MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS operations at these two sites. No formal shutdown plans were approved during 2002. See Note 6, pages 54 and 55 of this report, for information concerning accrued quali- fied exit costs and impairments of long-lived assets. The Company used the purchase method to allocate costs of the acquired businesses to the assets acquired and liabilities assumed based on their estimated fair val- ues at the dates of acquisition. The excess costs of the acquired businesses over the fair values of the assets acquired and liabilities assumed were recognized as goodwill. The valuations of the acquired assets and lia- bilities will impact the determination of future operating results. The Company used a variety of information sources to determine the values of acquired assets and liabilities including: third-party appraisers for the value and lives of identifiable intangible assets and property, plant and equipment; outside actuaries for defined bene- fit retirement plans; and legal counsel or other experts to assess the obligations associated with legal, environmen- tal and other contingent liabilities. The Company estimated income taxes in each juris- diction that it operated. This involved estimating tax- able earnings, specific taxable and deductible items, the likelihood of generating sufficient future taxable income to utilize deferred tax assets and possible exposures related to future tax audits. To the extent these estimates change, adjustments to income taxes will be made in the period in which the changes occur. The Company was invested in the United States affordable housing and historic renovation real estate markets. These investments have been identified as vari- able interest entities. However, the Company is not the primary beneficiary and did not consolidate the opera- tions of the investments. The carrying amounts of these non-traded investments, which approximate market value, were determined based on cost less related income tax credits determined by the effective yield method. See Note 1, on page 46 of this report, for more information on non-traded investments. The Company’s risk of loss from the partnership interests is limited to the amount of its investment. The Company has no ongoing capital commitments, loan requirements or guarantees with the general partners that would require any future cash con- tributions other than the contractually committed capital contributions which are disclosed in the contractual obli- gations table on page 31 of this report. The Company’s financial condition remained strong in 2004 due primarily to improved profitability. The Company ended the year with $45.9 million in cash and cash equivalents – a decrease of $256.9 million over the end of 2003 primarily as a result of acquisitions made in 2004. The Company’s current ratio decreased to 1.17 at December 31, 2004 from 1.49 at the end of 2003. Total debt increased to $738.3 million at December 31, 2004 from $513.6 million at the end of last year and increased as a percentage of total capitalization to 30.9 percent from 26.0 percent at the end of 2003. The lower current ratio and increased total debt also related primarily to the 2004 acquisitions. Net operating cash decreased in 2004 to $544.7 million compared to $558.9 million in 2003. The primary factor reducing net operating cash was increased working capital requirements to support new sales programs. Excess cash from 2003 and net operating cash and increased short-term borrowings in 2004 provided the funds necessary to support current year acquisitions of $554.5 million, the extinguishment of acquired debt of $67.1 million, capital expenditures of $106.8 million, purchases of treasury stock for $267.4 million and payments of $96.9 million in cash dividends. The Consolidated Balance Sheets and State- ments of Consolidated Cash Flows, on pages 42 and 44 of this report, provide more information concerning the Company’s financial position and cash flows. Management considers a measurement of cash flow that is not in accordance with accounting principles gener- ally accepted in the United States to be a useful tool in determining a discretionary portion of the Company’s net operating cash. Management reduces net operating cash, as shown in the Statements of Consolidated Cash Flows, by the amount expended for capital expenditures and the payment of cash dividends. The resulting value is referred to by management as “Free Cash Flow” which may not be comparable to values considered by other entities using the same terminology. The reader is cautioned that the following value should not be compared to other entities unknowingly. The amount shown below should not be considered an alternative to net operating cash or other cash flow amounts in accordance with accounting princi- ples generally accepted in the United States disclosed in the Statements of Consolidated Cash Flows, on page 44  of this report. Free Cash Flow as defined and used by management is determined as follows: 25 FINANCIAL CONDITION – 2004