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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended        01/01/2005

OR

[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File Number        0-5971        

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

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)   Yes     X        No             .

The number of common shares outstanding as of January 31, 2005 was 12,233,425.

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TABLE OF CONTENTS

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Part I – FINANCIAL INFORMATION

Item 1 – Financial Statements

Woodhead Industries, Inc.
Consolidated Balance Sheets
As of January 1, 2005 and October 2, 2004
(Amounts in Thousands)

The accompanying notes are an integral part of these statements.

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Woodhead Industries, Inc.
Consolidated Statements of Income
For the Three Months ended January 1, 2005 and December 27, 2003
(Amounts in Thousands, except per share data, unaudited)

The accompanying notes are an integral part of these statements.

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Woodhead Industries, Inc.
Consolidated Statements of Cash Flows
For the Three Months ended January 1, 2005 and December 27, 2003
(Amounts in Thousands, unaudited)

The accompanying notes are an integral part of these statements.

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Woodhead Industries, Inc.
Consolidated Statements of Comprehensive Income
For the Three Months ended January 1, 2005 and December 27, 2003
(Amounts in Thousands, unaudited)

The accompanying notes are an integral part of these statements.

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Woodhead Industries, Inc.
Notes to Financial Statements
(Amounts in Thousands, except per share data, unaudited)

        1.   BASIS OF PRESENTATION

Our consolidated financial statements include the accounts of all our wholly owned subsidiaries, including those operating outside the United States. 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. Interim results are not necessarily indicative of results for a full year. Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

The accompanying unaudited, consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and footnote disclosures normally included in audited financial statements. In the opinion of management, all normal and necessary adjustments have been made to ensure a fair statement of the results for the interim period.

The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Financial Statements and Notes thereto included in the Woodhead Industries, Inc. 2004 Form 10-K.

        2.   RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) issued the revised SFAS No. 123, Share-Based Payment (SFAS 123(R)). SFAS No. 123(R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements. Generally, compensation cost will be measured based on the grant-date fair value of the equity or liability instrument issued. In addition, liability awards will be remeasured each reporting period. Compensation cost will be recognized over the requisite service period, generally as the award vests. We are required to adopt SFAS No. 123(R) in the fourth quarter of 2005. SFAS No. 123(R) applies to all awards granted after June 30, 2005 and to previously granted awards unvested as of the adoption date. We continue to evaluate the effect of SFAS 123(R) on our financial statements and the related disclosures that will be required.

In January 2003 we adopted SFAS 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 evaluate our accruals for exit costs and employee separation costs to ensure that the accruals are still appropriate. In certain circumstances, accruals are no longer required because of efficiencies in carrying out the plans or because employees previously identified for separation resigned unexpectedly and did not receive severance or were redeployed due to circumstances not foreseen when the original plans were initiated. For the quarter ending January 1, 2005 our expanded disclosure regarding restructuring and other related charges is included in Footnote No. 9.

In January 2003 the FASB issued FASB Interpretation No. 46 (“FIN 46”) Consolidation of Variable Interest Entities, which requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was effective immediately for all new variable interest entities created or acquired after January 31, 2003. We do not have any variable interest entities that require consolidation under FIN 46.

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In December 2003 the FASB issued revised SFAS No. 132 (FAS 132). This statement revises employers’ disclosures about pension plans and other post retirement benefit plans. Revised SFAS No. 132 generally does not change the measurement or recognition standards for how employers account for pension and other post retirement benefits under SFAS No. 87, Employers’ Accounting for Pensions and SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions. Revised SFAS No. 132 retains the disclosure requirements contained in original SFAS No. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits, which it replaces. Revised SFAS No. 132 now requires additional disclosures to those in the original SFAS No. 132 about assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. For the quarter ending January 1, 2005 our additional disclosure is included in Footnote No. 11.

        3.   INVENTORIES

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

Changes in exchange rates increased our inventory levels by $0.9 million when compared to October 2, 2004.

        4.   PROPERTY, PLANT AND EQUIPMENT

For the quarter ended January 1, 2005 we purchased $2.0 million of property plant and equipment compared to $1.8 million for the quarter ended December 27, 2003.

        5.   LONG TERM DEBT

On April 28, 2004 we entered into a new three-year revolving credit agreement with our existing bank that will continue to provide for borrowings up to $25.0 million at the bank’s prime or offered rate. This agreement will expire on April 28, 2007. This new revolving credit agreement states that the maximum ratio of debt to EBITDA, as defined, shall be no greater than 2.5 to 1.0 and minimum interest coverage ratio, as defined, shall be no less than 2.5 to 1.0. We are in compliance with all provisions of our credit agreement. At January 1, 2005 and October 2, 2004 we had no short-term borrowings.

Included in our financial statements is a $17.4 million 6.64% senior guaranteed note, which is held by a subsidiary and has a parental guarantee. In addition, there is a $13.5 million 6.81% senior guaranteed note held by the parent company, which is guaranteed by our U.S. subsidiaries.

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        6.   EARNINGS PER SHARE

Basic earnings per share exclude dilution, and diluted earnings per share reflect the potential dilution that could occur if stock options were exercised. The reconciliation between basic and diluted earnings per share is as follows:

        7.   CAPITAL STOCK

Our total authorized stock is 40,000,000 shares, consisting of 10,000,000 shares of preferred stock, par value $0.01 per share, and 30,000,000 shares of common stock, par value $1.00 per share. No shares of preferred stock have been issued to date. Common stock issued was 12,221,000 and 12,147,000 on January 1, 2005 and October 2, 2004, respectively.

We apply Accounting Principles Board Opinion No. 25: Accounting for Stock Issued to Employees, and related interpretations, including FIN 44: Accounting for Certain Transactions Involving Stock Compensation in accounting for the plans. Accordingly, we do not recognize compensation expense related to option grants. We adopted SFAS No. 148: Accounting for Stock Based Compensation, which amended SFAS No. 123 Accounting for Stock Based Compensation. The following table, per SFAS No. 148, summarizes results as if we had recorded compensation expense for option grants during the three months ended January 1, 2005 and December 27, 2003:

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.

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        8.   SEGMENT AND GEOGRAPHIC DATA

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 to devices in open networks for automated manufacturing and distribution applications. Revenues in our Electrical Safety & Industrial Products Segment (Electrical Segment) are primarily derived from sales of specialized products to support enhanced safety and productivity on the factory floor.

Sales between segments were not significant. Sales in geographic areas were determined by customer location. No single customer accounted for 10 percent or more of our total revenue. Sales in foreign countries did not meet minimum disclosure requirements. We did not allocate certain corporate expenses, primarily those related to the overall management of the corporation, to the segments or geographic areas. Both segments share certain production facilities and equipment (PP&E). These assets, and related additions and depreciation, were allocated based on unit production. Geographic data on assets is based on the physical location of those assets. Corporate assets were primarily investments in subsidiaries and cash.

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        9.   RESTRUCTURING CHARGES

In January 2003 we adopted SFAS 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.

In the quarter ending June 28, 2003 we announced the closing of our Aero-Motive facility in Kalamazoo, Michigan. In addition to selling two small product lines (workstations in the fourth quarter of fiscal 2003 and the government hose reels in the first quarter of 2004) that did not align strategically with our current operations, we consolidated and integrated the remaining manufacturing operations into our facility in Juarez, Mexico, which will improve our overall operating efficiencies. The office operations have been integrated with our Northbrook, Illinois facility. The closing of this facility terminated the employment of 111 total employees, which included 64 plant employees and 47 office employees. At the end of fiscal year 2004 the facility was closed and all employees terminated.

In fiscal year 2004 we recorded restructuring and other related charges of $1.1 million, which related to the closing of our Aero-Motive facility. The Aero-Motive restructuring program is now complete and we recorded $3.2 million of total restructuring charges. Included in the restructuring charges were pension settlement costs of $0.4 million in fiscal 2004. The pension settlement charges were triggered by the reduction in employment levels that required us to recognize past gains and losses in our pension plan accounts. This restructuring charge, including the pension settlement charge, is composed of the following:

The costs included as a one-time termination benefit are the payment of severance benefits that have been expensed. Included in other associated costs are the pension settlement charges of $0.4 million. Accelerated depreciation, legal fees, system conversion costs, incidental salaries and travel expense represent the balance of other associated costs.

For the quarter ended December 27, 2003 we recorded restructuring costs of $0.6 million.

The Aero-Motive restructuring accrual accounts had the following balance at September 27, 2003 and October 2, 2004:

There was no spending activity for the quarter ending January 1, 2005 and the accrual balance remained the same.

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        10.   INCOME TAX EXPENSE

Our effective rate for the quarter ending January 1, 2005 was 22.0% compared to 11.1% for the quarter ending December 27, 2003. The low effective tax rate for the first quarter of 2005 was due mainly to the favorable tax treatment on the exchange gain on the U.S. dollar loan held by our Canadian subsidiary. The low effective tax rate for the first quarter of 2004 was due mainly to the utilization of a capital loss carryforward (which previously had a valuation allowance reported against it) to offset $0.4 million of tax on capital gains from the Aero-Motive product line sale, the tax treatment on the exchange gain on the U.S. dollar loan and the change in the effective Canadian tax rate (due to a change in tax legislation) on deferred tax assets, which resulted in a tax benefit of $0.2 million.

        11.   BENEFIT PLANS

Beginning in April 2003, our post-retirement benefit plan was modified to require retired participants to fund the total cost of the retiree medical program. At September 28, 2002 we had accrued post-retirement benefit cost, which was included in our consolidated balance sheet in the amount of $2.2 million. At December 27, 2003 we had no liability for any of these post retirement benefit costs and the reduction of this $2.2 million liability was amortized over the period from April 1, 2003 to December 27, 2003. During the quarter ended December 27, 2003 we lowered our benefits liability account $0.8 million, which represents the last of the amortization of the $2.2 million liability.

The following table provides the components of net periodic benefit cost for our non-union plans for the three months ended January 1, 2005 and December 27, 2003:

It has been our policy to fund our pension costs by making annual contributions based upon minimum funding provisions of the Employee Retirement Security Act of 1974. We previously disclosed in our financial statements for the year ended October 2, 2004 that we expect to contribute $0.4 million to our non-union plans in 2005. As of January 1, 2005 we had not yet made a contribution to the plans.

        12.   CONTINGENT LIABILITIES

We are subject to federal and state hazardous substance cleanup laws that impose liability for the costs of cleaning up contamination resulting from past spills, disposal or other releases of hazardous substances. In this regard, we have incurred, and expect to incur, assessment, remediation and related costs at one of our facilities. In 1991, we reported to state regulators a release at that site from an underground storage tank (“UST”). The UST and certain contaminated soil subsequently were removed and disposed of at an off-site disposal facility.

We have been conducting an investigation of soil and groundwater at the site with oversight by the state Department of Environmental Quality (“DEQ”). The investigation indicates that, unrelated to the UST release, additional soil and groundwater at the site have been impaired by chlorinated solvents, including tetrachloroethane and trichloroethylene, and other compounds. Also, our investigation revealed that the previous owners of the site had used a portion of the site as a disposal area. We have remediated the soils in this area but we believe that it is

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a source of contamination of groundwater, both on-site and off-site. Our investigation indicates that there were releases by the previous owners in areas over which additions were subsequently built. These releases have impacted groundwater that has migrated off-site. We have implemented a groundwater remediation system for the on-site contamination. We continue to monitor and analyze conditions to determine the continued efficacy of the system. We also have implemented a groundwater remediation system for the off-site contamination. We continue to analyze other remedial alternatives for the off-site groundwater contamination and are reviewing these alternatives with the DEQ.

We previously filed a complaint in federal district court seeking contribution from the previous owners of the site for the cost of the investigation and remediation of the site. We settled that litigation through a consent judgment against the former owners. Also, we asserted claims against insurers of the former owners for the amounts specified in the consent judgment. The insurers denied coverage and three of them filed a declaratory judgment action to that effect against us in federal district court. In July 2004 the federal district court entered an Order and Judgment on cross motions for summary disposition resolving the claims in favor of the insurers. We have filed an appeal to the U.S. Court of Appeals for the Sixth Circuit.

We have a reserve for the $1.6 million of investigation and remediation expenses we have estimated to be incurred over the next 14 years to address the environmental issue at our site in Michigan. We based our estimate on the future costs expected to be incurred to investigate, monitor and remediate the site. Our cost estimate continues to be subject to substantial uncertainty because of the extent of the contamination area, the variety and nature of geological conditions throughout the contamination area, changes in remediation technology and the state’s Department of Environmental Quality feedback. Funding this activity will come from operating cash flows and only changes to the reserve estimate will affect the results of operations.

We indemnify certain customers with regard to product liability. We have insurance policies to cover this exposure, which includes a minimal deductible to be paid by us.

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Item 2 – Management’s Discussion and Analysis of Financial Condition
and Results of Operations

Overview

Woodhead Industries develops, manufactures and markets network and electrical infrastructure products engineered for performance in demanding, harsh, or hazardous environments. We are known in the global industrial market by our recognized brands which include Brad Harrison^®, SST™, Daniel Woodhead^®, mPm^®, applicom^®, Aero-Motive^® and RJ-Lnxx^®. Our expertise extends from mechanical, electrical and electronics products to communication software products and technologies.

Woodhead operates from twenty-one locations in ten countries spanning North America, Europe and Asia/Pacific.

Results of Operations

First quarter fiscal 2005 results compared with first quarter fiscal 2004 results

SALES
Sales in the quarter ended January 1, 2005 were $48.7 million, an increase of 7.8% compared to sales of $45.1 million for the quarter ended December 27, 2003. This increase was due mainly to the increased sales volume in the Connectivity segment and the positive effects resulting from changes in exchange rates of $1.8 million. This increase was partially offset by weaker than expected sales in our Electrical segment. For the first quarter 2005 Connectivity sales were $36.9 million, an 11.4% increase over the $33.1 million in sales reported for the first quarter 2004. Favorable foreign exchange rates accounted for $1.8 million of this increase. In constant dollars we experienced solid sales growth in North America and Asia of 8.4% and 41.6%, respectively, when compared to the first quarter of 2004. Sales in Europe decreased 1.1% when compared to last year, due to the economic slow-down of the European manufacturing environment with many of our customers in this region shut down earlier than normal for the holidays. While we started the fiscal year slowly in Europe we now see a strong demand for our products worldwide. Connectivity sales represented 75.8% of our total first quarter sales, which reflects our continued focus on the growth of this segment. Electrical sales were $11.8 million in the quarter ended January 1, 2005 and $12.0 million in the same quarter last year, a 2.0% decrease. This decrease was due mainly to the decrease in industrial product sales after the migration of production to Juarez, Mexico and the sale of a product line in the first quarter of 2004. Electrical sales represented 24.2% of our 2005 first quarter sales.

SALES BY REGION
In the United States sales were $26.6 million in the first quarter of fiscal 2005 compared to $25.6 million in the first quarter of 2004. We recorded 45% and 43% of our revenues in foreign currencies during the first quarters of fiscal 2005 and 2004, respectively. Our international revenue was up 12.8% in the first quarter of fiscal 2005 when compared to last year. This increase was mainly due to the strong operating performance in Japan and Canada and the favorable impact from foreign exchange rate changes. In constant dollars, sales in Japan and Canada increased 43.8% and 13.0%, respectively, when compared to the first quarter of 2004. In constant dollars North American sales increased 4.2% in the first quarter of 2005 even with the 2.0% decrease in our Electrical segment sales. In constant dollars European sales decreased 1.1% with decreases in the U.K and Italy of 10.9% and 3.3%, respectively. These decreases were partially offset by an increase in Germany of 14.1%.

BACKLOG
The backlog of unfilled orders stood at $19.0 million at the end of this quarter as compared to $17.7 million a year ago, which translates to 25 and 24 average days of sales for the first quarters of 2005 and 2004, respectively. Our backlog has improved 22.4% compare to the 2004 year-end levels of $15.5 million.

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GROSS PROFIT
Gross profit as a percent of sales was 34.4% in the first quarter of fiscal 2005 down 2.2 points from last years gross profit of 36.6%. This decrease in gross profit is wholly attributable to issues that were experienced in our Electrical segment. There were several small issues that occurred during the quarter but when combined had a significant impact on our gross profit. First, costs associated with the launch of our new Electrical consumer product, including the freight and logistics costs of getting the product from China to the individual stores, were much higher than planned. Second, freight costs associated with the final migration of production to Juarez, Mexico continued to be higher than planned due to not changing our supplier base from the Midwest. Finally, we had a temporary shift towards certain lower margin lighting products due to several large one-time orders.

OPERATING EXPENSES
Operating expenses were $16.5 million in the first quarter 2005 compared to $15.6 million in the first quarter of 2004. These expenses were 33.9% of sales in the first quarter of 2005 compared to last year’s 34.5%. This decrease as a percentage of sales was due to the increased sales levels. Operating expenses in the first quarter of 2004 included a restructuring charge of $0.6 million related to the migration of operations from our Aero-Motive subsidiary to Juarez, Mexico. Exchange rate changes increased operating expenses by $0.7 million when compared to the first quarter of 2004. Also contributing to the increase compared to the first quarter of 2004 was the planned investment in sales and marketing initiatives, which includes the hiring of additional experienced sales professionals in North America. Although these initiatives were started during quarter 1 of 2004, the full effect on expense was not realized until the second half of the year. Contributing to the year over year increase was a $0.8 million credit in the first quarter of 2004 resulting from the reduction in our liability for retiree medical benefits.

SEGMENT OPERATING INCOME
Income from operations in the first quarter of 2005 was $0.1 million in the Connectivity segment compared to $0.3 million in 2004. This decline was due to higher operating expenses associated with the investment in growth initiatives and exchange rate changes, which more than offset the benefit of higher revenue and the small improvement in gross margins. The Electrical segment recorded income from operations in the first quarter of 2005 of $0.3 million compared to $0.9 million in 2004. This decrease was due to the gross profit issues mentioned earlier.

MISCELLANEOUS INCOME/EXPENSE
Miscellaneous income in the first quarter of 2005 was $1.8 million compared to miscellaneous income of $1.9 million in the first quarter of 2004. Miscellaneous income in the first quarter of 2005 was primarily due to the $1.3 gain realized from exchange rate changes, due primarily to a U.S. Dollar denominated loan that our Canadian subsidiary used to acquire the assets of SST in early 1998. Also included were earn-out fees of $0.3 million received for the sale of the Aero-Motive product line in the first quarter of 2004 and the gain of $0.2 million from the sale of a small product line in Germany. Miscellaneous income in the first quarter of 2004 consisted mainly of a $1.2 million gain on the sale of the Aero-Motive government hose reel product line and a $0.9 million gain realized from exchange rate changes on the U.S. Dollar loan.

NET INCOME
Net income in the first quarter of 2005 was $1.2 million compared to $2.1 million in 2004. Our effective tax rate was 22.0% and 11.1% for the quarters ending January 1, 2005 and December 27, 2003. The low effective tax rate for the first quarter of 2005 was due mainly to the favorable tax treatment on the exchange gain on the U.S. dollar loan held by our Canadian subsidiary. The low effective tax rate for the first quarter of 2004 was due mainly to the utilization of a capital loss carryforward (which previously had a valuation allowance reported against it) to offset $0.4 million of tax on capital gains from the Aero-Motive product line sale, the tax treatment on the exchange gain on the U.S. dollar loan and the change in the effective Canadian tax rate (due to a change in tax legislation) on deferred tax assets, which resulted in a tax benefit of $0.2 million.

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Financial Condition, Liquidity and Capital Resources

At January 1, 2005 we had $17.1 million in cash and short-term investments, up from $16.7 million at year-end October 2, 2004. This slight increase in cash was due mainly to our operating cash flow of $3.6 million, which was partially offset by spending for property, plant and equipment and our quarterly dividend.

Working capital in the first quarter of 2005 increased to $55.5 million compared to $52.8 million at October 2, 2004. This increase in working capital was due mainly to the increase in inventory, which is the result of higher sales and the exchange rate effects on our foreign assets. Also contributing to this increase was the decrease in accrued expenses due mainly to the payment of 2004 bonus and profit sharing.

We continue to invest in property and equipment, including new machinery, computer systems and facilities. For the first three months of 2005 we invested $2.0 million in property, plant and equipment compared to $1.8 million in the first three months of 2004.

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 through the current fiscal year.

At January 1, 2005 we had $30.9 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. On April 28, 2004 we entered into a new three-year revolving credit agreement with our existing bank that will continue to provide for borrowings up to $25.0 million at the bank’s prime or offered rate. This agreement will expire on April 28, 2007. This new revolving credit agreement states that the maximum ratio of debt to EBITDA, as defined, shall be no greater than 2.5 to 1.0 and minimum interest coverage ratio, as defined, shall be no less than 2.5 to 1.0. We are in compliance with all provisions of our funding agreement. At January 1, 2005 and October 2, 2004 we had no short-term borrowings.

We do not have any exposures to off-balance sheet arrangements, including special purpose entities, or activities that include non-exchange-traded contracts accounted for at fair value.

Contractual Obligations

Our contractual obligations for long-term debt, purchase obligations, capital leases and operating leases on the balance sheet remained substantially unchanged as of January 1, 2005 from the amounts disclosed as of October 2, 2004 in our Form 10-K.

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. For additional details on the environmental exposure, see Part II – Other Information: Item 1 – Legal Proceedings.

Critical Accounting Policies

The preparation of this Quarterly Report requires management’s judgment to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

Our significant accounting policies are described in the Management’s Discussion and Analysis of Financial Condition and Results of Operation in our Form 10-K for the year ended October 2, 2004. There have been no significant changes to those accounting policies subsequent to October 2, 2004.

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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 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.

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Item 3 – Quantitative and Qualitative Disclosures about Market Risk

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 derivative financial instruments. We use financial instruments to selectively hedge our foreign currency risk and do not use financial instruments for speculative purposes.

In 1998 we entered into a foreign currency swap agreement with an AA- rated counter-party to hedge a portion of our cash flows from our Italian subsidiary. We base the fair value for our cross-currency swap on the total cost estimate to terminate the agreement. The fair value of the swap at January 1, 2005 was recorded as a $1.3 million liability.

$30.9 million of 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.

Item 4 – Internal Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. This information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Our management, including our principal executive officer and our principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures within 90 days of the filing date of this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in alerting them on a timely basis to material information required to be disclosed in our periodic filings.

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in the foregoing paragraph.

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PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

We are subject to federal and state hazardous substance cleanup laws that impose liability for the costs of cleaning up contamination resulting from past spills, disposal or other releases of hazardous substances. In this regard, we have incurred, and expect to incur, assessment, remediation and related costs at one of our facilities. In 1991, we reported to state regulators a release at that site from an underground storage tank (“UST”). The UST and certain contaminated soil subsequently were removed and disposed of at an off-site disposal facility.

We have been conducting an investigation of soil and groundwater at the site with oversight by the state Department of Environmental Quality (“DEQ”). The investigation indicates that, unrelated to the UST release, additional soil and groundwater at the site have been impaired by chlorinated solvents, including tetrachloroethane and trichloroethylene, and other compounds. Also, our investigation revealed that the previous owners of the site had used a portion of the site as a disposal area. We have remediated the soils in this area but we believe that it is a source of contamination of groundwater, both on-site and off-site. Our investigation indicates that there were releases by the previous owners in areas over which additions were subsequently built. These releases have impacted groundwater that has migrated off-site. We have implemented a groundwater remediation system for the on-site contamination. We continue to monitor and analyze conditions to determine the continued efficacy of the system. We also have implemented a groundwater remediation system for the off-site contamination. We continue to analyze other remedial alternatives for the off-site groundwater contamination and are reviewing these alternatives with the DEQ.

We previously filed a complaint in federal district court seeking contribution from the previous owners of the site for the cost of the investigation and remediation of the site. We settled that litigation through a consent judgment against the former owners. Also, we asserted claims against insurers of the former owners for the amounts specified in the consent judgment. The insurers denied coverage and three of them filed a declaratory judgment action to that effect against us in federal district court. In July 2004 the federal district court entered an Order and Judgment on cross motions for summary disposition resolving the claims in favor of the insurers. We have filed an appeal to the U.S. Court of Appeals for the Sixth Circuit.

We have a reserve for the $1.6 million of investigation and remediation expenses we have estimated to be incurred over the next 14 years to address the environmental issue at our site in Michigan. We based our estimate on the future costs expected to be incurred to investigate, monitor and remediate the site. Our cost estimate continues to be subject to substantial uncertainty because of the extent of the contamination area, the variety and nature of geological conditions throughout the contamination area, changes in remediation technology and the state’s Department of Environmental Quality feedback. Funding this activity will come from operating cash flows and only changes to the reserve estimate will affect the results of operations.

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Item 6 – Exhibits

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SIGNATURES

Under the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, this report was signed on behalf of the Registrant by the authorized persons below.

WOODHEAD INDUSTRIES, INC.

Date: February 9, 2005

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