Management's Discussion and
Analysis of Financial Condition and Results of Operations

2000 as Compared with 1999

Sales.
Sales for the year ended December 31, 2000 increased 4.3% to $2,622.3 million from $2,514.5 million in 1999. Excluding the impact of foreign exchange, sales increased 5.9% for the year ended December 31, 2000. Sales growth in the domestic distribution segment was primarily due to internal sales growth. Sales decline in the international distribution segment was due entirely to weaker foreign currencies, primarily the euro, in 2000 compared to 1999. Excluding the $35.1 million negative impact of changes in foreign exchange rates, international distribution sales grew by 1.5% for the year ended December 31, 2000. Sales decline in the laboratory workstations segment was due primarily to a slowdown in the industrial research laboratory construction market.

Gross profit.
Gross profit for the year ended December 31, 2000 increased 3.1% to $648.3 million from $629.1 million in 1999. This increase resulted primarily from higher volume, which was partially offset by a decrease in gross profit margins. Gross profit as a percentage of sales decreased to 24.7% for the year ended December 31, 2000 from 25.0% in 1999. The reduction in gross profit as a percentage of sales was primarily due to a decline in sales in the laboratory workstations segment, coupled with a change in product mix. Gross profit in 1999 was negatively affected by a $5.3 million inventory write-off as a result of a change in our product portfolio.

Selling, general and administrative expense.
Selling, general and administrative expense for the year ended December 31, 2000 increased 4.6% to $494.0 million from $472.5 million in 1999. The increase in selling, general and administrative expense in 2000 was primarily due to increased sales volume. Selling, general and administrative expense for the year ended December 31, 2000 includes $10.4 million of nonrecurring costs consisting of $5.5 million of costs incurred by the domestic distribution segment for business combinations that were not consummated, $3.7 million of noncash compensation expense relating to a one-time change in the terms of certain stock options, and $1.2 million of expenses related to targeted workforce reductions. For the year ended December 31, 1999, selling, general and administrative expense included $2.2 million of nonrecurring costs associated with our long-term restructuring plans. Excluding these nonrecurring costs, selling, general and administrative expense as a percentage of sales decreased to 18.4% for the year ended December 31, 2000 compared with 18.7% in 1999.

Restructuring and other charges.
In the third quarter of 2000, we recorded a restructuring credit of $2.0 million, which consisted of a $0.7 million reversal of the restructuring charge recorded in 1999 due to revised estimates of severance and related obligations and a $1.3 million reversal of restructuring charges recorded in years prior to 1999 due to revised estimates. In the fourth quarter of 1999, we recorded a $1.5 million net restructuring credit, which consisted of a $2.1 million restructuring charge related to our long-term restructuring plan and a $3.6 million reversal of prior period restructuring charges due to revised estimates. The 1999 restructuring charge reflected consolidation and downsizing of our German operations, which are included in our international distribution segment. This charge resulted from a plan that was adopted in December 1999. The charge related to severance and related costs for the termination of approximately 22 warehouse, customer service, and sales employees. This plan was substantially complete at December 31, 2000 and the remaining accrual of $0.4 million is expected to be fully expended during 2001. The $3.6 million reversal of prior period restructuring charges consists of a $3.0 million reduction of severance due to organizational changes and voluntary separations that occurred during 1999 which were not anticipated in prior periods and a $0.6 million reduction due to revised estimates for the closing of logistics centers in the United States.

Income from operations.
Income from operations for the year ended December 31, 2000 increased to $156.3 million from $146.8 million in 1999, primarily for the reasons discussed above. Excluding restructuring and other nonrecurring costs of $8.4 million in 2000 and $11.2 million in 1999, income from operations increased to $164.7 million in 2000 from $158.0 million in 1999.

Interest expense.
Interest expense for the year ended December 31, 2000 decreased to $99.1 million from $104.2 million in 1999. The decrease was primarily the result of a reduction in the amount of receivables sold under our receivables securitization facility during 2000 and favorable rate fluctuations on our interest rate swap agreements.

Other (income) expense, net.
Other (income) expense, net for the year ended December 31, 2000 decreased to $19.4 million of expense from $15.2 million of income in 1999. We recorded a charge of $23.6 million in the fourth quarter of 2000 related to the write-down to fair market value of investments in certain internet-related ventures. The majority of this charge related to our investment in ProcureNet, which we spun off in April 1999. The charge was triggered primarily by market conditions that adversely impacted ProcureNet's cash flows. The 1999 period includes a gain on the sale of the UniKix Technology software business, gains from the sale of property, plant and equipment and a gain from the undesignated portion of our interest rate swap.