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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-K

Commission File Number 0-28582

Registrant’s telephone number, including area code: (909) 719-2600

Securities registered pursuant to Section 12(b) of the Act:

None

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.

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

          On March 25, 2003, the Registrant had 9,124,993 shares of Common Stock outstanding with a par value of $.01 per share.  The aggregate market value of the 4,104,863 shares held by non-affiliates of the Registrant was $28,734,041 computed by reference to the price at which the shares were last sold, as of the last business day of the Registrant’s most recently completed second fiscal quarter.  Shares of Common Stock held by each officer and director and by each person who may be deemed to be an affiliate have been excluded.

          Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

DOCUMENTS INCORPORATED BY REFERENCE

          Part III of this Form 10-K incorporates by reference certain information from the Registrant’s definitive proxy statement (the “Proxy Statement”) for its annual meeting of stockholders to be held on April 25, 2003.

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TABLE OF CONTENTS

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PART I

Item 1.  Business

Background

          Channell Commercial Corporation (the “Company”) was incorporated in Delaware on April 23, 1996, as the successor to Channell Commercial Corporation, a California corporation.  The Company’s executive offices are located at 26040 Ynez Road, Temecula, California 92591, and its telephone number at that address is (909) 719-2600.

General

          The Company is a designer and manufacturer of telecommunications equipment supplied to cable television and telephone network providers worldwide.  Major product lines include a complete line of thermoplastic and metal fabricated enclosures, advanced copper termination and connectorization products, fiber optic cable management systems, and heat shrink products.   The Company believes it was the first to design, manufacture and market thermoplastic enclosure products for use in the telecommunications industry on a wide scale, and the Company believes it currently supplies a substantial portion of the enclosure product requirements of a number of major community antenna television (“CATV”) and telephone service providers.  The Company’s enclosure products house, protect and provide access to advanced telecommunications hardware, including both radio frequency (“RF”) electronics and photonics, and transmission media, including coaxial cable, copper wire and optical fibers, used in the delivery of voice, video and data services.  The enclosure products are deployed within the portion of the local signal delivery network, commonly known as the “outside plant”, “local loop” or “last mile”, that connects the network provider’s signal origination point or local office with its residential and business customers.

Industry

          CATV and local telephone operators are building, rebuilding or upgrading signal delivery networks around the world.  These networks are designed to deliver video, voice and/or data transmissions to individual residences and businesses.  Operators deploy a variety of network technologies and architectures, such as HFC, FTTC, DLC and ADSL (see “Glossary of Terms”) to carry broadband and narrowband signals.  These architectures are constructed of electronic hardware connected via coaxial cables, copper wires and/or optical fibers, including various access devices, amplifiers, nodes, hubs and other signal transmission and powering electronics.  Many of these devices in the outside plant require housing in secure, protective enclosures and cable management connectivity systems, such as those manufactured by the Company.

          As critical components of the outside plant, enclosure products provide (i) protection against weather and vandalism, (ii) ready access for technicians who maintain and manage the outside plant and, (iii) in some cases, provide dissipation of heat generated by the active electronic hardware.  CATV and local telephone network operators place great reliance on manufacturers of protective enclosures because any material damage to the signal delivery networks is likely to disrupt communications services.

          The primary drivers of demand for enclosures in the communications industry are the construction, rebuilding, upgrading and maintenance of signal delivery networks by CATV operators and local telephone companies. Technological developments in the communications industry are resulting in significant increases in system upgrades.  For example, CATV networks are being upgraded and prepared for advanced two-way services such as high-speed Internet access via cable modems, telephony and PCS transport. Local telephone service providers are employing advanced technologies, such as a variety of digital subscriber line (“DSL”) technologies, which utilize installed copper wires for broadband services.  These “local loop” copper wire systems often require significant upgrading and maintenance to provide the optimal throughput necessary to carry high-speed broadband signals, increasing the need for fully sealed outside plant facilities in order to sustain network reliability and longevity.

Business Strategy

          The Company’s strategy is to capitalize on opportunities in the global communications industry by providing enclosures, connectivity products and other complementary components to meet the evolving needs of its customers’ communications networks.  The Company’s wide range of products, manufacturing expertise, application-based sales and marketing approach and reputation for high quality products address key

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requirements of its customers. Principal elements of the Company’s strategy include the following:

          Focus on Core Telecommunications Business.The Company will continue to seek to capitalize on its position as a leading designer, manufacturer and marketer of enclosures for the CATV and local telephone industries in the United States and Canada through new product development for both domestic and international market applications.  The Company believes it currently supplies a substantial portion of the enclosure product requirements of a number of major CATV operators. 

          The Company has invested in the development of a broad range of products designed specifically for telephone applications. The Company has successfully marketed its traditional CATV/broadband products to local telephone companies that have been designing and deploying broadband networks to deliver competitive video and data services.  The Company will continue to target this market for growth, both with telephone network operators and with major system OEMs.

          Expand International Presence. Management believes international markets offer significant opportunities for increased sales to both CATV and telephone companies. The Company’s principal international markets currently consist of Canada, Mexico, Asia, the Pacific Rim, the Middle East and Europe.  Trends expected to result in international growth opportunities include the on-going deregulation and privatization of telecommunications in many nations around the world, the focus of numerous countries on building, expanding and enhancing their communications systems in order to participate fully in the information-based global economy, and multinational expansion by many U.S.-based network carriers.  The Company currently operates overseas manufacturing operations in Australia and the U.K.  The Company will concentrate on expansion in international markets that are characterized by deregulation or privatization of telecommunications and by the availability of capital for the construction of signal delivery networks.

          Develop New Products and Enter New Markets.  The Company continues to leverage its core capabilities in developing innovative products that meet the evolving needs of its customers.  Innovative products offered by the Company include its DSLink™ modular terminal block, its FlexPed™ free-breathing telephony enclosures, the Mini-Rocker™ insulation displacement copper connectivity products, and a range of Rhino™ metal fabricated enclosures.  The Company continually invests in ongoing improvement and enhancement projects for the existing products developed by the Company, several of which have received U.S. patent protection.  The Company’s products are designed to improve the performance of its customers’ outside plant systems.  The Company has a proven record in designing, developing and manufacturing “next generation” products that provide solutions for its customers and offer advantages over those offered by other suppliers to the industry.

Products

          The Company currently markets over 50 product families, with several thousand optional product configurations.  The primary functions of the Company’s products designed for the telecommunications industry are cable routing and management, equipment access, heat dissipation and security.  The Company believes that it offers one of the most complete lines of outside plant infrastructure products in the telecommunications industry.

          Enclosures.  The Company manufactures precision-molded, highly engineered and application-specific thermoplastic and metal fabricated enclosures that are considered state-of-the-industry for many applications, having been field tested and received approvals and standardization certifications from major CATV and telephone company operators.  Most of the Company’s products are designed for buried and underground network applications.  The Company’s enclosure products provide technicians access to network equipment for maintenance, upgrades and installation of new services.  Buried and underground networks and enclosures are generally preferred by CATV operators for increased network reliability, lower maintenance, improved security, reduced utility right-of-way conflicts, and aesthetic appeal. The enclosure products, particularly the thermoplastic versions, must provide advanced heat dissipation characteristics increasingly required for the protection of active electronics in many network installations.  The Company is also a designer and manufacturer of metal fabricated enclosures that house advanced electronics, fiber optic cable and power systems for broadband telecommunications networks (branded as “Rhino Enclosures™”).  The Company designs and manufactures a series of termination blocks, brackets and cable management devices for mounting inside its enclosure products.  To position itself as a full-line product supplier, the Company also offers a variety of complementary products, including thermoplastic and concrete grade level boxes.  These products are typically purchased by customers as part of a system package and are marketed by the Company through its direct sales force to its customer base.  The Company is recognized in the industry for its differentiated product designs and the functionality, field performance and service life of its products.

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          Copper Connectivity.   The Company is a designer and manufacturer of innovative telephone connectivity devices.  The Company’s Insulation Displacement Connector (“IDC”) technology provides advanced “tool-less” termination systems for copper wires, the predominant medium used in the “Last Mile” for telephone services worldwide.  These proprietary IDC products environmentally seal network termination points with a high level of reliability.  The Company’s DSLink ^TM  modular terminal block offers telephone service providers a CAT 5 solution to the rising costs of DSL deployment in the local loop. The Company’s Mini-Rocker™ line of copper connectivity modules, blocks and accessories offer tool-less installation, hinged wire-entry parts and transparent wire receivers.

          Fiber Optic Products.  The Company offers a range of fiber optic cable management products designed for use in telephone and CATV telecommunications networks.  The Company’s fiber optic splice cases are used for organizing, managing and protecting the connection points between separate lengths of fiber optic cable in the outside plant network.  Fiber optic cable assemblies and interconnect hardware are used to connect fiber optic electronics and fiber optic cables primarily for in-building applications.  Fiber optic electronic enclosures house optical electronics, power supplies and cables.  All of these products are designed and manufactured by the Company and marketed worldwide. 

          OEM Programs.  The Company has OEM marketing programs through which other manufacturers incorporate the Company’s products as components of their telecommunications systems.  These OEM programs generally include exchanges of technical information that the Company can use in developing new products and improvements and enhancements to existing designs.  The Company has established additional relationships with systems integrators and innovative end users that provide valuable product improvement information.

Marketing and Sales

          The Company markets its products primarily through a direct sales force of technically trained salespeople. The Company employs an application-specific, systems approach to marketing its products, offering the customer a complete, cost-effective system solution to meet its outside plant requirements.  All sales personnel have technical expertise in the products they market and are supported by the Company^’s engineering and technical marketing staff.

          An internal sales/customer service department  administers and schedules incoming orders, handles requests for product enhancements and service inquiries and supports the Company’s direct sales force. This department maintains direct communications with customers and the Company’s field sales and operations personnel.

          By engaging in public relations activities, product literature development, market research and advertising, the marketing department also promotes and positions the Company within both domestic and international markets.  The Company regularly attends, participates and exhibits its products at industry trade shows and conferences within domestic and international telecommunications markets throughout the year.

Manufacturing Operations

          The Company’s vertically integrated manufacturing operations enable the Company to control each step in the manufacturing process, including product design and engineering; design and production of many of its own dies, tools and molds; and wiring, assembly and packaging.

          The Company’s manufacturing expertise enables it to modify its product lines to meet changing market demands, rapidly and efficiently produce large volumes of products, control expenses and ensure product quality.  Management considers the Company’s manufacturing expertise a distinct and significant competitive advantage, providing it with the ability to satisfy the requirements of major customers with relatively short lead-times by promptly booking and shipping orders.

          The Company owns a majority of its manufacturing equipment.  Manufacturing processes are performed by trained Company personnel.  These manufacturing processes include injection molding, structural foam molding, rotational molding, metal fabrication, automated discrete connector fabrication, rubber injection, transfer and compression molding, and termination block fabrication.  The Company has implemented several comprehensive process and quality assurance programs, including continuous monitoring of key processes, regular product inspections and comprehensive testing.  The Company’s Temecula, California manufacturing facility has received ISO-9001 certification, a worldwide industry standards certification.

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          The Company’s manufacturing and distribution facilities include approximately 304,000 square feet in Temecula, California; 7,000 square feet in Mississauga, Ontario, Canada; 43,000 square feet in Orpington, United Kingdom; and 40,000 square feet in Sydney, Australia.  In November, 2001, the Company announced a restructuring plan (see Financial Statement Footnote H, Restructuring Charge) that would, among other things, reduce its facilities utilization in the U.S., U.K. and Australia operations to improve operating efficiencies and reduce facilities expense.  In December, 2002, the Company announced additional steps to rationalize international manufacturing operations to further consolidate manufacturing operations. The Company has completed the majority of its facilities reduction program.

Product Development and Engineering

          The Company’s product development and engineering staff has designed and tested the Company’s products and has developed core competencies in telecommunications outside plant product development and engineering. As a direct result, the Company has been able to develop a broad series of superior products designed to meet the specific needs of telecommunications companies.  Distinguishing characteristics of the Company’s products include:

          The Company’s product development approach is applications-based and customer driven.  A team comprised of engineering, marketing, manufacturing and direct sales personnel work together to define, develop and deliver comprehensive systems solutions to customers, focusing on the complete design cycle from product concept through tooling and high-volume manufacturing.  The Company is equipped to conduct many of its own product testing requirements for performance qualification purposes, enabling it to accelerate the product development process.  The Company spent $2.8 million in 2000, $2.3 million in 2001, and $1.6 million in 2002 on research and development.

Customers

          The Company sells its products directly to CATV operators and telephone companies throughout the world, principally within developed nations.  The Company also sells its products to OEMs on a global basis.  During 2002, the Company’s five largest customers accounted for 57.2% of total net sales.  In 2002, the Company’s five largest customers by sales in the United States were Comcast/AT&T Broadband, Time Warner, Verizon, Cox and Charter. Comcast/AT&T Broadband accounted for 28% of the Company’s net sales in 2002.  In international markets, the Company’s five largest customers in 2002 by sales were Rogers (Canada), Telstra (Australia), Unitelco (Malaysia), Fluor (U.K.) and British Telecom.

          The Company has historically operated with a relatively small backlog. Sales and operating results in any quarter are primarily dependent upon orders booked and products shipped in the quarter.  The Company’s customers generally do not enter into long-term supply contracts providing for future purchase commitments of the Company’s products.  Rather, the Company believes that many of its customers periodically review their supply relationships and adjust buying patterns based upon their current assessment of the products and pricing available in the marketplace.  From fiscal period to fiscal period, significant changes in the level of purchases of the Company’s products by specific customers can and do result from this periodic assessment.

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Intellectual Property

          Upon the consummation of its initial public offering (the “Initial Public Offering”) in 1996, the Company became the owner of all of the patents and other technology employed by it in the manufacture and design of its products.  The Company’s patents, which expire through the year 2010, cover various aspects of the Company’s products.  In addition, the Company has certain trade secrets, know-how and trademarks related to its technology and products.

          Management does not believe any single patent or other intellectual property right is material to the Company’s success as a whole.  The Company intends to maintain an intellectual property protection program designed to preserve its intellectual property assets.

Competition

          The telecommunications industry is highly competitive.  The Company’s competitors include companies that are much larger than the Company, such as Tyco, 3M, Marconi, Arris and Corning.  The Company believes its competitive advantages include its ability to service national and multi-national customers, its direct sales force, its specialized engineering resources and its vertically integrated manufacturing operations.

          Management believes the principal competitive factors in the telecommunications equipment market are customer service, new product capabilities, price, product availability, and product performance.

          Competitive price pressures are common in the industry.  In the past, the Company has responded effectively to competition with cost controls through vertical integration utilizing advanced manufacturing techniques, cost-effective product designs and material selection, and an aggressive procurement approach.

          In the past, certain of the Company’s telecommunications customers have required relatively lengthy field testing of new products prior to purchasing such products in quantity.  While field testing can delay the introduction of new products, it can also act as a competitive advantage for those products tested and approved because to a certain extent it creates a barrier to new product introduction and sales by competitors.

Raw Materials; Availability of Complementary Products

          The principal raw materials used by the Company are thermoplastic resins, neoprene rubbers, hot and cold rolled steel, stainless steel and copper.  The Company also uses certain other raw materials, such as fasteners, packaging materials and communications cable.  Management believes the Company has adequate sources of supply for the raw materials used in its manufacturing processes and it attempts to develop and maintain multiple sources of supply in order to extend the availability and encourage competitive pricing of these materials.

          Most plastic resins are purchased under annual or multi-year contracts to stabilize costs and improve supplier delivery performance.  Neoprene rubbers are manufactured by multiple custom compounders using the Company’s proprietary formulas.  Metal products are supplied in standard stock shapes, coils and custom rollforms.

          The Company also relies on certain other manufacturers to supply products that complement the Company’s own product line, such as grade level boxes and cable-in-conduit.  The Company believes there are multiple sources of supply for these products.

Employees

          As of December 31, 2002, the Company employed 402 people, of whom 50 were in sales, 311 were in manufacturing operations, 8 were in research and development and 33 were in administration.  The Company considers its employee relations to be good and recognizes its ability to attract and retain qualified employees is an important factor in its growth and development.  None of the Company’s employees is subject to a collective bargaining agreement, and the Company has not experienced any business interruption as a result of labor disputes within the past five years.

Regulation

          The telecommunications industry is subject to regulations in the United States and other countries.  Federal

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and state regulatory agencies regulate most of the Company’s domestic customers.  On February 1, 1996, the United States Congress passed the Telecommunications Act of 1996 that the President signed into law on February 8, 1996.  The Telecommunications Act lifted certain restrictions on the ability of companies, including RBOCs and other customers of the Company, to compete with one another and generally reduced the regulation of the communications industry.

          The Company is also subject to a wide variety of federal, state and local environmental laws and regulations.  The Company utilizes, principally in connection with its thermoplastic manufacturing processes, a limited number of chemicals or similar substances that are classified as hazardous.  It is difficult to predict what impact these environmental laws and regulations may have on the Company in the future.  Restrictions on chemical uses or certain manufacturing processes could restrict the ability of the Company to operate in the manner that it currently operates or is permitted to operate.  Management believes that the Company’s operations are in compliance in all material respects with current environmental laws and regulations.  Nevertheless, it is possible that the Company may experience releases of certain chemicals to environmental media which could constitute violations of environmental law (and have an impact on its operations) or which could cause the Company to incur material cleanup costs or other damages.  For these reasons, the Company might become involved in legal proceedings involving exposure to chemicals or the remediation of environmental contamination from past or present operations.   Because certain environmental laws impose strict joint and several retrospective liability upon current owners or operators of facilities from which there have been releases of hazardous substances, the Company could be held liable for remedial measures or other damages (such as liability in personal injury actions) at properties it owns or utilizes in its operations, even if the contamination were not caused by the Company’s operations.

Item 2.  Properties

          The Company’s facilities approximate 544,000 square feet, of which approximately 52%, 32% and 16% were used for manufacturing, warehouse and office space, respectively.  In Temecula, California, 261,000 square feet of the total 364,000 square feet are leased from William H. Channell, Sr., the Company’s Chairman of the Board and Chief Executive Officer.  (See “Certain Relationships and Related Transactions”, Item 13.)  The Company also leases an aggregate of approximately 180,000 square feet of manufacturing, warehouse and office space in Canada, Australia and the United Kingdom. In November, 2001, the Company announced a restructuring plan (see Financial Statement Footnote H, Restructuring Charge) that would, among other things, reduce its facilities utilization in the U.S., U.K. and Australia operations to improve operating efficiencies and reduce facilities expense.  In December, 2002, the Company announced additional steps to rationalize international manufacturing operations to further consolidate manufacturing operations.  The Company has completed the majority of its facilities reduction program.  Included in the Company’s facilities of 544,000 square feet is 150,000 square feet that has been vacated as part of restructuring activities.  The Company is attempting to sublease the vacated space. In 2002, the Company completed a sale and leaseback of approximately 103,000 square feet of manufacturing, warehouse and office space in Temecula, California.  The Company sold approximately 53,000 square feet of manufacturing, warehouse and office space in the United Kingdom in January, 2003.  The Company considers its current facilities to be adequate for its operations.

Item 3.  Legal Proceedings

          The Company is from time to time involved in ordinary routine litigation incidental to the conduct of its business.  The Company regularly reviews all pending litigation matters in which it is involved and establishes reserves deemed appropriate for such litigation matters.  Management believes that no presently pending litigation matters will have a material adverse effect on its business or on its results of operations.

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

          No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

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PART II

Item 5.  Market for Registrant’s Common Equity and Related Shareholder Matters

          The Company’s Common Stock began trading on July 2, 1996 on the National Market System maintained by the National Association of Securities Dealers (now the NASDAQ National Market) upon completion of the Company’s Initial Public Offering.  The following table sets forth, for the periods indicated, the high and low sale prices for the Company’s Common Stock, as reported on the NASDAQ National Market.

          The Company has not declared any dividends subsequent to its Initial Public Offering in July 1996.

          The Company currently anticipates it will retain all available funds to finance its business.  The Company does not intend to pay cash dividends in the foreseeable future.  Under the terms of the Company’s Loan and Security Agreement, the Company has agreed not to pay any dividends.

          As of March 25, 2003, the Company had 9,124,993 shares of its Common Stock outstanding, held by approximately 781 shareholders of record.

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Item 6.  Selected Financial Data

          The selected consolidated financial data presented below for each of the five years in the period ended December 31, 2002, have been derived from audited consolidated financial statements which for the most recent three years appear elsewhere herein. The data should be read in conjunction with the financial statements, related notes and other financial information included therein (amounts in thousands, except per share data).

Notes to Selected Financial Data
(amounts in thousands, except per share data)

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

General

          The Company is a designer and manufacturer of telecommunications equipment supplied to telephone and CATV network providers worldwide.  In addition to Company manufactured products, the Company markets complementary products manufactured by third parties. The Company sells products directly to CATV operators and telephone companies throughout the United States, Canada, Australia, United Kingdom and certain other international markets, principally within developed nations.  The Company believes that many of its customers periodically review their supply relationships and consequently the Company can experience significant changes in buying patterns from specific customers between fiscal periods. The Company has historically operated with a relatively small backlog with sales and operating results in any quarter principally dependent upon orders booked and products shipped in that quarter.  The Company’s customers generally do not enter into long-term supply contracts providing for future purchase commitments for the Company’s products. These factors, when combined with the Company’s operating leverage and the need to incur certain capital expenditures and expenses in part based upon the expectation of future sales, causes the Company’s operating results to be at risk to changing customer buying patterns.  If sales levels in a particular period do not meet the Company’s expectations, operating results for that period may be materially and adversely affected.

          The Company uses numerous raw materials in its manufacturing processes.  Although management believes that the Company has adequate sources of supply for such raw materials, increases in the market prices of the Company’s raw materials could significantly increase the Company’s cost of goods sold and materially adversely affect the Company’s profitability.  The Company’s profitability may also be materially and adversely affected by decreases in its sales volume because many of the costs associated with the Company’s facilities, product development, engineering, tooling and other manufacturing processes are essentially fixed in nature and must be spread over its sales base in order to maintain historical levels of profitability.

Critical Accounting Policies

          The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its estimates on historical experience and on assumptions that are believed to be reasonable under the circumstances and revises its estimates, as appropriate, when changes in events or circumstances indicate that revisions may be necessary. Although these estimates are based on management’s knowledge of and experience with past and current events and on management’s assumptions about future events, it is at least reasonably possible that they may ultimately differ materially from actual results.

          The critical accounting policies requiring estimates and assumptions that management believes have the most significant impact on our consolidated financial statements are:

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          Allowance for doubtful accounts.  Allowances for doubtful accounts are maintained for estimated losses expected to result from the inability of our customers to make required payments. These estimates are based on management’s evaluation of the ability of customers to make payments, focusing on current economic conditions, customer financial conditions, historical payment experience and aging of receivable balances. An adverse change in financial condition of a significant customer or group of customers could materially affect management’s estimates related to doubtful accounts.

          Allowances for excess and obsolete inventory. The estimates of excess and obsolete inventory are based on management’s assumptions about and analysis of relevant factors including historical sales and usage of items in inventory, current levels of orders and backlog, forecasted demand, product life cycle and market conditions.  Management does not believe the Company’s products are subject to a significant risk of obsolescence in the short term and management believes it has the ability to adjust production levels in response to declining demand. However, if actual market conditions become less favorable than anticipated by management, additional allowances for excess and obsolete inventory could be required.  In the event management adjusts estimates such as forecasted sales or expected product lifecycles, the value of the Company’s inventory may become under or overstated and recognition of such under or overstatement will affect cost of sales in a future period, which could materially affect the Company’s operating results and financial position.

          Valuation of goodwill and long-lived assets.  Management reviews goodwill and long-lived assets for impairment when events or changes in circumstances indicate the carrying values may not be fully recoverable. Management assesses potential impairment of the carrying values of these assets based on market prices, if available, and/or assumptions about and estimates of future cash flows expected to be generated from these assets. Future cash flows may be adversely impacted by operating performance, market conditions and other factors.  An impairment charge would be based on the amount by which the carrying value exceeds fair value.  Fair value is estimated by management based on market prices, if available, and/or forecasted discounted cash flows, using a discount rate commensurate with the risks involved. Assumptions related to future cash flows and discount rates involve management judgment and are subject to significant uncertainty. If future cash flows, discount rates and other assumptions used in the assessment and measurement of impairment differ from management’s estimates and forecasts, additional impairment charges could be required.

          Restructuring Costs.  Restructuring costs are recorded in accordance with FASB Statement 146, Accounting for Costs Associated With Exit or Disposal Activities.  One-time severance benefits for employees terminated are recorded at the time management commits to the plan to reduce the work force, knows the amount of the termination benefit, is unlikely to change the plan and has communicated to employees the intended work force reduction.  Liabilities for costs that will continue to be incurred under a contract for its remaining term without an economic benefit, such as for facility lease payments for premises vacated, are recorded when the Company ceases to use the right conveyed by the contract.  In the case of vacated leased facilities, the liability is based on the future lease payments required under the contract less the estimated future rental income the Company may earn by subletting the facilities.  These estimates of future sublet income are based on current economic conditions, current condition of the local leasing market, past experience and judgements supplied by professionals in the local real estate market.  These estimates are subject to significant uncertainty and may change.  Additional charges could be required as a result in the changes in estimates.

          Accounting for income taxes. Income taxes are recorded for each of the jurisdictions in which the Company operates. Management records the actual current income tax payable and assesses the temporary differences resulting from differing treatment of items, such as reserves and accruals, for tax and accounting purposes. These differences result in deferred tax assets and liabilities which are included within the consolidated balance sheet.  In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Significant management judgment is involved in assessing the Company’s ability to realize any future benefit from deferred tax assets. In the event that actual results differ from management estimates and management adjusts these estimates in future periods, the Company’s operating results and financial position could be materially affected.

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Results of Operations

          The following table sets forth the Company’s operating results for the periods indicated expressed as a percentage of sales.

New Accounting Pronouncements

          In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (SFAS 143), which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated asset retirement costs.  The new rules apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal operation of a long-lived asset. SFAS 143 is effective for the Company at the beginning of fiscal 2003.  The Company believes the adoption of SFAS 143 will not have a material impact on its consolidated financial position or results of operations.

          In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  This statement supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” and the accounting and reporting provisions of APB Opinion No. 30.  SFAS No. 144 establishes accounting standards for the impairment of long-lived assets, excluding goodwill, and for long-lived assets to be disposed of.  SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

          Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.  The statement retains the basic provisions of APB Opinion No. 30 for the presentation of discontinued operations in the statement of operations but broadens that presentation to include a component of an entity (rather than a segment of a business).  The adoption of the provisions of SFAS No. 144 in fiscal 2002 did not have any impact on the Company’s results of operations or financial position.

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          In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.”  This statement rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” and an amendment of that statement, SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking Fund Requirements”.  Under SFAS No. 4, all gains and losses from extinguishment of debt were required to be aggregated and, if material, classified as an extraordinary item, net of the related income tax effect.  With the elimination of SFAS No. 4, gains and losses from extinguishment of debt are to be classified as extraordinary items only if they meet the criteria for extraordinary items in APB Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.”  Applying the provisions of APB Opinion No. 30 will distinguish transactions that are part of an entity’s recurring operations from those that are unusual or infrequent or that meet the classification of an extraordinary item.  SFAS No. 145 also rescinds SFAS No. 44, “Accounting for Intangible Assets of Motor Carriers,” and amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions.  This statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions.  The adoption of the provisions of SFAS No. 145 in fiscal 2002 did not have any impact on the Company’s results of operations or financial position.

          In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.”  This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).”  SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred, not when it is “planned.”  The Company is required to adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 and does not expect the adoption to have a material impact on the Company’s results of operations or financial position.

          In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of SFAS 123.”  This statement amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation.  In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results.  The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25 and related interpretations.  Accordingly, compensation expense for stock options is measured as the excess, if any, of the estimate of the market value of the Company’s stock at the date of the grant over the amount an employee must pay to acquire the stock.  The Company has adopted the annual disclosure provisions of SFAS No. 148 in its financial reports for the year ended December 31, 2002 and will adopt the interim disclosure provisions for its financial reports for the quarter ended March 31, 2003.  As the adoption of this standard involves disclosures only, the Company does not expect a material impact on its results of operations, financial position or liquidity.

          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 requires a guarantor to recognize a liability, at the inception of the guarantee, for the fair value of obligations it has undertaken in issuing the guarantee and also include more detailed disclosures with respect to guarantees. FIN 45 is effective for guarantees issued or modified after December 31, 2002 and requires the additional disclosures for interim or annual periods ended after December 15, 2002. The disclosure requirements have been adopted in the Company's financial statements for the year ended December 31, 2002. The Company does not expect the adoption of the initial recognition and measurement provisions of FIN 45 will have a material impact on the Company's results of operations or financial position.

          In January 2003, the FASB issued FASB Interpretation No.46, "Consolidation of Variable Interest Entities - an interpretation of ARB No. 51" ("FIN 46"). FIN 46 requires that if an entity has a controlling financial interest in a variable interest entity, the assets, liabilities and results of activities of the variable interest entity should be included in the consolidated financial statements of the entity. FIN 46 requires that its provisions are effective immediately for all arrangements entered into after January 31, 2003. For those arrangements entered into prior to January 31, 2003, the FIN 46 provisions are required to be adopted at the beginning of the first interim or annual period beginning after June 15, 2003. The Company does not expect that the provisions of FIN 46 will have a material impact on the Company's results of operations or financial position.

Comparison of Year Ended December 31, 2002 with Year Ended December 31, 2001

          The Company initiated actions in 2001 and 2002 to reduce debt and to reduce capacity and costs in line with decreased demand in the telecommunications industry.  These actions resulted in a lower cost structure and improved profitability in 2002 compared to 2001.  Reductions were achieved in head count, facilities square footage, overhead spending and interest expense. 

          While both 2001 and 2002 include special charges to restructure operations and 2002 includes a significant receivable write-off for a customer that filed bankruptcy, costs declined in both dollar terms and as a percent of sales in 2002 compared to 2001.  Shown below are the costs in each year, both with and without the aforementioned special charges and receivables write-offs:

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          The reduction in debt was achieved by the sale/leaseback of a building, receipt of a tax refund, sale of excess and obsolete inventory and reduction in receivables.  These activities occurred throughout the year in 2002.  As a result, the interest expense reflects the gradual reduction of debt throughout the year.

          In the fourth quarter of 2002, the Company evaluated international operations to improve profitability and  rationalize manufacturing facilities.  As a result of this evaluation, several actions were taken to further streamline manufacturing and reduce costs, primarily in Europe. These actions included the outsourcing or transfer to Australia of various manufacturing operations previously performed in the United Kingdom, the closure of the assembly operations in Malaysia and the consolidation of the management of Australian/Asian and European operations.  Additional non-recurring charges were recorded in 2002 as a result of these actions.  The effects of these charges and the charges recorded in the fourth quarter of 2002 on each line item in the Consolidated Statement of Operations are included in the following analysis.

          Net Sales.  Net sales decreased $3.9 million or 4.4% from $88.7 million in 2001 to $84.8 million in 2002.  The decrease resulted from a slowdown in equipment purchases by telecommunications service providers in Europe and the U.S.

          Domestic net sales decreased $1.2 million or 1.8% from $65.8 million to $64.6 million.  The decrease is primarily due to one major customer that filed for bankruptcy.  Shipments to this customer after its bankruptcy filing were dramatically reduced.

          International net sales decreased $2.7 million or 11.8% from $22.9 million to $20.2 million.  Sales in Europe/Middle East decreased 33.0% to $7.3 million due to the industry slow down and the exiting of unprofitable product lines.  Australia/Asia sales of $7.5 million were the same in both 2002 and 2001.  Sales in Canada increased 21.5% to $5.4 million due to increased sales of thermoplastic and metal enclosures.

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          Gross Profit.  Gross profit increased $8.5 million from $18.8 million in 2001 to $27.3 million in 2002.  In 2001, the gross profit was reduced by $8.5 million of special charges in the third quarter for inventory reserves and the costs to exit certain product lines as part of the Company’s restructuring.  In 2002, the gross profit was reduced by $0.4 million of special charges in the fourth quarter to write down inventory of discontinued products.  Excluding the special charges in both years, gross profit increased $0.4 million from $27.3 million in 2001 to $27.7 million in 2002.

          As a percentage of net sales, gross profit increased from 21.2% in 2001 to 32.2% in 2002.  Excluding the special charges recorded in both years, gross profit as a percentage of net sales increased from 30.8% in 2001 to 32.7% in 2002.  The improvement is due to the reduced labor and facility costs in 2002 that resulted from the Company’s restructuring program.

          Selling.  Selling expenses decreased $3.6 million or 28.1% from $12.8 million in 2001 to $9.2 million in 2002.  The decrease is the result of cost reductions in selling administration functions that were implemented as part of the Company’s restructuring program.

          As a percentage of net sales, selling expense decreased from 14.4% in 2001 to 10.9% in 2002.

          General and Administrative.  General and administrative expenses decreased $2.6 million or 18.4% from $14.1 million in 2001 to $11.5 million in 2002.

          The 2002 expense includes a charge of $2 million primarily to write-off a receivable for Adelphia after the company filed for Chapter 11 bankruptcy.  The 2001 expense includes non-recurring charges of $3.5 million for costs to exit certain product lines, the write-down of prepaid expenses and additions to trade accounts receivable.  Goodwill amortization of $0.6 million is included in general and administrative expenses for 2001 and was no longer amortized in 2002.

          Excluding the Adelphia write-off, non-recurring charges in both years and the goodwill amortization in 2001, general and administrative expenses declined $0.5 million or 5.0%.  The primary reasons for the $0.5 million decrease are reduced head count in administrative functions, lower facilities costs as a result of buildings vacated, and spending reductions implemented in the Company’s restructuring program.  These spending reductions were partially offset by higher costs for management incentive bonuses of $0.8 million in 2002.  There were no management incentive bonuses in 2001.

          As a percentage of net sales, general and administrative expenses decreased from 15.9% in 2001 to 13.6% in 2002.  Excluding the nonrecurring charges and goodwill amortization mentioned above, the percentage decreased from 11.3% in 2001 to 11.2% in 2002.

          Research and Development.  Research and development expenses decreased $0.7 million or 30.4% from $2.3 million in 2001 to  $1.6 million in 2002.  The decrease is the result of moving and consolidating some of the international research and development functions into U.S. operations, which reduced head count and facilities, as well as reduced spending due to depressed industry conditions.  As a percentage of net sales, research and development expenses decreased from 2.6% in 2001 to 1.9% in 2002.

          Restructuring charge.  In 2001, the Company reduced head count and closed facilities due to a slow down in the telecommunications industry and recorded a restructuring charge of $3.0 million.  The restructuring resulted in the elimination of 116 management, administrative, sales and manufacturing positions.  Facilities space vacated included manufacturing and distribution space in the United Kingdom and Australia and warehouse space in the U.S.

          In the fourth quarter of 2002, the Company further evaluated its international operations with the intent to improve profitability.  As a result, the Company initiated actions that resulted in additional head count, costs and facilities reductions in international operations, primarily in Europe.  These actions included the outsourcing or transfer to Australia of various manufacturing operations, the closure of the assembly operations in Malaysia and consolidation of management of Australian and European operations.  Restructuring charges of $1.2 million were recorded in 2002 as a result of these actions.

          Impairment of Fixed Assets.  In the third quarter of 2001, the Company recorded an asset impairment charge of $4.3 million as a result of restructuring activities to reduce manufacturing capacity and costs worldwide.

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Certain production equipment, tooling and leasehold improvements were idled or sold as a result of these measures.

          In 2002, an additional asset impairment charge of $2.2 million was recorded for production equipment in Europe as part of the rationalization and downsizing of international manufacturing operations and for tooling associated with products discontinued in the U.S. 

          Impairment of Goodwill.  In 2001, an impairment of goodwill charge was recorded for $11.8 million as a result of restructuring activities that reduced the level of European operations and the decision to exit certain product lines.

          In 2002, a goodwill impairment charge in the Australia/Asia region was recorded for $1.0 million.  This impairment charge results in the full amortization of the goodwill associated with the A.C. Egerton acquisition.

          Income (Loss) from Operations.  As a result of the items discussed above, income from operations increased $30.2 million from a loss of ($29.5) million in 2001 to income of $0.7 million in 2002.  Operating margin as a percent of sales increased from (33.3%) to 0.8%.  Excluding the special charge in 2001 and 2002,  amortization of goodwill in 2001, and the receivable write-off in 2002, income from operations increased from $2.2 million in 2001 to $7.4 million in 2002.  Operating margins as a percent of sales excluding these costs and charges increased from 2.5% in 2001 to 8.7% in 2002.

          Interest Expense, Net.  Net interest expense decreased from $3.9 million in 2001 to $2.0 million in 2002.  The decrease was attributable to the lower level of debt in 2002 and a lower average interest rate associated with the Company’s credit agreement.

          Income Taxes.  Income tax expense increased from a tax benefit of ($8.2) million in 2001 to a tax expense of $1.7 million in 2002.  In 2001, the tax benefit resulted from the tax deductibility of certain cost and charges associated with the Company’s restructuring.  In 2002, a tax expense was recorded for income earned in the U.S.  In 2002, a tax benefit was not recorded for foreign operating losses due to the uncertainty of the realization of the tax loss carry forward.  In addition, the Company increased its valuation allowance for deferred tax assets related to net operating loss carryforwards of foreign subsidiaries.

Comparison of Year Ended December 31, 2001 with Year Ended December 31, 2000

          As a result of the prolonged downturn in the telecommunications industry, the Company developed and began the implementation of a restructuring plan in the third quarter of 2001.  The objectives of the restructuring plan were to:  1) downsize the Company’s cost structure to anticipated levels of business activity,  2) reduce debt to lower interest expense and afford greater flexibility in capital management, and, 3) realign asset valuations based on current economic conditions. 

          Cost reductions include reducing head count to a level 42% below December 31, 2000 and facilities square footage to a level 31% lower.  The reductions affected all geographic segments although more significantly impacted international operations.  Cost reduction measures were substantially completed by December 31, 2001.

          The debt reduction plan includes the selling of obsolete inventory, the sale/leaseback of a building as well as reductions in working capital.  These activities commenced in the fourth quarter and continued through the first half of 2002.

          The review of asset valuations addressed the collectibility of receivables given the industry downturn, slow moving or obsolete inventory in light of reduced customer demand and the impairment of goodwill given the reduced level of foreign operations going forward.  These measures resulted in the recording of $33.1 million of special charges in the third quarter of 2001 for restructuring costs, impairment of assets, impairment of goodwill and other non-recurring charges.  The effects of these charges on each line item in the Consolidated Statement of Operations are included in the following analysis.

          Net Sales.  Net sales decreased $39.5 million or 30.8% from $128.2 million in 2000 to $88.7 million in 2001.  The decrease resulted from a slowdown in equipment purchases by telecommunications service providers in the U.S., Europe, Australia and Canada.

          Domestic net sales decreased $22.7 million or 25.6% from $88.5 million to $65.8 million.  The decrease is due

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to customer efforts to reduce inventories of outside plant equipment, as well as a slowdown in the pace of telecommunications network upgrades.  One customer accounted for approximately $10.7 million of the $22.7 million decrease in sales.  This customer informed its suppliers in the fourth quarter of 2000 that it was curtailing equipment purchases in order to reduce its investment in fixed assets.

          International net sales decreased $16.7 million or 42.0% from $39.6 million to $22.9 million.  Sales in Europe/Middle East decreased 49.3% to $11.0 million due to the industry slow down and the exiting of unprofitable product lines.  Australia/Asia sales declined 29.5% to $7.5 million due to lower equipment purchases from a major telecommunications customer.  Sales in Canada decreased 39.7% to $4.4 million due to reduced sales primarily in thermoplastic and metal enclosures.

          Gross Profit.  Gross profit decreased $28.3 million from $47.1 million in 2000 to $18.8 million in 2001.  Of the $28.3 million decrease, $8.5 million was due to special charges recorded in the third quarter consisting of:  1) write-offs and additions to inventory reserves of $8.3 million to reflect the accumulation of excess inventory levels brought about by the industry slowdown and the decision to exit certain product lines, and 2) $0.2 million of costs to exit certain product lines.  The remainder of the decline is due to the lower level of sales and unfavorable manufacturing cost variances that resulted from unabsorbed labor and overhead costs due to lower production build rates.

          As a percentage of net sales, gross profits decreased from 36.7% in 2000 to 21.2% in 2001. The reasons given above for the changes in gross margin dollars also apply to these percentage changes.  The 2001 gross profit percentage excluding the inventory write-offs, additional reserves and costs to exit certain product lines was 30.8%.

          Selling.  Selling expenses decreased $2.7 million or 17.4% from $15.5 million in 2000 to $12.8 million in 2001.  The decrease is the result of cost reductions in selling administration functions as well as due to a lower sales volume.

          As a percentage of net sales, selling expense increased from 12.1% in 2000 to 14.4% in 2001.

          General and Administrative.  General and administrative expenses decreased $0.1 million or 0.7% from $14.2 million in 2000 to $14.1 million in 2001.  The 2001 expense includes non-recurring charges of $3.5 million recorded in the third quarter for additions to trade accounts receivable reserves and the write-off of delinquent accounts, costs to exit certain product lines and the write down of prepaid expenses to reflect the shorter life of the assets during a continuing industry downturn.  The receivables related charge is $1.4 million and is primarily for customers in Central America and Eastern Europe that were affected by telecommunications projects that were either being scaled back or delayed.

          Excluding the non-recurring charges, general and administrative expenses declined $3.6 million or 25.3%.  The decrease is due mainly to reductions in administrative head count and spending levels.

          As a percentage of net sales, general and administrative expenses increased from 11.1% in 2000 to 15.9% in 2001.  Excluding the nonrecurring charges mentioned above, the percentage increased from 11.1% in 2000 to 12.0% in 2001.

          Research and Development.  Research and development expenses decreased $0.5 million or 17.9% from $2.8 million in 2000 to  $2.3 million in 2001. As a percentage of net sales, research and development expenses increased from 2.2% in 2000 to 2.6% in 2001.

          Restructuring charge.  In the fourth quarter of 2000, the Company recorded a restructuring charge of $1.5 million associated with activities to improve efficiency, align production costs with anticipated revenues and reduce selling, general and administrative costs.  As a result of these actions, global head count was reduced by approximately 90 positions and several facilities consolidated.  The Charlotte, North Carolina distribution facility was closed and its operations integrated into the Temecula, California facility.  Leased manufacturing space in Europe was reduced and the Hong Kong sales office was closed with the selling functions integrated into the Asian sales operations in Malaysia.

          Due to the prolonged slowdown in the telecommunications industry, the Company further reduced head count and closed additional facilities in the third quarter of 2001 and recorded a restructuring charge of $3.0 million.  The restructuring plan resulted in the elimination of approximately 116 management, administrative, sales and

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manufacturing positions.  Facilities vacated include:  1) a manufacturing and distribution facility in Warrington, United Kingdom,  2) one half of the manufacturing and distribution facility in Sydney, Australia and, 3)  leased warehouse space in the U.S.

          Impairment of Fixed Assets.  In the fourth quarter of 2000, the Company recorded an impairment of asset charge of $4.6 million.  The charge related to certain production equipment in the European operations.  Utilization of this production equipment declined as newer, more automated equipment was purchased as part of the company’s capital expenditure program to automate production and reduce costs.  As a result, the equipment was written down by $4.6 million to reflect a reduction in the fair value of this equipment. 

          In the third quarter of 2001, the Company recorded an asset impairment charge of $4.3 million as a result of restructuring activities intended to reduce manufacturing costs worldwide.  Certain production equipment, tooling and leasehold improvements were idled or sold as a result of these measures.  This included production equipment in the European operations that was idled as several products previously manufactured in the region were either transferred to other facilities, outsourced or discontinued.  In both the U.S. and Australia, an impairment charge was recorded for production equipment and tooling no longer productive as a result of the restructuring. 

          Impairment of Goodwill.  In the third quarter of 2001, an impairment of goodwill was recorded for $11.8 million as a result of restructuring activities that reduced the level of foreign operations and the decision to exit certain product lines. 

          Income (Loss) from Operations.  As a result of the items discussed above, income from operations decreased $38.0 million from $8.5 million in 2000 to a loss of ($29.5) million in 2001.  Operating margin as a percent of sales decreased from 6.6% to (33.3%).

          Interest Expense, Net.  Net interest expense increased from $2.9 million in 2000 to $3.9 million in 2001.  The increase was attributable primarily to: 1) a higher average debt level, 2) a higher average interest rate on the Company’s bank debt and 3) accrued fees associated with revisions to the Credit Agreement.

          Income Taxes.  Income tax expense decreased from $2.1 million in 2000 to a tax benefit of ($8.2) million in 2001.  The effective tax rates were 36.8% in 2000 and 24.6% in 2001.  The decrease in effective tax rates was due to foreign operating losses in 2001 with no benefit provided and an increase in the valuation allowance on the deferred tax asset of $2.8 million associated with tax loss carry forwards in international operations.  The ability to use the tax loss carry forward was reduced due to restructuring activities which significantly decreased the level of international business activities.

Liquidity and Capital Resources

          Cash and cash equivalents on December 31, 2002 were $3.2 million, a decrease of $5.6 million from the December 31, 2001 balance of $8.8 million.  The decrease in cash was primarily due to repayment of debt.  Cash generated from operating activities was $19.8 million in 2002 compared to $14.0 million in 2001.  The Company received an income tax refund of $4.9 million in 2002 as a result of its net loss of $25.2 million in 2001.

          Net cash provided by investing activities was $4.3 million in 2002 as compared to net cash used in investing activities of $3.2 million in 2001.  The Company generated net proceeds of $6.2 million from a sale and leaseback of a building in its Temecula, California facilities.

          Net cash used in financing activities in 2002 was ($29.8) million, primarily for the repayment of debt. Net cash used in financing activities in 2001 was ($2.9) million.

          Accounts receivable decreased from $13.3 million at December 31, 2001 to $10.2 million at December 31, 2002 as a result of lower sales volume, improved collection activity and an increase in the accounts receivable reserve of $2.0 million primarily due to the Chapter 11 bankruptcy of a major customer.  In terms of days sales outstanding, accounts receivable decreased from 64 days at December 31, 2001 to 46 days as of December 31, 2002.

          Inventories decreased from $9.8 million at December 31, 2001, to $7.8 million at December 31, 2002, primarily due to improved inventory management at each of the Company’s business locations.  Inventory write-

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offs due to discontinued products accounted for $0.4 million of the $2.0 decrease in inventory. Days inventory on hand decreased from 68 days at December 31, 2001 to 49 days at December 31, 2002.

          Accounts payable increased from $5.1 million at December 31, 2001 to $5.8 million at December 31, 2002 as days payables increased from 35 days to 37 days, respectively.

          The Board of Directors, on April 1, 1998, having determined such action to be in the best interest of the Company, authorized a stock repurchase plan of up to $2.0 million worth of Company stock. The plan was subsequently increased to $2.75 million by the Board on December 1, 2000.  The Company repurchased 22,985 shares at a cost of approximately $0.2 million in 1999; 30,900 shares of its common stock at a cost of approximately $0.2 million in 2000; and 52,300 shares of its common stock at a cost of $0.3 million in 2001. The Company did not repurchase stock in 2002.

          The Company entered into a three year Loan and Security Agreement with an asset-based lender on September 25, 2002. The Loan and Security Agreement’s term loan of $4.7 million and initial revolver balance of $2.1 million as well as $9.6 million in cash were used to repay in full the prior Credit Agreement. Total debt of $16.4 million under the prior Credit Agreement was repaid.  The three year term loan is repayable in quarterly payments based on a five-year amortization schedule with a balloon repayment at maturity.

          Under the Loan and Security Agreement, the outstanding balance bears interest payable monthly at a variable rate based on either LIBOR or the lender’s base rate. The weighted average interest rate under the Loan and Security Agreement at December 31, 2002 was 4.36%.

          The Loan and Security Agreement contains various financial and operating covenants that impose limitations on the Company’s ability, among other things, to incur additional indebtedness, merge or consolidate, sell assets except in the ordinary course of business, make certain investments, enter into leases and pay dividends.  The Company is also required to comply with a fixed charge coverage ratio financial covenant among others.  The Company was in compliance as of December 31, 2002 with the covenants of the Loan and Security Agreement. 

          Contractual obligations, consisting principally of payment for noncancellable operating lease obligations, long term debt and capital leases.  Future payments required under these contractual obligations have been summarized in the notes to the financial statements as follows: (i) lease commitments – Note N, (ii) long term debt – Note F, and (iii) capital lease obligations – Note G.

          The Company believes that cash flow from operations should be sufficient to fund the Company’s capital expenditure and working capital requirements through 2003.

Forward-Looking Statements and Risk Factors

          This Report on Form 10-K contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements are being provided pursuant to that legislation.  In addition to the other information contained in this Form 10-K, the following risk factors should be carefully considered in evaluating the Company and its business.  The following is not intended as, and should not be considered, an exhaustive list of relevant factors.

Obsolescence and Technological Change

          The communications industry is in a state of rapid technological change.  The introduction of new technologies, network architectures or changes in industry standards can render the Company’s existing products or products under development obsolete or unmarketable.  For example, satellite, wireless and other communication technologies under development or currently being deployed may represent a threat to copper, coaxial and fiber optic-based systems by reducing the need for wire-line networks.  Further, while management anticipates that a number of factors, including network capacity requirements, existing investments in wire-line networks, security and long-term cost effectiveness, will result in growth of wire-line networks, there can be no assurance that future advances or further development of these or other new technologies will not have a material adverse effect on the Company’s business.  The Company’s growth strategies are designed, in part, to take advantage of opportunities that the Company believes are emerging as a result of the development of enhanced voice, video, data and other transmission networks, and high-speed Internet access in the telecommunications industry.  There can be no assurance that demand resulting from these emerging trends will continue or that the

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Company’s products will be met with market acceptance.

Importance of New Product Development to Growth

          A significant factor in the Company’s ability to grow and remain competitive will be its ability to anticipate changes in technology and industry standards, and to successfully develop and introduce new products on a timely basis.  New product development often requires long-term forecasting of market trends, development and implementation of new designs and processes, and substantial capital commitment.  Trends toward consolidation of the communications industry and convergence of technologies may require the Company to quickly adapt to rapidly changing market conditions and customer requirements.

          The Company’s manufacturing and marketing expertise has enabled it to successfully develop and market new products in the past.  However, any failure by the Company to anticipate or respond in a cost-effective and timely manner to technological developments or changes in industry standards or customer requirements, or any significant delays in product development or introduction, could have a material adverse effect on the Company’s business, operating results and financial condition.

Concentration of Customers; Limited Backlog

          The telecommunications industry is concentrated. A relatively small number of customers account for a large percentage of the Company’s available market.  Consequently, the Company’s five largest customers accounted for 44.1% and 57.2% of the Company’s total net sales in 2001 and 2002, respectively.  Comcast/AT&T Broadband accounted for 28.0% of the Company’s total net sales in 2002. AOL/Time Warner accounted for 11.2% of the Company’s total net sales in 2001.  Mergers and acquisitions in the telecommunications industry, which are expected to continue, not only increase the concentration of the industry and of the Company’s customer base but also from time to time delay customers’ capital expenditures as newly merged service providers consolidate operations.  In the event one of the Company’s major customers were to terminate purchases of the Company’s products, the Company’s operating results would be adversely affected.

          The Company’s customers typically require prompt shipment of the Company’s products within a narrow timeframe.  As a result, the Company has historically operated with a relatively small backlog.  Sales and operating results in any quarter are principally dependent upon orders booked and products shipped in that quarter.  Further, the Company’s customers generally do not enter into long-term supply contracts providing for future purchase commitments for the Company’s products.  These factors, when combined with the Company’s operating leverage (see “Operating Leverage” below) and the need to incur certain capital expenditures and expenses in part based upon the expectation of future sales, may place the Company’s operating results at risk to changing customer buying patterns.  If sales levels in a particular period do not coincide with the Company’s expectations, operating results for that period may be materially and adversely affected.

Dependence on the Telecommunications Industry

          The Company expects that sales to the telecommunications industry will continue to represent a substantial portion of its total sales.  Demand for products within this industry depends primarily on capital spending by service providers for constructing, rebuilding, maintaining or upgrading their systems.  The amount of capital spending and, therefore, the Company’s sales and profitability, are affected by a variety of factors, including general economic conditions, access by service providers to financing, government regulation of service providers, demand for services and technological developments in the telecommunications technology.  While the industry generally experienced above average growth in the late 1990’s, in 2001 and 2002 the telecommunications equipment industry was materially adversely affected by service providers’ reductions of  their capital expenditures.

          The Company’s success is dependent upon continued demand by the communications industry for products used in signal transmission systems which may be affected by factors beyond the Company’s control, including the convergence of video, voice, and data transmission systems occurring within the CATV and telephone markets, continuing consolidation of companies within those markets and the provision of Internet access by cable operators and local telephone companies.

Price Fluctuations of Raw Materials; Availability of Complementary Products

          The Company’s cost of sales may be materially affected by increases in the market prices of the raw

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materials, including resins, used in the Company’s manufacturing processes.  The Company does not engage in hedging transactions for such materials, although it periodically enters into contracts for certain raw materials for as much as one year or more.  There can be no assurance that price increases in raw materials can be passed on to the Company’s customers through increases in product prices.  In addition, in order to position itself as a full-line product supplier, the Company relies on certain manufacturers to supply products, including grade level boxes that complement the products manufactured by the Company.  Although the Company believes there are multiple sources of supply for these products, disruptions or delays in the supply of such products could have a material adverse effect on sales of the Company’s own products.

Energy Costs and Availability

          The Company’s cost of sales may be materially affected by increases in the market prices of electricity, natural gas and water used in the Company’s manufacturing processes. California is the site of the Company’s largest manufacturing operation.  The energy costs of California manufacturing firms may increase.  There exists the possibility of interruption(s) in the supply of energy to California’s manufacturing firms.  There can be no assurance that the Company’s energy costs can be passed on to the Company’s customers through increases in product prices.  Further, disruptions or delays in the supply of electricity, natural gas and water to the Company could have a material adverse effect on sales of the Company’s products.

Acquisitions and Failure to Integrate Acquired Businesses

          There can be no assurance that the Company will be able to identify and acquire attractive acquisition candidates, profitably manage any such acquired businesses or successfully integrate such acquired businesses into the Company without substantial costs, delays or other problems.  Acquisitions involve a number of special risks, including, but not limited to, adverse short-term effects on the Company’s reported financial condition or results of operations, diversion of management’s attention, dependence on retention, hiring and training of key personnel, risks associated with unanticipated problems or liabilities and amortization of acquired intangible assets, some or all of which could have a material adverse effect on the Company’s business, financial condition or results of operations.

          In addition, there can be no assurance that any businesses acquired in the future will be profitable at the time of acquisition or will achieve sales and profitability justifying the Company’s investment therein or that the Company will realize the synergies expected from such acquisitions.

          The failure to obtain any or all of the desired results from acquisitions could have a material adverse effect on the Company’s business, financial condition and results of operations.

Operating Leverage

          Because the fixed costs of facilities, product development, engineering, tooling and manufacturing are a relatively high percentage of total costs, the Company’s ability to operate profitably is dependent on generating a sufficient volume of product sales, thereby spreading fixed costs over the sales base.  Due to this “operating leverage”, a reduction in sales or the rate of sales growth has had in the past and could have in the future a disproportionately adverse effect on the Company’s financial results.

Seasonality and Fluctuations in Operating Results

          The Company’s business is seasonal in nature, with the first and fourth quarters generally reflecting lower sales due to the impact of adverse weather conditions on construction projects that may alter or postpone the needs of customers for delivery of the Company’s products.  In addition, first quarter sales may also reflect customer delays in implementation of their annual capital expenditure plans.  The Company’s operating results may also fluctuate significantly from quarter to quarter due to several other factors, including the volume and timing of orders from and shipments to major customers, the timing of new product introductions and deployment as well as the availability of products by the Company or its competitors, the overall level of capital expenditures by CATV operators and telephone companies, market acceptance of new and enhanced versions of the Company’s products, variations in the mix of products the Company sells, and the availability and costs of raw materials.

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Risks Associated with International Operations

          International sales, including export sales from U.S. operations, accounted for 32.5%, 27.2% and 23.8% of the Company’s net sales in 2000, 2001 and 2002, respectively.  Due to its international sales, the Company is subject to the risks of conducting business internationally, including unexpected changes in or impositions of legislative or regulatory requirements, fluctuations in the U.S. dollar which could materially adversely effect U.S. dollar revenues or operating expenses, tariffs and other barriers and restrictions, longer collection cycles, greater difficulty in accounts receivable collection, potentially adverse taxes and the burdens of complying with a variety of international laws and communications standards.  The Company is also subject to general geopolitical risks, such as political and economic instability and changes in diplomatic and trade relationships, in connection with its international operations.  There can be no assurance that these risks of conducting business internationally will not have a material adverse effect on the Company’s business.

Competition

          The industries in which the Company operates are highly competitive.  The level and intensity of competition may increase in the future.  The Company’s competitors include companies that are much larger than the Company, such as Tyco, 3M, Marconi, Arris and Corning.  The Company’s business strategy includes increased focus on telephone connectivity.  There can be no assurance that the Company will be able to compete successfully against its competitors, most of whom have access to greater financial resources than the Company.

Disruptions at the Company’s Manufacturing Facility; Lease with Related Party

          The majority of the Company’s manufacturing operations are currently located at the Company’s facilities in Temecula, California, which also includes the Company’s principal warehouse and corporate office operations.  The Company’s success depends in large part on the orderly operation of these facilities.  Because the Company’s manufacturing operations and administrative departments are concentrated at this facility, a fire, earthquake, power interruption or other disaster at this facility could materially and adversely affect its business and results of operations.  The Company maintains property insurance on this facility as well as business interruption insurance.

          The Company currently leases a portion of its Temecula facilities from William H. Channell, Sr., a principal stockholder, Chairman of the Board and Chief Executive Officer of the Company.  The Company believes the terms of these leases are no less favorable than would be available from an unrelated third party after arm’s length negotiations.  Although the Company has renewal options through the year 2015 under these leases, there can be no assurance that the Company and Mr. Channell, Sr. will be able to agree on additional renewal terms for the properties currently leased by the Company.  The failure of the Company to renew the leases would require the Company to relocate its existing facilities, which could have a material adverse effect on the Company’s business, financial condition or results of operations.

Dependence on Key Personnel

          The future success of the Company depends in part on its ability to attract and retain key executive, engineering, marketing and sales personnel.  Key personnel of the Company include William H. Channell, Sr., Chairman of the Board and Chief Executive Officer, William H. Channell, Jr., the President and Chief Operating Officer, and the other executive officers of the Company.  The market for qualified personnel in the communications industry is competitive and the loss of certain key personnel could have a material adverse effect on the Company.  The Company has an employment contract with William H. Channell, Jr.

Changing Regulatory Environment

          The communications industry is subject to regulation in the United States and other countries.  Federal and state agencies regulate most of the Company’s domestic customers. Changes in current or future laws or regulations, in the United States or elsewhere, could materially adversely affect the Company’s business.

Uncertain Ability to Manage Industry Volatility

          The Company’s business has required and is expected to continue to require significant Company resources in terms of personnel, management and other infrastructure.  The Company’s ability to manage effectively the volatility of the telecommunications industry requires it to attract, train, motivate and manage new employees successfully, to integrate new employees into its overall operations and to continue to improve its operational, financial and management information systems.

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Environmental Matters

          The Company is subject to a wide variety of federal, state and local environmental laws and regulations and uses a limited number of chemicals that are classified or could be classified as hazardous or similar substances.  Although management believes that the Company’s operations are in compliance in all material respects with current environmental laws and regulations, the Company’s failure to comply with such laws and regulations could have a material adverse effect on the Company.

Selected Quarterly Financial Data

          Set forth below is certain unaudited quarterly financial information. (See also Footnote Q to the Financial Statements included elsewhere herein.)  The Company believes that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly, and in accordance with generally accepted accounting principles, the selected quarterly information when read in conjunction with the Financial Statements.

Item 7a.  Quantitative and Qualitative Disclosures about Market Risk

          The market risk inherent in the Company’s market risk sensitivity instruments is the potential loss arising from adverse changes in interest rates and foreign currency exchange rates.  All financial instruments held by the Company and described below are held for purposes other than trading.

Market Risk

          The Company’s Loan and Security Agreement allows the outstanding balance to bear interest at a variable rate based on the lender’s base rate.  The credit facility exposes operations to changes in short-term interest rates since the interest rates on the credit facility are variable.

          If the variable rates on the Company’s Loan and Security Agreement were to increase by 1% from the rate at December 31, 2002, and if the Company had borrowed during all of fiscal 2002 the maximum amount ($25.0 million) at any time in 2002 under its credit facility at the increased interest rate, the Company’s interest expense would have increased, and net loss would have increased by $0.2 million.  A marginal income tax rate of 38.0% was used in this analysis.  This analysis does not consider the effects of economic activity on the Company’s sales and profitability in such an environment. 

Foreign Exchange Risk

          The Company has assets and liabilities outside the United States that are subject to fluctuations in foreign currency exchange rates.  Assets and liabilities outside the United States are primarily located in the United Kingdom, Australia and Canada.  The Company’s investment in foreign subsidiaries with a functional currency other than the U.S. dollar are generally considered long-term.  Accordingly, the Company does not hedge these net investments.  The Company also purchases a limited portion of its raw materials from foreign countries.  These purchases are generally denominated in U.S. dollars and are accordingly not subject to exchange rate fluctuations.  The Company has not engaged in forward foreign exchange and other similar contracts to reduce its economic exposure to changes in exchange rates because the associated risk is not considered significant. 

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Item 8.  Financial Statements and Supplementary Data

        Consolidated Financial Statements of Channell Commercial Corporation are as follows:

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

          There has been no Form 8-K filed reporting a change of accountants or reporting disagreements on any matter of accounting principle, practice, financial statement disclosure or auditing scope or procedure.

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PART III

Item 10.  Executive Officers and Directors of the Registrant

          The following table sets forth information with respect to the Company’s executive officers and directors and their ages as of March 15, 2003.

          The Company’s Board of Directors was comprised of six members at March 15, 2003.  The directors of the Company are staggered into three classes, with the directors in a single class elected at each annual meeting of stockholders to serve for a term of three years or until their successors have been elected and qualified. The authorized number of members of the Board of Directors is currently seven. The executive officers of the Company serve at the pleasure of the Board of Directors.

          William H. Channell, Sr., the son of the Company’s founder, James W. Channell, has been the Chairman of the Board since July, 1996. From 1966 to November, 2001 and since July, 2002 Mr. Channell, Sr. has been Chief Executive Officer.  Mr. Channell, Sr. is a co-trustee of the Channell Family Trust, which is a principal stockholder of the Company, and is the husband of Jacqueline M. Channell and the father of William H. Channell, Jr. His term as a Director expires in 2005.

          William H. Channell, Jr. has been President and Chief Operating Officer of the Company since 1996.  He has been a Director of the Company since 1984. Since joining the Company in 1979, Mr. Channell, Jr. has held the positions of Executive Vice President, Director of Marketing and National Sales Manager. Mr. Channell, Jr. is a principal stockholder of the Company and is the son of William H. Channell, Sr. and Jacqueline M. Channell. His term as a Director expires in 2003.

          Jacqueline M. Channell is Secretary and has been a Director since 1966 except for approximately three months in 2001. She is a co-trustee of the Channell Family Trust, which is a principal stockholder of the Company, and is the wife of William H. Channell, Sr. and the mother of William H. Channell, Jr.  Mrs. Channell’s term as a Director expires in 2003.

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          Bruce Glidden became a Director of the Company in April, 2002.  Mr. Glidden was with U.S. Steel for 29 years.  From 1981 to 1985, he was President of U.S. Steel’s American Bridge Division.  In 1985, Mr. Glidden founded Glidden & Co., Ltd., a consulting firm serving the engineering profession and the construction industry.  Mr. Glidden’s term as a Director expires in 2004.

          Guy Marge became a Director of the Company in August, 2002.  Mr. Marge is President and Chief Executive Officer of Western Brass Industries, Inc. and Storm Industries, Inc.  From 1988 to 2001, Mr. Marge was Chief Executive Officer of the Milhous Group, Inc., a manufacturer of plastic, metal-formed and pre-cast concrete products.  From 1978 to 1988, Mr. Marge held executive management positions with Kearney-National, Inc., The United Groups, Inc., and Uniroyal Technology Corporation.  Mr. Marge’s term as a Director expires in 2004.

          Dana Brenner became a Director of the Company in March, 2003.  Mr. Brenner is the managing partner of Brenner, Bigler & Associates, an accounting firm with offices in Woodland Hills and Blythe, California, focused on medium and small businesses as well as individuals.  Mr. Brenner has over 35 years of public accounting experience with companies in various industries including manufacturing, construction, real estate, mortgage banking and credit unions.  Mr. Brenner’s term as a Director expires in 2005.

          Edward J. Burke has been the Company’s Vice President, Corporate Engineering since May, 1996 and has served in various similar capacities with the Company since 1984. Mr. Burke has held various technical positions in the thermoplastic product engineering and tooling design field since 1978.

          Timothy Hankinson joined the Company in 1998 as Managing Director, Australia and Asia as a result of the acquisition of A.C. Egerton PLC.  Mr. Hankinson had been Managing Director of A.C. Egerton PLC since 1991.  Prior to 1991, Mr. Hankinson had served as General Manager of an Australian aircraft manufacturer.  Mr. Hankinson became Managing Director, International in December, 2002.

          John B. Kaiser has been the Company’s Vice President, North American Sales since 1999.  He held the position of Director of Marketing for the Company from 1987 to 1991 and he was Vice President, Broadband Division from 1995 through 1998. Between 1991 and 1995, Mr. Kaiser held the position of District Manager, Southern California, for the General Polymers Division of Ashland Chemical, a thermoplastics distributor, where his responsibilities included general management of district operations, including sales, warehousing, procurement and logistics.

          Thomas Liguori has been the Company’s Chief Financial Officer since April, 2000.  Mr. Liguori joined the Company from Dole Food Company, where he served as Chief Financial Officer of Dole Europe in Paris, France.  From 1992 to 1996 he held various financial positions with Teledyne Inc., including Vice President, Finance for a manufacturer of consumer and industrial products.  From 1986 to 1992 Mr. Liguori was a management consultant with Deloitte & Touche.  He has over 20 years of financial, accounting and management experience.

          Andrew M. Zogby has been the Company’s Vice President, Corporate Marketing since March, 1996. Prior to joining the Company, Mr. Zogby was Director of Strategic Marketing, Broadband Connectivity Group for ADC Telecommunications, a publicly traded telecommunications equipment supplier to both telephone and CATV network providers worldwide. He had been with ADC Telecommunications since 1990. Mr. Zogby has held various technical marketing positions in the telecommunications equipment industry since 1984.

          Claire Bishop has been the Company’s Finance Director, UK Operations since June, 2000.  From 1991 to 2000, Ms. Bishop held various positions with Tyco Electronics Ltd., including Controller of the Wire and Cable Division.  From 1989 to 1991 she was an accountant with Dowty Electronics, Ltd.

Compensation of Directors

          Directors who are also officers of the Company (except as indicated below) receive no additional compensation for their services as Directors.  For 2002, the Company’s non-management Directors received compensation consisting of an annual retainer fee of $25,000 plus $1,000 for attendance at any meeting of the Board of Directors or any committee thereof, plus direct out-of-pocket costs related to such attendance.  Effective January of 2003, the fee for committee meetings was reduced to $500 and the compensation of non-management Directors on the board was capped at $35,000 per year excluding special assignments.  Mrs. Channell also receives non-management Director retainer and attendance fees. In addition, pursuant to the Company’s 1996 Incentive Stock Plan (as described below), each non-management director (including Mrs. Channell) received options to acquire 1,000 shares of the Company’s Common Stock with an exercise price equal

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to the Initial Public Offering price, and on the date of each of the Company’s annual stockholder meetings, each non-management director (including non-executive officers who serve as directors) serving on the Board of Directors immediately following such meeting are to receive options to acquire an additional 1,000 shares of the Company’s Common Stock with an exercise price equal to the market value of the Common Stock on the date such options are granted. These options will become exercisable at a rate of 33 1/3% per year commencing on the first anniversary of the date of issuance and will have a term of 10 years.

Section 16(a) Beneficial Ownership Reporting Compliance

          Information required by Item 405 of Regulation S-K is incorporated by reference to the Company’s Proxy Statement relating to its 2003 annual meeting of stockholders.

Item 11.  Executive Compensation

Summary Compensation Table

          The following table sets forth the annual and long-term compensation of the Company’s Chief Executive Officer and the four additional most highly compensated executive officers for the years ended December 31, 2000, 2001 and 2002 (collectively, the “Named Officers”).