MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS decrease in 2002. In addition, due to the reduction in the currency exchange rate and in projected cash flows of the Argentina subsidiary, an impairment of the cur- rent carrying values of long-lived assets of $9.0 million was charged against current operations during the first quarter of 2002. See Note 4, on pages 52 and 53 of this report, for more information concerning the reduction in carrying value of long-lived assets. the detection and abatement of lead-based paint from buildings, costs associated with a public education cam- paign, medical monitoring costs and others. The Compa- ny is also a defendant in legal proceedings arising from the manufacture and sale of non-lead-based paints which seek recovery based upon various legal theories, includ- ing the failure to adequately warn of potential exposure to lead during surface preparation when using non- lead-based paint on surfaces previously painted with lead-based paint. The Company believes that the litiga- tion is without merit and is vigorously defending such litigation. The Company expects that additional lead pigment and lead-based paint litigation may be filed against the Company in the future asserting similar or different legal theories and seeking similar or different types of damages and relief. The Company’s cash dividend per common share payout target is 30.0 percent of the prior year’s diluted net income per common share. The 2004 annual cash dividend of $.68 per common share represented 30.1 percent of 2003 diluted net income per common share. The 2004 annual dividend represented the twenty- sixth consecutive year of dividend payments since the dividend was suspended in 1978. At a meeting held on February 2, 2005, the Board of Directors increased the quarterly cash dividend to $.205 per common share. This quarter- ly dividend, if approved in each of the remaining quar- ters of 2005, would result in an annual dividend for 2005 of $.82 per common share or a 30.1 percent pay- out of 2004 diluted net income per common share. Management believes that it properly valued the Company’s assets and recorded all known liabilities that existed as of the balance sheet date for which a value was available or an amount could be reasonably esti- mated in accordance with all present accounting princi- ples generally accepted in the United States. In addition, the Company may be subject to potential liabilities, as described in the following, which cannot be reasonably estimated due to the uncertainties involved. During September 2002, a jury trial commenced in the first phase of the action brought by the State of Rhode Island against the Company and the other defen- dants. The sole issue before the court in this first phase was whether lead pigment in paint constitutes a public nuisance under Rhode Island law. This first phase did not consider the issues of liability or damages, if any, related to the public nuisance claim. In October 2002, the court declared a mistrial as the jury, which was split four to two in favor of the defendants, was unable to reach a unanimous decision. This was the first legal pro- ceeding against the Company to go to trial relating to the Company’s lead pigment and lead-based paint litiga- tion. The State of Rhode Island has decided to retry the case and has requested that the new trial consider all issues, including liability and damages. A trial has been tentatively scheduled for September 2005. The Compa- ny believes it is possible that additional legal proceed- ings could be scheduled for trial in 2005 and in subsequent years in other jurisdictions. The Company’s past operations included the manu- facture and sale of lead pigments and lead-based paints. The Company, along with other companies, is a defen- dant in a number of legal proceedings, including pur- ported class actions, separate actions brought by the State of Rhode Island, and actions brought by various counties, cities, school districts and other government- related entities, arising from the manufacture and sale of lead pigments and lead-based paints. The plaintiffs are seeking recovery based upon various legal theories, including negligence, strict liability, breach of warranty, negligent misrepresentations and omissions, fraudulent misrepresentations and omissions, concert of action, civil conspiracy, violations of unfair trade practices and con- sumer protection laws, enterprise liability, market share liability, nuisance, unjust enrichment and other theories. The plaintiffs seek various damages and relief, including personal injury and property damage, costs relating to Litigation is inherently subject to many uncertainties. Adverse court rulings or determinations of liability, among other factors, could affect the lead pigment and lead-based paint litigation against the Company and encourage an increase in the number and nature of future claims and proceedings. In addition, from time to time, various legislation and administrative regulations have been enacted or proposed to impose obligations on present and former manufacturers of lead pigments and lead-based paints respecting asserted health concerns associated with such products and to overturn court decisions in which the Company and other manufactur- ers have been successful. Due to the uncertainties 28