MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales in the Paint Stores Segment in 2004 increased due primarily to continuing strong domestic architectural paint sales to contractor and DIY cus- tomers. Continued improvement of industrial mainte- nance and product finishes sales and market conditions also contributed to this Segment’s net sales increase. The acquisition of Duron added 229 stores to this Segment, increased full year net sales approximately 3.5 percent and was slightly accretive to operating profit. Net sales from stores opened more than twelve calendar months increased 10.1 percent for the full year. During 2004, the Paint Stores Segment opened 67 net new stores, remodeled 10, relocated 35 and transferred 1 store to the Automotive Finishes Segment. At the end of 2004, this Segment had 2,983 stores in operation in the United States, Canada, Mexico, Puerto Rico and the Virgin Islands. The Paint Stores Segment’s objective is to expand its store base an average of three percent each year, primarily by internal growth. In 2004, the Paint Stores Segment completed its three-year project to remerchandise and refresh the interior design of 2,265 outdated existing stores. The cost of the refresh project was charged to current operations and was accom- plished primarily by in-store personnel resulting in a high-impact, low-cost method of enhancing the shop- ping environment in the stores. Consumer Segment net sales increased due primarily to sales from acquisitions that increased net sales 7.2 percent and new product programs. Partially offsetting these increases was the elimination of a paint program at one of the Segment’s retail customers and a charge against net sales of $9.8 million due to the impairment of a customer sales incentive program. In 2005, this Seg- ment plans to continue its aggressive promotions of new and existing products and expanding its customer base. The Automotive Finishes Segment’s net sales increase for the year resulted primarily from new product line introductions, improving international sales and the April 2004 acquisition of a majority interest in Kinlita. Currency exchange fluctuations relative to last year had a negligible impact on net sales of this Segment in 2004. There were 200 automotive branches open at the end of 2004 in the United States, Canada, Chile, Jamaica and Peru. In 2005, this Segment expects to continue opening new branches, increasing sales in improving internation- al markets and improving its customer base in a soft domestic market. Net sales in the International Coatings Segment increased due primarily to favorable currency exchange fluctuations and sales in local currency that continued  to build during each quarter of 2004 by improving sales trends in South America and the United Kingdom. Dur- ing 2003, a change in fiscal year to a calendar year basis by South American subsidiaries, added an additional month sales to last year’s results. The net impact of favorable currency exchange fluctuations in 2004 more than offset the additional month sales in 2003 due to the fiscal year change increasing net sales of this Seg- ment by $9.9 million, or 3.5 percent. Shown below are operating profit and the percent change for the current period by reportable segment: Consolidated operating profit in 2004 increased primarily due to increased sales volume generating an increase in gross profit of $246.1 million that more than offset increased selling, general and administrative expenses of $187.3 million. The increased gross profit was adversely affected by rapidly rising raw material prices. As a percent of sales, consolidated gross profit decreased to 44.2 percent from 45.4 percent in 2003. The decrease in gross profit as a percent of sales was due primarily to raw material cost increases and $12.3 million in impairment charges that included a $9.8 mil- lion charge for a customer sales incentive program. The Paint Stores Segment’s gross profit for 2004 increased $238.8 million due primarily to increased sales volume and the acquisition of Duron. In the Con- sumer Segment, gross profit for 2004 decreased due pri- marily to the year-over-year impact of a $12.3 million impairment charge in 2004 for certain intangible assets and a customer sales incentive program and sharply increasing raw material costs. The Automotive Finishes Segment’s gross profit improved over 2003 due to domestic and foreign sales volume increases, sales of higher margin new products and profits of the Kinlita acquisition. The International Coatings Segment’s gross profit increased due to the net sales gain and operating efficiencies related to additional manufacturing volume. Consolidated selling, general and administrative expenses (SG&A), increased $187.3 million due prima- rily to expenses associated with additional investment in 32 (thousands of dollars) 2004 Change 2003 Paint Stores.................. $ 480,213  19.0% $ 403,379  Consumer .................... 187,717  (5.7%) 198,984  Automotive Finishes .... 58,056  10.8% 52,375  International Coatings. 18,041  115.5% 8,370  Administrative ............. (163,832) (16.9%) (140,182) $ 580,195  11.0% $ 522,926 