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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File Number: 0-5971

WOODHEAD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

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 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.   [  ]

        Indicate by a check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the act).   Yes [X]   No [  ]   

        The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 29, 2003 was $141,212,651. The number of common shares outstanding as of December 5, 2003 was 12,083,866.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information contained in the Proxy Statement for the Annual Meeting of Shareowners of
registrant to be held January 30, 2004 is incorporated by reference into Part III hereof.

TABLE OF CONTENTS

PART I
     Item 1. Business
     Item 2. Properties
     Item 3. Legal Proceedings
     Item 4. Submission of Matters to a Vote of Security Holders
PART II
     Item 5. Market for the Company’s Common Equity and Related Stockholder Matters
     Item 6. Selected Financial Data
     Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
     Item 7A. Quantitative and Qualitative Disclosures about Market Risk
     Item 8. Consolidated Financial Statements and Supplementary Data
     Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
     Item 9A. Controls and Procedures
PART III
     Item 10. Directors and Executive Officers of the Registrant
     Item 11. Executive Compensation
     Item 12. Security Ownership of Certain Beneficial Owners and Management
     Item 13. Certain Relationships and Related Transactions
     Item 14. Principal Accounting Fees and Services
PART IV
     Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

PART I

Item 1. Business

General

        Woodhead Industries, Inc. (the Company, which may be referred to as “we”, “us”, or “our”) is engaged in two business segments serving a diverse group of customers and industries worldwide. We develop, manufacture, and market electronic and industrial communications products, primarily serving the global automation and control market with connectivity solutions and specialty electrical products.

        Where reference is made in any Item of this Annual Report on Form 10-K to information in the Proxy Statement for the Annual Meeting of Shareowners of the Company to be held on January 30, 2004, such information shall be deemed to be incorporated therein by such reference.

Business Segments

        Our operating segments are based on the organization of business groups comprised of similar products and services. Revenues in our Industrial Communications and Connectivity Products Segment (Connectivity Segment) are primarily derived from sales of system components for devices in open networks for automated manufacturing and distribution applications. Revenues in our Electrical Safety & Specialty Products Segment (Electrical Segment) are primarily derived from sales of specialized products to support enhanced safety and productivity on the factory floor.

        Selected financial information by business segment for each of the last three fiscal years is contained in Note 13 of the Notes to Consolidated Financial Statements.

Products

        We develop, manufacture and market electronic and industrial communications products, primarily serving the global automation and control markets with connectivity solutions and specialty electrical products. Through our Connectivity segment we provide the industrial automation industry with a single, worldwide source for industrial communications and connectivity solutions. Our product lines, comprising five recognized industry-leading brands, Brad Harrison^®, mPm^®, SST™, applicom^® and RJ-Lnxx^® make us the premier supplier of application-specific connectivity solutions.

        Our Electrical segment manufactures highly customized products to support enhanced safety and productivity on the factory floor. Our Electrical product brands include Daniel Woodhead^® and Aero-Motive^®.

Distribution

        We sell our products to stocking distributors, original equipment manufacturers (OEM) and system integrators. Our direct sales force, as well as manufacturers’ agencies, service our customers and promote our products to end-customers.

Raw Materials

        Parts and materials for our products are readily available from a variety of suppliers. It has been our practice to develop more than one source of supply for critical items.

Patents and Intellectual Property Rights

        We hold patents, trademarks and licensing agreements on certain of our products. We believe these trademarks and patents are valuable but not essential to the future growth of our businesses.

Customers

        We sell our products to a broad customer base. No single customer accounts for ten percent or more of our sales revenue.

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Backlog

        The backlog of unfilled orders stood at $16.0 million, $14.3 million and $13.8 million at the end of fiscal years 2003, 2002 and 2001, respectively. The 2003 Connectivity segment backlog as compared to the prior year was up 13.1%. The Electrical segment recorded a 9.3% increase in total backlog when compared to fiscal 2002. This increase was due mainly to a large government order received in the fourth quarter at our Aero-Motive subsidiary.

Competition

        Similar products of the type sold by us are also available from competitors. We believe delivery time, as well as quality and customer service are important to our success. Our ability to manufacture high-quality products, that serve specialized needs, as well as our multiple channels of distribution differentiate us from the competition.

International Operations

        A significant portion of our business is from outside the United States. The international operations are conducted through our subsidiaries who manufacture and sell products in both of our business segments. Fluctuations in foreign currency exchange rates can impact our results of operations and financial condition. Since much of our international manufacturing costs and operating expenses are also incurred in local currencies, the impact of changes in exchange rates on reported net income is partially mitigated. Selected financial information by major geographical region for each of the last three fiscal years is contained in Note 13 of the Notes to Consolidated Financial Statements.

Research & Development

        Selected financial information related to research and development is contained in Note 12 of the Notes to Consolidated Financial Statements.

Environmental Matters

        Our operations are subject to international, federal, state and local environmental laws and regulations. We are party to an environmental matter, which obligates us to investigate, remediate, or mitigate the effects on the environment of the release of certain substances at one of our manufacturing facilities. It is possible that this matter could affect cash flows and results of operations. Additional details on the environmental exposure can be found in Note 16 of the Notes to Consolidated Financial Statements.

Employees

        At the end of fiscal year 2003, we had 1,506 full-time employees.

Availability of Reports

        Our Internet Web site address is www.woodhead.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 are available free of charge through our Web site as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission.

Forward-Looking Statements

        The Securities and Exchange Commission encourages companies to disclose forward-looking information, so that investors can better understand a company’s future prospects, and make informed investment decisions. This annual report, and other written and oral statements that we make from time to time, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements set out anticipated results based on management’s plans and assumptions. We have tried, wherever possible, to identify such statements by using words such as “anticipate”, “estimate”, “expect”, “plan”, “believe”, and words and terms of similar substance, in connection with any discussion of future operating or financial performance.

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        We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties, and inaccurate assumptions.

        In particular, such risks include statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales efforts, expenses, changes in foreign exchange rates, the outcome of contingencies such as legal proceedings, general economic and business conditions, and competition.

        International-based revenues and substantial international assets result in our exposure to currency exchange rate fluctuations. We continuously evaluate the economic and operational impact of all foreign currencies, including its impact on competition, pricing, and foreign currency exchange risks. There is no guarantee, however, that all problems have been foreseen, or that no material disruption will occur in our business.

        Growth in costs and expenses, changes in product mix, and the impact of acquisitions, restructuring, divestitures and other unusual items, that could result from evolving business strategies, could affect future results. Changes in the U.S. tax code and the tax laws in other countries can affect our net earnings. Claims have been brought against us and our subsidiaries for various legal, environmental, and tax matters, and additional claims arise from time to time. It is possible that our cash flows and results of operations could be affected by the resolution of these matters.

        Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

        This discussion of potential risks and uncertainties is by no means complete but is designed to highlight important factors that may impact our outlook. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. 

Item 2. Properties

        We own facilities in the following locations:

        We own all of the above properties in fee, except the land in Ebbw Vale, UK, which is held under a lease expiring in 2105, and the land in Bretten, Germany, which is held under a lease expiring in 2046.

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        We lease the following properties for use in our operations. In addition to rent, the leases require us to pay directly for taxes, insurance, maintenance and other operating expenses or to pay higher rent when operating expenses increase.

        A 120,000 square foot plant in Juarez, Mexico was completed in 2002. Our two Juarez plants are manufacturing resources for all our North American subsidiaries. With the addition of this facility, we believe there is sufficient capacity available to cover our needs through at least fiscal year 2004.

Item 3. Legal Proceedings

        Selected financial information related to current legal proceedings is contained in Note 16 of the Notes to Consolidated Financial Statements.

Item 4. Submission of Matters to a Vote of Security Holders

        During the fourth quarter of fiscal year 2003, which ended on September 27, 2003, there were no matters submitted to a vote of security holders either through solicitation of proxies or otherwise.

PART II

Item 5. Market for the Company’s Common Equity and Related Stockholder Matters

        Selected information regarding the company’s common equity and related stockholder matters is contained in Note 21 of the Notes to Consolidated Financial Statements.

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Item 6. Selected Financial Data

        The following Financial Profile sets forth selected consolidated financial data for our operations. The data should be read in conjunction with the Management Discussion and Analysis of Financial Condition and Results of Operations and the Financial Statements. The consolidated statement of operations data for each of the last five fiscal years, the related consolidated balance sheet data and other data have been derived from our audited consolidated financial statements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations 2003, 2002 and 2001

        We develop, manufacture and market electronic and industrial communications products, primarily serving the global automation and control markets with connectivity solutions and specialty electrical products. Through our Industrial Communications and Connectivity Segment (Connectivity Segment, or Connectivity) we provide the industrial automation industry with a single, worldwide source for industrial communications and connectivity solutions. Our product lines, comprising five recognized industry-leading brands, Brad Harrison^®, mPm^®, SST™, applicom^® and RJ-Lnxx^® make us the premier supplier of application-specific connectivity solutions. Our Electrical Safety & Specialty Segment (Electrical Segment, or Electrical) manufactures highly customized products to support enhanced safety and productivity on the factory floor. Our Electrical product brands include Daniel Wood head^® and Aero-Motive^®. We sell our products to stocking distributors, original equipment manufacturers (OEM) and system integrators. Our direct sales force, as well as manufacturers’ agencies, service our customers and promote our products to end-customers.

        We have operations in nine countries outside the United States, and fluctuations in foreign currency exchange rates can impact our results of operations and financial condition.

Sales

        Our sales increased 5.2% in fiscal 2003 compared to 2002. Sales declined year-over-year 10.5% and 3.4% in fiscal years 2002 and 2001, respectively.

        Sales activity in 2003 started to show improvement from the adverse economic conditions that have affected the U.S. and international manufacturing environments since 2001. Total revenues for fiscal 2003 year were $179.0 million compared to $170.2 million in fiscal 2002. This increase was due to the sales results in our Connectivity segment. Connectivity segment sales were $126.3 million in 2003, a 12.6% increase from fiscal 2002. The increase was due mainly to favorable exchange rates ($9.0 million gain when compared to 2002) and the improved performance in our European operations, primarily in the Physical Media and DIN product lines. Connectivity sales accounted for 70.6% of total revenue in 2003 and 65.9% in 2002.

        Electrical segment sales were $52.7 million in 2003, a 9.1% decrease from fiscal 2002. This decrease was due mainly to the sale of our AKAPP operation, which accounted for $5.7 million of revenue in 2002. Electrical sales accounted for 29.4% of total sales in 2003 and 34.1% in 2002.

        Sales volume in 2003 compared to 2002 was also negatively impacted by slightly lower selling prices (less than 1%), which resulted from competitive market pressures.

        Sales activity in 2002 continued to reflect the adverse economic conditions in the U.S. and international manufacturing environments that began in 2001. In particular, the lack of capital investment by the industrial marketplace coupled with a severe decline in the telecom and datacom sectors resulted in the lower sales. While we saw a small pick up in orders during the February to May period, as the year progressed, it became clear that the economy was not going to recover as most economists and industry experts had initially predicted. The decline in volume was in part offset by increases in sales dollars due to changes in foreign exchange rates, primarily as the Euro strengthened and the full year impact of sales from our applicom subsidiary acquired in February of 2001. These two factors benefited sales by 2.5% compared to 2001.

        Connectivity segment sales in 2002 were $112.2 million and declined 11.1% from 2001 with telecom/datacom sales down 33%. Connectivity sales accounted for 65.9% of total sales in 2002 and 66.4% in 2001.

        Although the Electrical segment benefited from MRO (Maintenance, Repair, Operation) sales and a government hose reel order in the fourth quarter, its sales declined 9.4% from 2001 to $58.0 million.

        Selling prices declined in 2002 by less than 1% principally due to competitive pressure in all areas, but more in the telecom and datacom sectors than others.

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Sales by Region

        Sales to customers in the United States were $108.3 million in 2003, $107.3 million in 2002 and $122.4 million in fiscal 2001. Sales to customers outside the U.S. were $70.7 million in 2003, $62.9 million in 2002 and $67.8 million in 2001. European sales increased 11% in fiscal 2003 due mainly to changes in the Euro exchange rate. This increase was partially offset by the revenue lost from the sale of our AKAPP subsidiary. Sales in 2003 to customers in Canada and the Far East increased by 8% and 60%, respectively. The increase in Canada was due mainly to the favorable exchange effects from the strengthening of the Canadian Dollar. In 2002 European sales declined 1% after benefiting from the strengthening Euro and the full year of Applicom sales. In 2002 sales in Canada and the Far East declined by 5% and 6%, respectively when compared to 2001.

        We collected 40%, 38% and 34% of our revenue in foreign currencies during 2003, 2002 and 2001, respectively.

Backlog

        The backlog of unfilled orders stood at $16.0 million, $14.3 million and $13.8 million at the end of 2003, 2002 and 2001, respectively. The 2003 Connectivity segment backlog as compared to the prior year was up 13.1%. The Electrical segment recorded a 9.3% increase in total backlog when compared to fiscal 2002. This increase was due mainly to a large government order received in the fourth quarter at our Aero-Motive subsidiary.

Gross Profit

        In 2003, gross profit as a percent of sales increased to 36.9% from 36.7% in 2002. This increase was due mainly to improved efficiencies and productivity improvements, particularly from the migration of production to our Juarez, Mexico facility, which occurred in 2002 and early 2003. Also contributing to this increase in the gross profit level was a $0.7 million decrease in obsolescence expense. Partially offsetting these improvements were lower pricing, the shift in sales mix by location and lower margins in the telecommunications market.

        In 2002 gross profit declined to 36.7% from 39.8% in 2001. This decline was attributable primarily to lower plant utilization throughout the business. During the year lower sales volume in both business segments, coupled with the significant reduction in our inventory levels from 2001 were the principal drivers of the lower plant utilization. Also, during 2002 our new plant in Mexico came on line and we incurred initial startup costs and expenses to migrate production from our plant in Northbrook, Illinois. In addition, we incurred startup costs to initiate production of fiber optic products in our UK facility. As a result of declining volumes due to adverse economic conditions in the U.S. and international markets, we needed to increase our reserve for excess/obsolete inventory. This increased expense by $0.4 million from $1.1 million in 2001 to $1.5 million in 2002. The lower inventory levels in 2002 resulted in a reduction of the LI FO reserve requirement, which favorably impacted our gross profit by $1.2 million compared to 2001.

Operating Expenses

        Operating expenses as a percent of sales were 31.8% in 2003, 32.0% in 2002 and 30.0% in 2001. While operating expense as a percent of sales decreased in 2003, the actual expenses increased to $56.9 million in 2003 from $54.5 million in 2002. The dollar increase was due mainly to the $2.1 million restructuring charge for the migration of our operations from our Aero-Motive subsidiary to Juarez, Mexico. The Aero-Motive restructuring will continue into 2004 with anticipated costs estimated to be $1.8 million for the year. In addition, related to the Aero-Motive restructuring, we anticipate a pension settlement charge estimated to be approximately $0.8 million in 2004 triggered by reduced employment levels that require us to recognize past gains and losses in our pension plan accounts. Also contributing to the increase in operating expenses in 2003 was the $2.6 million effect of foreign exchange rate changes and the upgrading in the sales, marketing and engineering areas. Partially offsetting these increases were the $1.5 million credit to operating expense due to the modification of our retiree medical program, the non-recurrence of a restructuring charge for $1.0 million to account for severance and related costs to

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eliminate approximately 10% of our salaried positions worldwide in 2002 and the elimination of AKAPP operating expenses, which were $1.8 million.

        While operating expenses as a percent of sales increased in 2002 compared to 2001, the actual expenses declined to $54.5 million in 2002 from $57.0 million in 2001. In 2002 we adopted FASB 142, which required us to stop amortizing goodwill. This reduced expenses by $1.5 million in 2002. In the second quarter of 2002 we incurred a $1.0 million restructuring charge for severance and related costs associated with personnel reductions. During 2002 we continued to reduce spending in our operations to offset the decline in sales revenue. This was a process that was started in early 2001 when we first saw economic conditions deteriorate in our primary markets. The savings achieved in 2002 and 2001 were partially offset by the full year impact of operating expenses at applicom acquired in April 2001.

Segment Operating Income

        Income from operations in our Connectivity segment increased to $5.1 million or 4.0% of sales in 2003 from $2.9 million or 2.6% of sales in 2002. This increase was due mainly to higher sales, lower obsolescence expense and favorable exchange rates. A shift in sales mix and the weak telecommunications market partially offset these improvements. Income from operations in our Electrical segment declined to $4.8 million or 9.1% of sales from $5.8 million or 9.9% of sales in 2002. The decrease in our Electrical segment was due mainly to the $2.1 million restructuring charge for the Aero-Motive actions in 2003 and the $0.4 million of income from operations eliminated as a result of the AKAPP sale.

        Income from operations in our Connectivity segment declined to $2.9 million or 2.6% of sales in 2002 from $13.2 million or 10.4% of sales in 2001. Lower operating expenses were unable to offset the impact of lower plant utilization, increases in excess/obsolescence expense, the restructuring charge and the decline in sales volume. Income from operations in our Electrical segment was 9.9% and 10.8% of sales in 2002 and 2001, respectively. The decline in 2002 was a result of reduced sales volumes and lower plant utilization.

Interest (Income) / Expense

        Interest expense was $3.1 million in 2003, $3.0 million in 2002 and $3.4 million in 2001 primarily for interest paid on our long-term debt incurred in connection with the mPm and SST acquisitions in 1998. The increase in interest expense in 2003 compared to 2002 was due to $0.3 million of interest paid on a value added tax ruling in Mexico. During 2001 we incurred interest expense on loans under our bank revolving credit agreements to temporarily finance the applicom acquisition. Interest income was earned on short-term deposits of operating cash.

Other (Income) / Expense

        Other (income)/expense in 2003 was ($2.9) million compared to ($0.1) million in 2002. The 2003 income consisted mainly of a $2.4 million gain realized from exchange rate changes on a U.S. Dollar loan that our Canadian subsidiary used to acquire the assets of SST in early 1998. Also included in 2003 was the $0.8 million gain from the sale of the Aero-Motive workstation product line and $0.3 million of expense related to an adverse value added tax ruling in Mexico.

        Other (income)/expense in 2002 was ($0.1) million compared to $2.0 million in 2001. The year-to-year change was due primarily to the $1.9 million write-off of the investment in Symphony Systems in 2001.

Income from Continuing Operations

        Income from continuing operations was $5.8 million or 3.3% of net sales in 2003, $2.5 million or 1.5% of net sales in 2002 and $7.8 million or 4.1% of net sales in 2001. The 2003 increase in income from continuing operations when compared to 2002 was due mainly to the gain from exchange rate changes on the U.S. Dollar loan that our Canadian subsidiary has outstanding, improved operating efficiencies, and the sale of the Aero-Motive workstation product line. The increases were partially offset by the Aero-Motive restructuring charge that occurred in fiscal 2003.

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        Income from continuing operations decreased in 2002 compared to 2001 due mainly to lower productivity associated with the decreased sales levels in 2002. Also contributing to the decrease was the restructuring charge of $1.0 million to account for severance and related costs to eliminate 10% of our salaried positions worldwide in 2002.

Discontinued Operations

        In the first fiscal quarter of 2003 we sold our AKAPP operations for $4.9 million in cash. This sale resulted in a gain of $0.7 million and was recorded as Income from Discontinued Operations. The results of operations related to AKAPP for fiscal 2003 were also recorded as Income from Discontinued Operations.

Net Income

        Net income was $6.6 million or 3.7% of net sales in 2003, $2.5 million or 1.5% of sales in 2002 and $7.8 million or 4.1% of net sales in 2001. The 2003 increase in net income when compared to 2002 was due to the increase in income from continuing operations, specifically the positive exchange rate changes, improved efficiencies and the Aero-Motive product line sale, and income generated from the AKAPP sale.

        Our effective tax rate was 34.1% in 2003, 50.3% in 2002 and 42.2% in 2001. In 2003 the income tax rate was close to the U.S. federal statutory rate. In 2002 the lower level of profitability combined with certain items not deductible in Europe resulted in the higher effective tax rate. For 2001 we could not tax-effect the $1.9 million write-off of our investment in Symphony Systems and this increased our effective tax rate.

Financial Condition, Liquidity and Capital Resources

Assets

        At fiscal year-end 2003 we had $22.5 million in cash and short-term investments, up from $13.2 million at the end of 2002. The increase in our cash balance was due principally to our strong operating cash flow of $17.5 million, the $4.2 million of cash received from the sale of our AKAPP operations and the $1.1 million in cash generated from the Aero-Motive product line sale. 2003 operating cash flows of $17.5 million decreased from $24.5 million in 2002. This decrease was due to the $8.9 million reduction in inventory in 2002 compared to a $1.8 million reduction in 2003.

        Working capital in 2003 increased to $47.3 million from $39.0 million in 2002. This increase in working capital was due mainly to the increased profit levels that were generated in 2003. Also contributing to the increase in working capital were the favorable exchange rate effects on our foreign assets and the decreased spending on capital expenditures that occurred in 2003.

        We continued to invest in property, plant and equipment, including new machinery, computer systems and facility improvements. Purchases of property, plant and equipment were $4.5 million in 2003 compared to $7.2 million in 2002. In 2002 we spent $2.1 million to complete a second manufacturing facility in Juarez, Mexico.

        Our cash and short-term investments are available for strategic investments, acquisitions, and other potential cash needs that may arise. We believe that existing cash and short-term investments, together with funds generated from operations, will be sufficient to meet our operating requirements in 2004.

Liabilities

        At fiscal year-end 2003 we had $36.6 million of long-term debt outstanding ($5.7 million shown as current debt), and we had unused credit facilities that provide for additional borrowings of up to $25.0 million. Effective March 30, 2002, we amended our credit agreement with a bank to increase the maximum ratio of debt to EBITDA, as defined, from 2.5 to 2.9, and reduce the minimum interest coverage ratio, as defined, from 3.0 to 2.0. This amendment expired on March 29, 2003, when the maximum debt to EBITDA ratio reverted back to 2.5 and the minimum interest coverage ratio reverted

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back to 3.0. We are in compliance with all of our funding arrangements. Additional information on debt covenants can be found in Note 2 A of the Notes to Consolidated Financial Statements.

Cash Flows

        Net cash flow provided by operating activities was $17.5 million in 2003, down from $24.5 million in 2002 and $23.4 million in 2001. The decrease in 2003 operating cash flow was due to a smaller reduction in inventory and increases in prepaid expenses. The increase in prepaid expense was due to a $2.0 million contribution to the pension plan. The improvement in 2002 operating cash flow compared to 2001 was due to reductions in inventory and accounts receivable balances partially offset by declines in accrued expenses and net income.

        In 2003 cash flows from investing activities included $4.5 million of capital additions and cash received of $4.2 million from the sale of AKAPP operations. In 2002 we invested $7.2 million on capital additions, of which $2.1 million was used to finish the second Juarez plant.

        In fiscal 2000, we made an investment of $1.9 million in Symphony Systems, which represented less than 20% of Symphony’s equity, which we accounted for under the cost method. During 2001, Symphony Systems was attempting to raise additional funds for future operations. When Symphony Systems failed to raise additional funds, and was unable to sell the company, we felt that the fair value of this equity investment had declined to zero and this decline was other than temporary. Consequently, we wrote off the entire investment in fiscal 2001. Subsequently, Symphony Systems made an assignment for the benefit of creditors in March 2002. As a result of this assignment, we received nothing for our equity interest.

        Net cash used for financing activities in 2003, 2002 and 2001 represent the repayment of debt in the amounts of $4.2 million, $4.9 million and $0.5 million, respectively, and dividend payments to our shareholders of $4.3 million, $4.2 million and $4.1 million, respectively.

Financial Instruments

        In our global operating activities, and in the normal course of our business, we are exposed to changes in foreign currency exchange rates that may adversely affect our results of operations and financial condition. We seek to minimize those risks through our regular operating activities and, when deemed appropriate, through the use of financial instruments. We use financial instruments to selectively hedge our foreign currency risk and do not use financial instruments for speculative purposes. Additional details on our foreign exchange exposures can be found in Note 2 C of the Notes to Consolidated Financial Statements.

Contingent Liabilities and Environmental Matters

        Our operations are subject to international, federal, state and local environmental laws and regulations. We are party to an environmental matter, which obligates us to investigate, remediate or mitigate the effects on the environment of the release of certain substances at one of our manufacturing facilities. It is possible that this matter could affect cash flows and results of operations. Additional details on the environmental exposure can be found in Note 16 of the Notes to Consolidated Financial Statements.

Critical Accounting Policies

        Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. These estimates and assumptions are affected by management’s application of accounting policies. Critical accounting policies for the business include revenue recognition, valuation of long-lived assets, accounting for contingent liabilities and environmental matters and accounting for income taxes. There were no material changes made to critical accounting estimates compared to prior years.

        Revenue Recognition — We recognize revenue upon transfer of title at the time of shipment or services provided, when all significant contractual obligations have been satisfied, the price is fixed or determinable and collection is reasonably assured. At the end of 2003 we had $1.3 million accrued for

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warranty costs, sales returns, sales incentives, price adjustments and other allowances based on prior claims experience and other quantitative and qualitative factors. No single customer accounted for more than 10% of revenue.

        Valuation of Long-Lived Assets — Our long–lived assets include land, buildings, equipment, molds and dies, purchased software, goodwill and other intangible assets. Long-lived assets, other than goodwill, are depreciated over their estimated useful lives. We review long-lived assets other than goodwill for impairment to assess recoverability from future operations using undiscounted cash flows. Goodwill and indefinite-lived intangible assets are reviewed annually for impairment under the provisions of SFAS No. 142 “Goodwill and Other Intangible Assets.” Fair values are estimated based upon forecasted cash flows discounted to present value. The fair value of our long-lived assets is dependent on the future performance of individual operations as well as volatility inherent in their external markets. If estimated forecasts are not met and actual cash flows or discount rate estimates change, we may have to rec ord an impairment charge not previously recognized. We currently have $32.3 million of goodwill on our consolidated balance sheet. No impairment charges were recorded in either 2003 or 2002.

        Accounting for Contingent Liabilities and Environmental Matters — We have incurred and expect to incur, assessment, remediation and related costs at one of our facilities for the costs of cleaning up contamination resulting from past spills, disposal or other releases of hazardous substances. We have been conducting an investigation of soil and groundwater at the site with oversight by the Michigan Department of Environmental Quality (“DEQ”). We estimate that a minimum of approximately $1.3 million of investigation and remediation expense remain to be incurred over the next 14 years. We have a reserve for such purpose. Our cost estimates are subject to uncertainty because of the extent of the contamination area, changes in remediation technology and ongoing DEQ feedback. We may incur significant additional assessment, remediation and related costs at the site and such costs could materially and adversely affect our consolidated net income for the period in which such costs are incurred.

        Accounting for Income Taxes — SFAS 109, Accounting for Income Taxes, establishes financial accounting and reporting standards for the effect of income taxes. The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for future tax consequences of events that have been recognized in our financial statements or tax returns. We have on our balance sheet net deferred tax assets of $2.9 million. Judgment is required in assessing the future tax consequences of events that have been recognized in our financial statements or tax returns. Fluctuations in the actual outcome of these tax consequences could impact our financial position or the results of operations.

Forward-Looking Statements

        The Securities and Exchange Commission encourages companies to disclose forward-looking information, so that investors can better understand a company’s future prospects, and make informed investment decisions. This report, and other written and oral statements that we make from time to time, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements set out anticipated results based on management’s plans and assumptions. We have tried, wherever possible, to identify such statements by using words such as “anticipate”, “estimate”, “expect”, “plan”, “believe”, and words and terms of similar substance, in connection with any discussion of future operating or financial performance.

        We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties, and inaccurate assumptions.

        In particular, such risks include statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, general economic and business conditions, currency fluctuations, and competition.

        International-based revenues and substantial international assets result in our exposure to currency exchange rate fluctuations. We continue to evaluate the economic and operational impact of all foreign

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currencies, including its impact on competition, pricing, and foreign currency exchange risks. There is no guarantee, however, that all problems have been foreseen and corrected, or that no material disruption will occur in our businesses.

        Growth in costs and expenses, changes in product mix, and the impact of acquisitions, restructuring, divestitures and other unusual items, that could result from evolving business strategies, could affect future results. Changes in the U.S. tax code and the tax laws in other countries can affect our net earnings. Claims have been brought against us and our subsidiaries for various legal, environmental, and tax matters, and additional claims arise from time to time. It is possible that our cash flows and results of operations could be affected by the resolution of these matters.

        Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

        This discussion of potential risks and uncertainties is by no means complete but is designed to highlight important factors that may impact our outlook. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

        Selected financial information related to quantitative and qualitative market risk is contained in Note 2 of the Notes to Consolidated Financial Statements.

Item 8. Consolidated Financial Statements and Supplementary Data

Report of Management

        Woodhead Industries, Inc. management is responsible for the integrity of the information presented in this Annual Report on Form 10-K, including the Company’s financial statements. These statements have been prepared in conformity with accounting principles generally accepted in the United States and include, where necessary, estimates and judgments by management.

        We maintain systems of accounting and internal controls designed to provide assurance that assets are properly accounted for as well as to insure that the financial records are reliable for preparing financial statements. The systems are augmented by qualified personnel and are reviewed on a periodic basis.

        Our independent public accountants, Ernst & Young LLP, conduct annual audits of our financial statements in accordance with auditing standards generally accepted in the United States, which include the review of internal controls for the purpose of establishing audit scope, and issue an opinion on the fairness of such financial statements.

        The Audit Committee, which is composed solely of independent directors, meets periodically with management and the independent public accountants to review the manner in which they are performing their responsibilities and to discuss auditing, internal accounting controls, and financial reporting matters. The independent public accountants periodically meet alone with the Audit Committee and have free access to the Audit Committee at any time.

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

        To The Board of Directors and Shareholders of Woodhead Industries, Inc.:

        We have audited the accompanying consolidated balance sheets of Woodhead Industries, Inc. (a Delaware corporation) and subsidiaries as of September 27, 2003 and September 28, 2002, and the related consolidated statements of income, stockholders' investment, comprehensive income and cash flows for each of the two years in the period ended September 27, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The financial statements of Woodhead Industries, Inc. and subsidiaries for the period ended September 29, 2001 were audited by other auditors who have ceased operations and whose report dated December 18, 2001 expressed an unqualified opinion on those statements before the inclusion of additional disclosures referred to in the last paragraph of this report.

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

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Woodhead Industries, Inc. and subsidiaries at September 27, 2003 and September 28, 2002, and the results of their operations and their cash flows for each of the two years in the period ended September 27, 2003, in conformity with accounting principles generally accepted in the United States.

        As discussed in Notes 1 and 6 to the financial statements, in the year ended September 28, 2002 the Company changed its method of accounting for goodwill.

        As discussed above, the financial statements of Woodhead Industries, Inc. and subsidiaries for the period ended September 29, 2001 (2001) were audited by other auditors who have ceased operations. As described in Note 6, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, which was adopted by the Company as of September 30, 2001. Our audit procedures with respect to the disclosures in Note 6 with respect to 2001 included (a) agreeing the previously reported net income to the previously issued financial statements and the adjustments to reported net income representing amortization expense (including any related tax effects) recognized in those periods related to goodwill to the Company’s underlying records obtained from management, and (b) testing the mathematical accuracy of the reconciliation of adjusted net income to reported net income, and the related earnings per share amounts. In our opinion the disclosures related to adjusted net income for 2001 in Note 6 are appropriate. However, we were not engaged to audit, review or apply any procedures to the 2001 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole.

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

        To The Board of Directors and Shareholders of Woodhead Industries, Inc.:

        We have audited the accompanying consolidated balance sheets of WOODHEAD INDUSTRIES, INC. (a Delaware corporation) AND SUBSIDIARIES as of September 29, 2001, and September 30, 2000, and the related consolidated statements of income, stockholders’ investment, comprehensive income and cash flows for each of the three years in the period ended September 29, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of WOODHEAD INDUSTRIES, INC. AND SUBSIDIARIES as of September 29, 2001, and September 30, 2000, and the results of its operations and its cash flows for each of the three years in the period ended September 29, 2001, in conformity with accounting principles generally accepted in the United States.

/s/ Arthur Andersen LLP*

Chicago, Illinois
December 18, 2001

*This report is a copy of the previously issued report covering fiscal years 2001 and 2000. The predecessor auditor has not reissued its report.

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Woodhead Industries, Inc.

Consolidated Balance Sheets
As of September 27, 2003 and
September 28, 2002

        The accompanying notes are an integral part of these statements.

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Woodhead Industries, Inc.

Consolidated Statements of Income
For the years ended September 27, 2003,
September 28, 2002, and September 29, 2001

        The accompanying notes are an integral part of these statements.

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Woodhead Industries, Inc.

Consolidated Statements of Cash Flows
For the years ended September 27, 2003,
September 28, 2002, and September 29, 2001

        The accompanying notes are an integral part of these statements.

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Woodhead Industries, Inc.

Consolidated Statements of Comprehensive Income
For the years ended September 27, 2003,
September 28, 2002, and September 29, 2001

        The accompanying notes are an integral part of these statements.

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Woodhead Industries, Inc.

Consolidated Statements of Stockholders' Investment
For the years ended September 27, 2003,
September 28, 2002, and September 29, 2001

        The accompanying notes are an integral part of these statements.

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Notes to Consolidated Financial Statements
(Currency amounts in tables are in thousands, except per share data)

NOTE 1.  Summary of Accounting Policies

A. Consolidation and Basis Presentation

        Our consolidated financial statements include the accounts of all our subsidiaries, including those operating outside the United States, each of which is wholly owned. All material intercompany transactions have been eliminated in consolidation. We prepare our financial statements in conformity with United States Generally Accepted Accounting Principles. In preparing the financial statements, we must use some estimates and assumptions that may affect reported amounts and disclosures. Among others, we use estimates when accounting for depreciation, amortization, employee benefits, asset valuation allowances and loss contingencies. We are also subject to risks and uncertainties that may cause actual results to differ from those estimates.

        We follow the practice of ending our fiscal year on the Saturday closest to September 30, which resulted in 52-week periods in years 2003, 2002 and 2001.

        Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

B. Cash and Short-Term Investments

        Cash and short-term investments include cash and items almost as liquid as cash, such as certificates of deposit and time deposits, with maturity periods of three months or less when purchased.

C. Accounts Receivable

        We make judgments as to collectibility of accounts receivable based on historical trends and future expectations. Management estimates an allowance for sales returns and doubtful accounts, which represents the collectibility of trade accounts receivable. These allowances adjust gross trade accounts receivable down to net realizable value. To determine the allowance for sales returns, management uses historical trends to estimate future period product returns. To determine the allowance for doubtful accounts, management reviews specific customers and our accounts receivable aging report.

D. Inventories

        We value our inventories at the lower of cost or market value, and adjust their values for reserves. Cost is determined using the first-in first-out (FIFO) method, or the last-in first-out (LIFO) method. The LIFO method of inventory valuation is used by three of our four U.S. subsidiaries and this method was chosen to better match current cost and revenue.

E. Long-Lived Assets

        Long-lived assets include:

        Property, plant and equipment — These assets are recorded at original cost and increased by the cost of significant improvements after purchase. We depreciate the cost evenly over the assets’ estimated useful lives, using the straight-line method. Maintenance and repairs are charged to expense as incurred. We remove the cost of property retired or otherwise disposed of from the property accounts, accumulated depreciation from the related reserves, and reflect the net gain or loss in income.

        Other intangible assets — When accounting for acquisitions under the purchase method of accounting, we allocate the purchase price to the fair values of tangible and intangible assets. Intangible assets include trade names and non-compete agreements. Intangible assets are amortized over periods ranging from 3 to 15 years.

        Goodwill — Goodwill represents the difference between the purchase price of an acquired business and the fair value of the assets, when accounted for under the purchase method of accounting. In fiscal 2002 we adopted SFAS 142 and review the impairment of goodwill annually.

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         Other assets — Subsequent to September 29, 2001 we became aware of information that made us believe that the decline in fair value of our investment in Symphony Systems was other than temporary. We believe that the fair value of this investment, which was accounted for under the cost method, is zero. Consequently, we wrote off the entire carrying amount of $1.9 million in 2001.

        We review long-lived assets, other than goodwill, to assess the recoverability from future operations using undiscounted cash flows. If necessary, we record the charges for impairment of long-lived assets for the amount by which the carrying value of these assets exceeds the present value of future cash flows. We continually evaluate the periods of amortization and depreciation assigned to our assets to determine whether events or circumstances warrant revised estimates of useful lives.

F. Foreign Currency Translation

        Most of our international operations maintain their records in their local currencies, which are also their functional currencies. We translate assets and liabilities to their U.S. Dollar equivalents at rates in effect at the balance sheet date, and record translation adjustments in Other Comprehensive Income included in Stockholders' Investment. We translate Statement of Income accounts at average rates for the period. We translate the financial statements of our Mexican operation, whose functional currency is the U.S. Dollar, using both the current and historic exchange rates and record translation adjustments in Other Expenses.

G. Stock-Based Compensation

        We grant options to our directors, officers and key employees. The exercise price of the stock options granted equals the market price on the date of grant. In accordance with Statement of Financial Accounting Standards No. 123: Accounting for Stock-Based Compensation, we elected to account for our stock-based compensation under Accounting Principles Board Opinion No. 25: Accounting for Stock Issued to Employees. We do not record expenses related to stock option grants.

        We adopted the disclosure-only provisions of SFAS No. 123: Accounting for Stock-Based Compensation. The following table summarizes results as if we had recorded compensation expense for the 2003, 2002, and 2001 option grants:

        The pro forma effect of stock option grants on results of operations may not be representative of the pro forma effect on results of operations for future years.

H. Revenue Recognition

        We recognize revenue upon transfer of title at the time of shipment (F.O.B. shipping point), when all significant contractual obligations have been satisfied, the price is fixed or determinable, and collectibility is reasonably assured. We sell our products to stocking distributors, system integrators, as well as directly to OEM customers. We provide for warranty costs, sales returns, sales incentives, price adjustments, and other allowances at the time of shipment, based on prior claims experience and other quantitative and qualitative factors.

        We have no post shipment obligations such as installation, training or customer acceptance. Products are shipped F.O.B. shipping point; the risks and rewards of ownership pass to the buyer at that time.

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Our return policies allow only for catalog items to be returned based on factory approval and our financial statements include a return reserve (estimates are based on historic performance), which reduces period net sales.

        We require receipt of a firm purchase order including quantities, shipping date and price. Any pricing discounts are reflected on the invoice. For certain customers, we offer volume rebates and these rebates are accrued monthly based on our estimates of the customer earning the amount of the rebate.

I. Shipping and Handling Costs

        All shipping and handling costs charged to customers are recorded as Net Sales and all related expenses are included in Cost of Sales.

J. Advertising

        We expense advertising and promotional costs in the period incurred. Advertising expenses were $1.8 million in 2003, $1.9 million in 2002 and $2.4 million in 2001.

K. Research and Development

        We expense research and development costs in the period incurred.

L. Recently Issued Accounting Standards

        In July 2001 the Financial Accounting Standards Board (FASB) issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting, and broadens the criteria for recording intangible assets separate from goodwill. SFAS No. 142 requires the use of a non-amortization approach to account for purchased goodwill and certain intangibles. Under the non-amortization approach, goodwill and certain intangibles will not be amortized into operating expenses, but instead will be reviewed for impairment and written down and charged to operating expenses only in the periods in which the recorded value of goodwill and certain intangibles exceeds its fair value.

        We adopted the provisions of these statements at the beginning of our fiscal year 2002. As a result, we no longer amortize goodwill, which reduced our operating expenses by $1.5 million for the year ended September 28, 2002 when compared to the same period in the prior year. In 2003 and 2002 we completed comprehensive studies of the fair value of goodwill. We found that the fair values of our reporting units' net assets exceed their carrying values. Consequently, we concluded that there was no impairment of goodwill. We will continue to assess the fair values of our reporting units. If in the future the carrying values of our reporting unit net assets exceed their fair values, we will charge the difference to operating expense in the period in which the goodwill impairment becomes evident.

        On September 29, 2002 we adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 states that the results of operations of a component of an entity that has either been disposed of or is classified as held for sale shall be reported in discontinued operations if both the following conditions are met: (a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction and (b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction.

        In November 2002 the FASB issued FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 provides guidance on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued and also clarifies that the guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. We have adopted the requirements of FIN 45 and made the appropriate disclosures in the Financial Statements and Notes included in this Form 10-K. We

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believe that the amount of our warranty settlements and reserve are not material and are not therefore included as a disclosure to these financial statements.

        In December 2002 the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, which amends SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 148 provides alternative methods of transition for companies that voluntarily change to the fair value-based method of accounting for stock-based employee compensation, and also requires expanded disclosures in both interim and annual financial statements. We have adopted the expanded disclosure requirements of SFAS No. 148 for the year ended September 27, 2003.

        In January 2003 we adopted FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which generally requires that a liability for costs associated with an exit or disposal activity be expensed as incurred. Exit costs primarily consist of future minimum lease payments on vacated facilities, facility closure costs and facility consolidation costs. Employee separation costs consist primarily of severance costs. At each reporting date, we will evaluate our accruals for exit costs and employee separation to ensure that the accruals are still appropriate.

NOTE 2.  Financial Instruments

A. Long-Term Debt

        In September 1998 we issued $45.0 million of Senior Guaranteed Notes to refinance bank borrowings related to the acquisitions of SST and mPm. Long-term debt at the balance sheet dates consisted of the following:

        Long-term debt outstanding at September 27, 2003 matures as follows:

        Under the various funding arrangements we are required, among other restrictions, to maintain a consolidated net worth, as defined, of not less than $77.5 million. Effective March 30, 2002 we amended our revolving credit agreement with a bank to increase the maximum ratio of debt to EBITDA, as defined, from 2.5 to 2.9, and reduce the minimum interest coverage ratio, as defined, from 3.0 to 2.0. This amendment expired on March 29, 2003, when the maximum debt to EBITDA ratio reverted back to 2.5 and the minimum interest coverage ratio reverted back to 3.0. In addition, there are certain restrictions on the creation or assumption of any lien or security interest upon any of our assets. We are in compliance with all provisions of our funding arrangements.

        Included in our financial statements is a 6.64% senior guaranteed note, which is held by a subsidiary and has a parental guarantee. In addition, there is a 6.81% senior guaranteed note held by the parent company, which is guaranteed by our U.S. subsidiaries.

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B. Short-Term Borrowings

        At September 27, 2003 we had an unused revolving credit agreement with a bank that provides for borrowings up to $25.0 million at the bank’s prime or offered rate. This agreement expires on February 28, 2004. We are in the process of negotiating credit facilities for the time after the current agreement expires. At September 27, 2003 and September 28, 2002 we had no short-term borrowings.

C. Derivative Financial Instruments

        In our global operating activities and in the normal course of our business, we are exposed to changes in foreign currency exchange rates, which may adversely affect our results of operations and financial condition. We seek to minimize those risks through our regular operating activities and, when deemed appropriate, through the use of derivatives.

        In 1998 we entered into a foreign currency swap agreement with an AA- rated counterparty to hedge a portion of our cash flows from our Italian subsidiary. Under the terms of the agreement, we agreed to swap 35.52 billion Lire for 20.0 million U.S. Dollars over a period of 8 years. In addition, the contract provides for us to make annual interest payments of 6.50% on the outstanding Lire balance, and to receive 7.43% annual interest on the outstanding U.S. Dollar balance. While the hedge was denominated in Italian Lire we re-denominated the transaction in Euros in 2002. The re-denomination was done at an exchange rate of 1,936.27 Italian Lire to the Euro.

        The following table describes the values to be exchanged over the next four years relating to the Euro swap:

        We base the fair value for our cross-currency swap on the cost estimate to terminate the agreement. The fair value of the swap at September 27, 2003 was recorded as a $0.3 million liability.

D. Fair Value

        Our long-term debt is denominated in U.S. Dollars and carries fixed interest. We base the fair value of our long-term debt on market or dealer quotes. The difference between fair and carrying values of our financial instruments, other than the swap, were not material at the balance sheet dates.

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NOTE 3.  Accounts Receivable

        We reduce our accounts receivable balance to account for reserves for doubtful accounts, sales returns, warranties and allowances. The table below shows the activity in our accounts receivable reserves during the fiscal years:

NOTE 4.  Inventories

        Inventories at the balance sheet dates were comprised of the following:

        The use of LIFO for inventory valuation was chosen in 1979 to better match current cost and revenue. The LIFO method of inventory valuation is used by three of our four U.S. subsidiaries. The one U.S. subsidiary not utilizing LIFO was acquired in 1990 and is a higher technology business in which the inventory (approximately 8% of total inventory) declines in value over time. LIFO is not utilized in our foreign operations as this method is not accepted by foreign countries for tax purposes and the cost of maintaining two inventory systems is cost prohibitive to us.

        In 2003, inventory levels continued to reduce. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of 2003 purchases. The effect of this liquidation was to increase net income by $0.4 million.

        Had we used the FIFO method for all inventories, net income would have been $0.4 and $0.6 million lower in 2003 and 2002, respectively. Net income would have been $0.1 million higher if the FIFO method were used in 2001.

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NOTE 5.  Property, Plant and Equipment

        Net property (PP&E) at the balance sheet dates was as follows:

        Depreciation expense was $11.1 million, $10.2 million and $9.3 million for fiscal years 2003, 2002 and 2001, respectively.

        The carrying values of fixed assets are impacted by fluctuations in foreign exchange rates. We depreciate fixed assets using the straight-line method over the following periods:

        In the fourth quarter of fiscal year 1998 we acquired the business and certain assets of SST, including software technology, and in the second quarter of fiscal year 2001 we acquired the business and certain assets of applicom International, including software technology. We amortize the capitalized software over a period of nine years, which we believe is appropriate for these types of industrial software. Net software at the balance sheet dates was as follows:

NOTE 6.  Goodwill and Other Intangible Assets

        We adopted SFAS 142 in fiscal year 2002 and as a result we reclassified $0.4 million of Other intangible assets into Goodwill and have stopped amortizing goodwill. Essentially all goodwill relates to our Connectivity Segment. Goodwill at the balance sheet dates was:

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        The carrying values of goodwill are impacted by fluctuations in foreign exchange rates.

        The following table summarizes the results as if we had adopted SFAS No. 142 and did not amortize goodwill for the years 2003, 2002 and 2001.

        Other intangible assets at the balance sheet dates were:

        The following table shows the future amortization expense for intangible assets as of September 27, 2003:

NOTE 7.  Accrued Expenses

        Accrued expenses at the balance sheet dates were as follows:

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NOTE 8.  Lease Commitments

        We lease properties for use in our operations. In addition to rent, the leases require us to pay directly for taxes, insurance, maintenance and other operating expenses, or to pay higher rent when operating expenses increase. Total lease expenses were $1.0 million for the years 2003, 2002 and 2001. The following table shows future minimum lease commitments under non-cancelable lease-terms in excess of one year as of September 27, 2003:

NOTE 9.  Capital Stock

A. Common And Preferred Stock

        Our total authorized stock is 40.0 million shares, consisting of 10.0 million shares of preferred stock, par value $0.01 per share, and 30.0 million shares of common stock, par value $1.00 per share. No shares of preferred stock have been issued to date. Common stock issued was 12.0 million and 11.8 million on September 27, 2003 and September 28, 2002, respectively.

        In May 1996, we adopted a new shareholder rights plan, effective upon termination of the previous rights plan, and declared a dividend distribution of one preferred stock purchase right (“Right”) for each share of common stock outstanding. Each Right represents the right to purchase, if and when the Rights are exercisable, a unit consisting of one one-thousandth of a share (“Unit”) of Series A Junior Participating Preferred Stock at a purchase price of $65 per unit, subject to adjustment. The exercise price and the number of shares issuable upon the exercise of the Rights are subject to adjustment in certain cases to prevent dilution. The Rights are evidenced by the common stock certificates and are not exercisable or transferable apart from the common stock, until ten days after a person (i) acquires 15% or more of the common stock, or (ii) commences a tender offer, which would result in the ownership of 15% or mor e of the common stock, or the Board of Directors determines that any person has become an Adverse Person, as that term is defined in the plan. In the event any person becomes the beneficial owner of 15% or more of common stock or the Board of Directors declares a person an Adverse Person, each of the Rights (other than Rights held by the party triggering the Rights and certain transferees which are voided) becomes a discount right, entitling the holder to acquire common stock having a value equal to twice the Right’s exercise price. In the event the Company is acquired in a merger or other business combination transaction (including one in which the Company is the surviving corporation), each Right will entitle its holder to purchase, at the then current exercise price of the Right, that number of shares of common stock of the surviving company which at the time of such transaction would have a market value of two times the exercise price of the Right. The Rights do not have any voting rights and are re deemable, at the option of the Company, at a price of $0.01 per Right at any time until ten days after a person acquires beneficial ownership of at least 15% of the common stock. The Rights expire on May 29, 2006. So long as the Rights are not separately transferable, the Company will issue one Right with each new share of common stock issued.

B. Stock Option Plans

        We may grant stock options to directors, officers and key employees, under our stock option plans, at a price not less than the market value at the date of grant. Options issued to directors are exercisable 6 months after the grant date, and expire 10 years (5 years for pre-2002 grants) after the grant date. Portions of options issued to employees in fiscal years 2003, 2002 and 2001 are exercisable one, two and three years after the grant date, and expire 10 years after the grant date. Options issued to employees before fiscal year 2001 were exercisable one year after the grant date and expire 10 years after the grant date. All granted options are subject to continuous employment and certain other conditions.

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        The following table summarizes the activity for the plans:

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        We estimated the fair values using the Black-Scholes option-pricing model, modified for dividends, and used the following assumptions:

NOTE 10.  Comprehensive Income

        Accumulated other comprehensive (income) loss consists of the following components: