SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE
Selling, general and administrative expense increased 12.0 percent
to $612.2 million, or 18.9 percent of sales, in 2002, from $546.4
million, or 19.0 percent of sales, in 2001. Selling, general
and administrative expense increased 10.6 percent in 2001 from
$494.0 million, or 18.8 percent of sales in 2000. Reflecting
the nonamortization of goodwill of $16.7 million, selling, general
and administrative expense was $529.7 million, or 18.4 percent
of sales in 2001. In 2000, selling, general and administrative
expense included $5.5 million of costs for business combinations
not consummated, $3.7 million of noncash compensation expense
related to a change in the terms of certain common stock options
and $1.2 million of expense related to targeted workforce reductions.
Excluding those charges and reflecting the nonamortization of
goodwill of $13.3 million, selling, general and administrative
expense was $470.3 million, or 17.9 percent of sales, in 2000.
The increase in selling, general and administrative expense
as a percentage of sales for 2002 was attributable to the acquisitions
completed in 2001, primarily Cole-Parmer, and certain integration
costs related to our acquisition of Retsch and Emergo, as well
as strategic investments in sales and marketing systems offset
by improvements in our base business as a result of both fixed-cost
leverage and savings from our 2001 restructuring plan. The increase
in selling, general and administrative expense as a percentage
of sales in 2001 was primarily due to acquisitions completed
in 2001. We are forecasting some improvement in selling, general
and administrative expense as a percentage of sales in 2003,
representing fixed-cost leverage partially offset by continued
strategic investments.
RESTRUCTURING AND OTHER CHARGES (CREDITS)
During 2001, we implemented restructuring plans focused on integration
of certain international operations and a streamlining of domestic
operations, including the consolidation of office, warehouse
and manufacturing facilities and the discontinuance of certain
product lines (collectively the “2001 Restructuring Plan”).
As a result of these actions, we recorded a restructuring charge
of $27.0 million. The restructuring charge reflects $18.3 million
related to estimated employee separation costs and $8.7 million
of exit costs. The charge for employee separation arrangements
relates to termination and other severance costs associated
with 780 salaried and hourly employees severed as part of this
plan. The exit costs represent primarily lease-cancellation
costs and costs associated with the discontinuance of certain
product lines. The domestic distribution, international distribution
and laboratory workstations segments accounted for $20.3 million,
$6.6 million and $0.1 million, respectively, of this charge.
During 2002, the Company recorded an aggregate net restructuring
credit of $2.2 million for the reversal of certain costs accrued
in the 2001 Restructuring Plan. The restructuring credits are
primarily related to a reduction in estimated severance costs
due to the election of certain employees to voluntarily separate
from the Company. In addition, cash payments under the 2001
Restructuring Plan during 2002 were $7.6 million, and the related
accrual balance was $3.6 million as of December 31, 2002.
In connection with the May 2001 stock offering, we accelerated
the vesting of options to purchase approximately 2.3 million
shares of common stock, with an average exercise price of $20.85
per share. These options were then converted into the right
to receive approximately 1.0 million shares of common stock,
issued and deposited into a rabbi trust. The number of shares
issued was determined by dividing the “spread” value
of the option (the difference between the last reported sale
price on March 30, 2001 of $35.44, the date of the transaction
and the exercise price of the option) by $35.44. As a result
of these transactions, we recorded a primarily noncash compensation
charge of $33.5 million during 2001.
During 2001, we also reversed $0.8 million of accruals from
restructuring charges recorded in years prior to 2001 due to
actual costs being lower than originally estimated. The domestic
distribution and international distribution segments accounted
for $0.7 million and $0.1 million of the restructuring credit,
respectively.
In 2000, we recorded a restructuring credit of $2.0 million,
consisting of $0.7 million related to revisions in estimated
separation costs and $1.3 million related to revised estimates
in total costs for restructuring charges prior to 2000. The
restructuring credit related to our domestic distribution and
international distribution segments equally.
INCOME FROM OPERATIONS
Income from operations increased 87.0 percent to $245.1 million
in 2002 from $131.1 million in 2001. Income from operations
decreased 16.1 percent to $131.1 million in 2001 from $156.3
million in 2000. Excluding restructuring credits of $2.2 million
in 2002, and net restructuring and other charges of $61.2 million
plus goodwill amortization of $16.7 million in 2001, each as
discussed above, income from operations increased 16.2 percent
to $242.9 million, or 7.5 percent of sales, in 2002 from $209.0
million, or 7.3 percent of sales, in 2001. The increase in income
from operations as a percentage of sales, as adjusted for 2002,
was attributable to our acquisition of Cole-Parmer, completed
in 2001, as well as improvements in our base business, partially
offset by strategic investments. Excluding net restructuring
credits and other charges of $8.4 million plus goodwill amortization
of $13.3 million, as discussed above, income from operations
in 2000 was $178.0 million, or 6.8 percent of sales. The increase
in income from operations as a percentage of sales, as adjusted,
for 2001 was primarily due to acquisitions completed in 2001.
We are forecasting income from operations as a percentage of
sales to range between 7.7 percent and 7.9 percent for 2003.
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