UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

     (Mark One)

For the fiscal year ended December 31, 2003

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether each of the co-registrants (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o 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 each of the co-registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether each of the co-registrants is an accelerated filer (as defined in Rule 12b-2 of the Act). o Yes x No

State the aggregate market value of the voting stock held by non-affiliates of each of the co-registrants. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing.

Indicate the number of shares outstanding of each of the co-registrants’ classes of common stock, as of December 31, 2003:

Werner Holding Co. (DE), Inc. 1,000 shares of Common Stock

DOCUMENTS INCORPORATED BY REFERENCE

Index to Annual Report on Form 10-K
Year Ended December 31, 2003

FORWARD-LOOKING STATEMENTS

     This Annual Report on Form 10-K contains certain forward-looking statements which include, among other things, discussions of the Company’s (as defined) business and results of operations, position in its industries, future operations, liquidity and capital resources. These forward-looking statements are based upon estimates and assumptions made by management of the Company that, although believed to be reasonable, are inherently uncertain. Therefore, undue reliance should not be placed upon such statements and estimates. No assurance can be given that any of such statements or estimates will be realized and it is likely that actual results will differ materially from those contemplated by such forward-looking statements.

     The information presented in this Annual Report on Form 10-K relates to Werner Holding Co. (PA), Inc., a Pennsylvania corporation (“Holding (PA)”), its wholly-owned subsidiary, Werner Holding Co. (DE), Inc. (“Holding (DE)”) and Werner Co., a Pennsylvania corporation and Holding (DE)’s wholly-owned subsidiary (“Werner”). Holding (PA) has no substantial operations or assets other than its investment in Holding (DE) and Holding (DE) has no substantial operations or assets other than its investments in its subsidiaries. As used herein and except as the context otherwise may require, the “Company” means Holding (PA), Holding (DE), Werner and all of their consolidated subsidiaries.

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PART I

Item 1. Business.

Overview

     Holding (PA), incorporated in 1945, and Holding (DE), incorporated in 1988, are the holding companies of Werner Co., a corporation engaged in the manufacture and sale of climbing products and aluminum extruded products. According to management’s estimates, Werner is the nation’s largest manufacturer and marketer of ladders and other climbing products. Werner’s climbing products include aluminum, fiberglass and wood ladders, scaffolding, stages and planks. The Werner brand name has over a 50 year history and Werner is the most recognized name by professional end-users of climbing products in the United States. In addition to climbing products, Werner manufactures and sells aluminum extruded products and more complex fabricated components to a number of industries, including the automotive, electronics, and architectural and construction industries.

Description of the Business

     The Company operates in two business segments, Climbing Products and Extruded Products.

     Climbing Products

     Werner manufactures approximately 1,100 stock keeping units of fiberglass, aluminum, and wood climbing products and accessories primarily under the Werner brand and selectively under the Keller and Stanley brands. The Company produces five principal categories of climbing equipment: (i) single and twin stepladders; (ii) extension, fixed, and multipurpose ladders; (iii) attic ladders; (iv) stages, planks, work platforms, and scaffolds; and (v) assorted ladder accessories. The majority of the Company’s climbing products sales are of either aluminum or fiberglass ladders. Through its development of proprietary aluminum extrusion and fiberglass pultrusion technology, and its broad sales and distribution system, the Company is a leader in the climbing products industry.

     The Company’s sales and marketing network is directed by an experienced in-house sales team of national and regional sales managers. The Company’s climbing products are sold directly and through approximately 51 independent, commissioned manufacturer’s representative organizations, which sell to four major distribution channels: (i) home improvement, (ii) hardware, (iii) professional and (iv) other retail. The Company’s sales organization is further supported by field merchandisers who assist customers with product merchandising, point-of-purchase signage and sales techniques.

     Extruded Products

     The Company is also a manufacturer of lineal extruded products and highly-engineered fabricated parts. The Company targets extruded products customers who require special metallurgy, tight tolerances, unusual shapes, painting, finishing and fabrication requirements. Werner has implemented sophisticated quality systems, and has been awarded ISO-9002 and QS-9000 certifications by Underwriters Laboratories.

     Werner sells aluminum extrusions to customers in the automotive, electronics, architectural and construction industries who use them in a broad range of products including cellular phone panels, garage door lift systems, material handling and factory automation equipment, electrical connectors, recreational vehicle accessories, and commercial lighting and window wall systems.

     The Company’s extruded products sales organization is supplemented by approximately nine independent manufacturer’s representative organizations. The Company operates on a “make-to-order” basis with most extruded products customers.

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Segments

     See Note O entitled “Segment Information” included in the notes to consolidated financial statements which is incorporated herein by reference.

Raw Materials and Suppliers

     The Company is a major consumer of aluminum and has contracts to provide most of its estimated aluminum requirements with four principal suppliers. These contracts include stipulated prices with provisions for price adjustments based on market prices. Three of these contracts will be renegotiable in 2004 and one will be renegotiable in 2008. The Company has several alternative sources for its aluminum requirements and does not believe that any one of these contracts is material to the Company’s operations.

     The Company has implemented various hedging strategies to mitigate the impact of raw material price fluctuations. To hedge the risk associated with price fluctuations for a certain percentage of its forecasted aluminum raw material requirements, the Company has utilized futures and option contracts. The Company’s practice is not to hold derivative commodity instruments, including aluminum futures and option contracts, for trading purposes. These futures and option contracts are placed with established metal brokers and can range up to two years in duration. The Company has several alternative brokers and does not believe that any one of these contracts is material to the operations of the Company.

     The Company also has contracts to purchase the basic materials required for fiberglass pultrusion with its principal suppliers. These contracts are typically one to three years in length. The Company has several alternative sources for these basic materials and does not believe that any one of these contracts is material to the operations of the Company.

Patents, Trademarks and Licenses

     No business segment is dependent, to any significant degree, on patents, licenses, franchises or concessions and the loss of these patents, licenses, franchises or concessions would not have a material adverse effect on any business segment. The Company owns numerous patents worldwide, none of which are material to the Company’s operations as a whole. These patents expire from time to time over the next 20 years. The Company holds licenses, franchises and concessions, none of which individually or in the aggregate is material to the Company’s operations as a whole. These licenses, franchises and concessions vary in duration from one to 15 years.

     The Company has numerous trademarks that are utilized in its businesses worldwide. The Werner logo trademark is material to both of the Company’s business segments. This well-known trademark enjoys a reputation for quality and value and, in the climbing products industry, is among the world’s most trusted brand names. While the Company believes its other trademarks are important to its business operations, the loss of any of these other trademarks would not have a material adverse effect on the Company’s operations as a whole.

Sensitivity to Economic Cycles and Weather Conditions

     A significant percentage of the Company’s sales of climbing products is attributable to new residential and nonresidential construction in the United States, which are affected by such cyclical factors as interest rates, inflation, consumer spending habits and employment. Similarly, a significant percentage of the Company’s sales of extruded products is attributable to the new and used automobile and automotive parts markets, which are also affected by such cyclical factors. Sales of climbing equipment are also sensitive to prevailing weather conditions. Unusually severe weather can reduce or defer sales of climbing products by delaying home construction and elective home maintenance and discouraging do-it-yourself projects, which account for a growing portion of the Company’s sales.

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Backlog

     Due to the Company’s ability to quickly meet production orders and its production forecasting systems, the Company has no significant backlog in climbing products. Most extruded products are produced on a make-to-order basis.

Competition

     Management estimates that, while it is the largest U.S. producer of climbing products, there were approximately 12 principal foreign and domestic competitors in 2003. Foreign manufacturers compete in U.S. markets primarily on the basis of price. The Company competes in its climbing products segment on the basis of its reputation for product quality, its well-known brands, its emphasis on customer service, the breadth of its product lines and its commitment to product innovation.

     In its extruded products business, the Company competes with integrated primary aluminum producers, large independent producers and numerous small independent producers located throughout the United States. The Company competes in its extruded products segment on the basis of its specialized extrusion capabilities, customer service and price.

     Some of the Company’s competitors in the climbing products and the extruded products markets have greater financial resources and are less leveraged than the Company. Some of the Company’s extruded products competitors are larger than the Company.

Employees

     The Company had approximately 2,500 salaried and hourly employees as of December 31, 2003. Of the 1,800 hourly employees, approximately 1,300 are covered by seven collective bargaining agreements which expire in 2004 through 2006. The Company plans to renegotiate and renew union contracts as they expire. The Company believes that its labor relations are satisfactory at all of its facilities.

Dependence on Key Customers

     During December 2003, the Company announced that it had entered into a long term strategic alliance with Lowe’s Companies, Inc. (“Lowe’s”). Under this arrangement, Lowe’s will be the exclusive source for Werner® branded climbing equipment in the warehouse home center channel. Werner will supply all of Lowe’s climbing equipment requirements and with Lowe’s, will jointly promote and market Werner® branded products. In addition, Werner will have the opportunity to enter into new climbing equipment categories at Lowe’s. Lowe’s and Werner have jointly committed to developing strategic plans to increase ladder sales. Other than its alliance with Lowe’s, the Company does not have contractual agreements for the supply of products with most of its other climbing products customers. Sales to Lowe’s accounted for 22%, 18% and 16% of the Company’s net sales in 2003, 2002 and 2001, respectively.

     During October 2003, the Company announced that its largest customer, Home Depot, would no longer purchase aluminum and fiberglass stepladders from the Company but would instead source these products directly form China. Werner was also included in an extension ladder supplier line review at The Home Depot that began in October 2003. After careful consideration and extensive analyses, taking into account the Company’s long-term interests, value and brand equity of Werner, the Company also announced in December 2003 that it had decided to discontinue supplying Werner® branded products to The Home Depot. In order to provide for an orderly transition, the Company continued supplying Werner® branded climbing equipment to The Home Depot into the first quarter of 2004. The financial impact of no longer supplying Home Depot is expected to be significant (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Executive Summary and Current Developments”). The loss of certain other key climbing products customers or a significant decrease in the volume of products supplied to any of such customers could have a material adverse effect on the Company. Sales to Home Depot accounted for 27%, 31% and 32% of the Company’s net sales in 2003, 2002 and 2001, respectively.

     No extruded products customer accounted for more than 10% of the Company’s 2003 total net sales.

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Environmental Regulation

     The Company’s operations are subject to a wide variety of federal, state and local laws and regulations governing, among other things, emissions to air, discharge to waters, the generation, handling, storage, transportation, treatment and disposal of hazardous substances and other materials, and employee health and safety matters. Also, as an owner and/or operator of real property or a generator of hazardous substances, the Company may be subject to environmental cleanup liability, regardless of fault, pursuant to the Comprehensive Environmental Response Compensation and Liability Act or analogous state laws. The Company believes that its operations and facilities have been and are being operated in compliance in all material respects with applicable environmental and health and safety laws and regulations. However, the operation of manufacturing plants entails risks of financial exposure for environmental noncompliance and cleanup liabilities. Capital and operating expenditures for environmental compliance in 2003 were not material. There can be no assurance that the Company will not incur costs in the future for cleanup and other remedial activities that will have a material adverse effect on the Company. In addition, potentially significant expenditures could be required in order to comply with evolving environmental and health and safety laws, regulations or requirements that may be adopted or imposed in the future.

Previous Transactions

     The Recapitalization. On June 11, 2003, a recapitalization of the Company (the “Recapitalization”) was completed. On May 7, 2003, the Company entered into a Recapitalization and Stock Purchase Agreement (the “Recapitalization Agreement”) with Green Equity Investors III, L.P. (“GEI”), an affiliate of Leonard Green & Partners L.P. (“Leonard Green”), and certain shareholders of the Company. Pursuant to the Recapitalization Agreement (i) GEI invested $65.0 million in the Company in exchange for 65,000 shares of Series A Preferred Stock (see Note G to the Company’s consolidated financial statements included herein), (ii) the Company redeemed 39.66% of its outstanding shares of capital stock for payments totaling $147.0 million and (iii) the Company made certain other payments including $3.0 million to the holders of options to purchase the Company’s Class C Common Stock in consideration for the cancellation of certain of their vested options (collectively, the “Recapitalization”). The Series A Preferred Stock represents approximately 22% of the outstanding voting shares of capital stock as of the date of the Recapitalization. The Recapitalization was accounted for as a leveraged recapitalization at historical cost principally due to the fact that less than 80% of the voting securities were acquired. As part of the Recapitalization, the Company entered into a new $230 million credit facility (see Note E to the Company’s consolidated financial statements included herein) with a syndicate of banks consisting of a $180 million Term Loan and a $50 million Revolving Credit Facility. The Revolving Credit facility was not utilized on the date of the Recapitalization. The Company used $115.4 million to repay in full its existing senior credit facility which was terminated as of the date of the Recapitalization.

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Item 2. Properties.

     The Company believes its manufacturing, warehouse and office facilities are suitable and adequate. The Company also believes that its facilities are being utilized consistently with the Company’s plans. As further described in Note P to the consolidated financial statements included herein, operations at the Carrolton, Kentucky and Anniston, Alabama facilities are expected to end in 2004 and 2005, respectively, and the Company intends to sell these facilities. Werner’s corporate headquarters are located at 93 Werner Rd., Greenville, Pennsylvania 16125. The Company’s principal facilities consist of the following:

	(1)		Collateral for Variable Rate Industrial Building Revenue Bonds issued by the County of Carroll, Kentucky.
	(2)		Building and improvements owned by Werner, real property leased under 15 year ground lease with four 5-year renewals.

     As of December 31, 2003, the Company’s facilities at Greenville, Pennsylvania, Franklin Park, Illinois, Anniston, Alabama, and Merced, California, serve both the climbing products and extruded products segments of its business. All other facilities primarily serve the climbing products segment of the Company’s business. During 2004, Greenville will cease serving the climbing products business and become dedicated to the extruded products business.

Item 3. Legal Proceedings.

     The Company is involved from time to time in various legal proceedings and claims incident to the normal conduct of its business. Although it is impossible to predict the outcome of any pending legal proceeding, the Company believes that such legal proceedings and claims, individually and in the aggregate, are either without merit, covered by insurance or adequately reserved for, and will not have a material adverse effect on its results of operations, financial position or cash flows.

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

     None.

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Part II

Item 5. Market for Company’s Common Equity and Related Stockholder Matters.

     There is no established public trading market for the common stock of either Holding (PA) or Holding (DE). As of December 31, 2003, all of the issued and outstanding shares of Holding (DE)’s common stock were held by Holding (PA). The number of shareholders of record of each class of common stock of Holding (PA) as of December 31, 2003 is as follows:

     No dividends have been paid to common shareholders of Holding (PA) in the last two years and no dividends are expected to be declared in the near future. Holding (DE) declares and pays from time to time, certain cash dividends to its sole shareholder, Holding (PA), in order to allow Holding (PA) to pay certain obligations such as taxes and ordinary course operating expenses not exceeding $2,000,000 in any fiscal year. The Senior Credit Facility and the Indenture governing the Notes limit the Company’s ability to pay dividends on its capital stock.

     Holding (DE) has not issued or sold any equity securities within the past three years that were not registered under the Securities Act of 1933, as amended (the “Securities Act”). Holding (PA) has not issued or sold any equity securities within the past three years that were not registered under the Securities Act, except as follows:

     (a) On various dates from the November 24, 1997 through December 31, 2003, pursuant to Holding (PA)’s Stock Option Plan, Holding (PA) has granted to key employees of Werner non-qualified incentive stock options, exercisable at prices ranging from $2,421.29 to $3,100.00 per share, to purchase up to an aggregate of 1,858 shares of Class C Common Stock as of December 31, 2003. See Note I entitled “Stock Incentive Plans” in the notes to consolidated financial statements included herein for additional information.

     (b) On various dates from January 1, 1999 to December 31, 2003, certain members of Werner’s management purchased shares of Holding (PA)’s Class C Common Stock at purchase prices ranging from $2,421.29 to $3,100.00 per share, or an aggregate of approximately $5,878,000 pursuant to Management Stock Purchase Agreements. Certain of these individuals received secured loans from the Company pursuant to its Stock Loan Plan to finance a portion of the purchase price paid for the shares of Class C Common Stock in an aggregate amount of approximately $3,726,000. The balance of such loans, excluding interest thereon, is $1,299,000 at December 31, 2003. See Note I entitled “Stock Incentive Plans” in the notes to consolidated financial statements included herein for additional information.

     (c) On June 11, 2003, as part of the Recapitalization, Holding (PA) sold to GEI 65,000 shares of Series A Participating Convertible Preferred Stock at an aggregate offering price of $65,000,000. See Note G entitled, “Convertible Preferred Stock” in the notes to consolidated financial statements included herein for additional information.

     The transactions set forth in paragraph (a) above were undertaken in reliance upon the exemption from the registration requirements of the Securities Act afforded by Rule 701 promulgated thereunder, as sales by an issuer to employees, directors or officers pursuant to written compensatory benefit plans or written contracts relating to the compensation of such persons. The transactions set forth in paragraphs (b) and (c) above were undertaken in reliance upon the exemption from the registration requirements of the Securities Act afforded by Section 4(2) thereof and/or Regulation D promulgated thereunder, as sales not involving a public offering. The Company believes that exemptions other than those specified above may exist with respect to the transactions set forth above.

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Item 6. Selected Financial Data.

     The following selected consolidated financial data is that of Holding (PA). Holding (PA) is a guarantor of the 10% Senior Subordinated Notes due 2007 (the “Notes”) and has no substantial operations or assets other than its investment in Holding (DE). As a result, the consolidated financial condition and results of operations of Holding (PA) are substantially the same as those of Holding (DE). This table contains selected financial data and is qualified by the more detailed Consolidated Financial Statements and Notes thereto of Holding (PA). The selected financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere herein.

See Notes to Selected Consolidated Historical Financial Data.

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Notes to Selected Consolidated Historical Financial Data
(Dollars in Millions)

(a)

Recapitalization expense reflects costs incurred in connection with a recapitalization that occurred in 2003. See Note C to the consolidated financial statements included herein for additional information.

(b)

The Company transferred all ladder fabrication and assembly operations in Greenville, Pennsylvania to other lower cost Company facilities beginning in the second quarter of 2003. The Company also began an initiative to focus the Greenville facility on the Extruded Products segment of the Company’s business which will be completed in 2004. The total costs incurred during 2003 relating to the optimization of the Company’s manufacturing and distribution operations were $6.4 million which includes $2.9 recorded in “Manufacturing optimization and distributions costs”, $2.0 recorded in “Cost of sales” and $1.5 recorded in “Selling and distribution expenses.” See Note P to the consolidated financial statements included herein for additional information.

(c)

Other income (expense), net for 2003, 2002, 2001, 2000 and 1999 includes $0.7, $0.6, $1.3, $1.9 and $1.5, respectively, of accounts receivable securitization expense.

(d)

The shareholders’ deficit occurred as a result of a redemption of common stock of $332.9 in connection with a recapitalization that occurred in 1997. As a result of this recapitalization, certain affiliates of INVESTCORP S.A. (“Investcorp”) and certain other international investors organized by Investcorp made an equity investment of approximately $122.7, representing approximately 67% of the outstanding capital stock and voting power of the Company. The shareholders’ deficit increased in 2003 by $147.0 as a result of redemption of common stock that occurred in connection with the recapitalization that occurred in 2003. See Note C to the consolidated financial statements included herein for additional information.

(e)

Depreciation and amortization is comprised of the following components in 2003, 2002, 2001, 2000 and 1999: depreciation of property, plant and equipment, $12.9, $12.1, $10.4, $9.1 and $8.8, respectively; and amortization, $4.8, $3.8, $4.2, $3.7 and $4.5, respectively. Depreciation and amortization excludes amortization of deferred financing fees and original issue discount.

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

     The following discussion should be read in conjunction with the “Selected Consolidated Historical Financial Data,” and the Consolidated Financial Statements of the Company and the Notes thereto included elsewhere in this Annual Report on Form 10-K. In the text below, financial statement amounts have been rounded and the percentage changes are based on the financial statements.

Executive Summary and Current Developments

     Werner is the largest U.S. manufacturer and marketer of ladders and other climbing products. Werner also manufactures and sells aluminum extruded products and more complex fabricated components. Werner’s climbing products are sold to four major distributions channels which include home improvement and other retail, hardware and professional. The Company’s climbing products segment generated 86% of the Company’s consolidated net sales in 2003. The extruded products business primarily involves “make-to-order” products for the automotive, electronics, architectural and construction industries. Extruded products generated 14% of 2003 consolidated net sales.

     The Company’s financial performance has benefited over the last three years from the successful implementation of manufacturing productivity improvements and other cost reduction initiatives. The improvement is reflected in changes in the gross profit margin which was 36.1% in 2003, 33.9% in 2002 and 29.2% in 2001. Financial performance has improved despite declining net sales. Net sales were $501.1 million in 2003, $520.4 million in 2002 and $535.7 million in 2001. The decline in total net sales in 2003 of $19.3 million is primarily attributable to a $25.3 million decline in net sales to Home Depot.

     Net sales of the Climbing Products segment to two significant customers each exceeded 10% of the Company’s total net sales in 2003. The Home Depot and Lowe’s Companies, Inc. (“Lowe’s) accounted for 27% and 22%, respectively, of 2003 net sales. Two significant events occurred in late 2003 relating to each of these customers.

     During October 2003, the Company announced that it was informed by Home Depot that it will no longer purchase aluminum and fiberglass stepladders from the Company but would instead source these products directly from China. Werner was also included in an extension ladder supplier line review at The Home Depot that began in October 2003. After careful consideration and extensive analyses, taking into account the Company’s long-term interests, value and brand equity of Werner, the Company decided to discontinue supplying Werner® branded products to The Home Depot. In order to provide for an orderly transition, the Company continued supplying Werner® branded climbing equipment to The Home Depot into the first quarter of 2004. If the Company had discontinued supplying Home Depot as of January 1, 2003, net sales and operating profit for 2003 would have been approximately $136 million and $39 million less than reported. These amounts do not include any benefits relating to restructuring and downsizing.

     During December 2003, the Company entered into a long term strategic alliance with Lowe’s. Under this arrangement, Lowe’s will be the exclusive source for Werner® branded climbing equipment in the warehouse home center channel. Under this arrangement, Werner will supply all of Lowe’s climbing equipment requirements and with Lowe’s, will jointly promote and market Werner® branded products. In addition, Werner will have the opportunity to enter into new climbing equipment categories at Lowe’s. Lowe’s and Werner have jointly committed to developing strategic plans to increase ladder sales.

     Although management believes Werner is now better positioned for long-term profitable growth, the loss of Home Depot will result in a significant reduction in sales volume in 2004 compared to 2003. In order to better align the Company’s cost structure with the reduced sales volumes, a restructuring and downsizing program was initiated in early 2004 which, in part, accelerates and expands certain manufacturing and distribution optimization activities initiated in 2003. A summary of these initiatives include:

	•		In February 2004 the Company announced that it plans to gradually phase-out production at its Anniston, Alabama manufacturing and distribution operations. All operations at this facility are expected to end no later than the first quarter of 2005. The Company intends to sell this facility.
	•		During the third quarter of 2003, the Company began having manufacturing ladder components and accessories manufactured at a leased facility located in Mexico. In early 2004, the Company

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			initiated plans to construct a large manufacturing facility and implement a ladder assembly plant in Juarez, Mexico to be fully operational by late 2004.
	•		In early 2004 the Company initiated a program to reduce costs by re-engineering its selling, general and administrative functions.

     The manufacturing and distribution optimization activities initiated during 2003 included the transfer of all ladder fabrication and assembly operations in Greenville, Pennsylvania to other lower cost Company facilities. The Company also began an initiative to focus the Greenville facility on the Extruded Products segment of the Company’s business. All production related to climbing products at the Greenville facility will cease during 2004. In addition, the Company announced on October 23, 2003 that it will close its manufacturing facility located in Carrollton, Kentucky that currently manufactures wood climbing products. Production at the facility is expected to cease by mid-2004. The Company intends to sell this facility. Wood ladder customers will continue to be served by outsourcing production to a third party.

      Costs associated with the above-described activities, including costs associated with completing the initiatives began in 2003, are expected to range from $20 million to $25 million mostly during 2004. The annual benefits expected to be realized upon implementation of restructuring initiatives are estimated to range between $15 million and $20 million. Although management believes that these estimates are reasonable, no assurances can be given that the estimated costs will ultimately be incurred or that the estimated benefits will be realized. Accordingly, these estimates are forward-looking and may ultimately be materially different than currently estimated due to the uncertainty of the underlying estimates and assumptions. The estimated costs include facility exit costs, employee severance and related benefit costs, employee and equipment relocation costs, costs associated with disposal of fixed assets, duplicate freight and handling costs during transition and wind-down and start-up costs associated with manufacturing facilities.

     As a result of the anticipated reduction in sales volume for the year 2004, the Company may not be in compliance with its existing debt covenants during the second half of the year. Discussions with the Company’s senior lenders have been initiated to modify the existing debt covenants to provide for continued compliance throughout the term of the facility. Although management believes that it will be able to effect acceptable modifications in its debt covenants, no assurance can be given that the Company will be able to maintain compliance in the future.

Critical Accounting Policies and Estimates

     The Consolidated Financial Statements and Notes to Consolidated Financial Statements contain information that is pertinent to management’s discussion and analysis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment based on various assumptions and other factors such as historical experience, current and expected economic conditions, and in some cases, actuarial techniques. The Company constantly re-evaluates these significant factors and makes adjustments where facts and circumstances dictate. Historically, actual results have not significantly deviated from those determined using the estimates described above. The Company believes that the following accounting policies are critical due to the degree of estimation required.

     The Company provides credit to its customers in the normal course of business, performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. The allowance for doubtful accounts related to trade receivables is determined based on two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, an evaluation of specific accounts is conducted when information is available indicating a customer may not be able to meet its financial obligations. Judgments are made in these specific cases based on available facts and circumstances, and a specific reserve for that customer may be recorded to reduce the receivable to the amount that is expected to be collected. These specific reserves are re-evaluated and adjusted as additional information is received that impacts the amount reserved. Second, a general reserve is established for all customers based on historical collection and write-off experience. The collectibility of trade receivables could be significantly reduced if default rates are greater than expected or if an unexpected material adverse change occurs in a major customer’s ability to meet its financial obligations.

     The Company must generate sufficient taxable income in future periods to realize the total value of its deferred tax assets. A valuation allowance that reduces deferred tax assets to the amount expected to be realized is determined based on projections of taxable income. If the level of projected taxable income used to determine the valuation allowance is not achieved, the carrying value of the deferred tax assets will not be realized.

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     The Company maintains third party insurance coverage, subject to certain deductible provisions, for product liability and workers’ compensation claims which occur on or after March 31, 1998 and maintains a reserve for the insurance deductibles related to such claims. The reserve for product liability and workers’ compensation claims is determined on an undiscounted actuarial basis. The reserve includes an amount determined from loss reports for individual cases and an amount, based on past experience, for losses incurred but not reported. The determination of the reserve is primarily predicated on the assumption that selected claims reporting and payment patterns, and frequency and severity trends, will continue to apply. The methods and assumptions used to estimate the resulting reserve are continually reviewed, and any adjustments are reflected in earnings currently. Actual claims experience will affect the amount of expense ultimately recognized.

     Pension assets and liabilities are determined on an actuarial basis and are primarily affected by the market value of plan assets, estimates of the expected return on plan assets and the discount rate used to determine the present value of pension liabilities. Actual changes in the fair market value of plan assets and differences between the actual return on plan assets, the expected return on plan assets and changes in the selected discount rate will affect the amount of pension expense ultimately recognized.

The Recapitalization

     On June 11, 2003, the previously announced Recapitalization of the Company was completed. On May 7, 2003, the Company entered into a Recapitalization Agreement with GEI, an affiliate of Leonard Green, and certain shareholders of the Company. Pursuant to the Recapitalization Agreement (i) GEI invested $65.0 million in the Company in exchange for 65,000 shares of newly issued convertible preferred stock, (ii) the Company redeemed 39.66% of its outstanding shares of capital stock for payments totaling $147.0 million and (iii) the Company made certain other payments including $3.0 million to the holders of options to purchase the Company’s capital stock in consideration for the cancellation of certain of their vested options (collectively, the “Recapitalization”). The convertible preferred shares represent approximately 22% of the outstanding voting shares of capital stock as of the date of the Recapitalization.

     As part of the Recapitalization, the Company entered into a new $230 million senior credit facility with a syndicate of banks consisting of a $180 million Term Loan and a $50 million Revolving Credit Facility. The Revolving Credit facility was not utilized on the date of the Recapitalization. The Company paid $115.4 million to repay in full its existing senior credit facility which was terminated as of the date of the Recapitalization.

     The Recapitalization was accounted for as a leveraged recapitalization at historical cost principally due to the fact that less than 80% of the voting securities were acquired.

Results of Operations

     Year Ended December 31, 2003 as Compared to Year Ended December 31, 2002

     Net Sales. Net sales were down $19.3 million, or 3.7%, to $501.1 million for 2003 from $520.4 million for 2002. Net sales of climbing products decreased by $11.5 million, or 2.6%, to $432.8 million for 2003 from $444.3 million in 2002. The sales decline primarily reflects lower unit sales volumes of aluminum and wood stepladders partially offset by higher sales of fiberglass extension ladders. Net sales of extruded products of $68.3 million for 2003 declined by $7.7 million, or 10.2%, compared to 2002 primarily reflecting lower unit sales volumes due to the continued softness in the markets served by this segment of the Company’s business and the restructuring of certain low margin accounts to improve profitability.

     Gross Profit. Despite lower sales, gross profit improved by $4.2 million, or 2.4%, to $180.8 million for 2003 from $176.6 million for 2002. Gross profit as a percentage of net sales in 2003 improved to 36.1% from 33.9% for 2002. The higher gross profit margin is largely due to the realignment of ladder fabrication and assembly operations in Greenville, Pennsylvania to lower cost facilities as well as on-going manufacturing productivity improvements and other manufacturing cost reduction initiatives. An improvement in the profitability of the product mix also contributed to the higher gross profit margin. These improvements more than offset the effects of lower aluminum extrusion production volumes. Cost of sales for 2003 includes costs of $2.0 million primarily related to manufacturing inefficiencies associated with the start-up and realignment of ladder fabrication and assembly operations that was initiated in the second quarter of 2003.

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     General and Administrative Expenses. General and administrative expenses were $28.6 million for 2003 compared to $30.0 million for 2002, a decrease of $1.4 million or 4.5%. Expenses for 2002 include severance cost of $1.6 million associated with the separation of a former executive officer. Excluding this one-time severance cost, general and administrative expenses were $0.2 million higher in 2003 than 2002 due to higher management advisory and consulting fees, higher pension expense, higher legal and professional expenses (related, in part, to new product development) and higher depreciation related to capitalized computer hardware and software costs all of which were largely offset by a lower provision for performance based incentive compensation. Pension expense increased in 2003 due to lower than expected returns on plan investments during the years 2000 through 2002 and a decrease in the discount rate used to value pension liabilities which reflects the general decline in interest rates.

     Selling and Distribution Expenses. Selling and distribution expenses increased by $7.8 million, or 9.5%, to $89.8 million for 2003 compared to $82.0 million in 2002 which reflects higher shipping and handling expenses to support supply chain initiatives to continue reducing cycle times and improving order fill rates. These cost increases more than offset the impact of lower unit sales volumes.

     Recapitalization Expense. Recapitalization expense recorded in 2003 totals $11.5 million and includes a noncash compensation charge of $4.6 million associated with modifying stock options in connection with the Recapitalization. Recapitalization expense also includes a compensation charge of $3.0 million related to cancellation payments for certain vested options, transaction bonus payments totaling $1.7 million paid to certain officers and employees of the Company, a noncash charge of $1.3 million related to the deferred stock plan and, other professional fees and miscellaneous expenses totaling $0.9 million.

     Manufacturing and Distribution Optimization Costs. The Company transferred all ladder fabrication and assembly operations in Greenville, Pennsylvania to other lower cost Company facilities beginning in the second quarter of 2003. The Company also began an initiative to focus the Greenville facility on the Extruded Products segment of the Company’s business which will be completed in 2004. During the third quarter of 2003 the Company began manufacturing component parts and accessories at a leased facility in Mexico. The total costs incurred during 2003 relating to the optimization of the Company’s manufacturing and distribution operations were $6.4 million which includes $2.0 million recorded in Cost of sales and $1.5 million in Selling and distribution expenses.

     Operating Profit. Operating profit declined by $16.6 million to $48.0 million for 2003 from $64.6 million for 2002 primarily due to the recognition of $11.5 million of Recapitalization expense and $6.4 million of costs related to optimization of the Company’s manufacturing and distribution operations. If the impact of the Recapitalization expense and optimization costs is removed, in addition to removal of the prior year impact of the one-time severance cost of $1.6 million associated with the separation of a former executive officer, operating profit would have been $65.9 million in the current year which is $0.3 million, or 0.5%, less than 2002. Operating profit, as adjusted, was essentially equal to 2002 despite a decline in net sales of $19.3 million which reflects the positive impact of on-going manufacturing productivity improvements and other manufacturing cost reduction initiatives in addition to an improvement in the profitability of the product mix.

     Operating profit of the Climbing Products segment decreased $4.6 million to $61.3 million in 2003. If the impact of optimization costs totaling $5.8 million is removed, in addition to removal of the prior year impact of a one-time severance cost allocation of $1.3 million, operating profit of the Climbing Products segment would have declined by $0.1 million to $67.1 million in 2003 compared to 2002. The decrease primarily reflects the negative impact of lower sales and higher selling and distribution expenses which more than offset the operational improvements.

     Operating profit of the Extruded Products segment was $2.1 million for 2003 compared to $0.4 million for 2002. If the impact of optimization costs totaling $0.6 million is removed, operating profit would have been $2.7 million which is $2.3 million more than operating profit for 2002. The improvement in operating profit is primarily due to improvements in the profitability of the segment’s sales mix, improved manufacturing performance and lower allocated severance costs more than offsetting the effects of lower aluminum extrusion production volumes.

     Corporate and Other expenses increased by $13.8 million for 2003 compared to 2002 primarily due to Recapitalization expense of $11.5 million recorded in 2003 in addition to higher legal and professional expenses associated with shareholders’ litigation that was settled on November 2003, and higher management advisory and consulting fees.

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     Other Income (Expense), Net. Other income (expense), net declined by $0.3 million from $0.3 million of other income recorded in 2002. During 2003 costs associated with the receivables purchase agreement, letter of credit fees and certain other costs were higher than in 2002.

     Interest Expense. Interest expense increased by $2.9 million to $24.4 million for 2003 from $21.5 million for 2002. The increase is primarily due to the recognition of $2.4 million of unamortized deferred financing fees in 2003 which was associated with the senior credit facility that was repaid and terminated effective on the date of the Recapitalization. In addition, the first quarter of 2002 included a charge of $0.4 million related to the accelerated amortization of deferred financing fees as a result of a voluntary repayment of debt that occurred in March 2002. After removing the impact of accelerating the recognition of unamortized deferred financing fees, interest expense is $0.9 million greater in 2003 primarily due to the higher average debt levels in 2003 resulting from the Recapitalization.

     Income Taxes. Income taxes declined by $8.6 million to $7.4 million for 2003 reflecting lower pre-tax income in 2003 and a decrease in the effective tax rate to 31% from 37% in 2002. The decrease in the effective tax rate is primarily due to lower estimated income tax accruals in 2003.

     Net Income. Net income declined by $11.2 million to $16.2 million in 2003 from net income of $27.4 million for 2002 as a result of all the above factors.

     Year Ended December 31, 2002 as Compared to Year Ended December 31, 2001

     Net Sales. Net sales were down $15.3 million, or 2.9%, to $520.4 million for 2002 from $535.7 million for 2001. Net sales of climbing products decreased by $12.2 million, or 2.7%, to $444.3 million for 2002 from $456.5 million for 2001. The sales decline reflects lower unit sales volumes related primarily to wood stepladders and to a major customer lowering its inventory levels mostly during the first quarter. Net sales of extruded products of $76.1 million for 2002 declined by $3.1 million, or 3.9%, compared to 2001. The decline in sales is primarily due to the impact of lower aluminum prices and continued softness in the markets served by this segment of the Company’s business.

     Gross Profit. Gross profit improved by $20.1 million, or 12.8%, to $176.6 million for 2002 from $156.5 million for 2001 despite lower net sales. Gross profit as a percentage of net sales in 2002 improved to 33.9% from 29.2% for 2001. The higher gross profit is largely due to manufacturing productivity improvements and other manufacturing cost reduction initiatives. Lower aluminum and other material costs as well as product mix improvements also contributed to the higher gross profit. On March 27, 2003, the Company announced that it will gradually phase out its ladder, stages, scaffold and plank assembly, fabrication and distribution operations in Greenville, Pennsylvania. The Company will continue to maintain its corporate headquarters, remelt, aluminum extrusion, extruded products fabrication and fiberglass pultrusion operations in Greenville. The Company’s wage and benefit costs at its Greenville manufacturing facility are higher than at its other facilities. This initiative, which is part of the Company’s continuous improvement program to optimize its operations and reduce manufacturing costs, will result in the permanent layoff of approximately 500 employees at the Greenville facility.

     General and Administrative Expenses. General and administrative expenses were $30.0 million for 2002 compared to $24.1 million for 2001, an increase of $5.9 million or 24.6%. The increase is due, in part, to severance cost of $1.6 million recognized in the first quarter of 2002 associated with the separation of a former executive officer. Excluding this one-time severance cost, general and administrative expenses increased by $4.3 million, or 17.8%, in 2002. The increase reflects higher performance based compensation and related expense accruals associated with improved profitability and higher depreciation related to capitalized computer hardware and software costs. These increases more than offset the absence of severance and related expenses associated with the reduction in salaried employees that occurred during the second quarter of 2001.

     Selling and Distribution Expenses. Selling and distribution expenses declined by $1.1 million, or 1.4%, to $82.0 million for 2002 compared to $83.1 million for 2001 primarily reflecting the impact of lower unit sales volumes, changes in customer mix and lower freight rates.

     Operating Profit. Operating profit improved by $15.1 million, or 30.6%, to $64.6 million for 2002 from $49.5 million for 2001. Operating profit of the Climbing Products segment increased $12.8 million, or 24.1%, to $65.9 million in 2002 including a charge of $1.3 million for an allocated portion of severance costs related to the separation of a former executive officer. Excluding the one-time severance cost allocation, operating profit of the Climbing Products segment in the current period would have increased by $14.1 million, or 26.6%, from $53.1 million in 2001. The improvement in the profitability of climbing products reflects manufacturing productivity

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improvements and other cost reduction initiatives as well as lower material costs and product mix improvements. Operating income of the Extruded Products segment was $0.4 million for 2002 compared to break-even in 2001. The increase in operating profit of $0.4 million is primarily due to improved manufacturing performance. Corporate and Other expenses declined by $2.0 million in 2002 compared to 2001 primarily due to reduced manufacturing consulting expenses associated with implementing manufacturing productivity improvement initiatives.

     Other Income (Expense), Net. Other income (expense), net declined by $0.6 million from net income of $0.9 million in 2001 to net income of $0.3 million in 2002. The decline is due to lower net investment income related to investments formerly held by MIICA, the Company’s captive insurance subsidiary that was dissolved in 1998, and the absence of interest received in 2001 related to an overpayment of income tax liabilities. The decline was partially offset by lower costs associated with the receivables purchase agreement resulting from lower utilization and interest rates during 2002.

     Interest Expense. Interest expense declined by $4.6 million to $21.5 million for 2002 from $26.1 million for 2001 which primarily reflects the favorable impact of lower interest rates and lower levels of debt in the current year. Accelerated amortization of deferred financing fees of $0.4 million was recorded in 2002 as a result of a $15 million voluntary repayment of term loans under the Senior Credit Facility made by the Company in March 2002. Accelerated amortization of the deferred financing fees of $0.7 million was recorded in 2001 associated with the reduction in borrowing capacity resulting from the amendment of the then existing Senior Credit Facility effective July 24, 2001.

     Income Taxes. Income taxes increased $7.4 million to $16.1 million for 2002 from $8.7 million for 2001 reflecting higher pre-tax income in 2002 and an increase in the effective tax rate to 37% from 36% in 2001. The increase in the effective tax rate is primarily due to lower estimated income tax accruals in 2001.

     Net Income. Net income improved by $11.8 million to $27.4 million for the year ended December 31, 2002 from net income of $15.6 million for the year ended December 31, 2001 as a result of the factors described above.

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Liquidity and Capital Resources

     Debt and Other Contractual Obligations

     The following table provides a summary of the Company’s contractual obligations by due date as of December 31, 2003.

(1)		The Senior Credit Facility will mature in May 2007 in the event the Company’s existing 10% Senior Subordinated Notes maturing November 15, 2007 are not refinanced or extended by May 2007. Otherwise, if the Notes are refinanced or extended by May 2007, the maturity date of the Senior Credit Term Loan will be the earlier of (i) six months prior to the new maturity date of the Notes and (ii) December 31, 2009. The payments due by period reflected for the Senior Credit Term Loan represent the contractually committed obligations for principal payments during the term of the facility. The Company has the option to repay the term loan from time to time, in whole or in part, without premium or penalty.
(2)		The Variable Rate Demand Industrial Building Revenue Bonds were issued in order to finance the Company’s acquisition of land and equipment and the subsequent construction of a climbing products manufacturing facility located in Kentucky. During 2003 the Company announced that it will close the Kentucky manufacturing facility during 2004. Although the bonds are scheduled to mature in 2015, the redemption of the bonds probably will be required in 2004 as a result of the facility closing.
(3)		The Company maintains a $50 million receivables purchase agreement with a financial institution and its affiliate (the “Receivables Purchase Agreement”) which will expire in May 2005 subject to annual approvals by both the Company and the financial institution. As of December 31, 2003, the Company utilized $20 million of this facility.
(4)		During 2004 the Company expects to contribute approximately $8 million to the trust established for the non-contributory defined benefit plan which would satisfy the minimum funding requirements of ERISA. Additionally, the Company expects to pay benefits totaling approximately $1 million to participants of its unfunded non-qualified supplemental retirement plans. Contributions and funding required for years 2005 and thereafter have not yet been determined.
(5)		The new Senior Credit Facility will mature in May 2007 in the event the Company’s existing 10% Senior Subordinated Notes maturing November 15, 2007 are not refinanced or extended by May 2007. Otherwise, if the Notes are refinanced or extended by May 2007, the maturity date of the Revolving Facility will be the earlier of (i) six months prior to the new maturity date of the Notes and (ii) June 11, 2008. Available borrowings under the Company’s Revolving Credit Facility are reduced by amounts issued under a letter of credit subfacility. The Company executes letters of credit in the normal course of business that ensure payments to third parties. The aggregate amount of letters of credit issued at February 29, 2004 was $20.2 million which results in reducing the amount available under the Revolving Credit Facility from $50 million to $29.8 million. Each letter of credit has an expiration date of one year or less. Management believes the likelihood of demand for payment under these instruments is minimal and expects no material cash outlays to occur in connection with these instruments.

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     The Company’s liquidity and capital resources were significantly impacted as a result of the Recapitalization that occurred on June 11, 2003. Total long-term debt and related current maturities increased by $51.5 million to $313.1 million as of December 31, 2003 compared to the amounts at December 31, 2002. Other significant changes in capital resources and liquidity in connection with the Recapitalization are summarized in the following sources and uses of cash (in millions of dollars):

     The balance of long-term debt and current maturities which totals $313.1 million at December 31, 2003 includes $133.4 million of Senior Subordinated Notes reflected net of unamortized original issue discount; a $172.5 million Term Loan issued in connection with the Senior Credit Facility; and $7.2 million of other debt. The Senior Credit Facility provides for the Term Loan and a $50 million Revolving Facility of which $29.8 million was available for borrowing at February 29, 2004.

     The Senior Credit Facility and the Notes contain various restrictive covenants including restrictions on additional indebtedness, mergers, asset dispositions, restricted payments, prepayment and amendments of subordinated indebtedness. These covenants also prohibit, among other things, the payment of cash dividends. The financial covenants of the Senior Credit Facility require the Company to meet specific interest coverage, maximum leverage, and capital expenditure requirements. The Company is in compliance with all its debt covenants effective December 31, 2003. As a result of the anticipated reduction in sales volume for the year 2004, the Company may not be in compliance with its existing debt covenants during the second half of the year. Discussions with the Company’s senior lenders have been initiated to modify the existing debt covenants to provide for continued compliance throughout the term of the Senior Credit Facility. Although management believes that it will be able to effect acceptable modifications in its debt covenants, no assurance can be given that the Company will be able to maintain compliance in the future.

     The Company maintains a Receivables Purchase Agreement with a financial institution and its affiliate to provide additional financing capacity with a maximum availability of $50 million depending upon the level of accounts receivable and certain other factors. The agreement, which originally was to expire in May 2003, was extended for a three year period subject to the approval of annual renewals by both the Company and the financial institution. Under the Receivables Purchase Agreement the Company established a consolidated wholly-owned subsidiary, Werner Funding Corporation (“Funding”), which is a special purpose bankruptcy-remote entity that acquires, on a daily basis, a variable percentage interest of certain eligible trade receivables generated by the Company. The purchases by Funding are financed through the sale of an undivided percentage ownership interest in such receivables to the affiliate of the financial institution. The Receivables Purchase Agreement represents “off-balance sheet financing” since the ownership interest of the affiliate in Funding’s accounts receivable results in assets being removed from the balance sheet rather than resulting in a liability to the affiliate of the financial institution. The Company has agreed to continue servicing the sold receivables for the financial institution at market rates; therefore no servicing asset or liability has been recorded. As of December 31, 2003, the Company sold $84.5 million of accounts receivable in exchange for $20.0 million in cash and an undivided interest in the accounts receivable of $64.5 million. An additional $23.9 million of financing was available under the Receivables Purchase Agreement at December 31, 2003.

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     The Company satisfies its working capital needs and capital expenditure requirements primarily through a combination of operating cash flow, borrowings under the Senior Credit Facility and sales of accounts receivable under the Receivables Purchase Agreement. The Company believes it has sufficient funds available in the next twelve months to support debt service requirements, projected capital expenditures and working capital needs based on projected results of operations and availability under both the Senior Credit Facility and the Receivables Purchase Agreement.

     The Company’s ability to make scheduled payments of principal on existing indebtedness or to refinance its indebtedness (including the Notes), or to fund planned capital expenditures or to finance acquisitions (although the Company has not entered into any pending agreements for acquisitions), will depend on its future financial and operating performance, which to a certain extent is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. Based on the current and anticipated level of operations, management believes that cash flow from operations and available cash, together with available borrowings under the Senior Credit Facility and sales of accounts receivable under the Receivables Purchase Agreement, will be adequate to meet the Company’s anticipated future requirements for working capital, budgeted capital expenditures, and scheduled payments of principal and interest on its indebtedness, including the Notes, for the next twelve months. The Company, however, may need to refinance all or a portion of the principal of the Notes on or prior to maturity. There can be no assurance that the Company’s business will generate sufficient cash flows from operations or that future borrowings will be available under the Senior Credit Facility and the Receivables Purchase Agreement in an amount sufficient to enable the Company to service its indebtedness, including the Notes, or make anticipated capital expenditures and fund potential future acquisitions, if any. In addition, there can be no assurance that the Company will be able to effect any refinancing on commercially reasonable terms, or at all.

     The market value of the Company’s pension plan assets at the end of December 31, 2003 and 2002 was less than the accumulated benefit obligation which required the recognition of a minimum pension liability of $20.9 million ($12.8 million after-tax) and $22.0 million ($13.4 million after-tax), respectively, based on the provisions of Financial Accounting Standards Board (“FASB”) Statement No. 87, Employers’ Accounting for Pensions. The minimum liability adjustment at December 31, 2003 resulted in an increase in noncurrent liabilities of $20.9 million, an increase in noncurrent deferred income tax assets of $7.5 million, a decrease in shareholders’ equity of $12.8 million and an increase in noncurrent intangible assets of $0.6 million.

     Pension expense increased by $1.5 million in 2003 to $3.4 million from $1.9 million in 2002 primarily due to lower than expected returns on plan investments during years 2000 through 2002 and a decrease in the discount rate used to value pension liabilities from 7.00% to 6.50%. The assumption selected for the expected long-term rate of return on assets is 8.50%. This rate reflects historical returns on equity and fixed income securities provided by independent investment professionals and also reflects the plan’s typical asset allocation among equity and fixed income securities. The decline in the discount rate, which is used to value pension liabilities, reflects the general decline in interest rates. The benchmark consistently used in determining the discount rate is Moody’s AA bond index plus or minus no more than 25 basis points. Pension expense in 2004, which will be determined using a discount rate of 6.25%, is expected to be comparable to 2003 expense. In addition, cash contributions to the pension plan of approximately $8.0 million will be required to be paid to the pension trust during 2004 to meet the minimum funding requirements of the Employee Retirement Income Security Act (“ERISA”). In 2003 $1.0 million was paid to the pension trust.

     Cash Flows

     Net cash flows provided by operating activities were $31.8 million in 2003 compared to $41.8 million in 2002. The decline is primarily due to more cash being used to increase year-over-year levels of accounts receivable and inventories. In addition, $4.5 million less cash was generated in 2003 due to lower product liability and workers’ compensation noncash expense provisions and higher claims payments in 2003 compared to 2002. Also, more cash was used for payroll costs in 2003 resulting in a decrease in accrued payroll of $5.7 million due to different year-to-year pay period ending dates and a lower accrual for performance based incentive compensation. Net cash flows provided by operating activities were $41.8 million for 2002 compared to $44.1 million provided by operating activities for 2001. The increase in net income in 2002 improved operating cash flows; however, less cash was generated from reducing accounts receivable and inventories in 2002 than in 2001. These factors, in addition to an increase in payments of product liability and workers’ compensation claims, accounted for most of the net decrease in cash provided by operating activities of $2.4 million in 2002.

     Net cash used in investing activities was $9.4 million in 2003 compared to $11.8 million in 2002 which primarily reflects lower capital expenditures during 2003 partially offset by proceeds of $0.5 million realized on the

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sale of certain property, plant and equipment. Net cash used for investing activities was $11.8 million for 2002 compared to $16.0 million for 2001 primarily reflecting lower capital expenditures during 2002 partially offset by lower proceeds received on the disposal of investments formerly held by MIICA.

     Net cash used for financing activities was $55.9 million for 2003 compared to net cash used of $17.2 million for 2002. As previously described, financing activities for 2003 reflects transactions that occurred on the date of the Recapitalization including proceeds from issuance of convertible preferred stock of $65.0 million, Term Loan proceeds of $180.0 million, payments of $147.0 million to redeem common stock, repayment of debt totaling $115.4 million and other payments totaling $24.7 million which includes payments of $3.0 million in connection with stock option cancellations. Net cash used for financing activities was $17.2 million for 2002 compared to $3.2 million for 2001 which primarily reflects increased repayments of debt in the current period. The Senior Credit Facility allows the Company to voluntarily repay the principal amount of Term Loans from time to time, in whole or in part, without premium or penalty. In March 2002 the Company voluntarily repaid $15 million of Term Loans.

     Capital Expenditures

     The Company’s capital expenditures were $9.9 million, $12.1 million and $19.4 million, in 2003, 2002 and 2001, respectively. Approximately $5 million of the amount expended in each of such years has been for the renewal and replacement of existing facilities and equipment; thus in an economic downturn, the Company believes it will be able to adjust the amount spent on capital expenditures without compromising the base need of its operations. The Company expects to spend approximately $10 million in 2004 for various capital projects, including cost reduction and new product development projects and maintenance capital projects.

     Seasonality, Working Capital and Cyclicality

     Sales of certain products of the Company are subject to seasonal variation. Demand for the Company’s climbing products is affected by residential housing starts and existing home sales, commercial construction activity, and overall home improvement expenditures. Due to seasonal factors associated with the construction industry, sales of products and working capital are typically higher during the second and third quarters than at other times of the year. The Company expects to use the Senior Credit Facility and/or the Receivables Purchase Agreement to meet any seasonal variations in its working capital requirements. The residential and commercial construction markets are sensitive to cyclical changes in the economy.

     Raw Material Costs and Inflation

     The Company purchases aluminum, resins, fiberglass and other raw materials from various suppliers. While all such materials are available from numerous independent suppliers, commodity raw materials are subject to price fluctuations. There have been historical periods of rapid and significant movements in the price of aluminum, both upward and downward. Historically, the Company has entered into futures and option contracts with respect to its purchases of aluminum to minimize or hedge commodity price fluctuations. See “Item 1. Business - Raw Materials and Suppliers” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

     Market Risk Disclosures. The following discussion about the Company’s market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. The Company is exposed to market risk related to changes in interest rates, foreign currency exchange rates and commodity prices. The Company does not use derivative financial instruments for speculative or trading purposes.

     The Company is exposed to market risk from changes in interest rates on long-term debt obligations. The Company manages such risk through the use of a combination of fixed and variable rate debt. Currently, the Company does not use derivative financial instruments to manage its interest rate risk.

     The following table provides information about the Company’s debt obligations and financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted-average interest rates by expected maturity dates or applicable floating rate index.

(1)		Average interest rate on Term Loan is equal to LIBOR plus 2.75%.
(2)		Average interest rate on $5 million Variable Rate Industrial Building Revenue Bonds during 2003 was approximately 1.5%.

     The Company does not have operations in foreign countries subject to material foreign currency exchange risk. International sales were not material to the Company’s operations for the year ended December 31, 2003. Accordingly, the Company is not subject to material foreign currency exchange rate risk. To date, the Company has not entered into any foreign currency forward exchange contracts or other derivative financial instruments relative to foreign currency exchange rates.

     The Company is exposed to market risk from changes in the price of aluminum. The Company manages such risk through the use of aluminum futures and option contracts. The Company does not actually take delivery of aluminum that is the subject of the futures contracts.

     In the case of futures contracts relating to the Extruded Products segment of the business, the Company agrees to purchase aluminum in the future at a set price relative to a customer firm order commitment. The futures contract is liquidated prior to settlement. The difference between the price of aluminum on the date the Company enters into the contract and the price on the settlement date represents the financial gain or loss on the contract. These futures contracts qualify for hedge accounting and, therefore, the gain or loss is recognized in earnings, together with the offsetting gain or loss due to the changes in the fair value of the firm commitment, in the period the customer order attributed to the firm commitment is shipped. At December 31, 2003, the Company had purchased futures contracts, maturing in 2004, for the delivery of 0.2 million pounds of aluminum at a weighted average contract settlement price of $0.6599 per pound. At December 31, 2002, the Company had purchased futures contracts, maturing in 2003, for the delivery of 35.4 million pounds of aluminum at a weighted average contract settlement price of $0.665 per pound. The unrecognized gains and losses for the change in fair value of such futures contracts that qualify for hedge accounting at December 31, 2003 and 2002 were immaterial.

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     At December 31, 2003, the company had purchased futures contracts related to the Climbing Products segment, maturing in 2004, for the delivery of 21.3 million pounds of aluminum at a weighted average contract settlement price of $0.6635 per pound. The unrecognized gain (realized and unrealized) for the change in the fair value of such futures contracts that qualify for hedge accounting was $2.5 million at December 31, 2003. During the fourth quarter of 2002, the Company began buying futures contracts relating to the Climbing Products segment of the business whereby it agrees to purchase aluminum in the future at a set price to manage its exposure to variable cash flows of forecasted sales. The futures contracts are liquidated prior to settlement. The difference between the price of aluminum on the date the Company enters into the contract and the price on the settlement date represents the financial gain or loss on the contract. These futures contracts did not qualify for hedge accounting in 2002. As a result, the gain or loss on these futures contracts was recognized in earnings in the period of the change in aluminum prices. The gains and losses recognized by the Company during 2002, including the unrealized loss for the change in fair value of open futures contracts at December 31, 2002, were immaterial.

     Option contracts relating to the Climbing Products segment of the business, all qualify for hedge accounting. Through the end of the third quarter of 2002, the Company created a collar by purchasing call options and selling put option contracts for aluminum with a net initial investment near zero to hedge its exposure to variable cash flows of forecasted sales of Climbing Products. Price movement inside the collar was not protected by the derivatives. Whereas, price movement outside the collar or strike price provides either a financial gain or loss (depending upon price movement) if the option is exercised or when the position is closed. The gain or loss on the option contract is recognized in earnings, together with the offsetting gain or loss due to the changes in the actual purchase price of aluminum outside the collar, in the period that the forecasted sale affects earnings. All option contracts expired by May 2003. At December 31, 2002, the Company had purchased call option contracts and sold put option contracts, maturing in 2003, covering 18.0 million pounds of aluminum at strike prices ranging from $.611 to $.729 per pound. The Company had net option contract obligation liabilities of $0.4 million at December 31, 2002.

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Item 8. Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements

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Report of Independent Auditors

To the Shareholders and Board
of Directors of Werner Holding Co. (PA), Inc.:

     In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in shareholders’ equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Werner Holding Co. (PA), Inc. and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

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WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, except Per Share Amounts)

See notes to consolidated financial statements.

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WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(Dollars in Thousands, except Per Share Amounts)

See notes to consolidated financial statements.

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WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)

See notes to consolidated financial statements.

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WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
(Dollars in Thousands, except Per Share Amounts)

See notes to consolidated financial statements.

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WERNER HOLDING CO. (PA), INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)

See notes to consolidated financial statements.

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