financial discussion

OPERATING RESULTS

Consolidated

(thousands, except per share)	2003	2002	2001
Net sales	$3,761,819	$3,403,585	$2,320,710
Operating income	$ 482,658	$ 395,866	$ 318,179
Income    Continuing operations       before change in accounting	$ 277,348	$ 211,890	$ 188,170
Change in accounting		(4,002)
Discontinued operations		1,882
Net income	$    277,348	$    209,770	$    188,170
Diluted income per common share    Continuing operations before change in accounting	$           1.06	$           0.81	$           0.72
Change in accounting		(0.02)
Discontinued operations		0.01
Net income	$           1.06	$           0.80	$           0.72

Our consolidated net sales reached $3.8 billion for 2003, an increase of 11 percent over net sales of $3.4 billion in 2002. Excluding acquisitions and divestitures, consolidated net sales increased 10 percent. Changes in currency translation positively impacted the consolidated sales growth rate by 6 percentage points, primarily due to the strength of the euro against the U.S. dollar. Sales also benefited from aggressive new account sales, new products and selling more to existing customers.

	2003	2002	2001
Gross profit as a percent of net sales	50.9%	50.4%	51.7%
Selling, general & administrative    expenses as a percent of net sales	38.1%	37.7%	38.0%

Our consolidated gross profit margin in 2003 increased over 2002. In 2002, cost of sales included $9.0 million of restructuring costs. If these costs were excluded, the gross profit margin for 2002 would have been 50.7 percent. The increase in the margin for 2003 also benefited from business mix and cost reduction actions, partially offset by poor results in GCS Service during 2003.

Selling, general and administrative expenses for 2003 increased as a percentage of sales over 2002. The increase in the 2003 expense ratio is primarily due to an increase in sales-and-service investments, rising insurance costs, increased headcount and health care costs and startup expenses related to legal entity restructuring, partially offset by cost savings initiatives.

In the first quarter of 2002, we approved plans to undertake restructuring cost-saving actions. Restructuring savings were approximately $31 million and $16 million in 2003 and 2002, respectively. Most of these savings were reinvested in the business.

(thousands)	2003	2002	2001
Operating income	$482,658	$395,866	$318,179
Operating income as a    percent of net sales	12.8%	11.6%	13.7%

Operating income for 2003 increased 22 percent over 2002. Excluding special charges in 2002 of $46 million, operating income in 2003 increased 9 percent over 2002. Adjusting for special charges, operating income in 2002 would have been 13.0 percent of net sales. The decline in 2003 operating income margins from this level reflects increased headcount and benefit costs and investments in the sales force partially offset by favorable sales volume increases and cost reduction initiatives.

Our net income was $277 million in 2003 as compared to $210 million in 2002, an increase of 32 percent. Net income in 2003 included a gain on the sale of an equity investment of $6.7 million after tax and a reduction in previously recorded restructuring expenses of $0.8 million after tax, offset by a write-off of $1.7 million of goodwill related to an international business sold in 2003. Net income in 2002 included a gain from discontinued operations of $1.9 million after tax, offset by special charges of $28.9 million after tax and a SFAS No. 142 transitional impairment charge of $4.0 million after tax. These items are of a nonrecurring nature and are not necessarily indicative of future operating results. If these items are excluded from both 2003 and 2002, net income increased 13 percent for 2003. This improvement in net income reflected good fixed-rate operating income growth in our International segment, particularly in Europe. Currency translation also positively impacted net income by approximately $12 million due primarily to the strength of the euro against the U.S. dollar. The comparison of net income also benefited from a lower effective income tax rate in 2003 which was the result of cost savings initiatives, a lower overall international rate and improved international mix. Excluding the items of a nonrecurring nature previously mentioned, net income for 2003 was 7.2 percent of net sales, up slightly from 7.1 percent in 2002.

2002 compared with 2001
Our consolidated net sales reached $3.4 billion for 2002, an increase of 47 percent over net sales of $2.3 billion in 2001. Business acquisitions, primarily the acquisition of the European joint venture, contributed to the overall sales growth for 2002. Excluding acquisitions, primarily the European joint venture, consolidated net sales increased 4 percent in 2002. Sales growth was experienced in most of our divisions. Changes in currency translation negatively impacted the consolidated sales growth rate by approximately 1 percentage point for 2002. Sales results reflected aggressive selling efforts, the benefits of investments in sales force training and productivity tools and new products, which were partially offset by the poor economic environment.

Our consolidated gross profit margin in 2002 decreased from 2001. Cost of sales included restructuring costs of $9.0 million for the year ended December 31, 2002. Excluding these restructuring charges, the gross profit margin would have been 50.7 percent for 2002. The gross profit margin was also negatively affected by the acquisition and consolidation of the European joint venture. The gross profit margin for 2001 on a pro forma basis (reflecting the European joint venture on a consolidated basis) was 50.2 percent. Our gross profit margin benefited from product mix improvements and cost reduction actions.

Selling, general and administrative expenses as a percent of sales for 2002 decreased when compared to 2001. The selling, general and administrative expense ratio on a pro forma basis (reflecting the consolidation of our European joint venture and the elimination of goodwill amortization) for 2001 was 37.5 percent. The increase in 2002 over the prior year pro forma expense ratio is partially due to stronger sales, which resulted in higher commissions and incentive-based compensation. This increase was partially offset by tight cost controls and savings related to restructuring activities in 2002.

During the first quarter of 2002, management approved various restructuring and other cost-saving actions, including costs to integrate our European operations, to streamline and improve our global operations. These actions resulted in pre-tax charges of approximately $51.8 million ($32.4 million after tax) in 2002. These charges were partially offset by a curtailment gain of $5.8 million ($3.5 million after tax) attributable to certain benefit plan changes. The restructuring included (i) a reduction of our global workforce during 2002, (ii) the closing of several facilities, (iii) the discontinuance of selected product lines and (iv) other actions. The expected cost savings related to restructuring activities began in 2002. Restructuring savings were approximately $16 million ($10 million after tax) in 2002. We have reinvested most of these savings in our business. Further details related to these restructuring expenses are included in Note 3 of the notes to consolidated financial statements.

Operating income for 2002 increased by 24 percent over 2001. Excluding special charges of $46 million, operating income for 2002 was 13.0 percent of net sales. This compared to 2001 pro forma operating income (reflecting the consolidation of our European joint venture and elimination of goodwill amortization) of $404 million, or 12.7 percent of net sales. This comparison of operating income margins reflects tight cost controls, savings from cost reduction initiatives and the sale of new products.

In addition to continuing operations, a legal issue related to the disposal of a business in 1992 was resolved during 2002, resulting in the recognition of a gain from discontinued operations of approximately $1.9 million (net of income tax benefit of $1.1 million) or $0.01 per diluted share.

Our net income for 2002 was $210 million. Net income included restructuring charges of $32.4 million after tax, a curtailment gain of $3.5 million after tax, a gain from discontinued operations of $1.9 million after tax and a SFAS No. 142 transitional impairment charge of $4.0 million after tax. Excluding these items, our net income for 2002 increased 28 percent over net income of $188 million in 2001. This improvement reflected good operating income growth in most of our divisions, the additional operating income generated by the acquisition of the European joint venture and the elimination of goodwill amortization. This was partially offset by higher net interest expense due to increased borrowings primarily to finance our acquisition of the European joint venture. Currency translation benefited diluted net income by $0.01 per share for 2002. As a percentage of net sales, net income for 2002 was 6.2 percent. Excluding the items of a nonrecurring nature previously mentioned, net income for 2002 was 7.1 percent of net sales, down from 8.1 percent in 2001 due to the addition of the European joint venture.