Management's Discussion and
Analysis of Financial Condition and Results of Operations (cont.)

Income tax provision.
The income tax provision for the year ended December 31, 2000 decreased to $15.1 million from $34.4 million in 1999. The effective tax rate was 40.0% for 2000 compared with 59.5% for 1999. The decrease in the effective tax rate in 2000 is primarily due to the implementation of domestic and international tax planning initiatives and a reduction in foreign losses for which no tax benefits are recorded.

Net income.
Net income for the year ended December 31, 2000 decreased to $22.7 million from $23.4 million in 1999 for the reasons discussed above.

1999 as Compared with 1998

Sales.
Sales for the year ended December 31, 1999 increased 9.6% to $2,514.5 million from $2,294.4 million in 1998. Sales growth in the domestic distribution and laboratory workstations segments in 1999 was primarily due to internal sales growth as well as the inclusion of sales of companies acquired in the second half of 1998 and the first quarter of 1999. Sales growth in the international distribution segment was predominantly due to the inclusion of sales of acquired companies.

Gross profit.
Gross profit for the year ended December 31, 1999 increased 9.7% to $629.1 million from $573.4 million in 1998, primarily as a result of increased sales volume. Gross profit as a percentage of sales was 25.0% in 1999 and 1998. 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. Gross profit in 1998 was negatively affected by $2.7 million of charges for adjustments of certain domestic and international inventory reserves related to the 1998 restructuring charge discussed below. Gross profit, excluding these charges, increased to 25.2% of sales in 1999 from 25.1% in 1998.

Selling, general and administrative expense.
Selling, general and administrative expense for the year ended December 31, 1999 increased 7.2% to $472.5 million from $440.9 million in 1998. The increase in selling, general and administrative expense in 1999 was primarily due to the selling, general and administrative expense of companies acquired during the second half of 1998 and the first quarter of 1999 and increased sales volume. Selling, general and administrative expense in both periods includes nonrecurring costs associated with the temporary duplication of operations, relocation of inventories and employees, hiring and training new employees, and other nonrecurring costs associated with our long-term restructuring plans and management retention payments related to our Recapitalization. For 1999, $2.2 million of these costs were included in selling, general and administrative expense compared with $7.6 million in 1998. Excluding these nonrecurring costs, selling, general and administrative expense as a percentage of sales was 18.7% in 1999 and 18.9% in 1998.

Recapitalization-related costs.
During the first quarter of 1998, we recorded $71.0 million of expenses consisting primarily of noncash compensation expense relating to the conversion of employee stock options, the implementation of certain executive severance agreements and the grant of options to certain executives in accordance with the terms of our Recapitalization.

Restructuring and other charges.
In the fourth quarter of 1998, we recorded $23.6 million of restructuring and other charges, which included $26.5 million of charges related to our long-term restructuring plan and $2.9 million of reversals for adjustments to prior period restructuring charges due to revised estimates. In 1998, restructuring and other charges included international asset impairment charges attributable to the economic slowdown in the Far East, write-offs of information systems due to a change in management's global information system strategy, and employee separation and other exit costs due to a restructuring of our management team in the United States and Europe and selected components of our sales force. These charges consisted of $13.6 million related to noncash asset impairments, $12.0 million of accruals for employee separation arrangements and $0.9 million of exit costs. The 1998 restructuring plan was substantially completed during 1999. The remaining accruals of $1.1 million for long-term severance arrangements are expected to be expended during 2001.

Loss from operations to be disposed of.
In December 1998 our Board of Directors approved a plan to dispose of our technology business segment. The disposition was completed through the spinoff of ProcureNet in April 1999 and the sale of the UniKix Technology software business in July 1999. The results of operations of this segment are reported separately in our statement of operations. Loss from operations to be disposed of decreased to $11.3 million for the year ended December 31, 1999 from $15.1 million in 1998. The decrease was primarily due to a decrease in the operating losses of ProcureNet and the UniKix Technology software business during 1999 due to their dispositions. The 1999 period includes a $5.2 million write-off of in-process research and development costs associated with an acquisition made during the first quarter of 1999, while the 1998 period includes $3.5 million of restructuring and other nonrecurring costs.