Edgar Filing: TECHNITROL INC

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

FORM 10-K

|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the fiscal year ended December 26, 2003

|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from _______________ to _______________

Commission File No. 1-5375

TECHNITROL, INC.
(Exact name of registrant as specified in Charter)

PENNSYLVANIA 23-1292472
(State of Incorporation) (IRS Employer Identification Number)

1210 Northbrook Drive, Suite 385, Trevose, Pennsylvania 19053
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: 215-355-2900

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

Title of each class Name of each Exchange on which registered
------------------- -----------------------------------------

Common Stock par value $.125 per share New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange

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 the filing
requirements for at least 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|

Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Act).

YES |X| NO |_|

The aggregate market value of voting stock held by non-affiliates as of June 27,
2003 is $605,244,000 computed by reference to the closing price on the New York
Stock Exchange on such date.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of February 20, 2004.

Number of shares outstanding
Title of each class February 20, 2004
------------------- -----------------
Common stock par value $.125 per share 40,279,331

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive proxy statement to be used in connection
with the registrant's 2004 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Form 10-K where indicated.

Page 1 of 60

Part I

Item 1 Business

General

Technitrol, Inc. is a global producer of precision-engineered passive
magnetics-based electronic components and electrical contact products and
materials. We sometimes refer to Technitrol as "we" or "our". We believe we are
a leading global producer of these products and materials in the primary markets
we serve based on our estimates of the size of our primary markets in annual
revenues and our share of those markets relative to our competitors. Passive
magnetics-based electronic components are used in virtually all types of
electronic products to manage and regulate electronic signals and power.
Electrical contact products and materials are used in any device in which the
continuation or interruption of electrical currents is necessary. In each case,
our products are critical to the functioning of the end product.

Our world-class design and manufacturing capabilities, together with the
breadth of our product offerings, provides us with a competitive advantage that
enables us to anticipate and deliver highly-customized solutions for our
customers' product needs. In addition, our global presence enables us to
participate in many relevant product and geographic markets and provides us with
proximity to our global customer base. This allows us to better understand and
more easily satisfy our customers' unique design and product requirements.

We operate our business in two distinct segments: the electronic
components segment, which operates under the name Pulse, and the electrical
contact products segment, which operates globally under the name AMI Doduco. We
refer to these segments as ECS or Pulse, and ECPS or AMI Doduco, respectively.
Note 1 to the Consolidated Financial Statements contains additional acquisitions
information.

We incorporated in Pennsylvania on April 10, 1947 and we are headquartered
in Trevose, PA. Our mailing address is 1210 Northbrook Drive, Suite 385,
Trevose, PA 19053-8406, and our telephone number is 215-355-2900. Our website is
www.technitrol.com.

Pulse

Pulse designs and manufactures a wide variety of highly-customized passive
magnetics-based electronic components. These components manage and regulate
electronic signals and power for use in a variety of devices by filtering out
radio frequency interference and adjusting and ensuring proper current and
voltage. These products are often referred to as chokes, inductors, filters and
transformers. Pulse sells its products to primarily multinational original
equipment manufacturers, contract manufacturers and distributors.

Pulse's products are used in a broad array of industries, including:

o consumer electronics;

o enterprise networking;

o military/aerospace;

o power conversion; and

o telecommunications.

Representative end products that use Pulse's components include:

o broadband access equipment including cable modems and digital
subscriber line, or DSL, devices for telephone central office
and home use;

o Ethernet switches;

o military/aerospace navigation and weapon guidance systems;

o power supplies;

o routers;

o televisions and DVD players;

o laptop computers;

o video game consoles; and

o voice over Internet equipment.

Page 2 of 60

Pulse's products are generally characterized by relatively short life
cycles and rapid technological change. This allows us to utilize our design and
engineering expertise to meet our customers' ever evolving needs. We believe
that the industries served by Pulse have been, and will continue to be,
characterized by ongoing product innovation that will drive the growth in the
passive magnetics-based electronic components industry. We sometimes refer to
the Pulse business, excluding products made by factories which we acquired in
the Eldor acquisition in 2003, as the legacy business of Pulse, or "Pulse
legacy".

Pulse generated $294.1 million, or 57.8% of our revenues, for the year
ended December 26, 2003, and $204.6 million, or 50.3% of our revenues, for the
year ended December 27, 2002. Note 14 to the Consolidated Financial Statements
contains additional segment information.

AMI Doduco

AMI Doduco is the only global manufacturer which produces a full array of
precious metal electrical contact products that range from materials used in the
fabrication of electrical contacts to completed contact subassemblies. Contact
products complete or interrupt electrical circuits in virtually every electrical
device. AMI Doduco provides its customers with a broad array of highly
engineered products and tools designed to meet unique customer needs. AMI Doduco
sells products primarily to multinational original equipment manufacturers.

AMI Doduco's products are used in a broad array of industries, including:

o appliance;

o automotive;

o residential and non-residential construction circuitry;

o commercial and industrial controls;

o electric power distribution;

o telephone equipment; and

o consumer products (fine jewelry).

Representative end products that use AMI Doduco's products include:

o electrical circuit breakers;

o motor and temperature controls;

o power substations;

o sensors;

o switches and relays;

o telephone equipment; and

o wiring devices.

AMI Doduco's products are generally characterized by longer life cycles
and slower technological change than those of Pulse. We believe that
technological developments in some of the industries served by AMI Doduco,
particularly in the electric power, appliance and automotive industries, along
with opportunities arising from customer outsourcing and consolidation of the
electrical contact industry, may present attractive growth opportunities for AMI
Doduco.

AMI Doduco generated $215.2 million, or 42.2% of our revenues, for the
year ended December 26, 2003, and $201.8 million, or 49.7% of our revenues, for
the year December 27, 2002. Note 14 to the Consolidated Financial Statements
contains additional segment information.

Page 3 of 60

Products

Pulse designs and manufactures a wide array of passive magnetics-based
electronic components. These products are highly-customized to address our
customers' needs. The following table contains a list of some of Pulse's key
products:

-------------------------------------------------------------------------------------------------------------------------
Primary Products Function Application
-------------------------------------------------------------------------------------------------------------------------

Discrete Filter or Choke Separates high and low Network switches, routers, hubs and personal
frequency signals computers
Phone, fax and alarm systems used with
digital subscriber lines, or DSL
-------------------------------------------------------------------------------------------------------------------------
Filtered Connector, which combines Removes interference, or Local area networks, or LANs, and wide area
a filter with a connector noise, from circuitry and networks, or WANs, equipment for personal
connects electronic applications computers and video game consoles
-------------------------------------------------------------------------------------------------------------------------
Inductor/chip inductor Regulates electrical current AC/DC & DC/DC power supplies
under conditions of varying load
Mobile phones and portable devices
-------------------------------------------------------------------------------------------------------------------------
Power Transformer Modifies circuit voltage AC/DC & DC/DC power supplies
-------------------------------------------------------------------------------------------------------------------------
Signal Transformer Limits distortion of signal as Analog circuitry
it passes from one medium to
another Military/aerospace navigation and weapon
guidance systems
-------------------------------------------------------------------------------------------------------------------------
Flyback Transformer Generates high voltages to Televisions
illuminate cathode ray picture
tubes
-------------------------------------------------------------------------------------------------------------------------

Within each segment, our primary products are similar in design, material
content, production process, application and customer base. We continually
introduce new or improved products in response to customers' needs and changes
within the markets served.

Contact prematerial such as wire and Raw materials Made into our customers' and
metal tapes competitors' electrical contact parts
-------------------------------------------------------------------------------------------------------------------------
Electrical contact parts, either Complete or interrupt an electrical Electrical switches, relays, circuit
discrete or affixed to precision circuit breakers and motor controls
stamped parts
-------------------------------------------------------------------------------------------------------------------------
Component subassemblies Integrate contact with precision Sensors and control devices
stampings and plastic housings
-------------------------------------------------------------------------------------------------------------------------

Sales, Marketing and Distribution

Pulse and AMI Doduco sell products predominantly through separate
worldwide direct sales forces. Given the highly technical nature of our
customers' needs, our direct salespeople typically team up with members of our
engineering staff to discuss a sale with a customer's purchasing and engineering
personnel. During the sales process, there is close interaction between our
engineers and those in our customers' organizations. This interaction extends
throughout a product's life cycle, engendering strong customer relationships. As
of December 26, 2003, Pulse had approximately 42 salespeople and 9 sales offices
worldwide and AMI Doduco had approximately 34 salespeople and 10 sales offices
worldwide.

We provide technical and sales support for our direct and indirect sales
force. We believe that our coordinated sales effort provides a high level of
market penetration and efficient coverage of our customers on a cost-effective
basis.

Page 4 of 60

Customers and End Markets

We sell our products and services to original equipment manufacturers
("OEMs"), which design, build and market end-user products. Pulse also sells its
products to contract equipment manufacturers ("CEMs"), which contract with OEMs
to manufacture the OEM's products, as well as to independent distributors, which
sell components and materials to both OEMs and CEMs. In recent years, the trend
in the electronics industry has been for many OEMs to use CEMs primarily or
exclusively to build their products. Nonetheless, OEMs generally control the
decision as to which component designs best meet their needs. Accordingly, we
consider OEMs to be customers for our products even if they purchase our
products through CEMs or independent distributors. In order to maximize our
sales opportunities, Pulse's engineering and sales teams also maintain close
relationships with CEMs and distributors.

No customer of either Pulse or AMI Doduco accounted for more than 10% of
our consolidated net sales for the year ended December 26, 2003 or the year
ended December 27, 2002. Sales to our ten largest customers accounted for 30.6%
of net sales for the year ended December 26, 2003 and 29.7% of net sales for the
year ended December 27, 2002.

An increasing percentage of our sales in recent years has been outside of
the United States. We now have manufacturing operations in 10 countries. For the
year ended December 26, 2003, 76% of our net sales were outside of the United
States. During the year ended December 27, 2002, 69% of our net sales were to
customers outside of the United States. Sales made by Pulse to its customers
outside the United States accounted for 77% of its net sales for the year ended
December 26, 2003 and 70.1% of its net sales for the year ended December 27,
2002. Sales made by AMI Doduco to its customers outside the United States
accounted for 75% of its net sales for the year ended December 26, 2003 and
67.4% of its net sales for the year ended December 27, 2002.

Development and Engineering

Our development and engineering efforts are focused on the design and
development of innovative products in collaboration with our customers. We work
closely with OEMs to identify their design and engineering requirements. We
maintain strategically located design centers throughout the world where
proximity to customers enables us to better understand and more readily satisfy
their design and engineering needs. Pulse's design process is a disciplined,
orderly process that uses a product data management system to track the level of
design activity enabling us to manage and improve how our engineers design
products. Pulse typically owns the customized designs that it uses to make its
products.

Pulse's development and engineering expenditures were $14.5 million for
the year ended December 26, 2003, $13.9 million for the year ended December 27,
2002 and $16.0 million for the year ended December 28, 2001. AMI Doduco's
development and engineering expenditures were $4.0 million for the year ended
December 26, 2003, $3.9 million for the year ended December 27, 2002 and $4.2
million for the year ended December 28, 2001. We intend to continue to invest in
personnel and new technologies to improve product performance.

Competition

We believe we are a market leader in the primary markets we serve based on
our estimates of the size of our primary markets in annual revenues and our
share of those markets relative to our competitors. We do not believe that any
one company competes with all of the product lines of either Pulse or AMI Doduco
on a global basis. However, both Pulse and AMI Doduco frequently encounter
strong competition within individual product lines, both domestically and
internationally. In addition, several OEMs internally manufacture many of the
products offered by Pulse or AMI Doduco. We believe that this represents an
opportunity to capture additional market share as OEMs decide to outsource
component operations. Therefore, we constantly work to identify these
opportunities and to convince these OEMs that our economies of scale, purchasing
power and manufacturing core competencies enable us to produce these products
better and more efficiently. Increasingly, Pulse's competitors are situated in
the Far East and enjoy very low cost structures and little or no cost of
capital. Many of these new competitors aggressively seek market share at the
expense of profits.

Competitive factors in the markets for our products include:

o price;

o product quality and reliability;

o global design and manufacturing capabilities;

o breadth of product line;

Page 5 of 60

o customer service; and

o delivery time.

We believe we compete favorably on the basis of each of these factors.
Product quality and reliability, as well as design and manufacturing
capabilities, are enhanced through our commitment to continually invest in and
improve our manufacturing and designing resources and our close relationships
with our customers' engineers. The breadth of our product offering provides
customers with the ability to satisfy their entire magnetic component and
contact needs through one supplier. Our global presence enables us to deepen our
relationship with our customers and to better understand and more easily satisfy
the needs of local markets. In addition, our ability to purchase raw materials
in large quantities reduces our manufacturing costs, enabling us to price our
products competitively.

Employees

As of December 26, 2003, we had approximately 18,600 full-time employees
as compared to 19,000 as of December 27, 2002. Of the 18,600 full-time
employees, approximately 700 were located in the United States and approximately
100 employees in the United States were covered by collective-bargaining
arrangements. In addition, some foreign employees are members of trade and
government-affiliated unions. The number of employees at year-end includes
employees of certain subcontractors that are integral to our operations in the
People's Republic of China. Such employees numbered approximately 9,800 and
8,600 as of December 26, 2003 and December 27, 2002, respectively. We have not
experienced any major work stoppages and consider our relations with our
employees to be good.

Raw Materials

Raw materials necessary for the manufacture of our products include:

o precious metals such as silver;

o base metals such as copper and brass; and

o ferrite cores.

We do not currently have difficulty obtaining any of our raw materials and
do not currently anticipate that we will face any significant difficulties in
the near future. However, many of the raw materials we use are considered
commodities and are subject to price volatility. Although we are not dependent
on any one particular source of supply, several of our raw materials are only
sold by a limited number of suppliers, which may have an adverse effect on the
price of these materials. Should prices rise or a shortage occur in any
necessary raw material, our manufacturing costs will likely increase, which may
result in lower margins or decreased sales if we were unable to pass along the
price increase to our customers.

AMI Doduco uses precious metals, primarily silver, in manufacturing a vast
majority of its electrical contacts, contact materials and contact
subassemblies. Historically, we have leased or held these materials through
consignment arrangements with our suppliers. Leasing and consignment costs have
generally been substantially below the costs to borrow funds to purchase the
metals and these arrangements eliminate the fluctuations in the market price of
owned precious metal. AMI Doduco's terms of sale allow us to charge customers
for the fabricated market value of silver on the day after we deliver the silver
bearing product to the customer. See additional discussion of precious metals
beginning on page 20.

Backlog

Our backlog of orders at December 26, 2003 was $65.6 million compared to
$51.4 million at December 27, 2002. We expect to ship the majority of the
backlog over the next six months. Customers can cancel orders at any time,
sometimes requiring a payment of cancellation charges. We do not believe that
backlog is an accurate indicator of near-term business activity as customers may
make multiple orders of the same component from multiple sources when lead times
are long and may cancel orders when business is weak and inventories are
excessive. Moreover, in the last two years, many customers have negotiated
vendor managed inventory and other similar consignment type arrangements with
us. Orders from these arrangements typically are not reflected in backlog.
Similarly, many of AMI Doduco's products are repeat products which are
continuously ordered by customers by phone for delivery within several days and
such orders generally are not included in backlog.

Page 6 of 60

Intellectual Property

We own a number of patents and have acquired the use of patents of others
under license agreements, which impose restrictions on our ability to utilize
the intellectual property. We seek to limit disclosure of our intellectual
property by generally requiring employees and consultants with access to our
proprietary information to execute confidentiality agreements with us and by
restricting access to our proprietary information.

Existing legal protections afford only limited protection for our
products. For example, others may independently develop similar or competing
products or attempt to copy or use aspects of our products that we regard as
proprietary. Furthermore, intellectual property law may not fully protect
products or technology that we consider to be our own, and claims of
intellectual property infringement may be asserted against us or against our
customers in connection with their use of our products.

While our intellectual property is important to us in the aggregate, we do
not believe any individual patent or license is material to our business or
operations.

Environmental

Our manufacturing operations are subject to a variety of local, state,
federal, and international environmental laws and regulations governing air
emissions, wastewater discharges, the storage, use, handling, disposal and
remediation of hazardous substances and wastes and employee health and safety.
It is our policy to meet or exceed the environmental standards set by these
laws.

We are involved in several legal actions relating to non-owned waste
disposal sites. Our involvement in these matters has generally arisen from the
legal disposal of small amounts of waste material many years ago. In addition,
we are aware of contamination at two locations. In Sinsheim, Germany, there is
shallow groundwater and soil contamination that is naturally decreasing over
time. The German environmental authorities have not required corrective action
to date. A property in Leesburg, Indiana, which was acquired with our
acquisition of GTI Corporation in 1998, is the subject of a 1994 Corrective
Action Order to GTI by the Indiana Department of Environmental Management. The
order requires us to investigate and take corrective actions. Monitoring data is
being collected to confirm and implement the corrective measures. We anticipate
making additional environmental expenditures in future years to continue our
environmental studies, analysis and remediation activities.

While we cannot predict the future costs of environmental studies, cleanup
activities, capital expenditures, or operating costs for environmental
compliance at our present or former facilities or any third party disposal
sites, we do not believe such costs, individually or in the aggregate, will have
a material impact on our operations or our consolidated financial position,
liquidity or operating results.

Available Information

We make available free of charge on our website, www.technitrol.com, all
materials that we file electronically with the Securities and Exchange
Commission, including our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to those reports, as soon as
reasonably practicable after we electronically file or furnish such materials to
the SEC.

Factors That May Affect Our Future Results (Cautionary Statements for Purposes
of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act
of 1995)

Our disclosures and analysis in this report contain forward-looking
statements. Forward-looking statements reflect our current expectations of
future events or future financial performance. You can identify these statements
by the fact that they do not relate strictly to historical or current facts.
They often use words such as "anticipate", "estimate", "expect", "project",
"intend", "plan", "believe", and similar terms. These forward-looking statements
are based on our current plans and expectations.

Any or all of our forward-looking statements in this report may prove to
be incorrect. They may be affected by inaccurate assumptions we might make or by
risks and uncertainties which are either unknown or not fully known or
understood. Accordingly, actual outcomes and results may differ materially from
what is expressed or forecasted in this report.

Page 7 of 60

We sometimes provide forecasts of future financial performance. The risks
and uncertainties described under "Risk Factors" as well as other risks
identified from time to time in other Securities and Exchange Commission
reports, registration statements and public announcements, among others, should
be considered in evaluating our prospects for the future. We undertake no
obligation to release updates or revisions to any forward-looking statement,
whether as a result of new information, future events or otherwise.

Risk Factors

Cyclical changes in the markets we serve, including the recent contraction,
could result in a significant decrease in demand for our products and reduce our
profitability.

Our components are used in various products for the electronic and
electrical equipment markets. These markets are highly cyclical. The demand for
our components reflects the demand for products in the electronic and electrical
equipment markets generally. Beginning in late 2000 and continuing into 2002,
these markets, particularly the electronics market, experienced a severe
worldwide contraction. This contraction resulted in a decrease in demand for our
products, as our customers:

o canceled many existing orders;

o introduced fewer new products; and

o worked to decrease their inventory levels.

The decrease in demand for our products had a significant adverse effect
on our operating results and profitability. While these markets have shown signs
of recovery in varying degrees for the last twelve months, we cannot predict the
duration or strength of any recovery. Accordingly, we may continue to experience
volatility in both our revenues and profits.

Reduced prices for our products may adversely affect our profit margins if we
are unable to reduce our costs of production.

The average selling prices for our products tend to decrease over their
life cycle. In addition, the recent economic contraction has significantly
increased the pressure on our customers to seek lower prices from their
suppliers. As a result, our customers are likely to continue to demand lower
prices from us. To maintain our margins and remain profitable, we must continue
to meet our customers' design needs while reducing costs through efficient raw
material procurement and process and product improvements. Our profit margins
will suffer if we are unable to reduce our costs of production as sales prices
decline.

An inability to adequately respond to changes in technology may decrease our
sales.

Pulse operates in an industry characterized by rapid change caused by the
frequent emergence of new technologies. Generally, we expect life cycles for our
products in the electronic components industry to be relatively short. This
requires us to anticipate and respond rapidly to changes in industry standards
and customer needs and to develop and introduce new and enhanced products on a
timely and cost effective basis. Our engineering and development teams place a
priority on working closely with our customers to design innovative products and
improve our manufacturing processes. Our inability to react to changes in
technology quickly and efficiently may decrease our sales and profitability.

If our inventories become obsolete, our future performance and operating results
will be adversely affected.

The life cycles of our products depend heavily upon the life cycles of the
end products into which our products are designed. Many of Pulse's products have
very short life cycles which are measured in quarters. Products with short life
cycles require us to closely manage our production and inventory levels.
Inventory may become obsolete because of adverse changes in end market demand.
During market slowdowns, this may result in significant charges for inventory
write-offs, as was the case during 2001. Our future operating results may be
adversely affected by material levels of obsolete or excess inventories.

An inability to capitalize on our recent or future acquisitions may adversely
affect our business.

In recent years we have completed several acquisitions. We continually
seek acquisitions to grow our business. We may fail to derive significant
benefits from our acquisitions. In addition, if we fail to achieve sufficient
financial performance from an acquisition, goodwill and other intangibles could
become impaired, resulting in our

Page 8 of 60

recognition of a loss. In 2002, we recorded a goodwill impairment charge of
$15.7 million related to AMI Doduco and a trade name impairment charge of $32.1
million related to Pulse. In 2003, we recorded an equity method investment loss
of $8.7 million related to our investment in FRE. The degree of success of any
of our acquisitions depends on our ability to:

o successfully integrate or consolidate acquired operations into our
existing businesses;

o identify and take advantage of cost reduction opportunities; and

o further penetrate the markets for the product capabilities acquired.

Integration of acquisitions may take longer than we expect and may never
be achieved to the extent originally anticipated. This could result in slower
than anticipated business growth or higher than anticipated costs. In addition,
acquisitions may:

o cause a disruption in our ongoing business;

o distract our managers;

o unduly burden our other resources; and

o result in an inability to maintain our historical standards,
procedures and controls.

Integration of acquisitions into the acquiring segment may limit the ability of
investors to track the performance of individual acquisitions and to analyze
trends in our operating results.

Our historical practice has been to quickly integrate acquisitions into
the existing business of the acquiring segment and to report financial
performance on the segment level. As a result of this practice, we do not
separately track the stand-alone performance of acquisitions after the date of
the transaction. Consequently, investors cannot quantify the financial
performance and success of any individual acquisition or the financial
performance and success of a particular segment excluding the impact of
acquisitions. In addition, our practice of quickly integrating acquisitions into
the financial performance of each segment may limit the ability of investors to
analyze any trends in our operating results over time.

An inability to identify additional acquisition opportunities may slow our
future growth.

We intend to continue to identify and consummate additional acquisitions
to further diversify our business and to penetrate important markets. We may not
be able to identify suitable acquisition candidates at reasonable prices. Even
if we identify promising acquisition candidates, the timing, price, structure
and success of future acquisitions are uncertain. An inability to consummate
attractive acquisitions may reduce our growth rate and our ability to penetrate
new markets.

If our customers terminate their existing agreements, or do not enter into new
agreements or submit additional purchase orders for our products, our business
will suffer.

Most of our sales are made on a purchase order basis as needed by our
customers. In addition, to the extent we have agreements in place with our
customers, most of these agreements are either short term in nature or provide
our customers with the ability to terminate the arrangement with little or no
prior notice. Our contracts typically do not provide us with any material
recourse in the event of non-renewal or early termination. We will lose business
and our revenues will decrease if a significant number of customers:

o do not submit additional purchase orders;

o do not enter into new agreements with us; or

o elect to terminate their relationship with us.

If we do not effectively manage our business in the face of fluctuations in the
size of our organization, our business may be disrupted.

We have grown rapidly over the last ten years, both organically and as a
result of acquisitions. However, in 2001 and 2002 we significantly reduced our
workforce and facilities in response to a dramatic decrease in demand for our
products due to prevailing global market conditions. These rapid fluctuations
place strains on our resources and systems. If we do not effectively manage our
resources and systems, our business may suffer.

Page 9 of 60

Uncertainty in demand for our products may result in increased costs of
production and an inability to service our customers.

We have very little visibility into our customers' purchasing patterns and
are highly dependent on our customers' forecasts. These forecasts are
non-binding and often highly unreliable. Given the fluctuation in growth rates
and cyclical demand for our products, as well as our reliance on often imprecise
customer forecasts, it is difficult to accurately manage our production
schedule, equipment and personnel needs and our raw material and working capital
requirements. Our failure to effectively manage these issues may result in:

o production delays;

o increased costs of production;

o an inability to make timely deliveries; and

o a decrease in profits.

A decrease in availability or increase in cost of our key raw materials could
adversely affect our profit margins.

We use several types of raw materials in the manufacturing of our
products, including:

o precious metals such as silver;

o base metals such as copper and brass; and

o ferrite cores.

Some of these materials are produced by a limited number of suppliers.
From time to time, we may be unable to obtain these raw materials in sufficient
quantities or in a timely manner to meet the demand for our products. The lack
of availability or a delay in obtaining any of the raw materials used in our
products could adversely affect our manufacturing costs and profit margins. In
addition, if the price of our raw materials increases significantly over a short
period of time, customers may be unwilling to bear the increased price for our
products and we may be forced to sell our products containing these materials at
prices that reduce our profit margins.

Some of our raw materials, such as precious metals, are considered
commodities and are subject to price volatility. We attempt to limit our
exposure to fluctuations in the cost of precious materials, including silver, by
holding the majority of our precious metal inventory through leasing or
consignment arrangements with our suppliers. We then typically purchase the
precious metal from our supplier at the current market price on the day after
delivery to our customer and pass this cost on to our customer. In addition,
leasing and consignment costs have historically been substantially below the
costs to borrow funds to purchase the precious metals. We currently have four
consignment or leasing agreements related to precious metals, all of which
generally have one year terms with varying maturity dates, but can be terminated
by either party with 30 days' prior notice. Our results of operations and
liquidity will be negatively impacted if:

o we are unable to enter into new leasing or consignment arrangements
with similarly favorable terms after our existing agreements
terminate, or

o our leasing or consignment fees increase significantly in a short
period of time and we are unable to recover these increased costs
through higher sale prices.

Fees charged by the consignor are driven by interest rates and the market
price of the consigned material. The market price of the consigned material is
determined by the supply of and the demand for the material. Consignment fees
will increase if interest rates or the price of the consigned material increase.

Competition may result in lower prices for our products and reduced sales.

Both Pulse and AMI Doduco frequently encounter strong competition within
individual product lines from various competitors throughout the world. We
compete principally on the basis of:

o product quality and reliability;

o global design and manufacturing capabilities;

o breadth of product line;

o customer service;

o price; and

Page 10 of 60

o on-time delivery.

Our inability to successfully compete on any or all of the above factors
may result in reduced sales.

Our backlog is not an accurate measure of future revenues and is subject to
customer cancellation.

While our backlog consists of firm accepted orders with an express release
date generally scheduled within six months of the order, many of the orders that
comprise our backlog may be canceled by customers without penalty. It is widely
known that customers in the electronics industry have on occasion double and
triple-ordered components from multiple sources to ensure timely delivery when
quoted lead time is particularly long. In addition, customers often cancel
orders when business is weak and inventories are excessive, a process that we
experienced in the recent contraction. Although backlog should not be relied on
as an indicator of our future revenues, our results of operations could be
adversely impacted if customers cancel a material portion of orders in our
backlog.

Fluctuations in foreign currency exchange rates may adversely affect our
operating results.

We manufacture and sell our products in various regions of the world and
export and import these products to and from a large number of countries.
Fluctuations in exchange rates could negatively impact our cost of production
and sales that, in turn, could decrease our operating results and cash flow.
Although we engage in limited hedging transactions, including foreign currency
contracts, to reduce our transaction and economic exposure to foreign currency
fluctuations, these measures may not eliminate or substantially reduce our risk
in the future.

Our international operations subject us to the risks of unfavorable political,
regulatory, labor and tax conditions in other countries.

We manufacture and assemble some of our products in foreign locations,
including the Peoples' Republic of China, or PRC, and Turkey. In addition,
approximately 76% of our revenues for the year ended December 26, 2003 were
derived from sales to customers outside the United States. Our future operations
and earnings may be adversely affected by the risks related to, or any other
problems arising from, operating in international markets.

Risks inherent in doing business internationally may include:

o economic and political instability;

o expropriation and nationalization;

o trade restrictions;

o capital and exchange control programs;

o transportation delays;

o foreign currency fluctuations; and

o unexpected changes in the laws and policies of the United States or
of the countries in which we manufacture and sell our products.

In particular, Pulse has substantially all of its non-consumer
manufacturing operations in the PRC. Our presence in the PRC has enabled Pulse
to maintain lower manufacturing costs and to flexibly adjust our work force to
demand levels for our products. Although the PRC has a large and growing
economy, the potential economic, political, legal and labor developments entail
uncertainties and risks. While the PRC has been receptive to foreign investment,
we cannot be certain that its current policies will continue indefinitely into
the future. In the event of any changes that adversely affect our ability to
conduct our operations within the PRC, our business will suffer. In early 2003,
we acquired the consumer business of Eldor Corporation. While this business is
headquartered in Italy, substantially all of its manufacturing operations are in
Turkey. These operations in Turkey are subject to unique risks, including those
associated with continuing Middle East geo-political events.

We have benefited over recent years from favorable tax treatment as a
result of our international operations. We operate in foreign countries where we
realize favorable income tax treatment relative to the U.S. statutory rate. We
have also been granted special tax incentives commonly known as tax holidays in
other countries such as the PRC and Turkey. This favorable situation could
change if these countries were to increase rates or revoke the special tax
incentives, or if we discontinue our manufacturing operations in any of these
countries and do not replace the operations with operations in other locations
with favorable tax incentives. Accordingly, in the event of changes in laws and
regulations affecting our international operations, we may not be able to
continue to take advantage of similar benefits in the future.

Page 11 of 60

Shifting our operations between regions may entail considerable expense.

In the past we have shifted our operations from one region to another in
order to maximize manufacturing and operational efficiency. We may close one or
more additional factories in the future. This could entail significant one-time
earnings charges to account for severance, equipment write-offs or write-downs
and moving expenses. In addition, as we implement transfers of our operations we
may experience disruptions, including strikes or other types of labor unrest
resulting from layoffs or termination of employees.

Liquidity requirements could necessitate movements of existing cash balances
which may be subject to restrictions or cause unfavorable tax and earnings
consequences.

A significant portion of our cash is held offshore by our international
subsidiaries and is predominantly denominated in U.S. dollars. While we intend
to use cash held overseas to fund our international operation and growth, if we
encounter a significant domestic need for liquidity that we cannot fulfill
through borrowings, equity offerings, or other internal or external sources, we
may experience unfavorable tax and earnings consequences if this cash is
transferred to the United States. These adverse consequences would occur if the
transfer of cash into the United States is taxed and no offsetting foreign tax
credit is available to offset the U.S. tax liability, resulting in lower
earnings. In addition, we may be prohibited from transferring cash from the PRC.
With the exception of approximately $13.0 million of non-cash retained earnings
as of December 26, 2003 in primarily the PRC that are restricted in accordance
with the PRC Foreign Investment Enterprises Law, substantially all retained
earnings are free from legal or contractual restrictions. The PRC Foreign
Investment Enterprise Law restricts 10% of our net earnings in the PRC, up to a
maximum amount equal to 50% of the total capital we have invested in the PRC. We
have not experienced any significant liquidity restrictions in any country in
which we operate and none are presently foreseen. However, foreign exchange
ceilings imposed by local governments and the sometimes lengthy approval
processes which some foreign governments require for international cash
transfers may delay our internal cash movements from time to time.

Losing the services of our executive officers or our other highly qualified and
experienced employees could adversely affect our business.

Our success depends upon the continued contributions of our executive
officers and management, many of whom have many years of experience and would be
extremely difficult to replace. We must also attract and maintain experienced
and highly skilled engineering, sales and marketing and managerial personnel.
Competition for qualified personnel is intense in our industries, and we may not
be successful in hiring and retaining these people. If we lose the services of
our executive officers or cannot attract and retain other qualified personnel,
our business could be adversely affected.

Public Health Epidemics (such as Severe Acute Respiratory Syndrome) or Other
Natural Disasters (such as Earthquakes or Fires) May Disrupt Operations in
Affected Regions and Affect Operating Results.

Pulse maintains extensive manufacturing operations in the PRC and Turkey,
as do many of our customers and suppliers. A sustained interruption of our
manufacturing operations, or those of our customers or suppliers, as a result of
complications from severe acute respiratory syndrome or another public health
epidemic or other natural disasters, could have a material adverse effect on our
business and results of operations.

Environmental liability and compliance obligations may affect our operations and
results.

Our manufacturing operations are subject to a variety of environmental
laws and regulations governing:

o air emissions;

o wastewater discharges;

o the storage, use, handling, disposal and remediation of hazardous
substances, wastes and chemicals; and

o employee health and safety.

If violations of environmental laws should occur, we could be held liable
for damages, penalties, fines and remedial actions. Our operations and results
could be adversely affected by any material obligations arising from existing
laws, as well as any required material modifications arising from new
regulations that may be enacted in the future. We may also be held liable for
past disposal of hazardous substances generated by our business or businesses

Page 12 of 60

we acquire. In addition, it is possible that we may be held liable for
contamination discovered at our present or former facilities.

We are aware of contamination at two locations. In Sinsheim, Germany,
there is a shallow groundwater and soil contamination that is naturally
decreasing over time. The German environmental authorities have not required
corrective action to date. In addition, property in Leesburg, Indiana, which was
acquired with our acquisition of GTI in 1998, is the subject of a 1994
Corrective Action Order to GTI by the Indiana Department of Environmental
Management. The order requires us to investigate and take corrective actions.
Monitoring data is being collected to confirm and implement the corrective
measures. We anticipate making additional environmental expenditures in future
years to continue our environmental studies, analysis and remediation
activities. Based on current knowledge, we do not believe that any future
expenses or liabilities associated with environmental remediation will have a
material impact on our operations or our consolidated financial position,
liquidity or operating results, however, we may be subject to additional costs
and liabilities if the scope of the contamination or the cost of remediation
exceeds our current expectations.

Item 2 Properties

We are headquartered in Trevose, Pennsylvania where we lease 11,000 square
feet of office space. Through Pulse and AMI Doduco, we operated 18 manufacturing
plants in 10 countries as of December 26, 2003. We continually seek to size our
operations correctly in order to maximize cost efficiencies. Accordingly, in the
future, we may take further actions to increase or decrease our manufacturing
capacity. To maximize production efficiencies, we seek whenever practical to
establish manufacturing facilities in countries where we can take advantage of
lower labor costs and, if available, various government incentives and tax
benefits. We also seek to maintain facilities in those regions where we market
our products in order to maintain a local presence in proximity to our
customers.

The following is a list of the locations of our principal manufacturing
facilities at December 26, 2003:

Pulse Percentage
Approx. Owned/ Used For
Location (1) Square Ft. (2) Leased Manufacturing
------------ -------------- ------ -------------
Dongguan, People's Republic
of China, or PRC 290,000 Leased 100%
Izmir, Turkey 251,000 Owned 80%
Zhuhai, PRC 208,000 Leased 100%
Zhongshan, PRC 111,000 Leased 100%
Istanbul, Turkey 31,000 Leased 90%
Greensboro, Maryland 20,000 Owned 95%
-------
Total 911,000

(1) In addition to these manufacturing locations, Pulse has 254,000 square
feet of space which is used for engineering, sales and administrative
support functions at various locations, including Pulse's headquarters in
San Diego, California. In addition, Pulse leases approximately 1,613,000
square feet of space for dormitories, canteen and other employee-related
facilities in the PRC.

(2) Consists of aggregate square footage in each locality where manufacturing
facilities are located. More than one manufacturing facility may be
located within each locality.

Page 13 of 60

AMI Doduco Percentage
Approx. Owned/ Used For
Location (1) Square Ft. Leased Manufacturing
------------ ---------- ------ -------------
Pforzheim, Germany 490,000 Owned 65%
Sinsheim, Germany 222,000 Owned 55%
Reidsville, North Carolina 260,000 Owned 60%
Export, Pennsylvania 115,000 Leased 80%
Tianjin, PRC 62,000 Leased 85%
Bussy, France 25,000 Leased 100%
Luquillo, Puerto Rico 32,000 Owned 80%
Madrid, Spain 32,000 Owned 95%
Mexico City, Mexico 25,000 Leased 85%
Lentate S/Seveso, Italy 23,000 Leased 90%
Dorog, Hungary 11,000 Leased 80%
---------
Total 1,297,000

(1) Engineering, sales and administrative support functions for AMI Doduco are
generally contained in these locations.

We have developed our manufacturing processes in ways intended to maximize
our economic profitability. Accordingly, the manufacturing processes at Pulse
facilities maintain a cost structure that is labor intensive and highly
variable, except for the Consumer Division manufacturing locations in Izmir,
Turkey which are highly automated. The labor intensity at legacy Pulse
facilities enables us to increase and decrease production rapidly and to contain
costs during slower periods, whereas Pulse's manufacturing plants in Izmir,
Turkey are highly automated and therefore very sensitive to the volume of
production. On the other hand, AMI Doduco's products tend to have longer
business cycles, longer time to market and are more capital intensive than
legacy Pulse products. As a result, we have automated or mechanized many
functions at AMI Doduco facilities and vertically integrated our products in an
attempt to utilize all of our manufacturing capabilities to create higher value
added products.

Traditionally, our engineers design products to meet our customers'
product needs and then we mass-produce the products once a contract is awarded
by, or orders are received from, our customer. We also service customers that
design their own components and outsource production of these components to us.
We then build the components to the customer's design.

The productive capacity and extent of utilization of our facilities are
difficult to quantify. In any one facility, maximum capacity and utilization
vary periodically depending on the segment's manufacturing strategies, the
product being manufactured and the current market conditions and demand. We
estimate that our average utilization of overall production capacity in 2003 was
between 75% to 85% for Pulse and 65% to 70% for AMI Doduco.

Item 3 Legal Proceedings

We are a party to various legal proceedings and administrative actions.
See Discussion in Note 7 to the Audited Financial Statements. We expect lawsuits
to arise in the normal course of business. Although it is difficult to predict
the outcome of any legal proceeding, we do not believe these proceedings and
actions will, individually or in the aggregate, have a material adverse effect
on our consolidated financial condition or results of operations.

Item 4 Submission of Matters to a Vote of Security Holders

None

Page 14 of 60

Part II

Item 5 Market for Registrant's Common Equity and Related Stockholder Matters

Our common stock is traded on the New York Stock Exchange under the ticker
symbol "TNL". The following table reflects the highest and lowest sales prices
in each quarter of the last two years. The dividends paid are also shown. All
amounts reflect stock splits through December 26, 2003.

First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------

2003 High $17.65 $18.34 $21.00 $24.43

2003 Low $13.50 $14.31 $14.95 $19.20

2003 Dividends Paid -- -- -- --

2002 High $31.40 $27.24 $23.30 $18.25

2002 Low $20.12 $21.26 $14.55 $12.66

2002 Dividends Paid $.03375 -- -- --

On December 26, 2003, there were approximately 1,290 registered holders of
our common stock, which has a par value of $.125 per share and is the only class
of stock that we have outstanding. See additional discussion on restricted
earnings in Item 7, Liquidity and Capital Resources, and in Note 8 of Notes to
Consolidated Financial Statements.

On April 11, 2002 we completed a follow-on offering of 6,348,000 shares of
our common stock. The proceeds of the offering, net of expenses, were
approximately $134.7 million. These proceeds resulted in a common stock increase
of $0.8 million and an additional paid-in capital increase of $133.9 million.

After paying a dividend of $0.03375 per share on January 25, 2002 to
shareholders of record on January 4, 2002, we discontinued regular quarterly
cash dividends on our common stock. We currently intend to retain future
earnings to finance the growth of our business.

Information as of December 26, 2003 concerning plans under which our
equity securities are authorized for issuance are as follows:

Number of shares to be
issued upon exercise of
options or grant of Weighted average Number of securities
restricted shares or exercise price of remaining available
Plan Category other incentive shares outstanding options for future issuance
------------- --------------------------------------------------------------------

Equity compensation plans
Approved by security holders 5,960,000 $19.91 3,118,576

Equity compensation plans not
Approved by security holders 0 0 0

Total 5,960,000 $19.91 3,118,576

Page 15 of 60

were adopted under the ICP. In addition to the ICP, plans approved by us include
a 60,000 share Board of Director Stock Plan and an Employee Stock Purchase Plan.
The maximum number of shares which may be issued under our Employee Stock
Purchase Plan is 1,000,000 shares, provided, however, that such amount will be
automatically increased annually beginning on August 1, 2002 in an amount equal
to the least of (a) 200,000 shares, (b) two percent (2%) of the outstanding
common stock as of the last day of the prior fiscal year or (c) such an amount
as may be determined by our Board of Directors (but failing such determination
the lesser of (a) or (b)). In 2003, our Board of Directors determined that no
increase for 2003 should be made. Of the 3,118,576 shares remaining available
for future issuance, 376,391 shares are attributable to our Restricted Stock
Plan, 857,000 shares are attributable to our Employee Stock Purchase Plan, and
15,129 shares are attributable to our Board of Director Stock Plan. Note 11 to
the Consolidated Financial Statements contains additional information regarding
our stock based compensation plans

Item 6 Selected Financial Data (In Thousands, Except Per Share Data)

2003(f) 2002(d) 2001(e) 2000 1999
------- ------- ------- ---- ----

Net sales $ 509,247 $ 406,354 $ 474,199 $ 664,378 $ 530,436
Net earnings (loss) $ 11,988 $ (43,537) $ 2,784 $ 99,308 $ 44,312
Earnings (loss) per share:
Basic (a) $ .30 $ (1.17) $ .08 $ 3.05 $ 1.38
Diluted (a) $ .30 $ (1.17) $ .08 $ 3.02 $ 1.36
Total assets $ 588,894 $ 547,706 $ 525,020 $ 520,771 $ 381,239
Total long-term debt $ 6,837 $ 16,348 $ 89,129 $ 48,588 $ 60,496
Shareholders' equity $ 448,749 $ 422,059 $ 329,231 $ 324,430 $ 215,635
Net worth per share (a) $ 11.14 $ 10.52 $ 9.77 $ 9.76 $ 6.63
Working capital (b) $ 199,770 $ 235,579 $ 189,257 $ 230,397 $ 141,851
Current ratio 2.7 to 1 3.2 to 1 2.9 to 1 2.7 to 1 2.5 to 1
Number of shares
outstanding: (a)
Weighted average,
including common stock
equivalents 40,171 37,581 33,566 32,859 32,492
Year end (a) 40,279 40,130 33,683 33,237 32,532
Dividends declared per share
(a)(c) -- -- $ .1350 $ .1350 $ .13125
Price range per share:
High (a) $ 24.43 $ 31.40 $ 57.00 $ 76.13 $ 23.13
Low (a) $ 13.50 $ 12.66 $ 19.60 $ 19.38 $ 9.94

(a) Share amounts and per share amounts for all periods reflect a two-for-one
stock split on November 27, 2000.

(b) Includes cash and cash equivalents and current installments of long-term
debt.

(c) After January 25, 2002, we discontinued paying regular quarterly cash
dividends on our common stock. Our last dividend declared was in 2001.

(d) During 2002, we recorded a cumulative effective of accounting change of
$15.7 million net of income tax benefit, and a $32.1 million intangible
asset impairment, less a $12.8 million tax benefit.

(e) During 2002, our ownership interest in a cost basis method investment
increased from approximately 19% to 28%. The initial investment was made
in 2001. We have adjusted 2001 to reflect the impact of a change in
accounting for this investment from the cost basis method to the equity
accounting method, as if this investment were accounted for as an equity
method investment since the initial investment.

(f) On January 9, 2003 we purchased Eldor High Tech Wire Wound Components
S.r.L. for $83.9 million in cash.

Page 16 of 60

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

Introduction

This discussion and analysis of our financial condition and results of
operations as well as other sections of this report, contain certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve a number of risks and uncertainties.
Actual results may differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described in "Risk Factors" section of this report on page 7 through 13.

Critical Accounting Policies

The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
requires us to make judgments, assumptions and estimates that affect the amounts
reported in the Consolidated Financial Statements and accompanying notes. Note 1
to the Consolidated Financial Statements on page 38 through 39 describes the
significant accounting policies and methods used in the preparation of the
Consolidated Financial Statements. Estimates are used for, but not limited to,
the accounting for inventory valuation, impairment of goodwill and other
intangibles, severance and asset impairment expense, income taxes, and
contingency accruals. Actual results could differ from these estimates. The
following critical accounting policies are impacted significantly by judgments,
assumptions and estimates used in the preparation of the Consolidated Financial
Statements.

Inventory Valuation. Inventory purchases and commitments are based upon
future demand forecasts estimated by taking into account actual purchases of our
products over the recent past and customer forecasts. If there is a sudden and
significant decrease in demand for our products or there is a higher risk of
inventory obsolescence because of rapidly changing technology and or customer
requirements, we may be required to write down our inventory and our gross
margin could be negatively affected. If we were to sell or use a significant
portion of inventory already written down, our gross margin could be positively
affected.

Impairment of Goodwill and Other Intangibles. We assess the carrying cost
of goodwill and intangible assets with indefinite lives on an annual basis and
between annual tests in certain circumstances. In addition, in response to
changes in industry and market conditions, we may strategically realign our
resources and consider restructuring, disposing of, or otherwise exiting
businesses, which could result in an impairment of goodwill or other
intangibles.

Severance and Asset Impairment Expense. Our recent restructuring
activities are designed to reduce both our fixed and variable costs,
particularly in response to the dramatically reduced demand for our products in
the electronics components industry in the 2001 to 2002 period and on-going
price competition in both segments. These costs included the closing of
facilities and the termination of employees. Acquisition-related costs are
included in the allocation of the cost of the acquired business. Other
restructuring costs are expensed during the period in which we determine that we
will incur those costs, and all of the requirements for accrual are met in
accordance with the applicable accounting guidance. Restructuring costs are
recorded based upon our best estimates at the time such as estimated residual
values. Our actual expenditures for the restructuring activities may differ from
the initially recorded costs. If this occurs, we adjust our initial estimates in
future periods. In the case of acquisition-related restructuring costs,
depending on whether the assets impacted came from the acquired entity and the
timing of the restructuring charge, such adjustment would generally require a
change in value of the goodwill appearing on our balance sheet, which may not
affect our earnings. In the case of other restructuring costs, we could be
required either to record additional expenses in future periods if our initial
estimates were too low, or reverse part of the charges that we recorded
initially if our initial estimates were too high.

Income Taxes. Except in limited circumstances, we have not provided for
U.S. federal income and foreign withholding taxes on non-U.S. subsidiaries'
undistributed earnings as calculated for income tax purposes. In accordance with
the provisions of Accounting Principles Board Opinion No. 23, Accounting for
Income Taxes - Special Areas ("APB 23") we intend to reinvest these earnings
outside the U.S. indefinitely. If we encounter a significant domestic need for
liquidity that we cannot fulfill through borrowings, equity offerings, or other
internal or external sources, we may experience unfavorable tax consequences as
cash invested outside the U.S. is transferred to the U.S. This adverse
consequence would occur if the transfer of cash into the U.S. were subject to
income tax without sufficient foreign tax credits available to offset the U.S.
tax liability.

Page 17 of 60

Contingency Accruals. During the normal course of business, a variety of
issues may arise, which may result in litigation, environmental compliance and
other contingent obligations. In developing our contingency accruals we consider
both the likelihood of a loss or incurrence of a liability as well as our
ability to reasonably estimate the amount of exposure. We record contingency
accruals when a liability is probable and the amount can be reasonably
estimated. We periodically evaluate available information to assess whether
contingency accruals should be adjusted. We could be required to record
additional expenses in future periods if our initial estimates were too low, or
reverse part of the charges that we recorded initially if our estimates were too
high.

Overview

We are a global producer of precision-engineered passive magnetics-based
electronic components and electrical contact products and materials. We believe
we are a leading global producer of these products and materials in the primary
markets we serve based on our estimates of the size of our primary markets in
annual revenues and our share of those markets relative to our competitors.

We operate our business in two distinct segments:

o the electronic components segment, which operates under the name
Pulse, and

o the electrical contact products segment, which operates under the
name AMI Doduco.

General. We define net sales as gross sales less returns and allowances.
We sometimes refer to net sales as revenue. From 1997 through 2000, the growth
in our consolidated net sales was due in large part to the growth of Pulse.
However, beginning in late 2000, the electronics markets served by Pulse
experienced a severe global contraction. In late 2002, many of these markets
began to stabilize or increase in terms of unit sales. However, because of
excess capacity, relocation by customers from North America and Europe to the
Far East, and emergence of strong competitors in the Far East, the pricing
environment for Pulse's products has been and remains challenging. We believe
that a broad-based market rebound in terms of pricing power will be erratic and
gradual, probably requiring several years. In markets where unit demand has
begun to recover, downward pressure on selling prices has kept total revenue
from growing proportionately with unit growth.

Demand at AMI Doduco typically mirrors the prevailing economic conditions
in North America and Europe. This is true for electrical contacts, and for
component subassemblies for automotive applications such as multi-function
switches, motor control sensors and ignition security systems, and for
non-automotive uses such as appliance and industrial controls. AMI Doduco
continues its cost reduction actions including work force adjustments and plant
consolidations in line with demand around the world.

In 2002, we recorded a goodwill impairment charge of $15.7 million, net of
income tax benefit, related to AMI Doduco as a cumulative effect of accounting
change. We also recorded a trade name impairment charge of $32.1 million, less a
$12.8 million income tax benefit, related to Pulse.

Historically, the gross margin at Pulse has been significantly higher than
at AMI Doduco. As a result, the mix of net sales generated by Pulse and AMI
Doduco during a period affects our consolidated gross margin. Over the past two
years, our gross margin has been positively impacted by the savings from our
various restructuring activities and ongoing cost and expense controls. Our
gross margin is also significantly affected by capacity utilization,
particularly at AMI Doduco. Pulse's markets are characterized by a relatively
short-term product life cycle compared to AMI Doduco. As a result, significant
product turnover occurs each year. Therefore, Pulse's changes in average selling
prices do not necessarily provide a meaningful and quantifiable measure of
Pulse's operations. AMI Doduco has a relatively long-term and mature product
line, without significant turnover, and with less frequent variation in the
prices of product sold, unlike Pulse, where fixed-term price contracts are rare.
Most of AMI Doduco's products are sold under annual (or longer) purchase
contracts. Therefore, AMI Doduco's revenues historically have not been subject
to significant price fluctuations. Sales growth and contraction at AMI Doduco is
generally attributable to changes in unit volume, as well as foreign exchange
rates, especially the U.S. dollar to the euro, since the functional currency is
the euro for a majority of AMI Doduco's business, but results of the business
are reported in U.S. dollars.

Acquisitions. Historically, acquisitions have been an important part of
our growth strategy. In many cases, our move into new and high-growth extensions
of our existing product lines or markets has been facilitated by an acquisition.
Our acquisitions continually change the mix of our net sales. Pulse made
numerous acquisitions in recent years which have increased our penetration into
our primary markets and expanded our presence in new markets. Recent examples of
these acquisitions include Excelsus and the consumer electronics business of
Eldor Corporation.

Page 18 of 60

Excelsus was acquired in August 2001 for approximately $85.9 million, net of
cash acquired. Excelsus was based in Carlsbad, California and was a leading
producer of customer-premises digital subscriber line filters and other
broadband accessories. Pulse acquired Eldor's consumer electronics business in
January 2003 for approximately $83.9 million. Eldor is headquartered in Senna
Comasco, Italy with production operations in Istanbul and Izmir, Turkey. Eldor's
consumer business is a leading supplier of flyback transformers to the European
television industry.

Similarly, AMI Doduco has made a number of acquisitions over the years. In
January 2001, AMI Doduco acquired the electrical contact and materials business
of Engelhard-CLAL, a manufacturer of electrical contacts, wire and strip contact
materials and related products. Generally, AMI Doduco's acquisitions have been
driven by our strategy of expanding our product and geographical market presence
for electrical contact products.

Due to our integration of acquisitions and the interchangeable sources of
net sales between existing and acquired operations, historically, we have not
separately tracked the net sales of an acquisition after the date of the
transaction.

Technology. Our business is continually affected by changes in technology,
design, and preferences of consumers and other end users of our products, as
well as changes in regulatory requirements. We address these changes by
continuing to invest in new product development and by maintaining a diverse
product portfolio which contains both mature and emerging technologies in order
to meet to customer demands.

Management Focus. Our executives focus on a number of important factors in
evaluating our financial condition and operation performance. We use economic
profit which we define as operating profit after tax, less our cost of capital.
Revenue growth, gross margin as a percentage of revenue, and operating profit as
a percent of revenue are also among these factors. Operating leverage or
incremental operating profit as a percentage of incremental sales is a factor
that is discussed frequently with analysts and investors, as this is believed to
represent the benefit of absorbing fixed overhead and operating expenses, and
increased profitability on higher sales. In evaluating working capital
management, liquidity and cash flow, our executives also use performance
measures such as days sales outstanding, days payable outstanding and inventory
turnover.

The continued success of our business is largely dependent of meeting and
exceeding our customer's expectations. Non-financial performance measures such
as safety statistics, on-time delivery and quality statistics assist our
management in monitoring this activity on an on-going basis.

Recent Cost Reduction Programs. During 1999 and 2000, the electronic
components industries served by Pulse were characterized by unprecedented
growth. Beginning in late 2000 and continuing all during 2001 and a significant
part of 2002, however, the opposite trend was experienced as these industries
experienced a severe worldwide contraction and many of our customers canceled
orders and decreased their level of business activity as a result of lower
demand for their end products. Our manufacturing business model at Pulse legacy
has a very high variable cost component due to the labor-intensity of many
processes, which allows us to quickly change our capacity based on market
demand. Just as we expanded capacity during 1999 and 2000, we reduced capacity
during 2001 and 2002. The Pulse Consumer Division, acquired from Eldor in 2003
however, is capital intensive and therefore more sensitive to volume changes.
Generally speaking, during the twelve months ended December 26, 2003, Pulse's
end markets experienced increased unit demand, but the increasing presence of
Far Eastern competition also increased pricing pressure, which in turn put
pressure on Pulse to reduce selling prices. Unit sales and pricing pressures
were, however, not uniform across all product lines, making product mix an
important factor in revenue generation. While the electrical contact industry
served by AMI Doduco is generally less dependent on volatile technology markets,
it too was negatively impacted by general economic trends as reflected in slower
overall construction spending and reduced capital spending in 2001 and 2002. AMI
Doduco has a higher fixed cost component of manufacturing activity than Pulse,
as it is more capital intensive. Therefore, AMI Doduco is unable to expand or
contract its capacity as quickly as Pulse in response to market demand, although
significant actions have been taken to align AMI Doduco's capacity with current
market demand.

In response to the decline in demand for our products, we implemented a
succession of cost reduction initiatives and programs, summarized as follows:

During 2003, we accrued $9.0 million in the aggregate for severance and
related payments and asset impairments. At Pulse, we accrued $1.5 million for
the elimination of certain manufacturing and support positions located in
France, the United Kingdom, Mexico and China and $0.7 million for other facility
exit costs. We

Page 19 of 60

additionally accrued $1.9 million for shutdown of Pulse's manufacturing facility
in Mexico and $0.5 million to write down carrying cost of Pulse's facility in
the Philippines which is held for sale. At AMI Doduco, we accrued $2.9 million
for the elimination of certain manufacturing positions principally located in
North America and Germany and $1.5 million to complete the shutdown of a
redundant facility in Spain that we acquired from Engelhard-CLAL in 2001. The
majority of these accruals are expected to be utilized by the end of 2004.

During 2002, we announced the closure of our production facility in the
Philippines. The production at this facility was transferred to other Pulse
facilities in Asia. We recorded charges of $3.8 million for this plant closing,
comprising $1.4 million for severance and related payments and $2.4 million for
asset writedowns. The majority of this accrual was utilized by the end of 2002.
We also adopted other restructuring plans during 2002. In this regard, we
recorded provisions of $6.0 million for personnel reductions, and substantially
all of the employee severance and related payments in connection with these
actions were completed as of December 26, 2003. An additional provision of $7.0
million was recorded in 2002 related to asset writedowns. These assets were
primarily Asian-based production equipment that became idle in 2002.

During 2001, we announced the closure of our production facilities in
Thailand and Malaysia. The production at these two facilities was transferred to
other Pulse facilities in Asia. We recorded charges of $3.6 million for these
plant closings, comprised of $2.5 million for severance and related payments and
$1.1 million for other exit costs. The majority of this accrual was utilized by
the end of 2002. We also adopted other restructuring plans during 2001. In this
regard, provisions of $6.4 million were recorded during 2001. Termination costs
for employees at our Thailand and Malaysian facilities have been included in the
separate provisions for exiting those facilities. In addition to these
terminations, headcount was reduced by approximately 12,300, net of new hires,
during fiscal 2001 through voluntary employee attrition and involuntary
workforce reductions primarily at manufacturing facilities in the PRC where
severance payments are not necessary. In addition, a charge of $3.5 million was
recorded during 2001 to writedown the value of certain Pulse fixed assets to
their disposal value.

As a result of our continuing focus on both economic and operating profit,
we will continue to aggressively size both Pulse and AMI Doduco so that costs
are optimally matched to current and anticipated future revenue and unit demand,
and as we pursue additional growth opportunities. The amounts of additional
charges will depend on specific actions taken. The actions taken over the past
three years such as plant closures, plant relocations, asset impairments and
reduction in personnel worldwide have resulted in the elimination of a variety
of costs. The majority of these costs represent the annual salaries and benefits
of terminated employees, both those directly related to manufacturing and those
providing selling, general and administrative services, as well as lower
overhead costs related to factory relocations. The eliminated costs also include
depreciation savings from disposed equipment.

International Operations. An increasing percentage of our sales in recent
years has been outside of the United States. As of December 26, 2003, we had
manufacturing operations in 10 countries and we have significant net sales in
currencies other than the U.S. dollar. For the year ended December 26, 2003, 76%
of our net sales were outside of the U.S. For the year ended December 27, 2002,
68.7% of our net sales were to customers outside of the U.S. Changing exchange
rates often impact our financial results and the analysis of our
period-over-period results. This is particularly true of movements in the
exchange rate between the U.S. dollar and the euro. AMI Doduco's European sales
are denominated primarily in euro. A portion of Pulse's European sales are also
denominated in euros. However, the proportion at Pulse is less than it is at AMI
Doduco, although Pulse's portion increased with the acquisition of its new
Consumer Division, which sells to its customers primarily in euros. Prior to the
acquisition of the Consumer Division, Pulse used the U.S. dollar as its
functional currency in Europe while AMI Doduco uses the euro. For the acquired
Consumer Division from Eldor, Pulse uses the euro as its functional currency.
The use of different functional currencies creates different financial effects.
AMI Doduco's and Pulse's Consumer Division euro-denominated sales and earnings
may result in higher or lower dollar sales upon translation for our U.S.
consolidated financial statements. We may also experience a positive or negative
translation adjustment to equity because our investment in Pulse's Consumer
Division and AMI Doduco's European operations may be worth more or less in U.S.
dollars after translation for our U. S. consolidated financial statements. The
Pulse legacy operations may incur foreign currency gains or losses as
euro-denominated transactions are remeasured to U.S. dollars for financial
reporting purposes. If an increasing percentage of our sales is denominated in
non-U.S. currencies, increased exposure to currency fluctuations may result.

In order to reduce our exposure resulting from currency fluctuations, we
may purchase currency exchange forward contracts and/or currency options. These
contracts guarantee a predetermined range of exchange rates at the time the
contract is purchased. This allows us to shift the majority of the risk of
currency fluctuations from the date of the contract to a third party for a fee.
As of December 26, 2003, we had two foreign currency forward contracts
outstanding to sell forward approximately 70.6 million of euro in order to hedge
intercompany loans. In determining

Page 20 of 60

the use of forward exchange contracts and currency options, we consider the
amount of sales, purchases and net assets or liabilities denominated in local
currencies, the type of currency, and the costs associated with the contracts.

Precious Metals. AMI Doduco uses silver, as well as other precious metals,
in manufacturing some of its electrical contacts, contact materials and contact
subassemblies. Historically, we have leased or held these materials through
consignment arrangements with our suppliers. Leasing and consignment costs have
been typically below the costs to borrow funds to purchase the metals, and more
importantly, these arrangements eliminate the fluctuations in the market price
of owned precious metal and enable us to minimize our inventories. AMI Doduco's
terms of sale generally allow us to charge customers for precious metal content
based on market value of precious metal on the day after shipment to the
customer. Thus far we have been successful in managing the costs associated with
our precious metals. While limited amounts are purchased for use in production,
the majority of our precious metal inventory continues to be leased or held on
consignment. If our leasing/consignment fees increase significantly in a short
period of time, and we are unable to recover these increased costs through
higher sale prices, a negative impact on our results of operations and liquidity
may result. Leasing/consignment fee increases are caused by increases in
interest rates or increases in the price of the consigned material. See
additional discussion in note 1 of the Notes to Consolidated Financial
Statements.

Income Taxes. Our effective income tax rate is affected by the proportion
of our income earned in high-tax jurisdictions such as Germany and the income
earned in low-tax jurisdictions, particularly Izmir, Turkey and the PRC. This
mix of income can vary significantly from one period to another. We have
benefited over recent years from favorable tax treatments outside of the U.S.
However, there is no guarantee as to how long these benefits will continue to
exist.

Except in limited circumstances, we have not provided for U.S. federal
income and foreign withholding taxes on our non-U.S. subsidiaries' undistributed
earnings (as calculated for income tax purposes) as per Accounting Principles
Board Opinion No. 23, Accounting for Income Taxes - Special Areas. Such earnings
include pre-acquisition earnings of foreign entities acquired through stock
purchases, and are intended to be reinvested outside of the U.S. indefinitely.
We have not provided for U.S. federal income and foreign withholding taxes on
approximately $299.4 million of our non-U.S. subsidiaries' undistributed
earnings (as calculated for income tax purposes) as of December 26, 2003, as per
APB 23. Unrecognized deferred taxes on these undistributed earnings are
estimated to be approximately $94.2 million. Where excess cash has accumulated
in our non-U.S. subsidiaries and it is advantageous for tax reasons, subsidiary
earnings may be repatriated.

Results of Operations

Year ended December 26, 2003 compared to the year ended December 27, 2002

Net Sales. Net sales for the year ended December 26, 2003 increased $102.8
million, or 25.3%, to $509.2 million from $406.4 million in the year ended
December 27, 2002. Our sales increase from the comparable period last year was
primarily attributable to the increases from the Eldor acquisition and stronger
sales of Pulse's legacy products, tempered by ongoing pressure on selling prices
at Pulse, and to a lesser extent, weaker demand at AMI Doduco, which resulted in
lower sales of electrical contacts and contact materials on a constant-euro
basis.

Pulse's net sales increased $89.5 million, or 43.7%, to $294.1 million for
the year ended December 26, 2003 from $204.6 million in the year ended December
27, 2002. Most of the increase is attributable to sales of Eldor since the date
of acquisition in January 2003. Increased unit revenues in many Pulse legacy
product lines were somewhat offset by our average selling price pressures.

AMI Doduco's net sales increased $13.4 million, or 6.6%, to $215.2 million
for the year ended December 26, 2003 from $201.8 million in the year ended
December 27, 2002. Sales in the 2003 period reflect weak North American and
European markets, which were more than offset by the positive translation effect
of an increase in the average euro-to-U.S. dollar exchange rate during the
period. Lower net sales in local currencies, primarily euros, resulted from
lower manufacturing activity by customers in the commercial and industrial
machinery and non-residential construction end markets.

Cost of Sales. Our cost of sales increased $66.1 million, or 21.3%, to
$375.9 million for the year ended December 26, 2003 from $309.9 million for the
year ended December 27, 2002, which did not include Pulse's Consumer Division.
Our consolidated gross margin for the year ended December 26, 2003 was 26.2%
compared to 23.8% for the year ended December 27, 2002. Our consolidated gross
margin in 2003 was positively affected by:

Page 21 of 60

o a mix of net sales weighted more toward Pulse, whose products
typically have a higher gross margin than those of AMI Doduco,

o the addition of the Pulse Consumer Division products, which
typically have a higher gross margin than AMI Doduco products and
some Pulse legacy products, and

o better capacity utilization and lower per-unit overhead costs at
Pulse in 2003 than in 2002.

These positive impacts on gross margin in 2003 were partially offset by
manufacturing inefficiencies at AMI Doduco due to under-utilization of capacity
and continued consolidation activities in European, Asian and North American
manufacturing facilities.

Selling, General and Administrative Expenses. Total selling, general and
administrative expenses for the year ended December 26, 2003 increased $9.9
million, or 11.1%, to $99.2 million or 19.5% of net sales, from $89.3 million or
22.0% of net sales, for the year ended December 27, 2002. The increase in the
2003 period compared to the 2002 period is primarily attributable to an increase
of $4.2 million in incentive and stock compensation expense reflecting higher
levels of profitability, and $2.4 million of intangible asset amortization
related to the Eldor acquisition. The addition of Eldor expenses and the higher
translated U.S. dollar cost of euro-denominated expenses were offset in part by
savings from restructuring actions that we took over the last year to reduce
costs and tighten spending.

Research, development and engineering expenses are included in selling,
general and administrative expenses. We refer to research, development and
engineering expenses as RD&E. For the year ended December 26, 2003 and December
27, 2002 respectively, RD&E by segment was as follows (dollars in thousands):

2003 2002
---- ----
Pulse $14,439 $13,892
Percentage of segment sales 4.9% 6.8%

AMI Doduco $ 4,030 $ 3,903
Percentage of segment sales 1.9% 1.9%

Although some consolidation of RD&E, particularly design activity, has
occurred through restructuring and relocation activities at Pulse, we have
minimized spending cuts in the RD&E area as we believe that future sales in the
electronic components markets will be driven by next-generation products. Design
and development activities with our OEM customers continued at an aggressive
pace during 2003. The change in RD&E as a percentage of sales at Pulse relates
to the effect of the acquisition of Eldor, as Eldor incurs lower RD&E costs
relative to its sales as compared to Pulse legacy products.

Interest. Net interest expense was $0.8 million for the year ended
December 26, 2003 compared to net interest expense of $0.1 million for the year
ended December 27, 2002. The increase in net interest expense in the current
period is due to lower yields on a lower average cash invested balance, which
more than offset higher average outstanding bank debt and related interest
expense in the prior year period. Bank debt in 2002 consisted of
euro-denominated term loans which were paid off in July 2002, and credit
facility debt from the Excelsus acquisition which was paid off in April 2002.
Net interest expense also includes interest on our precious metal leases and
commitment fees on our unused credit facility.

Income Taxes. The effective income tax rate for the year ended December
26, 2003 was 20.0% compared to 30.8% in the form of a benefit for the year ended
December 27, 2002. While the prior year's rate reflects a tax benefit recorded
in connection with the trade name impairment write-off, the tax rate in 2003
resulted from a higher portion of income being attributable to low-tax
jurisdictions, combined with restructuring expenses of AMI Doduco which yielded
tax benefits in high-tax jurisdictions.

Equity method investment loss. We acquired 19.5% of Full Rise Electronics
Co. Ltd. ("FRE") in 2001, and an additional 10% in 2002. Shares of FRE began
trading on the Taiwan Stock Exchange in January of 2003, and they have
experienced considerable price volatility. We recorded a net loss on equity
method investments of $8.7 million for the year ended December 26, 2003 compared
to equity method investments earnings of $0.3 million for the year ended
December 27, 2002. The net loss in 2003 resulted from a $9.3 million charge to
the original cost basis of our investment, offset by $0.6 million of equity
method investment earnings in 2003. We maintain an option to acquire a
controlling interest in FRE at its market value at the time of exercise.

Page 22 of 60

Year ended December 27, 2002 compared to the year ended December 28, 2001

Net Sales. Net sales for the year ended December 27, 2002 decreased $67.9
million, or 14.3%, to $406.4 million from $474.2 million for the year ended
December 28, 2001. Our sales decline from the comparable period last year was
attributable primarily to declining average selling prices, especially in
Pulse's power conversion and telecom markets, and the precipitous global
downturn in markets served by Pulse that began late in 2000, as a large portion
of the strong sales in the first quarter of 2001 were for products ordered in
2000. Factors contributing to the downturn included declining capital
expenditures by end-users and subsequent excess inventory levels. This downturn
was experienced primarily in Pulse's networking and telecommunications markets
on a worldwide basis, particularly in North America and Europe. Offsetting the
sales declines in 2002 were the full year results of acquisitions completed in
2001.

Pulse's net sales decreased $48.7 million, or 19.2%, to $204.6 million for
the year ended December 27, 2002 from $253.3 million for the year ended December
28, 2001. Although Pulse's sales were fairly consistent in the last nine months
of 2002 and 2001, Pulse's sales were significantly lower in the first quarter of
2002 compared to the first quarter of 2001. The majority of Pulse sales during
the quarter ended March 30, 2001 were for products ordered in 2000, before the
dramatic market slowdown began. During the first quarter of 2001, new order
rates declined and significant customer order cancellations occurred. Average
selling prices also declined throughout 2002 compared to 2001, especially in
Pulse's power conversion and telecom markets. Net sales in 2002 also include
full year results of Grupo ECM and Excelsus sales, whereas 2001 included only
sales derived from Grupo ECM and Excelsus since the date of their acquisition in
March and August 2001, respectively.

AMI Doduco's net sales decreased $19.1 million, or 8.7%, to $201.8 million
for the year ended December 27, 2002 from $220.9 million for the year ended
December 28, 2001. Although AMI Doduco's sales were fairly consistent in the
last nine months of 2002 and 2001 respectively, AMI Doduco's sales were
significantly lower in the first quarter of 2002 compared to the first quarter
of 2001. Sales in the 2002 period reflect very weak European markets, offset
somewhat by a stronger average euro to U.S. dollar exchange rate on a
year-over-year basis. Demand in North American markets was also lower throughout
2002 versus 2001, although the decline was not as severe as in Europe. The lower
worldwide manufacturing activity in 2002 resulted in lower net sales primarily
from customers in the commercial and industrial machinery, non-residential
construction, and appliance industries in 2002.

Cost of Sales. Our cost of sales decreased $49.8 million, or 13.9%, to
$309.9 million for the year ended December 27, 2002 from $359.7 million for the
year ended December 28, 2001. This decrease was due to a decrease in net sales
in 2002 and a reduction in inventory write-offs of $18.1 million, from $20.3
million in 2001 versus $2.2 million in 2002. Our consolidated gross margin for
the year ended December 27, 2002 was 23.8% compared to 24.2% for the year ended
December 28, 2001. Since the Pulse gross profit as a percentage of sales is
typically higher than that of AMI Doduco, our consolidated gross margin in 2002
was negatively affected by:

o a mix of net sales weighted more heavily by AMI Doduco on a relative
basis,

o a trend towards higher priced products with even higher costs for
certain Pulse products, such as filtered connectors replacing
discrete components, and

o average per unit selling price declines for other Pulse products.

There were also manufacturing inefficiencies at both Pulse and AMI Doduco due to
under-utilization of capacity as a result of the market downturn. These factors
more than offset the positive impact of our restructuring initiatives.

Selling, General and Administrative Expenses. Total selling, general and
administrative expenses for the year ended December 27, 2002 decreased $9.6
million, or 9.7%, to $89.3 million, or 22.0% of net sales, from $98.8 million,
or 20.8% net of sales for the year ended December 28, 2001. The decrease in
selling, general and administrative expenses in 2002 was due primarily to
actions that we took to reduce costs and tighten spending controls. In addition,
selling expenses, which are largely variable with net sales, decreased $2.0
million from 2001 to 2002. Administrative expenses decreased by $5.8 million,
due largely to lower headcount in the U.S. and lower incentive awards, offset
somewhat by higher expenses related to our restricted stock plan in 2002.
Research, development and engineering expense decreased by $2.4 million, due
largely to consolidation of research facilities.

Research, development and engineering expenses are included in selling,
general and administrative expenses. We refer to research, development and
engineering expenses as RD&E. For the years ended December 27, 2002 and December
28, 2001, RD&E by segment was as follows (dollars in thousands):

Page 23 of 60

2002 2001
---- ----

Pulse $13,892 $16,026
Percentage of segment sales 6.8% 6.3%

AMI Doduco $ 3,903 $ 4,155
Percentage of segment sales 1.9% 1.9%

Although 2002 had been characterized by cost reduction activities and
lower sales levels, particularly at Pulse, we largely avoided spending cuts in
the RD&E area, as we believe that future demand in the electronic components
markets will be driven by next-generation products. Design and development
activities with our OEM customers continued at an aggressive pace during 2002.
The reduced expense in RD&E in 2002 was primarily attributable to facility
consolidation.

Interest. Net interest expense was $0.1 million for the year ended
December 27, 2002 compared to $1.4 million of net interest income for the year
ended December 28, 2001. This decrease was due to significantly lower yields on
invested cash, somewhat offset by lower borrowing costs attributable to lower
average outstanding debt in 2002. We incurred debt of approximately $74.0
million in connection with the acquisition of Excelsus in August 2001. Some of
this debt remained outstanding until April 2002, when the balance was retired
with proceeds from our follow-on offering. Invested cash balances increased by
$62.8 million from year end 2001, due primarily to 2002 follow-on offering
proceeds of $134.7 million less debt repayments of $75.3 million, coupled with
an intense focus on cash and working capital management throughout 2002.

Income Taxes. The effective income tax rate in the form of a benefit for
the year ended December 27, 2002 was 30.8% compared to 51.0% for the year ended
December 28, 2001. The lower tax rate in 2002 was the result of a higher
weighting of Pulse taxable income versus AMI Doduco, as Pulse generally operates
in lower tax jurisdictions than AMI Doduco. There was also a higher level of
non-deductible restructuring charges incurred in 2001 versus 2002. Specifically,
plant shut-down costs and severance expenses were incurred in certain low-tax
jurisdictions or countries where we had current losses or discontinued
operations. In such countries, we expect to have no future income to offset such
charges, resulting in little or no income tax benefit.

Severance and Asset Impairment Expense. During 2002, we recorded a charge
of $32.1 million, less a related $12.8 million income tax benefit, attributable
to a write down of the Excelsus trade name acquired by Pulse. The trade name
impairment charge was triggered by the combined effect of reorganizing Pulse
into product line based organization and updated forecast for digital subscriber
line microfilters to which the trade name applies. A total of $1.9 million was
also recognized as unusual and infrequent income in 2002, attributable to the
favorable outcome of certain legal matters.

Cumulative Effect of Accounting Change. During 2002, we recorded a
cumulative effective of accounting change of $15.7 million, net of income tax
benefit, upon adoption of SFAS 142. This charge was attributable to impairment
of AMI Doduco goodwill.

Liquidity and Capital Resources

Working capital as of December 26, 2003 was $199.8 million compared to
$235.6 million as of December 27, 2002. This decrease was primarily due to the
cash purchase of the Eldor business in January 2003, which reduced invested cash
by $83.9 million at the time of the acquisition. Cash and cash equivalents,
which is included in working capital, decreased from $205.1 million as of
December 27, 2002 to $143.4 million as of December 26, 2003.

Net cash provided by operating activities was $55.2 million for the year
ended December 26, 2003 and $20.8 million in the comparable period of 2002, an
increase of $34.4 million. This increase was primarily attributable to the
higher net earnings during the year ended December 26, 2003, higher depreciation
and amortization expense with the addition of the Eldor business, and working
capital reductions.

We present our statement of cash flows using the indirect method as
permitted under Financial Accounting Standards Board Statement No. 95, Statement
of Cash Flows. Our management has found that investors and analysts typically
refer to changes in accounts receivable, inventory, and other components of
working capital when analyzing operating cash flows. Also, changes in working
capital are more directly related to the way we manage our business for cash
flow, than are items such as cash receipts from the sale of goods, as would
appear using the direct method.

Page 24 of 60

Capital expenditures were $7.8 million during the year ended December 26,
2003 and $5.8 million in the comparable period of 2002. We make capital
expenditures to expand production capacity and to improve our operating
efficiency. We plan to continue making such expenditures in the future as and
when necessary.

We used $83.9 million in cash for acquisitions during the year ended
December 26, 2003 and $6.7 million in the comparable period in 2002. The 2003
spending was for the acquisition of Eldor and the 2002 payments related to our
investment in FRE. We may acquire other businesses or product lines to expand
our breadth and scope of operations. We may exercise our option to expand our
investment in FRE in the future.

We paid off two euro-denominated term loans during the year ended December
26, 2003 with $11.7 million of cash on hand. We have an obligation due in August
2009 under an unsecured term loan agreement with Sparkasse Pforzheim for the
borrowing of approximately 5.1 million euros,.

As of December 26, 2003, we have no outstanding borrowings under our
existing three-year revolving credit agreement. We entered into this credit
agreement on June 20, 2001 providing for $225.0 million of credit capacity.
Following the conclusion of our follow-on equity offering in April 2002, we
voluntarily reduced the size of this credit facility to a maximum of $175.0
million, and then in March 2003, to a current maximum of $125.0 million. These
reductions were made in order to reduce commitment fees and to size the facility
to estimated future needs given cash on hand. We also amended the minimum net
worth threshold from $275.0 million to $259.3 million as a result of a
cumulative effect of an accounting change, recorded in the quarter ended March
29, 2002. As of December 26, 2003 the amended facility consisted of an aggregate
U.S. dollar-based revolving line of credit in the principal amount of up to
$125.0 million, including individual sub-limits of:

- a British pounds sterling-based or euro-based revolving line of
credit in the principal amount of up to the U.S. dollar equivalent
of $75.0 million; and

- a multicurrency facility providing for the issuance of letters of
credit in an aggregate amount not to exceed the U.S. dollar
equivalent of $10.0 million.

The amounts outstanding under the credit facility in total may not exceed
$125.0 million. Outstanding borrowings are limited to a maximum of three times
our earnings before interest, taxes, depreciation and amortization (EBITDA) on a
rolling twelve-month basis as of the most recent quarter-end.

The credit facility also contains covenants requiring maintenance of
minimum net worth, maximum debt to EBITDA ratio, as defined above, minimum
interest expense coverage, capital expenditure limitations, and other customary
and normal provisions. We are in compliance with all such covenants.

We pay a facility fee, irrespective of whether there are outstanding
borrowings or not, which ranges from 0.275% to 0.450% of the total commitment,
depending on our EBITDA. The interest rate for each currency's borrowing will be
a combination of the base rate for that currency plus a credit margin spread.
The base rate is different for each currency. It is LIBOR or prime rate for U.S.
dollars, Euro-LIBOR for euros, and a rate approximating sterling LIBOR for
British pounds. The credit margin spread is the same for each currency and is
0.850% to 1.425% depending on our debt-to-EBITDA ratio. Each of our domestic
subsidiaries with net worth equal to or greater than $5 million has agreed to
guarantee all obligations incurred under the credit facility.

We had four standby letters of credit outstanding at December 26, 2003 in
the aggregate amount of $1.7 million securing transactions entered into in the
ordinary course of business. We had commercial commitments outstanding at
December 26, 2003 of approximately $60.6 million due under precious metal
consignment-type leases. We had no other off-balance-sheet financing
arrangements.

Our credit facility expires in June 2004. We expect to enter in to a new
multi-year credit facility of similar size, terms and conditions before the
expiration of the current credit facility.

Page 25 of 60

As of December 26, 2003, future payments related to contractual
obligations were as follows (in thousands):

Amounts due by period
Total Less than 1 year 1 to 3 years 3 to 5 years Thereafter
----- ---------------- ------------ ------------ ----------

Long-term debt $ 6,837 $ 127 $ 259 $ 84 $ 6,367
Operating leases 25,293 6,845 7,007 3,533 7,908
------- ------- ------- ------- -------
$32,130 $ 6,972 $ 7,266 $ 3,617 $14,275

We believe that the combination of cash on hand, cash generated by
operations and, if necessary, borrowings under our credit agreement will be
sufficient to satisfy our operating cash requirements in the foreseeable future.
In addition, we may use internally generated funds or borrowings or additional
equity offerings for acquisitions of suitable businesses or assets.

All retained earnings are free from legal or contractual restrictions as
of December 26, 2003, with the exception of approximately $13.0 million of
retained earnings primarily in the PRC, that are restricted in accordance with
Section 58 of the PRC Foreign Investment Enterprises Law. The amount restricted
in accordance with the PRC Foreign Investment Enterprise Law is applicable to
all foreign investment enterprises doing business in the PRC. The restriction
applies to 10% of our net earnings in the PRC, limited to 50% of the total
capital invested in the PRC. We have not experienced any significant liquidity
restrictions in any country in which we operate and none are foreseen. However,
foreign exchange ceilings imposed by local governments and the sometimes lengthy
approval processes which foreign governments require for international cash
transfers may delay our internal cash movements from time to time. The retained
earnings in other countries represent a material portion of our assets. We
expect to reinvest these earnings outside of the United States because we
anticipate that a significant portion of our opportunities for growth in the
coming years will be abroad. If these earnings were brought back to the United
States, significant tax liabilities could be incurred in the United States as
several countries in which we operate have tax rates significantly lower than
the U.S. statutory rate. Additionally, we have not accrued U.S. income and
foreign withholding taxes on foreign earnings that have been indefinitely
invested abroad.

New Accounting Pronouncements

In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity ("SFAS
150"), which establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. SFAS No. 150 requires that an issuer classify a financial instrument
that falls within its scope as a liability (or an asset in some circumstances).
Prior to issuance of FASB Staff Position FAS 150-3, Effective Date, Disclosures
and Transition for Mandatorily Redeemable Financial Instruments of Certain
Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests
under SFAS 150 ("FAS 150-3"), SFAS 150 was effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003, which for
us was the quarter ended September 26, 2003. FAS 150-3 defers indefinitely the
effective date of SFAS 150 for certain mandatorily redeemable noncontrolling
interests. The adoption of this standard did not have and is not expected to
have, as related to the deferred provisions, a material impact on our revenue,
operating results, financial position or liquidity.

In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities ("SFAS 149"), which amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS 149 requires
that contracts with comparable characteristics be accounted for similarly and
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative and when a derivative contains a
financing component. SFAS 149 also amends the definition of an underlying to
conform it to language used in FIN No. 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. SFAS 149 is effective for contracts entered into or modified after June
30, 2003, with certain exceptions. We adopted SFAS. 149 as of June 1, 2003, and
the adoption of this standard did not have a material impact on our revenue,
operating results, financial position or liquidity.

In December 2003, FASB issued Interpretation No. 46 (revised December
2003) Consolidation of Variable Interest Entities ("FIN 46R"). FIN 46R clarifies
the application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors do not have the
characteristics of a

Page 26 of 60

controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46R replaces FASB Interpretation No. 46,
Consolidation of Variable Interest Entities which was issued in January 2003. We
will be required to apply FIN 46R to variable interest in variable interest
entities created after December 31, 2003. For variable interests in variable
interest entities created before January 1, 2004, the interpretation will be
applied no later than the end of the first reporting period that ends after
March 15, 2004. Adoption of this interpretation is not expected to effect on our
revenue, operating results, financial position, or liquidity. We do not have any
variable interest entities.

Recently Adopted Pronouncements.

In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation, Transition and Disclosure, an amendment to Statement
No. 123 ("SFAS 148"). SFAS 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 148 amends the disclosure requirements
of Statement No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), by
requiring prominent disclosures in both annual and interim financial statements,
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The provisions of SFAS 148 are
effective for fiscal years ending after December 15, 2002. We adopted the
provisions of SFAS 123, as amended by SFAS 148, as of the beginning of our
fiscal year in 2003. We used the prospective method of adoption, which
recognizes expense for all employee awards granted, modified or settled after
the beginning of the fiscal year in which the recognition provisions are first
applied. Adoption of this standard did not have a material effect on our
revenue, operating results or liquidity. Net expense after related tax benefits
lowered diluted earnings per share by approximately $0.01 per share in fiscal
2003.

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees and Indebtedness of Others ("FIN 45"). FIN 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued.
FIN 45 also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. We were required to adopt the provisions of
FIN 45 on a prospective basis to guarantees issued or modified after December
31, 2002, although the related disclosure requirements were effective
immediately. We have not issued any guarantees for performance of third parties.
Accordingly, adoption of this interpretation had no effect on our revenue,
operating results, financial position or liquidity.

In June 2002, the FASB issued Statement No. 146 Accounting for Costs
Associated with Exit or Disposal Activities ("SFAS 146"). SFAS 146 superceded
the Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain
Termination Benefits and Other Costs to Exit an Activity, ("EITF 94-3") The
principal difference between SFAS 146 and EITF 94-3 is that SFAS 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under EITF 94-3, a liability for an
exit cost was recognized at the date of an entity's commitment to an exit plan.
As such, under SFAS 146, an entity's commitment to a plan by itself, does not
create a present obligation meeting the definition of a liability. SFAS 146 also
established fair value as the objective for initial measurement of the
liability. We adopted the provisions of SFAS 146 for all exit or disposal
activities initiated after December 15, 2002. The adoption of this standard did
not have a material effect on our revenue operating results, financial position
or liquidity, since our recent restructuring activities have generally been
initiated and completed within a short period of time.

In August 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations ("SFAS 143") which addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS 143 applies to legal
obligations associated with the retirement of tangible long-lived assets that
result from the acquisition, construction, development and (or) normal use of
the assets. SFAS 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset. The liability is
accreted at the end of each period through charges to operating expense. If the
obligation is settled for other than the carrying amount of the liability, a
gain or loss on settlement will be recognized. We adopted the provisions of SFAS
143 during the three months ending March 28, 2003. Adoption of this standard did
not have a material effect on our net sales, operating results, financial
position, or liquidity.

Page 27 of 60

Item 7a Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our financial instruments, including cash and cash equivalents and
long-term debt, are exposed to changes in interest rates in both the U.S. and
abroad. We invest our excess cash in short-term, investment-grade
interest-bearing securities. We generally limit our exposure to any one
financial institution to the extent practical. Our board has adopted policies
relating to these risks, and continually monitors compliance with these
policies.

Our existing credit facility has variable interest rates. Accordingly,
interest expense may increase if we borrow and if the rates associated with our
borrowings move higher. In addition, we may pursue additional or alternative
financing for growth opportunities in one or both segments. We may use interest
rate swaps or other financial derivatives in order to manage the risk associated
with changes in market interest rates. However, we have not used any of these
instruments to date.

The table below presents principal amounts in U.S. dollars (or equivalent
U.S. dollars with respect to non-U.S. denominated debt) and related weighted
average interest rates by year of maturity for our foreign debt obligations. The
column captioned "Approximate Fair Value" sets forth the carrying value of our
long-term debt as of December 26, 2003, which approximates our fair value at
such date after taking into consideration current rates offered to us for
similar debt instruments of comparable maturities. We do not hold or issue
financial instruments or derivative financial instruments for trading purposes
(dollars in thousands):

Approx.
There- Fair
2004 2005 2006 2007 2008 after Total Value
---- ---- ---- ---- ---- ----- ----- -----

Liabilities
Long-term debt
Fixed rate:

Euro (1) $127 $127 $132 $84 -- $6,367 $6,837 $6,837
Weighted average
interest rate 9.02% 9.02% 9.02% 9.02% -- 5.65%

(1) U.S. dollar equivalent

Foreign Currency Risk

As of December 26, 2003, substantially all of our cash was denominated in
U.S. dollars. However, we conduct business in various foreign currencies,
including those of emerging market countries in Asia and well-developed European
countries. We utilize derivative financial instruments, primarily forward
exchange contracts in connection with fair value hedges, to manage foreign
currency risks. In accordance with SFAS 133, gains and losses related to fair
value hedges are recognized in income along with adjustments of carrying amounts
of the hedged items. Therefore, all of our forward exchange contracts are
marked-to-market, and unrealized gains and losses are included in current period
net income. These contracts guarantee a predetermined rate of exchange at the
time the contract is purchased. This allows us to shift the majority of the risk
of currency fluctuations from the date of the contract to a third party for a
fee. We believe there are two potential risks of holding these instruments. The
first is that the foreign currency being hedged could move in a direction which
could create a better economic outcome than if hedging had not taken place. The
second risk is that the counterparty to a currency hedge defaults on our
obligations. We reduce the risk of counterparty default by entering into
relatively short-term hedges with well capitalized and highly rated banks. In
determining the use of forward exchange contracts, we consider the amount of
sales and purchases made in local currencies, the type of currency and the costs
associated with the contracts. As of December 26, 2003, we had two foreign
currency forward contracts outstanding to sell forward 70.6 million euro in
order to hedge intercompany loans. The term of these contracts was approximately
30 days.

The table below provides information about our other non-derivative,
non-U.S. dollar denominated financial instruments and presents the information
in equivalent U.S. dollars. Amounts set forth under "Liabilities" represent
principal amounts and related weighted average interest rates by year of
maturity for our foreign currency debt obligations. The column captioned
"Approximate Fair Value" sets forth the carrying value of our foreign currency
long-term debt as of December 26, 2003, which approximates our fair value at
such date after taking into consideration current rates offered to us for
similar debt instruments of comparable maturities (dollars in thousands):

Page 28 of 60

Approx.
There- Fair
2004 2005 2006 2007 2008 after Total Value
---- ---- ---- ---- ---- ----- ----- -----

Assets
Cash and equivalents
Variable rate:
Euro (1) $6,544 $6,544 $6,544
Other currencies (1) $4,035 $4,035 $4,035

Liabilities
Long-term debt
Fixed rate:

Euro (1) $127 $127 $132 $84 -- $6,367 $6,837 $6,837
Weighted average
interest rate 9.02% 9.02% 9.02% 9.02% -- 5.65%

(1) U.S. dollar equivalent

Item 8 Financial Statements and Supplementary Data

Information required by this item is incorporated by reference from the
Independent Auditors' Report found on page 33 and from the consolidated
financial statements and supplementary schedule on pages 34 through 57.

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

None

Item 9a Controls and Procedures

As of the end of the period covered by this report (Evaluation Date), we
evaluated the effectiveness of the design and operation of our "disclosure
controls and procedures" for purposes of filing reports under the Securities
Exchange Act of 1934 (Exchange Act). This evaluation was done under the
supervision and with the participation of our management, including our
Principal Executive Officer ("PEO") and Principal Financial Officer ("PFO").
Disclosure controls and procedures are designed with the objective of ensuring
that information required to be disclosed in our reports filed under the
Exchange Act, such as this annual report on Form 10-K, is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms. Disclosure controls and procedures are also designed with the objective
of ensuring that such information is accumulated and communicated to our
management, including the PEO and the PFO, as appropriate to allow timely
decisions regarding required disclosure.

Our management, including the PEO and PFO, does not expect that our
disclosure controls and procedures will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of a simple
human or systems error. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of controls also
is based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions. Over time, controls may
become inadequate because of changes in conditions, or the degree of compliance
with the policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected timely, in the ordinary course of business.

We plan to evaluate our disclosure controls and procedures on a quarterly
basis in accordance with the Exchange Act so that the conclusions concerning the
effectiveness of controls can be reported in our quarterly reports on Form 10-Q
and our annual reports on Form 10-K. Our disclosure controls and procedures are
also

Page 29 of 60

evaluated on an ongoing basis by personnel in our finance organization and our
internal audit group in connection with their audit and review activities. The
overall goals of these various evaluation activities are to monitor our
disclosure controls and procedures over financial reporting and to make
modifications as necessary. Our intent in this regard is that these controls and
procedures will be maintained as dynamic systems that change to include
improvements and corrections as conditions warrant.

Among other matters, we sought in our evaluation to determine whether
there were any "significant deficiencies" or "material weaknesses" in our
internal controls and procedures, and whether we had identified any acts of
fraud involving personnel who have a significant role in our internal controls
and procedures. This information was important both for the controls evaluation
generally and because the PEO and PFO certification requirement under items 5
and 6 of Section 302 of the Sarbanes-Oxley Act of 2002 mandates that they
disclose that information to our audit committee and to our independent auditors
and to report on related matters in this section of the annual report on Form
10-K. In the professional auditing literature, "significant deficiencies" are
referred to as "reportable conditions"; that is, those control issues that could
have a significant adverse effect on our ability to record, process, summarize
and report financial data in the financial statements. A "material weakness" is
defined in the auditing literature as a particularly serious reportable
condition where the internal control does not reduce to a relatively low level
the risk that misstatements caused by error or fraud may occur in amounts that
would be material in relation to the financial statements and not be detected
within a timely period by employees in the normal course of performing their
assigned functions. We also sought to deal with other controls matters in the
controls evaluation and where appropriate to consider what revision, improvement
and/or correction to make in accord with our ongoing procedures.

Based upon an evaluation on the effectiveness of the design and operation
of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15,
our PEO and PFO have concluded that, subject to the inherent limitations noted
above, as of the Evaluation Date our disclosure controls and procedures are
effective to ensure that material information relating to the company and our
consolidated subsidiaries is made known to management, including the PEO and
PFO, particularly during the period when our periodic reports are being
prepared. There have been no significant changes in internal controls and
procedures or in other factors that could significantly affect internal controls
and procedures, including any corrective actions with regard to significant
deficiencies and material weaknesses.

Page 30 of 60

Part III

Item 10 Directors and Executive Officers of the Registrant

The disclosure required by this item is incorporated by reference to the
sections entitled, "Directors and Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in our definitive proxy statement to
be used in connection with our 2004 Annual Meeting of Shareholders.

We make available free of charge within the Investor Information section
of our Internet website, at www.technitrol.com, and in print to any shareholder
who requests, our Statement of Principles Policy. Requests for copies may be
directed to Investor Relations, Technitrol, Inc., 1210 Northbrook Drive, Suite
385, Trevose, PA 19053-8406, or telephone 215-355-2900. We intend to disclose
any amendments to our Statement of Principles Policy, and any waiver from a
provision of our Statement of Principles Policy, on our Internet website within
five business days following such amendment or waiver. The information contained
on or connected to our Internet website is not incorporated by reference into
this Form 10-K and should not be considered part of this or any other report
that we file with or furnish to the SEC.

Item 11 Executive Compensation

The disclosure required by this item is incorporated by reference to the
sections entitled, "Executive Compensation," "Retirement Plan," "Executive
Employment Arrangements," "Compensation of Non-Employee Directors," "Board Stock
Ownership," "Report of Executive Compensation Committee on Compensation
Policies," "Compensation Committee Interlocks and Insider Participation," and
"Comparison of Five-Year Cumulative Total Return" in our definitive proxy
statement to be used in connection with our 2004 Annual Meeting of Shareholders.

Item 12 Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

The disclosure required by this item is (i) included under Part II, Item
5, and (ii) incorporated by reference to the sections entitled, "Persons Owning
More Than Five Percent of Our Stock" and "Stock Owned by Directors and Officers"
in our definitive proxy statement to be used in connection with our 2004 Annual
Meeting of Shareholders.

Information as of December 26, 2003 concerning plans under which our
equity securities are authorized for issuance are as follows:

Number of shares to be
issued upon exercise of
options or grant of Weighted average Number of securities
restricted shares or other exercise price of remaining available
Plan Category incentive shares outstanding options for future issuance
------------- ---------------------------------------------------------------------------

Equity compensation plans
Approved by security holders 5,960,000 $19.91 3,118,576

Equity compensation plans not
Approved by security holders 0 0 0

Total 5,960,000 $19.91 3,118,576

On May 15, 1981, our shareholders approved an incentive compensation plan
(ICP) intended to enable us to obtain and retain the services of employees by
providing them with incentives that may be created by the Executive Compensation
Committee under the ICP. Subsequent amendments to the plan were approved by our
shareholders including an amendment on May 23, 2001 which increased the total
number of shares of our common stock which may be granted under the plan to
4,900,000 shares. Our 2001 Stock Option Plan and the Restricted Stock Plan II
were adopted under the ICP. In addition to the ICP, plans approved by us include
a 60,000 share Board of Director Stock Plan and an Employee Stock Purchase Plan.
The maximum number of shares which may be issued under our Employee Stock
Purchase Plan is 1,000,000 shares, provided, however, that such amount will be
automatically increased annually beginning on August 1, 2002 in an amount equal
to the least of (a) 200,000 shares, (b) two percent (2%) of the outstanding
common stock as of the last day of the prior fiscal year or (c) such an amount
as may be

Page 31 of 60

determined by our Board of Directors (but failing such determination the lesser
of (a) or (b)). In 2003, our Board of Directors determined that no increase for
2003 should be made. Of the 3,118,576 shares remaining available for future
issuance, 376,391 shares are attributable to our Restricted Stock Plan, 857,000
shares are attributable to our Employee Stock Purchase Plan, and 15,129 shares
are attributable to our Board of Director Stock Plan. Note 11 to the
Consolidated Financial Statements contains additional information regarding our
stock based compensation plans.

Item 13 Certain Relationships and Related Transactions

None

Item 14 Principal Accountant Fees and Services

The disclosure required by this item is incorporated by reference to the
section entitled "Audit and Other Fees Paid to Independent Accountants" in our
definitive proxy statement to be used in connection with our 2004 Annual Meeting
of Shareholders.

Item 15 Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Documents filed as part of this report

Financial Statements

Independent Auditors' Report

Consolidated Balance Sheets - December 26, 2003 and December 27, 2002

Consolidated Statements of Operations - Years ended December 26, 2003,
December 27, 2002 and December 28, 2001

Consolidated Statements of Cash Flows - Years ended December 26, 2003,
December 27, 2002 and December 28, 2001

Consolidated Statements of Changes in Shareholders' Equity - Years ended
December 26, 2003, December 27, 2002 and December 28, 2001

Notes to Consolidated Financial Statements

Financial Statement Schedules

Schedule II, Valuation and Qualifying Accounts

(b) Reports on Form 8-K

We filed a current report on Form 8-K dated October 20, 2003. This report
pertains to our press release issued to announce our third quarter 2003
results.

We filed a current report on Form 8-K dated January 19, 2004. This report
pertains to our press release issued to announce our fourth quarter 2004
results.

Information required by this item is contained in the "Exhibit Index"
found on page 58 through 59 of this report.

Page 32 of 60

Independent Auditors' Report

The Board of Directors and Shareholders
Technitrol, Inc.:

We have audited the consolidated financial statements of Technitrol, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and the financial statement schedule
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 financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Technitrol, Inc. and
subsidiaries as of December 26, 2003 and December 27, 2002, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 26, 2003, in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

As discussed in Note 11 to the consolidated financial statements, in 2003, the
Company changed its method of accounting for equity compensation in accordance
with Statement of Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation, Transition and Disclosure. As discussed in Note 17 to
the consolidated financial statements, in 2002, the Company changed its method
of accounting for goodwill and other intangible assets in accordance with
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets.

/s/ KPMG LLP

Philadelphia, Pennsylvania
January 19, 2004

Page 33 of 60

Technitrol, Inc. and Subsidiaries

Consolidated Balance Sheets

December 26, 2003 and December 27, 2002
In thousands, except per share data

Assets 2003 2002
---- ----

Current assets:
Cash and cash equivalents $ 143,448 $ 205,075
Trade receivables, net 96,353 65,185
Inventories 63,086 60,588
Prepaid expenses and other current assets 17,435 13,878
--------- ---------
Total current assets 320,322 344,726

Property, plant and equipment 205,885 163,147
Less accumulated depreciation 117,836 98,286
--------- ---------
Net property, plant and equipment 88,049 64,861
Deferred income taxes 12,457 11,743
Goodwill and other intangibles, net 153,083 100,768
Other assets 14,983 25,608
--------- ---------
$ 588,894 $ 547,706
========= =========

Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 127 $ 10,667
Accounts payable 46,677 28,791
Accrued expenses 73,748 69,689
--------- ---------
Total current liabilities 120,552 109,147

Long-term liabilities:
Long-term debt, excluding current installments 6,710 5,681
Other long-term liabilities 12,882 10,501

Commitments and contingencies

Shareholders' equity:

Common stock: 175,000,000 shares authorized; 40,279,331 and
40,129,595 outstanding in 2003 and 2002, respectively; $.125
par value per share and additional paid-in capital 209,768 207,033
Retained earnings 232,824 220,836
Deferred compensation (1,342) (1,177)
Other comprehensive income (loss) 7,500 (4,315)
--------- ---------
Total shareholders' equity 448,750 422,377
--------- ---------
$ 588,894 $ 547,706
========= =========

See accompanying Notes to Consolidated Financial Statements.

Page 34 of 60

Technitrol, Inc. and Subsidiaries

Consolidated Statements of Operations

Years ended December 26, 2003, December 27, 2002 and December 28, 2001
In thousands, except per share data

2003 2002 2001
---- ---- ----

Net sales $509,247 $406,354 $474,199
Cost of sales 375,929 309,848 359,681
-------- -------- --------
Gross profit 133,318 96,506 114,518
Selling, general and administrative expenses 99,216 89,286 98,837
Severance and asset impairment expense 9,051 46,982 13,594
-------- -------- --------
Operating profit (loss) 25,051 (39,762) 2,087
Other (expense) income:

Interest income 1,134 2,903 6,401
Interest expense (1,958) (3,005) (4,998)
Other, net (571) (580) 1,879
Equity method investment earnings (loss) (8,660) 300 318
-------- -------- --------
Earnings (loss) before taxes and
cumulative effect of accounting change 14,996 (40,144) 5,687
Income taxes (benefit) 3,008 (12,345) 2,903
-------- -------- --------
Net earnings (loss) before cumulative
effect of accounting change 11,988 (27,799) 2,784
Cumulative effect of accounting
change, net of income taxes -- (15,738) --
-------- -------- --------
Net earnings (loss) $ 11,988 $(43,537) $ 2,784
======== ======== ========
Basic earnings (loss) per share before
cumulative effect of accounting
change .30 (.75) .08
Cumulative effect of accounting
change, net of income taxes -- (.42) --
-------- -------- --------
Basic earnings per share $ .30 $ (1.17) $ 08
======== ======== ========
Diluted earnings (loss) per share
before cumulative effect of
accounting change .30 (.75) .08
Cumulative effect of accounting change, net of
income taxes -- (.42) --
-------- -------- --------
Diluted earnings (loss) per share $ .30 $ (1.17) $ .08
======== ======== ========

See accompanying Notes to Consolidated Financial Statements.

Page 35 of 60

Technitrol, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Years ended December 26, 2003, December 27, 2002 and December 28, 2001
In thousands

2003 2002 2001

Cash flows from operating activities:
Net earnings (loss) $ 11,988 $ (43,537) $ 2,784
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Depreciation and amortization 23,615 19,770 26,553
Tax effect of stock compensation (123) 406 231
Amortization of stock incentive plan expense 1,601 1,403 1,219
Loss on disposal or sale of assets 1,882 7,027 3,863
Cumulative effect of accounting change, net of taxes -- 15,738 --
Trade name write-off, net of taxes -- 19,260 --
Deferred taxes (1,950) (1,726) (318)
Severance and asset impairment expense, net of cash payments
(excluding loss on disposal of assets and trade name write-off, net
of taxes) 1,841 1,326 599
Equity method investment earnings (loss) 8,660 (300) (318)
Inventory write downs 5,936 2,212 20,295
Changes in assets and liabilities, net of effect of acquisitions and
divestitures:
Trade receivables 617 1,540 48,197
Inventories 4,211 2,978 8,437
Prepaid expenses and other current assets 2,139 (1,007) (720)
Accounts payable 391 2,987 (14,348)
Accrued expenses (5,493) (5,325) (33,657)
Other, net (156) (1,962) (1,571)
--------- --------- ---------

Net cash provided by operating activities 55,159 20,790 62,686
Cash flows from investing activities:
Acquisitions, net of cash acquired (83,860) (6,708) (115,533)
Capital expenditures, exclusive of acquisitions (7,751) (5,755) (13,149)
Proceeds from sale of property, plant and equipment 482 1,695 4,531
Foreign currency impact on intercompany lending (12,235) (7,124) --
--------- --------- ---------

Net cash used in investing activities (103,364) (17,892) (124,151)
Cash flows from financing activities:
Principal payments on long-term debt (11,688) (75,318) (97,261)
Long-term borrowings -- -- 140,239
Payment of debt assumed in acquisition -- -- (3,944)
Dividends paid -- (1,137) (4,528)
Exercise of stock options 88 -- 17
Sale of stock through employee stock purchase plan 951 1,351 6,548
Net proceeds from follow-on offering -- 134,700 --
--------- --------- ---------

Net cash provided by (used in) financing activities (10,649) 59,596 41,071
--------- --------- ---------
Net effect of exchange rate changes on cash (2,773) 314 30
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (61,627) 62,808 (20,364)
Cash and cash equivalents at beginning of year 205,075 142,267 162,631
--------- --------- ---------
Cash and cash equivalents at end of year $ 143,448 $ 205,075 $ 142,267

See accompanying Notes to Consolidated Financial Statements.

Page 36 of 60

Technitrol, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

Years ended December 26, 2003, December 27, 2002 and December 28, 2001
In thousands, except per share data

Other
------------------------
Accumu-
lated other
Common stock and compre- Compre-
paid-in capital Deferred hensive hensive
--------------- Retained compen- income income
Shares Amount earnings sation (loss) (loss)
------ ------ -------- ------ ------ ------

Balance at December 29, 2000 33,237 $ 63,909 $ 266,132 $ (3,871) $ (1,740)
Stock options, awards and related
compensation 48 (504) -- 1,441 --
Tax effect of stock compensation -- 231 -- -- --
Stock issued under employee stock
purchase plan 398 6,548 -- -- --
Currency translation adjustments -- -- -- -- (838) $ (838)
Net earnings -- -- 2,784 -- -- 2,784
---------
Comprehensive income $ 1,946
=========
Dividends declared $(.135 per share) -- -- (4,543) -- --
--------- --------- --------- --------- ---------
Balance at December 28, 2001 33,683 $ 70,184 $ 264,373 $ (2,430) $ (2,578)

Stock options, awards and related
compensation 26 392 -- 1,253 --
Tax effect of stock compensation -- 406 -- -- --
Stock issued under employee stock
purchase plan 73 1,351 -- -- --
Follow-on offering 6,348 134,700 -- -- --
Currency translation adjustments -- -- -- -- (1,737) $ (1,737)
Net loss -- -- (43,537) -- -- (43,537)
---------
Comprehensive loss $ (45,274)
--------- --------- --------- --------- --------- =========
Balance at December 27, 2002 40,130 $ 207,033 $ 220,836 $ (1,177) $ (4,315)
Stock options, awards and related
compensation 79 1,906 -- (165) --
Tax effect of stock compensation -- (123) -- -- --
Stock issued under employee stock
purchase plan 70 952 -- -- --
Currency translation adjustments -- -- -- -- 11,815 $ 11,815
Net earnings -- -- 11,988 -- -- 11,988
---------
Comprehensive income $ 23,803
--------- --------- --------- --------- --------- =========
Balance at December 26, 2003 40,279 $ 209,768 $ 232,824 $ (1,342) $ 7,500
========= ========= ========= ========= =========

See accompanying Notes to Consolidated Financial Statements.

Page 37 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(1) Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Technitrol,
Inc. and all of our subsidiaries. We sometimes refer to Technitrol as "we" or
"our". All material intercompany accounts and transactions are eliminated in
consolidation.

Cash and Cash Equivalents

Cash and cash equivalents include funds invested in a variety of liquid
short-term investments with a maturity of three months or less.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method. We establish inventory provisions to write
down excess and obsolete inventory to market value. Inventory that is written
down to market in the ordinary course of business is not written back up after a
write-down. Inventory provisions are utilized when the actual inventory is
physically disposed. The provisions are determined by comparing quantities
on-hand to historical usage and forecasted demand. Inventory provisions at
December 26, 2003 and December 27, 2002 were $10.4 million and $15.6 million,
respectively.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is based
upon the estimated useful life of the assets on both the accelerated and the
straight-line methods. Estimated useful lives of assets range from 5 to 30 years
for buildings and improvements and from 3 to 10 years for machinery and
equipment. Expenditures for maintenance and repairs are charged to operations as
incurred, and major renewals and betterments are capitalized. Upon sale or
retirement, the cost of the asset and related accumulated depreciation are
removed from our balance sheet, and any resulting gains or losses are included
in earnings.

Goodwill and Other Intangibles

SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives be tested for impairment at least annually. SFAS 142 also requires
that other intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS 144. We amortize other
intangibles, except those with indefinite lives, on a straight-line basis over 2
to 20 years. We had approximately $112.9 million of goodwill and $40.2 million
of other intangibles on our balance sheet as of December 26, 2003. We had
approximately $86.7 million of goodwill and $14.1 million of other intangibles,
as of December 27, 2002. See Note 2 and Note 17 for additional information
regarding implementation of SFAS 142.

Revenue Recognition

Revenue is recognized upon shipment of product and passage of title
without right of return, after all performance factors have been met. We are not
subject to any significant customer acceptance provisions. All product returns
are deducted from net sales and are accrued for based on historical experience
and Financial Accounting Standard No. 48, "Revenue Recognition When Right of
Return Exists." Warranties are limited to rework or replacement of products. We
record an allowance for doubtful receivables. Accounts receivable allowances at
December 26, 2003 and December 27, 2002 were $2.9 million and $3.3 million,
respectively.

Stock-based Compensation

In 2001 and 2002, we accounted for stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). In 2003, we adopted SFAS 123 as amended by SFAS 148. Note
11 presents proforma results of operations as if FASB's Statement No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), had been used to account
for stock-based compensation plans for 2001 and 2002.

Page 38 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(1) Summary of Significant Accounting Policies, continued

Foreign Currency Translation

Certain of our foreign subsidiaries use the U.S. dollar as a functional
currency and others use a local currency. For subsidiaries using the U.S. dollar
as the functional currency, non-U.S. dollar monetary assets and liabilities are
remeasured at year-end exchange rates while non-monetary items are remeasured at
historical rates. Income and expense accounts are remeasured at the average
rates in effect during the year, except for depreciation that is remeasured at
historical rates. Gains or losses from changes in exchange rates are recognized
in earnings in the year of occurrence. For subsidiaries using a local currency
as the functional currency, net assets are translated at year-end rates while
income and expense accounts are translated at average exchange rates.
Adjustments resulting from these translations are reflected directly in
shareholders' equity.

Financial Instruments and Derivative Financial Instruments

The carrying value of our cash and cash equivalents, accounts receivable,
short-term borrowings and accounts payable are a reasonable estimate of their
fair value due to the short-term nature of these instruments. The carrying value
of our long-term debt approximates our fair value after taking into
consideration current rates offered for similar debt instruments of comparable
maturities. The fair values of financial instruments have been determined
through information obtained from quoted market sources and management
estimates. We do not hold or issue financial instruments or derivative financial
instruments for trading purposes.

We are exposed to market risk from changes in interest rates, foreign
currency exchange rates and precious metal prices. To mitigate the risk from
these changes, we periodically enter into hedging transactions which have been
authorized pursuant to our policies and procedures. In accordance with SFAS 133,
gains and losses related to fair value hedges are recognized in income along
with adjustments of carrying amounts of the hedged item. Therefore, all of our
forward exchange contracts are marked-to-market, and unrealized gains and losses
are included in current-period net income. At December 26, 2003 we had two
foreign currency forward contracts outstanding to sell forward 70.6 million of
euro in order to hedge intercompany loans. At December 27, 2002, we had one
foreign exchange contract in place to sell forward approximately 46.5 million of
euro in connection with hedging intercompany loans. At December 28, 2001, we had
five foreign exchange contracts in place to sell forward $44.2 million of U.S.
dollars, in connection with hedging intercompany loans.

Precious Metal Consignment-type Leases

We had custody of inventories under consignment-type leases from suppliers
of $60.6 million at December 26, 2003 and $43.5 million at December 27, 2002. We
have four consignment-type leases in place for sourcing all precious metals. The
leases are operating leases and the related inventory and liability are not
recorded on our balance sheet. The leases are generally one-year in duration and
can be extended with annual renewals. Either party can terminate the lease
agreements with 30 days written notice. The primary covenant in each of the
agreements is a prohibition against us creating security interests in the
consigned metals. Included in interest expense for the year ended December 26,
2003 were consignment fees of $0.8 million. These consignment fees were $1.4
million and $1.1 million in the years ended December 27, 2002 and December 28,
2001, respectively.

Estimates

Our preparation of financial statements is in conformity with what
generally accepted accounting principles require and we make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ significantly from those
estimates.

Reclassifications

Certain amounts in the prior-year financial statements have been
reclassified to conform with the current-year presentation. Also refer to Note
15 "Equity Method Investment".

(2) Acquisitions

Eldor High Tech Wire Wound Components S.r.L.: In January 2003, we acquired
all of the capital stock of Eldor High Tech Wire Wound Components S.r.L.
(Eldor), headquartered in Orsenigo, Italy with production operations in Izmir
and Istanbul, Turkey. Eldor produces flyback transformers and switch mode
transformers for the

Page 39 of 60

Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued

(2) Acquisitions, continued

European television market. The purchase price was approximately $83.9 million,
net of cash acquired, plus related acquisition costs and expenses. The fair
value of net tangible assets acquired approximated $8.3 million. In addition to
the fair value of assets acquired, purchase price allocations included $18.6
million for manufacturing know-how, $6.1 million for customer relationships,
$1.5 million for tradenames and $21.8 million allocated to goodwill. All of the
separately identifiable intangible assets will be amortized, with estimated
useful lives of 20 years for manufacturing know-how, 8 years for customer
relationships and 2 years for tradenames. The purchase price was funded with
cash on hand. Eldor has formed the nucleus of a new consumer division at Pulse
and is treated as a separate reporting unit for purposes of SFAS 142.

Had the acquisition of Eldor occurred as of January 1, 2002, unaudited pro
forma results would have been (in millions, except per share amounts):

Year Ended
December 27, 2002
-----------------
Pro forma unaudited
Net sales $485.1
Net earnings $(40.8)
Net earnings per common share:
Primary $(1.10)
Fully diluted $(1.10)

The pro forma results reflect adjustments primarily for the increased
amortization and interest expense attributable to the acquisition. Potential
cost savings, however, from combining Eldor with our operations are not
reflected. Therefore, the pro forma results are not indicative of the results
that would have occurred had the acquisition actually been consummated on
January 1, 2002, and are not intended to be a projection of future results or
trends.

Excelsus Technologies, Inc.: In August 2001, we acquired all of the
capital stock of Excelsus Technologies, Inc. based in Carlsbad, California.
Excelsus produced customer-premises digital subscriber line filters and other
broadband accessories. The acquisition was accounted for by the purchase method
of accounting. The purchase price was approximately $85.9 million, net of $4.8
million of cash acquired and a subsequent purchase price adjustment of $2.6
million. The fair value of net assets acquired approximated $18.2 million. Based
on the fair value of the assets acquired, the allocation of the purchase price
included $40.0 million for trade names, $8.0 million for technology and $27.0
million for goodwill. The technology intangible is subject to amortization and
is estimated to have a 5-year life. Included in the assets acquired was a $6.3
million tax receivable, generated by the acceleration and settlement of Excelsus
stock options at the time of closing. We filed income tax returns for the period
ending on the closing date, and received the full amount of the tax receivable
during the fourth quarter of 2001. In order to fund the purchase price, we used
approximately $19.0 million of cash on-hand and borrowed approximately $74.0
million under our existing credit facility with a syndicate of commercial banks.

During the quarter ended June 28, 2002 we recorded an impairment charge of
$32.1 million of the value assigned to the Excelsus trade names, before any tax
benefit. The charge was included in the line "Severance and asset impairment
expense" on the consolidated statement of operations. This charge was triggered
by the combined effect of reorganizing Pulse into a product-line based
organization and updated financial forecasts for DSL microfilters. In addition,
a purchase price allocation adjustment to record a deferred tax liability of
$16.0 million associated with the trade name was recorded and goodwill in an
equal amount was recognized. Approximately $12.8 million of the additional
deferred tax liability was recognized as a tax benefit in the consolidated
statement of earnings for the three months ended June 28, 2002, concurrent with
the trade name impairment.

Full Rise Electronics Co. Ltd. ("FRE"): FRE is based in the Republic of
China (Taiwan) and manufactures connector products including single and
multiple-port jacks and supplies these products to us under a cooperation
agreement. In April 2001, we made a minority investment in the common stock of
FRE, which was accounted for by the cost-basis method of accounting. On July 27,
2002 we made an additional investment in FRE of $6.7 million which increased our
total investment to $20.9 million. As a result of the increased ownership
percentage to

Page 40 of 60

Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued

(2) Acquisitions, continued

approximately 29%, we began to account for the investment under the equity
method accounting beginning in the three months ended September 27, 2002. In
2003 we recorded an $8.7 million net loss to adjust our original cost basis of
the investment to market value. Shares of FRE began trading on the Taiwan Stock
Exchange in January of 2003, and they have experienced considerable price
volatility. We maintain an option to acquire a controlling interest in FRE at
its market value at the time of exercise. Also refer to Note 15, Equity Method
Investment.

(3) Financial Statement Details

The following provides details for certain financial statement captions at
December 26, 2003 and December 27, 2002 (in thousands):

2003 2002
Inventories:
Finished goods $ 25,326 $ 21,446
Work in progress 13,867 12,390
Raw materials and supplies 23,893 26,752
-------- --------
$ 63,086 $ 60,588
======== ========
Property, plant and equipment, at cost:
Land $ 3,576 $ 3,300
Buildings and improvements 38,825 27,277
Machinery and equipment 163,484 132,570
-------- --------
$205,885 $163,147
======== ========
Accrued expenses:
Income taxes payable $ 30,063 $ 24,264
Accrued compensation 17,613 12,535
Other accrued expenses 26,072 32,890
-------- --------
$ 73,748 $ 69,689
======== ========

(4) Long-term Debt

At December 26, 2003 and December 27, 2002, long-term debt was as follows
(in thousands):

Bank Loans 2003 2002
---- ----

Fixed-rate, (5.57% and 4.85%) unsecured debt in Germany (denominated in euros)
matured June 26, 2003 $ -- $10,534

Fixed-rate, (5.65%) unsecured debt in Germany (denominated in euros) due
August 2, 2009 6,367 5,267
------- -------

Total bank loans 6,367 15,801

Mortgage Notes, secured by mortgages on land, buildings, and certain equipment:

8.20% - 10.32% mortgage notes, due in monthly installments until 2007 470 547
------- -------

Total long-term debt 6,837 16,348
Less current installments 127 10,667
------- -------

Long-term debt excluding current installments $ 6,710 $ 5,681
======= =======

Page 41 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(4) Long-term Debt, continued

As of December 26, 2003, we had no outstanding borrowings under our
existing three-year revolving credit agreement. We entered into this credit
agreement on June 20, 2001 providing for $225.0 million of credit capacity.
Following the conclusion of our follow-on equity offering in April 2002, we
voluntarily reduced the size of this credit facility to a maximum of $175.0
million, and then in March 2003, to a current maximum of $125.0 million. These
reductions were made in order to reduce commitment fees and to size the facility
to estimated future needs given cash on hand. We also amended the minimum net
worth threshold from $275.0 million to $259.3 million as a result of a
cumulative effect of an accounting change, recorded in the three months ended
March 29, 2002. As of December 26, 2003 the amended facility consisted of an
aggregate U.S. dollar-based revolving line of credit in the principal amount of
up to $125.0 million including individual sub-limits of:

- a British pounds sterling-based or euro-based revolving line
of credit in the principal amount of up to the U.S. dollar
equivalent of $75.0 million; and

- a multicurrency facility providing for the issuance of letters
of credit in an aggregate amount not to exceed the U.S. dollar
equivalent of $10.0 million.

The credit facility contains covenants requiring maintenance of minimum
net worth, maximum debt-to-EBITDA ratio as defined above, minimum interest
expense coverage, capital expenditure limits and other customary and normal
provisions. We are in compliance with all such covenants.

Our credit facility expires in June 2004. We expect to enter into a new
multi-year credit facility of a similar size, terms and conditions before the
expiration of the current credit facility.

We pay a facility fee irrespective of whether there are outstanding
borrowings or not, which ranges from 0.275% to 0.450% of the total commitment,
depending on our EBITDA. The interest rate for each currency's borrowing will be
a combination of the base rate for that currency plus a credit margin spread.
The base rate is different for each currency. It is LIBOR or prime rate for U.S.
dollars, euro-LIBOR for euros, and a rate approximating sterling LIBOR for
British pounds. The credit margin spread is the same for each currency and is
0.850% to 1.425% depending on debt-to-EBITDA ratio. Each of our domestic
subsidiaries with net worth equal to or greater than $5.0 million has agreed to
guarantee all obligations incurred under the credit facility.

Our German subsidiary, AMI Doduco GmbH, has an obligation outstanding
under a term loan agreement. It is with Sparkasse Pforzheim for the borrowing of
approximately 5.1 million euro and the obligation is due in August 2009. We,
including several of our subsidiaries, have guaranteed the obligations arising
under this term loan agreement.

Principal payments due within the next five years, based on terms of our
debt arrangements, are as follows (in thousands):

2004 $ 127
2005 127
2006 132
2007 84
2008 --
Thereafter 6,367
------
$6,837
======

Page 42 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(5) Research, Development and Engineering Expenses

Research, development and engineering expenses are included in selling,
general and administrative expenses and were $18.5 million, $17.8 million and
$20.2 million in 2003, 2002 and 2001, respectively, for continuing operations.
RD&E includes costs associated with new product development, product and process
improvement, engineering follow-through during early stages of production,
design of tools and dies, and the adaptation of existing technology to specific
situations and customer requirements. The research and development component of
RD&E, which generally includes only those costs associated with new technology,
new products or significant changes to current products or processes, was $13.2
million, $12.1 million and $14.1 million in 2003, 2002 and 2001, respectively.

(6) Income Taxes

Earnings (loss) before cumulative effect of accounting change and income
taxes were as follows (in thousands):

2003 2002 2001
---- ---- ----
Domestic $ (7,451) $(40,044) $ (5,235)
Non-U.S 22,447 (100) 10,922
-------- -------- --------
Total $ 14,996 $(40,144) $ 5,687
======== ======== ========

Income tax (benefit) expense was as follows (in thousands):

Current: 2003 2002 2001
---- ---- ----
Federal $ (3,377) $ 608 $ (1,174)

State and local (196) (775) 1,781
Non-U.S 8,531 2,387 2,614
-------- -------- --------
4,958 2,220 3,221
Deferred tax (benefit) expense (1,950) (14,565) (318)
-------- -------- --------

Net tax (benefit) expense $ 3,008 $(12,345) $ 2,903
======== ======== ========

A reconciliation of the statutory federal income tax rate with the
effective income tax rate was as follows:

2003 2002 2001
---- ---- ----
Statutory federal income tax rate 35% 35% 35%
Increase (decrease) resulting from:
Tax-exempt earnings of subsidiary in
Puerto Rico (5) 1 (3)
State and local income taxes, net
of federal tax effect (2) 5 20
Non-deductible expenses and
other foreign income subject
to U.S. income tax 17 (5) 34

Foreign (13) (8) (15)
Research and development tax
credit (12) 1 (9)

Other tax credits -- 2 (11)
--- --- ---
Effective tax rate 20% 31% 51%
=== === ===

Page 43 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(6) Income Taxes, continued

Deferred tax assets and liabilities included the following (in thousands):

2003 2002
---- ----
Assets:
Inventories $ 871 $ 772
Plant and equipment 2,418 1,646
Vacation pay and other compensation 320 1,292
Pension expense 2,133 1,029
Stock awards 647 1,462
Accrued liabilities 3,554 5,098
Net operating losses and tax credits 30,184 12,218
Other 1,563 1,014
-------- --------
Total deferred tax assets 41,690 24,531
Valuation allowance (6,976) (2,804)
-------- --------
Net deferred tax assets 34,714 21,727

Liabilities:
Foreign earnings not permanently invested 11,485 --
Acquired intangibles 6,349 5,170
-------- --------
Total deferred tax liabilities 17,834 5,170
-------- --------
Net deferred tax assets 16,880 16,557
Less current deferred tax assets 4,423 4,814
-------- --------
Long-term deferred income taxes $ 12,457 $ 11,743
======== ========

Based on our history of taxable income and our projection of future
earnings, we believe that it is more likely than not that sufficient taxable
income will be generated in the foreseeable future to realize the net deferred
tax assets.

We have not provided for U.S. federal income and foreign withholding taxes
on approximately $299.4 million of non-U.S. subsidiaries' undistributed earnings
(as calculated for income tax purposes) as of December 26, 2003. Such earnings
include pre-acquisition earnings of foreign entities acquired through stock
purchases and are intended to be reinvested outside of the U.S. indefinitely.
Unrecognized deferred taxes on these undistributed earnings were estimated to be
approximately $94.2 million. Where excess cash has accumulated in our non-U.S.
subsidiaries and it is advantageous for tax reasons, subsidiary earnings may be
remitted.

(7) Commitments and Contingencies

We conduct a portion of our operations from leased premises and also lease
certain equipment under operating leases. Total rental expense amounts for the
years ended December 26, 2003, December 27, 2002 and December 28, 2001 were $6.6
million, $8.2 million and $7.4 million, respectively. The aggregate minimum
rental commitments under non-cancelable leases in effect at December 26, 2003
were as follows (in thousands):

Year
Ending
2004 $ 6,845
2005 4,498
2006 2,509
2007 1,938
2008 1,595
Thereafter 7,908
-------
$25,293
=======

Page 44 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(7) Commitments and Contingencies, continued

The aggregate minimum rental commitments schedule does not include $60.6
million due under precious metal consignment-type leases. We expect to make
payments under such leases as the precious metal is purchased upon sale of the
precious metal to customers.

We are involved in several legal actions relating to waste disposal sites.
Our involvement in these matters has generally arisen from the alleged disposal
by licensed waste haulers of small amounts of waste material many years ago. In
addition, in Sinsheim, Germany, there is shallow groundwater and soil
contamination that is naturally decreasing over time. The German environmental
authorities have not required corrective action to date. As a result of the
acquisition of GTI Corporation in 1998, we are involved in studying and
undertaking certain remedial actions with respect to groundwater pollution and
soil contamination conditions at a facility in Leesburg, Indiana. We anticipate
making additional environmental expenditures in future years to continue our
environmental studies, analysis and remediation activities.

We are also subject to various lawsuits, claims and proceedings which
arise in the ordinary course of our business. These actions include routine tax
audits and assessments occurring throughout numerous jurisdictions on a
worldwide basis. During 2003, Regal Electronics, Inc. sued Pulse and several
other filtered connector manufacturers, alleging that the manufacture and sale
of certain filtered connectors in the United States infringe one of its patents.
Pulse has received an opinion of noninfringement from its legal counsel and
believes that none of the products offered by Pulse infringe the Regal patent.
Pulse intends to vigorously defend itself in this action. We do not believe that
the outcome of any of these actions will have a material adverse effect on our
financial results.

We accrue costs associated with environmental and legal matters when they
become probable and reasonably estimable. Accruals are established based on the
estimated undiscounted cash flows to settle the obligations and are not reduced
by any potential recoveries from insurance or other indemnification claims. We
believe that any ultimate liability with respect to these actions in excess of
amounts provided will not materially affect our operations or consolidated
financial position, liquidity or operating results.

Page 45 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(8) Shareholders' Equity

All retained earnings are free from legal or contractual restrictions as
of December 26, 2003, with the exception of approximately $13.0 million of
retained earnings, primarily in the PRC that are restricted in accordance with
Section 58 of the PRC Foreign Investment Enterprises Law, which applies to all
foreign investment enterprises doing business in the PRC. The restriction
applies to 10% of our net earnings in the PRC, limited to 50% of the total
capital invested in the PRC. We have not experienced any significant liquidity
restrictions in any country in which we operate and none are foreseen. However,
foreign exchange ceilings imposed by local governments and the sometimes lengthy
approval processes which foreign governments require for international cash
transfers may delay our internal cash movements from time to time. The retained
earnings in other countries represent a material portion of our assets. We
expect to reinvest these earnings outside of the United States because we
anticipate that a significant portion of our opportunities for growth in the
coming years will be abroad. If these earnings were brought back to the United
States, significant tax liabilities could be incurred in the United States as
several countries in which we operate have tax rates significantly lower than
the U.S. statutory rate. Additionally, we have not accrued U.S. income and
foreign withholding taxes on foreign earnings that have been indefinitely
invested abroad. We have also been granted special tax incentives in other
countries such as the PRC. This favorable situation could change if these
countries were to increase rates or revoke the special tax incentives, or if we
were to discontinue manufacturing operations in these countries. This could have
a material unfavorable impact on our net income and cash position.

We completed a follow-on offering of 6,348,000 shares of our common stock
on April 11, 2002. The proceeds of the offering, net of expenses, were
approximately $134.7 million. These proceeds resulted in a common stock increase
of $0.8 million and an additional paid-in capital increase of $133.9 million.

Effective August 1, 2001 we adopted a new qualified, non-compensatory
employee stock purchase plan that provides substantially all employees an
opportunity to purchase common stock. The purchase price is equal to 85% of the
fair value of the common stock on either the first day of the offering period or
the last day of the purchase period, whichever is lower. The offering periods
and purchase periods are defined by the plan, but are each currently six months
in duration. In connection with this plan, 1,000,000 shares of common stock are
reserved for issuance under the plan. In 2003 and 2002, employees purchased
approximately 70,000 and 73,000 shares, respectively, under the plan. In 2001,
employees purchased approximately 398,000 under a predecessor plan.

We have a Shareholder Rights Plan. The Rights are currently not
exercisable, and automatically trade with our common shares. However, after a
person or group has acquired 15% or more of our common shares, the Rights will
become exercisable, and separate certificates representing the Rights will be
distributed. In the event that any person or group acquires 15% of our common
shares, each holder of two Rights (other than the Rights of the acquiring
person) will have the right to receive, for $135, that number of common shares
having a market value equal to two times the exercise price of the Rights.
Alternatively, in the event that, at any time following the date in which a
person or group acquires ownership of 15% or more of our common shares, and we
are acquired in a merger or other business combination transaction, or 50% or
more of our consolidated assets or earning power is sold, each holder of two
Rights (other than the Rights of such acquiring person or group) will thereafter
have the right to receive, upon exercise, that number of shares of common stock
of the acquiring entity having a then market value equal to two times the
exercise price of the Rights. The Rights may be redeemed by us at a price of
$.005 per Right at any time prior to becoming exercisable. Rights that are not
redeemed or exercised will expire on September 9, 2006.

Page 46 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(9) Earnings (Loss) Per Share

Basic earnings (loss) per share were calculated by dividing earnings
(loss) by the weighted average number of common shares outstanding during the
year (excluding restricted shares which are considered to be contingently
issuable). We had restricted shares outstanding of approximately 199,000,
315,000, and 361,000 as of December 26, 2003, December 27, 2002 and December 28,
2001 respectively, which generally vest over a three-year term. For calculating
diluted earnings per share, common share equivalents and restricted stock
outstanding were added to the weighted average number of common shares
outstanding. Common share equivalents result from outstanding options to
purchase common stock as calculated using the treasury stock method. As the
substantial majority of exercise prices of the stock options was greater then
the actual stock price as of December 26, 2003, the stock equivalents were
anti-dilutive and therefore excluded from the diluted earnings per share
calculation as of December 26, 2003. Such amounts were approximately 5,000 in
2002 and 24,000 in 2001. Earnings per share calculations were as follows (in
thousands, except per share amounts):

2003 2002 2001
---- ---- ----

Net earnings (loss) $11,988 $(43,537) $ 2,784

Basic earnings (loss) per share:
Shares 40,032 37,281 33,202

Per share amount, before change in
accounting principle $ 0.30 $ (0.75) $ 0.08

Change in accounting principle -- (0.42) --
------- -------- -------

Per share amount $ 0.30 $ (1.17) $ 0.08
======= ======== =======

Diluted earnings (loss) per share:

Shares 40,171 37,581 33,566

Per share amount before change in
accounting principle $ 0.30 $ (0.75) $ 0.08

Change in accounting principle -- (0.42) --
------- -------- -------

Per share amount $ 0.30 $ (1.17) $ 0.08
======= ======== =======

(10) Employee Benefit Plans

We maintain defined benefit pension plans for certain of our U.S.
employees. Certain of our non-U.S. subsidiaries have varying types of retirement
plans providing benefits for substantially all of their employees. Benefits are
based on years of service and average final compensation. For U.S. plans, we
fund, annually, at least the minimum amount required by the Employee Retirement
Income Security Act of 1974. Depending on the investment performance of plan
assets and other factors, the funding amount may be zero.

Pension (benefit) expense was as follows (in thousands):

2003 2002 2001
---- ---- ----
Principal defined benefit plans $1,910 $ 960 $ (395)
Other employee benefit plans 638 140 221
------ ------ ------
$2,548 $1,100 $ (174)
====== ====== ======

Page 47 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(10) Employee Benefit Plans, continued

The expense for the principal defined benefit pension plans included the
following components (in thousands):

2003 2002 2001
---- ---- ----
Service cost $ 1,471 $ 1,578 $ 1,192
Interest cost 1,976 1,954 1,667
Expected return on plan assets (1,880) (2,546) (2,818)
Amortization of transition obligation 18 18 --
Amortization of prior service cost 269 272 --
Recognized actuarial (gain) loss 56 (316) (436)
------- ------- -------
Net periodic pension (benefit) cost $ 1,910 $ 960 $ (395)
======= ======= =======

The financial status of the principal defined benefit plans at December
26, 2003 and December 27, 2002, was as follows (in thousands):

2003 2002
---- ----
Change in benefit obligation:

Projected benefit obligation at beginning of year $ 31,176 $ 26,733

Service cost 1,471 1,578
Interest cost 1,976 1,954
Plan amendments -- 3,188
Actuarial (gain)/loss 1,020 (1,138)
Benefits paid (1,130) (1,139)
-------- --------
Projected benefit obligation at end of year 34,514 31,176
-------- --------

Change in plan assets:

Fair value of plan assets at beginning of year 24,180 28,734

Actual return on plan assets 5,309 (3,415)
Employer contributions 59 --
Benefits paid (1,130) (1,139)
-------- --------
Fair value of plan assets at end of year 28,418 24,180
-------- --------

Funded status (6,096) (6,370)

Unrecognized actuarial gains (2,406) (566)
Unrecognized prior service cost 3,124 3,393
Unrecognized transition obligation 2 20
Intangible asset (2,701) (2,808)
-------- --------
Accrued pension costs at the end of the year $ (8,077) $ (6,331)
-------- --------

Accumulated benefit obligation $ 28,215 $ 21,686
======== ========

Page 48 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(10) Employee Benefit Plans, continued

The principal defined benefit plan weighted-average asset allocations at
December 26, 2003 and December 27, 2002 were as follows:

Asset Category 2003 2002
-------------- ---- ----
Equity securities 75% 70%
Debt securities 24% 27%
Other 1% 3%
Total 100% 100%

Our asset allocation policy is for a target investment of 65% to 75%
equity securities and 25% to 35% fixed income securities. The goal of our asset
investment policy is to achieve a return in excess of the rate of inflation with
acceptable levels of volatility. We utilize professionally run mutual funds to
invest our assets. Our pension assets are invested in a variety of small and
large capitalization domestic and international mutual stock funds and a bond
fund.

To develop the expected long-term rate-of-return on assets assumption, we
considered historical returns and the future expectations for returns for each
asset class, weighted by the target asset allocations. This resulted in the
selection of the 8.0% long-term rate of return on assets assumption.

Assumptions used to develop data were as follows:

2003 2002
---- ----
Discount rate 6.25% 6.75%
Annual compensation increases 4.25% 4.25%
Expected long-term rates of return on plan assets 8.00% 9.00%

Our measurement date is the last day of the year.

We maintain defined contribution 401(k) plans covering substantially all
U.S. employees not affected by certain collective bargaining agreements. Under
our 401(k) plans, we contributed a matching amount equal to $1.00 for each $1.00
of the participant's contribution not in excess of a maximum of 4% to 6% of the
participant's annual wages, depending on the plan. The total contribution
expense under the 401(k) plans for employees of continuing operations was
$1,563,000, $1,188,000, and $1,469,000 in 2003, 2002 and 2001 respectively.

We do not provide any significant post-retirement benefits except as may
be required by certain jurisdictions outside of the U.S.

(11) Stock-Based Compensation

We have an incentive compensation plan for our employees. One component of
this plan is restricted stock, which grants the recipient the right of ownership
of our common stock, conditional on the achievement of performance objectives
and/or continued employment. Stock options are also granted under this plan. A
summary of the shares under the incentive compensation plan is as follows:

Page 49 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(11) Stock-Based Compensation, continued

2003 2002 2001
---- ---- ----

Shares available to be granted 2,431,583 2,612,406 384,126

New authorized shares -- -- 2,500,000

Restricted stock and options awarded, net of
cancellations (185,136) (180,823) (271,720)
---------- ---------- ----------
Balance available at the end of the year 2,246,447 2,431,583 2,612,406
========== ========== ==========

During the years ended December 26, 2003, December 27, 2002 and December
28, 2001 we issued to employees, net of cancellations, restricted stock having
an approximate fair value at date of issue of $1,091,087, $292,981, and
$1,055,268, respectively. The fair value of the restricted stock is based on
fair market price of the stock at the award date and is recorded as deferred
compensation. Compensation is recognized over the vesting period which is
generally three years. Shares are held by us until the continued employment
requirement and/or performance criteria have been attained. For shares subject
to continued employment requirements, the market value of the shares at the date
of grant is charged to expense during the vesting period on a straight-line
basis. For shares subject to performance criteria, the expense varies with the
market value of the shares until the performance criteria are met or are deemed
to be unachievable. Cash awards, which accompany shares released under the
incentive compensation plan and are intended to assist recipients with their
resulting personal tax liability, are based on the market value of the shares
when restrictions lapse. Cash awards are accrued over the restriction period,
and the related expense is variable based on the market value of the shares.
Amounts charged to expense as a result of the restricted stock plan and related
expenses were $1,601,000 in 2003, $1,404,000 in 2002, and $1,219,000 in 2001. A
substantial portion of the shares granted prior to 2002 were subject to variable
accounting, whereby the related compensation expense was adjusted to reflect the
impact of market price of the underlying shares awarded. The shares and expense
associated with variable accounting were 35,400 and $206,000 in 2001.

We also have a stock award plan for non-employee directors. The Board of
Directors plan was approved in 1998 to assist us in attracting and retaining
highly qualified persons to serve on our Board of Directors. Under the terms of
the plan, 60,000 shares of our common stock are available for grant. On an
annual basis, shares amounting to a dollar value predetermined by the plan are
issued to non-employee directors and are recorded as an expense at issuance. In
2003, 2002, and 2001, 10,206, 6,895, and 3,448 shares, respectively, (including
those deferred at the directors' election) were issued under the plan. A total
of 15,129 shares remain available for issuance under the plan.

In February of 2001, our Board of Directors Compensation Committee adopted
a stock option plan. All U.S. employees and designated employees of subsidiaries
are eligible to participate in the stock option plan. Except as limited by the
terms of the option plan, the committee has discretion to select the persons to
receive options and to determine the terms and conditions of the option,
including the number of shares underlying the option, the exercise price, the
vesting schedule and term. The options are granted at no cost to the employee
and cannot be granted with an exercise price less than the fair market value at
the date of grant. The options granted in 2003, 2002 and 2001 vest equally over
four years and expire in seven years from the date of grant. During 2003, 2002,
and 2001 a total of 159,100, 159,600 and 232,700 options, net of cancellations,
were awarded to employees at a weighted average strike price of $18.41, $19.24
and $21.86 per share, respectively. None of the shares granted in 2003 were
vested as of December 26, 2003, whereas 25% of the shares granted in 2002 and
50% of the shares granted in 2001 were vested as of December 26, 2003.

We adopted SFAS 123, as amended by SFAS 148, at the beginning of the 2003
fiscal year. We implemented SFAS 123 under the prospective method approach per
SFAS 148, whereby compensation expense was recorded for all awards subsequent to
adoption. As permitted by the provisions of SFAS 123, we applied Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for our stock option and purchase plans
prior to adoption of SFAS 123 in fiscal 2003. Accordingly, no compensation cost
was recognized for our stock option and employee purchase plans prior to fiscal
2003.

Page 50 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(11) Stock-Based Compensation, continued

If compensation cost for issuances under our stock option plan and
stock purchase plan had been determined based on the fair value as required by
SFAS 123 for all awards, our pro forma net income (loss) and earnings (loss) per
basic and diluted share would have been as follows, (amounts are in thousands,
except per share amounts):

2003 2002 2001
---- ---- ----

Net income (loss), as reported $11,988 $(43,537) $ 2,784
Add: Stock-based compensation expense included in reported net
income (loss), net of taxes 1,269 870 744

Deduct: Total stock-based compensation expense determined under
fair value based method for all awards, net of taxes (2,124) (1,533) (8,128)
------- -------- -------
Net income (loss) adjusted $11,133 $(44,200) $(4,600)

Basic net income (loss) per share - as reported $ 0.30 $ (1.17) $ 0.08
Basic net income (loss) per share - adjusted $ 0.28 $ (1.19) $ (0.14)
Diluted net income (loss) per share - as reported $ 0.30 $ 1.17) $ 0.08
Diluted net income (loss) per share - adjusted $ 0.28 $ (1.19) $ (0.14)

At December 26, 2003, we had approximately 484,000 options outstanding,
representing approximately 1% of our outstanding shares of common stock. The
value of restricted stock has always been and continues to be recorded as
compensation expense over the restricted period, and such expense is included in
the results of operations for all years presented.

(12) Severance and Asset Impairment Expense

We implemented numerous restructuring initiatives during 2003, 2002 and
2001 in order to reduce our cost structure and capacity in response to a global
recession in the electronics industry in 2002 and 2001 and an increasingly
competitive environment in both the electronics and electrical markets which
followed.

In the twelve months ended December 26, 2003, we accrued $9.0 million for
severance, severance related payments and asset impairments. At Pulse, we
accrued $1.5 million for the elimination of certain manufacturing and support
positions located in France, the United Kingdom, Mexico and China and $0.7
million for other facility exit costs. We additionally accrued $1.9 million for
shutdown of Pulse's manufacturing facility in Mexico and $.05 million to write
down the carrying cost of Pulse's facility in the Philippines which is held for
sale. At AMI Doduco, we accrued $2.9 million for the elimination of certain
manufacturing positions principally located in North America and Germany and
$1.5 million to complete the shutdown of a redundant facility in Spain that we
acquired from Engelhard-CLAL in 2001. The majority of these accruals are
expected to be utilized by the end of 2004.

In 2002, we announced the closure of our production facility in the
Philippines. The production at this facility was transferred to other Pulse
facilities in Asia. We provided for reserves of $3.8 million for this plant
closing, comprising $1.4 million for severance and related payments and $2.4
million for asset writedowns. The majority of this accrual was utilized by the
end of 2002. We also adopted other restructuring plans during 2002. In this
regard, provisions of $5.9 million were recorded during 2002. Approximately 800
personnel were terminated in 2002 and substantially all of the employee
severance and related payments in connection with these actions were completed
as of December 26, 2003. An additional provision of $7.0 million was recorded in
2002 related to asset write-downs. These assets were primarily Asian-based
production equipment that became idle in 2002. The remaining cost basis of the
assets has been reclassified from fixed assets to assets held for sale in the
balance sheet as of December 26, 2003. An additional $32.1 million of Excelsus
trade name impairment was recorded in 2002. The impairment charge was triggered
by the combined effect of reorganizing Pulse into product line based
organization and updated forecasts for digital subscriber line microfilters to
which the trade name applies. A total of $1.9 million was also recognized as an
offset to severance and asset impairment expense income in 2002, attributable to
positive adjustments primarily resulting from the favorable outcome of certain
legal matters of long vintage. The majority of these accruals were utilized by
the end of 2003.

Page 51 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(12) Severance and Asset Impairment Expense, continued

During the 2001, we announced the closure of our production facilities in
Thailand and Malaysia. The production at these two facilities was transferred to
other Pulse facilities in Asia. We provided reserves of $3.6 million for these
plant closings, comprising $2.5 million for severance and related payments and
$1.1 million for other exit costs. The majority of this accrual was utilized by
the end of the first quarter of 2002. We also adopted other restructuring plans
during 2001. In this regard, provisions of $6.4 million were recorded during
2001. Termination costs for employees at our Thailand and Malaysian facilities
have been included in the provisions for exiting those facilities. In addition
to these terminations, headcount was reduced by approximately 12,300 additional
personnel, net of new hires, during fiscal 2001 through voluntary employee
attrition and involuntary workforce reductions primarily at manufacturing
facilities in the PRC where severance payments are not necessary. In addition, a
charge of $3.5 million was recorded during the third quarter of 2001 to
writedown the value of certain Pulse fixed assets to their disposal value.

As a result of our continuing focus on both economic and operating profit,
we will continue to aggressively size both Pulse and AMI Doduco so that costs
are optimally matched to current and anticipated future revenue and unit demand,
and as we pursue additional growth opportunities. The amounts of additional
charges will depend on specific actions taken. The actions taken over the past
three years such as plant closures, plant relocations, asset impairments and
reduction in personnel worldwide have resulted in the elimination of a variety
of costs. The majority of these costs represent the annual salaries and benefits
of terminated employees, both those directly related to manufacturing and those
providing selling, general and administrative services. The eliminated costs
also include depreciation savings from disposed equipment.

Our restructuring charges are summarized for 2003 as follows:

AMI
Restructuring provision (in millions): Doduco Pulse Total
------ ----- -----

Balance accrued at December 27, 2002 $ 2.0 $ 2.2 $ 4.2

Accrued for the twelve months ended December 26, 2003 4.4 4.6 9.0

Severance and other cash payments (3.9) (3.3) (7.2)

Non-cash asset disposals (0.4) (1.8) (2.2)
----- ----- -----
Balance accrued at December 26, 2003 $ 2.1 $ 1.7 $ 3.8
===== ===== =====

(13) Supplementary Information

The following amounts were charged directly to costs and expenses (in
thousands):

2003 2002 2001
---- ---- ----

Depreciation $19,580 $18,137 $21,177
Amortization of intangible assets 4,035 1,633 5,376
Advertising 202 248 552
Repairs and maintenance 8,179 7,524 6,668
Bad debt expense 427 899 697

Cash payments made:
Income taxes $ 3,816 $ 9,027 $11,736
Interest 1,868 3,318 5,470

Accumulated other comprehensive income as disclosed in the Consolidated
Statements of Changes in Shareholders' Equity consists principally of foreign
currency translation items.

Page 52 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(14) Segment and Geographical Information

We operate our business in two segments: the Electronic Components
Segment, which operates under the name Pulse, and the Electrical Contact
Products Segment, which operates under the name AMI Doduco. We refer to these
segments as ECS or Pulse, and ECPS or AMI Doduco, respectively. Each segment is
managed by a President who reports to our Chief Executive Officer.

Pulse designs and manufactures a wide variety of highly-customized passive
magnetics-based electronic components. These components manage and regulate
electronic signals and power for use in a variety of devices by filtering out
radio frequency interference and adjusting and ensuring proper current and
voltage. These products are often referred to as chokes, inductors, filters and
transformers. Pulse sells its products to multinational original equipment
manufacturers, contract manufacturers and distributors.

AMI Doduco is a global manufacturer of a full range of electrical contact
products, from contact materials to completed contact subassemblies. Contact
products complete or interrupt electrical circuits in virtually every electrical
device. AMI Doduco provides its customers with a broad array of highly
engineered products and tools designed to meet unique customer needs.

Amounts are in thousands:

2003 2002 2001
---- ---- ----

Net sales from continuing operations
Pulse $ 294,092 $ 204,570 $ 253,281
AMI Doduco 215,155 201,784 220,918
--------- --------- ---------
Total $ 509,247 $ 406,354 $ 474,199
========= ========= =========
Operating profit(loss) before income taxes
Pulse $ 27,197 $ (38,520) $ (3,672)
AMI Doduco (2,146) (1,242) 5,759
--------- --------- ---------
Total operating profit 25,051 (39,762) 2,087
Items not included in segment profit (1) (10,055) (382) 3,282
--------- --------- ---------
Earnings (loss) before income taxes and cumulative
effect of accounting change $ 14,996 $ (40,144) $ 5,687
========= ========= =========
Assets at end of year
Pulse $ 302,261 $ 195,407 $ 237,237
AMI Doduco 109,390 104,665 114,476
--------- --------- ---------
Segment assets 411,651 300,072 351,713
Assets not included in Segment assets (2) 177,243 247,316 173,307
--------- --------- ---------
Total $ 588,894 $ 547,388 $ 525,020
========= ========= =========
Capital expenditures (3)
Pulse $ 29,078 $ 681 $ 10,302
AMI Doduco 4,547 5,074 10,204
--------- --------- ---------
Total $ 33,625 $ 5,755 $ 20,506
========= ========= =========
Depreciation and amortization
Pulse $ 16,048 $ 12,501 $ 17,183
AMI Doduco 7,567 7,269 9,370
--------- --------- ---------
Total $ 23,615 $ 19,770 $ 26,553
========= ========= =========

(1) Includes interest income, interest expense and other non-operating items
disclosed in our Consolidated Statements of Operations. We exclude these
items when measuring segment operating profit.

(2) Cash and cash equivalents are the primary corporate assets. We exclude net
deferred tax assets when measuring segment assets.

(3) During the past three years, we have acquired several companies. We have
included acquired property, plant and equipment in these capital
expenditure amounts.

Page 53 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(14) Segment and Geographical Information, continued

We have no significant intercompany revenue between our segments. We do
not use income taxes when measuring segment results; however, we allocate income
taxes to our segments to determine certain performance measures. These
performance measures include economic profit. The following pro forma disclosure
of segment income tax expense is based on simplified assumptions and includes
allocations of corporate tax items. These allocations are based on the
proportionate share of total tax expense for each segment, obtained by
multiplying our respective segment's operating profit by the relevant estimated
effective tax rate for the year. The allocated tax expense amounts for Pulse
were, in thousands, $4,437, $(13,395), and $2,123, in 2003, 2002 and 2001,
respectively. For AMI Doduco, they were, in thousands, $(1,429), $1,050, and
$780 in 2003, 2002 and 2001, respectively.

We sell our products to customers throughout the world. The following
table summarizes our sales to customers in the United States and Germany, where
sales are significant. Other countries in which our sales are not significant
are grouped into regions. We attribute customer sales to the country addressed
in the sales invoice. The product is usually shipped to the same country.
Amounts are in thousands:

2003 2002 2001
---- ---- ----

Sales to customers in:
Europe, other than Germany $179,598 $106,277 $127,516
United States 124,007 127,256 166,237
Asia 108,590 86,441 79,911
Germany 72,374 54,871 70,792
Other 24,678 31,509 29,743
-------- -------- --------
Total $509,247 $406,354 $474,199
======== ======== ========

The following table includes net property, plant and equipment located in
Turkey, Germany, the United States, and China, where assets are significant.
Other countries in which such assets are not significant are grouped into
regions. Property, plant and equipment represents all of the relevant assets
that have long useful lives. Amounts are in thousands:

2003 2002 2001
---- ---- ----

Net property, plant and equipment located in:
Turkey $ 31,091 $ -- $ --
Germany 18,026 15,796 12,456
Europe, other than Turkey and Germany 11,338 10,576 12,793
United States 12,831 16,308 22,180
China 12,545 17,703 23,057
Asia, other than Turkey and China 1,114 2,020 9,191
Other 1,104 2,458 3,375
-------- -------- --------
Total $ 88,049 $ 64,861 $ 83,052
======== ======== ========

Page 54 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(15) Equity Method Investment

In April 2001, we made a minority investment in the common stock of FRE,
which was accounted for by the cost-basis method of accounting. On July 27, 2002
we made an additional investment in FRE of $6.7 million which increased our
total investment to $20.9 million. As a result of the increased ownership
percentage to approximately 29%, we began to account for the investment under
the equity method beginning in the three months ended September 27, 2002. In
2003 we recorded a $8.7 million charge to adjust the original cost basis of the
investment to market value. The net loss in 2003 resulted from a $9.3 million
charge to the original cost basis of our investment, offset by $0.6 million of
equity method investment earnings in 2003. Shares of FRE began trading on the
Taiwan Stock Exchange in January of 2003, and they have experienced considerable
price volatility. We maintain an option to acquire a controlling interest in FRE
at its market value at the time of exercise. This investment is reflected in the
Other Assets caption on the Consolidated Balance Sheets.

(16) Quarterly Financial Data (Unaudited)

Quarterly results of operations (unaudited) for 2003 and 2002 are
summarized as follows (in thousands, except per share data):

Quarter Ended
-------------
Mar. 28 June 27 Sept. 26 Dec. 26
------- ------- -------- -------

2003:
Net sales $ 122,544 $ 125,706 $ 126,260 $ 134,737
Gross profit 30,421 32,818 33,941 36,138
Earnings (loss) before taxes 2,739 7,286 7,881 (2,910)
Net earnings (loss) 2,634 6,020 6,412 (3,078)
Basic $ 0.07 $ 0.15 $ 0.16 $ (0.08)
Diluted $ 0.07 $ 0.15 $ 0.16 $ (0.08)

Mar. 29 June 28 Sept. 27 Dec. 27
------- ------- -------- -------

2002:
Net sales $ 93,420 $ 106,185 $ 103,626 $ 103,123
Gross profit 19,252 24,666 25,901 26,687
Earnings (loss) before cumulative
effect of accounting change (7,542) (41,479) 3,228 5,649
Net earnings (loss) (20,899) (29,045) 2,123 4,284
Net earnings (loss) per share:
Basic $ (.63) $ (.75) $ .05 $ .11
Diluted $ (.63) $ (.75) $ .05 $ .11

In the first quarter of 2002, we recorded a goodwill impairment charge of
$15.7 million, net of income tax benefit, related to AMI Doduco as a cumulative
effect of accounting change. In the second quarter of 2002, we recorded a
tradename impairment charge of $32.1 million, less a $12.8 million income tax
benefit, related to Pulse. In the fourth quarter of 2003 we recorded a $9.3
million charge related to our investment in FRE.

We also restated prior period amounts to reflect equity earnings in FRE
investment.

Page 55 of 60

Technitrol, Inc. and Subsidiaries

Notes to Consolidated Financial Statements, continued

(17) Adoption of SFAS 142

In July 2001, the FASB issued Statement No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). SFAS 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead be
tested for impairment at least annually in accordance with the provisions of
SFAS 142. SFAS 142 also requires that other intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. (Amounts are in thousands except per share amounts):

2002 2001
---- ----
Net earnings (loss) - as reported $(43,537) $ 2,784
Adjustments:
Amortization of goodwill -- 4,638
Cumulative effect of accounting change 15,763 --

Income tax effect (25) (93)
-------- --------

Net adjustments 15,738 4,545
-------- --------

Net earnings (loss) - adjusted $(27,799) $ 7,329
======== ========

Basic net income (loss) per share - as reported $ (1.17) $ 0.08
Basic net income (loss) per share - adjusted $ (0.75) $ 0.22
Diluted net income (loss) per share - as reported $ (1.17) $ 0.08
Diluted net income (loss) per share - adjusted $ (0.75) $ 0.22

In the first quarter of 2002, upon our transitional assessment, we
recorded a goodwill impairment charge of $15.7 million, net of income tax
benefit, related to AMI Doduco, as a cumulative effect of accounting change.
During the quarter ended June 28, 2002, we recorded an impairment charge of
$32.1 million of the value assigned to the Excelsus trade names, less a $12.8
million income tax benefit. The charge was included in the line "Severance and
asset impairment expense" on the consolidated statement of operations. This
charge was triggered by the combined effect of reorganizing Pulse into a
product-line based organization and updated financial forecasts for DSL
mircofilters, to which the trade name applies.

Page 56 of 60

Technitrol, Inc. and Subsidiaries

Financial Statement Schedule II

Valuation and Qualifying Accounts

(In thousands of dollars)

Additions (Deductions)
----------------------
Charged to
Opening costs and Write-offs and Ending
Description Balance expenses payments Balance
----------- ------- -------- -------- -------

Year ended December 26, 2003:
Provisions for obsolete and slow-moving
inventory $ 15,564 $ 5,936 $(11,090) $ 10,410
======== ======== ======== ========
Allowances for doubtful accounts $ 3,255 $ 427 $ (801) $ 2,881
======== ======== ======== ========

Year ended December 27, 2002:
Provisions for obsolete and slow-moving
inventory $ 23,517 $ 2,214 $(10,167) $ 15,564
======== ======== ======== ========
Allowances for doubtful accounts $ 2,560 $ 899 $ (204) $ 3,255
======== ======== ======== ========

Year ended December 28, 2001:
Provisions for obsolete and slow-moving
inventory $ 9,226 $ 20,295 $ (6,004) $ 23,517
-------- -------- -------- --------
Allowances for doubtful accounts $ 1,908 $ 697 $ (45) $ 2,560
======== ======== ======== ========

Page 57 of 60

Exhibit Index

2.1 Agreement and Plan of Merger, dated as of May 23, 2001, as amended as
of July 6, 2001, by and among Pulse Engineering, Inc., Pulse
Acquisition Corporation, Excelsus Technologies, Inc., and certain
principal shareholders of Excelsus Technologies, Inc. that are
signatories thereto (incorporated by reference to Exhibit 2 to our Form
8-K dated August 21, 2001).

2.2 Share Purchase Agreement, dated as of January 9, 2003, by Pulse
Electronics (Singapore) Pte. Ltd. and Forfin Holdings B.V. that are
signatories thereto (incorporated by reference to Exhibit 2 to our Form
8-K dated January 10, 2003).

3.1 Amended and Restated Articles of Incorporation

3.3 By-laws (incorporated by reference to Exhibit 3.3 to our Form 10-K for
the year ended December 27, 2002).

4.1 Rights Agreement, dated as of August 30, 1996, between Technitrol, Inc.
and Registrar and Transfer Company, as Rights Agent (incorporated by
reference to Exhibit 3 to our Registration Statement on Form 8-A dated
October 24, 1996).

4.2 Amendment No. 1 to the Rights Agreement, dated March 25, 1998, between
Technitrol, Inc. and Registrar and Transfer Company, as Rights Agent
(incorporated by reference to Exhibit 4 to our Registration Statement
on Form 8-A/A dated April 10, 1998).

4.3 Amendment No. 2 to the Rights Agreement, dated June 15, 2000, between
Technitrol, Inc. and Registrar and Transfer Company, as Rights Agent
(incorporated by reference to Exhibit 5 to our Registration Statement
on Form 8-A/A dated July 5, 2000).

10.1 Technitrol, Inc. 2001 Employee Stock Purchase Plan (incorporated by
reference to Exhibit 4.1 to our Registration Statement on Form S-8
dated June 28, 2001, File Number 333-64060).

10.2 Technitrol, Inc. Restricted Stock Plan II, as amended and restated as
of January 1, 2001 (incorporated by reference to Exhibit C, to our
Definitive Proxy on Schedule 14A dated March 28, 2001).

10.3 Technitrol, Inc. 2001 Stock Option Plan (incorporated by reference to
Exhibit 4.1 to our Registration Statement on Form S-8 dated June 28,
2001, File Number 333-64068).

10.4 Technitrol, Inc. Board of Directors Stock Plan (incorporated by
reference to Exhibit 4.1 to our Registration Statement on Form S-8
dated June 1, 1998, File Number 333-55751).

10.5 Revolving Credit Agreement, by and among Technitrol, Inc. and certain
of its subsidiaries, Bank of America, N.A. as Agent and Lender, and
certain other Lenders that are signatories thereto, dated as of June
20, 2001 (incorporated by reference to Exhibit 10.(a) to the Company's
Form 10-Q for the quarter ended June 29, 2001).

10.6 Lease Agreement, dated October 15, 1991, between Ridilla-Delmont and
AMI Doduco, Inc. (formerly known as Advanced Metallurgy Incorporated),
as amended September 21, 2001 (incorporated by reference to Exhibit
10.6 to the Company's Amendment No. 1 to Registration Statement on Form
S-3 dated February 28, 2002, File Number 333-81286).

10.7 Incentive Compensation Plan of Technitrol, Inc. (incorporated by
reference to Exhibit 10.7 to Amendment No. 1 to our Registration
Statement on Form S-3 filed on February 28, 2002, File Number
333-81286).

Page 58 of 60

Exhibit Index, continued

10.8 Technitrol, Inc. Supplemental Retirement Plan, amended and restated
January 1, 2002 (incorporated by reference to Exhibit 10.8 to Amendment
No. 1 to our Registration Statement on Form S-3 filed on February 28,
2002, File Number 333-81286).

10.9 Agreement between Technitrol, Inc. and James M. Papada, III, dated July
1, 1999, as amended April 23, 2001, relating to the Technitrol, Inc.
Supplemental Retirement Plan (incorporated by reference to Exhibit 10.9
to Amendment No. 1 to our Registration Statement on Form S-3 filed on
February 28, 2002, File Number 333-81286).

10.10 Letter Agreement between Technitrol, Inc. and James M. Papada, III,
dated April 16, 1999, as amended October 18, 2000 (incorporated by
reference to Exhibit 10.10 to Amendment No. 1 to our Registration
Statement on Form S-3 filed on February 28, 2002, File Number
333-81286).

10.11 Form of Indemnity Agreement (incorporated by reference to Exhibit 10.11
to our Form 10-K for the year ended December 27, 2002).

10.12 Amendment 1 to Revolving Credit Agreement, by and among Technitrol,
Inc. and certain of its subsidiaries, Bank of America, N.A. as Agent
and Lender, and certain other Lenders that are signatories thereto,
dated as of May 15, 2002 (incorporated by reference to Exhibit 10.12 to
our Form 10-K for the year ended December 27, 2002).

10.13 Amendment 2 to Revolving Credit Agreement, by and among Technitrol,
Inc. and certain of its subsidiaries, Bank of America, N.A. as Agent
and Lender, and certain other Lenders that are signatories thereto,
dated as of December 20, 2002 (incorporated by reference to Exhibit
10.13 to our Form 10-K for the year ended December 27, 2002).

10.14 Letter modification to Revolving Credit Agreement, by and among
Technitrol, Inc. and certain of its subsidiaries, Bank of America, N.A.
as Agent and Lender, and certain other Lenders that are signatories
thereto, dated as of March 6, 2003 (incorporated by reference to
Exhibit 10.14 to our Form 10-Q for the quarter ended March 28, 2003).

10.15 Technitrol Inc. Supplemental Savings Plan (incorporated by reference to
Exhibit 10.15 to our Form 10-Q for the quarter ended September 26,
2003)

10.16 Technitrol, Inc. 401(K) Retirement Savings Plan, as amended
(incorporated by reference to post-effective Amendment No. 1, to our
Registration Statement on Form S-8 filed on October 31, 2003, File
Number 033-35334)

10.17 Pulse Engineering, Inc. 401(K) Plan as amended (incorporated by
reference to post-effective Amendment No. 1, to our Registration
Statement on Form S-8 filed on October 31, 2003, File Number 033-94073)

21. Subsidiaries of Registrant

23. Consent of Certified Public Accountants

31.1 Certification of Principal Executive Officer pursuant to Section 302(a)
of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Principal Financial Officer pursuant to Section 302(a)
of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.

32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.

Page 59 of 60

Signatures

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

TECHNITROL, INC.

By /s/ James M. Papada, III
----------------------------------------
James M. Papada, III
Chairman, President and CEO

Date February 27, 2004

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

By /s/ Alan E. Barton By /s/ Edward M. Mazze
---------------------------- -------------------------------------
Alan E. Barton Edward M. Mazze
Director Director

Date February 27, 2004 Date February 27, 2004

By /s/ Stanley E. Basara By /s/ C. Mark Melliar-Smith
---------------------------- -------------------------------------
Stanley E. Basara C. Mark Melliar-Smith
Director Director

Date February 27, 2004 Date February 27, 2004

By /s/ John E. Burrows, Jr. By /s/ James M. Papada, III
---------------------------- -------------------------------------
John E. Burrows, Jr. James M. Papada, III
Director Chairman, President and CEO
(Principal Executive Officer)

Date February 27, 2004 Date February 27, 2004

By /s/ David H. Hofmann By /s/ Drew A. Moyer
---------------------------- -------------------------------------
David H. Hofmann Drew A. Moyer
Director Vice President, Corporate Controller
and Secretary
(Principal Financial and Accounting
Date February 27, 2004 Officer)

By /s/ Graham Humes
----------------------------
Graham Humes Date February 27, 2004
Director

Date February 27, 2004

Page 60 of 60