MANAGEMENT’S DISCUSSION LIQUIDITY AND CAPITAL RESOURCES The Company has a $25 million revolving credit facility (the “Credit Facility”) with a regional bank to be utilized for the funding of operations and for major capital projects or acquisitions subject to certain limitations and restrictions (see Note 4 of Notes to Consolidated Financial Statements). Borrowings under the Credit Facility bear interest that is payable monthly at 30-day, 60-day or 90-day LIBOR, as selected by the Company, plus one percent. At December 31, 2003, the Company had outstanding borrowings of $4.3 million under the Credit Facility. At December 31, 2003, the Company was in compliance with all financial covenants. The Credit Facility, which expires November 12, 2006, and may be extended under certain circumstances, contains various restrictive covenants, none of which is expected to impact the Company’s liquidity or capital resources.  As of December 31, 2003, the Company had cash and cash equivalents of $298,000, compared with $353,000 at December 31, 2002. The Company had an outstanding balance under the Credit Facility as of December 31, 2003, of $4.3 million compared with $10.3 million as of December 31, 2002.  The $6.0 million decrease in the Credit Facility balance in 2003 from 2002 is primarily attributable to the Company’s use of cash flows from continuing operations to reduce its borrowing level. Cash provided by continuing operations increased to $12.7 million in 2003, compared to $9.9 million in 2002 and $8.7 million in 2001. Cash provided by continuing operations consists primarily of net income adjusted for certain non-cash items and changes in working capital items. Non-cash items include depreciation and amortization and deferred income taxes. Working capital items consist primarily of accounts receivable, accounts payable, inventories and other current assets and other current liabilities. Working capital at December 31, 2003 decreased primarily because of reduced accounts receivable, which is primarily related to the timing of revenues during the fourth quarter of 2003 as compared to the timing of revenues during the fourth quarter of 2002. Capital expenditures for property, plant and equipment totaled $4.2 million in 2003,  compared with $3.3 million in 2002 and $2.8 million in 2001. The Company expects capital expenditures in 2004 to continue at approximately the  same level as 2003.  During 2003, the Company expended $4.9 million for the purchase of the Company’s common stock. Included in this amount was $4.1 million in April 2003 for the completion of a tender offer in which a total of 173,614 shares of common stock were repurchased at a price of $23.00 per share. During the fourth quarter of 2003, the Company repurchased the following shares of the Company’s common stock: OCTOBER 2003 NOVEMBER 2003 TOTAL Total Number of Shares Purchased 8,400 11,800 20,200 Average Price Paid Per Share $42.42 $41.02 $41.60 Total Number of Shares Purchased As Part of Publicly Announced Plan or Program 8,400 11,800 20,200 Maximum Number of Shares That May Yet  Be Purchased Under Plan or Program (a) 105,800 94,000 94,000 (a) This program was announced in April 2000 and initially provided for 200,000 shares to be repurchased. The Company received net proceeds of $2.7 million for the exercise of employee stock options during 2003. In September 2003, the Company announced that its Board of Directors had approved a policy for the payment of regular quarterly cash dividends on the Company’s common stock. During 2003 the Company paid dividends totaling $406,000 to its stockholders.  The table below summarizes debt, lease and other minimum contractual obligations outstanding at December 31, 2003: PAYMENTS DUE BY PERIOD CONTRACTUAL OBLIGATIONS 2009 AND (IN THOUSANDS) TOTAL 2004 2005 - 2006 2007 - 2008 THEREAFTER Credit Facility $ 4,287 — $ 32 $ 4,255 — Operating Leases $ 997 $ 409 $ 588 — — Purchase Obligations $ 4,586 $ 4,574 $ 12 — — Total $ 9,870 $ 4,983 $ 632 $ 4,255 — The payment schedule for the Credit Facility assumes at maturity, November 2006, the Company would convert this outstanding debt to a two year term note as allowed by the terms of the agreement. The payment schedule for the operating lease assumes the lease expires in May 2006 (see Note 12 of Notes to Consolidated Financial Statements). 26 AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)