though 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 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 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 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 Registrant has been able to maintain a significant market share and is well positioned for the trend toward larger dairy operations. 

Field Fabrication is the third segment.  This segment was established in 1998, when Mueller Field Operations, Inc., was incorporated as a wholly owned subsidiary; and it expanded the Registrant'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.  Additionally, this segment has 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 Financial Statements.  Revenue for the Field Fabrication segment is recognized on the percentage-of-completion method of accounting.  Ge nerally, projects are competitively bid among a few competitors. 

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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 Financial Statements. 

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, 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. 

SALES  --  Consolidated results for each of the three years ended December 31, 2003, 2002, and 2001, were as follows: 

2003 Compared to 2002  --  Net income for 2003 exceeded 2002 net income as a result of higher sales coupled with an increase in profit for the Industrial Equipment segment.  The improvement in sales for the Registrant was a direct result of the larger backlog at the beginning of 2003 of $54,023,000, which was $25,573,000 higher than the backlog for 2002.  However, order entry during 2003 was 24% less than during 2002, with all segments experiencing a decrease in order entry from the prior year.  The decrease in order entry had a dramatic impact on results for the year, as the workload dropped off in the last half of 2003.  The workload problem was further exacerbated as a customer placed a modular system project on indefinite hold in mid-year, which caused an additional reduction to the workload.  This had an adverse impact on sales for the second half of the year, as revenue of approximately $4,400,000 was scheduled to be recognized under the  percentage-of-completion method of accounting during the last half of the year.  A net loss of $700,000 was incurred during the fourth quarter after having earned $2,719,000 of net income through the first nine months of the year. The under-absorption of manufacturing burden due to the low workload level and the lawsuit settlement of $189,000, after tax, both adversely affected results for the fourth quarter.

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Sales by segment for the two years ended December 31, 2003, were as follows: 

The improvement in sales for the Industrial Equipment segment was solely due to biopharm systems sales, as the other product lines within the segment experienced flat or reduced sales.  The increase in sales related to a 259% increase in the backlog for the biopharm systems product line at the beginning of 2003 compared to the beginning of 2002.  Sales of biopharm systems were $20,000,000 higher during the past year compared to 2002.  Within the biopharm systems product line, sales of modular systems were the most significant component of sales and represented 63% of biopharm systems sales for 2003.  Sales for modular systems were recognized under the percentage-of-completion method of accounting. 

In contrast, sales for the processing equipment product line (traditionally one of our most significant product lines within the Industrial Equipment segment) were down 19% during 2003 compared to 2002.  This product line, in particular, has been adversely affected by the low level of business capital expenditures and low capacity utilization rates that have occurred over the past three years.  Due to the reduced level of spending, conditions were also very competitive for projects that were available during 2003, which adversely affected pricing, margins, and profitability of this product line. 

Sales in the Dairy Farm Equipment segment for 2003 were at their lowest level since 1987.  The decline was almost entirely attributable to the domestic market, as export sales were relatively flat between 2003 and 2002.  The decrease in domestic Dairy Farm Equipment sales during 2003 was directly related to the milk price received by farmers, as the average milk price from July 2002 through June 2003 was at its lowest level in 25 years.  Although the milk price increased during the second half of 2003 due to increased culled cow prices, strong utilization of cheese, and the implementation of a herd reduction program by cooperatives, dairy farmers were in no position to increase their milk-cooling and storage capacity after having experienced a year of extremely low milk prices.  As a result, the Dairy Farm Equipment segment experienced a 50% decline in the number of milk coolers sold in the domestic market in 2003 compared to 2002. 

Although the backlog for the Field Fabrication segment was $5,503,000 at December 31, 2002, order entry during 2003 declined by 79% from the preceding year which contributed to the $6,639,000 reduction in sales.  Like the Industrial Equipment segment, the Field Fabrication segment was affected by the weakness in capital expenditures during 2003.  The economy remained sluggish during 2003, and firms adopted a conservative position with respect to capital investments.  Customers postponed capital expenditures and limited their expenditures to essential plant maintenance and repair items. 

Sales for the Transportation segment were $557,000 higher during 2003 compared to 2002.  The increase was consistent with the increase in sales for the Registrant.  Revenues were also higher due to several large, oversize loads that were transported during the year. 

The gross profit rate for 2003 was 20.2% compared to a gross profit rate of 19.9% for 2002.  The improvement in the gross profit percentage was due to an increase in the gross margin rate (a measure of the variable profit margin), coupled with an increase in sales volume.  The gross margin improved primarily as a result of the improved gross margin for the Industrial Equipment segment.  Within the Industrial Equipment segment, gross margins were generally higher for 2003 versus 2002; and the biopharm systems product area had the most significant impact, as sales were 65% higher and the overall gross margin rate improved by approximately 1.3%.  However, the LIFO provision reduced gross profit by $1,386,000 during 2003, compared to only a $37,000 reduction during 2002.  The increase in the LIFO provision was the result of rapidly escalating surcharges for stainless steel during 2003, coupled with an increase in the inventory level.  Manufacturing burden for 2003 was 8% higher than during 2002.  The increase was due to higher costs for personnel (including wages and significantly higher costs for healthcare) and variable manufacturing burden costs related to the higher sales volume for the year.  Additionally, the low production volume during the last quarter of 2003 adversely affected the manufacturing burden expense for the year. 

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The price of stainless steel is expected to continue to increase during 2004.  The increase is driven by the surcharges assessed at the time of shipment that are the result of the volatility in the market price of nickel, chrome, and molybdenum, which are key materials used in the production of stainless steel.  The surcharges have continued to increase, as April 2004 surcharges for our most commonly used grades of stainless steel will be $0.25 and $0.33 per pound higher than the December 2003 surcharges.  In addition, the price of carbon steel has risen dramatically and could also have an adverse effect on costs.  Inflation is a factor that affects the cost of operations, and the Registrant seeks to minimize the effect on its 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. 

As previously reported, a lawsuit was filed in May 2002 against the Registrant alleging breach of contract / breach of express warranty in connection with the sale of a heat exchanger in October 2000.  The plaintiff alleged in the suit that it had suffered direct, consequential, and incidental damages in excess of $3,100,000.  On March 5, 2004, the parties reached an out-of-court settlement of the lawsuit.  Under the settlement, the plaintiff will receive $600,000.  The Registrant will be responsible for $300,000 of the settlement, and the balance will be covered by the Registrant's product liability carrier.  The Registrant's liability of $300,000 has been reflected in the results of the Industrial Equipment segment for 2003.  The effect on the 2003 results for the Industrial Equipment segment was to reduce net income before tax by $300,000.

Selling, general and administrative expenses were higher during 2003 compared to 2002 primarily as a result of higher personnel costs, including healthcare expense, depreciation expense, and insurance costs. 

During 2003, the Registrant utilized its bank borrowing facility, so interest expense was significantly higher and interest income was lower during 2003 compared to 2002.  Other, net was higher during 2003 versus 2002 due to higher royalties and miscellaneous income. 

The effective tax rates for 2003 and 2002 were 24.8% and 33.9%, respectively.  The rates for 2003 and 2002 were below the statutory rate (34%) due primarily to tax credits. 

The Registrant's share of the income from the 50%-owned Mexican joint venture for 2003 increased by $4,020 over 2002.  The improved performance for 2003 was directly related to an increase in sales by the joint venture company. 

The Registrant's net income for 2003 was $2,019,000, or $1.71 per share on a diluted basis, compared to $1,889,000, or $1.61 per share on a diluted basis, in 2002. 

2002 Compared to 2001  --  The 21% increase in consolidated sales achieved during 2002 compared to the prior year was the most significant factor contributing to the variance in the results between 2002 and 2001. 

Sales by segment for the two years ended December 31, 2002, were as follows: 

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The most significant increase in sales occurred in the Industrial Equipment segment, as sales were $78,239,000 for 2002 compared to $64,519,000 for 2001.  Virtually all of the increase in sales for the segment related to the biopharm systems product line, as sales were $23,400,000 higher during 2002 compared to 2001 for this product line.  Sales were favorably affected by 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 that was completed and shipped during the fourth quarter of 2002, and sales for two large modular projects secured during 2002 that were recognized under the percentage-of-completion method of accounting.  Sales of virtually all products within the biopharm systems product line were higher during 2002 compared to 2001.  In contrast, sa les for the processing equipment and heat transfer product lines within the Industrial Equipment segment were down 20% and 12%, respectively.  These product lines were particularly adversely affected by the steep declining trend in industrial capital expenditures and low capacity utilization that has occurred over the past few years.  Additionally, due to reduced capital spending, conditions were extremely competitive for the projects that were available during 2002, which adversely affected prices, margins, and profitability for the Industrial Equipment segment. 

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 2001, 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 16% increase 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 2001 and order entry was down 4% from the prior year, sales of domestic Dairy Farm Equipment were higher.  A significant contributor to the increase in sales was the beginning 2002 backlog of $2,910,000, which was 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.  Additionally, the 2002 annual milk production increased by 2.7% over the milk production in 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 with an increase in sales were Asia, Europe, and South America. 

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. 

Sales for the Transportation segment increased by $1,122,000 between 2001 and 2002.  The increase related directly to the increase in sales by the Registrant, which led to higher usage of the trucking operation by customers for products they had purchased.  Additionally, a change was made at the beginning of 2002 to have a third-party trucking firm provide management of the trucking operation, which helped to improve sales performance for the segment. 

The consolidated gross profit rate for 2002 was 19.9% compared to a gross profit rate of 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 (a measure of the variable profit margin) for all segments during 2002 compared to 2001 in spite of higher manufacturing burden.  Manufacturing burden was higher for 2002 compared to the prior year, as the variable component of manufacturing burden was higher due to the 21% increase in sales volume.  Additionally, over 100 new production employees were added to the Springfield facility during 2002 to handle the workload necessitated by the 52% increase in order entry during 2002 compared to 2001.  The significant cost of the process to obtain a sufficient number of plant employees and to provide the extensive training and certification necessary to enhance their skills and abilities contributed to higher manufacturi ng burden. 

Selling, general and administrative expense for 2002 was 7% higher compared to 2001.  Expenditures were higher for personnel, insurance, and legal fees; and there were increased provisions for specific potential warranty claims and possible uncollectible accounts. 

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Interest income was $89,000 for 2002 versus $199,000 for 2001.  The decrease in interest income was due to a significantly lower average interest rate on investable funds during 2002.  Other, net was comparable between 2002 and 2001. 

The 2002 and 2001 effective tax rates were 33.9% and 43.1%, respectively, which varied from the statutory rate (34%) due primarily to tax credits. 

The Registrant's share of the 2002 income from the 50%-owned Mexican joint venture 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 operating expenses contributed to the improved performance. 

Net income for 2002 was $1,889,000, or $1.61 per share on a diluted basis, compared to a net loss of $1,360,000, or $1.16 per share on a diluted basis for 2001.  The primary factor contributing to the improvement in performance was a $19,861,000 increase in sales between 2002 and 2001. 

Backlog  --  Backlog represents the contract value of projects acquired by the Registrant that have not been recognized as sales revenue because the projects are in various stages of the engineering and fabrication process.  Backlog is an important metric because it is a measure of sales revenues yet to be recognized by the Registrant.  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 the projects included in reported backlog are still valid and have not been put on indefinite hold by the customer. 

Consolidated sales backlog totaled $38,612,000 at December 31, 2003, versus $54,023,000 and $28,450,000 at the end of 2002 and 2001, respectively.  The backlog for the Industrial Equipment segment (exclusive of shop work for the Field Fabrication segment) was $36,251,000, $47,564,000, and $25,222,000 at the end of 2003, 2002, and 2001, respectively.  The backlog for the Dairy Farm Equipment segment was $1,084,000, $956,000, and $2,910,000 at the end of 2003, 2002, and 2001, respectively.  The Field Fabrication segment backlog was $1,277,000, $5,503,000, and $318,000 at the end of 2003, 2002, and 2001, respectively.  We expect that all of the December 31, 2003, consolidated backlog will be recognized as sales over the next twelve months. 

Backlog at year-end is not necessarily indicative of the Registrant's future level of sales for the subsequent quarter due to extensive engineering time and the long manufacturing or fabrication cycle that is 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 Registrant 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 $12,377,000, $1,045,000, and $8,088,000 for 2003, 2002, and 2001, respectively.  The increase in cash from operating activities for 2003 was primarily attributable to a decrease in accounts receivable ($5,602,000) and an increase in advanced billings ($6,475,000).  The decrease in receivables related to the completion of several large projects during the year and receipt of final payments.  The increase in advanced billings relates to large projects that were in process at year-end, and it includes the down payments and progress payments made by customers for projects still in process.  The increase in inventory ($4,970,000) was a reduction of cash flow and reflects the costs associated with the large projects in process at year-end 2003. 

The 2002 cash flow was adversely affected by an increase in accounts receivable ($6,144,000), an increase in costs in excess of estimated earnings and billings ($2,995,000), and an increase in inventories ($2,765,000).  The increase in these accounts all relates to several large projects that were in process at the end of 2002. 

Although a loss of $1,360,000 was incurred in 2001, the positive cash flow provided by operations was due to depreciation, a decrease in accounts receivable, a decrease in inventory, and an increase in advanced billings.  The loss for 2001 was due to a significant reduction in sales, and this also contributed to the decrease in accounts receivable and inventory.  Advanced billings increased over the prior year, as there were some significant projects in process at December 31, 2001, for which down payments and progress payments had been received. 

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The Registrant's primary ongoing cash requirements will be for operating needs, capital expenditures, and dividends.  The Registrant's primary source of liquidity is internally generated cash flow.  The Registrant also maintains a bank borrowing facility to cover short-term working capital needs when the level of fabrication activity is particularly high.  The Registrant 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.  A significant economic downturn or a reduction in the number of long-term contracts acquired in the biopharm systems product line or in the Field Fabrication segment could lead to a contraction of the business, which would have an adverse effect on liquidity.  If that were to occur, the Registrant would restructure its operations to insu re that cash flow from operations would be sufficient to maintain an appropriate level of liquidity. 

Capital expenditures for 2003, 2002, and 2001 were $2,774,000, $4,754,000, and $4,904,000, respectively.  A substantial portion of capital expenditures during the three years ended December 31, 2003, were made to improve production efficiency and reduce throughput time.  The level of capital expenditures for 2004 is initially planned at approximately $1,500,000 due to the reduced workload level resulting from the lower backlog at December 31, 2003, versus December 31, 2002.  Anticipated expenditures are 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 to increase the level of expenditures. 

The Registrant has a $7,000,000 bank borrowing facility that expires May 31, 2004.  As of December 31, 2003, there were no borrowings under the facility.  The Registrant also has a $2,750,000 standby letter-of-credit facility; and as of December 31, 2003, there were standby letters of credit totaling $627,740 issued under the facility and all will expire within one year.  Management intends to renew the bank facility for borrowing and letters of credit prior to the expiration date.  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, 2003, in the principal amount of $729,750.  The note is repayable in quarterly installments, with the final installment due August 2, 2005.  The note is secured by equipment with a cost of $1,563,000. 

The following tables contain disclosures concerning certain contractual obligations and commercial commitments outstanding as of December 31, 2003: 

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Increases in the Registrant's pension benefit obligations, combined with investment market losses during 2002 and 2001, have negatively affected the funded status of the Registrant's pension plans.  The required pension contribution will be $4,315,500 during 2004. 

Market risks relating to the Registrant's operations result primarily from changes in foreign exchange rates and stainless steel prices.  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 $400,000, $1,500,000, and $1,900,000 for 2003, 2002, and 2001, respectively.  There were no foreign exchange forward contracts outstanding or foreign currencies held as of December 31, 2003 or 2002.  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. 

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 project and customer credit worthiness.  Foreign receivables are generally secured by an irrevocable letter of credit confirmed by a major U.S. bank. 

The preparation of Consolidated 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 Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period.  Actual results may differ from those estimates.  The critical accounting policies and estimates that involve a higher degree of judgment and complexity are as follows: 

Revenues from Long-Term Contracts  --  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, the 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, the percentage-of-completion is determined by comparing the 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 con tracts are made in the period in which such losses are determined.  Cost and estimated 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. 

The estimates of hours to complete and total cost to complete are 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.  These estimates are subject to change due to many factors, but management constantly monitors 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 cost to complete contracts. 

Pensions  --  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. 

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The return on plan assets represents a long-term assumption for the pension portfolios that can impact pension expense and cash funding requirements.  The long-term rate of return on assets is determined after consultation with the investment advisor and the actuaries.  The rate is intended to reflect the average rate of earnings expected to be earned on the funds invested or to be invested to provide plan benefits.  In determining the rate, appropriate consideration is given to historical performance of the major asset classes held or anticipated to be held by the plans and to current forecasts for future rates of return for those asset classes.  Cash flow and expenses are taken into consideration to the extent that the expected return would be affected by them.  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, 2003, consisted of 66% in equities, 32% in fixed income, and 2% in cash and equivalents.  This allocation is consistent with the long-term asset allocation for the plans.  The long-term rate of return of 8.0% was used to determine 2003 pension expense and 8.5% was used for the 2002 pension expense.  The reduction from 8.5% to 8.0% increased 2003 pension expense by $184,000. 

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 and the impact of long-term corporate bond yields.  Based on current interest rate levels, the discount rate used to calculate the December 31, 2003, benefit obligations was 6.0%, while the discount rate used as of December 31, 2002, was 6.5%.  The reduction in the discount rate used in determining annual pension expense from 6.5% at December 31, 2002, to 6.0% at December 31, 2003, will have the effect of increasing pension expense for 2004 by approximately $434,000. 

Insurance Reserves  --  The Registrant maintains a self-insurance program for the portion of its workers' compensation costs not covered by insurance.  The Registrant utilizes a claims-paid workers' compensation insurance policy with a large deductible.  At the time a workers' compensation claim is filed, an estimate of the liability is determined by the insurance carrier to settle the claim and is recorded by the Registrant.  Monthly, the liability for each claim is updated by the insurance carrier and changes are recorded by the Registrant.  Since the liability is an estimate, the ultimate liability may be more or less than accrued.  The Registrant maintains frequent contact with the insurance carrier to exchange information to insure that reserves are updated on a timely basis. 

The Registrant maintains a self-insurance program for healthcare costs for its employees not covered by a stop-loss insurance policy.  Under the plan, liabilities are recognized for claims incurred (including claims incurred but not yet reported).  The reserves established for medical expenses are estimated using historical claim experience and analysis provided by the third party administrator for the healthcare plan.  The liability for claims is reviewed monthly and is adjusted for known trends in healthcare costs and the evaluation by the third party administrator. 

The Registrant funds the benefit costs of the self-insured programs for workers' compensation and healthcare claims on a pay-as-you-go basis.  As of December 31, 2003, the reserve for workers' compensation and healthcare totaled $1,073,500.

Warranties  --  The Registrant provides warranty reserves for product defects as they become known, as a significant portion of the Registrant's sales are custom-fabricated products built to customer specifications.  Warranty claims tend to occur shortly after completion and delivery of a project, and a reserve for estimated warranty expense is recorded at the time of notification by the customer within the one-year warranty period of a defect in material or workmanship.  Service department personnel handle all notifications from customers concerning warranty claims, prepare an estimate of the cost to repair or replace the defective item, and establish a reserve for each specific claim.  Warranty claim reserves are reviewed monthly and reserves are adjusted to properly reflect the remaining estimated cost to complete the repair or replacement. 

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Inventories  --  The Registrant's inventories are recorded at the lower of cost on a last-in, first-out ("LIFO") basis, or market.  The 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 effect of inflation flowing through cost of sales.  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 accurately estimate the appropriate LIFO inventory adjustment for interim periods. 

Depreciation  --  The Registrant provides for depreciation expense for plant and equipment using principally the double-declining-balance method for new items and the straight-line method for used items.  Under the double-declining-balance method, depreciation expense is charged to the statement of income on an accelerated basis and, at the same time, provides current tax savings.  The present value of significant assets is periodically reviewed, taking into consideration the current and expected business conditions.  Historically, the Registrant has not had any significant asset impairments. 

Reserve for Doubtful Accounts  --  A reserve for doubtful accounts is established based upon specific information which indicates that a reserve is appropriate.  Credit personnel perform a review of detailed accounts receivable aging at each month end and review past-due accounts for indication that collection may be questionable due to disputes, misunderstandings, and lack of ability to pay.  The Registrant historically has had relatively low bad-debt expense, and this is due to a thorough investigation of new accounts and ongoing monitoring of existing accounts. 

Statement of Financial Accounting Standards (SFAS) No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure," was adopted during 2002.  SFAS 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 SFAS No. 123 to require prominent annual and interim disclosure regarding the pro forma effects on reported net income for stock-based compensation.  The Registrant will continue to apply the provisions of APB Opinion No. 25, "Intrinsic Value," in accounting for stock-based awards.  Disclosures required by SFAS No. 123 and SFAS No. 148 are included in Notes 1 and 8 of the Notes to Consolidated Financial Statements. 

Effective January 1, 2003, the Registrant adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."  There was no effect on the Registrant's Consolidated Financial Statements as a result of such adoption. 

The Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities," in January 2003.  Interpretation No. 46 is an interpretation of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," and addresses consolidation by business enterprises of variable interest entities -- a new term.  Interpretation No. 46 (revised in December 2003) will not have a financial statement impact on the Registrant. 

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities."  This Statement did not have a material impact on the Registrant's Consolidated Financial Statements. 

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity."  This Statement did not have an impact on the Registrant's Consolidated Financial Statements. 

In December 2003, the FASB issued SFAS No. 132-R, "Employer's Disclosure About Pensions and Other Post-Retirement Benefits."  The Statement was effective for 2003 and the related disclosures have been included in Note 2 to the Registrant's Consolidated Financial Statements. 

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This Management's Discussion and Analysis of Operating Results and Financial Condition, as well as the President's message on pages 2 and 3 of this Annual Report, 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,&qu ot; "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, field-fabrication markets, and factors affecting the trucking industry specifically, are all currently subject to 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 Registrant'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 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 Reg istrant's ability to recover any price increases for materials and product 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 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 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. 

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) consultation regarding LIFO inventory, research and development credits, and state tax issues. 

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

Certain information concerning market risk is set forth in Item 7, page 15, 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 

The accompanying notes are an integral part of these consolidated balance sheets.

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The accompanying notes are an integral part of these consolidated statements.

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