## Management’s Discussion and Analysis of Results of Operations and Financial Condition 

## Results Of Operations 

## 2001 

For the year ended December 31, 2001, net sales of $608.0 million were down 7 percent from the $652.7 million in 2000. Net income for 2001 of $15.2 million or $.64 per share decreased 37 percent from the $24.0 million and $1.01 per share reported in 2000. 

The Company experienced sales declines in both of its business segments. Distribution segment sales were down $7.2 million or 5 percent reflecting lower unit volumes, particularly for capital equipment. In the Manufacturing segment, sales decreased $37.7 million or 7 percent from the prior year as the Company experienced sharply lower demand brought on by the general recession and global economic slowdown affecting most of the industrial markets we serve. In addition, competitive pressures and lower raw material costs resulted in conditions to maintain or lower selling prices for most of the Company’s product lines and markets. Excluding the impact of acquired companies, sales in the manufacturing segment would have declined 10 percent and total sales would be down 9 percent for the year. The translation effect of foreign currencies, primarily the euro, did not have a material impact with a difference of less than one percent on the sales amounts as reported. 

Cost of sales decreased $32.1 million or 7 percent, reflecting the significant drop in fiscal 2001 sales. Gross profit, expressed as a percentage of sales, improved slightly to 33.7 percent for the year ended December 31, 2001, compared with 33.3 percent in the prior year. In the distribution segment, margins improved slightly reflecting a shift in sales mix to higher margin supplies versus capital equipment. In the manufacturing segment, margins were virtually unchanged as the benefit of lower raw material costs were offset by slightly lower selling prices and a decrease in the absorption of fixed manufacturing costs resulting from reduced production. 

Total operating expenses increased $4.7 million or 3 percent to $159.0 million. The increase in fiscal 2001 reflects the full year impact of expenses of companies acquired in the fourth quarter of last year as well as the amortization of related goodwill. In addition, the Company experienced substantially higher costs for medical insurance and bad debt expense, including approximately $1.0 million as a result of the K-Mart bankruptcy filing in January 2002. Expressed as a percentage of sales, operating expenses were 26.1 percent in 2001 compared with 23.6 percent in 2000. This decrease in operating expense leverage is a result of both the higher costs and reduced sales volume in the current year. 

Net interest expense for 2001 decreased $3.7 million or 16 percent compared with the prior year. This decrease reflects primarily the impact of lower interest rates. In addition, the Company reduced total debt by $35.3 million 

in fiscal 2001 and, therefore, received the benefit of lower average borrowing levels. 

Income taxes as a percent of income before taxes was 44.2 percent compared to 41.3 percent in the prior year. The higher effective tax rate reflects the more significant impact of non-deductible goodwill amortization resulting from lower pretax income combined with higher foreign tax rate difference. 

## 2000 

Net sales for the year ended December 31, 2000, increased $71.9 million or 12 percent to a record $652.7 million. Excluding contributions from acquisitions, total net sales would have increased 3 percent. Sales in the distribution segment decreased 2 percent for the year as sales of capital equipment, the more cyclical part of the distribution segment, continued to be weak. In the manufacturing segment, sales increased 18 percent over the comparable 12 months. Excluding acquisitions, sales in the manufacturing segment increased 5 percent for the year. The translation effect of the euro reduced both total sales and manufacturing segment sales by $20.0 million for the year. Without the translation effect and excluding acquisitions, both total sales and manufacturing segment sales would have increased 6 percent for the year. Cost of sales increased $67.4 million or 18 percent reflecting the higher sales levels and increased cost of raw materials, mainly plastic resins, which reduced gross profit as a percentage of sales from 36.7 percent in 1999 to 33.3 percent in 2000. 

Total operating expenses increased $10.7 million or 7 percent to $154.3 million. Included in fourth quarter 2000 general administrative expense were costs of approximately $3.2 million related to the closing of the Company’s Dayton, Ohio manufacturing facility. These costs were primarily to cover the estimated loss on disposition of the land, buildings, machinery and equipment and other fixed assets used at the closed facility. Expressed as a percentage of sales, total operating expenses were 23.6 percent in 2000 and 24.7 percent in 1999. This improvement reflects the benefit from greater integration of the various acquisitions made in 1999. 

Net interest expenses increased $7.2 million to $22.4 million for the year. This increase reflects the higher average borrowing levels resulting from acquisitions combined with slightly higher rates. 

Income taxes as a percent of income before taxes was 41.3 percent for 2000 compared to 42.6 percent in the prior year. This decrease is attributable to foreign tax rate differences. 

