Income from operations in the domestic distribution segment increased 16.3
percent to $210.8 million or 7.6 percent of segment sales, for
2002 from $181.3 million, or 7.4 percent of segment sales, in
2001. Domestic distribution income from operations increased
17.6 percent to $181.3 million in 2001 from $154.2 million,
or 7.0 percent of segment sales, in 2000. The increase in domestic
distribution income from operations as a percentage of sales
for 2002 was attributable to the Cole-Parmer acquisition completed
in 2001 as well as improvements in our base business, partially
offset by strategic investments. The increase in domestic distribution
income from operations as a percentage of sales for 2001 was
primarily related to the acquisitions we completed in 2001.
We are forecasting income from operations as a percentage of
segment sales to range between 7.6 percent and 7.8 percent for
2003.
Income from operations in the international distribution segment
increased 15.1 percent to $21.4 million, or 4.8 percent of segment
sales, in 2002, from $18.6 million, or 4.4 percent of segment
sales, in 2001. International distribution income from operations
increased to $18.6 million in 2001 from $16.6 million, or 4.0
percent of segment sales, in 2000. The increase in international
distribution income from operations as a percentage of sales
in 2002 was due to our strategy to focus on improving operating
margin through increased gross margins and reduced selling,
general and administrative expense. We are forecasting international
distribution income from operations as a percentage of segment
sales to range between 5.5 percent and 6.5 percent for 2003.
Income from operations in the laboratory workstations segment
increased 34.5 percent to $11.7 million, or 6.0 percent of segment
sales in 2002 from $8.7 million, or 4.9 percent of segment sales,
in 2001. Laboratory workstations income from operations increased
to $8.7 million in 2001 from $7.3 million, or 4.4 percent of
segment sales, in 2000. The increase in laboratory workstations
income from operations in 2001 was due to an increase in sales
volume. We are forecasting laboratory workstations income from
operations as a percentage of segment sales to range between
5.5 percent and 6.0 percent for 2003.
INTEREST EXPENSE
Interest expense for 2002, 2001 and 2000 was $91.3 million,
$99.5 million and $99.1 million, respectively. The decrease
from 2001 to 2002 was attributable to a reduction in the average
outstanding debt balance coupled with a decrease in the weighted
average interest rate incurred on short-term borrowings. We
are forecasting a decrease in interest expense for 2003 of between
$12 million and $14 million related to the refinancing of our
debt.
OTHER EXPENSE, NET
Other expense, net increased to $12.3 million in 2002 from $1.3
million in 2001. Other expense, net decreased to $1.3 million
in 2001 from $19.4 million in 2000. In connection with our offering
of 8 1/8 percent notes in 2002, we recorded a charge in other
expense, net of $11.2 million ($7.1 million, net of tax), consisting
of $7.1 million of fixed-swap unwind costs and $4.1 million
of deferred financing and other costs associated with the retirement
of bank term debt resulting in an increase in other expense,
net in 2002. Other expense, net in 2001 consists of $6.0 million
in equity losses offset by interest income earned from proceeds
on the May 2001 public offering. Other expense, net in 2000
included a $23.6 million write-down to fair market value of
investments in certain Internet-related ventures, primarily
ProcureNet, which was spun off in 1999. We expect to record
a charge of approximately $45 million in the first quarter of
2003 consisting of $27 million of call premiums to be paid in
cash and $18 million of noncash deferred financing and other
costs associated with the redemption of the 9 percent senior
subordinated notes.
INCOME TAX PROVISION
The income tax provision for 2002 increased to $44.8 million
from $13.9 million in 2001. The income tax provision for 2001
decreased to $13.9 million from $15.1 million in 2000. The effective
tax rate was 31.7 percent for 2002 compared with 45.9 percent
for 2001 and 40.0 percent for 2000. The increase in the effective
tax rate for 2001 compared with the effective tax rate for 2000
was a result of restructuring and stock compensation charges.
Excluding the effect of the restructuring and stock compensation
charges, the adjusted 2001 effective tax rate would have been
40 percent. Approximately five percentage points of the improvement
in the 2002 effective tax rate as compared with the 2001 effective
tax rate, as adjusted, are due to the implementation of tax-planning
strategies and the remaining three percentage points are due
to the elimination of non-deductible goodwill amortization.
We are forecasting an effective tax rate of 30 percent for 2003.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In June 2001, the Financial Accounting Standards Board (“FASB”)
issued Statement of Financial Accounting Standards No. 142,“Goodwill
and Other Intangible Assets” (“SFAS 142”).
SFAS 142 requires the use of a nonamortization approach to account
for goodwill and indefinite-lived intangible assets. Under the
nonamortization approach, goodwill and indefinite-lived intangible
assets will not be amortized but instead will be reviewed for
impairment and written down with a resulting charge to operations
in the period in which the recorded value of goodwill and indefinite-lived
intangible assets exceeds its fair value. The adoption of SFAS
142 required us to reassess the useful lives and residual values
of all intangible assets and make any necessary amortization
adjustments.
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