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  operating reduction of $4.6 million in  inventory, an increase of $10.6 million in  receivables sold, and an increase in  accrued income taxes of $18.0 million,  partially offset by a $28.8 million  increase in accounts receivable due to  higher sales levels and a decrease of $7.7  million in accrued liabilities.  The non-cash components of working capital decreased $4.8 million in  2002 due primarily to a $12.9 million  decrease in inventory as inventory levels  were reduced in response to lower sales  levels, a $6.2 million increase in accrued  income taxes and a $3.7 million increase  in accounts payable, partially offset by an  $11 million decrease in receivables sold  and a $6.5 million reduction in accrued  liabilities. The non - cash components of  working capital decreased $11.6 million  in 2003 due primarily to a $20.8 million  increase in accounts payable, an 30  The non - cash components of  working capital decreased $14.1 million  in 2004 due primarily to a $3.2 million  increase in accounts payable, an increase  of $15.7 million in accrued liabilities, an  increase of $6.2 million in receivables  sold and an increase of $28.5 million  related to accrued income taxes, partially  offset by a $26.0 million increase in  accounts receivable due to higher sales  levels and an operating addition of $14.5  million in inventory.  In 2004, cash from operating activities of $208.3 million (including  additional sales of receivables of $6.2  million) and proceeds from exercise of  stock options and related tax benefits of  $30.3 million were used primarily to fund  capital expenditures of $44.3 million,  acquisitions of $41.8 million, the purchase of treasury stock of $45.6  million, an increase in cash on hand of  $6.6 million and for a net debt reduction  of $100.3 million. For 2003, cash from  operating activities of $170.0 million  (including additional sales of receivables  of $10.6 million), proceeds from the  refinancing of $27.0 million and proceeds from exercise of stock options  and related tax benefits of $35.9 million  were used primarily to fund capital  expenditures of $30.2 million, acquisitions of $51.1 million, an increase  in cash on hand of $2.9 million and for a  net debt reduction of $148.8 million. During the second quarter 2003, the  Company completed a refinancing of its  senior credit facilities. During 2003  borrowings of $625.0 million under a  depreciable assets, net, increased $19.5  million to $197.8 million reflecting  capital expenditures of $44.3 million,  assets from acquisitions of approximately  $6.8 million, an increase of $7.8 million  due to translation resulting from the  comparatively weaker U.S. dollar at  December 31, 2004 compared to December 31, 2003, depreciation of  $38.2 million and disposals of $1.2  million. Accounts payable and accrued  salaries, wages and employee benefits  increased $18.0 million and $7.4 million  to $134.9 million and $38.5 million,  respectively, due primarily to an increase  in sales levels, liabilities assumed from  acquired companies and a $0.8 million  and $0.3 million increase, respectively,  due to translation resulting from the  comparatively weaker U.S. dollar at  December 31, 2004 compared to December 31, 2003. Accrued income  taxes increased $23.7 million due primarily to increased profits. Other  accrued liabilities increased $5.3 million  to $37.1 million relating primarily to an  increase in liabilities for the purchase of  acquired companies and accruals relating  to higher sales volume.  In 2004, accounts receivable increased $41.7 million to $214.2 million, due to an increase in sales levels,  $12.6 million from an acquired company,  and a $9.3 million increase due to  translation resulting from the comparatively weaker U.S. dollar at  December 31, 2004 compared to December 31, 2003, partially offset by a  $6.2 million increase in sales of receivables (further discussed below).  Days sales outstanding, computed before  sales of receivables, decreased to approximately 64 days from 66 days in  2003. Inventory increased $25.9 million  to $247.3 million, primarily due to an  increase of $6.7 million due to translation  resulting from the comparatively weaker  U.S. dollar at December 31, 2004  compared to December 31, 2003, and  $4.7 million in inventory from an  acquired company coupled with an  operating addition of $14.5 million.  Inventory turnover increased to 4.2x at  December 31, 2004 from 3.9x at  December 31, 2003. Deferred taxes and  other assets decreased $0.3 million to  $28.1 million reflecting the decrease in  deferred taxes, the details of which are  included in Note 3 to the Company's  Consolidated Financial Statements. Goodwill increased $29.1 million to  $545.4 million primarily as a result of an  acquisition completed in the third quarter  of 2004 as well as additional contingent  consideration paid in 2004 relating to a  prior year acquisition. Land and 2003 and 2002, respectively. In 2004,  the Company reclassified certain amounts  in its 2003 and 2002 Consolidated  Statements of Cash Flow from financing  activities to operating activities as a result  of a determination that they had not been  reported in accordance with Statement of  Financial Accounting Standard No. 95  “Statement of Cash Flows”. The  amounts reclassified of $10.6 and ($11.0)  million in 2003 and 2002, respectively,  reflect a change in classification of the  net change in the accounts receivables  sold under the Company’s accounts  receivable securitization agreement. As a  result of these reclassifications, there was  no impact on the Company’s net change  in cash and short-term cash investments  in 2003 and 2002. The net change during  2004 in accounts receivables sold under  the Company’s accounts receivable securitization agreement which is included in operating activities is $6.2  million. The increase in cash from  operating activities in 2004 compared to  2003 is primarily attributable to an  increase in net income in addition to a  larger reduction in the non-cash components of working capital compared  to 2003, partially offset by a larger  decrease in long-term liabilities resulting  from a $20 million contribution to the  Company’s pension plan in 2004 (compared to a $10 million contribution  in 2003). The increase in cash from  operating activities in 2003 compared to  2002 is primarily attributable to an  increase in net income and a larger  reduction in the 2003 period in non-cash  components of working capital.