5

6

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The following table sets forth information regarding shares issued under equity compensation plans as of December 26, 2003:

(1)	Under the terms of the 2000 Plan, the Company reserved 4,400,000 shares of Common Stock for issuance. Additionally, options under the Company’s 1990 Performance Equity Plan that expire or terminate unexercised after the adoption of the 2000 Plan, and options under the 2000 Plan that expire or terminate unexercised, are available for new grants pursuant to the terms of the 2000 Plan.

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The following table sets forth certain selected financial information.

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The following discussion should be read in conjunction with the consolidated financial statements and related notes as well as the section under the heading “Risk Factors that May Affect Future Results.” With the exception of historical information, the matters discussed below may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Forward-looking statements typically use words or phrases such as “estimate”, “plans”, “projects”, “anticipates”, “continuing”, “ongoing”, “expects”, “believes”, or words of similar import. We caution readers that a number of important factors, including those identified in the section entitled “Risk Factors that May Affect Future Results” as well as factors discussed in our other reports filed with the Securities and Exchange Commission, could affect our actual results and cause them to differ materially from those expressed in the forward-looking statements. Forward-looking statements included in this Form 10-K are made only as of the date hereof, based on information available as of the date hereof, and subject to applicable law to the contrary, we assume no obligation to update any forward-looking statements.

Introduction

     We are a leading designer and manufacturer of advanced power conversion products and board level computing solutions incorporated into embedded communications systems. We generate revenue and earn profits through the sale of these products to OEM’s and distributors, predominately in the communications industry. Our operations are global, with design, manufacturing and sales resources in North America, Europe and Asia.

     Our business is organized into two operating segments, Power Conversion and Communications Products. The Power Conversion group designs, manufacturers and sells AC/DC and DC/DC power conversion products. The Communications Products group designs, manufactures and sells CPU boards and WAN I/O boards bundled with software protocols embedded in communications infrastructure systems. The two segments share a strategic direction, but have separate operations.

     Our products are used in commercial applications in the server and storage, networking, wireless infrastructure and telecommunications sectors of the communications industry. Our revenue is dependent on the success of our customers’ products and services, which incorporate our products as a component or sub-system. Our customers’ success is impacted by macroeconomic and industry trends, primarily corporate spending on information technology and capital spending by communication services providers. Spending in these areas contracted sharply in 2001, 2002 and, to a lesser extent, in the first half of 2003. In the fourth quarter of 2003, spending appeared to recover as evidenced by the higher revenues reported across the industry.

     In evaluating our products, customers consider quality, reliability, technology, service and cost relative to our competitors. The trend towards DPA is the technological shift having the greatest impact on our products. We are investing heavily in PoL and other DPA technologies in order to grow our competitive advantage in this area. In order to meet the cost requirements of our customers, we have consolidated our production in low-cost countries.

     We generate cash through net income, efficient working capital and capital equipment management and equity and debt financing transactions. Although we incurred significant net losses in the past three years, we generated substantial cash through reductions in working capital and by minimizing capital equipment purchases.

     We are financed through a mixture of equity and debt. We took actions in 2003 to lengthen our debt maturities and to allow us more flexibility to invest in our business. Our debt is in the form of 5.5% Convertible Senior Subordinated Notes due 2010 and an asset-based senior revolving credit facility, the availability under which is determined in accordance with a borrowing base calculation using domestic accounts receivable and inventory.

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2003 Overview

     Beginning in 2001 and continuing through 2002, there was a decrease in demand experienced throughout the communications industry as consumers of computing and communications equipment became more conservative with their capital investment plans. The decline in our revenue that followed resulted in substantial operating losses, as we were unable to reduce our cost structure in line with the revenue reductions. The operating losses required waivers from our lenders and a renegotiation of terms on our existing revolving credit agreement, including reductions in the amount available for borrowing, during 2002.

     In the fourth quarter of 2002, we announced a series of restructuring actions to significantly lower operating costs. The restructuring plan provided a path to return to profitability and executing that plan was a primary focus of management. Entering 2003, we identified four goals for the year: achieve quarterly profitability, improve liquidity, grow revenue and continue to invest in research and development. These goals were substantially achieved as outlined below.

Achieve quarterly profitability.In 2003, we executed our restructuring plan, including the closure of our Kindberg, Austria and Youghal, Ireland factories and consolidating production in our lower-cost China and Hungary plants. These and other actions reduced excess capacity and better aligned our cost structure with our revenue stream. The cost reductions combined with an increase in end market demand resulted in a profit being recorded in the fourth quarter of 2003, the first quarterly profit since 2001.

Improve liquidity.We entered the year with $23.0 million of borrowings under our revolving credit agreement, due to expire in 2004, and a $50.0 million convertible subordinated note, due in 2007, but redeemable by the note holder (Finestar) in January 2005. In August 2003, we issued $90.0 million of convertible senior subordinated notes, due in 2010 and used a portion of the net proceeds to pay off the Finestar note. We also replaced our prior credit facility with a five-year, $35.0 million senior revolving credit facility with Fleet Capital. The financing transactions undertaken in 2003 have lengthened our debt maturities and provide greater flexibility to make longer-term investments in our business.

     We also generated $24.2 million of operating cash flow primarily driven by reductions in working capital. The operating cash flow and the cash provided by the financing activities described above, allowed us to fund capital expenditures and increase cash by $29.2 million to $94.2 million at the end of the year.

Grow revenue.Sales in 2003 increased 2% from 2002 to $356.9 million driven by new product introductions and improvement in end market demand. Revenue increased sequentially from $81.9 million in the first quarter to $99.3 million in the fourth quarter, as demand improved across all of our market sectors late in the year.

Continue to invest in research and development.Although we reduced our cost structure, we continue to invest in technology and new products to grow our business. We invested $34.3 million or 10% of revenue on research and development in 2003, consistent with our 2002 spending.

     We exited 2003 in a substantially stronger competitive and financial position. With the improvements made to our cost structure and liquidity, our focus in 2004 will be on growing the business. Our goals for 2004 are to grow market share, enter new communications market segments, continue to invest in industry leading technology and maintain profitability for the year.

Critical Accounting Policies

     We have identified the policies outlined below as critical to our business operations and an understanding of our results of operations. The listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need

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Inventories

     We value our inventory at the lower of the actual cost to purchase and/or manufacture the inventory or its current estimated market value. We regularly review inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and production requirements for the next twelve months. Demand for our products can fluctuate significantly, and we consult with our sales and customer service organizations in order to determine the projections for each component and finished good. Because of the magnitude of the value of our inventory, any adjustment to excess and obsolete inventory would likely be material to our results. The estimate of inventory reserves is critical in both of our segments.

     We refined our calculation related to estimating our excess and obsolete inventory reserves during the fourth quarter of 2002. The refinement resulted in an increase to our excess and obsolete inventory reserve of $15.5 million in the fourth quarter of the year. In 2003, our gross inventory continued to decrease due to increased demand, enhanced resource management and the disposal of obsolete inventory. These factors contributed to a significant decrease in the reserve balance at the end of 2003 compared to 2002. At December 26, 2003, our inventory reserve balance was $23.7 million, representing 35% of the value of our gross inventory. This compares with $39.5 million, or 42% of gross inventory, at the end of 2002.

Warranties

     We offer warranties of various lengths to our customers depending upon the specific product and terms of the customer purchase agreement. Our standard warranties require us to repair or replace defective products returned to us during such warranty period at no cost to the customer. At the time of sale, we record an estimate for warranty-related costs based on our actual historical return rates and communications with our customers. Changes in such estimates can have a material effect on net income and require us to forecast expected warranty claims. The estimate of warranty obligations is critical in both segments.

     The reserve is determined by first comparing the historical relationship between warranty costs, which are made up of labor and materials required to repair the parts returned, and revenue over the prior two years to calculate a rate. The rate is then applied to shipments under warranty using a sliding scale, based on historical return patterns. The reserve also includes specific large exposures that are probable and reasonably estimated. We have recognized expenses related to warranty costs of $5.2 million, $3.9 million and $3.8 million in 2003, 2002 and 2001, respectively. Each of these represents approximately 1% of revenue in their respective periods. Our warranty costs have historically been within our expectations and the provisions established.

Goodwill

     We adopted Statement of Financial Accounting Standards No. 142 on December 29, 2001. Under SFAS No. 142, we assess goodwill using a two-step approach on an annual basis in August of each year, or more frequently if indicators of impairment exist. SFAS No. 142 states that potential impairment exists if the fair value of a reporting unit is less than the carrying value of the assets of that unit. The amount of the impairment to recognize, if any, is calculated as the amount by which

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     Management’s assumptions about future sales and cash flows on which the fair value estimate is based require significant judgment as prices and volumes fluctuate due to changing business conditions. In addition, the impact of recognizing a goodwill impairment charge was material to our results of operations in 2002 and could be material in the future to our consolidated financial results.

     During 2002, based on business conditions at that time, we performed an updated assessment of impairment of goodwill. As a result of this assessment, we recognized an impairment loss of $51.9 during the third quarter of the year. For additional information on the assessment and impairment, please refer to Note 17 of our Consolidated Financial Statements. We performed the same test in the third quarter of 2003, and determined an impairment did not exist. As of December 26, 2003, the balance of goodwill was $20.8 million, making our estimate of future earnings critical. We will continue to assess the impairment of goodwill in accordance with SFAS No. 142 in future periods.

Accounting for Income Taxes

     As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process requires us to estimate our actual current tax exposure, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our Consolidated Balance Sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the Statement of Operations. To the extent we decrease the valuation allowance in a period, we must include a benefit within the tax provision in the Statement of Operations.

     Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. A change in these estimates could have a material effect on our operating results. We have recorded a valuation allowance of $12.4 million as of December 26, 2003, due to uncertainties related to our ability to utilize some of the net operating loss carryforwards that make up our deferred tax assets before they expire. The valuation allowance is based on historical tax positions, tax planning strategies and expectations about future taxable revenue by jurisdiction and the period over which our deferred tax assets will be recoverable. The net deferred tax assets are $25.0 million and $28.6 million, net of the valuation allowance, at the end of 2003 and 2002, respectively.

Results of Operations

Sales. The following table summarizes revenue by business segment in comparison to previous periods (in millions):

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     In Communications Products, the increase in 2003 compared to 2002 ($10.6 million) is primarily attributable to increases in sales to our wireless and telecommunications customers, as several new programs entered development and our customers experienced an increase in end-user demand. In Power Conversion, the decrease in revenue compared with 2002 ($4.5 million) is due primarily to a decrease in sales to our server and storage customers in the first half of 2003. This was partially offset by an increase in sales to our distribution customers reflecting the impact of expanding our distribution network.

     During 2003, we realized sequential growth as revenue increased from $81.9 million in the first quarter to $99.3 million in the fourth quarter. Revenue growth accelerated in the fourth quarter across all of our markets due to new product introductions and increased end-user demand as spending on information technology and capital spending by communications service providers increased. Based on orders received in the fourth quarter of 2003 and our customers’ forecasts, we expect the higher level of demand to continue through the first half of 2004.

     The decrease in sales in 2002 compared to 2001 is primarily the result of a significant decrease in demand we experienced from most of our major customers starting in early 2001. The decreased level of customer demand was driven by lower spending on information technology and reduced capital spending by communication service providers.

     The reduction in sales was also impacted by the sale of Artesyn Solutions in the fourth quarter of 2001. If the impact of Artesyn Solutions were removed, the reduction in sales in 2002 compared to 2001 would be $97.3 million, or 22%.

Gross Profit. Below is a comparison of gross profit and gross profit as a percent of revenue for 2003, 2002 and 2001 (in millions):

     Included in the 2002 results are charges of approximately $15.5 million for increased excess and obsolete inventory reserves as a result of a change in the reserve calculations. The charges were recorded in cost of sales, and reflect a refinement in our estimate of excess and obsolete inventory resulting from industry trends toward shorter product lifecycles and other factors. We did not record charges for excess and obsolete inventory outside of our normal recurring adjustment in 2003.

     The increase in 2003 gross profit, excluding the impact of the additional inventory charge ($24.2 million), was primarily the result of manufacturing cost reductions resulting from our restructuring actions taken during the last two years (approximately $20.0 million) and improvements in volume and sales mix. Manufacturing costs were reduced due to the closure of our Kindberg, Austria factory in April 2003, the closure of our Youghal, Ireland factory in September 2003, headcount reductions across all of our factories and lower inventory charges due to the significant reduction of inventory on hand.

     In 2003, our Communications Products segment accounted for approximately 12% of our total sales compared to approximately 9% in 2002. The increased sales recorded by Communications

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     We also experienced sequential improvement in gross profit as a percent of revenue during 2003, as our gross profit percentage increased from 16.4% in the first quarter to 22.4% in the fourth quarter. The improvement during 2003 was primarily the result of cost reductions from the restructuring actions discussed above.

     The decrease in gross profit in 2002 compared to 2001 was primarily attributable to the decrease in revenue in 2002 compared to 2001 (approximately $20.0 million). In addition, gross profit was negatively impacted by the exclusion of Artesyn Solutions from our consolidated results in 2002 (approximately $9.0 million) and supplier cancellation charges incurred in 2002 (approximately $2.0 million). These effects were somewhat offset by cost savings from our manufacturing locations, accounting for the balance of the change between periods.

     During 2001, we recorded a charge related to excess and obsolete inventory of $16.0 million related to raw materials purchased and finished goods manufactured to fulfill orders cancelled or delayed as customer demand unexpectedly decreased in the period. This charge corresponds to the charge recorded in 2002 of $15.5 million previously discussed.

     The restructuring actions to reduce excess capacity and lower manufacturing costs were largely complete at the end of 2003. Gross profits in 2004 will be favorably impacted by the full year effect of the restructuring actions implemented throughout 2003. Additionally, higher demand will increase manufacturing capacity utilization, which was approximately 75% at the end of 2003, allowing for better coverage of fixed costs and an improvement in gross profit as a percent of revenue.

Operating Expenses. Operating expenses for 2003, 2002 and 2001 are as follows (in millions):

     Included in 2002 was a reduction in selling, general and administrative expenses, or SG&A, resulting from the effect of changes in foreign currency exchange rates of approximately $5.2 million. The effect in 2003 was a reduction of approximately $0.5 million, accounting for the increase in SG&A from 2002 to 2003.

     Excluding the effect of changes in foreign currency exchange rates, SG&A decreased $2.4 million in 2003 compared to 2002 as a result of the restructuring actions taken since 2001. These actions, which are discussed below in “Restructuring and Related Charges”, were intended to reduce infrastructure and personnel and to maintain the proper relationship between operating expenses and revenue. These cost saving initiatives are also the primary reason for the dollar reductions in SG&A in 2002 as compared to 2001. In addition, approximately $5.5 million of the decrease in SG&A in 2002 compared to 2001 is attributable to the exclusion of Artesyn Solutions after its sale.

     Research and development expenses totaled $34.3 million, or 10% of sales, in both 2003 and 2002. There were some reductions in research and development expenses in 2003 as a result of the

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Restructuring and Related Charges. Pursuant to our restructuring plans, we recorded the following restructuring and related charges (in millions):

     The amounts recorded in 2003 were related to the transfer of manufacturing functions to our China facility and further consolidation of our business in Europe. The amount recorded in 2002 included amounts related to the closure of our Kindberg and Youghal manufacturing facilities. Although the closures were not completed until 2003, the majority of the expenses were recorded in 2002. During 2001, the charges reflect the closure of our manufacturing facility in Broomfield, Colorado and several engineering and administrative facilities worldwide.

     As part of ongoing restructuring efforts, we expect to record total charges of approximately $0.5 million in 2004, primarily related to costs that were not yet incurred when the restructuring was initiated, such as asset transfer costs and final amounts related to our restructuring actions in Europe. For additional information on our restructuring actions, please see Note 5 of our Consolidated Financial Statements.

Amortization/ Impairment of Goodwill. On December 29, 2001, we adopted SFAS 142, “Goodwill and Other Intangible Assets”. With the adoption of SFAS 142, goodwill is no longer subject to amortization but is subject to an annual impairment test. We have not recorded and will not record amortization expense related to goodwill in any period after adoption of SFAS 142.

     Due to adverse business conditions in our end markets, we performed impairment tests of goodwill in accordance with SFAS No. 142 in the third quarter of 2002. The result of these tests indicated an impairment existed and a goodwill impairment loss was recognized in the Power Conversion segment for $35.0 million and the Communications Products segment for $16.9 million during the third quarter. The total impairment charge of $51.9 million is included in operating expenses in 2002.

     Our annual assessment of the fair value of our reporting units was performed in 2003 in accordance with SFAS No. 142, and no additional impairment was recognized.

Gain on Sale of Artesyn Solutions.During December 2001, we sold our repair and logistics business, Artesyn Solutions, Inc., to Solectron Global Services, Inc. for $33.5 million. A substantial portion of the net proceeds was used to pay down outstanding debt. The gain on the transaction was $31.3 million and was included as a line item offset in operating expenses in 2001.

Loss on Debt Extinguishment.Losses on debt extinguishment were $3.7 million in 2003 compared with $0.6 million in 2002. In conjunction with the placement of our 5.5% convertible notes in 2003, a portion of the net proceeds from the placement was used to pay off our then outstanding $50.0 million obligation to Finestar. The losses on debt extinguishment were comprised of the accretion of the remaining debt discount related to the transactions with Finestar ($2.4 million) along with the write-off of the remaining unamortized debt issuance costs ($0.7 million). For

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     In March 2003, we entered into a new asset-based revolving credit facility with Fleet Capital Corporation, which replaced our prior revolving credit facility. Loss on debt extinguishment in 2003 also includes $0.6 million in expense related to the write-off of unamortized debt issuance costs in association with our previous credit agreement.

     During the fourth quarter of 2002, we entered into an agreement to amend the revolving credit facility in place at that time. One of the results of this amendment was a reduction in the overall availability/borrowing capacity under the agreement. We recorded debt extinguishment expenses of $0.6 million at the time related to the reduction in the facility’s capacity.

Interest Expense, net. Interest expense, net is detailed as follows (in millions):

     We entered 2003 with substantially lower borrowings on our revolving credit facility compared to the beginning of 2002. During the first quarter of 2003, we replaced our then existing revolving credit facility with a new, $35.0 million, five-year revolving asset-based credit facility with Fleet Capital Corporation. Using cash generated from operations, the outstanding debt on our credit facility was further reduced to zero at the end of 2003, compared to $23.0 million at the end of 2002. The reduction in interest expense was primarily the result of the reduced level of borrowings.

     As discussed above, the note previously outstanding with Finestar was paid off in the third quarter of 2003. As a result of the placement of convertible notes in 2003, the $50.0 million note outstanding with Finestar at 3% was replaced with $90.0 million of notes at 5.5%. The additional borrowings and the higher interest rate will result in higher interest expense in 2004 compared to 2003.

Benefit for Income Taxes. Below is a comparison of the benefit for income tax and effective tax rate for 2003, 2002 and 2001 (in millions):

     The difference in the 2003 and 2002 tax rates is the result of the non-deductibility of goodwill written off and losses in certain tax jurisdictions that require a valuation allowance for the related deferred tax benefits. We record deferred tax assets for tax benefits on losses. We continually evaluate whether our deferred tax assets will be realized, and record a valuation allowance when appropriate. If we continue to experience losses or elect to cease operations in certain tax jurisdictions, we may need to record additional valuation allowances in the appropriate jurisdiction, and our effective tax rate could change significantly.

     The primary reasons for the difference between the effective tax rates in 2002 compared with 2001 periods was the non-deductibility of the majority of the goodwill impairment charge recorded in 2002 along with the valuation allowance of $3.1 million recorded in 2002 related to deferred tax assets in Hungary.

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Net Loss. The net loss recorded in each of the last three years is as follow (in millions, except per share data):

     In comparison to 2002, the improvement in net loss in 2003 resulted from the goodwill impairment loss, the additional excess and obsolete inventory charges and the significantly higher restructuring charges that were recorded in 2002. In addition, the higher gross profit as a result of manufacturing cost savings contributed to the improvement.

     The primary reasons for the increased loss in 2002 in comparison to 2001 were the goodwill impairment charge recorded in 2002, the gain on the sale of Artesyn Solutions recorded in 2001 and the reduction in revenue as discussed above. There was no amortization expense recognized in 2002 related to goodwill, which partially offset the negative factors discussed above.

Power Conversion

Results for the Power Conversion segment in 2003 compared with prior years are as follows (in millions):

     The decrease in revenue recorded in 2003 compared to 2002 was primarily the result of a decrease in sales to our server and storage customers somewhat offset by increases in sales to distribution customers. The decline in server and storage revenue reflected lower demand from the purchasers of information technology and occurred primarily in the first half of the year. During 2002 and 2003, we made additional investments in our infrastructure designed to better service our distribution customers. These investments consisted of expanding our sales staff and distribution networks in the U.S. and Europe, resulting in the growth in sales to distribution customers.

     During 2002, all of the markets serviced by our Power Conversion segment eroded compared to 2001. The reduction in end-user demand was the single most important factor in the decline of the segment’s revenue in 2002 compared to 2001.

     The primary reason for the reduction in the operating loss in 2003 was the $35.0 million charge for goodwill impairment recorded in 2002 along with the restructuring charges recorded in 2002 in excess of the amount recorded in 2003 ($20.8 million). The remainder of the difference is attributable to the additional excess and obsolete inventory charges recorded in 2002 ($15.0 million) and costs savings resulting from the restructuring actions.

     The goodwill impairment charge in 2002 is also the primary reason for the increase in the operating loss in 2002 compared to 2001. The remainder of the difference is attributable to the decrease in revenue ($6.8 million) and an increase in restructuring charges ($1.5 million) offset by amortization of goodwill recorded in 2001 ($2.0 million) and the effect of cost savings initiatives.

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Communications Products

Results for the Communications Products segment in 2003 compared with prior years are as follows (in millions):

     The increase in revenue in our Communications Products segment in 2003 compared to 2002 is primarily the result of increases in sales to our wireless and telecommunications customers. The increase reflects the introduction of new products and higher sales of existing products as customers responded to improved end-user demand. The decrease in revenue in 2002 compared to 2001 reflects the decrease in demand in the wireless and telecommunications market sectors resulting from the reduction in capital spending by communications service providers.

     The primary reason for the improvement in operating income in 2003 compared to 2002 is the goodwill impairment charge of $16.9 million recorded in 2002. Increased revenue in 2003 compared to 2002 was a substantial factor in the improvement (approximately $6.0 million), with the remainder of the difference being the inventory charge and restructuring expenses recorded in 2002.

     The goodwill impairment charge is also the primary difference between the operating loss recorded in 2002 in comparison to 2001, along with the effect of lower revenue ($10.8 million). These amounts were partially offset by the amortization expense recorded in 2001 ($6.1 million) and cost savings resulting from restructuring actions.

Liquidity and Capital Resources

The following table presents selected financial statement information for each of the past three years (in millions except statistical data):

     The primary sources of cash currently available to us are cash on hand and amounts available under our current revolving credit facility. These amounts are available to finance capital expenditures and payments of interest on our convertible senior subordinated debt. Movements in our working capital and cash flows from net income can be either sources or uses of cash, depending on prevailing business conditions.

     During 2003, our cash and equivalents increased from $65.0 million at the end of 2002 to $94.2 million at the end of 2003. The primary sources of cash were the issuance of convertible senior subordinated notes in the third quarter of 2003 along with reductions in inventory and increases in accounts payable during the year. These amounts were offset by the repayment of our note outstanding with Finestar and amounts outstanding on our revolving credit facility, increases in accounts receivable, capital expenditures and payments associated with previous acquisitions.

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Cash Flows from Operating Activities. During 2003, our cash flows from operating activities served as a source of cash of $24.2 million. An improvement in the performance of our working capital accounts was the significant component of our sources of cash from operations in 2003. We were able to reduce our balances in inventory significantly while maintaining our performance in accounts receivable and extending our terms in accounts payable. Inventory decreased due to programs, such as vendor managed inventory, put in place to reduce inventory requirements.

     Operating cash flows were impacted by $15.5 million in payments related to restructuring actions and $7.8 million in federal income tax refunds in 2003.

     Over the past three years, we have significantly improved our working capital performance as evidenced by the reduction in days of sales outstanding and days of inventory on-hand and the increase in days of accounts payable outstanding. Looking forward, we anticipate only modest improvement in our accounts receivable and accounts payable performance, as we believe we are operating close to an optimal level for our industry. We expect to continue to improve our inventory performance through better demand management and increased use of vendor-managed inventory.

Cash Flows from Investing Activities. Cash flows from investing activities reflect a net cash use of $10.6 million in 2003, comprised primarily of capital expenditures ($7.1 million) and deferred payments related to previous acquisitions. Capital expenditures for the last two years have been below the level we would normally require to maintain and improve our manufacturing capabilities. The plant closures that occurred have provided us with enough available equipment that we have been able to maintain the necessary manufacturing capacity.

     Trends in design are resulting in a higher number of surface-mounted components in our products. These trends, combined with the expectation of higher demand, are dictating an increase in the number of SMT lines, automated test equipment and other related production equipment we currently utilize. As a result, our capital expenditures are expected to increase to approximately $15-$20 million in 2004 compared to the $7.1 million recorded in 2003.

     In 2003, we made deferred or contingent payments related to the acquisitions of Spider Software Limited and AzCore Technologies, Inc. for approximately $4.3 million. The remaining $0.7 million of contingent consideration for the AzCore acquisition was paid in the first quarter of 2004. All deferred or contingent obligations related to past acquisitions have been satisfied. For additional information on our acquisitions, please see Note 6 of the Consolidated Financial Statements.

Cash Flows from Financing Activities.In 2003, cash flows from financing activities were a source of cash of $12.4 million in 2003. The primary source of cash was the issuance of $90.0 million of convertible senior subordinated notes due 2010. The net proceeds from the issuance were partially offset by the payoff of a $50 million convertible subordinated note to Finestar and payoffs related to the two revolving credit arrangements we had in place during 2003.

     On August 13, 2003, we completed an initial placement to qualified institutional investors of $75.0 million of our 5.5% convertible senior subordinated notes due 2010, and on August 27, 2003, we completed the sale of an additional $15.0 million. Net proceeds from the issuance of convertible senior subordinated notes in the third quarter of 2003 were approximately $86.3 million. The placement was completed in order to replace the convertible note that had previously been issued to Finestar and to provide us with additional long-term working capital. The note with Finestar was to mature in 2007 and contained a provision that allowed either party to redeem the note in January 2005. The new convertible debt issuance extended the maturity date and removed the possibility of redemption on the part of the holder. There are no financial covenant requirements associated with the 5.5% convertible senior subordinated notes. For additional information on the terms of the notes, please see Note 7 of the Consolidated Financial Statements.

     On January 15, 2002, we received an investment by Finestar, an entity controlled by Mr. Bruce Cheng, founder and chairman of Delta Electronics, a leading global power supply, electronic

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     On March 28, 2003, we entered into a new five-year, $35.0 million senior revolving credit facility with Fleet Capital Corporation. The asset-based facility replaced our prior senior revolving credit facility that was due to expire in March 2004. For additional information on the terms of our new asset-based revolver, please see Note 8 of the Consolidated Financial Statements. On the day the agreement was completed, we used $19.0 million of cash on hand to pay off the amounts outstanding under our previous credit facility. We then borrowed $10.5 million on the new facility, resulting in a net reduction of total outstanding borrowings of $8.5 million. While the total availability under the facility is limited to $35.0 million, the amount available to be borrowed is based on our level of qualifying domestic accounts receivable and inventory, which is subject to changing business conditions. Generally, as our level of qualifying accounts receivable and inventory increases, our availability increases up to the prescribed limit. As of the end of the year, our outstanding balance on the revolving credit facility was zero, and our availability was $21.8 million.

     In addition to other affirmative and negative covenants customary for asset-based credit facilities, we are also subject to an EBITDA covenant that is triggered when the amount available to be borrowed plus cash deposited with Fleet falls below $20.0 million. As of the end of the year, the availability and the cash deposited with Fleet were above the prescribed limit, and we were not subject to the additional covenant. Up to $5.0 million of the facility’s capacity can be used for letters of credit.

     Our sources of cash are the cash we currently have on hand, the availability we maintain on our asset-based credit facility and expected cash generated from net income. We are expecting to generate cash from net income in 2004, but if our projections are significantly below our expectations, we believe that our other sources of cash are sufficient to cover our operating expenses, capital expenditures, restructuring requirements and interest payments for the next twelve months. If we are not able to generate cash from operations for a sustained period of time, we would, after our cash on hand and available line of credit were depleted, need to identify additional sources of cash. These sources could include additional issuances of debt or equity, sales of equipment or portions of the business.

     From a long-term perspective, our sources of cash are expected to remain the same. We are dependent on generating cash from net income as our primary long-term source of cash. We would be required to identify other long-term sources of cash if we were not able to generate cash from net income or if we decided to take on a strategic initiative, such as an acquisition, which would require cash. We continually evaluate options with respect to additional financing, including the sale of debt or equity instruments and portions of the business. Any such financing or sale transactions could have an adverse effect on our stock price and could dilute our shareholders’ ownership interest in our company.

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The following is a summary of future payments under contractual obligations as of December 26, 2003 (in millions):

Risk Factors That May Affect Future Results

The following discussion should be read in conjunction with the30, 2005 Consolidated Financial Statements and related notes. With the exception of historical information, the matters discussed below may include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involves risks and uncertainties. Forward-looking statements typically use words or phrases such as “estimate”, “plans”, “projects”, “anticipates”, “continuing”, “ongoing”, “expects”, “believes”,“estimate,” “plans,” “projects,” “anticipates,” “continuing,” “ongoing,” “expects,” “believes,” or words of similar import. We caution readers that a number of important factors, as well as factors discussed in our other reports filed with the Securities and Exchange Commission,SEC, could affect our actual results and cause them to differ materially from those expressed in the forward-looking statements. Forward-looking statements included in this formAnnual Report on Form 10-K are made only as of the date hereof, based on information available as of the date hereof, and subject to applicable law to the contrary, we assume no obligation to update any forward looking-statements.

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     We have incurred significant losses in 2001, 2002 and 2003 due to a drop in demand for our products resulting from a reduction in spending on computing and communications infrastructure during that time. While we are seeing a reversal of this trend which is reflected in improvements in revenue in the second half of 2003, we had net losses of $15.6 million, $108.8 million (which includes non-cash after-tax write-offs of $49.4 million in goodwill impairment charges and $11.3 million in additional excess and obsolete inventory charges) and $31.8 million for 2003, 2002 and 2001, respectively. Growth in the communications industry has been driven primarily by the expansion of the Internet, broadband and wireless networks. During the past three years, these applications have suffered a significant downturn. Our future revenue growth depends in large part on the resumed growth of these services as widely used media for commerce and communication. In addition, unless we take steps to further reduce our cost structure, we do not anticipate a significant increase in profitability without revenue growth. If demand for our products does not improve, we could continue to experience operating losses.

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		If demand for our products were to increase, we could face production capacity constraints very quickly due to recent restructuring actions.

     During the recent decrease in demand, we closed manufacturing facilities in Broomfield, Colorado; Kindberg, Austria; and Youghal, Ireland and moved production from these plants to our lower-cost facilities in Tatabanya, Hungary and Zhong Shan, China.capacity constraints.