ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

The Corporation operates in two business segments - Forged and Cast Rolls and Air and Liquid Processing. The Forged and Cast Rolls segment produces and sells forged-hardened steel rolls and cast iron and steel rolls to manufacturers of steel and aluminum throughout the world. For the Forged and Cast Rolls segment, business activity in North America is expected to be better in the current year when compared to 2011; however, demand remains weak in Europe and throughout the Pacific Rim, particularly in China where roll inventories are at high levels and several new mill projects have been deferred. Pricing continues to be competitive. For the Air and Liquid Processing segment, increased activity in the fossil-fueled utility market has been encouraging while new construction spending by the institutional markets has yet to exhibit any significant signs of improvement.

Consolidated Results of Operations for the Three and Six Months Ended June 30, 2012 and 2011

Net Sales. Net sales for the three months ended June 30, 2012 and 2011 were $69,956,000 and $94,971,000, respectively, and $143,561,000 and $184,039,000, respectively for the six months then ended. Backlog approximated $245,769,000 at June 30, 2012 versus $260,001,000 as of December 31, 2011 and $313,621,000 as of June 30, 2011. A discussion of sales and backlog for the Corporation's two segments is included below.

Costs of Products Sold. Costs of products sold, excluding depreciation, as a percentage of net sales approximated 77.6% and 71.2% for the three months ended June 30, 2012 and 2011, respectively, and 77.0% and 71.2% for the six months ended June 30, 2012 and 2011, respectively. The increase is primarily attributable to the lower volume of shipments, changes in product mix and reduced margins for the Forged and Cast Rolls segment.

Selling and Administrative. The decrease in selling and administrative expenses for the three and six months ended June 30, 2012 against the comparable prior year periods is primarily due to lower commissions and freight costs associated with the lower volume of sales.

Depreciation. The increase in depreciation expense for the three and six months ended June 30, 2012 against the comparable prior year periods is attributable to additional depreciation associated with assets placed in service in the prior year.

Income from Operations. Income from operations for the three months ended June 30, 2012 and 2011 approximated $2,928,000 and $13,516,000, respectively, and $7,045,000 and $25,644,000, respectively, for the six months then ended. A discussion of operating results for the Corporation's two segments is included below.

Forged and Cast Rolls. Sales and operating income for the three and six months ended June 30, 2012 decreased from the comparable prior year periods due to a lower volume of shipments and changes in product mix. Additionally, lack of demand continued to put pressure on pricing and erode margins. Backlog approximated $195,640,000 at June 30, 2012 against $214,449,000 as of December 31, 2011 and $266,322,000 as of June 30, 2011. The decline from a year ago is due to shipments outpacing new orders and declining profitability in backlog. Approximately $77,439,000 of the current backlog is expected to ship after 2012.

Air and Liquid Processing. For the three and six months ended June 30, 2012, sales for the segment improved when compared to the same periods of the prior year. Sales for Aerofin and Buffalo Pumps benefited from a higher level of shipments to the fossil-fueled utility market. Although operating income for Aerofin improved on the higher volume of shipments, operating income for Buffalo Pumps was adversely affected by product mix. Sales and operating income for the quarter were comparable to the prior year for Buffalo Air Handling but improved on a year-to-date basis due to shipment of the balance of the large order for a customer in medical research. Backlog approximated $50,129,000 at June 30, 2012 against $45,552,000 as of December 31, 2011 and $47,299,000 as of June 30, 2011; the increase attributable to additional orders for the fossil-fueled utility market. The majority of the backlog will ship in 2012.

Other Income (Expense). The fluctuation is primarily attributable to fluctuations in foreign exchange gains and losses.

Income Taxes. The decrease in the effective income tax rate for the quarter is primarily attributable to beneficial permanent differences. The effective income tax rates for the six month periods are comparable with the slight increase in the current period due to a higher proportion of income before income taxes expected to be generated by the U.S. operations which are taxed at a higher rate and thereby offsetting the expected improvement from the beneficial permanent differences.

Net Income and Earnings per Common Share. As a result of the above, the Corporation's net income for the three months ended June 30, 2012 and 2011 equaled $1,508,000 or $0.15 per common share and $9,123,000 or $0.88 per common share, respectively and $3,508,000 or $0.34 per common share and $16,799,000 or $1.63 per common share, respectively, for the six months ended June 30, 2012 and 2011.

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Liquidity and Capital Resources

Net cash flows provided by operating activities for the six months ended June 30, 2012 were comparable to the six months ended June 30, 2011. The benefit resulting from the reduction in accounts receivable is offset by higher inventory levels.

Net cash flows used in investing activities for the six months ended June 30, 2012 were comparable to the six months ended June 30, 2011. While capital expenditures have been slightly less than the prior year level, proceeds were received in the prior year from a U.K. government grant. As of period end, the balance of grant proceeds expected to be received equaled $615,000 (£405,000). As of June 30, 2012, future capital expenditures approximating $7,236,000, to be spent over the next 12-18 months, have been approved.

Net cash flows used in financing activities were comparable for each of the periods and represented primarily payment of dividends offset by proceeds from the issuance of common stock.

As a result of the above, cash and cash equivalents increased $5,196,144 in 2012 and ended the period at $75,083,983 (of which approximately $6,000,000 is held by foreign operations) in comparison to $69,887,839 at December 31, 2011. Repatriation of foreign funds may result in the Corporation accruing and paying additional income tax; however, the majority of such amounts are currently deemed to be permanently reinvested and no additional provision for income tax has been made.

Funds on hand and funds generated from future operations are expected to be sufficient to finance the operational and capital expenditure requirements of the Corporation. The Corporation also maintains short-term lines of credit and an overdraft facility in excess of the cash needs of its businesses. The total available at June 30, 2012 was approximately $9,200,000 (including £3,000,000 in the U.K. and €400,000 in Belgium).

Litigation and Environmental Matters

See Notes 11 and 12 to the condensed consolidated financial statements.

Critical Accounting Pronouncements

The Corporation's critical accounting policies, as summarized in its Annual Report on Form 10-K for the year ended December 31, 2011, remain unchanged.

Recently Issued Accounting Pronouncements

See Note 1 to the condensed consolidated financial statements.

Forward-Looking Statements

Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of the Form 10-Q contain forward-looking statements that reflect the Corporation's current views with respect to future events and financial performance.

Forward-looking statements are identified by the use of the words "believes," "expects," "anticipates," "estimates," "projects," "forecasts" and other expressions that indicate future events and trends. Forward-looking statements speak only as of the date on which such statements are made, are not guarantees of future performance or expectations and involve risks and uncertainties. For the Corporation, these risks and uncertainties include, but are not limited to, those described under Item 1A, Risk Factors, of Part II of this Form 10-Q. In addition, there may be events in the future that the Corporation is not able to predict accurately or control which may cause actual results to differ materially from expectations expressed or implied by forward-looking statements. Except as required by applicable law, the Corporation undertakes no obligation to update any forward-looking statement whether as a result of new information, events or otherwise.