Attached files
file | filename |
---|---|
EX-31.1 - EXHIBIT 31.1 - VWR Funding, Inc. | c04087exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - VWR Funding, Inc. | c04087exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - VWR Funding, Inc. | c04087exv31w2.htm |
EX-32.2 - EXHIBIT 32.2 - VWR Funding, Inc. | c04087exv32w2.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
Or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 333-124100
VWR FUNDING, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 56-2445503 | |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
1310 Goshen Parkway
P.O. Box 2656
West Chester, PA 19380
(Address of Principal Executive Offices)
P.O. Box 2656
West Chester, PA 19380
(Address of Principal Executive Offices)
(610) 431-1700
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes o No þ
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of June 30, 2010, there was no established public market for the registrants common stock, par
value $0.01 per share. The number of shares of the registrants common stock outstanding at August
12, 2010 was 1,000.
VWR FUNDING, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2010
INDEX
Page No. | ||||||||
1 | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
26 | ||||||||
36 | ||||||||
36 | ||||||||
36 | ||||||||
36 | ||||||||
36 | ||||||||
37 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
Table of Contents
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
VWR FUNDING, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions, except share data)
(Unaudited)
(Unaudited)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 135.6 | $ | 124.4 | ||||
Compensating cash balance |
82.1 | 105.0 | ||||||
Trade accounts receivable, less reserves of $8.8 and $10.8, respectively |
463.8 | 471.3 | ||||||
Other receivables |
36.9 | 28.9 | ||||||
Inventories |
243.0 | 263.6 | ||||||
Other current assets |
24.1 | 24.0 | ||||||
Total current assets |
985.5 | 1,017.2 | ||||||
Property and equipment, net |
178.6 | 191.4 | ||||||
Goodwill |
1,704.9 | 1,833.0 | ||||||
Other intangible assets, net |
1,835.9 | 1,986.7 | ||||||
Deferred income taxes |
10.1 | 12.6 | ||||||
Other assets |
87.0 | 86.4 | ||||||
Total assets |
$ | 4,802.0 | $ | 5,127.3 | ||||
Liabilities, Redeemable Equity Units and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Current portion of debt and capital lease obligations |
$ | 107.6 | $ | 152.4 | ||||
Accounts payable |
365.3 | 378.2 | ||||||
Accrued expenses |
175.8 | 158.2 | ||||||
Total current liabilities |
648.7 | 688.8 | ||||||
Long-term debt and capital lease obligations |
2,568.8 | 2,719.3 | ||||||
Other long-term liabilities |
124.1 | 135.3 | ||||||
Deferred income taxes |
500.3 | 495.5 | ||||||
Total liabilities |
3,841.9 | 4,038.9 | ||||||
Redeemable equity units |
48.6 | 45.8 | ||||||
Commitments and contingences (Note 11) |
||||||||
Stockholders equity: |
||||||||
Common stock, $0.01 par value; 1,000 shares authorized, issued and outstanding |
| | ||||||
Additional paid-in capital |
1,361.7 | 1,361.7 | ||||||
Accumulated deficit |
(318.4 | ) | (397.7 | ) | ||||
Accumulated other comprehensive (loss) income |
(131.8 | ) | 78.6 | |||||
Total stockholders equity |
911.5 | 1,042.6 | ||||||
Total liabilities, redeemable equity units and stockholders equity |
$ | 4,802.0 | $ | 5,127.3 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In millions)
(Unaudited)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales |
$ | 881.8 | $ | 876.0 | $ | 1,756.1 | $ | 1,717.2 | ||||||||
Cost of goods sold |
630.6 | 631.2 | 1,248.2 | 1,228.0 | ||||||||||||
Gross profit |
251.2 | 244.8 | 507.9 | 489.2 | ||||||||||||
Selling, general and administrative expenses |
202.8 | 200.8 | 405.4 | 402.8 | ||||||||||||
Operating income |
48.4 | 44.0 | 102.5 | 86.4 | ||||||||||||
Interest income |
0.7 | 0.5 | 1.1 | 1.3 | ||||||||||||
Interest expense |
(50.0 | ) | (50.9 | ) | (104.1 | ) | (114.0 | ) | ||||||||
Other income (expense), net |
70.5 | (46.0 | ) | 128.8 | (9.4 | ) | ||||||||||
Income (loss) before income taxes |
69.6 | (52.4 | ) | 128.3 | (35.7 | ) | ||||||||||
Income tax (provision) benefit |
(28.7 | ) | 25.6 | (49.0 | ) | 20.1 | ||||||||||
Net income (loss) |
$ | 40.9 | $ | (26.8 | ) | $ | 79.3 | $ | (15.6 | ) | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders Equity and Other Comprehensive Income (Loss)
Six Months Ended June 30, 2010
(In millions, except share data)
(Unaudited)
(In millions, except share data)
(Unaudited)
Accumulated | ||||||||||||||||||||||||
Additional | other | |||||||||||||||||||||||
Common stock | paid-in | Accumulated | comprehensive | |||||||||||||||||||||
Shares | Amount | capital | deficit | income (loss) | Total | |||||||||||||||||||
Balance at January 1, 2010 |
1,000 | $ | | $ | 1,361.7 | $ | (397.7 | ) | $ | 78.6 | $ | 1,042.6 | ||||||||||||
Capital contributions from parent |
| | 1.2 | | | 1.2 | ||||||||||||||||||
Share-based compensation expense associated
with our parent company equity plan |
| | 1.7 | | | 1.7 | ||||||||||||||||||
Reclassifications of redeemable equity units |
| | (2.9 | ) | | | (2.9 | ) | ||||||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||
Net income |
| | | 79.3 | | 79.3 | ||||||||||||||||||
Other comprehensive loss |
| | | | (210.4 | ) | (210.4 | ) | ||||||||||||||||
Total comprehensive loss |
(131.1 | ) | ||||||||||||||||||||||
Balance at June 30, 2010 |
1,000 | $ | | $ | 1,361.7 | $ | (318.4 | ) | $ | (131.8 | ) | $ | 911.5 | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
(Unaudited)
Six Months Ended | ||||||||
June 30, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 79.3 | $ | (15.6 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |
||||||||
Depreciation and amortization |
57.4 | 57.4 | ||||||
Net unrealized translation (gain) loss |
(128.6 | ) | 10.8 | |||||
Net unrealized (gain) loss on interest rate swaps |
(5.1 | ) | 2.3 | |||||
Non-cash payment-in-kind interest accretion |
3.0 | 4.0 | ||||||
Non-cash equity compensation expense |
1.7 | 1.7 | ||||||
Amortization of debt issuance costs |
4.8 | 4.8 | ||||||
Deferred income tax provision (benefit) |
36.9 | (32.6 | ) | |||||
Other, net |
3.0 | 3.8 | ||||||
Changes in working capital, net of business acquisitions: |
||||||||
Trade accounts receivable |
(27.9 | ) | (0.2 | ) | ||||
Inventories |
2.4 | 16.9 | ||||||
Other current and non-current assets |
(13.2 | ) | 11.4 | |||||
Accounts payable |
12.6 | 5.6 | ||||||
Accrued expenses and other liabilities |
35.1 | (3.3 | ) | |||||
Net cash provided by operating activities |
61.4 | 67.0 | ||||||
Cash flows from investing activities: |
||||||||
Acquisitions of businesses |
0.7 | (1.4 | ) | |||||
Capital expenditures |
(14.6 | ) | (11.2 | ) | ||||
Proceeds from sales of property and equipment |
| 1.3 | ||||||
Net cash used in investing activities |
(13.9 | ) | (11.3 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from debt |
54.6 | 189.4 | ||||||
Repayment of debt |
(75.5 | ) | (222.5 | ) | ||||
Net change in bank overdrafts |
(24.2 | ) | 12.1 | |||||
Net change in compensating cash balance |
22.9 | (16.3 | ) | |||||
Proceeds from equity incentive plans |
1.2 | 0.6 | ||||||
Repurchase of redeemable equity units |
(0.3 | ) | (3.6 | ) | ||||
Net cash used in financing activities |
(21.3 | ) | (40.3 | ) | ||||
Effect of exchange rate changes on cash |
(15.0 | ) | 2.2 | |||||
Net increase in cash and cash equivalents |
11.2 | 17.6 | ||||||
Cash and cash equivalents beginning of period |
124.4 | 42.0 | ||||||
Cash and cash equivalents end of period |
$ | 135.6 | $ | 59.6 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 64.6 | $ | 100.2 | ||||
Income taxes paid, net |
$ | 15.3 | $ | 12.6 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2010
(In millions)
(Unaudited)
(In millions)
(Unaudited)
(1) Nature of Operations and Basis of Presentation
VWR Funding, Inc. (the Company, we, us, and our) offers products and services through
its wholly-owned subsidiary, VWR International, LLC (VWR), and VWRs subsidiaries. We distribute
laboratory supplies, including chemicals, glassware, equipment, instruments, protective clothing,
production supplies and other assorted laboratory products, primarily in North America and Europe.
We also provide services, including technical services, on-site storeroom services and laboratory
and furniture design, supply and installation, which comprise only a small portion of our net
sales. Our business is diversified across products, geographic regions and customer segments.
We report financial results on the basis of the following three business segments: North
American laboratory distribution (North American Lab), European laboratory distribution
(European Lab) and Science Education. Both the North American Lab and European Lab segments are
engaged in the distribution of laboratory and production supplies to customers in the
pharmaceutical, biotechnology, medical device, chemical, technology, food processing and consumer
products industries, as well as governmental agencies, universities and research institutes, and
environmental organizations. Science Education is engaged in the assembly, manufacture and
distribution of scientific supplies and specialized kits principally to academic institutions,
including primary and secondary schools, colleges and universities. Our operations in the Asia
Pacific region (Asia Pacific) are engaged in regional commercial sales and also support our North
American Lab and European Lab businesses. The results of our operations in Asia Pacific are not
material and are included in our North American Lab segment.
The accompanying condensed consolidated financial statements include the accounts of the
Company after elimination of all intercompany balances and transactions. The condensed consolidated
financial statements included herein have been prepared by the Company without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations. The Company believes that the disclosures included
herein are adequate to make the information presented not misleading in any material respect when
read in conjunction with the consolidated financial statements, footnotes and related disclosures
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2009. The
financial information presented herein reflects all adjustments (consisting only of
normal-recurring adjustments) that are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. The results for interim periods are
not necessarily indicative of the results to be expected for the full year.
The preparation of financial statements in conformity with generally accepted accounting
principles in the United States of America 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. On an ongoing basis, management evaluates its estimates and judgments, including, among
others, those related to goodwill and intangible assets, interest rate swap valuations, accounts
receivable and reserves, inventories, rebates from suppliers, agreements with customers, product
liability, pension plans, income taxes and estimates and other accounting policies. Those estimates and assumptions are based on managements
best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis
using historical experience and other factors, including the current economic environment, which
management believes to be reasonable under the circumstances. We adjust such estimates and
assumptions when we believe relevant facts and circumstances warrant an adjustment. Recent adverse
economic conditions, illiquid credit markets, volatile equity and foreign currency markets, and
declines in customer spending have combined to increase the uncertainty inherent in such estimates
and assumptions. As future events and their effects cannot be determined with precision, actual
results could differ significantly from those estimates. Changes in those estimates resulting from
continued changes in the economic environment will be reflected in our consolidated financial
statements in future periods. In preparation of this Quarterly Report on Form 10-Q, we evaluated
events subsequent to June 30, 2010 through the date of issuance.
The Company is a direct, wholly owned subsidiary of VWR Investors, Inc. (VWR Investors),
which is a direct, wholly owned subsidiary of Varietal Distribution Holdings, LLC (Holdings). VWR
Investors and Holdings have no operations other than the ownership of the Company.
5
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
(2) New Accounting Standards
(a) Recently Adopted Accounting Standards
Fair Value Measurements and Disclosures
In January 2010, the Financial Accounting Standards Board (FASB) issued updated guidance to
amend the disclosure requirements related to recurring and nonrecurring fair value measurements.
This updated guidance requires new disclosures on significant transfers of assets and liabilities
between Level 1 and Level 2 of the fair value hierarchy and requires a reconciliation of recurring
Level 3 measurements including purchases, sales, issuances and settlements on a gross basis. This
update became effective for the Company with the interim and annual reporting period beginning
January 1, 2010, except for the requirement to provide the additional Level 3 activity on a gross
basis, which will become effective for the Company with the interim and annual reporting period
beginning January 1, 2011. The Company is not required to provide the amended disclosures for any
previous periods presented for comparative purposes. Our adoption of this updated guidance did not
have any impact on the Companys condensed consolidated financial statements; however it may
require us to make additional disclosures in future periods.
(b) Recently Issued Accounting Standards
Revenue Recognition
In October 2009, the FASB issued updated revenue recognition guidance which eliminates the
requirement that all undelivered elements have vendor-specific objective evidence of selling price
or third party evidence of selling price before an entity can recognize the portion of an overall
arrangement fee that is attributable to items that already have been delivered. Additionally, the
new guidance will require entities to disclose more information about their multiple-element
revenue arrangements. This update is expected to become effective for the Company on January 1,
2011 and will be applied prospectively for revenue arrangements entered into or materially modified
after such date. The Company expects that the adoption of this guidance will not have a material
impact on its consolidated financial statements.
(3) Goodwill and Other Intangible Assets
The following table reflects changes in the carrying value of goodwill by segment:
North | European | Science | ||||||||||||||
American Lab | Lab | Education | Total | |||||||||||||
Balance at January 1, 2010 |
$ | 929.9 | $ | 866.6 | $ | 36.5 | $ | 1,833.0 | ||||||||
Currency translation changes |
(0.1 | ) | (126.8 | ) | | (126.9 | ) | |||||||||
Other |
0.1 | (1.6 | ) | 0.3 | (1.2 | ) | ||||||||||
Balance at June 30, 2010 |
$ | 929.9 | $ | 738.2 | $ | 36.8 | $ | 1,704.9 | ||||||||
6
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
The following table provides the gross amount of goodwill and accumulated impairment losses by
segment:
June 30, 2010 | December 31, 2009 | |||||||||||||||
Gross | Cumulative | Gross | Cumulative | |||||||||||||
Carrying | Impairment | Carrying | Impairment | |||||||||||||
Amount | Losses | Amount | Losses | |||||||||||||
Goodwill |
||||||||||||||||
North American Lab |
$ | 1,025.4 | $ | 95.5 | $ | 1,025.4 | $ | 95.5 | ||||||||
European Lab |
738.2 | | 866.6 | | ||||||||||||
Science Education |
99.8 | 63.0 | 99.5 | 63.0 | ||||||||||||
Total |
$ | 1,863.4 | $ | 158.5 | $ | 1,991.5 | $ | 158.5 | ||||||||
Other intangible assets, net for each of the reporting periods is shown in the table below:
Weighted | ||||||||||||
Average | ||||||||||||
Amortization | June 30, | December 31, | ||||||||||
Period (Years) | 2010 | 2009 | ||||||||||
Amortizable intangible assets: |
||||||||||||
Customer relationships in North American Lab (net of accumulated amortization of $112.5 and $93.8) |
20.0 | $ | 638.3 | $ | 657.1 | |||||||
Customer relationships in European Lab (net of accumulated amortization of $66.3 and $64.1) |
19.5 | 371.9 | 449.1 | |||||||||
Customer relationships in Science Education (net of accumulated amortization of $19.7 and $16.4) |
20.0 | 111.4 | 114.8 | |||||||||
Chemical supply agreement (net of accumulated amortization of $21.0 and $20.6) |
7.0 | 28.0 | 36.9 | |||||||||
Other (net of accumulated amortization of $9.4 and
$7.9) |
5.5 | 8.5 | 11.1 | |||||||||
Total amortizable intangible assets (net of accumulated
amortization of $228.9 and $202.8) |
19.4 | 1,158.1 | 1,269.0 | |||||||||
Indefinite-lived intangible
assets: |
||||||||||||
Trademarks and tradenames |
677.8 | 717.7 | ||||||||||
Total intangible assets, net |
$ | 1,835.9 | $ | 1,986.7 | ||||||||
Amortization expense for each of the reporting periods is shown in the table below:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Amortization expense |
$ | 20.0 | $ | 19.8 | $ | 40.4 | $ | 39.3 |
7
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
(4) Debt
The following is a summary of our debt obligations:
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
Senior Secured Credit Facility |
$ | 1,346.2 | $ | 1,495.3 | ||||
10.25%/11.25% Unsecured Senior Notes due 2015 |
713.0 | 710.0 | ||||||
10.75% Unsecured Senior Subordinated Notes due 2017 |
514.4 | 541.4 | ||||||
Compensating cash balance |
82.1 | 105.0 | ||||||
Capital leases |
18.3 | 17.9 | ||||||
Predecessor Senior Subordinated Notes |
1.0 | 1.0 | ||||||
Other debt |
1.4 | 1.1 | ||||||
Total debt |
2,676.4 | 2,871.7 | ||||||
Less short-term portion |
(107.6 | ) | (152.4 | ) | ||||
Total long-term portion |
$ | 2,568.8 | $ | 2,719.3 | ||||
(a) Senior Secured Credit Facility
Our Senior Secured Credit Facility is with a syndicate of lenders and provides for aggregate
maximum borrowings consisting of (1) term loans denominated in Euros in an aggregate principal
amount currently outstanding of 588.2 ($721.7 on a U.S. dollar equivalent basis as of June 30,
2010), (2) term loans denominated in U.S. dollars in an aggregate principal amount currently
outstanding of $602.9 and (3) a multi-currency revolving loan facility, providing for an equivalent
in U.S. dollars of up to $250.0 in multi-currency revolving loans (inclusive of swingline loans of
up to $25.0 and letters of credit of up to $70.0). The term loans will mature on June 30, 2014 and
the multi-currency revolving loan facility will mature on June 30, 2013.
As of June 30, 2010, an aggregate U.S. dollar equivalent of $21.6 was outstanding under the
multi-currency revolving loan facility, consisting of £14.4 of revolving loans. In addition, we had
$14.6 of undrawn letters of credit outstanding. As of June 30, 2010, we had $213.8 of available
borrowing capacity under the multi-currency revolving loan facility.
As of June 30, 2010, the interest rates on the U.S. dollar-denominated and Euro-denominated
term loans were 2.85% and 2.93%, respectively, which include a variable margin of 2.5%. Amounts
drawn under the multi-currency revolving loan facility bear interest at the rate of 2.82%. As of
June 30, 2010, there were no loans under our Senior Secured Credit Facility denominated in
currencies other than the U.S. dollar, Euro and British pound sterling. See Note 9 for information
on our interest rate swap arrangements.
Based on an excess cash flow calculation required by the Senior Secured Credit Facility for
the year ended December 31, 2009, the Company made a principal repayment of $20.9 on the
outstanding term loans in March 2010. The excess cash flow payment has been and will be applied
against the Companys scheduled installments of principal due in respect of the term loans in 2010
and part of 2011.
8
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
(b) Senior Notes and Senior Subordinated Notes
The Senior Notes, which amount to $713.0 as of June 30, 2010, will mature on July 15, 2015.
Interest on the Senior Notes is payable twice a year, on each January 15 and July 15. For any
interest period through July 15, 2011, the Company may elect to pay interest on the Senior Notes
(1) entirely in cash (Cash Interest), (2) entirely by increasing the principal amount of the
Senior Notes (PIK Interest) or (3) 50% as Cash Interest and 50% as PIK Interest. PIK Interest
accrues on the Senior Notes at a rate per annum equal to the Cash Interest rate of 10.25% plus 100
basis points. Prior to July 15, 2009, the Company paid its Senior Note interest obligations as Cash
Interest. On June 25, 2009, we made an election to pay PIK Interest for the semi-annual interest
period commencing July 15, 2009 and ending on January 15, 2010. The Company did not make an
election to pay PIK Interest for the interest periods ending on July 15, 2010 and January 15, 2011
and so it must satisfy the related interest payments with Cash Interest. Under the terms of the
Senior Notes, if the Company were to make a 100% PIK Interest election for the remaining eligible
semi-annual interest period ending on July 15, 2011, it would be required to make a mandatory
principal redemption payment on July 15, 2012 of approximately $4.9.
The Senior Subordinated Notes are denominated in Euros in an aggregate principal amount
currently outstanding of 126.9 million ($155.7 on a U.S. dollar equivalent basis as of June 30,
2010) and in U.S. dollars in an aggregate principal amount currently outstanding of $358.7. The
Senior Subordinated Notes will mature on June 30, 2017. Interest on the Senior Subordinated Notes
is payable quarterly on March 31, June 30, September 30 and December 31 of each year.
(c) Covenant Compliance
The Senior Secured Credit Facility does not contain any financial maintenance covenants that
require the Company to comply with specified financial ratios or tests, such as a minimum interest
expense coverage ratio or a maximum leverage ratio, unless the Company wishes to make certain
acquisitions, incur additional indebtedness associated with certain acquisitions or make certain
restricted payments.
The indentures governing the Senior Notes and Senior Subordinated Notes contain covenants
that, among other things, limit the Companys ability and that of its restricted subsidiaries to
make restricted payments, pay dividends, incur or create additional indebtedness, issue certain
types of common and preferred stock, make certain dispositions outside the ordinary course of
business, execute certain affiliate transactions, create liens on assets of the Company and
restricted subsidiaries, and materially change our lines of business.
As of June 30, 2010, the Company was in compliance with the covenants under the Senior Secured
Credit Facility and with the indentures and related requirements governing the Senior Notes and
Senior Subordinated Notes.
(d) Compensating Cash Balance
Our compensating cash balance represents bank overdraft positions of subsidiaries
participating in our global cash pooling arrangement with a third-party bank. Due to the nature of
these overdrafts, all amounts have been classified within the short-term portion of debt as of each
period end.
9
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
(5) Other Income (Expense), net
Other income (expense), net is comprised of exchange gains and losses from foreign currency
transactions and/or translation. We have a significant amount of foreign-denominated debt on our
U.S. dollar-denominated balance sheet. The translation of foreign-denominated debt obligations on
our U.S. dollar-denominated balance sheet is reported in other income (expense), net as a foreign
currency exchange gain or loss each period. As a result, our operating results are exposed to
foreign currency risk, principally with respect to the Euro.
Our
net exchange gains of $70.5 and $128.8 for the three and six months ended June 30, 2010,
respectively, are substantially related to our recognition of net unrealized gains associated with
the weakening of the Euro against the U.S. dollar in 2010. Our net exchange losses of $46.0 and $9.4 for
the three and six months ended June 30, 2009, respectively, are substantially related to our
recognition of net unrealized losses associated with the strengthening of the Euro against the U.S.
dollar in 2009.
(6) Defined Benefit Plans
Net periodic pension (income) cost for our U.S. defined benefit plan (U.S. Retirement Plan)
and our significant non-U.S. plans in Germany, France and the UK for each of the reporting periods
include the following components:
Three Months Ended June 30, | ||||||||||||||||
U.S. Retirement Plan | German, French and UK Plans | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Service cost |
$ | 0.2 | $ | 0.4 | $ | 0.5 | $ | 0.5 | ||||||||
Interest cost |
2.3 | 2.2 | 1.3 | 1.3 | ||||||||||||
Expected return on plan assets |
(3.0 | ) | (2.8 | ) | (0.9 | ) | (0.8 | ) | ||||||||
Recognized net actuarial (gain) loss |
(0.1 | ) | (1.0 | ) | 0.2 | | ||||||||||
Net periodic
pension (income)
cost |
$ | (0.6 | ) | $ | (1.2 | ) | $ | 1.1 | $ | 1.0 | ||||||
Six Months Ended June 30, | ||||||||||||||||
U.S. Retirement Plan | German, French and UK Plans | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Service cost |
$ | 0.3 | $ | 0.4 | $ | 1.0 | $ | 0.9 | ||||||||
Interest cost |
4.7 | 4.5 | 2.8 | 2.5 | ||||||||||||
Expected return on plan assets |
(6.0 | ) | (5.6 | ) | (1.9 | ) | (1.4 | ) | ||||||||
Recognized net actuarial (gain) loss |
(0.3 | ) | (2.0 | ) | 0.2 | | ||||||||||
Net periodic pension (income) cost |
$ | (1.3 | ) | $ | (2.7 | ) | $ | 2.1 | $ | 2.0 | ||||||
The Company made no contributions to the U.S. Retirement Plan during the six months ended June
30, 2010, and expects to make no contributions during the remainder of 2010. The Company made
contributions to our significant non-U.S. plans of $1.2 during the six months ended June 30, 2010,
and expects to make additional contributions of approximately $0.7 during the remainder of 2010.
10
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
(7) Share-Based Compensation
Holdings established the 2007 Securities Purchase Plan (the Plan) pursuant to which members
of management, members of the Board of Directors and consultants may be provided the opportunity to
purchase equity units of Holdings. Share-based compensation expense associated with the Plan was
$0.9 and $0.8 during the three months ended June 30, 2010 and 2009, respectively, and was $1.7 during the six months ended
June 30, 2010 and 2009.
The equity units issued to management investors are subject to a repurchase obligation as a
result of a put option that is outside of our control. We therefore classify all equity units held
by management investors outside of permanent equity on our consolidated balance sheet, reflecting
the aggregate amount that would be paid to management investors for the equity units pursuant to
the put option as of the balance sheet date. The following is a roll forward of redeemable equity
units:
Balance at January 1, 2010 |
$ | 45.8 | ||
Reclassifications from permanent equity, net |
2.9 | |||
Reclassifications to accrued expenses upon notification of redemption |
(0.1 | ) | ||
Balance at June 30, 2010 |
$ | 48.6 | ||
As of December 31, 2009, $0.2 was included within accrued expenses in the accompanying balance
sheet relating to the committed repurchase of units by Holdings.
(8) Income Taxes
(a) Effective Tax Rate
During the three and six months ended June 30, 2010, we recognized an income tax provision of
$28.7 and $49.0, respectively, on pre-tax income of $69.6 and $128.3, respectively, resulting in an
effective tax rate of 41.2% and 38.2%, respectively.
During the three and six months ended June 30, 2009, we recognized an income tax benefit of
$25.6 and $20.1, respectively, on pre-tax losses of $52.4 and $35.7, respectively, resulting in an
effective tax benefit rate of 48.9% and 56.3%, respectively.
Our tax provision for the three and six months ended June 30, 2010 is primarily the result of
operating profits generated in our domestic and foreign operations, as well as our recognition of
net exchange gains (see Note 5) in excess of interest expense in our domestic operations. The tax
benefits recognized in the 2009 periods are the result of domestic net operating losses
and the
recognition of net exchange losses in our domestic operations (see
Note 5), offset by taxes on
operating profits in our foreign operations. The 2010 and 2009 effective tax rates were unfavorably
impacted by our recognition of valuation allowances on certain short-lived state and foreign net
operating losses. The income tax benefits for the three and six months ended June 30, 2009 were
positively impacted by a reduction in our uncertain tax position reserves of $3.2 associated with
the conclusion of a foreign income tax examination.
11
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
(b) Uncertain Tax Positions
We conduct business globally and, as a result, the Company or one or more of its subsidiaries,
files income tax returns in the U.S. federal jurisdiction and various state and foreign
jurisdictions. In the normal course of business, we are subject to examination by taxing
authorities mainly throughout North America and Europe, including jurisdictions in which we have
significant operations such as Germany, France, the UK, Belgium, Sweden and the U.S. We have
concluded all U.S. federal income tax matters for years through 2005. Substantially all income tax
matters in the major foreign jurisdictions that we operate have been concluded for years through
2004. Substantially all state and local income tax matters have also been finalized through 2004.
Changes to our reserve for uncertain tax positions, including our recognition of interest and
penalties, during the three and six months ended June 30, 2010 were not material.
While it is reasonably possible that the amount of unrecognized tax benefits ($4.8 as of June
30, 2010) will change in the next twelve months, management does not expect the change to have a
significant impact on the results of operations or the financial position of the Company.
(9) Financial Instruments and Fair Value Measurements
Our financial instruments consist primarily of cash and cash equivalents, our compensating
cash balance, trade accounts receivable, accounts payable, short and long-term debt, foreign
currency forward contracts, interest rate swaps and investments held by certain pension plans we
sponsor.
Our financial instruments, other than our trade accounts receivable and payable, are spread
across a number of large financial institutions whose credit ratings we monitor and believe do not
currently carry a material risk of non-performance. Certain of our financial instruments, including
our interest rate swap arrangements and foreign currency forward contracts contain
off-balance-sheet risk.
(a) Recurring Fair Value Measures
Fair value is defined as an exit price (i.e., the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date). The fair value hierarchy prioritizes the inputs to valuation techniques used to
measure fair value into three broad levels as shown below. An instruments classification within
the fair value hierarchy is determined based on the lowest level input that is significant to the
fair value measurement.
Level 1 | Quoted prices (unadjusted) in active markets for identical assets or liabilities. |
Level 2 | Inputs that are observable for the asset or liability, either directly or indirectly
through market corroboration, for substantially the full term of the asset or liability. |
Level 3 | Inputs that are unobservable for the asset or liability based on the Companys own
assumptions (about the assumptions market participants would use in pricing the asset or
liability). |
The carrying amounts reported in the accompanying balance sheets for cash and cash
equivalents, our compensating cash balance, trade accounts receivable, accounts payable and
short-term debt approximate fair value due to the short-term nature of these instruments.
Accordingly, these items have been excluded from the tables below. The following tables present
information about the Companys other financial assets and liabilities measured at fair value on a
recurring basis as of June 30, 2010 and December 31, 2009:
12
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
June 30, | ||||||||||||||||
Description | 2010 | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities |
||||||||||||||||
Interest rate swap arrangements |
$ | 44.7 | $ | | $ | 44.7 | $ | | ||||||||
Foreign currency forward contracts |
$ | 1.0 | $ | | $ | 1.0 | $ | |
December 31, | ||||||||||||||||
Description | 2009 | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities |
||||||||||||||||
Interest rate swap arrangements |
$ | 49.8 | $ | | $ | 49.8 | $ | | ||||||||
Foreign currency forward contracts |
$ | 0.5 | $ | | $ | 0.5 | $ | |
We determine the fair value of our interest rate swap arrangements using a discounted cash
flow model based on the contractual terms of the instrument and using observable inputs such as
interest rates, counterparty credit spread and our own credit spread. The discounted cash flow
model does not involve significant management judgment and does not incorporate significant
unobservable inputs. Accordingly, we classify our interest rate swap valuations within Level 2 of
the valuation hierarchy. The fair value of our foreign currency forward contracts was estimated
based on period-end spot rates and we believe such valuations qualify as a Level 2 measurement.
(b) Debt Instruments
The table below shows the carrying amounts and estimated fair values of our primary long-term
debt instruments:
June 30, 2010 | December 31, 2009 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
Senior Secured Credit Facility |
$ | 1,346.2 | $ | 1,215.0 | $ | 1,495.3 | $ | 1,415.0 | ||||||||
Senior Notes |
713.0 | 721.9 | 710.0 | 738.4 | ||||||||||||
Senior Subordinated Notes |
514.4 | 467.1 | 541.4 | 516.0 | ||||||||||||
$ | 2,573.6 | $ | 2,404.0 | $ | 2,746.7 | $ | 2,669.4 | |||||||||
The fair values of our debt instruments are based on estimates using quoted market prices and
standard pricing models that take into account the present value of future cash flows as of the
respective balance sheet date. We believe that the inputs to our pricing models qualify as Level 2
measurements, except for our publicly-traded Senior Notes which we believe qualify as a Level 1
measurement.
13
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
(c) Derivative Instruments and Hedging Activities
Interest Rate Swap Arrangements
Borrowings under our Senior Secured Credit Facility bear interest at variable rates while our
Senior Notes and Senior Subordinated Notes bear interest at fixed rates. The Company manages its
exposure to changes in market interest rates by entering into interest rate swaps. The Company is
currently party to two interest rate swaps. The interest rate swaps were previously accounted for
as cash flow hedges, but in 2008 we discontinued hedge accounting. The cumulative effective portion
of changes in the fair value of the swaps prior to discontinuance of hedge accounting is included
in other comprehensive income (loss) and is being reclassified to interest expense over the
remaining term of the swap arrangements. Changes in the fair value of the swaps subsequent to
discontinuance of hedge accounting are recognized as a component of interest expense.
As of June 30, 2010, our interest rate swap arrangements effectively convert $350.0 of
variable rate U.S. dollar-denominated debt and 240.0 ($294.5 on a U.S. dollar equivalent basis) of
variable rate Euro-denominated debt to fixed rates of interest. The counterparty to our interest
rate swap agreements is a major financial institution. The Company actively monitors its asset or
liability position under the interest rate swap agreements and the credit ratings of the
counterparty in an effort to understand and evaluate the risk of non-performance by the
counterparty.
Foreign Currency Forward Contracts
We regularly enter into foreign currency forward contracts to mitigate the risk of changes in
foreign currency exchange rates primarily associated with the purchase of inventory from foreign
vendors or for payments between our subsidiaries generally within the next twelve months or less.
Gains and losses on the foreign currency forward contracts generally offset certain portions of
gains and losses on expected commitments. To the extent these foreign currency forward contracts
are considered effective hedges, gains and losses on these positions are deferred and recorded in
accumulated other comprehensive income (loss) and are recognized in the results of operations when
the hedged item affects earnings. The notional value of our outstanding foreign currency forward
contracts was $22.6 as of June 30, 2010.
Tabular Disclosures
The following tables reflect the balance sheet classification and fair value of our derivative
instruments on a gross basis:
Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||||
June 30, 2010 | December 31, 2009 | June 30, 2010 | December 31, 2009 | |||||||||||||||||||||||||
Balance | Balance | Balance | Balance | |||||||||||||||||||||||||
Sheet | Fair | Sheet | Fair | Sheet | Fair | Sheet | Fair | |||||||||||||||||||||
Location | Value | Location | Value | Location | Value | Location | Value | |||||||||||||||||||||
Derivatives designated as hedging
instruments |
||||||||||||||||||||||||||||
Foreign currency
forward contracts |
$ | | $ | | Accrued expenses | $ | 1.0 | Accrued expenses | $ | 0.5 | ||||||||||||||||||
Derivatives not designated as
hedging instruments |
||||||||||||||||||||||||||||
Interest rate swap arrangements |
| | Other long-term liabilities | 44.7 | Other long-term liabilities | 49.8 | ||||||||||||||||||||||
Total derivatives |
$ | | $ | | $ | 45.7 | $ | 50.3 | ||||||||||||||||||||
14
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
The following tables reflect the amount of gains (losses) recognized for our derivative
instruments and the classification of gains (losses) within our statements of operations, or equity
in the case of any effective portion of cash flow hedges, for the three and six months ended June
30, 2010 and 2009:
Three Months Ended June 30, 2010 | ||||||||||
Amount of Gain | ||||||||||
(Loss) Recognized | Location of Gain (Loss) | Amount of Gain (Loss) | ||||||||
in Other | Reclassified from Other | Reclassified from Other | ||||||||
Comprehensive | Comprehensive Income | Comprehensive Income | ||||||||
Derivatives in cash flow hedging | Income (Effective | into Earnings (Effective | into Earnings (Effective | |||||||
relationships | Portion) | Portion) | Portion) | |||||||
Interest rate swap arrangements |
$ | | Interest expense | $ | (1.0 | ) | ||||
Foreign currency forward contracts |
| Interest expense | (0.3 | ) | ||||||
Foreign currency forward contracts |
(0.3 | ) | Cost of goods sold | 0.1 | ||||||
Total |
$ | (0.3 | ) | $ | (1.2 | ) | ||||
Derivatives not designated as hedging | Location of Gain (Loss) | Amount of Gain (Loss) | ||||||||
instruments | Recognized in Earnings | Recognized in Earnings | ||||||||
Interest rate swap arrangements realized |
Interest expense | $ | (7.7 | ) | ||||||
Interest rate swap arrangements unrealized |
Interest expense | 4.1 | ||||||||
Foreign currency forward contracts |
Other income (expense) | | ||||||||
Total |
$ | (3.6 | ) | |||||||
Three Months Ended June 30, 2009 | ||||||||||
Amount of Gain | ||||||||||
(Loss) Recognized | Location of Gain (Loss) | Amount of Gain (Loss) | ||||||||
in Other | Reclassified from Other | Reclassified from Other | ||||||||
Comprehensive | Comprehensive Income | Comprehensive Income | ||||||||
Derivatives in cash flow hedging | Income (Effective | into Earnings (Effective | into Earnings (Effective | |||||||
relationships | Portion) | Portion) | Portion) | |||||||
Interest rate swap arrangements |
$ | | Interest expense | $ | (1.0 | ) | ||||
Foreign currency forward contracts |
| Interest expense | (0.3 | ) | ||||||
Foreign currency forward contracts |
(2.3 | ) | Cost of goods sold | 1.6 | ||||||
Foreign currency forward contracts |
| Other income (expense) | (0.9 | ) | ||||||
Total |
$ | (2.3 | ) | $ | (0.6 | ) | ||||
Derivatives not designated as hedging | Location of Gain (Loss) | Amount of Gain (Loss) | ||||||||
instruments | Recognized in Earnings | Recognized in Earnings | ||||||||
Interest rate swap arrangements realized |
Interest expense | $ | (7.8 | ) | ||||||
Interest rate swap arrangements unrealized |
Interest expense | 4.7 | ||||||||
Total |
$ | (3.1 | ) | |||||||
15
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
Six Months Ended June 30, 2010 | ||||||||||||
Amount of Gain | ||||||||||||
(Loss) Recognized | Location of Gain (Loss) | Amount of Gain (Loss) | ||||||||||
in Other | Reclassified from Other | Reclassified from Other | ||||||||||
Comprehensive | Comprehensive Income | Comprehensive Income | ||||||||||
Derivatives in cash flow hedging | Income (Effective | into Earnings (Effective | into Earnings (Effective | |||||||||
relationships | Portion) | Portion) | Portion) | |||||||||
Interest rate swap arrangements |
$ | | Interest expense | $ | (2.0 | ) | ||||||
Foreign currency forward contracts |
| Interest expense | (0.6 | ) | ||||||||
Foreign currency forward contracts |
(1.0 | ) | Cost of goods sold | (0.2 | ) | |||||||
Total |
$ | (1.0 | ) | $ | (2.8 | ) | ||||||
Derivatives not designated as hedging | Location of Gain (Loss) | Amount of Gain (Loss) | ||||||||||
instruments | Recognized in Earnings | Recognized in Earnings | ||||||||||
Interest rate swap arrangements realized |
Interest expense | $ | (15.6 | ) | ||||||||
Interest rate swap arrangements unrealized |
Interest expense | 5.1 | ||||||||||
Foreign currency forward contracts |
Other income (expense) | (0.5 | ) | |||||||||
Total |
$ | (11.0 | ) | |||||||||
Six Months Ended June 30, 2009 | ||||||||||||
Amount of Gain | ||||||||||||
(Loss) Recognized | Location of Gain (Loss) | Amount of Gain (Loss) | ||||||||||
in Other | Reclassified from Other | Reclassified from Other | ||||||||||
Comprehensive | Comprehensive Income | Comprehensive Income | ||||||||||
Derivatives in cash flow hedging | Income (Effective | into Earnings (Effective | into Earnings (Effective | |||||||||
relationships | Portion) | Portion) | Portion) | |||||||||
Interest rate swap arrangements |
$ | | Interest expense | $ | (2.1 | ) | ||||||
Foreign currency forward contracts |
| Interest expense | (0.6 | ) | ||||||||
Foreign currency forward contracts |
(2.4 | ) | Cost of goods sold | 1.6 | ||||||||
Foreign currency forward contracts |
| Other income (expense) | 0.5 | |||||||||
Total |
$ | (2.4 | ) | $ | (0.6 | ) | ||||||
Derivatives not designated as hedging | Location of Gain (Loss) | Amount of Gain (Loss) | ||||||||||
instruments | Recognized in Earnings | Recognized in Earnings | ||||||||||
Interest rate swap arrangements realized |
Interest expense | $ | (14.6 | ) | ||||||||
Interest rate swap arrangements unrealized |
Interest expense | (2.3 | ) | |||||||||
Total |
$ | (16.9 | ) | |||||||||
As of June 30, 2010, approximately $5.2 of pre-tax net losses currently deferred in other
comprehensive income (loss) are expected to be recognized in earnings as interest expense within
the next 12 months.
16
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
(10) Comprehensive Income (Loss)
Comprehensive income (loss) is determined as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | 40.9 | $ | (26.8 | ) | $ | 79.3 | $ | (15.6 | ) | ||||||
Other comprehensive income (loss): |
||||||||||||||||
Foreign currency translation adjustments |
(124.2 | ) | 92.7 | (211.4 | ) | 29.3 | ||||||||||
Unrealized loss on derivatives, net of tax(1) |
(0.3 | ) | (2.1 | ) | (0.5 | ) | (3.1 | ) | ||||||||
Amortization of realized losses on derivatives, net of
tax (2) |
0.9 | 0.8 | 1.6 | 1.6 | ||||||||||||
Amortization of net actuarial gain, net of tax (3) |
| (0.6 | ) | (0.1 | ) | (1.2 | ) | |||||||||
Comprehensive (loss) income |
$ | (82.7 | ) | $ | 64.0 | $ | (131.1 | ) | $ | 11.0 | ||||||
(1) | Unrealized loss on derivatives is net of taxes of $0.1 and $0.9 for the three months ended
June 30, 2010 and 2009, respectively, and net of taxes of $0.3 and $1.4 for the six months
ended June 30, 2010 and 2009, respectively. |
|
(2) | Amortization of realized losses on derivatives is net of taxes of $0.4 and $0.5 for the three
months ended June 30, 2010 and 2009, respectively, and net of taxes of $1.0 and $1.1 for the
six months ended June 30, 2010 and 2009, respectively. |
|
(3) | Amortization of net actuarial gain is net of taxes of $0.0 and $0.4 for the three months
ended June 30, 2010 and 2009, respectively, and net of taxes of $0.1 and $0.8 for the six
months ended June 30, 2010 and 2009, respectively. |
(11) Commitments and Contingencies
Our business involves a risk of product liability, patent infringement and other claims in the
ordinary course of business arising from the products that we source from various manufacturers.
Our exposure to such claims may increase as we seek to increase the geographic scope of our
sourcing activities and sales of private label products. We maintain insurance policies, including
product liability insurance, and in many cases we have indemnification rights against such claims
from the manufacturers of the products we distribute. There can be no assurance that our insurance
coverage or indemnification agreements with manufacturers will be available in all pending or any
future cases brought against us. Furthermore, our ability to recover under any insurance or
indemnification arrangements is subject to the financial viability of our insurers, our
manufacturers and our manufacturers insurers, as well as legal enforcement under the local laws
governing the arrangements. In particular, as we seek to expand our sourcing from manufacturers in
Asia Pacific and other developing regions, we expect that we will have increased exposure to
potential defaults under the related indemnification arrangements. Insurance coverage in general or
coverage for certain types of liabilities, such as product liability or patent infringement in
these developing markets may not be readily available for purchase or cost-effective for us to
purchase. Furthermore, insurance for liability relating to asbestos, lead and silica exposure is
not available, and we do not maintain insurance for product recalls. Accordingly, we could be
subject to uninsured and unindemnified future liabilities, and an unfavorable result in a case for
which adequate insurance or indemnification is not available could result in a material adverse
effect on our business, financial condition and results of operations.
During 2005, the German Federal Cartel Office (GFCO) initiated an investigation with regard
to our European Distribution Agreement with Merck KGaA. The purpose of the investigation is to
determine whether this agreement violates or otherwise infringes the general prohibition of
anti-competitive agreements under either German or EU rules. We submitted information to the GFCO
in response to its initial request. During 2007, the GFCO requested additional information, which
we provided. In December 2007, Merck KGaA received a letter from the GFCO, which asserted that the
aforementioned agreement is contrary to applicable competition regulations in Germany. In February
2008, we submitted a response to the GFCO. In June 2008, the GFCO requested additional information,
which we provided. In May 2009, we and Merck KGaA received a letter from the GFCO, which again
asserted that the aforementioned agreement is contrary to applicable competitive regulations in
Germany. Following our response to these assertions, in July 2009, the GFCO issued its formal
decision that the exclusivity and non-competition provisions of the agreement
17
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
violate certain
provisions of German and EU law and ordered Merck KGaA to either supply chemical products to other
distributors in Germany, in addition to us, on non-discriminatory terms or to supply chemical
products directly to end customers in Germany without involving any distributors. Merck KGaA and we
filed formal appeals of this decision and the competent German appellate court temporarily
suspended enforcement of the GFCOs order. In December 2009, the German appellate court granted
partial injunctive relief, but lifted the suspension with respect to a majority of the products
covered by the European Distribution Agreement. In February 2010, the GFCO indicated that it had
opened a new investigation with regard to the European Distribution Agreement. As of June 30, 2010,
we have recognized an amortizable intangible asset related to the entire geographic scope of our
European Distribution Agreement with Merck KGaA in the amount of $28.0. We cannot assess the likely
outcome of our and Merck KGaAs appeal of the GFCOs initial decision or any subsequent
investigation, but we do not believe an adverse ruling in either case would result in a material
adverse effect on our business, financial condition or results of operations.
We also are involved in various legal and regulatory cases, claims, assessments and inquiries,
which are considered routine to our business and which include being named from time to time as a
defendant in cases as a result of our distribution of laboratory supplies, including litigation
resulting from the alleged prior distribution of products containing asbestos by certain of our
predecessors or acquired companies. While the impact of this litigation has typically been
immaterial, there can be no assurance that the impact of the pending and any future cases, claims,
assessments or inquiries will not be material to our business, financial condition or results of
operations in the future.
(12) Segment Financial Information
The Company reports financial results on the basis of the following three business segments:
North American Lab, European Lab and Science Education. The Companys operating segments have been
identified giving consideration to both geographic areas and the nature of products among
businesses within its geographic areas.
Selected segment financial information and reconciliation of reported operating income by
segment to income before income taxes are presented below. Revenues reported for each operating
segment are net of inter-segment activity.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales |
||||||||||||||||
North American Lab |
$ | 523.9 | $ | 514.2 | $ | 1,015.3 | $ | 1,003.7 | ||||||||
European Lab |
329.2 | 332.5 | 687.5 | 657.3 | ||||||||||||
Science Education |
28.7 | 29.3 | 53.3 | 56.2 | ||||||||||||
Total |
$ | 881.8 | $ | 876.0 | $ | 1,756.1 | $ | 1,717.2 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Operating income (loss) |
||||||||||||||||
North American Lab |
$ | 29.6 | $ | 28.3 | $ | 59.0 | $ | 53.7 | ||||||||
European Lab |
20.0 | 16.5 | 47.1 | 35.8 | ||||||||||||
Science Education |
(1.2 | ) | (0.8 | ) | (3.6 | ) | (3.1 | ) | ||||||||
Total |
48.4 | 44.0 | 102.5 | 86.4 | ||||||||||||
Interest income |
0.7 | 0.5 | 1.1 | 1.3 | ||||||||||||
Interest expense |
(50.0 | ) | (50.9 | ) | (104.1 | ) | (114.0 | ) | ||||||||
Other income (expense), net |
70.5 | (46.0 | ) | 128.8 | (9.4 | ) | ||||||||||
Income (loss) before income taxes |
$ | 69.6 | $ | (52.4 | ) | $ | 128.3 | $ | (35.7 | ) | ||||||
18
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
(13) Condensed Consolidating Financial Information
The following tables set forth the condensed consolidating financial statements of the
Company. These financial statements are included as a result of the guarantee arrangements relating
to our Senior Notes. The Senior Notes are jointly and severally guaranteed on an unsecured basis by
each of the Companys wholly owned U.S. subsidiaries other than its U.S. foreign subsidiary holding
companies (collectively, the Subsidiary Guarantors). The guarantees are full and unconditional
and each of the Subsidiary Guarantors is wholly owned, directly or indirectly, by the Company.
These condensed consolidating financial statements have been prepared from the Companys financial
information on the same basis of accounting as the Companys condensed consolidated financial
statements.
The following condensed consolidating financial statements present the balance sheets as of
June 30, 2010 and December 31, 2009, statements of operations for the three and six months ended
June 30, 2010 and 2009 and statements of cash flows for the six months ended June 30, 2010 and 2009
of (1) the Company (Parent), (2) the Subsidiary Guarantors, (3) subsidiaries of the Company that
are not guarantors (the Non-Guarantor Subsidiaries), (4) elimination entries necessary to
consolidate the Company, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries, and (5) the
Company on a consolidated basis. The eliminating adjustments primarily reflect inter-company
transactions, such as accounts receivable and payable, advances, royalties and profit in inventory
eliminations. We have not presented separate notes and other disclosures concerning the Subsidiary
Guarantors as we have determined that such material information is available in the notes to the
Companys condensed consolidated financial statements.
19
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
Condensed Consolidating Balance Sheet
June 30, 2010
June 30, 2010
Subsidiary | Non-Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 0.6 | $ | 22.2 | $ | 112.8 | $ | | $ | 135.6 | ||||||||||
Compensating cash balance |
| | 82.1 | | 82.1 | |||||||||||||||
Trade accounts receivable, net |
| 207.1 | 256.7 | | 463.8 | |||||||||||||||
Inventories |
| 128.3 | 114.7 | | 243.0 | |||||||||||||||
Other current assets |
| 19.2 | 41.8 | | 61.0 | |||||||||||||||
Intercompany receivables |
15.9 | 3.0 | | (18.9 | ) | | ||||||||||||||
Total current assets |
16.5 | 379.8 | 608.1 | (18.9 | ) | 985.5 | ||||||||||||||
Property and equipment, net |
| 70.6 | 108.0 | | 178.6 | |||||||||||||||
Goodwill |
| 905.1 | 799.8 | | 1,704.9 | |||||||||||||||
Other intangible assets, net |
| 1,104.3 | 731.6 | | 1,835.9 | |||||||||||||||
Deferred income taxes |
188.9 | | 10.1 | (188.9 | ) | 10.1 | ||||||||||||||
Investment in subsidiaries |
2,368.0 | 1,537.1 | | (3,905.1 | ) | | ||||||||||||||
Other assets |
37.8 | 44.2 | 5.0 | | 87.0 | |||||||||||||||
Intercompany loans |
1,019.2 | 65.1 | 10.4 | (1,094.7 | ) | | ||||||||||||||
Total assets |
$ | 3,630.4 | $ | 4,106.2 | $ | 2,273.0 | $ | (5,207.6 | ) | $ | 4,802.0 | |||||||||
LIABILITIES, REDEEMABLE EQUITY UNITS AND STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Current portion of debt and
capital lease obligations |
$ | 21.9 | $ | 0.4 | $ | 85.3 | $ | | $ | 107.6 | ||||||||||
Accounts payable |
| 197.1 | 168.2 | | 365.3 | |||||||||||||||
Accrued expenses |
36.8 | 50.2 | 88.8 | | 175.8 | |||||||||||||||
Intercompany payables |
| 0.9 | 18.0 | (18.9 | ) | | ||||||||||||||
Total current liabilities |
58.7 | 248.6 | 360.3 | (18.9 | ) | 648.7 | ||||||||||||||
Long-term debt and capital lease
obligations |
2,551.6 | 1.4 | 15.8 | | 2,568.8 | |||||||||||||||
Other long-term liabilities |
45.2 | 18.8 | 60.1 | | 124.1 | |||||||||||||||
Deferred income taxes |
| 463.3 | 225.9 | (188.9 | ) | 500.3 | ||||||||||||||
Intercompany loans |
14.8 | 1,006.9 | 73.0 | (1,094.7 | ) | | ||||||||||||||
Total liabilities |
2,670.3 | 1,739.0 | 735.1 | (1,302.5 | ) | 3,841.9 | ||||||||||||||
Redeemable equity units |
48.6 | | | | 48.6 | |||||||||||||||
Total stockholders equity |
911.5 | 2,367.2 | 1,537.9 | (3,905.1 | ) | 911.5 | ||||||||||||||
Total liabilities, redeemable equity units
and stockholders equity |
$ | 3,630.4 | $ | 4,106.2 | $ | 2,273.0 | $ | (5,207.6 | ) | $ | 4,802.0 | |||||||||
20
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
Condensed Consolidating Balance Sheet
December 31, 2009
December 31, 2009
Subsidiary | Non-Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 1.3 | $ | 10.1 | $ | 113.0 | $ | | $ | 124.4 | ||||||||||
Compensating cash balance |
| | 105.0 | | 105.0 | |||||||||||||||
Trade accounts receivable, net |
| 190.1 | 281.2 | | 471.3 | |||||||||||||||
Inventories |
| 134.9 | 128.7 | | 263.6 | |||||||||||||||
Other current assets |
| 14.4 | 38.5 | | 52.9 | |||||||||||||||
Intercompany receivables |
14.8 | 2.1 | | (16.9 | ) | | ||||||||||||||
Total current assets |
16.1 | 351.6 | 666.4 | (16.9 | ) | 1,017.2 | ||||||||||||||
Property and equipment, net |
| 71.6 | 119.8 | | 191.4 | |||||||||||||||
Goodwill |
| 905.1 | 927.9 | | 1,833.0 | |||||||||||||||
Other intangible assets, net |
| 1,125.8 | 860.9 | | 1,986.7 | |||||||||||||||
Deferred income taxes |
221.9 | | 12.6 | (221.9 | ) | 12.6 | ||||||||||||||
Investment in subsidiaries |
2,649.7 | 1,759.3 | | (4,409.0 | ) | | ||||||||||||||
Other assets |
41.9 | 42.2 | 2.3 | | 86.4 | |||||||||||||||
Intercompany loans |
1,045.3 | 136.6 | 19.2 | (1,201.1 | ) | | ||||||||||||||
Total assets |
$ | 3,974.9 | $ | 4,392.2 | $ | 2,609.1 | $ | (5,848.9 | ) | $ | 5,127.3 | |||||||||
LIABILITIES, REDEEMABLE EQUITY UNITS AND STOCKHOLDERS EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Current portion of debt and
capital lease obligations |
$ | 44.3 | $ | 0.4 | $ | 107.7 | $ | | $ | 152.4 | ||||||||||
Accounts payable |
| 177.9 | 200.3 | | 378.2 | |||||||||||||||
Accrued expenses |
2.7 | 60.7 | 94.8 | | 158.2 | |||||||||||||||
Intercompany payables |
| 0.8 | 16.1 | (16.9 | ) | | ||||||||||||||
Total current liabilities |
47.0 | 239.8 | 418.9 | (16.9 | ) | 688.8 | ||||||||||||||
Long-term debt and capital lease
obligations |
2,702.5 | 1.5 | 15.3 | | 2,719.3 | |||||||||||||||
Other long-term liabilities |
50.4 | 16.2 | 68.7 | | 135.3 | |||||||||||||||
Deferred income taxes |
| 448.4 | 269.0 | (221.9 | ) | 495.5 | ||||||||||||||
Intercompany loans |
86.6 | 1,037.4 | 77.1 | (1,201.1 | ) | | ||||||||||||||
Total liabilities |
2,886.5 | 1,743.3 | 849.0 | (1,439.9 | ) | 4,038.9 | ||||||||||||||
Redeemable equity units |
45.8 | | | | 45.8 | |||||||||||||||
Total stockholders equity |
1,042.6 | 2,648.9 | 1,760.1 | (4,409.0 | ) | 1,042.6 | ||||||||||||||
Total liabilities, redeemable equity units and stockholders equity |
$ | 3,974.9 | $ | 4,392.2 | $ | 2,609.1 | $ | (5,848.9 | ) | $ | 5,127.3 | |||||||||
21
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2010
Three Months Ended June 30, 2010
Subsidiary | Non-Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net sales |
$ | | $ | 484.8 | $ | 400.5 | $ | (3.5 | ) | $ | 881.8 | |||||||||
Cost of goods sold |
| 359.6 | 274.5 | (3.5 | ) | 630.6 | ||||||||||||||
Gross profit |
| 125.2 | 126.0 | | 251.2 | |||||||||||||||
Selling, general and administrative expenses |
0.8 | 100.6 | 108.5 | (7.1 | ) | 202.8 | ||||||||||||||
Operating (loss) income |
(0.8 | ) | 24.6 | 17.5 | 7.1 | 48.4 | ||||||||||||||
Interest expense, net of interest income |
(40.0 | ) | (8.5 | ) | (0.8 | ) | | (49.3 | ) | |||||||||||
Other income (expense), net |
71.8 | 17.8 | (12.0 | ) | (7.1 | ) | 70.5 | |||||||||||||
Income before income taxes and
equity in earnings of subsidiaries |
31.0 | 33.9 | 4.7 | | 69.6 | |||||||||||||||
Income tax provision |
(10.8 | ) | (17.0 | ) | (0.9 | ) | | (28.7 | ) | |||||||||||
Equity in earnings of subsidiaries, net of tax |
20.7 | 3.8 | | (24.5 | ) | | ||||||||||||||
Net income (loss) |
$ | 40.9 | $ | 20.7 | $ | 3.8 | $ | (24.5 | ) | $ | 40.9 | |||||||||
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2009
Three Months Ended June 30, 2009
Subsidiary | Non-Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net sales |
$ | | $ | 477.3 | $ | 402.2 | $ | (3.5 | ) | $ | 876.0 | |||||||||
Cost of goods sold |
| 359.8 | 274.9 | (3.5 | ) | 631.2 | ||||||||||||||
Gross profit |
| 117.5 | 127.3 | | 244.8 | |||||||||||||||
Selling, general and administrative expenses |
0.8 | 93.0 | 114.3 | (7.3 | ) | 200.8 | ||||||||||||||
Operating (loss) income |
(0.8 | ) | 24.5 | 13.0 | 7.3 | 44.0 | ||||||||||||||
Interest expense, net of interest income |
(38.5 | ) | (10.9 | ) | (1.0 | ) | | (50.4 | ) | |||||||||||
Other income (expense), net |
(50.2 | ) | 0.2 | 11.3 | (7.3 | ) | (46.0 | ) | ||||||||||||
(Loss) income before income taxes and
equity in earnings of subsidiaries |
(89.5 | ) | 13.8 | 23.3 | | (52.4 | ) | |||||||||||||
Income tax benefit (provision) |
36.2 | (5.7 | ) | (4.9 | ) | | 25.6 | |||||||||||||
Equity in earnings of subsidiaries, net of tax |
26.5 | 18.4 | | (44.9 | ) | | ||||||||||||||
Net (loss) income |
$ | (26.8 | ) | $ | 26.5 | $ | 18.4 | $ | (44.9 | ) | $ | (26.8 | ) | |||||||
22
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2010
Six Months Ended June 30, 2010
Subsidiary | Non-Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net sales |
$ | | $ | 932.4 | $ | 830.9 | $ | (7.2 | ) | $ | 1,756.1 | |||||||||
Cost of goods sold |
| 689.7 | 565.7 | (7.2 | ) | 1,248.2 | ||||||||||||||
Gross profit |
| 242.7 | 265.2 | | 507.9 | |||||||||||||||
Selling, general and administrative expenses |
1.6 | 194.8 | 221.5 | (12.5 | ) | 405.4 | ||||||||||||||
Operating (loss) income |
(1.6 | ) | 47.9 | 43.7 | 12.5 | 102.5 | ||||||||||||||
Interest expense, net of interest income |
(84.3 | ) | (17.2 | ) | (1.5 | ) | | (103.0 | ) | |||||||||||
Other income (expense), net |
128.8 | 33.9 | (21.4 | ) | (12.5 | ) | 128.8 | |||||||||||||
Income before income taxes and
equity in earnings of subsidiaries |
42.9 | 64.6 | 20.8 | | 128.3 | |||||||||||||||
Income tax provision |
(10.9 | ) | (33.0 | ) | (5.1 | ) | | (49.0 | ) | |||||||||||
Equity in earnings of subsidiaries, net of tax |
47.3 | 15.7 | | (63.0 | ) | | ||||||||||||||
Net income (loss) |
$ | 79.3 | $ | 47.3 | $ | 15.7 | $ | (63.0 | ) | $ | 79.3 | |||||||||
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2009
Six Months Ended June 30, 2009
Subsidiary | Non-Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net sales |
$ | | $ | 929.3 | $ | 794.6 | $ | (6.7 | ) | $ | 1,717.2 | |||||||||
Cost of goods sold |
| 694.6 | 540.1 | (6.7 | ) | 1,228.0 | ||||||||||||||
Gross profit |
| 234.7 | 254.5 | | 489.2 | |||||||||||||||
Selling, general and administrative expenses |
1.6 | 191.3 | 222.1 | (12.2 | ) | 402.8 | ||||||||||||||
Operating (loss) income |
(1.6 | ) | 43.4 | 32.4 | 12.2 | 86.4 | ||||||||||||||
Interest expense, net of interest income |
(88.2 | ) | (22.5 | ) | (2.0 | ) | | (112.7 | ) | |||||||||||
Other income (expense), net |
(12.9 | ) | 10.7 | 5.0 | (12.2 | ) | (9.4 | ) | ||||||||||||
(Loss) income before income taxes and
equity in earnings of subsidiaries |
(102.7 | ) | 31.6 | 35.4 | | (35.7 | ) | |||||||||||||
Income tax benefit (provision) |
42.5 | (12.9 | ) | (9.5 | ) | | 20.1 | |||||||||||||
Equity in earnings of subsidiaries, net of tax |
44.6 | 25.9 | | (70.5 | ) | | ||||||||||||||
Net (loss) income |
$ | (15.6 | ) | $ | 44.6 | $ | 25.9 | $ | (70.5 | ) | $ | (15.6 | ) | |||||||
23
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2010
Six Months Ended June 30, 2010
Subsidiary | Non-Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net cash (used in) provided by operating activities |
$ | (48.2 | ) | $ | 87.5 | $ | 22.1 | $ | | $ | 61.4 | |||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Intercompany investing transactions |
67.9 | 2.9 | | (70.8 | ) | | ||||||||||||||
Acquisitions of businesses |
| | 0.7 | | 0.7 | |||||||||||||||
Capital expenditures |
| (9.3 | ) | (5.3 | ) | | (14.6 | ) | ||||||||||||
Net cash provided by (used in) investing activities |
67.9 | (6.4 | ) | (4.6 | ) | (70.8 | ) | (13.9 | ) | |||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Intercompany financing transactions |
| (67.9 | ) | (2.9 | ) | 70.8 | | |||||||||||||
Proceeds from debt |
53.2 | 0.1 | 1.3 | | 54.6 | |||||||||||||||
Repayment of debt |
(74.5 | ) | (0.2 | ) | (0.8 | ) | | (75.5 | ) | |||||||||||
Other financing activities, net |
0.9 | (1.0 | ) | (0.3 | ) | | (0.4 | ) | ||||||||||||
Net cash used in financing activities |
(20.4 | ) | (69.0 | ) | (2.7 | ) | 70.8 | (21.3 | ) | |||||||||||
Effect of exchange rate changes on cash |
| | (15.0 | ) | | (15.0 | ) | |||||||||||||
Net (decrease) increase in cash and cash
equivalents |
(0.7 | ) | 12.1 | (0.2 | ) | | 11.2 | |||||||||||||
Cash and cash equivalents beginning of period |
1.3 | 10.1 | 113.0 | | 124.4 | |||||||||||||||
Cash and cash equivalents end of period |
$ | 0.6 | $ | 22.2 | $ | 112.8 | $ | | $ | 135.6 | ||||||||||
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2009
Six Months Ended June 30, 2009
Subsidiary | Non-Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net cash (used in) provided by operating activities |
$ | (76.2 | ) | $ | 102.8 | $ | 40.4 | $ | | $ | 67.0 | |||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Intercompany investing transactions |
110.2 | 23.4 | | (133.6 | ) | | ||||||||||||||
Capital expenditures |
| (5.4 | ) | (5.8 | ) | | (11.2 | ) | ||||||||||||
Other investing activities, net |
| | (0.1 | ) | | (0.1 | ) | |||||||||||||
Net cash provided by (used in) investing activities |
110.2 | 18.0 | (5.9 | ) | (133.6 | ) | (11.3 | ) | ||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Intercompany financing transactions |
| (110.2 | ) | (23.4 | ) | 133.6 | | |||||||||||||
Proceeds from debt |
188.5 | | 0.9 | | 189.4 | |||||||||||||||
Repayment of debt |
(222.0 | ) | (0.2 | ) | (0.3 | ) | | (222.5 | ) | |||||||||||
Other financing activities, net |
(3.0 | ) | (4.7 | ) | 0.5 | | (7.2 | ) | ||||||||||||
Net cash used in financing activities |
(36.5 | ) | (115.1 | ) | (22.3 | ) | 133.6 | (40.3 | ) | |||||||||||
Effect of exchange rate changes on cash |
| | 2.2 | | 2.2 | |||||||||||||||
Net (decrease) increase in cash and cash
equivalents |
(2.5 | ) | 5.7 | 14.4 | | 17.6 | ||||||||||||||
Cash and cash equivalents beginning of period |
3.1 | 8.6 | 30.3 | | 42.0 | |||||||||||||||
Cash and cash equivalents end of period |
$ | 0.6 | $ | 14.3 | $ | 44.7 | $ | | $ | 59.6 | ||||||||||
24
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2010
(In millions)
(Unaudited)
June 30, 2010
(In millions)
(Unaudited)
(14) Subsequent Event
In August 2010, we signed an agreement to acquire the scientific distribution
businesses of EBOS Group Limited (EBOS Group). We expect to close this transaction in September
2010. The scientific businesses of the EBOS Group distribute general laboratory supplies and life
science products in Australia and New Zealand. The EBOS Group has annual net sales of approximately
$40.0.
25
Table of Contents
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Cautionary Factors Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than statements of historical fact included
in this Form 10-Q may constitute forward-looking statements. These statements may be preceded by,
followed by, or include the words believes, expects, anticipates, intends, plans,
estimates or similar expressions. We have based these forward-looking statements on our current
expectations and projections about future events. Although we believe that our assumptions made in
connection with the forward-looking statements are reasonable, we cannot assure you that the
assumptions and expectations will prove to be correct.
Forward-looking statements are inherently subject to risks, uncertainties and assumptions.
Forward-looking statements are not guarantees of performance. You should not place undue reliance
on these statements. You should understand that the following important factors, in addition to
those discussed in Item 1A Risk Factors of our Annual Report on Form 10-K for the year ended
December 31, 2009, could affect our future results and could cause those results or other outcomes
to differ materially from those expressed or implied in our forward-looking statements:
| actions by, and our ability to maintain existing business relationships and practices with,
suppliers, customers, carriers and other third parties; |
|
| loss of our key executive officers; |
|
| our ability to consummate and integrate potential acquisitions; |
|
| the effect of political, economic, credit and financial market conditions, inflation and
interest rates worldwide; |
|
| the effect of changes in laws and regulations, including changes in accounting standards,
trade, tax, price controls and other regulatory matters; |
|
| increased competition from other companies in our industry and our ability to retain or
increase our market share in the principal geographical areas in which we operate; |
|
| foreign currency exchange rate fluctuations; and |
|
| our ability to generate sufficient funds to meet our debt obligations, capital expenditure
program requirements, ongoing operating costs, acquisition financing and working capital
needs. |
All forward-looking statements speak only as of the date of this Form 10-Q and we undertake no
obligations to update or revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
The following discussion should be read in conjunction with our condensed consolidated
financial statements and related notes included in Item 1
Financial Statements of this
Quarterly Report on Form 10-Q.
26
Table of Contents
Overview
VWR Funding, Inc. offers products and services through its wholly-owned subsidiary, VWR
International, LLC (VWR), and VWRs subsidiaries. We distribute laboratory supplies, including
chemicals, glassware, equipment, instruments, protective clothing, production supplies and other
assorted laboratory products, primarily in North America and Europe. We also provide services,
including technical services, on-site storeroom services and laboratory and furniture design,
supply and installation, which comprise only a small portion of our net sales. Our business is
diversified across products, geographic regions and customer segments.
We report financial results on the basis of the following three business segments: North
American laboratory distribution (North American Lab), European laboratory distribution
(European Lab) and Science Education. Both the North American Lab and European Lab segments are
engaged in the distribution of laboratory and production supplies to customers in the
pharmaceutical, biotechnology, medical device, chemical, technology, food processing and consumer
products industries, as well as governmental agencies, universities and research institutes, and
environmental organizations. Science Education is engaged in the assembly, manufacture and
distribution of scientific supplies and specialized kits principally to academic institutions,
including primary and secondary schools, colleges and universities. Our operations in the Asia
Pacific region (Asia Pacific) are engaged in regional commercial sales and also support our North
American Lab and European Lab businesses. The results of our operations in Asia Pacific are not
material and are included in our North American Lab segment.
Consolidated net sales were $881.8 million and $1,756.1 million for the three and six months
ended June 30, 2010, respectively, representing an increase of $5.8 million or 0.7% and $38.9
million or 2.3%, respectively, compared to the same periods in 2009. As discussed in more detail
below, changes in foreign currency exchange rates, net of the contribution from acquisitions, were
unfavorable to net sales growth in the three month period by approximately $8.1 million or 0.9% and
were favorable to net sales growth in the six month period by approximately $30.9 million or 1.8%.
Comparable net sales growth during the 2010 periods has been relatively stronger in our European
Lab segment (in comparison to our other operating segments) and is generally attributable to
increased sales of capital goods products and increased sales volume with our industrial customers.
Consolidated operating income was $48.4 million and $102.5 million for the three and six
months ended June 30, 2010, respectively, representing an increase of $4.4 million or 10.0% and
$16.1 million or 18.6%, respectively, compared to the same periods in 2009. Changes in foreign
currency exchange rates and the results of acquisitions contributed favorably to operating income
growth in the six month period by approximately $2.4 million or 2.8%, while such factors were not
material on an aggregate basis to operating income growth in the three month period. Operating
income growth during the three and six months ended June 30, 2010 was primarily attributable to
gross margin expansion and further due to lower severance and facility related expenses of $2.8
million and $8.2 million, respectively, compared to the same periods of 2009. Operating income
growth during the three and six month periods was partially offset by the unfavorable impact of
lower pricing associated with the sale of certain chemical products which experienced tight supply
conditions in the first half of 2009. We anticipate the adverse impact of this chemical pricing
issue on comparable period growth to not be material in the second half of 2010.
We
recognized consolidated net income of $40.9 million and $79.3 million during the three and
six months ended June 30, 2010. We recognized consolidated net losses of $26.8 million $15.6
million for the three and six months ended June 30, 2009, respectively. These fluctuations in net
income or loss are primarily attributable to our recognition of net unrealized translation gains
and losses as described below, net of related income tax effects.
27
Table of Contents
Factors Affecting Our Operating Results
General
As a result of the acquisition of the Company by affiliates of Madison Dearborn Partners, LLC
in June 2007, we have a significant amount of goodwill, amortizable and indefinite-lived intangible
assets, we are highly leveraged and have a significant amount of foreign-denominated debt on our
U.S. dollar-denominated balance sheet. These and other related factors have had, and will continue
to have in the future, a significant impact on our financial condition and results of operations.
Foreign Currency
We maintain operations primarily in North America and in Europe. In 2009, approximately 47% of
our net sales originated in currencies other than the U.S. dollar, principally the Euro, the
British pound sterling and the Canadian dollar. As a result, changes in our reported revenues and
operating profits include the impact of changes in foreign currency exchange rates. We provide
constant currency assessments in the following discussion and analysis to remove the impact of
fluctuation in foreign exchange rates and utilize constant currency results in our analysis of
segment performance. We calculate the approximate impact of changes in foreign exchange rates by
comparing our current period results derived using current period average exchange rates to our
current period results recalculated using average foreign exchange rates in effect during the prior
period(s). We believe that our constant currency assessments are a useful measure, indicating the
actual results of our operations.
We have a significant amount of foreign-denominated debt on our U.S. dollar-denominated
balance sheet. The translation of foreign-denominated debt obligations that are recorded on our
U.S. dollar-denominated balance sheet is recorded in other income (expense), net as a foreign
currency exchange gain or loss each period. As a result, our operating results are exposed to
fluctuations in foreign currency exchange rates, principally with respect to the Euro.
Our
net exchange gains of $70.5 million and $128.8 million for the three and six months ended
June 30, 2010, respectively, are substantially related to our recognition of net unrealized gains
associated with the weakening of the Euro against the U.S. dollar in
2010. Our net exchange losses of $46.0
million and $9.4 million for the three and six months ended June 30, 2009, respectively, are
substantially related to our recognition of net unrealized losses associated with the strengthening
of the Euro against the U.S. dollar in 2009.
Acquisitions
The Company made the following acquisitions during 2009:
Product / Service | Business | |||||||
Acquisition Date | Entity Name | Offering | Location | Segment | ||||
December 1, 2009
|
OneMed Lab (OneMed) | Laboratory supply | Finland, Norway & Sweden | European Lab | ||||
October 1, 2009
|
X-treme Geek (XGeek) | Internet and
catalog retailer marketing to science enthusiasts |
United States | Science Education |
The acquisitions noted above were funded with cash and cash equivalents on hand. The operating
results of the acquired entities were included in the operating results of the respective business
segments from the date of acquisition. Through June 30, 2010, no material acquisitions have
occurred in 2010. See Note 14 in Item 1 Financial Statements of this Quarterly Report on Form
10-Q for more information on acquisition activity subsequent to June 30, 2010.
28
Table of Contents
Results of Operations
Net Sales
The following table presents net sales and net sales changes by reportable segment for the
three and six months ended June 30, 2010 and 2009 (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||||
2010 | 2009 | Amount | % | 2010 | 2009 | Amount | % | |||||||||||||||||||||||||
North American Lab |
$ | 523.9 | $ | 514.2 | $ | 9.7 | 1.9 | % | $ | 1,015.3 | $ | 1,003.7 | $ | 11.6 | 1.2 | % | ||||||||||||||||
European Lab |
329.2 | 332.5 | (3.3 | ) | -1.0 | % | 687.5 | 657.3 | 30.2 | 4.6 | % | |||||||||||||||||||||
Science Education |
28.7 | 29.3 | (0.6 | ) | -2.0 | % | 53.3 | 56.2 | (2.9 | ) | -5.2 | % | ||||||||||||||||||||
Total |
$ | 881.8 | $ | 876.0 | $ | 5.8 | 0.7 | % | $ | 1,756.1 | $ | 1,717.2 | $ | 38.9 | 2.3 | % | ||||||||||||||||
Net sales for the three and six months ended June 30, 2010 increased $5.8 million or 0.7% and
$38.9 million or 2.3%, respectively, from the comparable periods of 2009. Changes in foreign
currency exchange rates, net of the contribution from the acquisitions of OneMed and XGeek (the
Acquisitions), caused net sales to decrease by approximately $8.1 million during the three months
ended June 30, 2010. Changes in foreign exchange rates and the Acquisitions caused net sales to
increase by approximately $30.9 million during the six months ended June 30, 2010. Accordingly, net
sales from comparable operations increased approximately $13.9 million or 1.6% and $8.0 million or
0.5% during the three and six months ended June 30, 2010, respectively, from the comparable periods
of 2009.
Within our laboratory distribution businesses, net sales of consumable products (including
chemicals) were flat during the three and six months ended June 30, 2010, compared to the same
periods of 2009, while net sales of capital goods (including equipment, instruments and furniture)
experienced low to mid-single digit growth over the same periods. Net sales to pharmaceutical and
biotechnology customers experienced low-single digit decreases during the three and six months
ended June 30, 2010 compared to the same periods of 2009, while sales to industrial customers
reflected mid-single digit growth and sales to educational and governmental entities reflected low
to mid-single digit growth over the same periods.
Net sales in our North American Lab segment for the three and six months ended June 30, 2010
increased $9.7 million or 1.9% and $11.6 million or 1.2%, respectively, from the comparable periods
of 2009. Changes in foreign currency exchange rates caused net sales to increase by approximately
$6.1 million and $15.5 million during the three and six months ended June 30, 2010, respectively.
Accordingly, net sales related to comparable operations increased approximately $3.6 million or
0.7% for the three months ended June 30, 2010 and decreased approximately $3.9 million or 0.4% for
the six months ended June 30, 2010, from the comparable periods of 2009.
Net sales in our European Lab segment for the three months ended June 30, 2010 decreased $3.3
million or 1.0%, from the comparable period of 2009. Changes in foreign currency exchange rates,
net of the contribution from the acquisition of OneMed, caused net sales to decrease by
approximately $14.6 million during the three months ended June 30, 2010. Accordingly, net sales
related to comparable operations increased approximately $11.3 million or 3.4% for the three months
ended June 30, 2010, from the comparable period of 2009. Net sales in our European Lab segment for
the six months ended June 30, 2010 increased $30.2 million or 4.6%, from the comparable period of
2009. Changes in foreign currency exchange rates and the acquisition of OneMed caused net sales to
increase by approximately $14.1 million during the six months ended June 30, 2010. Accordingly, net
sales related to comparable operations increased approximately $16.1 million or 2.4% for the six
months ended June 30, 2010, from the comparable period of 2009.
Net sales in our Science Education segment for the three and six months ended June 30, 2010
decreased $0.6 million or 2.0% and $2.9 or 5.2%, respectively, from the comparable periods of 2009.
The acquisition of XGeek increased net sales by approximately $0.4 million and $1.3 million during
the three and six month ended June 30, 2010, respectively. Accordingly, net sales related to
comparable operations decreased approximately $1.0 million or 3.4% and $4.2 million or 7.5% for the
three and six months ended June 30, 2010, respectively, from the comparable periods of 2009. These
declines are primarily due to reductions in sales volume in the publisher kitting business and to
customers outside of North America. Our Science Education segment continues to be negatively
impacted by unfavorable economic conditions and the resulting reduction in discretionary spending
of schools.
29
Table of Contents
Gross Profit
The following table presents gross profit and gross profit as a percentage of net sales for
the three and six months ended June 30, 2010 and 2009 (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Gross profit |
$ | 251.2 | $ | 244.8 | $ | 507.9 | $ | 489.2 | ||||||||
Percentage of net sales (gross margin) |
28.5 | % | 27.9 | % | 28.9 | % | 28.5 | % |
Gross profit for the three and six months ended June 30, 2010 increased $6.4 million or 2.6%
and $18.7 million or 3.8%, respectively, from the comparable periods of 2009. Changes in foreign
currency exchange rates, net of the contribution from the Acquisitions, caused gross profit to
decrease by approximately $2.3 million during the three months ended June 30, 2010. Changes in
foreign currency exchange rates and the Acquisitions caused gross profit to increase by
approximately $10.0 million during the six months ended June 30, 2010. Accordingly, gross profit
from comparable operations increased approximately $8.7 million or 3.6% and $8.7 million or 1.8%
for the three and six months ended June 30, 2010, respectively, from the comparable periods of
2009. The comparable increases in gross profit were partially offset by the adverse impact of lower
pricing associated with the sale of certain chemical products as discussed above.
Consolidated gross margin increased approximately 60 basis points to 28.5% and 40 basis points
to 28.9% during the three and six months ended June 30, 2010, respectively, from the comparable
periods of 2009. Gross margin performance varied among our business segments. North American Lab
segment gross margins were favorably impacted in both the three and six month periods by efficient
pricing actions, expansion of private label sales and favorable changes in product and customer
mix. European Lab segment gross margins were unfavorably impacted in both the three and six month
periods due to lower pricing compared to the prior year associated with the sale of certain
chemical products with tight supply conditions. Gross margin attributable to our Science Education
segment increased during the three and six month periods as a result of a more favorable sales mix.
Selling, General, and Administrative Expenses
The following table presents selling, general and administrative (SG&A) expenses and SG&A
expenses as a percentage of net sales for the three and six months ended June 30, 2010 and 2009 (in
millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Selling, general and administrative expenses |
$ | 202.8 | $ | 200.8 | $ | 405.4 | $ | 402.8 | ||||||||
Percentage of net sales |
23.0 | % | 22.9 | % | 23.1 | % | 23.5 | % |
SG&A expenses for the three and six months ended June 30, 2010 increased $2.0 million or 1.0%
and $2.6 million or 0.6%, respectively, from the comparable periods of 2009. Changes in foreign
currency exchange rates, net of the contribution from the Acquisitions, caused SG&A expenses to
decrease by approximately $2.4 million during the three months ended June 30, 2010. Changes in
foreign currency exchange rates and the Acquisitions caused SG&A expenses to increase by
approximately $7.6 million during the six months ended June 30, 2010. Accordingly, SG&A expenses
from comparable operations increased approximately $4.4 million or 2.2% for the three months ended
June 30, 2010 and decreased approximately $5.0 million or 1.2% for the six months ended June 30,
2010, from the comparable periods of 2009.
Variations in consolidated SG&A expenses from period to period were influenced by fluctuations
in charges for severance and facility related expenses. We recognized $3.0 million of charges
associated with implementing cost reduction actions in our North American Lab segment during the
three and six months ended June 30, 2010, while during the three and six months ended June 30,
2009, we recognized $5.8 million and $11.2 million, respectively, in charges related to cost
reduction initiatives in all our segments ($1.1 million and $3.4 million, respectively, in North
American Lab; $4.7 million and $7.6 million, respectively, in European Lab; and $0.0 million and
$0.2 million, respectively, in Science Education). Notwithstanding the decline in restructuring
charges, SG&A expenses increased during both the three and six month periods primarily attributable
to increases in employee related expenses, including increases in wage rates and related costs.
30
Table of Contents
Operating Income (Loss)
The following table presents operating income (loss) and operating income (loss) as a
percentage of net sales by segment for the three and six months ended June 30, 2010 and 2009 (in
millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||||||||||||
2010 | Net Sales | 2009 | Net Sales | 2010 | Net Sales | 2009 | Net Sales | |||||||||||||||||||||||||
Operating income (loss): |
||||||||||||||||||||||||||||||||
North American Lab |
$ | 29.6 | 5.6 | % | $ | 28.3 | 5.5 | % | $ | 59.0 | 5.8 | % | $ | 53.7 | 5.4 | % | ||||||||||||||||
European Lab |
20.0 | 6.1 | % | 16.5 | 5.0 | % | 47.1 | 6.9 | % | 35.8 | 5.4 | % | ||||||||||||||||||||
Science Education |
(1.2 | ) | -4.2 | % | (0.8 | ) | -2.7 | % | (3.6 | ) | -6.8 | % | (3.1 | ) | -5.5 | % | ||||||||||||||||
Total |
$ | 48.4 | 5.5 | % | $ | 44.0 | 5.0 | % | $ | 102.5 | 5.8 | % | $ | 86.4 | 5.0 | % | ||||||||||||||||
Operating income for the three and six months ended June 30, 2010 increased $4.4 million or
10.0% and $16.1 million or 18.6%, respectively, from the comparable periods of 2009. Changes in
foreign currency exchange rates and the Acquisitions caused operating income to increase
approximately $0.1 million and $2.4 million for the three and six months ended June 30, 2010,
respectively. Accordingly, operating income related to ongoing comparable operations increased
approximately $4.3 million or 9.8% and $13.7 million or 15.9% for the three and six months ended
June 30, 2010, respectively, from the comparable periods of 2009. The increase in consolidated
operating income during the three and six month periods are primarily the result of increased gross
profit generated in the 2010 periods (net of the adverse impact of lower pricing associated with
the sale of certain chemical products as discussed above), partially offset by increases in SG&A
expenses described above.
Operating income in our North American Lab segment for the three and six months ended June 30,
2010 increased $1.3 million or 4.6% and $5.3 million or 9.9%, respectively, from the comparable
periods of 2009. Changes in foreign currency exchange rates caused operating income to increase
approximately $0.1 million and $0.6 million for the three and six months ended June 30, 2010,
respectively. Accordingly, operating income related to comparable operations increased
approximately $1.2 million or 4.2% and $4.7 million or 8.8% for the three and six months ended June
30, 2010, respectively, from the comparable periods of 2009. The increase in North American
operating income during the three and six month periods was primarily the result of an increase in
gross profit of $8.8 million and $8.3 million, respectively, due to expansion of gross margin,
partially offset by increases in SG&A expenses described above.
Operating income in our European Lab segment for the three and six months ended June 30, 2010
increased $3.5 million or 21.2% and $11.3 million or 31.6%, respectively, from the comparable
periods of 2009. Changes in foreign currency exchange rates and the acquisition of OneMed caused
operating income to increase approximately $1.8 million during the six months ended June 30, 2010,
while such factors were not material on an aggregate basis to operating income growth in the three
month period. Accordingly, operating income related to comparable operations increased
approximately $3.5 million or 21.2% and $9.5 million or 26.5% for the three and six months ended
June 30, 2010, respectively, from the comparable periods of 2009. The increase in European Lab
operating income during the three and six month periods was primarily the result of a decrease in
SG&A expenses due to a reduction in restructuring expenses recognized as described above.
Operating losses in our Science Education segment for the three and six months ended June 30,
2010 increased $0.4 million or 50.0% and $0.5 million or 16.1%, respectively, from the comparable
periods of 2009. The increase in our Science Education segments operating loss during the three
and six month periods was primarily a result of a reduction in gross profit driven by a reduction
in sales volume and from increases in SG&A expenses.
31
Table of Contents
Interest Expense, Net of Interest Income
Interest expense, net of interest income, decreased by $1.1 million or 2.2% and $9.7 million
or 8.6% for the three and six months ended June 30, 2010, respectively, from the comparable periods
of 2009. The reduction in net interest expense during the six month period is primarily
attributable to changes in the fair value of our interest rate swaps. We recognized $5.1 million of
net unrealized gains on interest rate swaps during the six months ended June 30, 2010, compared
with $2.3 million of net unrealized losses on interest rate swaps during the comparable period of
2009, such variability being primarily attributable to changes in fair market value. We do not
currently apply hedge accounting for our interest rate swap arrangements and therefore net interest
expense may continue to fluctuate in future periods.
Other Income (Expense), Net
Other income (expense), net is primarily comprised of exchange gains and losses. Our net
exchange gains of $70.5 million and $128.8 million for the three and six months ended June 30,
2010, respectively, were substantially related to our recognition of net unrealized gains
associated with the weakening of the Euro against the U.S. dollar. Our net exchange losses of $46.0
million and $9.4 million for the three and six months ended June 30, 2009, respectively, were
substantially related to our recognition of net unrealized losses associated with the strengthening
of the Euro against the U.S. dollar. Due to the significant amount of foreign-denominated debt
recorded on our U.S. dollar-denominated balance sheet, other income (expense), net may continue to
experience significant fluctuations.
Income Taxes
During the three and six months ended June 30, 2010, we recognized an income tax provision of
$28.7 million and $49.0 million, respectively, on pre-tax
income of $69.6 million and $128.3
million, respectively, resulting in an effective tax rate of 41.2% and 38.2%, respectively.
During the three and six months ended June 30, 2009, we recognized an income tax benefit of
$25.6 million and $20.1 million, respectively, on pre-tax losses of $52.4 million and $35.7
million, respectively, resulting in an effective tax benefit rate of 48.9% and 56.3%, respectively.
Our tax provision for the three and six months ended June 30, 2010 is primarily the result of
operating profits generated in our domestic and foreign operations, as well as our recognition of
net exchange gains in excess of interest expense in our domestic operations. The tax benefits
recognized in the 2009 periods are the result of domestic net
operating losses and the
recognition of net exchange losses in our domestic operations, offset
by taxes on operating profits in
our foreign operations. The 2010 and 2009 effective tax rates were unfavorably impacted by our
recognition of valuation allowances on certain short-lived state and foreign net operating losses.
The income tax benefits for the three and six months ended June 30, 2009 were positively impacted
by a reduction in our uncertain tax position reserves of $3.2 million associated with the
conclusion of a foreign income tax examination.
The net impact of changes in our uncertain tax positions during the three and six months ended
June 30, 2010 were not material. See Note 8 in Item 1 Financial Statements of this Quarterly
Report on Form 10-Q, for a further discussion of our uncertain tax positions.
Liquidity and Capital Resources
Our future financial and operating performance, ability to service or refinance our debt and
ability to comply with covenants and restrictions contained in our debt agreements will be subject
to future economic conditions and to financial, business and other factors, many of which are
beyond our control and will be substantially dependent on the global economy, demand for our
products, and our ability to successfully implement our overall business strategies. As of June 30,
2010, we had $135.6 million of cash and cash equivalents on hand and our compensating cash balance
totaled $82.1 million.
32
Table of Contents
As of June 30, 2010, we had $2,676.4 million of outstanding indebtedness, including $1,346.2
million of indebtedness under our Senior Secured Credit Facility, $713.0 million of Senior Notes,
$514.4 million of Senior Subordinated Notes and $82.1 million of compensating cash indebtedness. We
also had unused availability of $213.8 million under our multi-currency revolving loan facility
(which is a component of our Senior Secured Credit Facility) as of June 30, 2010. Borrowings under
the multi-currency revolving loan facility are a key source of our liquidity. From time to time,
our liquidity needs cause the aggregate amount of outstanding borrowings under our multi-currency
revolving loan facility to fluctuate. Accordingly, the amount of credit available to us can
increase or decrease based on changes in our operating cash flows, debt service requirements,
working capital needs and acquisition and investment activities. All borrowings under the
multi-currency revolving loan facility and term loans bear interest at variable rates consisting of
a base rate plus a variable margin.
Based on an excess cash flow calculation required by the Senior Secured Credit Facility for
the year ended December 31, 2009, the Company made a principal repayment of $20.9 million on the
outstanding term loans in March 2010. The excess cash flow payment has been and will be applied
against the Companys scheduled installments of principal due in respect of the term loans in 2010
and part of 2011.
The Senior Secured Credit Facility does not contain any financial maintenance covenants that
require the Company to comply with specified financial ratios or tests, such as a minimum interest
expense coverage ratio or a maximum leverage ratio, unless the Company wishes to make certain
acquisitions, incur additional indebtedness associated with certain acquisitions or make certain
restricted payments. The indentures governing the Senior Notes and Senior Subordinated Notes
contain covenants that, among other things, limit the Companys ability and that of its restricted
subsidiaries to make restricted payments, pay dividends, incur or create additional indebtedness,
issue certain types of common and preferred stock, make certain dispositions outside the ordinary
course of business, execute certain affiliate transactions, create liens on assets of the Company
and restricted subsidiaries, and materially change our lines of business. As of June 30, 2010, the
Company was in compliance with the covenants under the Senior Secured Credit Facility and with the
indentures and related requirements governing the Senior Notes and Senior Subordinated Notes.
On June 25, 2009, we made an election to pay PIK Interest for the semi-annual interest period
commencing July 15, 2009 and ending on January 15, 2010. The Company did not make an election to
pay PIK Interest for the interest periods ending on July 15, 2010 and January 15, 2011 and so it
must satisfy the related interest payments with Cash Interest. See Note 4 in Item 1 Financial
Statements of this Quarterly Report on Form 10-Q for more information on our PIK interest election
options and the extent of any resulting mandatory principal redemption obligations.
Subject to the Companys continued compliance with its covenants, the Company may at any time
or from time to time request additional tranches of term loans or increases in the amount of
commitments under the Senior Secured Credit Facility. The actual extension of any such incremental
term loans or increases in commitments would be subject to the Company and existing and any new
lenders reaching agreement on applicable terms and conditions, which may depend on market
conditions at the time of any request.
Based on the terms and conditions of these debt obligations and our current operations and
expectations for future growth, we believe that cash generated from operations, together with
available borrowings under our multi-currency revolving loan facility and our ability to make one
remaining PIK interest election under our Senior Notes will be adequate to permit us to meet our
current and expected operating, capital investment, acquisition financing and debt service
obligations prior to maturity, although no assurance can be given in this regard.
The majority of our long-term debt obligations will mature between 2014 and 2017, although the
revolving loan portion of our Senior Secured Credit Facility is scheduled to mature in 2013. We
currently intend to reduce our debt to earnings ratio in advance of these maturities, which we
believe will be important as we seek to refinance or otherwise satisfy these debt obligations.
Financial markets have been volatile with many market participants experiencing difficulty
obtaining cost effective liquidity to fund their business needs. We continue to assess the
potential impact of current market conditions on various aspects of our liquidity, financial
condition and results of operations, including, but not limited to, the continued availability and
general creditworthiness of our debt and financial instrument counterparties, the impact of market
conditions on our customers, suppliers and insurers and the general recoverability and
realizability of our long-lived assets and certain financial instruments, including investments
held under our defined benefit pension plans. There can be no assurance that our business,
liquidity, financial condition or results of operations will not be materially and adversely
impacted in the future as a result of existing or future market conditions.
33
Table of Contents
Historical Cash Flows
Operating Activities
The following table presents cash flow from operations before investing and financing
activities related to operations and working capital (dollars in millions):
Six Months Ended June 30, | ||||||||
2010 | 2009 | |||||||
Cash flow from operations, excluding working capital |
$ | 52.4 | $ | 36.6 | ||||
Cash flow from working capital changes, net |
9.0 | 30.4 | ||||||
Cash flow from operations |
$ | 61.4 | $ | 67.0 | ||||
Cash flow provided by operations was $61.4 million and $67.0 million during the six months
ended June 30, 2010 and 2009, respectively. The decrease in cash flow from operations is primarily
due to changes in certain working capital components, partially offset by lower cash paid for
interest and by higher cash generated from operating activities.
Cash flow associated with trade accounts receivable and inventories decreased during the 2010
period as commercial activity was relatively flat, compared to the 2009 period when we experienced
a decline in commercial activity as a result of challenging economic conditions (thereby lowering
our cash investment in these working capital components). Cash flow associated with other current
assets decreased during the 2010 period primarily as a result of a change in timing associated with
certain of our supplier rebates. Cash flow associated with accounts payable exhibited an increase
during the 2010 period when compared to the 2009 period. Our cash disbursement routines follow a
standardized process for payment, and so we may experience fluctuations in cash flows associated
with accounts payable from period to period based on the calendar.
We paid cash interest of $64.6 million and $100.2 million in the six months ended June 30,
2010 and 2009, respectively. Cash interest decreased during the 2010 period as a result of our
election to pay PIK Interest of approximately $38.0 million under our Senior Notes for the
semi-annual interest period ending in January 2010. Cash flows associated with accrued expenses and
other liabilities in the 2010 period reflect a source of cash of $35.1 million primarily relating
to our accrual of interest as a result of our return to Cash Interest payments under our Senior
Notes in July 2010. See Note 4 in Item 1 Financial
Statements of this Quarterly Report on Form 10-Q for more
information on our PIK Interest election options.
Investing Activities
Net cash used in investing activities was $13.9 million and $11.3 million for the six months
ended June 30, 2010 and 2009, respectively. The increase was attributable to slightly higher
capital expenditures during the 2010 period, partially offset due to fluctuations in cash flows
associated with business acquisitions. We expect capital expenditures for the year ending December
31, 2010 to approximate $35.0 million to $40.0 million, reflecting incremental investments in
information technology and infrastructure.
Financing Activities
Net cash used in financing activities was $21.3 million and $40.3 million for the six months
ended June 30, 2010 and 2009, respectively. Cash used in the 2010 period was primarily due to $20.9
million of net repayments of debt, primarily relating to an excess cash flow payment we made in
March 2010 under our Senior Secured Credit Facility. Cash used in the 2009 period was primarily due
to $33.1 million of net cash repayments of debt and further due to $3.6 million paid to repurchase
redeemable equity units.
Contractual Obligations
The Company is obligated to make future payments under various contracts such as debt
agreements, lease agreements and pension and other long-term obligations. There have been no
material changes to contractual obligations as reflected in Item 7 Managements Discussion and
Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for
the year ended December 31, 2009.
34
Table of Contents
Commitments and Contingencies
Refer to Note 15 in Item 8 Financial Statements and Supplementary Data in our Annual
Report on Form 10-K for the year ended December 31, 2009 and Note 11 in Item 1 Financial
Statements of this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We are not involved in any off-balance sheet arrangements that have or are reasonably likely
to have a material current or future effect on our financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based on
our condensed consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and the 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.
On an ongoing basis, management evaluates its estimates and judgments, including, among
others, those related to goodwill and intangible assets, interest rate swap valuations, accounts
receivable and reserves, inventories, rebates from suppliers, agreements with customers, product
liability, pension plans, income taxes and estimates and other accounting policies. Management
evaluates its estimates and assumptions on an ongoing basis using historical experience and other
factors, including the current economic environment, which management believes to be reasonable
under the circumstances. We adjust such estimates and assumptions when we believe relevant facts
and circumstances warrant an adjustment. Recent adverse economic conditions, illiquid credit
markets, volatile equity and foreign currency markets, and declines in customer spending have
combined to increase the uncertainty inherent in such estimates and assumptions. As future events
and their effects cannot be determined with precision, actual results could differ significantly
from those estimates. Changes in those estimates resulting from continued changes in the economic
environment will be reflected in our consolidated financial statements in future periods.
Refer to Item 7 Managements Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-K for the year ended December 31, 2009 for a
description of the Companys critical accounting policies.
New Accounting Standards
For information regarding the Companys implementation and impact of new accounting standards,
see Note 2 in Item 1 Financial Statements of this Quarterly Report on Form 10-Q.
35
Table of Contents
Item 3 Quantitative and Qualitative Disclosures about Market Risk
We are exposed to the impact of changes in interest rates and foreign currency exchange rates.
Refer to Item 7A Quantitative and Qualitative Disclosures about Market Risk included in our
Annual Report on Form 10-K for the year ended December 31, 2009 for the Companys quantitative and
qualitative disclosures about market risk. There was no material change in such information as of
June 30, 2010.
Item 4 Controls and Procedures
The Companys management, with the participation of the Companys Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and
procedures as of June 30, 2010. The term disclosure controls and procedures, as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company
that are designed to ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SECs rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the companys
management, including its principal executive and principal financial officers, as appropriate to
allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Based on the evaluation of the Companys disclosure controls and procedures as of
June 30, 2010, the Companys Chief Executive Officer and Chief Financial Officer concluded that, as
of such date, the Companys disclosure controls and procedures were effective at the reasonable
assurance level. There have been no changes in the Companys internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended June
30, 2010, that have materially affected or are reasonably likely to materially affect the Companys
internal control over financial reporting.
Part II OTHER INFORMATION
Item 1 Legal Proceedings
For information regarding legal proceedings, see Note 11 in Item 1 Financial Statements of
this Quarterly Report on Form 10-Q, which information is incorporated herein by reference into this
item.
Item 1A Risk Factors
There have been no material changes to the risk factors that are included in our Annual Report
on Form 10-K for the year ended December 31, 2009 that could affect our business, results of
operations and financial condition.
Item 6 Exhibits
Exhibit | ||||||
Number | Description of Documents | Method of Filing | ||||
31.1 | Certification of Principal Executive
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
Filed herewith. | ||||
31.2 | Certification of Principal Financial
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
Filed herewith. | ||||
32.1 | Certification of Principal Executive
Officer pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act
of 2002).
|
Furnished herewith. | ||||
32.2 | Certification of Principal Financial
Officer pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act
of 2002).
|
Furnished herewith. |
36
Table of Contents
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VWR FUNDING, INC. |
||||
By: | /s/ Theresa A. Balog | |||
Name: | Theresa A. Balog | |||
Title: | Vice President and Corporate Controller (Chief Accounting Officer and Duly Authorized Officer) |
August 12, 2010
37
Table of Contents
EXHIBIT INDEX
Exhibit | ||||||
Number | Description of Documents | Method of Filing | ||||
31.1 | Certification of Principal
Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley
Act of 2002.
|
Filed herewith. | ||||
31.2 | Certification of Principal
Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley
Act of 2002.
|
Filed herewith. | ||||
32.1 | Certification of Principal
Executive Officer pursuant to 18
U.S.C. 1350 (Section 906 of the
Sarbanes-Oxley Act of 2002).
|
Furnished herewith. | ||||
32.2 | Certification of Principal
Financial Officer pursuant to 18
U.S.C. 1350 (Section 906 of the
Sarbanes-Oxley Act of 2002).
|
Furnished herewith. |
38