Attached files
file | filename |
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EX-32.1 - EXHIBIT 32.1 - VWR Funding, Inc. | c16721exv32w1.htm |
EX-32.2 - EXHIBIT 32.2 - VWR Funding, Inc. | c16721exv32w2.htm |
EX-31.2 - EXHIBIT 31.2 - VWR Funding, Inc. | c16721exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - VWR Funding, Inc. | c16721exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 March 31, 2011
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 (State of incorporation) |
56-2445503 (I.R.S. Employer Identification No.) |
100 Matsonford Road
P.O. Box 6660
Radnor, PA 19087
(Address of principal executive offices)
P.O. Box 6660
Radnor, PA 19087
(Address of principal executive offices)
(610) 386-1700
(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.
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 March 31, 2011, 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 May 10,
2011 was 1,000.
VWR FUNDING, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2011
INDEX
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2011
INDEX
Page No. | ||||||||
1 | ||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
21 | ||||||||
28 | ||||||||
29 | ||||||||
29 | ||||||||
29 | ||||||||
30 | ||||||||
31 | ||||||||
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)
March 31, 2011 |
December 31, 2010 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 143.1 | $ | 142.1 | ||||
Compensating cash balance |
107.7 | 85.4 | ||||||
Trade accounts receivable, less reserves of $9.6 and $9.1, respectively |
579.0 | 512.0 | ||||||
Other receivables |
43.1 | 45.2 | ||||||
Inventories |
297.1 | 293.0 | ||||||
Other current assets |
32.2 | 28.4 | ||||||
Total current assets |
1,202.2 | 1,106.1 | ||||||
Property and equipment, net |
200.8 | 194.2 | ||||||
Goodwill |
1,833.2 | 1,757.1 | ||||||
Other intangible assets, net |
1,902.9 | 1,858.2 | ||||||
Deferred income taxes |
8.7 | 9.8 | ||||||
Other assets |
77.1 | 76.0 | ||||||
Total assets |
$ | 5,224.9 | $ | 5,001.4 | ||||
Liabilities, Redeemable Equity Units and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Current portion of debt and capital lease obligations |
$ | 210.2 | $ | 117.4 | ||||
Accounts payable |
433.6 | 406.0 | ||||||
Accrued expenses |
190.1 | 206.5 | ||||||
Total current liabilities |
833.9 | 729.9 | ||||||
Long-term debt and capital lease obligations |
2,696.5 | 2,640.3 | ||||||
Other long-term liabilities |
134.0 | 137.2 | ||||||
Deferred income taxes |
478.9 | 478.8 | ||||||
Total liabilities |
4,143.3 | 3,986.2 | ||||||
Redeemable equity units |
51.0 | 50.0 | ||||||
Commitments and contingencies (Note 11) |
||||||||
Stockholders equity: |
||||||||
Common stock, $0.01 par value; 1,000 shares authorized, issued and outstanding |
| | ||||||
Additional paid-in capital |
1,361.4 | 1,361.2 | ||||||
Accumulated deficit |
(402.8 | ) | (376.2 | ) | ||||
Accumulated other comprehensive income (loss) |
72.0 | (19.8 | ) | |||||
Total stockholders equity |
1,030.6 | 965.2 | ||||||
Total liabilities, redeemable equity units and stockholders equity |
$ | 5,224.9 | $ | 5,001.4 | ||||
See accompanying notes to condensed consolidated financial statements.
1
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In millions)
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net sales |
$ | 991.2 | $ | 874.3 | ||||
Cost of goods sold |
706.4 | 617.6 | ||||||
Gross profit |
284.8 | 256.7 | ||||||
Selling, general and administrative expenses |
220.1 | 202.6 | ||||||
Operating income |
64.7 | 54.1 | ||||||
Interest income |
0.5 | 0.4 | ||||||
Interest expense |
(48.0 | ) | (54.1 | ) | ||||
Other income (expense), net |
(48.7 | ) | 58.3 | |||||
(Loss) income before income taxes |
(31.5 | ) | 58.7 | |||||
Income tax benefit (provision) |
4.9 | (20.3 | ) | |||||
Net (loss) income |
$ | (26.6 | ) | $ | 38.4 | |||
See accompanying notes to condensed consolidated financial statements.
2
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders Equity and Other Comprehensive Income (Loss)
Three Months Ended March 31, 2011
(In millions, except share data)
(Unaudited)
Accumulated | ||||||||||||||||||||||||
Other | ||||||||||||||||||||||||
Common Stock | Additional | Accumulated | Comprehensive | |||||||||||||||||||||
Shares | Amount | Paid-in Capital | Deficit | Income (Loss) | Total | |||||||||||||||||||
Balance at January 1, 2011 |
1,000 | $ | | $ | 1,361.2 | $ | (376.2 | ) | $ | (19.8 | ) | $ | 965.2 | |||||||||||
Capital contributions
from parent |
| | 0.5 | | | 0.5 | ||||||||||||||||||
Share-based compensation
expense associated with
our parent company equity
plan |
| | 0.9 | | | 0.9 | ||||||||||||||||||
Reclassifications of
redeemable equity units |
| | (1.2 | ) | | | (1.2 | ) | ||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net loss |
| | | (26.6 | ) | | (26.6 | ) | ||||||||||||||||
Other comprehensive income |
| | | | 91.8 | 91.8 | ||||||||||||||||||
Total comprehensive income |
65.2 | |||||||||||||||||||||||
Balance at March 31, 2011 |
1,000 | $ | | $ | 1,361.4 | $ | (402.8 | ) | $ | 72.0 | $ | 1,030.6 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
3
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net (loss) income |
$ | (26.6 | ) | $ | 38.4 | |||
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities: |
||||||||
Depreciation and amortization |
29.4 | 28.7 | ||||||
Net unrealized translation loss (gain) |
49.5 | (57.5 | ) | |||||
Net unrealized gain on interest rate swaps |
(7.0 | ) | (1.0 | ) | ||||
Non-cash payment-in-kind interest accretion |
| 3.0 | ||||||
Non-cash equity compensation expense |
0.9 | 0.8 | ||||||
Amortization of debt issuance costs |
2.4 | 2.4 | ||||||
Deferred income tax (benefit) provision |
(12.7 | ) | 13.7 | |||||
Other, net |
1.4 | 1.4 | ||||||
Changes in working capital, net of business acquisitions: |
||||||||
Trade accounts receivable |
(43.5 | ) | (25.7 | ) | ||||
Inventories |
13.6 | 11.1 | ||||||
Other current and non-current assets |
(1.9 | ) | (20.6 | ) | ||||
Accounts payable |
8.4 | 18.5 | ||||||
Accrued expenses and other liabilities |
(21.8 | ) | 11.8 | |||||
Net cash (used in) provided by operating activities |
(7.9 | ) | 25.0 | |||||
Cash flows from investing activities: |
||||||||
Acquisitions of businesses, net of cash acquired |
(58.1 | ) | 0.8 | |||||
Capital expenditures |
(6.6 | ) | (4.2 | ) | ||||
Net cash used in investing activities |
(64.7 | ) | (3.4 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from debt |
196.1 | 44.7 | ||||||
Repayment of debt |
(131.6 | ) | (59.3 | ) | ||||
Net change in bank overdrafts |
24.0 | (19.5 | ) | |||||
Net change in compensating cash balance |
(22.3 | ) | 19.5 | |||||
Proceeds from equity incentive plans |
0.5 | 0.2 | ||||||
Repurchase of redeemable equity units |
(0.3 | ) | (0.2 | ) | ||||
Net cash provided by (used in) financing activities |
66.4 | (14.6 | ) | |||||
Effect of exchange rate changes on cash |
7.2 | (5.8 | ) | |||||
Net increase in cash and cash equivalents |
1.0 | 1.2 | ||||||
Cash and cash equivalents beginning of period |
142.1 | 124.4 | ||||||
Cash and cash equivalents end of period |
$ | 143.1 | $ | 125.6 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 69.5 | $ | 32.8 | ||||
Income taxes paid, net |
$ | 5.2 | $ | 7.2 |
See accompanying notes to condensed consolidated financial statements.
4
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(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. Services comprise a relatively small portion of our
net sales. Our business is diversified across products, geographic regions and customer segments.
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.
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, healthcare
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,
which are not material, 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 (US GAAP) 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, 2010. 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 US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ
significantly from those estimates. In preparation of this Quarterly Report on Form 10-Q, we
evaluated events subsequent to March 31, 2011 through the date of issuance.
(2) 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 reconciliation of recurring
Level 3 measurements including purchases, sales, issuances and settlements on a gross basis. This
guidance 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 became effective for the Company beginning January 1, 2011. Our adoption of this
updated guidance had no material impact on the Companys condensed consolidated financial
statements.
5
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
Revenue Recognition
In October 2009, the FASB issued updated revenue recognition guidance that eliminates the
requirement that all undelivered elements have vendor-specific objective evidence 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
requires entities to disclose more information about their multiple-element revenue arrangements.
This guidance became effective for the Company on January 1, 2011 and did not have a material
impact on our condensed consolidated financial statements.
(3) Goodwill and Other Intangible Assets
(a) Recent Acquisitions
Our results of operations include the effects of certain business acquisitions (collectively,
the Acquisitions) noted below:
| On September 1, 2010, we acquired the scientific distribution
businesses of EBOS Group Limited (collectively ANZ Lab). ANZ Lab
distributes general laboratory supplies and life science products in
Australia and New Zealand. |
| On September 1, 2010, we acquired Labart sp. z o.o. (Labart), and on
March 31, 2011, we acquired Alfalab Hurtownia Chemiczna Sp. z o.o
(Alfalab). Labart and Alfalab are scientific laboratory supply
distributors operating in Poland. |
| On February 1, 2011, we acquired AMRESCO Inc. (AMRESCO), a domestic
supplier and manufacturer of high quality biochemicals and reagents
for molecular biology, life sciences, proteomics, diagnostics,
molecular diagnostics and histology areas of research and production. |
The results of ANZ Lab and AMRESCO have been included in our North American Lab segment, and
the results of Labart have been included in our European Lab segment, each from their
respective dates of acquisition. The aggregate purchase price for the Acquisitions of approximately
$90.8 was funded from cash and cash equivalents on hand and incremental borrowings made under the
Companys Senior Secured Credit Facility and was comprised of $18.0 of net tangible assets, $34.1
of intangible assets and a residual amount of $38.7 allocated to goodwill. The purchase price
allocations for the Acquisitions are preliminary and may be adjusted subsequently, although we are
unaware of any information that would cause the final allocations to differ materially from
preliminary estimates.
On May 2, 2011, we acquired the distribution business of Trenka Industriebedarf
Handelsgesellschaft m.b.H. (Trenka). Trenka distributes a range of industrial clothing, testing
equipment, and personal protection equipment to customers in Austria. Trenka has annual net sales
of approximately $10.
On April 18, 2011, we signed an agreement to acquire the businesses of Anachemia Canada Inc.
and its affiliates (Anachemia). The finalization of this transaction is subject to customary
closing conditions, and we expect the closing to occur in the third quarter of 2011. Based in
Montreal, Anachemia distributes chemicals, laboratory supplies and equipment in the United States,
Canada, Latin America and Mexico. Anachemia has annual net sales of approximately $65.
(b) Goodwill
The following table reflects changes in the carrying value of goodwill by segment:
North American | European | Science | ||||||||||||||
Lab | Lab | Education | Total | |||||||||||||
Balance at January 1, 2011 |
$ | 948.7 | $ | 808.4 | $ | | $ | 1,757.1 | ||||||||
Acquisitions |
22.6 | 1.0 | | 23.6 | ||||||||||||
Currency translation changes |
1.7 | 50.8 | | 52.5 | ||||||||||||
Balance at March 31, 2011 |
$ | 973.0 | $ | 860.2 | $ | | $ | 1,833.2 | ||||||||
6
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
The following table provides the gross amount of goodwill and accumulated impairment losses by
segment:
March 31, 2011 | December 31, 2010 | |||||||||||||||
Gross | Cumulative | Gross | Cumulative | |||||||||||||
Carrying | Impairment | Carrying | Impairment | |||||||||||||
Amount | Losses | Amount | Losses | |||||||||||||
Goodwill |
||||||||||||||||
North American Lab |
$ | 1,068.5 | $ | 95.5 | $ | 1,044.2 | $ | 95.5 | ||||||||
European Lab |
860.2 | | 808.4 | | ||||||||||||
Science Education |
99.8 | 99.8 | 99.8 | 99.8 | ||||||||||||
Total |
$ | 2,028.5 | $ | 195.3 | $ | 1,952.4 | $ | 195.3 | ||||||||
(c) Intangible Assets
The following table provides detail of our intangible assets:
March 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
Gross | Gross | |||||||||||||||||||||||
Carrying | Accumulated | Net Carrying | Carrying | Accumulated | Net Carrying | |||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||
Amortizable intangible assets: |
||||||||||||||||||||||||
Customer relationships: |
||||||||||||||||||||||||
North American Lab |
$ | 783.8 | $ | 142.7 | $ | 641.1 | $ | 765.8 | $ | 132.3 | $ | 633.5 | ||||||||||||
European Lab |
508.2 | 96.8 | 411.4 | 478.2 | 84.7 | 393.5 | ||||||||||||||||||
Science Education |
131.2 | 24.7 | 106.5 | 131.2 | 23.1 | 108.1 | ||||||||||||||||||
Chemical supply agreement |
56.7 | 30.4 | 26.3 | 53.4 | 26.7 | 26.7 | ||||||||||||||||||
Other |
22.3 | 10.6 | 11.7 | 16.6 | 9.1 | 7.5 | ||||||||||||||||||
Total amortizable intangible assets |
1,502.2 | 305.2 | 1,197.0 | 1,445.2 | 275.9 | 1,169.3 | ||||||||||||||||||
Indefinite-lived intangible assets: |
||||||||||||||||||||||||
Trademarks and tradenames |
705.9 | | 705.9 | 688.9 | | 688.9 | ||||||||||||||||||
Total intangible assets |
$ | 2,208.1 | $ | 305.2 | $ | 1,902.9 | $ | 2,134.1 | $ | 275.9 | $ | 1,858.2 | ||||||||||||
The following table shows amortization expense for each of the reporting periods:
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Amortization expense |
$ | 21.3 | $ | 20.4 |
7
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
(4) Debt
The following is a summary of our debt obligations:
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
Senior Secured Credit Facility |
$ | 1,525.9 | $ | 1,410.0 | ||||
10.25%/11.25% Unsecured Senior Notes due 2015 |
713.0 | 713.0 | ||||||
10.75% Unsecured Senior Subordinated Notes due 2017 |
538.9 | 528.2 | ||||||
Compensating cash balance |
107.7 | 85.4 | ||||||
Capital leases |
19.7 | 19.2 | ||||||
Predecessor Senior Subordinated Notes |
1.0 | 1.0 | ||||||
Other debt |
0.5 | 0.9 | ||||||
Total debt |
2,906.7 | 2,757.7 | ||||||
Less short-term portion |
(210.2 | ) | (117.4 | ) | ||||
Total long-term portion |
$ | 2,696.5 | $ | 2,640.3 | ||||
(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 ($835.6 on a U.S. dollar equivalent basis as of March 31,
2011), (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 March 31, 2011, an aggregate U.S. dollar equivalent of $87.4 was outstanding under the
multi-currency revolving loan facility, consisting of (1) revolving loans denominated in British
pounds sterling of £7.2 ($11.6 on a U.S. dollar equivalent basis) and (2) revolving loans
denominated in U.S. dollars of $75.8. In addition, we had $12.5 of undrawn letters of credit
outstanding. As of March 31, 2011, we had $150.1 of available borrowing capacity under the
multi-currency revolving loan facility.
As of March 31, 2011, interest rates on the U.S. dollar-denominated and Euro-denominated term
loans were 2.75% and 3.45%, respectively. Amounts drawn under the multi-currency revolving loan
facility bear variable interest rates with a weighted average rate as of March 31, 2011 of 2.75%.
See Note 9 for information on our interest rate swap arrangements.
(b) Senior Notes and Senior Subordinated Notes
The Senior Notes, which amount to $713.0 as of March 31, 2011, will mature on July 15, 2015.
Interest on the Senior Notes is payable twice a year, on each January 15 and July 15. In prior
periods, the Company could elect to satisfy its interest obligations by increasing the principal
amount of the Senior Notes instead of paying cash. All such elections have since expired, so the
Company must satisfy any remaining interest payments by paying cash. On or after July 15, 2011, the
Company may redeem some or all of the Senior Notes at any time at declining redemption prices that
start at 105.125% of their aggregate principal amount and are reduced to 100% of their aggregate
principal amount on or after July 15, 2013. We continuously monitor the capital markets to
determine whether the Senior Notes should be redeemed prior to maturity; however, we have made no
determination at this time.
8
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
The Senior Subordinated Notes are denominated in Euros in an aggregate principal amount
currently outstanding of 126.9 ($180.2 on a U.S. dollar equivalent basis as of March 31, 2011) 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 March 31, 2011, the Company was in compliance with all 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.
(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 loss of $48.7 for the three months ended March 31, 2011 is substantially
related to our recognition of net unrealized losses associated with the strengthening of the Euro
against the U.S. dollar. Our net exchange gain of $58.3 for the three months ended March 31, 2010
is substantially related to our recognition of net unrealized gains associated with the weakening
of the Euro against the U.S. dollar.
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
(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 March 31, | ||||||||||||||||
U.S. Retirement Plan | German, French and UK Plans | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Service cost |
$ | 0.2 | $ | 0.1 | $ | 0.6 | $ | 0.5 | ||||||||
Interest cost |
2.4 | 2.4 | 1.5 | 1.5 | ||||||||||||
Expected return on plan assets |
(3.1 | ) | (3.0 | ) | (1.1 | ) | (1.0 | ) | ||||||||
Recognized net actuarial (gain) loss |
(0.1 | ) | (0.2 | ) | 0.1 | | ||||||||||
Net periodic pension (income) cost |
$ | (0.6 | ) | $ | (0.7 | ) | $ | 1.1 | $ | 1.0 | ||||||
The Company made no contributions to the U.S. Retirement Plan during the three months ended
March 31, 2011, and expects to make no contributions during the remainder of 2011. The Company made
contributions to our significant non-U.S. plans of $0.3 during the three months ended March 31,
2011, and expects to make additional contributions of approximately $0.7 during the remainder of
2011.
(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 for the three months ended March 31, 2011 and 2010, respectively.
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, 2011 |
$ | 50.0 | ||
Reclassifications from permanent equity, net |
1.2 | |||
Reclassifications to accrued expenses upon notification of redemption |
(0.2 | ) | ||
Balance at March 31, 2011 |
$ | 51.0 | ||
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
(8) Income Taxes
(a) Tax Benefit (Provision)
During the three months ended March 31, 2011 and 2010, we recognized an income tax benefit
(provision) of $4.9 and $(20.3) respectively, on pre-tax (loss) income of $(31.5) and $58.7,
respectively.
The tax benefit recognized during the three months ended March 31, 2011 is primarily the
result of domestic net operating losses, including the recognition of significant net exchange
losses (see Note 5) and interest expense, partially offset by taxes on operating profits in our
foreign operations.
The tax provision recognized during the three months ended March 31, 2010 is primarily the
result of taxes on operating profits generated in our foreign operations as well as from our
recognition of significant net exchange gains (see Note 5) in excess of interest expense in our
domestic operations.
Our tax benefit (provision) and our effective tax rate can change significantly on a quarterly
basis primarily due to the volatility of our net exchange gains and losses in our operating
results.
(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. 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 2005.
During the current quarter, the Company withdrew a refund claim that was based on a local
country court ruling. This resulted in a reduction of our reserve for uncertain tax benefits and
our deferred income tax assets of $1.2 during the three months ended March 31, 2011, with no effect
on our consolidated tax provision.
While it is reasonably possible that the amount of unrecognized tax benefits ($3.8 as of March
31, 2011) 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.
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
(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 material other financial assets and liabilities measured at fair
value on a recurring basis as of March 31, 2011 and December 31, 2010:
Description | March 31, 2011 | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities |
||||||||||||||||
Interest rate swap arrangements |
$ | (28.2 | ) | $ | | $ | (28.2 | ) | $ | | ||||||
Description | December 31, 2010 | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities |
||||||||||||||||
Interest rate swap arrangements |
$ | (35.2 | ) | $ | | $ | (35.2 | ) | $ | |
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.
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
(b) Debt Instruments
The table below shows the carrying amounts and estimated fair values of our primary long-term
debt instruments:
March 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
Senior Secured Credit Facility |
$ | 1,525.9 | $ | 1,492.6 | $ | 1,410.0 | $ | 1,344.3 | ||||||||
Senior Notes |
713.0 | 757.5 | 713.0 | 748.6 | ||||||||||||
Senior Subordinated Notes |
538.9 | 550.7 | 528.2 | 554.6 | ||||||||||||
$ | 2,777.8 | $ | 2,800.8 | $ | 2,651.2 | $ | 2,647.5 | |||||||||
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.
(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 which are not currently designated as hedging
instruments. Changes in the fair value of the swaps are recognized as a component of interest
expense.
As of March 31, 2011, our interest rate swap arrangements effectively convert $325.0 of
variable rate U.S. dollar-denominated debt and 220.0 ($312.6 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 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 $68.2, and the fair value of these contracts were immaterial, as of March 31, 2011.
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
Tabular Disclosures
The following table reflects the balance sheet classification and fair value of our derivative
instruments on a gross basis:
Liability Derivatives | ||||||||||||||||
March 31, 2011 | December 31, 2010 | |||||||||||||||
Derivatives not designated as | Balance Sheet | Balance Sheet | ||||||||||||||
hedging instruments | Location | Fair Value | Location | Fair Value | ||||||||||||
Interest rate swap arrangements |
Other long-term liabilities | $ | 28.2 | Other long-term liabilities | $ | 35.2 |
The following table reflects the amount of gains (losses) recognized for our derivative
instruments and the classification of gains (losses) within our statements of operations for the
three months ended March 31, 2011 and 2010:
Amount of Gain (Loss) | ||||||||||||
Recognized in Earnings | ||||||||||||
Derivatives not designated as | Location of Gain (Loss) | Three Months Ended March 31, | ||||||||||
hedging instruments | Recognized in Earnings | 2011 | 2010 | |||||||||
Interest rate swap arrangements realized |
Interest expense | $ | (6.9 | ) | $ | (7.9 | ) | |||||
Interest rate swap arrangements unrealized |
Interest expense | 7.0 | 1.0 | |||||||||
Total |
$ | 0.1 | $ | (6.9 | ) | |||||||
(10) | Comprehensive Income (Loss) |
Comprehensive income (loss) is determined as follows:
Three Months Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
Net (loss) income |
$ | (26.6 | ) | $ | 38.4 | |||
Other comprehensive income (loss): |
||||||||
Foreign currency translation adjustments |
90.4 | (87.2 | ) | |||||
Unrealized gain (loss) on derivatives, net of tax (1) |
0.7 | (0.2 | ) | |||||
Amortization of realized losses on derivatives, net of tax (2) |
0.7 | 0.7 | ||||||
Amortization of net actuarial gain, net of tax (3) |
| (0.1 | ) | |||||
Comprehensive income (loss) |
$ | 65.2 | $ | (48.4 | ) | |||
(1) | Unrealized gain (loss) on derivatives is net of taxes of $0.3 and $0.2 for the three months
ended March 31, 2011 and 2010, respectively. |
|
(2) | Amortization of realized losses on derivatives is net of taxes of $0.5
and $0.6 for the three months ended March 31, 2011 and 2010,
respectively. |
|
(3) | Amortization of net actuarial gain is net of taxes of $0.1 for the three months ended March 31, 2010. |
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
(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 and to the extent that we consummate
acquisitions that vertically integrate portions of our business. 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. We cannot assure you 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 locations, we expect that we will increase our
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 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 its 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 March 31,
2011, 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 $26.3. 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 historically been
immaterial and we believe the range of reasonably possible loss from current matters continues to
be immaterial, there can be no assurance that the impact of the pending and any future claims will
not be material to our business, financial condition or results of operations in the future.
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
(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 (loss)
by segment to (loss) income before income taxes are presented below. Revenues reported for each
operating segment are net of inter-segment activity.
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Net sales |
||||||||
North American Lab |
$ | 568.7 | $ | 491.4 | ||||
European Lab |
400.1 | 358.3 | ||||||
Science Education |
22.4 | 24.6 | ||||||
Total |
$ | 991.2 | $ | 874.3 | ||||
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Operating income (loss) |
||||||||
North American Lab |
$ | 35.7 | $ | 29.4 | ||||
European Lab |
33.4 | 27.1 | ||||||
Science Education |
(4.4 | ) | (2.4 | ) | ||||
Total |
64.7 | 54.1 | ||||||
Interest income |
0.5 | 0.4 | ||||||
Interest expense |
(48.0 | ) | (54.1 | ) | ||||
Other income (expense), net |
(48.7 | ) | 58.3 | |||||
(Loss) income before income taxes |
$ | (31.5 | ) | $ | 58.7 | |||
(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
March 31, 2011 and December 31, 2010 and the statements of operations and cash flows for the three
months ended March 31, 2011 and 2010 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.
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
Condensed Consolidating Balance Sheet
March 31, 2011
March 31, 2011
Non- | ||||||||||||||||||||
Subsidiary | Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 1.5 | $ | 141.6 | $ | | $ | 143.1 | ||||||||||
Compensating cash balance |
| | 107.7 | | 107.7 | |||||||||||||||
Trade accounts receivable, net |
| 243.6 | 335.4 | | 579.0 | |||||||||||||||
Inventories |
| 144.6 | 152.5 | | 297.1 | |||||||||||||||
Other current assets |
| 25.4 | 49.9 | | 75.3 | |||||||||||||||
Intercompany receivables |
21.3 | 4.1 | 1.9 | (27.3 | ) | | ||||||||||||||
Total current assets |
21.3 | 419.2 | 789.0 | (27.3 | ) | 1,202.2 | ||||||||||||||
Property and equipment, net |
| 86.8 | 114.0 | | 200.8 | |||||||||||||||
Goodwill |
| 891.3 | 941.9 | | 1,833.2 | |||||||||||||||
Other intangible assets, net |
| 1,081.6 | 821.3 | | 1,902.9 | |||||||||||||||
Deferred income taxes |
199.2 | | 8.7 | (199.2 | ) | 8.7 | ||||||||||||||
Investment in subsidiaries |
2,644.2 | 1,812.6 | | (4,456.8 | ) | | ||||||||||||||
Other assets |
31.9 | 37.7 | 7.5 | | 77.1 | |||||||||||||||
Intercompany loans |
1,033.5 | 78.2 | 21.3 | (1,133.0 | ) | | ||||||||||||||
Total assets |
$ | 3,930.1 | $ | 4,407.4 | $ | 2,703.7 | $ | (5,816.3 | ) | $ | 5,224.9 | |||||||||
Liabilities, Redeemable Equity Units and
Stockholders Equity |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Current portion of debt and capital lease
obligations |
$ | 103.6 | $ | 0.4 | $ | 106.2 | $ | | $ | 210.2 | ||||||||||
Accounts payable |
| 209.1 | 224.5 | | 433.6 | |||||||||||||||
Accrued expenses |
16.2 | 57.7 | 116.2 | | 190.1 | |||||||||||||||
Intercompany payables |
| 3.3 | 24.0 | (27.3 | ) | | ||||||||||||||
Total current liabilities |
119.8 | 270.5 | 470.9 | (27.3 | ) | 833.9 | ||||||||||||||
Long-term debt and capital lease obligations |
2,678.9 | 1.1 | 16.5 | | 2,696.5 | |||||||||||||||
Other long-term liabilities |
29.0 | 25.9 | 79.1 | | 134.0 | |||||||||||||||
Deferred income taxes |
| 426.6 | 251.5 | (199.2 | ) | 478.9 | ||||||||||||||
Intercompany loans |
20.8 | 1,039.9 | 72.3 | (1,133.0 | ) | | ||||||||||||||
Total liabilities |
2,848.5 | 1,764.0 | 890.3 | (1,359.5 | ) | 4,143.3 | ||||||||||||||
Redeemable equity units |
51.0 | | | | 51.0 | |||||||||||||||
Total stockholders equity |
1,030.6 | 2,643.4 | 1,813.4 | (4,456.8 | ) | 1,030.6 | ||||||||||||||
Total liabilities, redeemable equity units
and stockholders equity |
$ | 3,930.1 | $ | 4,407.4 | $ | 2,703.7 | $ | (5,816.3 | ) | $ | 5,224.9 | |||||||||
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
Condensed Consolidating Balance Sheet
December 31, 2010
December 31, 2010
Non- | ||||||||||||||||||||
Subsidiary | Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 0.4 | $ | 10.5 | $ | 131.2 | $ | | $ | 142.1 | ||||||||||
Compensating cash balance |
| | 85.4 | | 85.4 | |||||||||||||||
Trade accounts receivable, net |
| 211.4 | 300.6 | | 512.0 | |||||||||||||||
Inventories |
| 149.1 | 143.9 | | 293.0 | |||||||||||||||
Other current assets |
| 27.2 | 46.4 | | 73.6 | |||||||||||||||
Intercompany receivables |
18.5 | 3.4 | | (21.9 | ) | | ||||||||||||||
Total current assets |
18.9 | 401.6 | 707.5 | (21.9 | ) | 1,106.1 | ||||||||||||||
Property and equipment, net |
| 83.6 | 110.6 | | 194.2 | |||||||||||||||
Goodwill |
| 867.5 | 889.6 | | 1,757.1 | |||||||||||||||
Other intangible assets, net |
| 1,071.2 | 787.0 | | 1,858.2 | |||||||||||||||
Deferred income taxes |
195.8 | | 9.8 | (195.8 | ) | 9.8 | ||||||||||||||
Investment in subsidiaries |
2,513.8 | 1,694.5 | | (4,208.3 | ) | | ||||||||||||||
Other assets |
33.9 | 36.3 | 5.8 | | 76.0 | |||||||||||||||
Intercompany loans |
1,033.0 | 110.6 | 21.3 | (1,164.9 | ) | | ||||||||||||||
Total assets |
$ | 3,795.4 | $ | 4,265.3 | $ | 2,531.6 | $ | (5,590.9 | ) | $ | 5,001.4 | |||||||||
Liabilities, Redeemable Equity Units and
Stockholders Equity |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Current portion of debt and capital lease
obligations |
$ | 28.7 | $ | 0.4 | $ | 88.3 | $ | | $ | 117.4 | ||||||||||
Accounts payable |
| 193.0 | 213.0 | | 406.0 | |||||||||||||||
Accrued expenses |
35.8 | 63.5 | 107.2 | | 206.5 | |||||||||||||||
Intercompany payables |
| 1.0 | 20.9 | (21.9 | ) | | ||||||||||||||
Total current liabilities |
64.5 | 257.9 | 429.4 | (21.9 | ) | 729.9 | ||||||||||||||
Long-term debt and capital lease obligations |
2,622.5 | 1.1 | 16.7 | | 2,640.3 | |||||||||||||||
Other long-term liabilities |
35.8 | 25.5 | 75.9 | | 137.2 | |||||||||||||||
Deferred income taxes |
| 436.0 | 238.6 | (195.8 | ) | 478.8 | ||||||||||||||
Intercompany loans |
57.4 | 1,031.8 | 75.7 | (1,164.9 | ) | | ||||||||||||||
Total liabilities |
2,780.2 | 1,752.3 | 836.3 | (1,382.6 | ) | 3,986.2 | ||||||||||||||
Redeemable equity units |
50.0 | | | | 50.0 | |||||||||||||||
Total stockholders equity |
965.2 | 2,513.0 | 1,695.3 | (4,208.3 | ) | 965.2 | ||||||||||||||
Total liabilities, redeemable equity units
and stockholders equity |
$ | 3,795.4 | $ | 4,265.3 | $ | 2,531.6 | $ | (5,590.9 | ) | $ | 5,001.4 | |||||||||
18
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2011
Three Months Ended March 31, 2011
Non- | ||||||||||||||||||||
Subsidiary | Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net sales |
$ | | $ | 506.9 | $ | 487.9 | $ | (3.6 | ) | $ | 991.2 | |||||||||
Cost of goods sold |
| 377.6 | 332.4 | (3.6 | ) | 706.4 | ||||||||||||||
Gross profit |
| 129.3 | 155.5 | | 284.8 | |||||||||||||||
Selling, general and administrative expenses |
0.7 | 108.1 | 121.3 | (10.0 | ) | 220.1 | ||||||||||||||
Operating (loss) income |
(0.7 | ) | 21.2 | 34.2 | 10.0 | 64.7 | ||||||||||||||
Interest expense, net of interest income |
(37.9 | ) | (8.6 | ) | (1.0 | ) | | (47.5 | ) | |||||||||||
Other income (expense), net |
(50.3 | ) | (2.1 | ) | 13.7 | (10.0 | ) | (48.7 | ) | |||||||||||
(Loss) income before income taxes and equity
in earnings of subsidiaries |
(88.9 | ) | 10.5 | 46.9 | | (31.5 | ) | |||||||||||||
Income tax benefit (provision) |
23.8 | (6.6 | ) | (12.3 | ) | | 4.9 | |||||||||||||
Equity in earnings of subsidiaries, net of tax |
38.5 | 34.6 | | (73.1 | ) | | ||||||||||||||
Net (loss) income |
$ | (26.6 | ) | $ | 38.5 | $ | 34.6 | $ | (73.1 | ) | $ | (26.6 | ) | |||||||
Condensed Consolidating Statement of Operations
Three Months Ended March 31, 2010
Three Months Ended March 31, 2010
Non- | ||||||||||||||||||||
Subsidiary | Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net sales |
$ | | $ | 447.6 | $ | 430.4 | $ | (3.7 | ) | $ | 874.3 | |||||||||
Cost of goods sold |
| 330.1 | 291.2 | (3.7 | ) | 617.6 | ||||||||||||||
Gross profit |
| 117.5 | 139.2 | | 256.7 | |||||||||||||||
Selling, general and administrative expenses |
0.8 | 94.2 | 113.0 | (5.4 | ) | 202.6 | ||||||||||||||
Operating (loss) income |
(0.8 | ) | 23.3 | 26.2 | 5.4 | 54.1 | ||||||||||||||
Interest expense, net of interest income |
(44.3 | ) | (8.7 | ) | (0.7 | ) | | (53.7 | ) | |||||||||||
Other income (expense), net |
57.0 | 16.1 | (9.4 | ) | (5.4 | ) | 58.3 | |||||||||||||
Income before income taxes and equity in
earnings of subsidiaries |
11.9 | 30.7 | 16.1 | | 58.7 | |||||||||||||||
Income tax provision |
(0.1 | ) | (16.0 | ) | (4.2 | ) | | (20.3 | ) | |||||||||||
Equity in earnings of subsidiaries, net of tax |
26.6 | 11.9 | | (38.5 | ) | | ||||||||||||||
Net income |
$ | 38.4 | $ | 26.6 | $ | 11.9 | $ | (38.5 | ) | $ | 38.4 | |||||||||
19
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
March 31, 2011
(In millions)
(Unaudited)
March 31, 2011
(In millions)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2011
Three Months Ended March 31, 2011
Non- | ||||||||||||||||||||
Subsidiary | Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net cash (used in) provided by operating activities |
$ | (62.1 | ) | $ | 36.3 | $ | 17.9 | $ | | $ | (7.9 | ) | ||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Intercompany investing transactions |
(8.6 | ) | 5.0 | | 3.6 | | ||||||||||||||
Acquisitions of businesses |
| (56.4 | ) | (1.7 | ) | | (58.1 | ) | ||||||||||||
Capital expenditures |
| (4.6 | ) | (2.0 | ) | | (6.6 | ) | ||||||||||||
Net cash used in investing activities |
(8.6 | ) | (56.0 | ) | (3.7 | ) | 3.6 | (64.7 | ) | |||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Intercompany financing transactions |
| 8.6 | (5.0 | ) | (3.6 | ) | | |||||||||||||
Proceeds from debt |
196.0 | | 0.1 | | 196.1 | |||||||||||||||
Repayment of debt |
(130.7 | ) | | (0.9 | ) | | (131.6 | ) | ||||||||||||
Other financing activities, net |
5.0 | 2.1 | (5.2 | ) | | 1.9 | ||||||||||||||
Net cash provided by (used in) financing activities |
70.3 | 10.7 | (11.0 | ) | (3.6 | ) | 66.4 | |||||||||||||
Effect of exchange rate changes on cash |
| | 7.2 | | 7.2 | |||||||||||||||
Net (decrease) increase in cash and cash equivalents |
(0.4 | ) | (9.0 | ) | 10.4 | | 1.0 | |||||||||||||
Cash and cash equivalents beginning of period |
0.4 | 10.5 | 131.2 | | 142.1 | |||||||||||||||
Cash and cash equivalents end of period |
$ | | $ | 1.5 | $ | 141.6 | $ | | $ | 143.1 | ||||||||||
Condensed Consolidating Statement of Cash Flows
Three Months Ended March 31, 2010
Three Months Ended March 31, 2010
Non- | ||||||||||||||||||||
Subsidiary | Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net cash (used in) provided by operating activities |
$ | (18.4 | ) | $ | 23.3 | $ | 20.1 | $ | | $ | 25.0 | |||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Intercompany investing transactions |
32.3 | 2.1 | | (34.4 | ) | | ||||||||||||||
Acquisitions of businesses and other intangible assets |
| | 0.8 | | 0.8 | |||||||||||||||
Capital expenditures |
| (2.4 | ) | (1.8 | ) | | (4.2 | ) | ||||||||||||
Net cash provided by (used in) investing activities |
32.3 | (0.3 | ) | (1.0 | ) | (34.4 | ) | (3.4 | ) | |||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Intercompany financing transactions |
| (32.3 | ) | (2.1 | ) | 34.4 | | |||||||||||||
Proceeds from debt |
44.3 | | 0.4 | | 44.7 | |||||||||||||||
Repayment of debt |
(58.8 | ) | (0.1 | ) | (0.4 | ) | | (59.3 | ) | |||||||||||
Other financing activities, net |
| 0.4 | (0.4 | ) | | | ||||||||||||||
Net cash used in financing activities |
(14.5 | ) | (32.0 | ) | (2.5 | ) | 34.4 | (14.6 | ) | |||||||||||
Effect of exchange rate changes on cash |
| | (5.8 | ) | | (5.8 | ) | |||||||||||||
Net (decrease) increase in cash and cash equivalents |
(0.6 | ) | (9.0 | ) | 10.8 | | 1.2 | |||||||||||||
Cash and cash equivalents beginning of period |
1.3 | 10.1 | 113.0 | | 124.4 | |||||||||||||||
Cash and cash equivalents end of period |
$ | 0.7 | $ | 1.1 | $ | 123.8 | $ | | $ | 125.6 | ||||||||||
20
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
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, 2010, 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 any of our key executive officers; |
| our ability to consummate and integrate potential acquisitions; |
||
| unexpected costs or disruptions to our business or internal controls
associated with the implementation of important technology
initiatives, including those relating to our enterprise resource
planning and e-commerce capabilities; |
||
| 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 Quarterly Report on 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.
21
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. Services comprise a relatively 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, healthcare
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,
which are not material, are included in our North American Lab segment.
Consolidated net sales were $991.2 million for the three months ended March 31, 2011,
representing an increase of $116.9 million or 13.4% compared to the same period in 2010. Changes in
foreign currency exchange rates and the contribution from acquisitions were favorable to net sales
growth by approximately $31.9 million or 3.6%. Comparable net sales growth was driven by an
approximate 10% growth of net sales in both our North American Lab and European Lab businesses.
This growth was primarily attributable to increased sales volume from our pharmaceutical and
biotechnology customers and our industrial customers, new customer wins, and continued growth in
sales of equipment, instruments and furniture.
Consolidated operating income was $64.7 million for the three months ended March 31, 2011,
representing an increase of $10.6 million or 19.6% compared to the same period in 2010. Changes in
foreign currency exchange rates, net of the contribution from acquisitions, were favorable to
operating income growth by approximately $0.9 million or 1.7%. Comparable operating income growth
was driven by an expansion of gross profit from the increase in net sales, slightly offset by
increased selling, general and administrative (SG&A) expenses due to increases in personnel costs
and incremental costs to support higher sales volumes.
We recognized a consolidated net loss of $26.6 million and consolidated net income of $38.4
million during the three months ended March 31, 2011 and 2010, respectively. The fluctuation
between net income and net loss is primarily attributable to our recognition of net unrealized
translation gains and losses associated with our Euro denominated debt, net of related income tax
effects.
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 we 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, a significant impact on our financial condition and results of operations.
Foreign Currency
We maintain operations primarily in North America and in Europe. In 2010, approximately 46% 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
fluctuations 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
comparable 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 loss of $48.7 million for the three months ended March 31, 2011, is
substantially related to our recognition of net unrealized losses associated with the strengthening
of the Euro against the U.S. dollar. Our net exchange gain of $58.3 million for the three months
ended March 31, 2010, is substantially related to our recognition of net unrealized gains
associated with the weakening of the Euro against the U.S. dollar.
22
Table of Contents
Acquisitions
The Company made the following acquisitions during 2011 and 2010:
Product / Service | Business | |||||||
Acquisition Date | Entity/Business Name | Offering | Location | Segment | ||||
March 31, 2011
|
Alfalab Hurtownia Chemiczna Sp. z o.o | Laboratory supply | Poland | European Lab | ||||
February 1, 2011
|
AMRESCO Inc. (AMRESCO) | Biochemical and reagent manufacturing | United States | North American Lab | ||||
September 1, 2010
|
Labart sp. z o.o. (Labart) | Laboratory supply | Poland | European Lab | ||||
September 1, 2010
|
Quantum Scientific, Crown Scientific and Global Science (collectively ANZ Lab) | Laboratory supply | Australia & New Zealand | North American Lab |
The acquisitions noted above were funded through a combination of cash and cash
equivalents on hand and incremental borrowings made under the Companys Senior Secured Credit
Facility. The operating results of the acquired entities are included in the operating results of
the respective business segments from the date of acquisition.
On May 2, 2011, we acquired the distribution business of Trenka Industriebedarf
Handelsgesellschaft m.b.H. (Trenka). Trenka distributes a range of industrial clothing, testing
equipment, and personal protection equipment to customers in Austria. Trenka has annual net sales
of approximately $10 million.
On April 18, 2011, we signed an agreement to acquire the businesses of Anachemia Canada Inc.
and its affiliates (Anachemia). The finalization of this transaction is subject to customary
closing conditions, and we expect the closing to occur in the third quarter of 2011. Based in
Montreal, Anachemia distributes chemicals, laboratory supplies and equipment in the United States,
Canada, Latin America and Mexico. Anachemia has annual net sales of approximately $65 million.
Results of Operations
Net Sales
The following table presents net sales and net sales changes by reportable segment for the
three months ended March 31, 2011 and 2010 (in millions):
Three Months Ended March 31, | ||||||||||||||||
Change | ||||||||||||||||
2011 | 2010 | Amount | % | |||||||||||||
North American Lab |
$ | 568.7 | $ | 491.4 | $ | 77.3 | 15.7 | % | ||||||||
European Lab |
400.1 | 358.3 | 41.8 | 11.7 | % | |||||||||||
Science Education |
22.4 | 24.6 | (2.2 | ) | (8.9) | % | ||||||||||
Total |
$ | 991.2 | $ | 874.3 | $ | 116.9 | 13.4 | % | ||||||||
Net sales for the three months ended March 31, 2011 increased $116.9 million or 13.4%, from
the comparable period of 2010. Changes in foreign currency exchange rates and the contribution from
the acquisitions of AMRESCO, Labart and ANZ Lab (the Acquisitions) caused net sales to
increase by approximately $31.9 million during the three months ended March 31, 2011. Accordingly,
net sales from comparable operations increased approximately $85.0 million or 9.7% during the three
months ended March 31, 2011, from the comparable period of 2010.
Net sales of consumable products (including chemicals) within the laboratory distribution
businesses exhibited high single-digit growth during the three months ended March 31, 2011,
compared to the same period in 2010, while net sales of capital goods (including equipment,
instruments and furniture) experienced low double-digit growth over the same period. Net sales to
pharmaceutical and biotechnology customers experienced low double-digit increases during the three
months ended March 31, 2011 compared to the same period in 2010. Sales to industrial customers
reflected high single-digit growth during the three months ended March 31, 2011 compared to the
same period in 2010, and sales to educational and governmental entities experienced mid
single-digit growth over the same period.
23
Table of Contents
Net sales in our North American Lab segment for the three months ended March 31, 2011
increased $77.3 million or 15.7%, from the comparable period of 2010. Changes in foreign currency
exchange rates and the acquisitions of AMRESCO and ANZ Lab caused net sales to increase by
approximately $25.3 million during the three months ended March 31, 2011. Accordingly, net sales
from comparable operations increased approximately $52.0 million or 10.6% during the three months
ended March 31, 2011, from the comparable period of 2010.
Net sales in our European Lab segment for the three months ended March 31, 2011 increased
$41.8 million or 11.7%, from the comparable period of 2010. Changes in foreign currency exchange
rates and the contribution from the acquisition of Labart caused net sales to increase
by approximately $6.6 million during the three months ended March 31, 2011. Accordingly, net sales
from comparable operations increased approximately $35.2 million or 9.8% during the three months
ended March 31, 2011, from the comparable period of 2010.
Net sales in our Science Education segment for the three months ended March 31, 2011 decreased
$2.2 million or 8.9%, from the comparable period of 2010. This decrease is primarily due to
reductions in sales volume across our core science supplies businesses. Our Science Education
segment continues to be negatively impacted by unfavorable industry conditions and the resulting
reduction in discretionary spending by schools.
Gross Profit
The following table presents gross profit and gross profit as a percentage of net sales for
the three months ended March 31, 2011 and 2010 (in millions):
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Gross profit |
$ | 284.8 | 256.7 | |||||
Percentage of net sales (gross margin) |
28.7 | % | 29.4 | % |
Gross profit for the three months ended March 31, 2011 increased $28.1 million or 10.9%, from
the comparable period of 2010. Changes in foreign currency exchange rates and the contribution from
the Acquisitions caused gross profit to increase by approximately $10.3 million during the three
months ended March 31, 2011. Accordingly, gross profit from comparable operations increased
approximately $17.8 million or 6.9% for the three months ended March 31, 2011, from the comparable
period of 2010.
Consolidated gross margin decreased approximately 70 basis points to 28.7% during the three
months ended March 31, 2011, from the comparable period of 2010. Gross margins in our North
American Lab and European Lab segments were unfavorably impacted by the mix of customers and
products associated with our growth in net sales. Gross margin in our Science Education segment was
unfavorably impacted by customer mix as well as continued unfavorable
industry conditions and the
resulting reduction in discretionary spending by schools.
Selling, General and Administrative Expenses
The following table presents SG&A expenses and SG&A expenses as a percentage of net sales for
the three months ended March 31, 2011 and 2010 (in millions):
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Selling, general and administrative expenses |
$ | 220.1 | $ | 202.6 | ||||
Percentage of net sales |
22.2 | % | 23.2 | % |
SG&A expenses for the three months ended March 31, 2011 increased $17.5 million or 8.6%, from
the comparable period of 2010. Changes in foreign currency exchange rates and the contribution from
the Acquisitions caused SG&A expenses to increase by approximately $9.4 million during the three
months ended March 31, 2011. Accordingly, SG&A expenses from comparable operations increased
approximately $8.1 million or 4.0% for the three months ended March 31, 2011, from the comparable
period of 2010. The increase in SG&A expenses is primarily attributable to increases in wage rates
and related personnel costs as well as incremental costs to support higher sales volumes.
24
Table of Contents
Operating Income (Loss)
The following table presents operating income (loss) and operating income (loss) as a
percentage of net sales by reportable segment for the three months ended March 31, 2011 and 2010
(in millions):
Three Months Ended March 31, | ||||||||||||||||
% of Net | % of Net | |||||||||||||||
2011 | Sales | 2010 | Sales | |||||||||||||
North American Lab |
$ | 35.7 | 6.3 | % | $ | 29.4 | 6.0 | % | ||||||||
European Lab |
33.4 | 8.3 | % | 27.1 | 7.6 | % | ||||||||||
Science Education |
(4.4 | ) | (19.6) | % | (2.4 | ) | (9.8) | % | ||||||||
Total |
$ | 64.7 | 6.5 | % | $ | 54.1 | 6.2 | % | ||||||||
Operating income for the three months ended March 31, 2011 increased $10.6 million or 19.6%,
from the comparable period of 2010. Changes in foreign currency exchange rates, net of the
contribution from the Acquisitions, caused operating income to increase approximately $0.9 million
during the three months ended March 31, 2011. Accordingly, operating income related to comparable
operations increased approximately $9.7 million or 17.9% for the three months ended March 31, 2011,
from the comparable period of 2010.
Operating income in our North American Lab segment for the three months ended March 31, 2011
increased $6.3 million or 21.4%, from the comparable period of 2010. Changes in foreign currency
exchange rates and the contribution from the acquisitions of AMRESCO and ANZ Lab caused operating
income to increase approximately $0.2 million during the three months ended March 31, 2011.
Accordingly, operating income related to comparable operations increased approximately $6.1 million
or 20.7% for the three months ended March 31, 2011, from the comparable period of 2010. The
increase in operating income is the result of increased gross profit of $10.4 million, partially
offset by a $4.3 million increase in SG&A expenses.
Operating income in our European Lab segment for the three months ended March 31, 2011
increased $6.3 million or 23.2%, from the comparable period of 2010. Changes in foreign currency
exchange rates, net of the contribution from the acquisition of Labart, caused
operating income to increase approximately $0.7 million during the three months ended March 31,
2011. Accordingly, operating income related to comparable operations increased approximately $5.6
million or 20.7% during the three months ended March 31, 2011, from the comparable period of 2010.
The increase in operating income is the result of increased gross profit of $8.5 million, partially
offset by a $2.9 million increase in SG&A expenses.
Operating loss in our Science Education segment for the three months ended March 31, 2011
increased $2.0 million, from the comparable period of 2010. The increase in operating loss is the
result of decreased gross profit of $1.1 million and additional SG&A expenses of $0.9 million.
Interest Expense, Net of Interest Income
Interest expense, net of interest income, decreased by $6.2 million for the three months ended
March 31, 2011, from the comparable period of 2010. The reduction in net interest expense is
primarily attributable to changes in the fair value of our interest rate swaps. We recognized $7.0
million of net unrealized gains on interest rate swaps during the three months ended March 31,
2011, compared with $1.0 million of net unrealized gains on interest rate swaps during the
comparable period of 2010, such variability being primarily attributable to changes in forecasted
market rates of interest underlying our determination of the fair market value of the interest rate
swaps. 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 loss of $48.7 million for the three months ended March 31, 2011 is substantially related
to our recognition of net unrealized losses associated with the strengthening of the Euro against
the U.S. dollar. Our net exchange gain of $58.3 million for the three months ended March 31, 2010,
is substantially related to our recognition of net unrealized gains associated with the weakening
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.
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Income Taxes
During the three months ended March 31, 2011 and 2010, we recognized an income tax benefit
(provision) of $4.9 million and $(20.3) million respectively, on pre-tax (loss) income of $(31.5)
million and $58.7 million, respectively.
The tax benefit recognized during the three months ended March 31, 2011 is primarily the
result of domestic net operating losses, including the recognition of significant net exchange
losses and interest expense, partially offset by taxes on operating profits in our foreign
operations.
The tax provision recognized during the three months ended March 31, 2010 is primarily the
result of taxes on operating profits generated in our foreign operations as well as from our
recognition of significant net exchange gains in excess of interest expense in our domestic
operations.
Our tax benefit (provision) and our effective tax rate can change significantly on a quarterly
basis primarily due to the volatility of our net exchange gains and losses in our operating
results. See Note 9 in Item 8 Financial Statements and Supplementary Data of our Annual Report
on Form 10-K for the year ended December 31, 2010 for a description of common differences between
our effective tax rate and the tax rate calculated by applying the U.S. federal statutory rate.
The net impact of changes in our uncertain tax positions during the three months ended March
31, 2011 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
As of March 31, 2011, we had $143.1 million of cash and cash equivalents on hand and our
compensating cash balance totaled $107.7 million. As of March 31, 2011, we had $2,906.7 million of
outstanding indebtedness, including $1,525.9 million of indebtedness under our Senior Secured
Credit Facility, $713.0 million of Senior Notes, $538.9 million of Senior Subordinated Notes and
$107.7 million of compensating cash indebtedness.
We had unused availability of $150.1 million under our multi-currency revolving loan facility
(which is a component of our Senior Secured Credit Facility) as of March 31, 2011. Borrowings under
the multi-currency revolving loan facility are a key source of our liquidity. The average borrowing
outstanding under our multi-currency revolving loan facility during the first quarter of 2011 was
approximately $84.2 million. 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.
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 March 31, 2011, 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.
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.
On or after July 15, 2011, the Company may redeem some or all of the Senior Notes at any time
at declining redemption prices that start at 105.125% of their aggregate principal amount and are
reduced to 100% of their aggregate principal amount on or after July 15, 2013. We continuously
monitor the capital markets to determine whether the Senior Notes should be redeemed prior to
maturity; however, we have made no determination at this time.
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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 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.
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. 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 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.
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):
Three Months Ended March 31, | ||||||||
2011 | 2010 | |||||||
Cash flow from operations, excluding working capital |
$ | 37.3 | $ | 29.9 | ||||
Cash flow from working capital changes, net |
(45.2 | ) | (4.9 | ) | ||||
Cash flow from operations |
$ | (7.9 | ) | $ | 25.0 | |||
Cash flow (used in) provided by operations was $(7.9) million and $25.0 million during the
three months ended March 31, 2011 and 2010, respectively. The decrease in cash flow from operations
is primarily attributable to higher cash paid for interest and changes in certain working capital
components. We paid cash interest of $69.5 million and $32.8 million during the three months ended
March 31, 2011 and 2010, respectively. Cash interest was significantly lower in the 2010 period as
a result of our payment-in-kind election of approximately $38.0 million, in lieu of cash
interest, under our Senior Notes in January 2010.
Cash flow associated with trade accounts receivable decreased during the 2011 period when
compared to the 2010 period primarily due to increased sales volume during 2011, which resulted in
a higher trade accounts receivable balance as of March 31, 2011. Cash flow associated with other
current assets increased during the 2011 period when compared to the 2010 period primarily due to a
change in timing of cash flows associated with certain of our supplier rebates. Cash flow associated with accrued expenses decreased during the 2011 period when
compared to the 2010 period because of our payment-in-kind election in 2010 as described above.
Investing Activities
Net cash used in investing activities was $64.7 million and $3.4 million during the three
months ended March 31, 2011 and 2010, respectively. This increase was primarily attributable to the
funding of recent acquisitions discussed above and is further attributable to higher capital
expenditures during the 2011 period. We continue to expect capital expenditures for the year ending
December 31, 2011 to approximate $50 million.
Financing Activities
Net cash provided by (used in) financing activities was $66.4 million and $(14.6) million
during the three months ended March 31, 2011 and 2010, respectively. Cash provided in the 2011
period was primarily attributable to $64.5 million of net cash proceeds from debt relating
primarily to net borrowings under our revolving credit facility. Cash used in the 2010 period was
primarily attributable to net repayments of $14.6 million under the Senior Secured Credit Facility
mostly due to the excess cash flow payment we made in March 2010.
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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. During the three months
ended March 31, 2011, we borrowed additional amounts under our multi-currency revolving loan
facility, which is described in Note 4 in Item 1. Financial Statements of this Quarterly Report
on Form 10-Q, and we signed an agreement to acquire Anachemia subject to customary closing
conditions. There have been no other 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, 2010.
Commitments and Contingencies
Refer to Note 13 in Item 8 Financial Statements and Supplementary Data in our Annual
Report on Form 10-K for the year ended December 31, 2010 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. 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, 2010 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.
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, 2010 for the Companys quantitative and
qualitative disclosures about market risk. There was no material change in such information as of
March 31, 2011.
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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 March 31, 2011. 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
March 31, 2011, 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 March
31, 2011, 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 into this item by reference.
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, 2010 that could affect our business, results of
operations and financial condition.
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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. |
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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. |
||||
Date: May 10, 2011 | By: | /s/ Theresa A. Balog | ||
Name: | Theresa A. Balog | |||
Title: | Vice President and Corporate Controller
(Chief Accounting Officer and Duly Authorized Officer) |
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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. |
32