Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis and other sections of this Quarterly Report on Form 10-Q (the "Report") should be read in conjunction with the consolidated financial statements and notes thereto. Except for historical information, the statements in this discussion may be deemed to include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 that involve risk and uncertainty, including financial, business environment and projections, as well as statements that are preceded by, followed by, or that include the words "believes," "expects," "anticipates," "should" or similar expressions, and other statements contained herein regarding matters that are not historical facts. Additionally, the Report contains forward-looking statements relating to future performance, goals, strategic actions and initiatives and similar intentions and beliefs, including without limitation, statements regarding the Company's expectations, goals, beliefs, intentions and the like regarding future sales, earnings, cost savings, process improvements, return on equity, share repurchases, capital expenditures, acquisitions and other matters. These statements involve assumptions regarding the Company operations, investments, acquisitions and conditions in the markets the Company serves.

Although the Company believes its expectations are based on reasonable assumptions, such statements are subject to risks and uncertainties, including, among others, certain economic, political and technological factors. Actual results could differ materially from those stated or implied in this Report, due to, but not limited to, such factors as: (1) changes in pricing and the competitive environment, (2) fluctuations in foreign currency exchange rates,
(3) dependence on uninterrupted manufacturing operations, (4) the impact of the global credit crisis and volatility in the global financial markets, (5) changes in research and development spending patterns of pharmaceutical, biotechnology and diagnostic companies, (6) availability of commercial paper, (7) changes in the regulatory environment in which the Company operates, (8) changes in worldwide tax rates or tax benefits from domestic and international operations, including the matters described in Note 4 of this Quarterly Report on Form 10-Q and in Note 10 to the Consolidated Financial Statements in the Company's Form 10-K for the year ended December 31, 2007, (9) exposure to litigation, including product liability claims, (10) changes in research funding and the success of research and development activities, (11) the ability to maintain adequate quality standards, (12) reliance on third party package delivery services,
(13) the impact of acquisitions and success in integrating and obtaining projected results from the acquisitions, (14) other changes in the business environment in which the Company operates, and (15) the outcome of the outstanding matters described in "Other Matters" below. A further discussion of the Company's risk factors can be found in Item 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2007 and in Part II, Item 1A of this Quarterly Report on Form 10-Q. The Company does not undertake any obligation to update these forward-looking statements.

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures to supplement its GAAP disclosures. The Company does not, and does not suggest investors should, consider such non-GAAP financial measures in isolation from, or as a substitute for, GAAP financial information. These non-GAAP measures may not be consistent with the presentation by similar companies in the Company's industry. Whenever the Company uses such non-GAAP measures, it provides a reconciliation of such measures to the most closely applicable GAAP measure.

With over 60% of sales denominated in currencies other than the U.S. dollar, management uses currency adjusted growth, and believes it is useful to investors, to judge the Company's controllable, local currency performance. Organic sales growth data presented herein excludes currency, and where indicated, acquisition impacts. While the Company is able to report currency impacts after the fact, it is unable to estimate changes that may occur later in 2008 to applicable exchange rates and is thus unable to reconcile the projected non-GAAP, currency adjusted internal growth rates to reported GAAP growth rates for the year 2008 as required by Regulation G adopted by the Securities and Exchange Commission. Any significant changes in currency exchange rates would likely have a significant impact on the Company's reported growth rates due to the volume of our sales denominated in foreign currencies.

The Company also reports both GAAP and adjusted sales and income amounts and comparisons to reflect what it believes is ongoing and/or comparable operating results excluding currency impacts and certain other items including the sales benefit from acquisitions. The Company excludes these other items in judging its historical performance and in assessing its expected future performance and believes this non-GAAP information is useful to investors as well.

Sales

Reported sales increased 7.4% for the third quarter of 2008 to $540.6 from $503.2 in the third quarter of 2007. The reported sales gain for the first nine months of 2008 increased 12.2% to $1,690.9 from $1,506.6 for the same period in 2007. Organic sales growth for the third quarter and first nine months of 2008, excluding currency benefits in both periods and a contribution from the February 2007 acquisition of Epichem in the first nine months of 2008, was 4.3% and 6.0%, respectively. Changes in currency rates increased otherwise reportable growth in the third quarter of 2008 and the nine months ended September 30, 2008 by 3.1% and 6.0%, respectively. The Epichem acquisition contributed 0.2% to sales growth in the first nine months of 2008. Price increases in the three research business units represented 1.8% and 1.6% of the Company's total organic growth for the third quarter and first nine months of 2008, respectively, with the remaining organic increase of 2.5% and 4.4%, respectively, primarily attributable to volume increases.

Reported sales growth, currency impact, increases in sales due to the Epichem acquisition, and the adjusted (organic) sales growth for 2008, compared to the same periods in 2007, were as follows:

                                              Three Months Ended
                                              September 30, 2008
                                           Currency                     Adjusted
                              Reported      Impact      Acquisition     (Organic)
       Research Essentials         8.6 %        3.3 %            -  %         5.3 %
       Research Specialties       11.8 %        3.6 %            -  %         8.2 %
       Research Biotech            9.7 %        3.2 %            -  %         6.5 %
       Research Chemicals         10.5 %        3.5 %            -  %         7.0 %
       SAFC                        0.3 %        2.3 %            -  %        (2.0 )%
       Total                       7.4 %        3.1 %            -  %         4.3 %




                                                Nine Months Ended
                                               September 30, 2008
                                            Currency                     Adjusted
                               Reported      Impact      Acquisition     (Organic)
        Research Essentials        10.9 %        6.3 %            -  %         4.6 %
        Research Specialties       14.1 %        6.6 %            -  %         7.5 %
        Research Biotech           14.7 %        6.2 %            -  %         8.5 %
        Research Chemicals         13.4 %        6.4 %            -  %         7.0 %

Research Essentials currency adjusted sales for the third quarter and first nine months of 2008 reflected a 5.3% and 4.6% increase over the same periods in 2007, respectively. Organic sales growth for the third quarter of 2008 continued the pattern of exceeding expectations in each of the last six quarters. Strong sales gains of research-based cell culture products were helped by continued improvement in sales to academic accounts in all geographic regions.

Research Specialties currency adjusted sales growth in the third quarter and first nine months of 2008 was 8.2% and 7.5%, respectively. This unit continued its strong performance during the three months ended September 30, 2008 with run rate growth exceeding its 6% long-term organic growth target for the ninth consecutive quarter. Improved demand from the academic sector in all geographic markets continued and sales to pharmaceutical customers in CAPLA (Canada, Asia Pacific and Latin America) countries rebounded in the third quarter of 2008. Growth also benefited from new service initiatives launched earlier in the year, and recent new product introductions of ultrapure proteins and chiral products.

SAFC adjusted sales changes excluding currency and acquisition impacts were (2.0%) and 3.6%, respectively, for the third quarter and the first nine months of 2008. Continued strong growth in Hitech products matched with steady growth for Supply Solutions and Biosciences products was offset by reduced demand for custom pharma products as pharmaceutical customers delayed deliveries on existing orders and reduced the number of requests for custom pharmaceutical projects. Overall, booked orders for future delivery at September 30, 2008 declined by approximately 10% from the June 30, 2008 level, reflecting changes in pharmaceutical demand.

Web-based sales through our award winning website during the three months ended September 30, 2008 increased by 17.6% over the same period in 2007. Web-based sales improved to 43% of worldwide third quarter 2008 Research Chemical (Research Essentials, Research Specialties and Research Biotech) sales as e-commerce sales to international (Europe and CAPLA) customers increased by 24.4%. E-commerce sales to U.S. Research customers were 51% of total U.S. Research sales, consistent with levels achieved during the first-half of 2008.

Third quarter 2008 sales in CAPLA markets increased 8.8% and 6.8% on a reported and organic basis, respectively, compared to the same period in 2007. Currency added 2.0 percentage points to organic sales growth. Sales in these markets provided 20.0% of total Company sales in the three months ended September 30, 2008, consistent with the level achieved for the full year 2007. Reported quarterly sales in our focus markets of India and Brazil increased during the third quarter of 2008 by 1% and 42%, respectively, with organic growth, exclusive of currency impacts, of 10% and 23%, respectively, compared to the same period in the prior year. Sales in China that had increased by 21% and 45% in the first and second quarters of 2008, respectively, were impacted by government-imposed operating restrictions related to the Olympic games in that country, reducing third quarter 2008 sales by 9%, but with expectations for a recovery in the final quarter of 2008.

Reported diluted net income per share

Reported diluted net income per share for the third quarter of 2008 increased by 18.5% to $0.64 from $0.54 in the third quarter of 2007. Currency added $0.07 to diluted net income per share for the third quarter of 2008, with the remaining increase of $0.03 resulting from operations. Reported diluted net income per share for the first nine months of 2008 increased by 16.5% to $1.98 from $1.70 in the first nine months of 2007. Currency and operations added $0.25 and $0.08, respectively, to diluted net income per share during the nine months ended September 30, 2008, which was partially offset by a $0.05 impact due to an increase in effective tax rates to 32.0% for the first nine months of 2008 from 30.2% for the same period in 2007. See the "Effective tax rate" section below for a discussion regarding the changes in the effective tax rates for the three and nine months ended September 30, 2008 and 2007, respectively.

Gross profit, selling, general and administrative expenses, research and development expenses and income before income taxes, all expressed as a percentage of sales, and the effective tax rate (income tax expense expressed as a percentage of income before income taxes) for the three and nine months ended September 30, 2008 and 2007 were as follows:

                                                  Three Months Ended           Nine Months Ended
                                                     September 30,               September 30,
                                                  2008           2007         2008          2007
Gross profit                                        51.4 %         50.9 %       51.2 %        51.2 %
Selling, general and administrative expenses        25.0 %         25.5 %       25.3 %        25.6 %
Research and development expenses                    3.1 %          3.0 %        2.9 %         2.9 %
Income before income taxes                          22.7 %         21.2 %       22.4 %        21.5 %

Effective tax rate                                  33.3 %         33.0 %       32.0 %        30.2 %

The following table reflects the significant contributing factors to the net change in gross profit margin for the three and nine months ended September 30, 2008 as a percentage of sales compared to the same periods in 2007:

                                                Three Months Ended            Nine Months Ended
Contributing Factors                            September 30, 2008            September 30, 2008
Unfavorable product mix                                       (2.0 )%                       (1.4 )%
Favorable pricing                                              0.8 %                         0.7 %
Higher unit sales volume                                       0.4 %                         0.6 %
Higher manufacturing and distribution
costs                                                         (0.5 )%                       (1.2 )%
Lower margin acquired business                                  -  %                        (0.1 )%
Favorable currency impact                                      1.8 %                         1.4 %

Net increase in gross profit margin as
a percentage of sales                                          0.5 %                          -  %

Selling, general and administrative expenses

Selling, general and administrative expenses decreased 0.5% and 0.3% as a percentage of sales in the three and nine months ended September 30, 2008, respectively, compared to the same periods of 2007. These decreases primarily reflect the relatively fixed nature of these costs spread over higher sales levels in 2008. Insurance expenses were reduced by 0.5% and 0.1% as a percentage of sales in the third quarter and first nine months of 2008, respectively, due primarily to a reduction in overall future claim expectations. Legal and professional expenses were reduced by 0.2% as a percentage of sales in both the three and nine months ended September 30, 2008 due primarily to higher litigation fees in the prior year periods associated with a claim settlement that was reached in the first quarter of 2008. These decreases were partially offset by an increase in commissions and royalties expenses of 0.2% and 0.1% as a percentage of sales in the third quarter and first nine months of 2008, respectively, due primarily to settlement of a royalty arrangement. No other changes in expense categories were individually significant as a percentage of sales in either the three or nine months ended September 31, 2008.

Research and development expenses

Research and development expenses increased as a percentage of sales by 0.1% in the third quarter of 2008, and remained consistent as a percentage of sales in the nine months ended September 30, 2008, compared to the same periods of 2007. The research and development expenses relate primarily to efforts to add new manufactured products. Manufactured products currently account for approximately 60% of total sales.

Interest, net

Net interest expense was $3.5 and $5.8 for the three months ended September 30, 2008 and 2007, respectively, and was $10.9 and $17.5 for the first nine months of 2008 and 2007, respectively. The decrease in net interest expense for both the third quarter and first nine months of 2008 is primarily attributable to reduced interest rates on short-term borrowings. The weighted average interest rate for short-term borrowings at September 30, 2008 was 2.6% on borrowings of $413.3 compared to a weighted average interest rate for short-term borrowings of 4.8% on borrowings of $359.9 at September 30, 2007. Long-term debt at September 30, 2008 was $200.1 at a weighted average interest rate of 6.4% compared to $207.2 at a weighted average interest rate of 6.4% at September 30, 2007.

Income before income taxes

Income before income taxes increased 14.9% to $122.7 for the three months ended September 30, 2008 from $106.8 achieved in the same period of 2007. The factors driving this increase are described above and include the impact of increased sales, an increase in the gross profit margin, the reduction in selling general and administrative expenses as a percentage of sales and lower net interest expense.

Income before income taxes increased 16.7% to $378.3 for the nine months ended September 30, 2008 from $324.2 achieved in the same period of 2007 due to the items mentioned above, primarily the increase in sales, the reduction in selling general and administrative expenses as a percentage of sales and lower net interest expense.

Effective tax rate

The effective tax rate for all of 2008 is expected to be approximately 31% of pretax income. The effective tax rate for the third quarter and first nine months of 2008 compared to the same periods in 2007 reflects the absence of the U.S. R&D tax credits during the first three quarters of 2008 and a higher level of audit and related contingencies.

Net income for the third quarter of 2008 increased to $81.9 from $71.6 for the quarter ended September 30, 2007 due to the items mentioned above, primarily the impact of increased sales, an increase in the gross profit margin, the reduction in selling general and administrative expenses as a percentage of sales and lower net interest expense, partially offset by the increase in the effective tax rate.

Net income for the nine months ended September 30, 2008 increased to $257.2 compared to net income of $226.2 for the same period of 2007. The factors driving this increase are described above, primarily the increase in sales, the reduction in selling general and administrative expenses as a percentage of sales and lower net interest expense, partially offset by the increase in the effective tax rate.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 establishes a common definition of fair value for financial instruments, sets a framework for measuring fair value and expands disclosure about such fair value measurements. This Statement applies only to fair value measurements that are already required or permitted by other accounting standards. The adoption of SFAS 157 in January 2008 did not have a significant impact on the Company's consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans" (SFAS 158). SFAS 158 requires companies to recognize, on a prospective basis, the funded status of their defined benefit pension and other post-retirement benefit plans in the Consolidated Balance Sheets, and recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit costs. SFAS 158 also requires additional disclosures in the notes to the consolidated financial statements and requires the use of a company's fiscal year-end as the measurement date for plan assets and benefit obligations, eliminating the use of earlier measurement dates that was previously permissible. The Company adopted all provisions of SFAS 158 as of December 31, 2006, except the measurement date requirement, which was not effective until fiscal years ending after December 15, 2008. The net impact of applying SFAS 158 on the Company's 2006 consolidated financial statements was a $31.7 reduction of stockholders' equity. The Company adopted the measurement date requirement provision as of January 1, 2008, which resulted in an insignificant net impact on the Company's consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115" (SFAS 159). SFAS 159 provides companies with an option to measure certain financial instruments and certain other items at fair value that are not currently required to be measured at fair value. As the Company elected not to measure any eligible items using the fair value option in accordance with SFAS 159, the adoption of SFAS 159 in January 2008 did not impact its consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), "Business Combinations" (SFAS 141(R)). SFAS 141(R) establishes principles and requirements for how an entity recognizes and measures in its financial statements the assets acquired and liabilities assumed of an acquired entity. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008, and will be applied prospectively to acquisitions beginning January 1, 2009. The adoption of SFAS 141(R) in January 2009 is not expected to have a significant impact on the Company's consolidated financial statements.

In December 2007, the FASB ratified the Emerging Issues Task Force (EITF) consensus on EITF Issue No. 07-1, "Accounting for Collaborative Arrangements" (EITF 07-1). EITF 07-1 addresses the accounting for activities of collaborative arrangements outside of an established separate legal entity, such as those to jointly develop and commercialize intellectual property. Under EITF 07-1, revenues and costs incurred with third parties in connection with the collaborative arrangement should be presented gross or net based on the criteria in EITF Issue No. 99-19, "Reporting Revenue Gross as Principal versus Net as an Agent" and other applicable accounting literature. The consensus is effective for fiscal years beginning after December 15, 2008, and will be applied using a retrospective method that requires reclassification in all periods presented for those arrangements still in effect at January 1, 2009. The Company is in the process of assessing the impact of EITF 07-1 on its consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position FAS 142-3, "Determination of the Useful Life of Intangible Assets" (FSP FAS 142-3). FSP FAS 142-3 amends the factors that should be considered in developing renewal or

Liquidity and Capital Resources

The Company's cash flows from operating, investing and financing activities, as
reflected in the Consolidated Statements of Cash Flows, are summarized in the
following table:



                                                   Nine Months Ended
                                                     September 30,
                                                   2008          2007
               Net cash provided by (used in):
               Operating activities              $   299.8     $  267.9
               Investing activities                  (65.1 )     (123.3 )
               Financing activities                 (236.8 )     (123.7 )

Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2008 increased $31.9 compared to the same period of 2007. This increase results primarily from increased net income, a decrease in inventories, and net changes in income taxes.

Inventory months on hand were 6.8 months at September 30, 2008, which is slightly lower than the 7.3 months on hand at year-end 2007. Accounts receivable days sales outstanding at September 30, 2008 were 51 days, a slight increase from 50 days at December 31, 2007.

Investing Activities

Cash used in investing activities was $65.1 and $123.3 for the nine months ended September 30, 2008 and 2007, respectively. This decrease was primarily due to the absence of acquisitions compared to the same period of 2007. Capital expenditures increased slightly to $64.7 during the first nine months of 2008 from $51.5 during the same period of 2007. During 2008, capital spending is expected to be approximately $100.0.

Financing Activities

For the nine months ended September 30, 2008, the Company's financing activities used cash of $236.8 compared to $123.7 for the same period of 2007. This increase is due primarily to payments for treasury stock purchases of $291.0 for 5.0 shares in the first nine months of 2008 compared to $131.4 for 3.0 shares during the same period of 2007, as well as repayment of the $90.0 in Medium-Term Notes due February 23, 2008 compared to $67.4 of long-term debt repayments during the first nine months of 2007. Cash used in the payment of dividends was $49.5 and $45.1 for the nine months ended September 30, 2008 and 2007, . . .