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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

Commission file number 000-01859

KNAPE & VOGT MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)

2700 Oak Industrial Drive, N.E., Grand Rapids, MI 49505
(Address of principal executive offices) (Zip Code)

(616) 459-3311
(Registrant's telephone number, including area code)

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

Securities Registered pursuant to Section 12(g) of the Act:

Common Stock, par value $2.00 per share
(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  X   No      

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

The aggregate market value of voting stock held by nonaffiliates of the registrant was $47,341,461 as of December 28, 2002.

Number of shares outstanding of each class of common stock as of August 22, 2003: 2,314,294 shares of Common Stock, par value $2.00 per share, and 2,202,105 shares of Class B Common Stock, par value $2.00 per share.

Documents incorporated by reference. Certain portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on October 17, 2003, are incorporated by reference into Part III of this Report.

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PART I
ITEM 1 — BUSINESS

Item 1(a) — General Development of Business

        The Company is engaged primarily in the design, manufacture, and marketing of functional hardware, storage-related components and ergonomic products, which serve the consumer, contract builder, hardware, and original equipment manufacturer (“OEM”) markets. The Company was incorporated in Michigan in 1906, reorganized in Delaware in 1961, and reorganized in Michigan in 1985. Unless otherwise noted or indicated by the context, the term “Company” includes Knape & Vogt Manufacturing Company, its predecessors and its subsidiaries.

Item 1(b) — Financial Information About Industry Segments

        The Company was realigned in March 2002 into two reportable segments: Home and Commercial Products, and Office Products. The Office Products segment develops, markets and distributes its hardware and idea@WORK™ brand of ergonomic products primarily to office furniture OEMs and office furniture dealers. The Home and Commercial Products segment develops, markets and distributes hardware, kitchen and storage solutions primarily to retailers, specialty distributors and kitchen OEMs. These products include the Real Solutions for Real Life™ brand of storage products. KV substantially completed this realignment of its structure during the fourth quarter of fiscal 2002. Due to the realignment, presentation of certain prior year operating segment results is impracticable.

Home and Commercial Products Segment

        The Company’s Home and Commercial Products segment consists of development, marketing and distribution primarily in the United States and Canada. The segment’s storage products include a complete line of decorative and wall-attached shelving systems and drawer slides. Drawer slides manufactured by the Company include precision, Euro-style and utility slides. Precision drawer slides use ball bearings, while Euro-style and utility drawer slides use rollers. In addition, the segment’s many different hardware products include closet rods, kitchen storage products and various fixtures. In fiscal 2003, approximately 22% of the segment sales were to the consumer market, 11% to original equipment manufacturers, 51% to specialty distributors and 16% to Canada and other international customers. The markets are highly competitive. The Company competes primarily on the basis of product design, product quality, price, on-time delivery, and customer service. The precision slide market consists of two large manufacturers, a number of smaller domestic manufacturers, and an increasing number of foreign manufacturers that compete primarily on the basis of price and quality.

Office Products Segment

        The Company’s Office Products segment consists of development, marketing, and distribution primarily in the United States and Canada. The segment’s ergonomic products include adjustable keyboard trays, gel wrist rests, floating mousepads, flat-screen monitor arms, office lights, and recently introduced height adjustable tables. In fiscal 2003, approximately 24% of the segment sales were to office furniture dealers, 75% were to OEMs and 1% were to Canada and other international customers. The Company competes in this segment with several large producers of ergonomic support systems, and many smaller domestic and foreign manufacturers that compete primarily on the basis of product quality, features, and price.

Item 1(c) — Narrative Description of Business

        Products, Services, Markets and Methods of Distribution. The Company’s storage products include a complete line of decorative and utility wall-attached shelving systems and drawer slides. Drawer slides manufactured by the Company include precision, Euro-style and utility slides. Precision drawer slides use ball bearings, while Euro-style and utility drawer slides use rollers. In addition, the Company’s many different hardware products include closet rods, kitchen storage products and various fixtures. The Company’s ergonomic products include adjustable keyboard trays, gel wrist rests, floating mousepads, flat-screen monitor arms, office lights and height adjustable tables.

        During fiscal 2003, the Company restructured most of its sales force from independent sales representatives to a direct sales force. Now, the Company’s sales force calls directly on many of the customers in the consumer, distribution and OEM markets, while most of the office furniture dealers are served through independent sales representatives.

        New Product and Capital Spending Information. Management believes that capital spending in fiscal 2004 will remain at approximately the same level as fiscal 2003 or $4.0 million. The fiscal 2004 spending will reflect investments made primarily to bring new products and product enhancements to the Company’s customers.

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        Sources and Availability of Raw Materials. Most of the Company’s storage products are produced primarily from steel or wood. Historically, the Company has not experienced difficulty in obtaining these raw materials and does not anticipate any difficulty in the future, as the raw materials used are not unique. During fiscal 2003, the Company did experience an increase in its steel prices ranging from 10% to 15% depending on the grade of steel as a result of the steel tariffs.

        Patents, Licenses, Etc. Patents, trademarks and licenses play a part in the Company’s business, but the Company as a whole is not dependent to any material extent upon any single patent.

        Seasonal Nature of Business. The Company's business is not seasonal.

        Working Capital Practices. The Company does not believe that it, or the industry in general, has any special practices or special conditions affecting working capital items that are significant for an understanding of the Company’s business.

        Importance of Limited Number of Customers. The Company sells to the consumer, OEM and specialty distributor markets, as well as direct sales to the dealer network. The consumer market is comprised of a broad base of retail outlets. The specialty distributor market is more concentrated with a fewer number of customers and is more closely tied to the construction industry. The OEM market is comprised of sales to kitchen and bath cabinet manufacturers and sales to the office furniture industry. The dealer network is also closely tied to the office furniture industry. The Company estimates that at present it has over 1,500 active customers with approximately 30,000 outlets, of which the five largest customers account for approximately 24% of sales and only the Wurth Company, a group of specialty distributors, accounts for 10% of sales.

        Backlog of Orders. As of June 28, 2003, the Company’s backlog of unfilled orders was $4.0 million. At June 29, 2002, the company’s backlog totaled $3.1 million. It is expected that substantially all the orders forming the backlog at June 28, 2003, will be filled during the current fiscal year. Accordingly, the amount of the backlog at any particular time is not necessarily indicative of the level of net sales for a particular succeeding period.

        Government Contracts. While the Company does have two contracts with the General Services Administration (“GSA”) for certain of its ergonomic products, the sales volume under these contracts does not result in a significant risk if the government were to terminate these contracts. These contracts contain standard price reduction provisions.

       Competition. All aspects of the business in which the Company is engaged are highly competitive. Competition is based upon price, service and quality. In the various markets served by the Company, it competes with a number of manufacturers that have significantly greater resources and sales, including several conglomerate corporations, and with numerous smaller companies. While the Company is not aware of any reliable statistics that are available to enable the Company to accurately determine its relative position in the industry, either overall or with respect to any particular product or market, the Company believes that it is one of the three leading manufacturers of drawer slides in North America.

        Research, Design and Development. Research, design and development efforts represent one of the Company’s core strengths. Through research, the Company seeks to define and clarify customer needs and problems and to design innovative products, which solve these customer needs and problems. Approximately $2,031,000 was spent in fiscal 2003 in the development of new products and in the improvement of existing products; approximately $1,977,000 was spent in fiscal 2002 and $2,281,000 in fiscal 2001 for the same purposes. In addition, royalties paid to designers of the Company’s products are variable based on sales volumes and are not included in research and development costs.

        Environmental Matters. The Company does not believe, based on current facts known to management, that existing environmental laws and regulations have had or will have any material effects upon the capital expenditures, earnings, or competitive position of the Company.

        Employees. The Company considers one of its major competitive strengths to be its human resources. There have been no work stoppages or labor disputes in the Company’s history, and its relations with its employees are considered good. At June 28, 2003, the Company employed 766 persons. Collective bargaining agents represent none of the Company’s employees. In addition to its employee work force, the Company uses purchased labor to meet uneven demand in its manufacturing operations.

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Item 1(d) — Information About Foreign Operations

        The Company’s Canadian operations accounted for approximately 8% of consolidated net sales. Approximately 4% of consolidated net sales were derived from export shipments from the Company’s United States operations to customers in other foreign countries. The Company does not know of any particular risks attendant thereto, except that fluctuating exchange rates between the United States and Canadian currencies and other factors beyond the control of the Company, such as tariff and foreign economic policies, may affect future results of such business. Reference is made to Note 14 of the Notes to the Company’s Consolidated Financial Statements contained herein for the fiscal year ended June 28, 2003, for a presentation of additional information concerning the Company’s foreign operations.

ITEM 2 — PROPERTIES

         The Company owned or leased the following offices and manufacturing facilities as of June 28, 2003:

The facilities indicated as owned, are owned in fee by the Company and are subject to no material encumbrances. The Company believes that its facilities are generally adequate for its operations and are maintained in a state of good repair. The Company believes it is in compliance with all applicable state and federal air and water pollution control laws. During the five years ended June 28, 2003, the Company spent approximately $31,000,000 for expansion, modernization and improvements of its facilities and equipment.

ITEM 3 — LEGAL PROCEEDINGS

During the second quarter of fiscal 2003, the Company settled a claim for $300,000 related to a lease of which the Company was a guarantor. The claim had been previously accrued on the balance sheet.

During the second quarter of fiscal 2003, the Company settled certain legal concerns involving potential royalty issues for which an accrual had previously been recorded. As a result, the Company reported a pre-tax gain of approximately $800,000 as an offset to selling and administrative expenses in the statement of income.

The Canada Customs and Revenue Agency (“CCRA”) has performed an audit of the Company’s sales to its wholly-owned subsidiary, Knape & Vogt Canada. Preliminary results from a joint review by the Company and its customs broker indicate that the Company may be liable for certain customs duties, however, the amount of any such potential liability is unknown at this time. The Company is defending its position that Knape & Vogt Canada is the importer of record for all Knape & Vogt goods shipped into Canada and management believes that, based on the information available at this time, any liability owed to the CCRA will not have a material adverse effect on the Company’s earnings.

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The Company was sued in the Kent County, Michigan Circuit Court in 1997 by a former employee seeking additional benefits under an executive retirement plan. The Circuit Court ruled in favor of the plaintiff, but in June 2002, the Circuit Court was reversed on the Company’s appeal to the Michigan Court of Appeals. The plaintiff filed a delayed request for leave to appeal to the Michigan Supreme Court. In August 2002, the plaintiff filed a lawsuit seeking these retirement benefits in the Federal District Court for the Western District of Michigan. During the fourth quarter of fiscal 2003, the plaintiff’s request for leave to appeal to the Michigan Supreme Court was denied. The Company has moved to dismiss the federal litigation based on the statute of limitations. The federal district judge has taken this motion under advisement.

The Company is also subject to other legal proceedings and claims, which arise in the ordinary course of business.

In the opinion of management, based on the information presently known and taking into account established accruals of approximately $719,000 at June 28, 2003, the ultimate liability for these matters will not have a material adverse effect on the Company’s financial position or the results of its 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 ended June 28, 2003.

ADDITIONAL ITEM — EXECUTIVE OFFICERS OF THE REGISTRANT

        The executive officers of the Company, at June 28, 2003, were as follows:

    Mr. Dutmers was named Chairman of the Board of Directors in January 1998. Mr. Dutmers has been a member of the Board of Directors since April 1996. He was named Chief Executive Officer in May 1999. Mr. Dutmers was the President of G & L, Inc., a business consulting firm, from 1991 to 1997.

    Ms. Cummings was named Vice President of Finance and Treasurer in July 2000. Ms. Cummings joined the Company in 1998 as the Assistant Treasurer. Prior to that she was employed at Knape & Manufacturing Company from 1992 to 1998.

    Mr. Royal-Ferris was named Vice President of Home and Commercial Products in October 2002. Mr. Royal-Ferris joined the Company in 2001 as the Director of Business Development – Consumer. Before joining the Company, Mr. Royal –Ferris had been self-employed from September 2000 to July 2001. Prior to that, he served as the Vice President of Sales/Marketing for Keystone Manufacturing from April 2000 until August 2000; as the Vice President of Sales – Kitchen Division for Windmere Durable Holdings from January 1998 to March 2000; and as Vice President of Sales for The Rival Company from 1990 until January 1998.

    Mr. Smith was named Vice President of Office Products in October 2002. Mr. Smith joined the Company in June 2002 as a Director of Sales in the Office Products division. Prior to that he had served on the sales management team at Herman Miller, Inc. from 1998 to 2002.

    Mr. Watson was named President of Operations in March 2002. Before joining the Company, he had been employed at the Marmon Group from 1993 to 2002, most recently as the Vice President of Finance of Marmon Retail Services.

     All terms of office are on an annual basis and will expire on October 17, 2003.

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PART II

ITEM 5 — MARKET PRICE FOR REGISTRANT’SCOMMON
EQUITY AND RELATED STOCKHOLDER MATTERS

        Market Price. The Company’s Common Stock is traded on the NASDAQ National Market under the ticker symbol KNAP. Stock price quotations can be found in major daily newspapers (listed KnapeV) and in the Wall Street Journal (listed KnapeVogt). As of August 22, 2003, there were approximately 3,000 shareholders of the Company’s Common Stock and Class B Common Stock.

    Dividends.        The Company paid quarterly per share cash dividends of $0.165 on its shares of Common Stock and $0.15 on its shares of Class B Common Stock during the last two fiscal years.

        On August 8, 2003, the Board of Directors declared a $.165 per share cash dividend on shares of the Company’s common stock and $.15 per share cash dividend on shares of its Class B common stock, payable September 5, 2003, to shareholders of record on August 22, 2003.

        Securities Authorized for Issuance Under Equity Compensation Plans. The Company had the following equity compensation plans at June 28, 2003:

Equity Compensation Plan Information

These equity compensation plans are more fully described in Note 12 to the Consolidated Financial Statements.

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ITEM 6 — SELECTED FINANCIAL DATA

(a) Total capital is defined as the sum of long-term debt plus stockholders’ equity.

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ITEM 7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

        The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition. The discussion should be read in conjunction with the Consolidated Financial Statements and Notes.

Overview

        Knape & Vogt is a leading manufacturer of functional hardware, storage-related components and ergonomic products with a long history dating back to 1898. We complement our manufacturing capabilities with our design and distribution expertise. In fiscal 2002, we realigned our business to allow more focus on our two key segments; Office Products and Home and Commercial Products.

        Our Office Products segment develops, markets and distributes its hardware and idea@WORK™ brand of ergonomic products primarily to office furniture OEMs and office furniture dealers.

        Our Home and Commercial Products segment develops, markets and distributes hardware, kitchen and storage solutions primarily to retailers, specialty distributors and kitchen OEMs. These products include the Real Solutions for Real Life™ brand of storage products.

Critical Accounting Policies

        This discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts. On an ongoing basis, we evaluate our estimates, which are based on historical experience and on various other assumptions and factors that we believe to be reasonable under the circumstances. Based on our ongoing review, we will make adjustments, as we consider appropriate under the current facts and circumstances.

        We believe that the following represent the more critical estimates and assumptions used in preparation of our consolidated statements.

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Results of Operations

        The table below shows certain items in our Consolidated Statements of Operations as a percentage of net sales:

Sales

        The table below summarizes our sales by division for the past three fiscal years (in millions):

        Consolidated net sales for fiscal 2003 declined 4.9% compared to fiscal 2002, which followed a decline of 8.4% when comparing fiscal 2002 to fiscal 2001.

        Our Office Products division sales decreased 9.3% when compared to fiscal 2002, following a decline of 17.0% in fiscal 2002 when compared to fiscal 2001. The office furniture industry shipments, as a whole, have continued to decline as seen in the Business and Institutional Furniture Manufacturers’ Association (BIFMA) results for fiscal 2003 and fiscal 2002, which showed decreases of 10.2% and 25.3%, respectively. Despite the downturn in this industry, we have been able to maintain relatively stable sales to the office furniture channel with our idea@WORK product line. We attribute our ability to outperform the market in this channel, to sales of our new products, including the Keynetix™2 adjustable keyboard, the Mantis™ flat screen monitor arm and the Captor™CPU holder. During June 2003, at the NEOCON show in Chicago, we launched our line of height adjustable tables, ProLiftix™, and have begun taking orders for this line, which will begin shipping in early fiscal 2004.

        Our Home and Commercial Products division fiscal 2003 sales decreased by 3.0% when compared to fiscal 2002. During the first quarter of fiscal 2003, we launched a consignment inventory program for certain customers within this division. The program has expanded during the year and the consignment inventory balance at June 28, 2003 was $3.1 million at cost. The launch of this program effectively deferred sales from fiscal 2003; however, we have seen sales increase during the fiscal year to those customers participating in the program. We have also been successful in placing several of our new products into the retail channel, including our new line of Shelf Made™ Instant shelves, our Real Solutions for Real Life™ line of kitchen and bath accessories and our Work@Ease line of ergonomic products. The only channel, which has consistently reported sales declines during fiscal 2003, was the kitchen and bath OEM channel. Near the end of the third quarter, we realigned our sales force to better target this market. The decrease in our Home and Commercial Products division sales in fiscal 2002 when compared to fiscal 2001 reflected the overall downturn in the U.S. economy.

        New product sales (those products introduced within the last 18 months) were approximately $11.7 million in fiscal 2003 and $8.0 million in fiscal 2002. New product introductions, along with value-added services, such as vendor-managed inventory, remain a key component of our strategy.

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Gross Profit

        Gross profit, as a percentage of net sales, was 22.1% in fiscal 2003, compared to 23.5% in fiscal 2002 and 23.3% in fiscal 2001. Overall, we have a significant investment in our manufacturing process, specifically machinery and tooling. With the decrease in sales volumes during the past two fiscal years, it has been more difficult to effectively leverage the fixed portion of these costs. In addition, we have seen significant increases in our raw steel costs, ranging from 10% to 15% depending on the grade of steel, as a result of the steel tariffs imposed during fiscal 2003.

        We have been partially successful in offsetting the impact of the sales volume decline and the raw material price increases by utilizing lean manufacturing initiatives to minimize manufacturing costs, along with identifying competitive alternative sourcing options, when applicable, and by increasing sales of higher margin products such as the line of ergonomic products and higher sales into our more profitable market channels.

Selling, General and Administrative

        Selling, general and administrative expenses, as a percent of net sales, were 18.9% in fiscal 2003, compared to 17.2% in fiscal 2002 and 16.1% in fiscal 2001. During the second quarter of fiscal 2003, we recognized a pre-tax gain of $0.8 million due to the successful resolution of certain legal matters. Excluding this gain, selling and administrative expenses would have been 19.5% of net sales in fiscal 2003. The increase from the prior year was due in part to the higher selling costs associated with the ergonomic product line combined with the advertising and marketing costs we incurred to launch new products in both of our divisions. During the past two fiscal years, we have also incurred costs to reintroduce our line of kitchen and bath accessories under the Real Solutions For Real Life™ logo. Finally during fiscal 2003,we made significant investments in our selling efforts to the distribution channel in an effort to aggressively grow sales in this key market.

Restructuring/Impairment

        During the first quarter of fiscal 2003, we recorded $271,325 pre-tax of severance costs, primarily related to the resignation of two of our executive officers in August 2002.

        In the fourth quarter of fiscal 2002, we recorded a pre-tax impairment charge of $690,000 in accordance with Financial Accounting Standard No. 144 for certain precision drawer slide tooling. While we continue to produce the drawer slides, the future cash flows associated with the sales of this particular product line were less than the cost of the tooling recorded. In addition, during the fourth quarter of fiscal 2002, we adopted a plan to reduce our salaried workforce in the Grand Rapids, Michigan facility. We recorded $245,000 in severance costs for this workforce reduction.

        In the third quarter of fiscal 2001, we recorded a pre-tax impairment loss on assets held for sale of $.3 million. The loss reflected new information, which lowered our estimate of the fair market value of the properties listed for sale. In fiscal 2000, we had recorded a loss of $.1 million pre-tax, which was our best estimate at that time of the loss to be incurred on the sale of our former powder coat facility. The assets held for sale were sold during fiscal 2002 at no additional loss.

Interest Expense and Income Taxes

        Interest expense was $1.5 million in fiscal 2003, compared to $1.5 million and $1.6 million, respectively, in fiscal years 2002 and 2001. Overall, interest expense has remained relatively stable over the past three fiscal years. Slight variations reflect the impact of higher or lower balances outstanding on the revolving credit facility.

        During fiscal 2003, we amended our income tax returns previously filed for fiscal years 1997 and 1999. A change in the federal tax law allowed us to utilize a portion of our capital loss from fiscal 1999 that had been previously disallowed. As a result of this change, we recognized an income tax benefit of $607,000 in fiscal 2003.

        Excluding the impact of the amended returns, the effective tax rate would have been 38.0% in fiscal 2003, compared to 35.9% in fiscal 2002 and 34.6% in fiscal 2001. Overall, rates have increased due to the ratio of foreign versus domestic income and expanded state exposure. See Note 11 to the Consolidated Financial Statements for a reconciliation of the effective tax rate.

Net Income

        Net income was $2.2 million, or $0.49 per diluted share, in fiscal 2003 compared to $3.8 million, or $0.83 per diluted share, in fiscal 2002 and $5.6 million, or $1.22 per diluted share in fiscal 2001. The declines in both fiscal 2003 and fiscal 2002 were primarily due to the decrease in overall sales volume.

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Liquidity and Capital Resources

        Cash flows from operating activities generated $.5 million in fiscal 2003, compared to $13.4 million in fiscal 2002 and $8.8 million in fiscal 2001. The lower cash flow from operating activities in fiscal 2003 reflects lower earnings, a significant contribution to our defined benefit pension plans, combined with higher inventory levels needed to support the launch of the new products and the consignment inventory program. In addition, the payment of the legal settlements during fiscal 2003 also reduced the cash generated by operating activities. The increase in fiscal 2002 represented an improvement in the change in accounts payable and other accrued liabilities when compared to the prior year.

        Cash flows used in investing activities were $3.5 million in fiscal 2003, compared to $2.3 million in fiscal 2002 and $9.8 million in fiscal 2001. We spent $3.7 million on capital expenditures in fiscal 2003, compared to $3.9 million and $9.3 million, respectively, in fiscal 2002 and 2001. The fiscal 2003 capital expenditures represented investments in tooling for new products, including the Hopper™ and certain precision drawer slides, along with investment in our web-based customer service application and our new office showroom. Capital spending has declined in fiscal 2003 and 2002, due to the fact that we believe that our investments made in earlier years in the manufacturing process have been sufficient to meet the anticipated capacity needs for at least the next three to five years. We believe that capital expenditures will approximate $4.0 million in fiscal 2004, as investments will be focused on bringing new products and product enhancements to our customers. The cost to complete the items classified as construction in progress at June 28, 2003 was estimated to be approximately $422,000, which will be derived from cash flows from operations or from the revolving credit facility. Investing activities in fiscal 2001 also included the net cash paid for the acquisition of Idea Industries, Inc. (Idea).

        On October 1, 1999, we acquired substantially all of the assets of Idea. Idea designed, manufactured and marketed ergonomic products, including adjustable keyboard mechanisms, keyboard and computer mouse platforms, wrist rests and CPU holders. The acquisition was recorded using the purchase method of accounting. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed, based on their estimated fair values at the date of the acquisition. The cost of the acquisition in excess of net identifiable assets acquired, including contingent consideration paid in fiscals 2000 and 2001, was recorded as goodwill and has been amortized using the straight-line method based on a 15-year life. We discontinued the amortization of goodwill in fiscal 2003, when we adopted the provisions of SFAS No. 142 (see the discussion in Note 2).

        Cash flows generated from financing activities were $1.1 million in fiscal 2003, compared to $7.8 million of cash flow used in fiscal 2002 and $.8 million generated in fiscal 2001. The generation of funds in fiscal 2003 reflects borrowings under the revolving credit facility. The use of funds in fiscal 2002 reflects the repayment of $3.8 million of debt under the revolving credit facility along with the repurchase of $1.2 million of our common stock.

        We have a stock repurchase program, under which we purchased 2,280 shares during fiscal 2003 with the price per share ranging from approximately $9 to $11. At June 28, 2003, we are authorized to repurchase an additional 272,202 shares.

        We have a revolving credit agreement that provides for borrowings up to $45 million and expires on November 1, 2004. In addition, we have an interest rate swap agreement, which expires on June 1, 2006, in order to fix the interest rate on $20 million of borrowings under the revolving credit facility. The swap agreement fixed the rate at 6.25% plus our credit spread on the revolving credit agreement.

        At June 28, 2003, we were in compliance with all of the covenants of the revolving credit agreement.

        Our outstanding debt at June 28, 2003 was $24.1 million, compared to $20.0 million at fiscal 2002 year-end. The debt to total capital ratio increased to 40.9% at June 28, 2003, from 35.6% at June 29,2002. Note that we define total capital as the sum of long-term debt plus total stockholders’ equity. We continue to manage our debt levels in an effort to maintain our debt to total capital in a range of 35 to 45%. We believe that cash flows from operations and funds available under the credit facility will be sufficient to fund working capital requirements, stock repurchases and capital expenditures in fiscal 2004.

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        On August 8, 2003, the Company’s Board of Directors approved a resolution to refinance our revolving bank loan with a new lending institution. A commitment has been signed with the lender. The agreement calls for a $35 million unsecured revolving credit facility (including a $2.5 million sub limit for letters of credit) and matures on November 1, 2006. Interest on the revolving credit facility will be payable at prime or LIBOR rates plus a spread of up to .25% or 1.25%, respectively, based upon certain ratios.

Legal Contingencies

        During the second quarter of fiscal 2003, the Company settled a claim for $300,000 related to a lease of which the Company was a guarantor. The claim had been previously accrued on the balance sheet.

        During the second quarter of fiscal 2003, we settled certain legal concerns involving potential royalty issues for which an accrual had been previously recorded. As a result, we reported a pre-tax gain of approximately $800,000 as an offset to selling and administrative expenses in the statement of income.

        The Canada Customs and Revenue Agency (“CCRA”) has performed an audit of our sales to our wholly-owned subsidiary, Knape & Vogt Canada. Preliminary results from a joint review by KV and our customs broker indicate that we may be liable for certain customs duties, however, the amount of any such potential liability is unknown at this time. We are defending our position that Knape & Vogt Canada is the importer of record for all Knape & Vogt goods shipped into Canada and we believe, that based on the information available at this time, any liability owed to the CCRA will not have a material adverse effect on our earnings.

        We were sued in the Kent County, Michigan Circuit Court in 1997 by a former employee seeking additional benefits under an executive retirement plan. The Circuit Court ruled in favor of the plaintiff, but in June 2002, the Circuit Court was reversed on our appeal to the Michigan Court of Appeals. The plaintiff filed a delayed request for leave to appeal to the Michigan Supreme Court. In August 2002, the plaintiff filed a lawsuit seeking these retirement benefits in the Federal District Court for the Western District of Michigan. During the fourth quarter of fiscal 2003, the plaintiff’s request for leave to appeal to the Michigan Supreme Court was denied. The Company has moved to dismiss the federal litigation based on the statute of limitations. The federal district judge has taken this motion under advisement.

        We are also subject to other legal proceedings and claims, which arise in the ordinary course of business.

        In the opinion of management, based on the information presently known and taking into account established accruals of approximately $719,000 at June 28, 2003, the ultimate liability for these matters will not have a material adverse effect on our financial position or the results of our operations.

Contractual Obligations

        As more fully described in the Notes to the Consolidated Financial Statements, we are obligated to make future payments under certain debt and lease agreements, and are a party to other commitments. The following table summarizes these obligations as of June 28, 2003.

        In addition, we are a party to certain other agreements that contractually and unconditionally commit us to pay certain amounts in the future. While we believe it is probable that amounts will be spent in the future under such contracts, the amount and/or the timing of such future payments will vary depending on certain provisions of the applicable contract. The agreements to which we are a party that fall into this category include certain royalty agreements under which we pay a royalty based on the sales volume of certain products that we manufacture and sell.

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Inflation

        Inflation has not had a significant effect on KV over the past three years, nor is it expected to have a significant effect in the foreseeable future. We continuously attempt to minimize the effect of inflation through cost reductions and improved productivity.

Recently Issued Accounting Standards

        In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, Goodwill and Other Intangible Assets, effective for KV in fiscal 2003. Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to impairment tests at least annually in accordance with SFAS 142. Other intangible assets will continue to be amortized over their contractual lives.

        We adopted SFAS No. 142 in the first quarter of fiscal 2003. Application of the nonamortization provisions of SFAS No. 142 resulted in an increase in net earnings of approximately $237,000 ($0.05 per diluted share) for fiscal 2003. We performed the required impairment tests of goodwill as of the first day of fiscal 2003 and determined that the recorded goodwill was not impaired.

        In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS 146 requires that costs associated with exit or disposal activities be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan. Costs covered by this standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing or other exit or disposal activity. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002 and is not expected to have a material impact on the results of operations or financial position.

        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 clarifies the requirements for a guarantor’s accounting for and disclosure of certain guarantees issued and outstanding. The initial recognition and initial measurement provisions of FIN 45 are applicable to guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002 and have been made in the financial statements.

        In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, which amends SFAS No. 123, Accounting For Stock-Based Compensation. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirement of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements of the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. We have elected to continue to apply Accounting Principles Board (APB) Opinion No. 25 and related interpretations in accounting for our stock option plans, as permitted under SFAS No. 123 and SFAS No. 148. Accordingly, no compensation cost has been recognized for our stock option plans.

Forward-Looking Statements

        This report contains certain forward-looking statements, which involve risks and uncertainties. When used in this report, the words “believe,” “anticipate,” “think,” “intend,” “goal,” “forecast,” “expect” and similar expressions identify forward-looking statements. Forward-looking statements include, but are not limited to, statements concerning new product introductions, future revenue growth and gross margin improvement. Such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on those forward-looking statements, which speak only as of the date of this report.

        Risk Factors include, but are not limited to, uncertainties relating to changes in demand for our products; the cost and availability of inventories; changes in trading policies or import and export regulations; changes in duties, tariffs, quotas or applicable assessments; the ability to secure and protect patents and other intellectual property; foreign competition; loss of significant customers; and a continued slowdown in the U.S. economy. These matters are representative of the Risk Factors that could cause a difference between an ultimate actual outcome and a forward-looking statement.

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ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company is exposed to market risks, which include changes in foreign currency exchange rates as measured against the U.S. dollar and changes in U.S. interest rates. The Company holds a derivative instrument in the form of an interest rate swap, which is viewed as a risk management tool and is not used for trading or speculative purposes. The intent of the interest rate swap is to effectively fix the interest rate on part of the borrowings on the Company’s variable rate revolving credit agreement.

        A discussion of the Company’s accounting policies for derivative financial instruments is included in the Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements. Additional information relating to financial instruments and debt is included in Note 7 — Long-Term Debt, Note 8 — Derivative Financial Instruments and Note 17 — Subsequent Events. Quantitative disclosures relating to financial instruments and debt are included in the table below.

        The following table provides information on the Company’s fixed maturity investments as of June 28, 2003 and June 29, 2002 that are sensitive to changes in interest rates. The table also presents the corresponding interest rate swap on this debt. Since the interest rate swap effectively fixes the interest rate on the notional amount of debt, changes in interest rates have no current effect on the interest expense recorded by the Company on the portion of the debt covered by the interest rate swap.

        The Company has a sales office located in Canada. Sales are typically denominated in Canadian dollars, thereby creating exposures to changes in exchange rates. The changes in the Canadian/U.S. exchange rate may positively or negatively affect the Company’s sales, gross profits and retained earnings. The Company attempts to minimize currency exposure risk through working capital management. The Company does not hedge its exposure to translation gains and losses relating to foreign currency net asset exposures.

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ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        Immediately following are the consolidated balance sheets of the Company and its subsidiaries as of June 28, 2003 and June 29, 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended June 28, 2003, the notes thereto, and the independent auditors’ report.

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Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Operations

See accompanying notes to consolidated financial statements.     

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Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.     

17

Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets

See accompanying notes to consolidated financial statements.     

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Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Stockholders’ Equity

See accompanying notes to consolidated financial statements.     

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Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Cash Flows

See accompanying notes to consolidated financial statements.     

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Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

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Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

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Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

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Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

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Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

25

Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

26

Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

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Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

28

Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

29

Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

30

Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

31

Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

32

Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

33

Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

34

Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

35

Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

36

Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

37

Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements

38

Independent Auditors’ Report

Board of Directors
Knape & Vogt Manufacturing Company
Grand Rapids, Michigan

We have audited the accompanying consolidated balance sheets of Knape & Vogt Manufacturing Company and subsidiaries as of June 28, 2003 and June 29, 2002, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Knape & Vogt Manufacturing Company and subsidiaries at June 28, 2003 and June 29, 2002 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for goodwill amortization in 2003.

Deloitte & Touche LLP
Grand Rapids, Michigan
July 25, 2003

August 8, 2003 as to Note 17

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Independent Auditors’ Report

Board of Directors
Knape & Vogt Manufacturing Company
Grand Rapids, Michigan

We have audited the accompanying consolidated balance sheet of Knape & Vogt Manufacturing Company and subsidiaries as of June 30, 2001, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended June 30, 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Knape & Vogt Manufacturing Company and subsidiaries at June 30, 2001, and the results of their operations and their cash flows for the year ended June 30, 2001 in conformity with accounting principles generally accepted in the United States.

BDO Seidman, LLP
Grand Rapids, Michigan
July 26, 2001

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PART III

ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON
ACCOUNTING AND FINANCIAL DISCLOSURES

        On March 8, 2002, the Company’s Board of Directors approved of a change in its independent accountant from BDO Seidman LLP (“BDO”) to Deloitte & Touche LLP (“Deloitte”) based upon the recommendation of the Audit Committee. BDO’s report on the Company’s financial statements for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope, or accounting principles. During 2000, 2001, and a portion of 2002, preceding the Board’s decision to change independent accountants, there were no disagreements with BDO on any matter of accounting principles or practices, financial statement disclosure, auditing scope or procedure, which disagreement(s), if not resolved, would have caused BDO to refer to the matter of the disagreement(s) in connection with its reports. During that same period of time, there were no reportable events as described in item 304(a)(1)(b) of the Securities and Exchange Commission’s Regulation S-K.

ITEM 9(a) — CONTROLS AND PROCEDURES

        a)         Evaluations of Disclosure Controls and Procedures

                   In order to ensure that the information that we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis, we have adopted disclosure controls and procedures. Our Chief Executive Officer, William R. Dutmers, and our Vice President of Finance and Treasurer, Leslie J. Cummings, have reviewed and evaluated the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c) as of the end of the period covered by the Annual Report on Form 10-K (the “Evaluation Date”)), and have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures are appropriate and that no changes are required at this time.

        (b)         Changes in Internal Controls

                   There were no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect internal controls subsequent to the date of the most recent evaluation, nor any significant deficiencies or material weaknesses in such internal controls requiring corrective actions. As a result, no corrective actions were taken.

ITEM 10 — DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        Directors of Registrant. Information relating to directors and director nominees of the Company, contained in the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held October 17, 2003, and filed pursuant to Regulation 14A, is incorporated herein by reference.

        Executive Officers of Registrant. Information relating to the executive officers of the Company is included in Part I of this Form 10-K.

ITEM 11 — EXECUTIVE COMPENSATION

        The information under the captions “Summary Compensation Table,” “Option Grants in Last Fiscal Year,” and “Aggregated Stock Option Exercises in Fiscal 2002 and Year End Option Values,” is incorporated herein by reference from the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held October 17, 2003, filed pursuant to Regulation 14A.

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ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        The information under the captions “Voting Securities and Principal Shareholders” and “Directors and Nominees” is incorporated herein by reference from the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held October 17, 2003, filed pursuant to Regulation 14A.

ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information under the caption “Directors and Nominees” is incorporated herein by reference from the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held October 17, 2003, filed pursuant to Regulation 14A.

ITEM 14 — PRINCIPAL ACCOUNTANT FEES AND SERVICES

        The information under the caption “Independent Public Accountants” is incorporated herein by reference from the Company’s definitive Proxy Statement for the Company’s Annual Meeting of Shareholders to be held October 17, 2003, filed pursuant to Regulation 14A.

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PART IV

ITEM 15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

        (a)         (1)        Financial Statements

                               The following financial statements, all of which are set forth in Item 8, are filed as part of this report.

                    (2)        Financial Statement Schedule

                               The following financial statement schedule and related Independent Auditors’ Report on such schedule are included in this Form 10-K on the pages noted.

        All other schedules are not submitted because they are not applicable or not required, or because the required information is included in the financial statements or notes thereto.

                    (3)        Exhibits

                               Reference is made to the Exhibit Index, which is found on page 49 of this Form 10-K Annual Report.

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         (b)        Reports on Form 8-K

                    Knape & Vogt furnished the following Form 8-K during the quarter ended June 28, 2003.

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Independent Auditors’ Report on Schedule

Knape & Vogt Manufacturing Company
Grand Rapids, Michigan

We have audited the financial statements of Knape & Vogt Manufacturing Company as of June 28, 2003 and June 29, 2002, and for the years then ended, and have issued our report thereon dated July 25, 2003 (August 8, 2003 as to Note 17), which is contained in Item 8 of this Form 10-K. Our audits also included the financial statement schedule of Knape & Vogt Manufacturing Company listed in Item 14. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

Deloitte & Touche LLP
Grand Rapids, Michigan
July 25, 2003

45

Independent Auditors’ Report on Schedule

Knape & Vogt Manufacturing Company
Grand Rapids, Michigan

We have audited the financial statements of Knape & Vogt Manufacturing Company as of June 30, 2001 and for the year then ended, and have issued our report thereon dated July 26, 2001, which is contained in Item 8 of this Form 10-K. Our audits also included the financial statement schedule of Knape & Vogt Manufacturing Company listed in Item 14. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

BDO Seidman LLP
Grand Rapids, Michigan
July 26, 2001

46

Knape & Vogt Manufacturing Company and Subsidiaries
Schedule II — Valuation and Qualifying Accounts and Reserves

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SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:  August 27, 2003

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on August 27, 2003, by the following persons on behalf of the registrant in the capacities indicated.

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KNAPE & VOGT MANUFACTURING COMPANYANNUAL
REPORT — FORM 10-K

EXHIBIT INDEX