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  Manufacturing  The Company's sales to distributors represented approximately 21% of the Company's 2004 sales. The Company's  recognized brand names, including "Amphenol," "Times Fiber," "Tuchel," "Socapex," "Sine," "Spectra-Strip," "Pyle-National,"  "Matrix," "Kai Jack" and others, together with the Company's strong connector design-in position (products that are specified in  customer drawings), enhance its ability to reach the secondary market through its network of distributors. The Company employs advanced manufacturing processes including molding, stamping, plating, turning, extruding, die  casting and assembly operations as well as proprietary process technology for flat-ribbon and coaxial cable production. The  Company's manufacturing facilities are generally vertically integrated operations from the initial design stage through final design  and manufacturing. Outsourcing of certain fabrication processes is used when cost-effective. Substantially all of the Company's  manufacturing facilities are certified to the ISO9000 series of quality standards. The Company employs a global manufacturing strategy to lower its production costs and to improve service to customers.  The Company sources its products on a worldwide basis with manufacturing and assembly operations in the Americas, Europe,  Asia, Africa and Australia. To better serve high volume OEM customers, the Company has established just-in-time facilities near  major customers. The Company's policy is to maintain strong cost controls in its manufacturing and assembly operations. The Company is  continually evaluating and adjusting its expense levels and workforce to reflect current business conditions and maximize the return  on capital investments. The Company purchases a wide variety of raw materials for the manufacture of its products, including precious metals such  as gold and silver used in plating, aluminum, brass, steel, copper and bimetallic products used for cable, contacts and connector  shells; and plastic materials used for cable and connector bodies and inserts. Such raw materials are generally available throughout  the world and are purchased locally from a variety of suppliers. The Company is not dependent upon any one source for raw  materials, or if one source is used the Company attempts to protect itself through long-term supply agreements. The Company's research and development expense for the creation of new and improved products and processes was  $32.5 million, $26.4 million and $24.2 million for 2004, 2003 and 2002, respectively. The Company's research and development  activities focus on selected product areas and are performed by individual operating divisions. Generally, the operating divisions  work closely with OEM customers to develop highly-engineered products and systems that meet customer needs. The Company  focuses its research and development efforts primarily on those product areas that it believes have the potential for broad market  applications and significant sales within a one-to-three year period. The Company encounters competition in substantially all areas of its business. The Company competes primarily on the  basis of engineering, product quality, price, customer service and delivery time. Competitors include large, diversified companies,  some of which have substantially greater assets and financial resources than the Company, as well as medium to small companies. In  the area of coaxial cable for cable television, the Company believes that it and CommScope are the primary world providers of such  cable; however, CommScope is larger than the Company in this market. In addition, the Company faces competition from other  companies that have concentrated their efforts in one or more areas of the coaxial cable market. The Company owns a number of active patents worldwide. The Company also regards its trademarks "Amphenol," "Times  Fiber," "Tuchel," "Socapex," "Sine," "Spectra-Strip," "Pyle-National," "Matrix," "Kai Jack" and others to be of value in its  businesses. The Company has exclusive rights in all its major markets to use these registered trademarks. While the Company  considers its patents and trademarks to be valuable assets, the Company does not believe that its competitive position is dependent  on patent or trademark protection or that its operations are dependent on any individual patent or trademark. 19 Competition  Trademarks and Patents  Research and Development 