## A M P H E N O L C O R P O R A T I O N 2 0 0 4 A N N U A L R E P O R T 

compared to $1,062.0 million for 2002. Sales of interconnect products and assemblies increased 20% compared to 2002 ($1,072.0 million in 2003 versus $892.3 million in 2002). Sales increased in the Company’s major end markets including military/aerospace, mobile communications, industrial, automotive and computer/data communications markets. The increases occurred in all major geographic regions, with approximately one third of the increase attributable to the effect of currency translation, as detailed below. The remaining increase was attributable to the continuing development of new application specific and value added products, economic improvement in some of the Company’s major end markets and acquisitions in 2002 and 2003. The increase in military/aerospace sales (approximately $47 million) relates primarily to increased demand on military programs and avionics applications in North America and Europe, and an acquisition ($8 million). The increase in sales in the mobile communications markets (approximately $42 million) is attributable to the acquisition of companies in North America and China serving the network infrastructure market (approximately $18 million) and increases in Asia in sales of handset products. The increase in sales in the industrial market (approximately $36 million) reflects increases resulting from acquisitions in North America (approximately $16 million) and increased sales in Europe. Automotive sales increased approximately $33 million primarily in Europe and to a lesser extent in North America reflecting increased use of safety and telematic applications in cars. Sales to the computer and data communications related markets increased approximately $23 million; a cable assembly acquisition in North America contributed one-third of the increase and the remainder reflects increased sales in Europe and Asia. Sales of cable products decreased 1% compared to 2002 ($167.5 million in 2003 versus $169.7 million in 2002). Such decrease is generally attributable to continuing low levels of capital spending by U.S. and international cable television 

operators for cable system upgrades and expansion. The lower levels of spending are not expected to change significantly in the near term. 

Geographically, sales in the U.S. in 2003 increased approximately 11% compared to 2002 ($555.9 million in 2003 versus $501.1 million in 2002); international sales for 2003 increased approximately 22% in U.S. dollars ($683.6 million in 2003 versus $560.9 million in 2002) and increased approximately 12% in local currency compared to 2002. The comparatively weak U.S. dollar in 2003 had the currency effect of increasing net sales by approximately $63.9 million when compared to foreign currency translation rates in 2002. 

The gross profit margin as a percentage of net sales (including depreciation in cost of sales) remained constant at 31% for 2003 and 2002. An increase in margins in the interconnect products and assemblies segment was offset by a decline in margins in the cable products segment. The operating margin for interconnect products and assemblies increased approximately 2% compared to the prior year, the increase is generally attributable to the effects of higher sales volume and cost reduction activities relating to purchased materials and increased activity in low cost labor areas. The increase was offset by a decline in operating profit margins for cable products of approximately 6% compared to the prior year due primarily to higher material costs and change in product mix. 

Selling, general and administrative expenses were $177.4 million and $152.9 million in 2003 and 2002, respectively, and remained constant at approximately 14% of sales. Research and development expenditures increased approximately $2.2 million, reflecting increases in expenditures for new product development. Selling and marketing expenses remained constant at approximately 7% of sales. Shipping expense, which relates primarily to sales of cable products to the broadband market, remained stable, commensurate with sales for those products. Administrative expenses increased by approximately $6.9 million, due 

primarily to increases in costs relating to insurance, pensions and medical benefits. 

Interest expense was $29.5 million for 2003 compared to $45.9 million for 2002. The decrease is primarily attributable to lower interest rates including the effect of the refinancing completed in the second quarter of 2003 (see Liquidity and Capital Resources) and lower average debt levels. 

Expenses for early extinguishment of debt totaling $10.4 million in 2003, relate to the refinancing of the Company’s senior credit facilities. Such one-time expenses include the call premium related to the redemption of the Company’s Senior Subordinated Notes of $4.7 million, write-off of unamortized deferred debt issuance costs of $3.9 million and other related fees and expenses of $1.8 million. 

Other expenses, net, for 2003 and 2002 was $7.0 million and $5.4 million, respectively. Other expenses, net, is comprised primarily of foreign currency transaction losses ($1.3 million in 2003 and $2.7 million in 2002), reflecting the relative weakness of the U.S. dollar in 2003 and 2002, program fees on sale of accounts receivable ($1.5 million in 2003 and $1.8 million in 2002), reflecting lower receivable fee rates in 2003, minority interests ($2.4 million in 2003 and $1.8 million in 2002) and agency and commitment fees on the Company's credit facilities ($0.8 million in 2003 and $0.6 million in 2002). In addition, in 2003 the Company incurred $1.0 million in expenses relating to a secondary stock offering (for which the Company  did not receive any proceeds), and in 2002 the Company realized $1.5 million of income relating to a license fee settlement. See Note 8 to the Company's Consolidated Financial Statements for details of the components of other expenses, net. 

The provision for income taxes for 2003 was at an effective rate of 34% compared to 34.5% in 2002. 

## Liquidity and Capital Resources 

Cash provided by operating activities totaled $208.3 million, $170.0 million and $120.6 million for 2004, 

