51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (thousands of dollars unless otherwise indicated) NOTE 2—ACQUISITIONS NOTE 3—CUMULATIVE EFFECT OF CHANGE  IN ACCOUNTING PRINCIPLE The following unaudited pro-forma summary pres- ents consolidated financial information as if Kinlita, Duron and PSB had been acquired at the beginning of each period presented. The pro-forma consolidated financial information does not necessarily reflect the Effective January 1, 2002, the Company adopted SFAS No. 142. During the first quarter of 2002, the Company completed the transitional impairment test required by SFAS No. 142 and recognized an impair- ment charge of $247,612 ($183,136 after taxes or $1.21 per diluted common share) to reduce the carrying values of goodwill and certain indefinite-lived intangible assets to their estimated fair values. The transitional impairment charge was accounted for as a cumulative effect of change in accounting principle. The transition- al impairment charge for goodwill totaled $129,392 ($105,714 after taxes or $.70 per diluted common share) and related primarily to international operations in the International Coatings and Automotive Finishes Segments. Weakened foreign currency exchange rates and economic conditions, particularly in South Ameri- ca, negatively impacted profit and cash flow in U.S. dollars. The transitional impairment charge for indefi- nite-lived intangible assets aggregated $118,220 ($77,422 after taxes or $.51 per diluted common share). The impairment of indefinite-lived intangible assets related principally to trademarks in the Consumer Seg- ment associated with the acquisition of Thompson Min- wax Holding Corp. and was due primarily to a shortfall in sales from levels anticipated at the time of acquisi- tion. In addition, certain trademarks in the International Coatings Segment were impaired. Fair values are esti- mated separately for goodwill and indefinite-lived intangible assets using a discounted cash flow valuation model, incorporating discount rates commensurate with the risks involved for each group of assets. Duron, included in the Paint Stores Segment, is a leading coatings company in the eastern and southeast- ern portion of the United States servicing the profession- al painting contractor, builder and do-it-yourself markets through 229 company-operated stores. PSB, included in the Consumer Segment, provides high quali- ty paint applicators to professional paint contractors and do-it-yourself users in the United States, Canada and the United Kingdom under the Purdy ® , Bestt Liebco ® and other brands. The Duron and PSB acquisi- tions resulted in the recognition of goodwill and were completed primarily to assist with the continued imple- mentation of the Company’s growth strategy of supply- ing high quality products and services to professional paint contractors and do-it-yourself users through vari- ous channels of distribution. See Note 4 for discussion of goodwill and intangible assets acquired with the acquisitions of Duron and PSB. During the third quarter of 2004, the Company com- pleted its acquisitions of 100% of the stock of Duron, Inc. (Duron) and Paint Sundry Brands Corporation (PSB) for an aggregate consideration of $640,625, and the assumption of certain financial obligations. Both acquisi- tions were financed through the use of cash, liquidated short-term investments and $350,000 in proceeds from the sale of commercial paper under the Company’s exist- ing commercial paper program. Both acquisitions were accounted for as purchases, with results of operations included in the consolidated financial statements begin- ning with the month of September 2004. During the second quarter of 2004, the Company acquired a majority interest in Kinlita for $6,982 paid in cash. Kinlita, included in the Automotive Finishes Segment, supplies coatings to original equipment truck and bus manufacturers in the Peoples Republic of China. The acquisition was accounted for as a purchase, with results of operations included in the consolidated financial statements beginning with the month of April 2004. The Kinlita acquisition resulted in the recognition of goodwill and was completed primarily to participate in the growing Chinese automotive coatings market. See Note 4 for discussion of goodwill acquired with the acquisition of Kinlita. 1 Included in the reported pro-forma net income for 2004 are material charges of $30,500 paid by Duron for settlement of certain compensation arrangements incurred prior to closing and $4,781 paid by PSB for loan origination fees written off prior to closing. actual results that would have occurred had the acquisi- tions taken place on January 1, 2002 or of future results of operations of the combined companies under owner- ship and operation of the Company. 2004 2003 2002 Net sales ............ $6,450,573 $ 5,878,713 $ 5,632,754  Net income 1 ...... 379,597 363,411 152,024  Net income per common share: Basic 1 .............. 2.70 2.51 1.01  Diluted 1 .......... 2.62 2.47 1.00 