CONSOLIDATED FINANCIAL STATMENTS AND NOTES

EX-99.1 4 dex991.htm CONSOLIDATED FINANCIAL STATMENTS AND NOTES CONSOLIDATED FINANCIAL STATMENTS AND NOTES

EXHIBIT 99.1

ITEM 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES

		Page
Independent Auditors’ Report		F-2

Consolidated Balance Sheets as of September 30, 2002 and 2001		F-3

Consolidated Statements of Income for the years ended September 30, 2002, 2001, and 2000		F-4

Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2002, 2001, and 2000		F-5

Consolidated Statements of Cash Flows for the years ended September 30, 2002, 2001, and 2000		F-6

Notes to Consolidated Financial Statements		F-7

F-1

INDEPENDENT AUDITORS’ REPORT

The Board of Directors

Apogent Technologies Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of Apogent Technologies Inc. and subsidiaries as of September 30, 2002 and 2001, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years in the three-year period ended September 30, 2002. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Apogent Technologies Inc. and subsidiaries as of September 30, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2002, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 7 to the consolidated financial statements, effective October 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets.”

KPMG LLP

Boston, Massachusetts

November 11, 2002, except as to the second paragraph of note 1, and as to notes 1(r), 2, 4, 5, 7, and 15, which are as of March 25, 2003

F-2

APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands except share and per share data)

	September 30,
	2002			2001

ASSETS
Current assets:
Cash and cash equivalents	$	16,327		$	9,192
Accounts receivable (less allowance for doubtful accounts of $5,723 and $3,975, respectively)		186,950			183,278
Inventories		203,997			167,436
Deferred income taxes		14,127			12,135
Prepaid expenses and other current assets		19,689			20,985
Assets of discontinued operations-held for sale		5,436			—

Total current assets		446,526			393,026
Available for sale security		60,183			55,072
Property, plant and equipment, net		270,893			223,687
Intangible assets, net		1,243,113			1,140,334
Other assets		15,370			15,961

Total assets	$	2,036,085		$	1,828,080


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and overdrafts	$	10,640		$	9,576
Current portion of long-term debt		25,352			64,066
Accounts payable		53,779			53,822
Income taxes payable		53,064			38,747
Accrued payroll and employee benefits		32,009			33,236
Accrued interest		16,630			15,292
Restructuring reserve		1,548			1,552
Other current liabilities		23,074			26,364
Liabilities of discontinued operations		305			—

Total current liabilities		216,401			242,655
Long-term debt, less current portion		635,020			583,788
Securities lending agreement		60,183			55,072
Deferred income taxes		132,100			101,073
Other liabilities		17,243			7,002
Commitments and contingent liabilities		—			—
Shareholders’ equity:
Preferred stock, $0.01 par value; authorized 20,000,000 shares		—			—
Common stock, $0.01 par value; authorized 250,000,000 shares issued 106,976,877 and 105,875,768 shares, respectively; outstanding 105,967,853 and 105,875,548 shares, respectively		1,070			1,059
Equity rights, 50 rights at $1.09 per right		—			—
Additional paid-in capital		271,682			254,637
Retained earnings		748,791			627,642
Accumulated other comprehensive loss		(26,419	)		(44,848	)
Treasury common stock, 1,009,024 and 220 shares, at cost		(19,986	)		—

Total shareholders’ equity		975,138			838,490

Total liabilities and shareholders’ equity	$	2,036,085		$	1,828,080

See accompanying notes to consolidated financial statements

F-3

APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands except per share data)

	Year Ended September 30,
	2002			2001			2000

Net sales	$	1,027,913		$	938,819		$	843,567
Cost of sales:
Cost of products sold		516,416			471,318			421,618
Restructuring charges		5,603			—			4,386

Total cost of sales		522,019			471,318			426,004

Gross profit		505,894			467,501			417,563
Selling, general and administrative expenses		256,692			255,902			228,178
Restructuring charges		1,262			583			5,840

Total selling, general and administrative expenses		257,954			256,485			234,018

Operating income		247,940			211,016			183,545
Other income (expense):
Interest expense		(40,737	)		(48,820	)		(49,584	)
Amortization of deferred financing fees		(3,461	)		(472	)		(521	)
Other, net		1,569			5,152			1,319

Income from continuing operations before income taxes and extraordinary item		205,311			166,876			134,759
Income taxes		75,144			65,472			53,775

Income from continuing operations before extraordinary item		130,167			101,404			80,984
Discontinued operations, net of income tax		(9,018	)		(3,357	)		47,337

Income before extraordinary item		121,149			98,047			128,321

Extraordinary item (net of income tax benefit of $1,359)		—			(2,106	)		—

Net income	$	121,149		$	95,941		$	128,321

Basic earnings per common share from continuing operations	$	1.22		$	0.96		$	0.77
Discontinued operations		(0.08	)		(0.03	)		0.45
Extraordinary item		—			(0.02	)		—

Basic earnings per common share	$	1.14		$	0.91		$	1.23

Diluted earning per common share from continuing operations	$	1.20		$	0.94		$	0.76
Discontinued operations		(0.08	)		(0.03	)		0.44
Extraordinary item		—			(0.02	)		—

Diluted earnings per common share	$	1.11		$	0.89		$	1.20

Weighted average basic shares outstanding		106,467			105,517			104,570
Weighted average diluted shares outstanding		108,656			108,072			106,803

See accompanying notes to consolidated financial statements

F-4

APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

	Common Stock		Equity Rights		Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (loss)			Treasury Common Stock			Total Shareholders’ Equity
Balance at September 30, 1999	$	1,040	$	—	$	251,251		$	403,380	$	(30,327	)		—		$	625,344
Comprehensive income:
Net income		—		—		—			128,321		—			—			128,321
Translation adjustment		—		—		—			—		(26,773	)		—			(26,773	)
Unrealized gain on security available for sale		—		—		—			—		2,124			—			2,124

Total comprehensive income		—		—		—			128,321		(24,649	)		—			103,672
Shares issued in connection with stock options		12		—		12,587			—		—			—			12,599
Tax benefit related to stock options		—		—		7,901			—		—			—			7,901

Balance at September 30, 2000		1,052		—		271,739			531,701		(54,976	)		—			749,516
Comprehensive income:
Cumulative effect of accounting change for cash flow hedge, net of tax effect of $1,687		—		—		—			—		2,530			—			2,530
Net income		—		—		—			95,941		—			—			95,941
Translation adjustment		—		—		—			—		(3,611	)		—			(3,611	)
Adjustment to interest rate swap agreements upon sale, net of tax benefit of $984		—		—		—			—		(1,475	)		—			(1,475	)
Amortization of gain on sale of interest rate swaps, net of tax benefit of $413		—		—		—			—		(619	)		—			(619	)
Unrealized gain on security available for sale, net of tax effect of $251		—		—		—			—		377						377

Total comprehensive income		—		—		—			95,941		(2,798	)		—			93,143
Shares issued in connection with stock options		7		—		6,624			—		—			—			6,631
Tax benefit related to stock options		—		—		3,301			—		—			—			3,301
Distribution of the equity of Sybron Dental Specialties, Inc. on December 11, 2000, net of dividends of $142,880		—		—		(27,027	)		—		12,926			—			(14,101	)

Balance at September 30, 2001		1,059		—		254,637			627,642		(44,848	)		—			838,490
Comprehensive income:
Net income		—		—		—			121,149		—			—			121,149
Translation adjustment		—		—		—			—		22,247			—			22,247
Adjustment to minimum pension liability, net of tax of $4,120		—		—		—			—		(6,445	)		—			(6,445	)
Amortization of gain on sale of interest rate swaps, net of tax benefit of $292		—		—		—			—		(440	)		—			(440	)
Unrealized loss on security available for sale, net of tax of $2,044		—		—		—			—		3,067			—			3,067

Total comprehensive income		—		—		—			121,149		18,429			—			139,578
Treasury shares purchased		—		—		—			—		—			(19,986	)		(19,986	)
Shares issued in connection with stock options		11		—		10,282			—		—			—			10,293
Tax benefit related to stock options		—		—		6,763			—		—			—			6,763
Final true-up of dividend to SDS relating to deferred income taxes		—		—		919			—		—			—			919

Balance at September 30, 2002	$	1,070	$	—	$	271,682		$	748,791	$	(26,419	)	$	(19,986	)	$	975,138

See accompanying notes to consolidated financial statements

F-5

APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year Ended September 30,
	2002			2001			2000
Cash flows from operating activities:
Net income (loss)	$	121,149		$	95,942		$	128,321
Adjustments to reconcile net income to net cash provided by operating activities:
Discontinued operations		9,018			3,357			(47,337	)
Depreciation		38,354			32,809			29,009
Amortization		17,060			40,539			33,892
Gain (loss) on sale of property, plant and equipment		1,859			(4,784	)		63
Provision for losses on doubtful accounts		924			129			474
Inventory provisions		1,826			4,751			(1,000	)
Deferred income taxes		24,753			3,954			10,258
Extraordinary item		—			2,106			—
Changes in assets and liabilities, net of effects of businesses acquired:
(Increase) decrease in accounts receivable		9,434			(133	)		(13,230	)
Increase in inventories		(26,446	)		(27,117	)		(5,499	)
Increase in prepaid expenses and other current assets		(832	)		(4,621	)		(2,177	)
Decrease in accounts payable		(1,759	)		(3,300	)		(915	)
Increase (decrease) in income taxes payable		(2,448	)		23,849			(1,768	)
Increase (decrease) in accrued payroll and employee benefits		(1,724	)		983			(5,041	)
Increase in accrued interest expense		1,337			2			—
Increase (decrease) in restructuring reserve		(118	)		(5,164	)		1,744
Increase (decrease) in other current liabilities		(10,211	)		15,690			(5,046	)
Net change in other assets and liabilities		9,974			401			(6,373	)

Net cash provided by operating activities		192,150			179,393			115,375

Cash flows from investing activities:
Capital expenditures		(63,630	)		(50,120	)		(41,324	)
Proceeds from sales of property, plant and equipment		5,007			12,457			924
Net payment for businesses acquired		(139,735	)		(163,519	)		(207,153	)
Dividends received from SDS		—			67,900			58,512
Capital contributions paid to SDS		—			(4,623	)		(21,399	)
Net change in advances and loans to SDS		—			(2,782	)		20,985
Distribution of the net equity of SDS		—			(14,101	)		—
Other investing activities		—			—			(2,600	)

Net cash used in investing activities		(198,358	)		(154,788	)		(192,055	)

Cash flows from financing activities:
Proceeds from revolving credit facility		358,500			454,560			332,640
Principal payments on revolving credit facility		(567,000	)		(502,460	)		(274,320	)
Proceeds from long-term debt		300,000			703,448			—
Principal payments on long-term debt		(79,089	)		(681,854	)		(450	)
Financing fees paid		(8,259	)		(6,721	)		—
Purchase of treasury stock		(19,986	)		—			—
Proceeds from the exercise of stock options		10,293			6,631			12,599
Other financing activities		6,175			(4,118	)		7,190

Net cash provided by (used in) financing activities		634			(30,514	)		77,659

Effect of exchange rate changes on cash and cash equivalents		12,709			2,690			(969	)

Net increase (decrease) in cash and cash equivalents		7,135			(3,219	)		10
Cash and cash equivalents at beginning of period		9,192			12,411			12,401

Cash and cash equivalents at end of period	$	16,327		$	9,192		$	12,411

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	39,691		$	37,132		$	55,833

Income taxes	$	39,513		$	43,070		$	42,412

Capital lease obligations incurred	$	334		$	104		$	25

See accompanying notes to consolidated financial statements

F-6

APOGENT TECHNOLOGIES INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands except share and per share data)

1. Summary of Significant Accounting Policies

The subsidiaries of Apogent are leading manufacturers of value-added products for the laboratory market in the United States and abroad.

On November 8, 2000, Sybron International Corporation (which subsequently changed its name to Apogent Technologies Inc.) announced that it had declared a pro rata distribution to its shareholders of the common stock and related preferred stock purchase rights of Sybron Dental Specialties, Inc. (formerly known as SDS Holding Co.) (the “Spin-Off”). On December 11, 2000, shareholders of record as of November 30, 2000 received one share of Sybron Dental Specialties, Inc. common stock for every three shares of Sybron International common stock they owned as of the record date. Sybron Dental Specialties, Inc. owns all of the outstanding stock of Sybron Dental Management, Inc., formerly named Sybron Dental Specialties, Inc. Prior to the Spin-Off, Sybron Dental Management, Inc. was a direct wholly-owned subsidiary of the Company and operated the Company’s dental business. Immediately prior to the Spin-Off, the Company contributed all of the stock of Sybron Dental Management, Inc. to Sybron Dental Specialties, Inc. As used in these Notes to the Consolidated Financial Statements, the term “SDS” means Sybron Dental Management, Inc. (formerly known as Sybron Dental Specialties, Inc.) for the periods prior to the Spin-Off, and Sybron Dental Specialties, Inc. (formerly known as SDS Holding Co.) for periods after the Spin-Off.

On January 31, 2001, the name of the Company was changed from Sybron International Corporation to Apogent Technologies Inc.

(a) Principles of Consolidation and Fiscal Year End

The consolidated financial statements reflect the accounts of Apogent Technologies Inc. and its subsidiaries. The term “Company” or “Apogent” as used herein refers to Apogent Technologies Inc. and its subsidiaries and their respective predecessors, unless the context otherwise requires. All significant intercompany balances and transactions have been eliminated. The Company’s fiscal year ends on September 30. The fiscal years ended September 30, 2002, 2001, and 2000 are hereinafter referred to as “2002”, “2001”, and “2000”, respectively. Dollar references throughout these footnotes are in thousands, except per share amounts or as otherwise indicated.

During March 2002, we made the decision to dispose of our vacuum deposition chamber business, Vacuum Process Technology, Inc. (“VPT”). On December 11, 2000, Apogent, then known as Sybron International Corporation, completed the spin-off (“Spin-Off”) of its dental business as a separate publicly traded company. The results of operations of VPT and SDS have been presented as discontinued operations in all years presented herein.

(b) Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include investments in debt obligations with original maturities of three months or less.

F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

(c) Inventories

Inventories are stated at the lower of cost or market. Elements of cost included in inventories are: raw materials, direct labor, manufacturing overhead (which includes indirect labor, fringe benefits, consumable supplies, depreciation of production equipment, and tooling). Certain domestic inventories of approximately $51,777 and $57,698 at September 30, 2002 and 2001, respectively, are valued on the last-in, first-out (LIFO) method. The remaining inventories are valued on the first-in, first-out (FIFO) method.

(d) Securities

When securities are purchased they are classified as held-to-maturity, available for sale, or trading securities. Held to maturity securities are those that the Company has the positive intent and ability to hold until maturity. Trading securities are those purchased and held with the intent to sell in the near term. Available for sale securities include debt securities that are held for an indefinite period but are neither held to maturity nor trading securities. At September 30, 2002 and 2001, the Company held a U.S. Treasury Bond classified as an available for sale security. Available for sale securities are reported at fair market value. Unrealized gains and losses for this security are included in comprehensive income as a separate component of shareholders’ equity.

(e) Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of depreciable assets (5 to 45 years for land improvements, buildings and building improvements, and 3 to 12 years for machinery and equipment) using the straight-line method. The Company assesses the recoverability of assets by comparing the carrying amount of an asset to future net cash flows expected to be generated by that asset. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair market value of the assets.

(f) Intangible Assets

Intangible assets include both goodwill and amortizable intangible assets. As of September 30, 2002, the Company had no unamortizable intangible assets except goodwill. Amortizable intangible assets (those intangible assets with definite estimated useful lives) are recorded at cost and are amortized, using the straight-line method, over their estimated useful lives. Proprietary technology, trademarks, patents, licenses, drawings, non-compete agreements, and other intangibles are amortized over 4 to 18 years, 5 to 40 years, 3 to 20 years, 5 to 40 years, 8 to 30 years, 3 to 10 years, and 1 to 40 years, respectively. The Company assesses the recoverability of its amortizable intangible assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 144 by determining whether the amortization of the asset balance over its remaining life can be recovered through projected undiscounted future cash flows of the acquired businesses. If projected future cash flows indicate that unamortized asset will not be recovered, an adjustment would be made to reduce the net asset to fair value. Cash flow projections are based on trends of historical performance and management’s estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. In accordance with SFAS No. 142, the Company tests goodwill for impairment on an annual basis by comparing the fair value of its reporting units to their fair value. During fiscal 2002 the Company included approximately $21 million in goodwill and intangibles in with the calculation of the estimated loss on sale of VPT.

F-8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

(g) Revenue Recognition

The Company recognizes revenue upon shipment of products when persuasive evidence of a sales arrangement exists, the price to the buyer is fixed and determinable, and collectibility of the sales price is reasonably assured. Large portions of the Company’s sales are sold through distributors. Revenues associated with sales to distributors are also recognized upon shipment of products when all risks and rewards of ownership of the product are passed.

(h) Income Taxes

Income taxes are accounted for under the asset and liability method wherein deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income or other comprehensive income in the period that includes the enactment date.

(i) Research and Development Costs

Research and development costs are charged to selling, general and administrative expenses in the year they are incurred. Research and development costs for fiscal years ended 2002, 2001, and 2000 were approximately $23,365, $19,153, and $17,178, respectively.

(j) Foreign Currency Translation

The functional currency for the Company’s foreign operations is the applicable local currency. The translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The gains or losses, net of applicable deferred income taxes, resulting from such translations are included in shareholders’ equity. Gains and losses resulting from foreign currency transactions are included in net income. Foreign currency transaction gains for 2002, 2001, and 2000 were approximately $354, $177, and $1,306, respectively.

(k) Pensions

The Company and its subsidiaries have various pension plans covering substantially all employees. U.S. pension obligations are funded by payments to pension fund trusts. Other foreign pensions are funded as expenses are incurred. The Company’s policy with respect to its defined benefit plans is generally to fund the minimum amount required under the Employee Retirement Income Security Act of 1974, as amended, for plans subject thereto.

(l) Earnings Per Common Share

Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding in the period presented. Diluted earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding plus dilutive effects of potential

F-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

common shares outstanding during the period. A reconciliation of shares used in calculating basic and diluted earnings per share follows:

	Year Ended September 30,
	2002	2001	2000
Basic	106,467	105,517	104,570
Effect of assumed conversion of employee stock options	2,189	2,555	2,233

Diluted	108,656	108,072	106,803

Options to purchase 4,504,840 shares of common stock at prices ranging from $23.79 to $25.10 per share were outstanding during a portion of 2002 but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares. The options, which expire in fiscal 2012, were still outstanding at the end of fiscal year 2002.

Options to purchase 1,568,845 shares of common stock at prices ranging from $22.24 to $24.51 per share were outstanding during a portion of 2001 but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares. The options, which expire in fiscal 2011, were still outstanding at the end of fiscal year 2001.

Options to purchase 904,844 shares of common stock at prices ranging from $25.31 to $32.00 per share were outstanding during a portion of 2000 but were not included in the computation of diluted earnings per share because the options’ exercise price was greater than the average market price of the common shares. The options, which expire in fiscal 2010, were still outstanding at the end of fiscal year 2000.

(m) Deferred Financing Fees

Deferred financing fees are capitalized and amortized as a separate component of other income over the life of the related debt agreements.

(n) Advertising Costs

Advertising costs included in selling, general and administrative expenses are expensed as incurred and for fiscal years ended 2002, 2001, and 2000 were approximately $6,626, $4,635 and $5,093, respectively.

F-10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

(o) Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

(p) Derivative Financial Instruments

In the normal course of business, we manage risks associated with foreign exchange and interest rates through a variety of strategies, including the use of hedging transactions, executed in accordance with our policies. Our hedging transactions include, but are not limited to, the use of derivative instruments. As a matter of policy, we do not use derivative instruments unless there is an underlying exposure. Any change in the value of our derivative instruments would be substantially offset by an opposite change in the value of the underlying hedged items. We do not use derivative instruments for trading or speculative purposes.

The Company uses interest rate swaps, from time to time, to manage its interest rate risk. The net amounts to be paid or received under interest rate swap agreements designated as hedges are accrued as interest rates change and are recognized over the life of the swap agreements, as an adjustment to interest expense from the underlying debt to which the swap is designated. The related amounts payable to, or receivable from, the counterparties are included in other current assets or other current liabilities.

The Company, from time to time, enters foreign currency options to hedge the exposure from adverse changes in foreign currency rates. In April 2001, we entered into a foreign currency option to hedge against the effect of fluctuations in foreign exchange rates on a note issued in British Pounds. The option of $23,126 (£16,220) matures in January 2003. The option was priced at $1.4258 (£0.701). This option is accounted for as a fair value hedge. All changes in the underlying values are reflected in net income. The purpose of the Company’s foreign currency hedging activities is to protect against risk that eventual cash flows from foreign activities will be adversely affected by changes in exchange rates and the effect of related changes on payments on long-term debt denominated in foreign currencies. Recognized and unrecognized gains or losses on foreign currency contracts entered into to hedge long-term debt are recorded as “other income”. The Company has not entered into any foreign currency options to hedge against exposure from operations in fiscal 2002.

On October 1, 2000, the Company adopted Financial Accounting Standard Board Opinions No. 133 as modified by FASB Opinion No. 138. These standards establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. They require the recognition of all derivative instruments as assets or liabilities in the balance sheet at fair value. The accounting treatment of changes in fair value is dependent upon whether or not a derivative instrument is designated as a hedge and if so, the type of hedge. For derivatives designated as a cash flow hedge, changes in fair value are recognized in other comprehensive income until the hedged item is recognized in earnings. At October 1, 2000, the Company had no freestanding derivatives in place other than interest rate swaps used to hedge variable rate long-term debt and had no material embedded derivatives. The interest rate swaps meet the criteria for cash flow hedge accounting. As a result, the swaps are recorded on the balance sheet as an asset at fair value with the corresponding gain or loss recorded in other comprehensive income beginning October 1, 2000. The impact on other comprehensive income upon adoption of the standard was an unrealized gain, net of tax, of approximately $2,530.

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

(q) Environmental Expenditures

Environmental expenditures that relate to current ongoing operations or to conditions caused by past operations are expensed. The Company determines its liability on a site-by-site basis and records a liability at the time when the liability is probable and can be reasonably estimated. The estimated liability is not reduced for possible recoveries from insurance carriers.

(r) Reclassifications

Certain reclassifications to prior year balances have been made to conform with current year presentations.

Effective September 30, 2002, the Company adopted the Emerging Issues Task Force (EITF) Issue No. 00-10, Accounting for Shipping and Handling Fees and Costs, which requires all amounts charged to customers for shipping and handling to be classified as sales revenues. Accordingly, all historical sales revenue amounts have been adjusted to reflect these charges. The costs related to shipping and handling are classified as a selling expense in selling, general and administrative expense. The following table reconciles historically reported amounts to those adjusted in accordance with EITF 00-10:

	Year Ended September 30,(a)
	2001			2000			1999			1998
Net sales
Reported net sales	$	926,072		$	833,797		$	687,663		$	553,958
Reclassification of freight income		12,747			9,770			8,958			8,541

Adjusted net sales	$	938,819		$	843,567		$	696,621		$	562,499

Cost of products sold
Reported cost of goods products sold	$	474,324		$	428,655		$	358,897		$	288,810
Reclassification of freight costs		(3,006	)		(2,651	)		(1,057	)		(624	)

Adjusted cost of products sold	$	471,318		$	426,004		$	357,840		$	288,186

Selling, general and administrative expenses
Reported selling, general and administrative expenses	$	240,732		$	221,597		$	167,695		$	143,753
Reclassification of freight income and expense		15,753			12,421			10,015			9,165

Adjusted selling, general, and administrative expenses	$	256,485		$	234,018		$	177,710		$	152,918

(a)

Historical amounts have been adjusted to reflect the discontinuance of ABI, BioRobotics, and VPT.

2. Business and Credit Concentrations

Many of the Company’s products are sold through major distributors. Sales to each of two distributors accounted for 14% and 11%, respectively of the Company’s net sales for 2002, 13% and 10%, respectively, of the Company’s net sales in 2001, and 14% and 9%, respectively, of the Company’s net sales in 2000. Accounts receivable from these two distributors comprised approximately 24% and 10%, respectively, of the outstanding consolidated accounts receivable balances at September 30, 2002 and approximately 10.6% and 10.7%, respectively, of the outstanding consolidated accounts receivable balances at September 30, 2001.

F-12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

3. Inventories

Inventories at September 30, 2002 and 2001 consist of the following:

	September 30,
	2002		2001

Raw materials and supplies	$	74,293	$	56,660
Work in process		19,400		25,974
Finished goods		110,304		84,802

	$	203,997	$	167,436

The Company uses the last-in, first-out (LIFO) method to value inventory at certain subsidiaries. Inventories would have been $6,674 and $7,573 higher at September 30, 2002 and 2001, respectively, if the first-in, first-out (FIFO) method had been used.

During 2000, quantities of inventory valued on a LIFO basis were consumed. This resulted in the liquidation of LIFO inventories valued at lower prevailing costs when such LIFO quantities were originally acquired in prior years. If these LIFO quantities had not been consumed, but replenished with the quantities valued at current costs, net income in 2000 would have been decreased by approximately $125 and would have had no impact on either basic or diluted earnings per share. No such events occurred in 2002 and 2001.

4. Income Taxes

Total income tax expense (benefit) for the years ended September 30, 2002, 2001, and 2000 is allocated as follows:

	2002			2001			2000
Income from continuing operations	$	75,144		$	65,472		$	53,775
Extraordinary items		—			(1,359	)		—
Discontinued operations		(5,199	)		5,831			32,165
Shareholders’ equity for unrealized gain on security available for sale		2,044			251			(1,420	)
Shareholders’ equity for cumulative effect of accounting changes for cash flow hedge		—			1,687			—
Shareholders’ equity for interest rate swap agreements		(292	)		(1,397	)		—
Shareholders’ equity for pension		(4,120	)
Shareholders’ equity for compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes		(6,763	)		(3,301	)		(7,901	)

	$	60,814		$	67,184		$	76,619

F-13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

Income tax expense (benefit) attributable to income from continuing operations consists of:

	Current		Deferred			Total
Year ended September 30, 2002:
U.S., state and local	$	54,635	$	11,068		$	65,703
Foreign		10,459		(1,018	)		9,441

	$	65,094	$	10,050		$	75,144

Year ended September 30, 2001:
U.S., state and local	$	52,258	$	3,296		$	55,554
Foreign		9,260		658			9,918

	$	61,518	$	3,954		$	65,472

Year ended September 30, 2000:
U.S., state and local	$	38,838	$	8,401		$	47,239
Foreign		4,679		1,857			6,536

	$	43,517	$	10,258		$	53,775

The domestic and foreign components of income from continuing operations before income taxes, discontinued operations, and extraordinary items are as follows:

	2002		2001		2000
United States	$	168,672	$	137,261	$	113,856
Foreign		36,638		29,634		20,903

Income before income taxes, discontinued operations, and extraordinary items	$	205,310	$	166,895	$	134,759

Income tax expense attributable to income from continuing operations was $75,144, $65,472, and $53,775 and in 2002, 2001, and 2000, respectively, and differed from the amounts computed by applying the U.S. Federal income tax rate of 35 percent to income from continuing operations before income taxes, discontinued operations and extraordinary items in 2002, 2001, and 2000 as a result of the following:

	2002			2001			2000
Computed “expected” tax expense	$	71,859		$	58,413		$	47,166
Increase (reduction) in income taxes resulting from:
Change in beginning of year valuation allowance for deferred tax assets allocated to income tax expense		—			—			(21	)
Amortization of goodwill		—			4,082			3,747
State and local income taxes, net of Federal income tax benefit		7,205			6,225			3,898
Foreign income taxed at rates higher than U.S. Federal Income		(2,650	)		(860	)		(836	)
Foreign tax credits utilized in excess of U.S. tax on foreign earnings		—			—			205
Other, net		(1,270	)		(2,388	)		(384	)

	$	75,144		$	65,472		$	53,775

F-14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

The significant components of deferred income tax benefit attributable to income from continuing operations for 2002, 2001, and 2000 are as follows:

	2002		2001		2000
Deferred tax (benefit)/expense (exclusive of the effects of other components listed below)	$	7,625	$	3,651	$	10,038
Increase in the valuation allowance for deferred tax assets		2,425		303		220

	$	10,050	$	3,954	$	10,258

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at September 30, 2002 and 2001 are presented below.

	2002			2001
Deferred tax assets:
Inventories	$	5,635		$	5,143
Compensation		2,929			2,369
Sale/Leaseback		4,424			4,427
Employee benefits		1,032			826
Net operating loss carryforwards		3,839			1,414
Pension		5,749			—
Warranty and other accruals		5,327			6,428

Total gross deferred tax assets		28,935			20,607
Less valuation allowance		(3,839	)		(1,414	)

Net deferred tax assets		25,096			19,193

Deferred tax liabilities:
Depreciation		(16,918	)		(16,338	)
Purchase accounting		(118,908	)		(88,818	)
Unrealized appreciation on securities available for sale		(4,073	)		(2,029	)
Other		(3,170	)		(946	)

Total deferred tax liabilities		(143,069	)		(108,131	)

Net deferred tax liability	$	(117,973	)	$	(88,938	)

The change in the net deferred tax liability contains $21,353 and $2,044 of deferred tax liabilities related to acquisitions and the unrealized appreciation on securities available-for-sale, a reduction of $292 related to the amortization of gain on sale of interest rate swaps and $4,120 of deferred tax assets related to pensions. The valuation allowance for deferred tax assets as of October 1, 2000 was $1,111. The net change in the total valuation allowance for the years ended September 30, 2002 and 2001 was an increase of $2,425 and $303 respectively. The valuation allowance relates primarily to net operating loss carryforwards in certain foreign jurisdictions and U.S. states, in which there is a history of pre-tax accounting losses and foreign tax credit carryforwards. Management is unable to conclude that there will be pre-tax accounting income in those jurisdictions in the near term. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment.

F-15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

At September 30, 2002, the Company has an aggregate of $991 of foreign net operating loss carry forwards from certain foreign jurisdictions, the majority of which have no expiration. The Company has an aggregate of $24,507 of various state net operating losses that expire between 2006 and 2018. At September 30, 2002 the Company has $2,195 of foreign tax credit carryforwards that expire in 2007.

Accumulated earnings of foreign subsidiaries at September 30, 2002, 2001, and 2000 of approximately $51,000, $25,000, and $11,000, respectively, have been reinvested in the business and no provision for income taxes has been made for the repatriation of these earnings.

5. Acquisitions and Divestitures

The Company has completed 32 acquisitions, discontinued three businesses, and spun off one business since the beginning of 2000. The acquired companies are all engaged in businesses that are similar to the Company’s existing businesses.

F-16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

Acquisitions

2002

During 2002, the Company completed nine acquisitions for cash. The aggregate purchase price for these acquisitions, net of cash acquired, was approximately $141 million. None of the acquisitions were considered individually significant. The total goodwill and identifiable intangibles assets for the acquired companies was approximately $111 million. The intangible assets will be amortized over their expected lives ranging from 3 to 20 years. The following table outlines the unaudited sales, operating income and total assets for the most recent available twelve-month period prior to each cash acquisition:

Business Segment Company Acquired	Acquisition Date	Sales		Operating Income		Total Assets		Type of Acquisition
		(in thousands)
Clinical Group:
Forefront Diagnostics, Inc.	November 2001	$	6,300	$	1,700	$	9,900	Stock
Separation Technology, Inc.	January 2002		3,200		1,000		3,000	Stock
Capitol Vial, Inc.	February 2002		27,000		9,600		26,200	Stock
Mirror Product Line of SMC Manufacturing	May 2002		600		200		10	Asset

Research Group:
Chromacol Limited, Epsom Glass Industries Limited, and Amchro Inc.	October 2001		9,900		350		5,080	Stock
Barden Engineering	October 2001		600		130		540	Asset
Cosmotec Co. Ltd.	October 2001		5,500		2,500		2,600	Stock
Marsh Bio Products, Inc.	April 2002		17,000		1,800		4,700	Asset
TFO, Incorporated	May 2002		1,700		160		850	Asset

The following pro forma financial information presents the combined results of operations of the Company and the purchased businesses referred above as if the 2002 acquisitions had occurred as of October 1, 2000, after giving effect to certain adjustments, including amortization of intangible assets, additional depreciation expense, increased interest expense on debt related to the acquisition, and related tax effects. The pro forma information does not necessarily reflect the results of operations that would have occurred had the Company and the purchased companies listed above constituted a single entity during such periods.

	2002		2001
Net sales	$	1,102,105	$	1,049,776
Income before extraordinary item		126,347		107,662
Net income		126,347		105,556
Basic earnings per common share		1.19		1.00
Diluted earnings per common share		1.16		0.98

2001

During 2001, the Company completed ten acquisitions, eight for all cash and two for cash and notes in the amount of $79,885. The aggregate cash price of the acquisitions (none of which individually or aggregated was significant) was approximately $158 million. The results of these acquisitions were included as of the date they were acquired. The total goodwill and intangibles for the acquired companies was approximately $153 million. Intangible assets with a definite life will be amortized over 3 to 40 years. The following table outlines unaudited sales and operating income for the most recent date prior to the acquisition, and unaudited total assets at the most recent available date prior to acquisition, for each of the acquired companies. The type of acquisition refers to whether the Company purchased assets or the stock of the acquired companies.

F-17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

Business Segment Company Acquired	Date	Sales		Operating Income			Total Assets		Type of Acquisition
		(in thousands)
Clinical Group:
Vacuum Process Technology, Inc.	November 2000	$	3,977	$	(19	)	$	1,097	Asset
Disposable Glass Culture Tube Business of Kimble Glass Inc.	April 2001		5,800		331			—	Asset
Innovative Diagnostics, Inc.	July 2001		1,300		163			—	Asset
Disposable Glass Pasteur Pipette and Perfume Sampler Vial Product Line of Kimble Glass Inc.	August 2001		2,000		400			—	Asset
Latex Agglutination Product Line of Medtek Diagnostics LLC.	July 2001		220		150			—	Asset
Daniel Mirror Company	September 2001		6,800		2,000			—	Asset
Research Group:
BioRobotics Group Limited	March 2001		10,500		2,500			4,592	Stock
Advanced Biotechnologies Ltd.	April 2001		21,500		6,700			14,265	Stock
Mosaic Technologies Inc.	July 2001		1,400		(747	)		—	Asset
Chromatography Vial Product Line of Kimble Glass Inc.	August 2001		7,200		1,300			—	Asset

2000

During 2000, the Company completed ten acquisitions, nine for all cash and one for cash and notes in the amount of $30,600. The aggregate cash price of the acquisitions (none of which individually or aggregated was significant) was $206,900. The Company was subject to future purchase price adjustments based upon earnout provisions under one of the purchase and sale agreements. Such earnout provision has a maximum payout of $6,000. The earnout provision is subject to the achievement of certain financial goals and is not contingent upon employment. The entire earnout was paid in fiscal 2001 and is accounted for as additional goodwill. All acquisitions were accounted for as purchases. The results of the acquisitions were included as of the date they were acquired. The total goodwill for the acquired companies was approximately $205,100. The following table outlines unaudited sales and operating income for the most recent date prior to the acquisition, and unaudited total assets at the most recent available date prior to acquisition, for each of the acquired companies.

Business Segment
Company Acquired

Date

Sales

Operating
Income

Total
Assets

Type of
Acquisition

(in thousands)

Clinical Group:

Microm Laborgoräte GmbH

October 1999

20,676

1,112

7,907

Asset

Lab Vision Corporation

August 2000

7,487

1,146

4,426

Stock

Consolidated Technologies, Inc

March 2000

7,782

2,888

6,100

Asset

Murex bacteriology latex agglutination product line of Abbott Laboratories

August 2000

20,461

10,026

N/A

Asset

The thyroid and coagulation product line of Axis Shield

September 2000

4,507

2,174

N/A

Asset

F-18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

Business Segment Company Acquired	Date	Sales	Operating Income		Total Assets	Type of Acquisition
		(in thousands)

Research Group:
Robbins Scientific Corporation	October 1999	19,601	4,088		9,876	Stock
Versi Dry^® product line of National Packaging Services Corporation	February 2000	2,494	1,300		—	Asset
Sun International	February 2000	5,818	(270	)	2,269	Asset
Genevac Limited	May 2000	10,624	1,082		4,165	Stock
Genevac Inc	May 2000	1,626	—		N/A	Stock

2003

Subsequent to September 30, 2002, the Company completed two acquisitions for cash. The following unaudited table outlines the sales, operating income and total assets for the most recent available twelve-month period prior to each cash acquisition.

Business Segment

Company Acquired

Date

Sales

Operating
Income

Total
Assets

Type of
Acquisition

(in thousands)

Clinical Group:

NeoMarkers, Inc.

October 2002

4,000

2,500

1,800

Stock

Opus Diagnostics Inc.

October 2002

2,000

1,000

600

Stock

Discontinued Operations:

Divestitures

On March 25, 2003, the Company made the decision to dispose of two of its businesses: the rapid diagnostic test business (on-site rapid tests used in the detection of pregnancy, drugs of abuse and infectious diseases) as conducted by our ABI subsidiary; and the manufacture and sale of automated micro array instrumentation for the genomics market as conducted by our BioRobotics subsidiary. The decision was made based in part on the Company’s ongoing strategy of strengthening the market positions of our leading brands and focusing on sales of our consumable laboratory products that have more stable growth expectations. As a result, these businesses no longer met the Company’s strategic requirements. In the second quarter of fiscal 2003, in connection with the discontinuance of these businesses, we incurred a charge of approximately $85,900, net of income tax benefit of $21,600, related to the write-down of net assets to their estimated fair value less costs to sell. The decision to sell these companies represented a disposal of long-lived assets and disposal group under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, results of these businesses have been classified as discontinued operations, and prior periods have been restated. The Company is actively pursuing the sale of these businesses and anticipates disposal within the next twelve months. In the event the Company ultimately disposes of ABI and BioRobotics for an amount less than the carrying value of the businesses, additional charges will be recognized upon disposal. For business reporting purposes, ABI was previously classified in the clinical group business segment, and BioRobotics was classified in the research group business segment.

Operating results from ABI for the years ended September 30, 2002, 2001, and 2000 were as follows:

	Years Ended September 30,
	2002		2001		2000

Net Sales	$	40,954	$	38,239	$	30,053
Gross Profit		18,957		16,698		17,124
Pretax income (loss)		10,056		11,095		9,566
Income tax		3,673		4,351		3,829
Net income (loss)		6,421		7,035		5,740

F-19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

Operating results from BioRobotics for the years ended September 30, 2002 and 2001 were as follows:

	Year Ended September 30,
	2002			2001

Net Sales	$	5,752		$	5,110
Gross Profit		2,931			3,798
Pretax income (loss)		(2,091	)		1,159
Income tax (benefit) expense		(755	)		427
Net income (loss)		(1,366	)		442

Assets and liabilities of ABI were as follows:

	September 30,
	2002		2001

Current assets	$	22,844	$	16,884
Property, plant and equipment, net		5,496		3,940
Intangible assets		74,801		44,627
Total assets		103,335		65,451
Current liabilities		2,830		4,278
Total liabilities		2,830		4,278

Assets and liabilities of BioRobotics were as follows:

	September 30,
	2002		2001

Current assets	$	3,617	$	4,526
Property, plant and equipment, net		714		461
Intangible assets		39,711		41,992
Total assets		44,042		48,136
Current liabilities		6,174		1,897
Total liabilities		6,174		1,897

During March 2002, we made the decision to dispose of our vacuum deposition chamber business, Vacuum Process Technology, Inc. (“VPT”). The decision was made following a slow-down in the telecommunications industry, in which VPT targeted a majority of its products, and as a result, the business no longer met the Company’s strategic requirements. In the second quarter of fiscal 2002, in connection with the discontinuance of this business, we incurred a charge of $13,200, net of income tax benefit of $7,600, related to the write-down of net assets to their estimated fair value less costs to sell. During the second quarter of fiscal 2003, the Company completed the sale of VPT and, as a result, incurred an additional charge of $2,800, net of income tax benefit of $1,600. The decision to sell VPT represents a disposal of long-lived assets and disposal group under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Accordingly, results of this business have been classified as discontinued operations. For business reporting purposes, VPT was previously classified in the

F-20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

clinical group business segment. Operating results from VPT for the years ended September 30, 2002 and 2001 were as follows:

	Year Ended September 30,
	2002			2001

Net Sales	$	3,982		$	15,372
Gross Profit		544			3,127
Pretax income (loss)		(1,370	)		1,610
Income tax (benefit) expense		497			(620	)
Net income (loss)		(873	)		990

Assets and liabilities of VPT were as follows:

	September 30,
	2002		2001
Current assets	$	3,771	$	6,296
Property, plant and equipment, net		817		912
Intangible assets		—		21,023
Total assets		5,436		29,083
Current liabilities		305		2,630
Total liabilities		305		2,630

Distribution

On November 8, 2000, the Company announced that it had declared a pro rata distribution (or spin-off) to its shareholders of the common stock and related preferred stock purchase rights of Sybron Dental Specialties, Inc. (the “Spin-Off”). Shareholders of record as of November 30, 2000 received one share of Sybron Dental Specialties, Inc. (“SDS”) common stock for every three shares of Apogent common stock they owned. These consolidated financial statements have reclassified SDS and its affiliates to discontinued operations. On December 11, 2000 the Spin-Off was completed. No proceeds were received by the Company in connection with the Spin-Off. For 2001 the Company has included a net loss of $11,800 from discontinued operations. The net loss included transaction expenses of $12,500 relating to the Spin-Off of SDS. Revenues and net income from SDS through the date of the Spin-Off (December 11, 2000) were $67,400 and $638, respectively, and offset the transaction expenses. Income included in discontinued operations for 2000 and 1999 was $41,597 and $47,844, respectively. SDS issued its own financial statements as of September 30, 2000.

As a result, these consolidated financial statements have classified SDS and its affiliates to discontinued operations. SDS now owns and operates what were formerly the professional dental, orthodontics and infection control products business segments.

F-21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

6. Property, Plant and Equipment

Major classifications of property, plant and equipment at September 30, 2002 and 2001 are as follows:

	2002			2001
Land and land improvements	$	13,279		$	13,067
Buildings and building improvements		119,368			102,856
Machinery and equipment		369,996			291,564
Construction in progress		22,930			18,755

		525,573			426,242
Less: Accumulated depreciation		(254,680	)		(202,555	)

	$	270,893		$	223,687

7. Intangible Assets

The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets”, on October 1, 2001. SFAS No. 142 requires that all goodwill and intangible assets with indefinite useful lives will no longer be amortized, but instead tested for impairment at least annually. The Company has performed its initial impairment tests as well as its initial annual impairment test and the results indicate no circumstances of impaired goodwill. The following table reconciles reported amounts to that which would have been reported if the current method of accounting was used for the fiscal years ended September 30, 2001, 2000, 1999, and 1998:

	Year Ended September 30,
	2001		2000		1999		1998
Income before extraordinary items:
Reported income before extraordinary items	$	98,047	$	128,321	$	125,376	$	76,043
Add back: goodwill amortization, net of tax		22,363		19,605		12,813		11,095

Adjusted income before extraordinary items	$	120,410	$	147,926	$	138,189	$	87,138

Net income
Reported net income	$	95,941	$	128,321	$	142,547	$	76,043
Add back: goodwill amortization, net of tax		22,363		19,605		12,813		11,095

Adjusted net income	$	118,304	$	147,926	$	155,360	$	87,138

Basic earnings per common share:
Reported earnings per share	$	0.91	$	1.23	$	1.38	$	0.74
Add back: goodwill amortization, net of tax		0.21		0.19		0.12		0.11

Adjusted basic earnings per common share	$	1.12	$	1.42	$	1.50	$	0.85

Diluted earnings per common share:
Reported fully diluted earnings per share	$	0.89	$	1.20	$	1.34	$	0.72
Add back: goodwill amortization, net of tax		0.21		0.18		0.12		0.10

Adjusted Diluted earnings per common share	$	1.10	$	1.38	$	1.46	$	0.82

As a result of SFAS No. 142, the Company is no longer amortizing approximately $967,753 of goodwill as of March 31, 2003.

F-22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

Intangible assets are as follows:

	September 30,						Weighted Average Life
	2002			2001			Weighted Average Life

Amortizable intangible assets
Proprietary technology	$	91,571		$	109,376		12.10
Trademarks		80,402			58,894		23.19
Patents		34,092			28,547		15.26
Licenses		17,798			10,703		21.30
Drawings		11,754			11,486		29.40
Non-compete agreements		16,316			13,240		4.72
Other		37,022			10,611		13.44
Less: Accumulated amortization		(75,433	)		(53,389	)

Net amortizable intangible assets		213,522			189,468
Unamortizable intangible assets (goodwill)		1,029,591			950,866

	$	1,243,113		$	1,140,334

Intangible assets by business segment at September 30, 2002 were as follows:

	Clinical Group			Research Group			Consolidated
Proprietary technology	$	68,705		$	22,866		$	91,571
Less: Accumulated amortization		(20,645	)		(6,615	)		(27,260	)

Net proprietary technology		48,060			16,251			64,311

Trademarks		16,053			64,349			80,402
Less: Accumulated amortization		(1,332	)		(14,392	)		(15,724	)

Net trademarks		14,721			49,957			64,678

Patents		18,946			15,147			34,093
Less: Accumulated amortization		(3,600	)		(3,056	)		(6,656	)

Net patents		15,346			12,091			27,437

Licenses		15,461			2,337			17,798
Less: Accumulated amortization		(3,970	)		(167	)		(4,137	)

Net licenses		11,491			2,170			13,661

Drawings		—			11,754			11,754
Less: Accumulated amortization		—			(5,807	)		(5,807	)

Net drawings		—			5,947			5,947

Non-compete agreements		8,393			7,923			16,316
Less: Accumulated amortization		(4,132	)		(4,504	)		(8,636	)

Net non-compete agreements		4,261			3,419			7,680

Other identifiable intangible assets (a)		7,439			12,979			20,418
Less: Accumulated amortization		(210	)		(2,426	)		(2,636	)

Net other identifiable intangibles (a)		7,229			10,553			17,782

Net amortizable intangible assets (a)	$	101,108		$	100,388		$	201,496

Excess cost over net asset values acquired (goodwill)	$	549,039		$	480,552		$	1,029,591

Unamortizable intangible assets		549,039			480,552			1,029,591

F-23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

Note (a): At September 30, 2002, Apogent Corporate Office had $16,604 of amortizable other identifiable intangible assets and $4,578 of related accumulated amortization that was not allocated to any of the business segments.

Amortization expense relating to the existing identifiable intangible assets for each of the next five years (beginning with fiscal 2003) is expected to be $18,372, $17,376, $14,036, $13,032, and $12,506, respectively.

The changes in the carrying amount of goodwill for the year ended September 30, 2002 are as follows:

	Clinical Group			Research Group			Consolidated
Balance at September 30, 2001	$	397,433		$	454,458		$	851,891
Goodwill acquired during the year (a)		95,087			4,456			99,543
Reclassification of customer lists and workforce(b)		73,835			25,141			98,976
Goodwill written off related to disposal of VPT		(21,023	)		—			(21,023	)
Reduction in purchase price of prior year acquisition		—			(10,635	)		(10,635	)
Effect of change in foreign currencies		3,707			7,132			10,839

Balance at September 30, 2002	$	549,039		$	480,552		$	1,029,591

(a)

Includes effect of final purchase price allocation related to prior year acquisitions.

(b)

The Company reclassified certain customer lists amounting to $98,976 to goodwill in accordance with SFAS No. 142. These amounts were determined to be inseparable from the underlying businesses to which they relate.

8. Long-Term Debt

Long-term debt at September 30, 2002 and 2001 consists of the following:

	2002			2001
Revolving Credit Facility	$	—		$	208,500
8% Senior Notes, net of discount		323,685			323,580
2.25% Senior Convertible Contingent Debt		300,000			—
Sellers’ Notes		24,656			103,685
Sale/Leaseback Obligation		11,416			11,734
Capital leases and other		615			9,931

		660,372			657,430
Less: Current portion of long-term debt		(25,352	)		(73,642	)

	$	635,020		$	583,788

Securities Lending Agreement	$	60,183		$	55,072

F-24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

Credit Agreements: Until December 11, 2000, the Company and its principal domestic subsidiaries (including certain subsidiaries of SDS) were parties to a credit agreement (as amended, the “Previous Credit Agreement”) with The Chase Manhattan Bank (“Chase”) and certain other lenders providing for a term A loan facility of $300,000 (the “Tranche A Term Loan Facility”), a term B loan facility (the “Tranche B Term Loan Facility”) and a revolving credit facility of up to $600,000 (the “Previous Revolving Credit Facility”). In connection with the Spin-Off, on December 1, 2000, the Company entered into a new credit agreement (the “Credit Agreement”) with Chase and certain other lenders providing for a term loan of $300,000 (the “Term Loan Facility”) and a revolving credit facility of up to $500,000 (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Credit Facilities”). Borrowings under the Credit Facilities are unsecured. On December 11, 2000, the Company borrowed approximately $563,000 under the Credit Facilities and together with funds aggregating $375,000 (approximately $307,100, the amount equal to the outstanding amounts under the Previous Credit Agreement attributable to SDS on December 11, 2000 including accrued interest plus a cash dividend of $67,900 from SDS to the Company), used such funds to repay all of the outstanding amounts under the Previous Credit Agreement (including amounts attributable to SDS and accrued interest) aggregating $938,000.

Revolving Credit Facility: Borrowings under the Revolving Credit Facility mature on December 1, 2005. The Revolving Credit Facility provides for an annual interest rate at the option of the Company, equal to (a) ABR plus 0% to .375% (the “Revolving ABR Margin”) or (b) the Eurodollar Rates plus .375% to 1.375% (the “Revolving Loan Eurodollar Rate Margin”). In addition, the Company has a third option to set the rate by a competitive bid process among the parties to the Revolving Credit Facility (the “CAF”). The Company also pays a facility fee of .125% to .375% for all commitments from the lenders, whether drawn, or undrawn and pays a utilization fee of 0.25% per annum if more than 50% of the Revolving Credit Facility is drawn. The Revolving ABR Margin, the Revolving Loan Eurodollar Rate Margin and the facility fee depend upon the Company’s credit rating from S&P and Moody’s. Based upon the Company’s current credit rating, the Revolving ABR Margin, the Revolving Loan Eurodollar Rate Margin and the facility fee would be 0%, 0.8% and 0.2%, respectively. The Revolving Credit Facility also provides for a multi-currency sub-facility providing up to $100,000 in sub-commitments in non-dollar currencies. Terms and conditions on the multi-currency sub-facility are to be agreed upon between the Company and Chase and the lenders providing funding under such facility. The Company may not exceed a total of $500,000 in dollar and non-dollar commitments under this Revolving Credit Facility. The Revolving Credit Facility also provides for the issuance of standby letters of credit and commercial letters of credit on behalf of the Company’s subsidiaries as required in the ordinary course of business as part of the working capital line. There were no outstanding balances under the Revolving Credit Facility as of September 30, 2002.

The Credit Agreement contains financial and operating covenants, including, among other things: restrictions on investments; requirements that the Company maintain certain financial ratios; restrictions on the ability of the Company and its subsidiaries to create or permit liens, or to pay dividends or make other restricted payments (as defined) in excess of $100,000 plus 50% of the defined consolidated net income of the Company for each fiscal quarter ending after September 30, 2000, less any dividends paid or other restricted payments made after September 30, 2000; and limitations on incurrence of additional indebtedness. The Company’s obligations under the Revolving Credit Facility are guaranteed by the Company’s material domestic subsidiaries.

Term Loan Facility: Borrowings under the Term Loan Facility were paid in full from the proceeds of the Senior Notes Offering completed in April 2001.

8% Senior Notes: On April 4, 2001 the Company issued $325,000 of unsecured senior notes in a private placement with exchange and registration rights, and in August 2001 we completed a registered exchange of the

F-25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

privately placed notes for similar notes that had been registered with the SEC. The notes were offered at a discount of approximately $1,469. They will mature on April 1, 2011. Interest is fixed at an annual rate of 8% and is payable on April 1 and October 1 of each year, beginning on October 1, 2001. The notes are redeemable by the Company at any time in whole, or from time to time in part, at a price equal to the greater of (i) 100% of the principal amount of the notes to be redeemed or (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon (exclusive of interest accrued to the date of redemption) discounted to the date of redemption on a semiannual basis at the applicable Treasury Yield (as defined in the bond agreement) plus 35 basis points, plus accrued interest to the date of redemption. The Company used the proceeds from the issuance to repay all of its Term Loan Facility ($300 million) and a portion of its Revolving Credit Facility. The notes are guaranteed by the Company’s material U.S. subsidiaries, which also guarantee the Company’s obligations under its Revolving Credit Facility.

Senior Convertible Contingent Debt: On October 10, 2001, the Company issued $300 million of senior convertible contingent debt securities (CODES). The CODES have a fixed interest rate of 2.25% per annum. Interest is payable on April 15 and October 15 of each year. The Company will also pay contingent interest during any six-month period if the average trading price of the CODES during a specified period of five trading days preceding the relevant six-month period is above specified levels. No contingent interest is payable during the six-month period from April 15, 2002 to October 14, 2002. The CODES will mature on October 15, 2021. The CODES are convertible, subject to certain conditions (based upon specified factors including but not limited to the sale price of the Company’s common stock, trading prices of the CODES, maintenance of the Company’s credit ratings, and the occurrence of specified corporate transactions), into Apogent common stock at a price of approximately $30.49 per share. The Company may redeem some or all of the CODES on or after October 20, 2004. The holders may require the Company to purchase all or a portion of their CODES on October 20, 2004 and on October 15, 2006, 2011 and 2016, or subject to specified exceptions, upon a change of control event. Certain of the Company’s U.S. subsidiaries guarantee the Company’s obligations under the CODES. The proceeds from the issuance were used to pay down the outstanding balance on our Revolving Credit Facility, and for general corporate purposes.

Sellers’ Notes: In connection with certain acquisitions, the Company has issued notes payable to the related sellers. The notes bear interest of 5% to 6% and mature at various dates through July, 2003. Certain notes are redeemable by the holders, subject to certain time restrictions. The notes are unsecured, however in certain instances, some are guaranteed by a subsidiary of the Company.

Sale/Leaseback: On December 22, 1988, the Company completed the sale and leaseback (the “Sale/Leaseback”) of its then principal domestic manufacturing and office facilities with an unaffiliated third party. The proceeds of $22,500 (net of approximately $1,100 in fees) were used to retire debt. The transaction has been accounted for as a financing for financial statement purposes and as a sale for income tax purposes. The financing obligation is being amortized over the initial 25-year lease term.

The Company pays all costs of maintenance and repair, insurance, taxes, and all other expenses associated with the properties. In addition, each of the leases is unconditionally guaranteed by the Company.

The initial term of each lease is 25 years with five five-year renewal options. The initial aggregate annual payments relating to the Company under the leases were $1,727 payable monthly in advance. On the fifth anniversary of the leases and every five years thereafter (including renewal terms), the rent is increased by the percentage equal to 75% of the percentage increase in the Consumer Price Index over the preceding five years. The percentage increase to the rent in any five-year period will be capped at 15%. Beginning January 1, 1999 annual payments increased to $2,176. The next adjustment will not occur until January 1, 2004.

F-26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

The Company has the option to purchase the facilities according to the terms of any bona fide offer received by the lessor from a third party (the “Third Party Offer”) at any time during the term of the leases. The purchase price upon exercise of the option will be an amount equal to the purchase price contained in the Third Party Offer. The Company also has the option to purchase the facilities, subject to complying with the notice provision in the leases, on any date between June 1, 2008 and May 31, 2009. The purchase price upon the exercise of the option is the greater of the fair market value of the leased premises or the sum of the landlord’s acquisition cost for the leased premises and any prepayment premiums that would be payable under the landlord’s financing for the premises.

In the event of a breach of certain covenants which include, subject to certain exceptions, restrictions on the Company’s and its subsidiaries’ incurrence of certain additional indebtedness, payment of dividends or the making of other distributions or the repurchase of the Company’s capital stock, or the creation of liens on their respective properties, the Company must cause each subsidiary to make a rejectable offer to the lessor to purchase its facility. If the lessor accepts the rejectable offer, each subsidiary will pay to the lessor a formula price based upon the lessor’s equity in the property and the lessor’s pre-payment premium to its lender. The Company may also be obligated to repurchase the property upon the occurrence of certain other events.

Securities Lending Agreement: On September 29, 1999, the Company purchased a United States Treasury Bond (“Treasury”) with a par value of $50,000, an interest rate of 6.15% and a maturity date of August 15, 2029. Concurrent with the purchase of the Treasury, the Company loaned the security to an unrelated third party for a period of 23 years. In exchange for the loaned Treasury, the Company has received collateral equal to the market value of the Treasury on the date of the loan, and adjusted on a weekly basis. This securities lending transaction is related to the Company’s existing lending policy by fixing $50,000 of its floating rate debt. For a period of five years, the Company is obligated to pay a rebate on the loaned collateral at an annual fixed rate of 6.478% and is entitled to receive a fee for the loan of the security at a floating rate equal to LIBOR minus .75%. Thereafter, the Company is required to pay the unrelated third party a collateral fee equal to the one-week general collateral rate of interest (as determined weekly in good faith by the unrelated third party, provided that such rate shall not exceed the federal funds rate in effect as of the day of determination plus .25%) and the Company receives all distributions made on or in respect to the Treasury. This transaction is accounted for as a secured borrowing under SFAS No. 140.

Maturities of Long-Term Debt: As of September 30, 2002, maturities of long-term debt, including capital leases, are as follows:

Fiscal
2003	$	25,352
2004		704
2005		300,637
2006		650
2007		754
Thereafter		332,275

	$	660,372

F-27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

9. Lease Commitments

As of September 30, 2002, minimum rentals, excluding rent payments under the Sale/Leaseback described in note 8, under capital and noncancellable operating leases consisting primarily of machinery and equipment, and building leases are:

Fiscal	Capital		Operating
2003	$	286	$	12,298
2004		185		10,458
2005		89		9,324
2006		5		7,716
2007		—		7,035
Thereafter		—		23,224

	$	565	$	70,055

Less amounts representing interest		48

Present value of net minimum lease payments		517
Less current portion		255

Long-term obligations under capital leases	$	262

Amortization of assets held under capital leases is included with depreciation expense.

Rental expense under operating leases for fiscal years ended 2002, 2001, and 2000 was approximately $13,402, $10,725, and $8,716, respectively.

10. Fair Market Value of Financial Instruments

The carrying amounts of financial instruments approximate fair value due to the short maturity of those instruments except as follows:

8% Senior Notes and 2.25% Senior Convertible Contingent Debt (CODES): The fair values of our issued debt securities were obtained from dealer quotes. The estimated fair market value of the 8% Senior Notes approximated the reported amount as of September 30, 2001. There were no CODES outstanding as of September 30, 2001.

	September 30, 2002				September 30, 2001
	Reported Amount		Estimated Fair Value		Reported Amount		Estimated Fair Value
8% Senior Notes	$	323,685	$	377,000	$	323,580	$	351,000
2.25% CODES		300,000		303,000		—		—

Sale/Leaseback: The fair value was determined by estimating the interest rate at which the Company could refinance the Sale/Leaseback given the same maturity period.

	September 30, 2002				September 30, 2001
	Reported Amount		Estimated Fair Value		Reported Amount		Estimated Fair Value
Sale Leaseback	$	11,416	$	10,166	$	11,734	$	10,886

F-28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

Foreign Exchange Contracts: The Company enters into foreign exchange hedging contracts to hedge certain sales commitments and loans made to foreign subsidiaries denominated in foreign currencies. The purpose of the Company’s foreign currency-hedging activities is to protect the Company from the risk that the eventual cash flows resulting from foreign activities will be adversely affected by changes in exchange rates. The recognition of gains and losses on contracts entered into to hedge sales commitments are included in net income as an adjustment to net sales. At September 30, 2002 and 2001, the Company had no foreign exchange option contracts with respect to sales commitments. At September 30, 2002, the Company had one foreign exchange option contract relating to loans made to purchase a foreign subsidiary.

Interest Rate Swaps: The Company enters into interest rate swaps to stabilize funding costs by minimizing the effect of potential interest rate increases on floating-rate debt in a rising interest rate environment. Under these agreements, the Company contracts with a counter party to exchange the difference between a fixed rate and a floating rate applied to the notional amount of the swap. Swap contracts are principally between one and five years in duration. The differential to be paid or received on interest rate swap agreements is accrued as interest rates change and is recognized in net income as an adjustment to interest expense. Gains and losses resulting from terminated interest rate swap agreements are deferred and recognized in net income over the shorter term of the remaining contractual life of the swap agreement or the remaining term of the debt underlying the swap agreement. If swap agreements are terminated due to the underlying debt being extinguished, any resulting gain or loss is recognized in net income as an adjustment to interest expense at the time of the termination. As of September 30, 2002, the Company has no interest rate swap agreements.

On December 11, 2000, the Company extinguished the variable rate long-term debt to which the then-existing swaps were designated and as a result the interest rate swaps ceased to be accounted for as hedges. On December 12, 2000, the Company sold the interest rate swaps for an aggregate gain of $1,055, net of tax. Upon the sale of the interest rate swaps, the Company reduced the unrealized gain recorded at October 1, 2000 in other comprehensive income to reflect the fair market value net of tax on the date of sale. Because these interest rate swaps were designated as a hedge against future variable rate interest payments and the extinguished debt, the gain continued to be carried in other comprehensive income and recognized as an adjustment to yield interest expense of the new credit facilities over the remaining term of the interest rate contract. As of September 30, 2002, the gains had been fully amortized. For 2002 and 2001, the Company recognized gains, net of tax of $440 and $619, respectively.

11. Employee Benefit Plans

Pension and Other Postretirement Benefits: The Company has defined benefit pension plans covering approximately 48 percent of its U.S. employees. The benefits are generally based on various formulas, the principal factors of which are years of service and compensation. The Company’s funding policy is to generally make the minimum annual contributions required by applicable regulations. Plan assets are invested primarily in U.S. stocks, bonds and international stocks. In addition to the defined benefit plans, the Company provides certain health care benefits for eligible retired employees, which are funded as costs are incurred. Certain employees who reached the age of 55 prior to January 1, 1996 will become eligible for postretirement health care only if they reach retirement age while working for the Company. The Company accrues, as current costs, the future lifetime retirement benefits for both qualifying active and retired employees and their dependents. The postretirement health care plans for subsidiaries of the Company and certain divested operations are generally contributory, with retiree contributions adjusted annually. In 1986, the Company instituted a policy with respect to postretirement medical premiums whereby the Company’s contributions were frozen at the levels equal to the Company’s contribution on December 31, 1988, except where collective bargaining agreements prohibited such a freeze.

F-29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

The following assumptions were used in determining the funded status of the Company’s defined benefit plans:

	2002		2001
Discount rate	7.25	%	7.75	%
Rate of increase in compensation levels	4.0	%	4.0	%
Expected long-term rate of return on assets	9.5	%	10.0	%

The following assumptions were used in determining the accumulated postretirement benefit obligation of the Company’s postretirement plans:

	2002		2001
Discount rate	7.25	%	7.75	%
Average increase in medical costs	10	%(a)	5.5	%

(a)

For measurement purposes, a 10 percent annual rate of increase in the Company-paid medical premiums for non-frozen groups was assumed for 2002, decreasing gradually to 5 percent in year 2007 and thereafter.

	Pension Benefits						Other Benefits
	2002			2001			2002			2001
Change in benefit obligations:
Obligations at beginning of year	$	63,170		$	51,009		$	5,792		$	4,457
Service cost		2,915			2,125			15			13
Interest cost		4,823			3,981			418			298
Actuarial loss (gain)		7,585			8,603			2,114			2,475
Benefit payments		(2,665	)		(2,548	)		(1,195	)		(1,451	)

Obligations at end of year	$	75,828		$	63,170		$	7,144		$	5,792
Change in fair value of plan assets:
Fair value of plan assets at beginning of year	$	51,801		$	50,483		$	—		$	—
Actual return on plan assets		(2,249	)		1,250			—			—
Employer contributions		210			2,692			1,195			—
Benefit payments		(2,665	)		(2,624	)		(1,195	)		—

Fair value of plan assets at end of year	$	47,097		$	51,801		$	—		$	—
Funded Status:
Funded status at end of year	$	(28,731	)	$	(11,369	)	$	(7,144	)	$	(5,792	)
Unrecognized transition (asset) obligation		—			(6	)		—			—
Unrecognized prior service cost		123			145			—			—
Unrecognized (gain) loss		20,253			5,565			4,497			2,721

Net amount recognized at measurement date		(8,355	)		(5,665	)		(2,647	)		(3,071	)
Employer contribution paid after measurement date		2,932			—			—			—

Net amount recognized at end of year	$	(5,423	)	$	(5,665	)	$	(2,647	)	$	(3,071	)

F-30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

The following table provides the amounts recognized in the Company’s consolidated balance sheets:

	Pension Benefits						Other Benefits
	2002			2001			2002			2001
Prepaid benefit cost	$	—		$	67		$	—		$	—
Accrued benefit liability		(19,042	)		(5,732	)		(2,647	)		(3,071	)
Intangible asset		123			—			—			—
Accumulated other comprehensive income		10,564			—			—			—

Net amount recognized at measurement date		(8,355	)		(5,665	)		(2,647	)		(3,071	)
Employer contribution paid after measurement date		2,932			—			—			—

Net amount recognized at September 30,	$	(5,423	)	$	(5,665	)	$	(2,647	)	$	(3,071	)

The following table provides disclosure of the net periodic benefit cost:

	Pension Benefits									Other Benefits
	2002			2001			2000			2002		2001		2000
Service cost	$	2,915		$	2,125		$	2,032		$	15	$	13	$	12
Interest cost		4,823			4,026			3,691			419		298		399
Expected return on plan assets		(4,858	)		(4,940	)		(4,509	)		—		—		—
Amortization of transition (asset) obligation		(6	)		12			107			—		—		—
Amortization of prior service cost		23			(1	)		(52	)		—		—		—
Amortization of net loss (gain)		3			(110	)		65			128		—		—

Net periodic benefit cost	$	2,900		$	1,112		$	1,334		$	562	$	311	$	411

The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of fair value of plan assets were $74,144, $64,934, and $45,941, respectively, as of September 30, 2002 and $2,907, $1,853, and $0, respectively, as of September 30, 2001.

As a result of the cumulative benefit obligations of the Company’s pension benefit plans exceeding the fair market value of the plans’ assets, the Company has recorded a $6,445 minimum liability, net of tax of $4,120, through a charge to equity during 2002. This charge is reflected as a reduction to other comprehensive income.

An increase of one percentage point in the per capita cost of health care costs associated with the plans for which the Company contributions are not frozen would increase the accumulated postretirement benefit obligation and service and interest cost components as of September 30, 2002 by approximately $212 and $8, respectively.

Because the majority of the postretirement plans are remaining liabilities from certain divested operations and more than 85% of the 2002, 2001 and 2000 net periodic postretirement benefit costs relate to interest costs, the Company has classified such interest costs as interest expense. This results in a non-cash increase in interest expense of approximately $419, $298, and $399 in 2002, 2001, and 2000, respectively.

Savings Plans: Employees in the United States are eligible to participate in contributory savings plans maintained by the Company under Section 401(k) of the Internal Revenue Code of 1986, as amended. Matching contributions made by the Company under the plans, net of forfeitures, were approximately $3,242, 3,079, and $2,770 for 2002, 2001, and 2000, respectively.

F-31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

12. Restructuring Charges

During 2002, the Company recorded a restructuring charge of approximately $7.2 million (approximately $4.4 million net of tax) for the consolidation of certain facilities, and discontinuance of certain product lines due to product rationalizations. The restructuring charge was classified as components of cost of sales and selling, general and administrative expenses. The cost of sales component of approximately $5.6 million related to the write-off of inventory, write-offs of fixed assets, certain lease terminations, and severance associated with employees in production activities. The selling, general and administrative component of approximately $1.3 million related to severance associated with non-production employees as well as certain lease terminations and other shut down costs. These charges are referred to as the “2002 Special Charges”.

Activity related to the 2002 Special Charges and its components are as follows (dollars in thousands):

	Severance(a)			Inventory(b)			Fixed Assets(b)			Facility Closure Costs(c)			Other			Total
2002 Restructuring charge	$	1,500		$	3,700		$	400		$	1,400		$	200		$	7,200
2002 Cash payments		(900	)		—			—			(500	)		—			(1,400	)
2002 Non-cash charges		—			(3,700	)		(400	)		—			(200	)		(4,300	)

September 30, 2002 balance	$	600		$	—		$	—		$	900		$	—		$	1,500

(a)

Amount represents severance and termination costs for 126 terminated employees (primarily sales, marketing and manufacturing personnel).

(b)

Amount represents write-offs of inventory and fixed assets associated with discontinued product lines.

(c)

Amount represents lease payments and other facility closure costs on exited operations.

F-32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

In September 2000, the Company recorded a restructuring charge of approximately $11,300 (approximately $7,500 after tax or $.07 per share on a diluted basis) for the consolidation of certain businesses, product rationalizations, changes in management structure and taxes associated with restructuring U.K. operations. The restructuring charge was classified as components of cost of sales (approximately $4,400 relating to the write-off of inventory, write-offs of fixed assets, certain lease terminations and severance associated with employees in production activities), selling, general and administrative expense of $5,800 and income tax expense of $1,000, related to the Company’s restructuring of its U.K. operations. Restructuring activity since its inception in September 2000 and its components are as follows:

	Severance(a)		Inventory(b)		Fixed Assets(b)		Lease Commitments(c)		Shut- down Costs(c)		Tax(d)		Other		Total
	(in thousands)
2000 Restructuring charge	$	5,500	$	2,100	$	1,000	$	500	$	300	$	1,000	$	900	$	11,300
2000 Cash payments		1,100		—		—		—		—		—		—		1,100
2000 Non-cash charges		—		2,100		1,000		—		—		—		800		3,900

September 30, 2000 balance	$	4,400	$	—	$	—	$	500	$	300	$	1,000	$	100	$	6,300
Adjustments(e)		600		—		—		—		—		—		—		600
2001 Cash payments		3,800		—		—		200		200		1,000		—		5,200
2001 Non-cash charges		—		—		—		—		100		—		100		200

September 30, 2001 balance	$	1,200	$	—	$	—	$	300	$	—	$	—	$	—	$	1,500
2002 Cash payments		850		—		—		300		—		—		—		1,150
2002 Non-cash credit		350		—		—		—		—		—		—		350

September 30, 2002 balance	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

(a)

Amount represents severance and termination costs for 151 terminated employees (primarily sales, marketing and corporate personnel).

(b)

Amount represents write-offs of inventory and fixed assets associated with discontinued product lines.

(c)

Amount represents lease payments and shut down costs on exited facilities.

(d)

Amount represents income tax expense associated with the restructuring of our U.K. facilities.

(e)

Amount represents an increase in the severance costs for 16 employees (primarily corporate personnel). These employees are included in the total 151 terminated employees referenced above.

13. Commitments and Contingent Liabilities

Nalge Nunc International, a subsidiary of Apogent has been identified as a potentially responsible party (“PRP”) at the Aqua-Tech site in South Carolina (the “Aqua-Tech Site”) with respect to a previously owned facility. An action has been conducted at the Aqua-Tech Site for the removal of surface contaminants under the supervision of the Environmental Protection Agency (“EPA”) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”). Our total expenses (including legal expenses) to date have been approximately $165,000. The site has been placed by the EPA on the federal National Priority List under CERCLA, which is a prerequisite to any federally-mandated requirement for long-term remedial work at the site under CERCLA, such as would be involved in soil and groundwater remediation. We are participating with a PRP group composed of approximately 100 parties in an agreement with the EPA to undertake a remedial investigation and feasibility study, which will be used by the EPA to determine what remedy, if any, should be required at the site. A draft remedial investigation was submitted to the EPA in August 1999, and a draft baseline risk assessment was submitted in October 1999. After review of the draft remedial investigation, the EPA requested and obtained additional sampling work from the PRP group. The final remedial

F-33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

investigation was submitted in 2000, and the feasibility study is now expected to be completed in June 2003. Because the study, which involves extensive testing to characterize the existence, extent and nature of any contamination in order to determine potential remedies, has not yet been completed, an estimate of our potential liability cannot be made. Our share of waste allegedly sent to the site is reportedly not more than 1% of the total waste sent; therefore, even though CERCLA does provide for joint and several liability, we believe that any ultimate liability will not have a material adverse effect on our results of operations or financial condition.

Applied Biotech, Inc. (“ABI”), a subsidiary in our clinical diagnostics business segment, formerly manufactured and supplied immunoassay pregnancy tests to Warner Lambert Co. (now part of Pfizer Inc.). Warner Lambert sold the tests to retailers who sell them over-the-counter to consumers. ABI supplied the product to Warner Lambert pursuant to a supply agreement that Warner Lambert claims required ABI to defend and indemnify Warner Lambert with respect to any liability arising out of claims that the product infringes any patents held by third parties. On January 8, 1999, Conopco, Inc. d/b/a Unipath Diagnostics Company filed a lawsuit against Warner Lambert in the U.S. District Court for the District of New Jersey. The Unipath Diagnostics business, along with this lawsuit, were subsequently sold to Inverness Medical Switzerland GmbH (“Inverness”). Inverness (as Conopco’s successor) claims in the suit that the Warner Lambert pregnancy test supplied by ABI infringes certain patents owned by Inverness. ABI agreed to defend the lawsuit on behalf of Warner Lambert. In November 2000, the U.S. District Court granted a motion for summary judgment in favor of Warner Lambert and ABI, ruling that ABI’s product does not infringe the patents. The U.S. Court of Appeals vacated the summary judgment and held that the case should be returned to the trial court for further consideration. A Petition for Rehearing has been filed in the U.S. Court of Appeals. We believe, although there can be no assurance that, the resolution of this lawsuit will not have a material adverse effect on our results of operations or financial condition. Additionally, on October 15, 2002, Armkel, LLC sued Pfizer in the U.S. District Court for the District of New Jersey for patent infringement with respect to these same products. To date, ABI has not agreed to defend this lawsuit on behalf of Pfizer. ABI does not believe that it has an obligation to defend and indemnify Pfizer with respect to this lawsuit. Further, it believes that there are meritorious defenses to the patent claims.

The Company or its subsidiaries are at any one time parties to a number of lawsuits or subject to claims arising out of their respective operations, or the operation of businesses divested since the 1980’s for which certain subsidiaries may continue to have legal or contractual liability, including product liability, patent and trademark or other intellectual property infringement, contractual liability, workplace safety and environmental claims and cases, some of which involve claims for substantial damages. The Company and its subsidiaries are vigorously defending lawsuits and other claims against them. The Company believes that any liabilities which might reasonably result from any of the pending cases and claims would not have a material adverse effect on the results of operations or financial condition of the Company. There can be no assurance as to this, however, or that litigation having such a material adverse effect will not arise in the future. The Company does not reduce legal or contractual liabilities for possible recoveries from insurance companies.

On September 30, 1999, the Company assigned its rights to receive in 2022 a Treasury with a par value of $50,000 to an unrelated third party. The third party has also agreed to assume any obligations for which the security has been pledged.

14. Capital Stock

Stock Option Plans: The Company has six stock option plans. As of September 30, 2002, there were options with respect to 4,986 shares of Common Stock outstanding under the 1988 Stock Option Plan (the “1988 Plan”), and there were no shares available for the granting of options under such plan; there were options with

F-34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

respect to 20,871 shares of Common Stock outstanding under the 1990 Stock Option Plan (the “1990 Plan”) and there were no shares remaining available for the granting of options under such plan; there were options with respect to 8,479,889 shares of Common Stock outstanding under the Amended and Restated 1993 Long-Term Incentive Plan (the “1993 Plan”) and there were no shares remaining available for the granting of options under such plan; there were options with respect to 2,569,740 shares of Common Stock outstanding under the 2001 Equity Incentive Plan and there were 4,430,260 shares remaining available for granting options under such plan; there were options with respect to 403,893 shares of Common Stock outstanding under the Amended and Restated 1994 Outside Directors’ Stock Option Plan (the “1994 Outside Directors’ Plan”), and there were no shares available for the granting of options under such plan; there were options with respect to 305,426 shares of Common Stock outstanding under the 1999 Outside Directors’ Stock Option Plan (the “1999 Outside Directors’ Plan”), and there were no shares remaining available for the granting of options under such plan.

On December 11, 2000, in connection with the Spin-Off of SDS, certain employees of SDS exchanged 1,320,515 outstanding options to purchase Apogent common stock for 2,331,214 options to purchase Sybron Dental Specialties, Inc. common stock. All remaining stock options (owned by remaining employees and directors of the Company) were adjusted by adjusting the exercise price and the number of shares subject to each such option to reflect the change in market value of the Company’s common stock resulting from the Spin-Off, so that the intrinsic value of the options (the spread between the market value and the exercise price of the option shares) after the Spin-Off was equal to their intrinsic value immediately prior to the Spin-Off. The spread on options for fractional shares resulting from the exchange or adjustment was paid in cash. As a result of these exchanges and adjustments, the number of outstanding employee and director stock options increased by 1,449,749 and the average exercise price decreased by approximately $3.80.

	Number of Shares		Price Per Share	Weighted Average Exercise Price
Options outstanding at September 30, 1999	9,027,771		$ 6.06 -$26.75	$	17.88
Granted	764,040		22.00 - 32.00		24.05
Exercised	(1,167,775	)	6.06 - 26.75		10.79
Canceled and available for reissue	(230,378	)	11.54 - 26.75		24.13

Options outstanding at September 30, 2000	8,393,658		6.36 - 32.00		19.27
Effect on outstanding options from Spin-Off of SDS	1,449,749
Granted	953,443		21.58 - 24.52		22.69
Exercised	(706,522	)	5.10 - 21.46		9.29
Canceled and available for reissue	(151,880	)	12.31 - 25.67		20.47

Options outstanding at September 30, 2001	9,938,448		5.10 - 24.84		17.10
Granted	3,111,640		19.20 - 25.10		25.01
Exercised	(1,082,688	)	5.10 - 22.24		8.15
Canceled and available for reissue	(127,745	)	18.40 - 25.10		22.87

Options outstanding at September 30, 2002	11,839,655		$5.10 - 25.10	$	20.28

Options exercisable at September 30, 2002	7,122,027		$ 5.10 -$25.10	$	17.12

Options available for grant at September 30, 2002	4,430,260

F-35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

The range of exercise prices for options outstanding at September 30, 2002 was $5.10 to $25.10. The range of exercise prices for options is wide due to the increasing price of the Company’s stock (upon which the exercise price is based) over the period of the grants.

The following table summarizes information about options outstanding and outstanding and exercisable on September 30, 2002:

Range of Exercise Prices	Options Outstanding				Options Outstanding and Exercisable
Range of Exercise Prices	Number of Shares	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number of Shares	Weighted Average Exercise Price
$ 5.01-$10.00	1,608,330	2.3	$	7.31	1,608,330	$	7.31
$10.01-$15.00	168,881	4.0	$	12.33	168,881	$	12.33
$15.01-$20.00	4,342,315	5.7	$	19.47	4,157,270	$	19.52
$20.01-$25.00	3,192,389	8.0	$	23.30	1,076,946	$	22.43
$25.01-$30.00	2,527,740	9.3	$	25.10	110,600	$	25.10

1988, 1990 and 1993 Plans

No options may be granted under the plans after ten years from the date the plans are approved by the shareholders of the Company. Options granted pursuant to the plans shall be either incentive options, which are intended to meet the requirements of section 422 of the Code, or nonstatutory options. The exercise price of the options is determined by the Compensation Committee. The exercise price of any incentive option shall not be less than the fair market value per share of the Common Stock on the date of the grant of such option. An optionee under the plans must pay the full option price of an option either (a) in cash or its equivalent, (b) with the Compensation Committee’s consent, by delivering previously acquired shares of Common Stock having a fair market value at the time of the exercise equal to the total option price, (c) with the Compensation Committee’s consent, by a cashless exercise as permitted under The Federal Reserve Board’s Regulation T, or (d) in any combination of the foregoing.

In general, options granted under the 1990 Plan after May 14, 1992, and under the 1993 Plan, vest in equal annual installments on each of the first four anniversaries following the date of grant. The Company made significant management changes in connection with the Spin-Off, including a change in the Chief Executive Officer, Chief Financial Officer and General Counsel. The Board of Directors and the Compensation Committee amended certain stock options previously granted to each of the executive officers so replaced to provide for the vesting of any unvested portion of the options granted to each of them in April of 1998. These options were also amended to provide for a five-year period (rather than a three month period) to exercise the options after termination of employment. The amendments to these options had no earnings impact because the options had no intrinsic value (i.e. there was no positive spread between the market price and exercise price of the option shares) at the time of the amendment.

Outside Directors’ Plans

The 1994 Outside Directors’ Plan provided for the automatic granting of nonstatutory stock options to those of the Company’s directors who qualified as “outside directors” at the time of grant. Following each annual meeting of shareholders prior to September 30, 1998, the plan’s expiration date, each outside director was

F-36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

automatically granted an option to purchase 12,000 shares of Common Stock at an exercise price equal to the fair market value of the Common Stock on the date of grant. Each option granted under the 1994 Outside Directors’ Plan became exercisable six months after the date of grant, regardless of whether the grantee was still a director of the Company on such date. All rights to exercise an option granted under the 1994 Outside Directors’ Plan terminate upon the earlier of ten years from the date of grant or two years from the date the grantee ceases to be a director of the Company. The exercise price must be paid in full at the time of exercise, and such payment may be made in cash, by delivering shares of Common Stock which the optionee or the optionee’s spouse or both have beneficially owned for at least six months prior to the time of exercise, or through a combination of cash and such delivered Common Stock.

The 1999 Outside Directors’ Plan provided for the automatic granting of nonstatutory stock options to those of the Company’s directors who qualified as “outside directors” at the time of grant. Following each annual meeting of shareholders beginning in 1999, when the plan was approved by the shareholders, until the annual meeting of shareholders in 2002, when the 2001 Equity Incentive Plan was approved by the shareholders and replaced the 1999 Outside Directors’ Plan as to future grants, each outside director was automatically granted an option to purchase 12,000 shares of Common Stock at an exercise price equal to the fair market value of the Common Stock on the date of grant. Each option granted under the 1999 Outside Directors’ Plan is exercisable immediately upon grant. All rights to exercise an option granted under the 1999 Outside Directors’ Plan terminate upon the earlier of ten years from the date of grant or two years from the date the grantee ceases to be a director of the Company. The exercise price must be paid in full at the time of exercise, and such payment may be made in cash, by delivering shares of Common Stock which the optionee or the optionee’s spouse or both have beneficially owned for at least six months prior to the time of exercise, or through a combination of cash and such delivered Common Stock.

2001 Equity Incentive Plan

On December 7, 2001, the Board of Directors approved and adopted the Apogent Technologies Inc. 2001 Equity Incentive Plan and on January 28, 2002 the shareholders approved the plan. The Equity Incentive Plan replaces the 1993 Plan and the 1999 Outside Directors’ Plan as to future grants and awards. The principal objectives of the Equity Incentive Plan are to promote the success and enhance the value of the Company by linking the personal interests of participants to those of Company shareholders and providing participants with annual and long-term incentives for outstanding performance. Options granted pursuant to this plan may be either incentive options, which are intended to meet the requirements of section 422 of the code, or nonstatutory options. The exercise price of the options is determined by the Compensation Committee. The exercise price of any incentive option shall not be less than the fair market value per share of the Common Stock on the date of the grant of such option. An optionee under the plans must pay the full option price of an option either (a) in cash or its equivalent, (b) with the Compensation Committee’s consent, by delivering previously acquired shares of Common Stock having a fair market value at the time of the exercise equal to the total option price, (c) with the Compensation Committee’s consent, by a cashless exercise as permitted under The Federal Reserve Board’s Regulation T, or (d) in any combination of the foregoing. In general, options granted to employees vest over a four-year period following the date of grant, and options granted to directors vest immediately.

The Company has adopted the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation”, and continues to apply Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock plans. If the Company had elected to recognize compensation cost for all of the plans based upon the fair value at the grant dates for awards under those plans,

F-37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

consistent with the method prescribed by SFAS No. 123, net income and earnings per share would have been changed to the pro forma amounts indicated below:

	Year Ended September 30,
	2002		2001		2000
Pro forma net income	$	108,760	$	84,057	$	116,847
Basic pro forma earnings per share		1.02		0.80		1.12
Diluted pro forma earnings per share		1.00		0.78		1.09

The fair value of the Company’s stock options used to compute pro forma net income and earnings per share disclosures is the estimated present value at grant date using the Black-Scholes option pricing model with the following weighted average assumptions:

	2002	2001	2000
Volatility	27.29%	35.80%	35.0%
Risk-free interest rate	3.69%	5.66%	6.50%
Expected holding period	8.0 years	7.8 years	7.8 years
Dividend yield	0%	0%	0%

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s options have characteristics significantly different from traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in the opinion of management, the existing models do not necessarily provide a reliable single value of its options and may not be representative of the future effects on reported net income or the future stock price of the Company. The weighted average estimated fair value of employee stock options granted in 2002, 2001, and 2000 was $10.25, $9.25, and $14.54, respectively. For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options’ vesting period.

Employee Stock Purchase Plan

On January 28, 2002, the shareholders approved the Company’s Employee Stock Purchase Plan (ESPP). The ESPP consists of a series of overlapping 6-month offering periods. Eligible employees may purchase Company Common Stock through payroll deductions at a price equal to 85% of the lower of the fair market value of the Common Stock at the beginning of each offering period or end of such period. Participation is limited to 10% of an employee’s eligible compensation not to exceed amounts allowed by the Internal Revenue Code. As of September 30, 2002, 1,600,000 shares of Common Stock were authorized and 1,557,777 shares are available for future issuance under the ESPP.

Equity Rights

As of September 30, 2002, the Company holds 220 shares of treasury stock for delivery to equity right holders who have not yet surrendered their certificates. Equity right holders are entitled to receive 4.375 shares of Common Stock upon surrender of such certificates.

15. Segment Information

We recently realigned our lines of business for financial reporting purposes. Our three former business segments (clinical diagnostics, labware and life sciences, and laboratory equipment) have been reclassified into two

F-38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

business segments: clinical group and research group. The clinical group business segment is the former clinical diagnostics business segment. The research group business segment is composed of the former labware and life sciences and laboratory equipment business segments.

The Company’s operating subsidiaries are engaged primarily in the manufacture and sale of laboratory products in the United States and other countries. The Company’s products are categorized in the business segments of: the clinical group and the research group. A description of the business segments follows.

Clinical Group

Our Clinical Group manufactures and sells products primarily to clinical and commercial laboratories and to scientific research and industrial customers. These products are used in a number of diagnostic applications, including specimen collection, specimen transportation, drug testing, therapeutic drug monitoring, infectious disease detection, and glucose tolerance testing. Other applications include anatomical pathology (histology and cytology) and immunohistochemistry, with an emphasis on cancer applications. Clinical Group products include:

—

microscope slides, cover glass, and glass tubes and vials;

—

stains and reagents;

—

histology and immunochemistry instrumentation;

—

diagnostic test kits;

—

sample vials used in diagnostic testing;

—

culture media;

—

diagnostic reagents; and

—

other products used in detecting causes of various infectious diseases, conditions, and therapeutic drugs or drugs of abuse.

Research Group

Our Research Group manufactures, distributes and sells products primarily to the research and clinical life sciences industries. Applications of these products include general everyday laboratory uses as well as genomics, proteomics, high-throughput screening for drug discovery, combinatorial chemistry, cell culture, filtration, and liquid handling. In addition, this segment manufactures, distributes, and sells basic laboratory equipment used by medical, pharmaceutical, and scientific laboratories. Research Group products include:

—

reusable plastic and glass products (e.g., bottles, carboys, graduated ware, beakers, flasks, and plastic bottles for consumer use);

—

disposable plastic and glass products;

—

products for critical packaging applications;

—

environmental and safety containers;

—

liquid handling automation products;

—

autosampler vials and seals used in chromatography analysis;

F-39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

—

various consumable products for use in applications of cell culture, filtration, molecular biology, cryopreservation, immunology, electrophoresis, liquid handling, genomics, and high-throughput screening for pharmaceutical drug discovery; and

—

heating, cooling, shaking, stirring, mixing, and temperature control instruments.

Inter-business segment sales are not material. Information on these business segments is summarized as follows:


	Clinical Group		Research Group		Eliminations			Total(a)
2002
Revenues:
External customer	$	473,388	$	554,525	$	—		$	1,027,913
Intersegment		6,803		566		(7,369	)		—
Total revenues		480,191		555,091		(7,369	)		1,027,913
Gross profit		228,647		277,247		—			505,894
Selling general and administrative		105,261		152,693		—			257,954
Operating income		123,386		124,554		—			247,940
Depreciation and amortization		26,095		29,319		—			55,414
Interest income		601		472		—			1,073
Interest expense		18,892		22,918		—			41,810
Segment assets		998,320		1,037,765		—			2,036,085
Expenditures for property, plant and equipment		29,570		34,060		—			63,630

(a)

Includes the elimination of intercompany and corporate office activity.

F-40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

	Clinical Group		Research Group		Eliminations		Total(a)

2001
Revenues:
External customer	431,193		507,626		—		938,819
Intersegment	7,001		1,132		(8,133	)	—
Total revenues	438,194		508,758		(8,133	)	938,819
Gross profit	214,250		253,252		—		467,502
Selling general and administrative	110,720		145,765		—		256,485
Operating income	103,530		107,486		—		211,016
Depreciation and amortization	35,161		38,187		—		73,348
Interest income	558		355		—		913
Interest expense	19,548		30,185		—		49,733
Segment assets	899,036		929,044		—		1,828,080
Expenditures for property, plant and equipment	22,780		27,340		—		50,120

2000
Revenues:
External customer	390,097		453,470		—		843,567
Intersegment	5,436		1,203		(6,639	)	—
Total revenues	395,153		455,053		(6,639	)	843,567
Gross profit	190,756		226,807		—		417,563
Selling general and administrative	102,026		131,992		—		234,018
Operating income	88,730		94,815		—		183,545
Depreciation and amortization	28,416		33,975		—		62,391
Interest income	397		299		—		696
Interest expense	(9,998	)	(40,282	)	—		(50,280	)
Segment assets	831,213		813,049		—		1,644,262
Expenditures for property, plant and equipment	17,847		23,477		—		41,324

(a)

Includes the elimination of intercompany and corporate office activity.

The Company’s international operations are conducted principally in Europe. Inter-geographic sales are made at prices approximating market.

	2002		2001		2000
Net Sales:
United States:
Customers	$	736,839	$	694,003	$	632,989
Inter-geographic		73,810		64,035		55,616

		810,649		758,038		688,605

Europe:
Customers		178,448		149,788		126,969
Inter-geographic		56,473		38,271		28,059

		234,921		188,059		155,028

F-41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

	2002			2001			2000
All other areas:
Customers		112,626			95,027			83,609
Inter-geographic		10,674			7,893			8,934

		140,996			102,920			92,543
Inter-geographic sales		(140,957	)		(110,199	)		(92,609	)

Total net sales	$	1,027,913		$	938,818		$	843,567

Net Property:
United States	$	204,815		$	177,834		$	168,472
Europe		64,847			44,911			38,766
All other areas		1,231			942			856

Total net property	$	270,893		$	223,687		$	208,094

Major customer information:

During 2002, 2001, and 2000, one customer, Fisher Scientific, accounted for 10% or more of the Company’s net revenues. During 2002 and 2001, another customer, VWR, accounted for 10% or more of the Company’s net revenues. The table below lists by segment the 2002, 2001 and 2000 sales to Fisher Scientific and the 2002 and 2001 sales to VWR.

	Fisher Scientific						VWR
	2002		2001		2000		2002		2001
Clinical Group	$	48,649	$	34,876	$	39,286	$	12,229	$	10,162
Research Group		92,254		85,516		78,536		100,999		83,361

Total	$	140,903	$	120,392	$	117,822	$	113,228	$	93,523

16. Quarterly Financial Information (Unaudited)

	First Quarter		Second Quarter			Third Quarter		Fourth Quarter		Total Year
2002
Net sales
Clinical Group	$	109,752	$	118,686		$	122,781	$	122,169	$	473,388
Research Group		124,221		136,402			144,411		149,491		554,525

	$	233,973	$	255,088		$	267,192	$	271,660	$	1,027,913

Gross profit	$	114,285	$	124,658		$	130,447	$	136,504	$	505,894

Income from continuing operations		29,063		31,419			33,947		35,738		130,167
Discontinued operation		908		(12,470	)		2,126		418		(9,018	)
Income before extraordinary items		29,971		18,949			36,073		36,156		121,149

Net income	$	29,971	$	18,949		$	36,073	$	36,156	$	121,149

F-42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter		Total Year
Basic income per common share:
Income from continuing operations	$	0.27		$	0.30		$	0.32		$	0.34	$	1.22
Discontinued operation		0.01			(0.12	)		0.02			0.00		(0.08	)
Net income per common share		0.28			0.18			0.34			0.34		1.14
Diluted income per common share:
Income from continuing operations	$	0.27		$	0.29		$	0.31		$	0.33	$	1.20
Discontinued operation		0.01			(0.11	)		0.02			0.00		(0.08	)
Net income per common share		0.28			0.17			0.33			0.34		1.11

2001
Net sales
Clinical Group	$	100,163		$	106,975		$	111,744		$	112,311	$	431,193
Research Group		112,089			125,443			134,121			135,973		507,626

	$	212,252		$	232,418		$	245,865		$	248,284	$	938,819

Gross profit	$	104,469		$	117,146		$	121,481		$	124,405	$	467,501

Income from continuing operations		20,583			27,536			25,359			27,926		101,404
Discontinued operation		(9,375	)		1,815			2,726			1,477		(3,357	)
Income before extraordinary items		11,208			29,351			28,085			29,403		98,047
Extraordinary items		(745	)		—			(1,361	)		—		(2,106	)

Net income	$	10,456		$	29,352		$	26,742		$	29,391	$	95,941

Basic income per common share:
Income from continuing operations	$	0.20		$	0.26		$	0.24		$	0.26	$	0.96
Discontinued operation		(0.09	)		0.02			0.03			0.01		(0.03	)
Extraordinary items		(0.01	)		—			(0.01	)		—		(0.02	)
Net income per common share		0.10			0.28			0.25			0.28		0.91
Diluted income per common share:
Income from continuing operations	$	0.19		$	0.26		$	0.23		$	0.26	$	0.94
Discontinued operation		(0.09	)		0.02			0.03			0.01		(0.03	)
Extraordinary items		(0.01	)		—			(0.01	)		—		(0.02	)
Net income per common share		0.10			0.27			0.25			0.27		0.89

F-43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(In thousands except share and per share data)

17. Condensed Consolidating Financial Information

The Company’s material U.S. subsidiaries are guarantors to its Revolving Credit Facility, 8% Senior Notes, and senior convertible contingent debt securities (CODES). Each of the subsidiary guarantors is 100% owned by the Company. The guarantees are full and unconditional as well as joint and several.

Below are the condensed consolidating balance sheets as of September 30, 2002 and 2001, and statements of operations and statements of cash flows for the years ended September 30, 2002, 2001 and 2000 of Apogent Technologies Inc. and its subsidiaries, reflecting the subsidiary guarantors for the Revolving Credit Facility and 8% Senior Notes.

Certain general corporate expenses have not been allocated to the subsidiaries, and are included under the Apogent Technologies Inc. heading. As a matter of course, the Company retains certain assets and liabilities at the corporate level that are not allocated to the subsidiaries including, but not limited to, certain employee benefit, insurance and tax liabilities. Income tax provisions for the subsidiaries are typically recorded using an estimate and finalized in total with an adjustment recorded at the corporate level. Certain debt under which Apogent Technologies Inc. is listed as the debtor has been allocated to the Guarantor subsidiaries. Intercompany balances include receivables/payables incurred in the normal course of business in addition to investments and loans transacted between subsidiaries or with Apogent Technologies Inc.

F-44

CONDENSED CONSOLIDATING BALANCE SHEETS (Continued)

	As of September 30, 2002
	Apogent Technologies			Guarantor Subsidiaries			Non Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	19,889		$	—		$	3,991		$	(7,553	)	$	16,327
Accounts receivable, net		—			148,637			38,313			—			186,950
Inventories, net		1,263			157,386			51,413			(6,065	)		203,997
Other current assets		20,703			12,098			6,954			(503	)		39,252

Total current assets		41,855			318,121			100,671			(14,121	)		446,526
Property, plant and equipment, net		12,592			193,008			65,293			—			270,893
Intangible assets, net		12,025			994,596			236,492			—			1,243,113
Investment in subsidiaries		2,090,958			57,712			(1,185	)		(2,147,485	)		—
Other assets		64,018			10,561			974			—			75,553

Total assets	$	2,221,448		$	1,573,998		$	402,245		$	(2,161,606	)	$	2,036,085


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	316		$	49,178		$	11,838		$	(7,553	)	$	53,779
Short-term debt and current portion of long-term debt		—			25,336			10,656			—			35,992
Income taxes payable		45,102			—			10,240			(2,278	)		53,064
Accrued expenses and other current liabilities		32,603			26,574			14,389			—			73,566

Total current liabilities		78,021			101,088			47,123			(9,831	)		216,401

Long-term debt, less current portion		—			634,995			25			—			635,020
Securities lending agreement		60,183			—			—			—			60,183
Deferred income taxes		116,568			1,190			14,342			—			132,100
Other liabilities		12,525			3,284			1,434			—			17,243
Net intercompany payable/(receivable)		748,402			(960,623	)		216,305			(4,084	)		—
Commitments and contingent liabilities		—			—			—			—			—
Shareholders’ equity
Preferred stock		—			—			—			—			—
Common stock		1,070			—			—			—			1,070
Equity rights		—			—			—			—			—
Additional paid-in-capital		251,210			2,070,551			78,793			(2,128,872	)		271,682
Retained earnings (deficit)		991,114			(269,931	)		50,547			(22,939	)		748,791
Accumulated other comprehensive loss		(17,659	)		(6,556	)		(6,324	)		4,120			(26,419	)
Treasury stock (at cost)		(19,986	)		—			—			—			(19,986	)

Total shareholders’ equity		1,205,749			1,794,064			123,016			(2,147,691	)		975,138

Total liabilities and shareholders’ equity	$	2,221,448		$	1,573,998		$	402,245		$	(2,161,606	)	$	2,036,085

F-45

CONDENSED CONSOLIDATING BALANCE SHEETS (Continued)

	As of September 30, 2001
	Apogent Technologies		Guarantor Subsidiaries			Non Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	4,145	$	—		$	10,699		$	(5,652	)	$	9,192
Accounts receivable, net		—		146,981			36,297			—			183,278
Inventories, net		1,263		136,906			33,335			(4,068	)		167,436
Other current assets		14,099		13,458			5,969			(406	)		33,120

Total current assets		19,507		297,345			86,300			(10,126	)		393,026
Property, plant and equipment, net		9,553		169,032			45,102			—			223,687
Intangible assets, net		7,003		913,651			219,680			—			1,140,334
Investment in subsidiaries		1,593,800		46,461			—			(1,640,261	)		—
Other assets		58,605		11,543			885			—			71,033

Total assets	$	1,688,468	$	1,438,032		$	351,967		$	(1,650,387	)	$	1,828,080


Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	787	$	46,802		$	11,885		$	(5,652	)	$	53,822
Short-term debt and current portion of long-term debt		378		73,228			36			—			73,642
Income taxes payable		33,432		—			6,638			(1,323	)		38,747
Accrued expenses and other current liabilities		32,873		28,603			14,968			—			76,444

Total current liabilities		67,470		148,633			33,527			(6,975	)		242,655

Long-term debt, less current portion		—		583,765			23			—			583,788
Securities lending agreement		55,072		—			—			—			55,072
Deferred income taxes		68,264		20,778			12,031			—			101,073
Other liabilities		3,231		2,453			1,318			—			7,002
Net intercompany payable/(receivable)		375,705		(599,911	)		224,169			37			—
Commitments and contingent liabilities		—		—			—			—			—
Shareholders’ equity
Preferred stock		—		—			—			—			—
Common stock		1,059		—			—			—			1,059
Equity rights		—		—			—			—			—
Additional paid-in-capital		234,166		1,561,854			80,265			(1,621,648	)		254,637
Retained earnings (deficit)		880,299		(279,540	)		48,684			(21,801	)		627,642
Accumulated other comprehensive loss		3,202		—			(48,050	)		—			(44,848	)
Treasury stock (at cost)		—		—			—			—			—

Total shareholders’ equity		1,118,726		1,282,314			80,899			(1,643,449	)		838,490

Total liabilities and shareholders’ equity	$	1,688,468	$	1,438,032		$	351,967		$	(1,650,387	)	$	1,828,080

F-46

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (Continued)

	For the Year Ended September 30, 2002
	Apogent Technologies			Guarantor Subsidiaries			Non Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	882,184		$	221,801		$	(76,072	)	$	1,027,913
Cost of sales		—			465,019			131,075			(74,075	)		522,019

Gross profit		—			417,165			90,726			(1,997	)		505,894
Selling, general and administrative expenses		26,717			177,100			54,137			—			257,954

Operating income		(26,717	)		240,065			36,589			(1,997	)		247,940
Other income (expense):
Interest expense		—			(40,673	)		(64	)		—			(40,737	)
Other, net		(5,455	)		3,463			100			—			(1,892	)

Income before income taxes and discontinued operation		(32,172	)		202,855			36,625			(1,997	)		205,311
Income taxes		(13,496	)		75,106			13,533			—			75,144

Income (loss) from continuing operations		(18,676	)		127,749			23,092			(1,997	)		130,167
Loss from discontinued operation		—			(7,683	)		(1,335	)		—			(9,018	)

Net income (loss)	$	(18,676	)	$	120,066		$	21,757		$	(1,997	)	$	121,149


	For the Year Ended September 30, 2001
	Apogent Technologies			Guarantor Subsidiaries			Non Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	816,934		$	175,538		$	(53,653	)	$	938,819
Cost of sales		—			423,111			101,613			(53,406	)		471,318

Gross profit		—			393,823			73,925			(247	)		467,501
Selling, general and administrative expenses		24,947			187,032			44,506			—			256,485

Operating income		(24,947	)		206,791			29,419			(247	)		211,016
Other income (expense):
Interest expense		—			(48,886	)		66			—			(48,820	)
Other, net		3,636			1,930			(886	)		—			4,680

Income before income taxes, discontinued operations and extraordinary item		(21,311	)		159,835			28,599			(247	)		166,876
Income taxes		(4,005	)		59,183			10,294			—			65,472

Income from continuing operations before extraordinary item		(17,306	)		100,652			18,305			(247	)		101,404
Discontinued operations		(11,805	)		8,006			442			—			(3,357	)

Income before extraordinary item		(29,111	)		108,658			18,747			(247	)		98,047
Extraordinary item		(2,106	)		—			—			—			(2,106	)

Net income (loss)	$	(31,217	)	$	108,658		$	18,747		$	(247	)	$	95,941

F-47

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (Continued)

	For the Year Ended September 30, 2000
	Apogent Technologies			Guarantor Subsidiaries			Non Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	740,310		$	147,628		$	(44,371	)	$	843,567
Cost of sales		—			381,856			87,533			(43,385	)		426,004

Gross profit		—			358,454			60,095			(986	)		417,563
Selling, general and administrative expenses		9,563			187,934			36,521			—			234,018

Operating income		(9,563	)		170,520			23,574			(986	)		183,545
Other income (expense):
Interest expense		(78	)		(44,024	)		(5,482	)		—			(49,584	)
Other, net		776			1,453			(1,431	)		—			798

Income before income taxes and discontinued operations		(8,865	)		127,949			16,661			(986	)		134,759
Income taxes		(2,595	)		48,033			8,624			(287	)		53,775

Income from continuing operations		(6,270	)		79,919			8,037			(699	)		80,987
Discontinued operations		41,597			5,740			—			—			47,337

Net income	$	35,327		$	85,656		$	8,037		$	(699	)	$	128,321

F-48

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Continued)

	For the Year Ended September 30, 2002
	Apogent Technologies			Guarantor Subsidiaries			Non Guarantor Subsidiaries			Eliminations		Consolidated
Cash flows provided by operating activities:	$	26,319		$	154,629		$	11,202		$	—	$	192,150

Cash flows from investing activities:
Capital expenditures		(9,413	)		(33,802	)		(20,415	)		—		(63,630	)
Proceeds from sales of property, plant and equipment		2,981			—			2,026			—		5,007
Net payments for businesses acquired		—			(139,735	)		—			—		(139,735	)

Net cash used in investing activities		(6,432	)		(173,537	)		(18,389	)		—		(198,358	)

Cash flows from financing activities:
Proceeds from long-term debt		—			658,500			—			—		658,500
Principal payments on long-term debt		—			(646,089	)		—			—		(646,089	)
Proceeds from the exercise of stock options		10,293			—			—			—		10,293
Other		(13,811	)		(8,259	)		—			—		(22,070	)

Net cash provided by (used in) financing activities		(3,518	)		4,152			—			—		634
Effect of exchange rate on cash and cash equivalents		(625	)		12,855			479			—		12,709

Net increase (decrease) in cash and cash equivalents		15,744			(1,901	)		(6,708	)		—		7,135
Cash and cash equivalents at beginning of year		4,145			(5,652	)		10,699			—		9,192

Cash and cash equivalents at end of year	$	19,889		$	(7,553	)	$	3,991		$	—	$	16,327

Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	$	—		$	39,350		$	341		$	—	$	39,691

Income taxes	$	31,010		$	—		$	8,503		$	—	$	39,513

Capital lease obligations incurred	$	—		$	334		$	—		$	—	$	334

F-49

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Continued)

	For the Year Ended September 30, 2001
	Apogent Technologies			Guarantor Subsidiaries			Non Guarantor Subsidiaries			Eliminations		Consolidated
Cash flows (used by) provided by operating activities:	$	(53,740	)	$	221,287		$	11,846		$	—	$	179,393

Cash flows from investing activities:
Capital expenditures		(8,320	)		(32,243	)		(9,557	)		—		(50,120	)
Proceeds from sales of property, plant and equipment		10,212			2,076			169			—		12,457
Net cash inflow from SDS		46,394			—			—			—		46,394
Net payments for businesses acquired		—			(161,208	)		(2,311	)				(163,519	)

Net cash provided by (used in) investing activities		48,286			(191,375	)		(11,699	)		—		(154,788	)

Cash flows from financing activities:
Proceeds from long-term debt		—			1,158,008			—			—		1,158,008
Principal payments on long-term debt		—			(1,184,273	)		(41	)		—		(1,184,314	)
Proceeds from the exercise of stock options		6,631			—			—			—		6,631
Other		(4,118	)		(6,721	)		—			—		(10,839	)

Net cash provided by (used in) financing activities		2,513			(32,986	)		(41	)		—		(30,514	)
Effect of exchange rate on cash and cash equivalents		—			—			2,690					2,690

Net (decrease) increase in cash and cash equivalents		(2,941	)		(3,073	)		2,796			—		(3,218	)
Cash and cash equivalents at beginning of year		7,086			(2,577	)		7,902			—		12,411

Cash and cash equivalents at end of year	$	4,145		$	(5,649	)	$	10,698		$	—	$	9,192

Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	$	—		$	36,767		$	365		$	—	$	37,132

Income taxes	$	35,629		$	638		$	6,803		$	—	$	43,070

Capital lease obligations incurred	$	36		$	59		$	9		$	—	$	104

F-50

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Continued)

	For the Year Ended September 30, 2000
	Apogent Technologies			Guarantor Subsidiaries			Non Guarantor Subsidiaries			Eliminations		Consolidated
Cash flows provided by operating activities:	$	8,446		$	104,703		$	2,226		$	—	$	115,375

Cash flows from investing activities:
Capital expenditures		(1,007	)		(32,654	)		(7,663	)		—		(41,324	)
Security purchased		—			—			—			—		—
Proceeds from sales of property, plant and equipment		—			871			53			—		924
Other investing activities		(2,600	)		—			—			—		(2,600	)
Net cash inflow from SDS		58,098			—			—			—		58,098
Net payments for businesses acquired		(82,348	)		(130,992	)		6,187			—		(207,153	)

Net cash used in investing activities		(27,857	)		(163,944	)		(1,423	)		—		(192,055	)

Cash flows from financing activities:
Proceeds from long-term debt		—			332,640			—			—		332,640
Principal payments on long-term debt		—			(274,712	)		(58	)		—		(274,770	)
Securities lending agreement		3,544			—			—			—		3,544
Proceeds from the exercise of stock options		12,599			—			—			—		12,599
Other		3,646			—			—			—		3,646

Net cash provided by (used in) financing activities		19,789			57,928			(58	)		—		77,659
Effect of exchange rate on cash and cash equivalents		—			—			(969	)		—		(969	)

Net increase (decrease) in cash and cash equivalents		378			(144	)		(224	)		—		10
Cash and cash equivalents at beginning of year		6,708			(2,433	)		8,126			—		12,401

Cash and cash equivalents at end of year	$	7,086		$	(2,577	)	$	7,902		$	—	$	12,411

Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest	$	—		$	55,509		$	324		$	—	$	55,833

Income taxes	$	40,544		$	319		$	1,549		$	—	$	42,412

Capital lease obligations incurred	$	—		$	25		$	—		$	—	$	25

F-51