2001 was another busy year for Ellwood Texas Forge. Our Oil and Gas business was very strong in the first half but tapered off in the second. Military Aerospace and Industrial Products sales were steady through the year. Much effort was put into qualifying for aircraft engine parts. Likewise, we saw progress in several other new parts for Industrial applications e.g. off-road vehicles.

This was the first full year of operation for our 6,000 ton press and several new parts were forged. A new Weld Shop for die repair was constructed and a Machine Shop (with several new machine tools) will be completed in the first quarter of 2002. Additional saws and a coordinate measuring machine (CMM) were purchased. Two new rotary furnaces are under construction.

The boom and bust nature of our O&G business made 2001 a challenging year for staffing. We hired and trained new people in the first half and still struggled to keep up with demand. The second half saw us cutting back. We are used to this, but the cyclical nature of our business certainly supports our long term goals and ongoing efforts to diversify. Considerable safety, environmental, technical and supervisory training was performed during the year.

We maintained our ISO 9001, AS 9000, ISO 14001 and NADCAP approvals.

2002 will be a stronger year for Military Aerospace as we ship more missile components and aircraft parts. Predicting the O&G market is never easy - we are expecting a good year, but reduced from 2001. For the total company, sales should slightly exceed last year. We have high overseas sales and foreign competition so the strong US dollar continues to put pressure on prices. Meanwhile, we face higher costs for personnel – especially benefits.

As always, the key to our success in creating value for our customers will depend upon our ability to increase productivity and avoid waste. Again this year, we thank our customers, employees, suppliers and owners for their ongoing support.

2001 Review

January 1, 2002