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  2004 Compared to 2003  Net sales were $1,530.4 million for  the year ended December  31, 2004  compared to $1,239.5 million for 2003 an  increase of 23% in U.S. dollars and 20%  in local currencies. Sales of interconnect  products and assemblies increased 24%  in U.S. dollars and 20% in local  currencies compared to 2003 ($1,333.8 million in 2004 versus $1,072.0 million in 2003). Sales  increased in all major geographic regions  as a result of the continuing development  of new application specific and value  added products, economic improvement  in some of the Company’s major end  markets and the impact of acquisitions in  2004 and 2003 ($50.3 million). Sales  increased in the Company’s major end  markets including mobile communications, industrial, automotive,  military/aerospace, and computer/data  communications markets. The increase  in sales in the mobile communications  markets (approximately $105.7 million)  is attributable primarily to increased  demand on wireless infrastructure products in all regions, increased demand  on mobile handset products in Asia and  the impact of acquisitions during 2003 of  companies in North America and China  serving the wireless installation market. The increase in sales in the industrial  market (approximately $49 million) reflects increased sales in North America  and Europe. Automotive sales increased  approximately $34 million primarily in  Europe and to a lesser extent in North  America, reflecting the increased use of  safety and telematic applications in cars  and as a result of acquisitions. The  increase in military/aerospace sales (approximately $63.9 million) relates  primarily to increased demand on military programs and avionics applications in North America and  Europe. Sales to the computer and data  communications related markets increased approximately $11.1 million  reflecting increased sales in North America, Europe and Asia and the impact  of acquisitions. Sales of cable products  increased 17% compared to 2003 ($196.6  million in 2004 versus $167.5 million in  2003). Such increase is primarily due to  Selling, general and administrative  expenses were $215.0 million and $177.4  million in 2004 and 2003, respectively,  and remained approximately 14.0% of  sales in 2004 and 2003, respectively. Research and development expenditures  increased approximately $6.1 million,  commensurate with sales, reflecting increases in expenditures for new product  development and represented approximately 2% of sales for both 2004  and 2003. Selling and marketing expenses remained approximately 7% of  sales. Shipping expense, which relates  primarily to sales of cable products to the  broadband market, increased commensurate with sales for those  products. Administrative expenses increased by approximately $11.8 Net sales were $1,239.5 million for  the year ended December  31, 2003  The provision for income taxes was  at an effective rate of 34.0% in 2004 and  2003.  Other expenses, net, for 2004 and  2003 were $6.7 million and $7.0 million,  respectively. Other expenses, net, are  comprised primarily of foreign currency  transaction losses ($0.6 million in 2004  and $1.3 million in 2003), reflecting the  relative weakness of the U.S. dollar in  2004 and 2003, program fees on sale of  accounts receivable ($2.3 million in 2004  and $1.5 million in 2003), reflecting  lower receivable fee rates in 2003,  minority interests ($3.0 million in 2004  and $2.4 million in 2003) and agency and  commitment fees on the Company's  credit facilities ($1.0 million in 2004 and  $0.8 million in 2003). 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). See Note 8 to  the Company's Consolidated Financial  Statements for details of the components  of other expenses, net. 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. Interest expense was $22.5 million  for 2004 compared to $29.5 million for  2003. 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. At current  interest rates, interest expense for 2005 is  expected to be approximately $19 million. million, due primarily to increases in  costs relating to insurance, pensions,  medical benefits and professional fees.  increased sales in broadband cable  television markets.  Geographically, sales in the U.S. in  2004 increased approximately 21% compared to 2003 ($674.3 million in  2004 versus $555.9 million in 2003);  international sales for 2004 increased  approximately 25% in U.S. dollars  ($856.1 million in 2004 versus $683.6 million in 2003) and increased  approximately 19% in local currency  compared to 2003. The comparatively  weak U.S. dollar in 2004 had the  currency effect of increasing net sales by  approximately $46.6 million when compared to foreign currency translation  rates in 2003. The gross profit margin as a  percentage of net sales (including depreciation in cost of sales) increased to  32% in 2004 compared to 31% in 2003. An increase in margins was achieved in  both the interconnect products and  assemblies segment and the cable segment although the cable segment  increase was partially offset by a  continued increase in material costs. The  operating margin for interconnect products and assemblies increased approximately 2% compared to the prior  year. The increase is generally attributable to the continuing development of new higher margin  application specific products, excellent  operating leverage on incremental volume and aggressive programs of cost  controls. 2003 Compared to 2002  28 