Attached files
file | filename |
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EX-32.2 - EX-32.2 - VWR Funding, Inc. | c19707exv32w2.htm |
EX-31.2 - EX-31.2 - VWR Funding, Inc. | c19707exv31w2.htm |
EX-32.1 - EX-32.1 - VWR Funding, Inc. | c19707exv32w1.htm |
EX-31.1 - EX-31.1 - VWR Funding, Inc. | c19707exv31w1.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 June 30, 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 | 56-2445503 | |
(State of incorporation) | (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 June 30, 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 August
5, 2011 was 1,000.
VWR FUNDING, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2011
INDEX
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)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 154.6 | $ | 142.1 | ||||
Compensating cash balance |
135.7 | 85.4 | ||||||
Trade accounts receivable, less reserves of $10.0 and $9.1, respectively |
584.5 | 512.0 | ||||||
Other receivables |
38.4 | 45.2 | ||||||
Inventories |
318.6 | 293.0 | ||||||
Other current assets |
35.9 | 28.4 | ||||||
Total current assets |
1,267.7 | 1,106.1 | ||||||
Property and equipment, net |
204.7 | 194.2 | ||||||
Goodwill |
1,874.7 | 1,757.1 | ||||||
Other intangible assets, net |
1,897.1 | 1,858.2 | ||||||
Deferred income taxes |
8.1 | 9.8 | ||||||
Other assets |
74.4 | 76.0 | ||||||
Total assets |
$ | 5,326.7 | $ | 5,001.4 | ||||
Liabilities, Redeemable Equity Units and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Current portion of debt and capital lease obligations |
$ | 239.3 | $ | 117.4 | ||||
Accounts payable |
442.2 | 406.0 | ||||||
Accrued expenses |
216.3 | 206.5 | ||||||
Total current liabilities |
897.8 | 729.9 | ||||||
Long-term debt and capital lease obligations |
2,707.9 | 2,640.3 | ||||||
Other long-term liabilities |
132.4 | 137.2 | ||||||
Deferred income taxes |
484.3 | 478.8 | ||||||
Total liabilities |
4,222.4 | 3,986.2 | ||||||
Redeemable equity units |
53.1 | 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 |
1,361.2 | 1,361.2 | ||||||
Accumulated deficit |
(411.4 | ) | (376.2 | ) | ||||
Accumulated other comprehensive income (loss) |
101.4 | (19.8 | ) | |||||
Total stockholders equity |
1,051.2 | 965.2 | ||||||
Total liabilities, redeemable equity units and stockholders equity |
$ | 5,326.7 | $ | 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 June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales |
$ | 1,042.1 | $ | 881.8 | $ | 2,033.3 | $ | 1,756.1 | ||||||||
Cost of goods sold |
748.4 | 630.6 | 1,454.8 | 1,248.2 | ||||||||||||
Gross profit |
293.7 | 251.2 | 578.5 | 507.9 | ||||||||||||
Selling, general and
administrative expenses |
229.8 | 202.8 | 449.9 | 405.4 | ||||||||||||
Operating income |
63.9 | 48.4 | 128.6 | 102.5 | ||||||||||||
Interest income |
0.7 | 0.7 | 1.2 | 1.1 | ||||||||||||
Interest expense |
(52.6 | ) | (50.0 | ) | (100.6 | ) | (104.1 | ) | ||||||||
Other income (expense), net |
(14.3 | ) | 70.5 | (63.0 | ) | 128.8 | ||||||||||
(Loss) income before income taxes |
(2.3 | ) | 69.6 | (33.8 | ) | 128.3 | ||||||||||
Income tax provision |
(6.3 | ) | (28.7 | ) | (1.4 | ) | (49.0 | ) | ||||||||
Net (loss) income |
$ | (8.6 | ) | $ | 40.9 | $ | (35.2 | ) | $ | 79.3 | ||||||
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)
Six Months Ended June 30, 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 |
| | 1.7 | | | 1.7 | ||||||||||||||||||
Share-based compensation expense
associated with our parent
company equity plan |
| | 1.8 | | | 1.8 | ||||||||||||||||||
Reclassifications of redeemable
equity units |
| | (3.5 | ) | | | (3.5 | ) | ||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||
Net loss |
| | | (35.2 | ) | | (35.2 | ) | ||||||||||||||||
Other comprehensive income |
| | | | 121.2 | 121.2 | ||||||||||||||||||
Total comprehensive income |
86.0 | |||||||||||||||||||||||
Balance at June 30, 2011 |
1,000 | $ | | $ | 1,361.2 | $ | (411.4 | ) | $ | 101.4 | $ | 1,051.2 | ||||||||||||
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)
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net (loss) income |
$ | (35.2 | ) | $ | 79.3 | |||
Adjustments to reconcile net (loss) income to net cash
provided by operating activities: |
||||||||
Depreciation and amortization |
59.6 | 57.4 | ||||||
Net unrealized translation loss (gain) |
64.2 | (128.6 | ) | |||||
Net unrealized gain on interest rate swaps |
(11.0 | ) | (5.1 | ) | ||||
Non-cash payment-in-kind interest accretion |
| 3.0 | ||||||
Non-cash equity compensation expense |
1.8 | 1.7 | ||||||
Amortization of debt issuance costs |
4.8 | 4.8 | ||||||
Deferred income tax (benefit) provision |
(13.6 | ) | 36.9 | |||||
Other, net |
2.7 | 3.0 | ||||||
Changes in working capital, net of business acquisitions: |
||||||||
Trade accounts receivable |
(38.4 | ) | (27.9 | ) | ||||
Inventories |
(1.3 | ) | 2.4 | |||||
Other current and non-current assets |
(0.2 | ) | (13.2 | ) | ||||
Accounts payable |
1.1 | 12.6 | ||||||
Accrued expenses and other liabilities |
1.0 | 35.1 | ||||||
Net cash provided by operating activities |
35.5 | 61.4 | ||||||
Cash flows from investing activities: |
||||||||
Acquisitions of businesses, net of cash acquired |
(89.0 | ) | 0.7 | |||||
Capital expenditures |
(16.1 | ) | (14.6 | ) | ||||
Net cash used in investing activities |
(105.1 | ) | (13.9 | ) | ||||
Cash flows from financing activities: |
||||||||
Proceeds from debt |
328.5 | 54.6 | ||||||
Repayment of debt |
(266.4 | ) | (75.5 | ) | ||||
Net change in bank overdrafts |
59.6 | (24.2 | ) | |||||
Net change in compensating cash balance |
(50.3 | ) | 22.9 | |||||
Proceeds from equity incentive plans |
1.7 | 1.2 | ||||||
Repurchase of redeemable equity units |
(0.5 | ) | (0.3 | ) | ||||
Net cash provided by (used in) financing activities |
72.6 | (21.3 | ) | |||||
Effect of exchange rate changes on cash |
9.5 | (15.0 | ) | |||||
Net increase in cash and cash equivalents |
12.5 | 11.2 | ||||||
Cash and cash equivalents beginning of period |
142.1 | 124.4 | ||||||
Cash and cash equivalents end of period |
$ | 154.6 | $ | 135.6 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
Interest |
$ | 103.3 | $ | 64.6 | ||||
Income taxes paid, net |
$ | 10.0 | $ | 15.3 |
See accompanying notes to condensed consolidated financial statements.
4
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 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, European Lab and Science Education 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 June 30, 2011, through the date of issuance.
(2) Recently Adopted Accounting Standards
Presentation of Comprehensive Income
In June 2011, the Financial Accounting Standards Board (FASB) updated its guidance to make
the presentation of comprehensive income more prominent in financial statements. The updated
guidance requires companies to present net income, items of other comprehensive income and total
comprehensive income in one continuous statement or two separate but consecutive statements.
Presentation in the statement of stockholders equity will no longer be permitted. These updates
will become effective for the Company for interim and annual periods beginning in 2012, with early
adoption permitted. We are still in the process of evaluating the manner in which we will implement
this guidance.
5
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
(3) Recent Acquisitions, 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. |
| On May 2, 2011, we acquired Trenka Industriebedarf Handelsgesellschaft m.b.H.
(Trenka), a distributor of industrial clothing, testing equipment and personal protection
equipment in Austria. |
| On June 1, 2011, we acquired BioExpress Corp. (BioExpress), a domestic distributor in
the education, biotechnology and government market segments. |
The results of ANZ Lab, AMRESCO and BioExpress have been included in our North American Lab
segment, and the results of Labart, Alfalab and Trenka have been included in our European Lab
segment, each from their respective dates of acquisition. The Acquisitions did not have a material
impact on our financial statements. The aggregate purchase price for the Acquisitions of
approximately $121.7 was funded from cash and cash equivalents on hand and incremental borrowings
made under the Companys Senior Secured Credit Facility and was comprised of $21.2 of net tangible
assets, $36.8 of intangible assets and a residual amount of $63.7 allocated to goodwill. The
purchase price allocations for the Acquisitions are preliminary and may be adjusted subsequently.
Aggregate annual revenues for the Acquisitions are approximately $160 million.
In July 2011, we executed a definitive purchase
agreement to acquire LabPartner (Shanghai) Co., Ltd. (LabPartner). The completion of this transaction is
expected to occur during the fourth quarter of 2011 but is subject to customary closing conditions and Chinese regulatory
approval. Based in Shanghai, China, LabPartner is an established provider of lab equipment, reagents, consumables,
and services for research and development and supports the pharmaceutical and biopharmaceutical industries in China with a
focus on chemical distribution.
On August 1, 2011, we acquired Anachemia Canada Inc. and its affiliates (Anachemia). Based
in Montreal, Canada, Anachemia distributes chemicals, laboratory supplies and equipment in the
United States, Canada, Latin America and Mexico. Anachemia has annual net sales of approximately
$65. The acquisition of Anachemia was funded primarily from cash and cash equivalents on hand.
(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 |
47.6 | 1.1 | | 48.7 | ||||||||||||
Currency translation changes |
3.1 | 65.8 | | 68.9 | ||||||||||||
Balance at June 30, 2011 |
$ | 999.4 | $ | 875.3 | $ | | $ | 1,874.7 | ||||||||
6
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
The following table provides the gross amount of goodwill and accumulated impairment losses by
segment:
June 30, 2011 | December 31, 2010 | |||||||||||||||
Gross | Cumulative | Gross | Cumulative | |||||||||||||
Carrying | Impairment | Carrying | Impairment | |||||||||||||
Amount | Losses | Amount | Losses | |||||||||||||
Goodwill |
||||||||||||||||
North American Lab |
$ | 1,094.9 | $ | 95.5 | $ | 1,044.2 | $ | 95.5 | ||||||||
European Lab |
875.3 | | 808.4 | | ||||||||||||
Science Education |
99.8 | 99.8 | 99.8 | 99.8 | ||||||||||||
Total |
$ | 2,070.0 | $ | 195.3 | $ | 1,952.4 | $ | 195.3 | ||||||||
(c) Other Intangible Assets
The following table provides detail of our other intangible assets:
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Gross | Net | Gross | Net | |||||||||||||||||||||
Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | |||||||||||||||||||
Amount | Amortization | Amount | Amount | Amortization | Amount | |||||||||||||||||||
Amortizable intangible assets: |
||||||||||||||||||||||||
Customer relationships: |
||||||||||||||||||||||||
North American Lab |
$ | 786.0 | $ | 153.0 | $ | 633.0 | $ | 765.8 | $ | 132.3 | $ | 633.5 | ||||||||||||
European Lab |
518.8 | 105.5 | 413.3 | 478.2 | 84.7 | 393.5 | ||||||||||||||||||
Science Education |
131.2 | 26.4 | 104.8 | 131.2 | 23.1 | 108.1 | ||||||||||||||||||
Chemical supply agreement |
57.7 | 33.0 | 24.7 | 53.4 | 26.7 | 26.7 | ||||||||||||||||||
Other |
22.3 | 11.7 | 10.6 | 16.6 | 9.1 | 7.5 | ||||||||||||||||||
Total amortizable intangible assets |
1,516.0 | 329.6 | 1,186.4 | 1,445.2 | 275.9 | 1,169.3 | ||||||||||||||||||
Indefinite-lived intangible assets: |
||||||||||||||||||||||||
Trademarks and tradenames |
710.7 | | 710.7 | 688.9 | | 688.9 | ||||||||||||||||||
Total other intangible assets |
$ | 2,226.7 | $ | 329.6 | $ | 1,897.1 | $ | 2,134.1 | $ | 275.9 | $ | 1,858.2 | ||||||||||||
The following table shows amortization expense for each of the reporting periods:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Amortization expense |
$ | 22.1 | $ | 20.0 | $ | 43.4 | $ | 40.4 |
7
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
(4) Debt
The following is a summary of our debt obligations:
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Senior Secured Credit Facility |
$ | 1,537.3 | $ | 1,410.0 | ||||
10.25%/11.25% Unsecured Senior Notes due 2015 |
713.0 | 713.0 | ||||||
10.75% Unsecured Senior Subordinated Notes due 2017 |
542.1 | 528.2 | ||||||
Compensating cash balance |
135.7 | 85.4 | ||||||
Capital leases |
17.5 | 19.2 | ||||||
Predecessor Senior Subordinated Notes |
1.0 | 1.0 | ||||||
Other debt |
0.6 | 0.9 | ||||||
Total debt |
2,947.2 | 2,757.7 | ||||||
Less short-term portion |
(239.3 | ) | (117.4 | ) | ||||
Total long-term portion |
$ | 2,707.9 | $ | 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 588.0 ($849.8 on a U.S. dollar equivalent basis as of June 30,
2011), (2) term loans denominated in U.S. dollars in an aggregate principal amount currently
outstanding of $602.7 and (3) a multi-currency revolving loan facility, providing for an equivalent
in U.S. dollars of up to $250.0 in multi-currency revolving loans (inclusive of swingline loans of
up to $25.0 and letters of credit of up to $70.0). The term loans will mature on June 30, 2014, and
the multi-currency revolving loan facility will mature on June 30, 2013.
As of June 30, 2011, an aggregate U.S. dollar equivalent of $84.8 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 $73.2. In addition, we had $12.3 of undrawn letters of credit
outstanding. As of June 30, 2011, we had $152.9 of available borrowing capacity under the
multi-currency revolving loan facility.
As of June 30, 2011, interest rates on the U.S. dollar-denominated and Euro-denominated term
loans were 2.69% and 3.82%, respectively. Amounts drawn under the multi-currency revolving loan
facility bear variable interest rates with a weighted average rate as of June 30, 2011, of 2.53%.
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 June 30, 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. Any
remaining interest must be paid in 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 regarding redemption
at this time.
8
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
The Senior Subordinated Notes are denominated in Euros in an aggregate principal amount
outstanding as of June 30, 2011 of 126.9 ($183.4 on a U.S. dollar equivalent basis) and in U.S.
dollars in an aggregate principal amount outstanding as of
June 30, 2011 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
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 certain assets of the Company and restricted subsidiaries, and
materially change our lines of business.
As of June 30, 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 losses of $14.3 and $63.0 for the three and six months ended June 30, 2011,
respectively, are principally related to our recognition of net unrealized losses associated with
the strengthening of the Euro against the U.S. dollar. Our net exchange gains of $70.5 and $128.8
for the three and six months ended June 30, 2010, respectively, are substantially related to our
recognition of net unrealized gains associated with the weakening of the Euro against the U.S.
dollar.
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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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 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 German, French and UK Plans for each of the reporting periods include the following
components:
Three Months Ended June 30, | ||||||||||||||||
U.S. Retirement Plan | German, French and UK Plans | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Service cost |
$ | 0.1 | $ | 0.2 | $ | 0.6 | $ | 0.5 | ||||||||
Interest cost |
2.4 | 2.3 | 1.6 | 1.3 | ||||||||||||
Expected return on plan assets |
(3.0 | ) | (3.0 | ) | (1.1 | ) | (0.9 | ) | ||||||||
Recognized net actuarial (gain) loss |
(0.1 | ) | (0.1 | ) | 0.2 | 0.2 | ||||||||||
Net periodic pension (income) cost |
$ | (0.6 | ) | $ | (0.6 | ) | $ | 1.3 | $ | 1.1 | ||||||
Six Months Ended June 30, | ||||||||||||||||
U.S. Retirement Plan | German, French and UK Plans | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Service cost |
$ | 0.3 | $ | 0.3 | $ | 1.2 | $ | 1.0 | ||||||||
Interest cost |
4.8 | 4.7 | 3.1 | 2.8 | ||||||||||||
Expected return on plan assets |
(6.1 | ) | (6.0 | ) | (2.2 | ) | (1.9 | ) | ||||||||
Recognized net actuarial (gain) loss |
(0.2 | ) | (0.3 | ) | 0.3 | 0.2 | ||||||||||
Net periodic pension (income) cost |
$ | (1.2 | ) | $ | (1.3 | ) | $ | 2.4 | $ | 2.1 | ||||||
The Company made no contributions to the U.S. Retirement Plan during the six months ended June
30, 2011, and expects to make no contributions during the remainder of 2011. The Company made
contributions to our German, French and UK Plans of $0.5 during the the six months ended June 30,
2011, and expects to make additional contributions of approximately $0.4 during the remainder of
2011.
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
(7) Share-Based Compensation
Holdings established the 2007 Securities Purchase Plan (the Plan) pursuant to which members
of management, members of the Board of Directors and certain consultants may be provided the
opportunity to purchase equity units of Holdings. Share-based compensation expense associated with
the Plan was $0.9 for the three months ended June 30, 2011 and 2010 and was $1.8 and $1.7 during
the six months ended June 30, 2011 and 2010, respectively. A significant number of equity units
became fully vested during the three months ended June 30, 2011, which will result in lower
share-based compensation in future periods.
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 |
3.5 | |||
Reclassifications to accrued expenses upon notification of redemption |
(0.4 | ) | ||
Balance at June 30, 2011 |
$ | 53.1 | ||
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
(8) Income Taxes
(a) Income Tax Provision
During the three and six months ended June 30, 2011, we recognized income tax provisions of
$6.3 and $1.4, respectively, on pre-tax losses of $2.3 and $33.8, respectively. The tax provisions
recognized during the three and six months ended June 30, 2011 are comprised of provisions for
operating profits of our foreign operations, offset by benefits from domestic operating losses,
including the recognition of interest expenses and the net exchange losses.
During the the three and six months ended June 30, 2010, we recognized income tax provisions
of $28.7 and $49.0, respectively, on pre-tax income of $69.6 and $128.3, respectively. The tax
provisions recognized during the three and six months ended June 30, 2010 are comprised of
provisions for net exchange gains and operating profits of our foreign operations, partially offset
by benefits from domestic operating losses, including the recognition of interest expense.
Our tax benefits or provisions can change significantly 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.
In the first quarter of 2011, 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, with no effect on our consolidated tax provision.
While it is reasonably possible that the amount of unrecognized tax benefits ($3.8 as of June
30, 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.
(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 actively 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.
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
(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 June 30, 2011 and December 31, 2010:
June 30, | ||||||||||||||||
Description | 2011 | Level 1 | Level 2 | Level 3 | ||||||||||||
Liabilities |
||||||||||||||||
Interest rate swap arrangements |
$ | (24.2 | ) | $ | | $ | (24.2 | ) | $ | |
December 31, | ||||||||||||||||
Description | 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.
(b) Debt Instruments
The table below shows the carrying amounts and estimated fair values of our primary long-term
debt instruments:
June 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
Amount | Fair Value | Amount | Fair Value | |||||||||||||
Senior Secured Credit Facility |
$ | 1,537.3 | $ | 1,486.4 | $ | 1,410.0 | $ | 1,344.3 | ||||||||
Senior Notes |
713.0 | 739.7 | 713.0 | 748.6 | ||||||||||||
Senior Subordinated Notes |
542.1 | 555.2 | 528.2 | 554.6 | ||||||||||||
$ | 2,792.4 | $ | 2,781.3 | $ | 2,651.2 | $ | 2,647.5 | |||||||||
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
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 these values qualify as Level 2 measurements, except
for the valuation of our publicly-traded Senior Notes which we believe qualifies 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 June 30, 2011, our interest rate swap arrangements effectively convert $325.0 of
variable rate U.S. dollar-denominated debt and 220.0 ($318.0 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 $68.0, and the fair value of these contracts was immaterial, as of June 30, 2011.
Tabular Disclosures
The following table reflects the balance sheet classification and fair value of our derivative
instruments on a gross basis:
Liability Derivatives | ||||||||||||
June 30, 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 | $ | 24.2 | Other long-term liabilities | $ | 35.2 |
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
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 and six months ended June 30, 2011 and 2010:
Amount of Gain (Loss) Recognized in Earnings | ||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||
Derivatives not designated as hedging | Location of Gain (Loss) | June 30, | June 30, | |||||||||||||||
instruments | Recognized in Earnings | 2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest rate swap
arrangements
realized |
Interest expense | $ | (7.3 | ) | $ | (7.7 | ) | $ | (14.4 | ) | $ | (15.6 | ) | |||||
Interest rate swap
arrangements
unrealized |
Interest expense | 4.0 | 4.1 | 11.0 | 5.1 | |||||||||||||
Total |
$ | (3.3 | ) | $ | (3.6 | ) | $ | (3.4 | ) | $ | (10.5 | ) | ||||||
(10) Comprehensive Income (Loss)
Comprehensive income (loss) is determined as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net (loss) income |
$ | (8.6 | ) | $ | 40.9 | $ | (35.2 | ) | $ | 79.3 | ||||||
Other comprehensive income (loss): |
||||||||||||||||
Foreign currency translation adjustments |
28.9 | (124.2 | ) | 119.3 | (211.4 | ) | ||||||||||
Unrealized (loss) gain on derivatives, net of tax (1) |
(0.5 | ) | (0.3 | ) | 0.2 | (0.5 | ) | |||||||||
Amortization of realized losses on derivatives, net of tax (2) |
0.8 | 0.9 | 1.5 | 1.6 | ||||||||||||
Amortization of net actuarial gain, net of tax (3) |
0.2 | | 0.2 | (0.1 | ) | |||||||||||
Comprehensive income (loss) |
$ | 20.8 | $ | (82.7 | ) | $ | 86.0 | $ | (131.1 | ) | ||||||
(1) | Unrealized (loss) gain on derivatives is presented net of taxes of $0.3 and $0.1 for the
three months ended June 30, 2011 and 2010, respectively, and $0.3 for the six months ended
June 30, 2010. |
|
(2) | Amortization of realized losses on derivatives is presented net of taxes of $0.5 and $0.4 for
the three months ended June 30, 2011 and 2010, respectively, and $1.0 and $1.0 for the six
months ended June 30, 2011 and 2010, respectively. |
|
(3) | Amortization of net actuarial gain is presented net of taxes of $0.1 for the three and six
months ended June 30, 2011 and for the six months ended June 30, 2010. |
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
(11) Commitments and Contingencies
Our business involves product liability risk, 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. Following this decision, we and Merck KGaA entered
into a separate agreement for the distribution of those products in Germany. The terms of this
non-exclusive distribution agreement are also available to other distributors in Germany. In
February 2010, the GFCO indicated that it had opened a new investigation with regard to the
European Distribution Agreement. In May 2011, the GFCO issued its decision ordering Merck KGaA to
amend the schedule of rebates offered to us and other German distributors under the German
Distribution Agreement. Merck KGaA has applied for an injunction precluding enforcement of this
decision. At June 30, 2011, the balance of the net amortizable intangible asset related to the
entire geographic scope of our European Distribution Agreement with Merck KGaA was $24.7. We cannot
assess the likely outcome of the appeals of the GFCOs decisions 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)
June 30, 2011
(In millions)
(Unaudited)
June 30, 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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales |
||||||||||||||||
North American Lab |
$ | 600.4 | $ | 523.9 | $ | 1,169.1 | $ | 1,015.3 | ||||||||
European Lab |
416.0 | 329.2 | 816.1 | 687.5 | ||||||||||||
Science Education |
25.7 | 28.7 | 48.1 | 53.3 | ||||||||||||
Total |
$ | 1,042.1 | $ | 881.8 | $ | 2,033.3 | $ | 1,756.1 | ||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Operating income (loss) |
||||||||||||||||
North American Lab |
$ | 37.7 | $ | 29.6 | $ | 73.4 | $ | 59.0 | ||||||||
European Lab |
29.6 | 20.0 | 63.0 | 47.1 | ||||||||||||
Science Education |
(3.4 | ) | (1.2 | ) | (7.8 | ) | (3.6 | ) | ||||||||
Total |
63.9 | 48.4 | 128.6 | 102.5 | ||||||||||||
Interest income |
0.7 | 0.7 | 1.2 | 1.1 | ||||||||||||
Interest expense |
(52.6 | ) | (50.0 | ) | (100.6 | ) | (104.1 | ) | ||||||||
Other income (expense), net |
(14.3 | ) | 70.5 | (63.0 | ) | 128.8 | ||||||||||
(Loss) income before income taxes |
$ | (2.3 | ) | $ | 69.6 | $ | (33.8 | ) | $ | 128.3 | ||||||
(13) Condensed Consolidating Financial Information
The following tables set forth the condensed consolidating financial statements of the
Company. These financial statements are included as a result of the guarantee arrangements relating
to our Senior Notes. The Senior Notes are jointly and severally guaranteed on an unsecured basis by
each of the Companys wholly owned U.S. subsidiaries other than its U.S. foreign subsidiary holding
companies (collectively, the Subsidiary Guarantors). The guarantees are full and unconditional
and each of the Subsidiary Guarantors is wholly owned, directly or indirectly, by the Company.
These condensed consolidating financial statements have been prepared from the Companys financial
information on the same basis of accounting as the Companys condensed consolidated financial
statements.
The following condensed consolidating financial statements present the balance sheets as of
June 30, 2011 and December 31, 2010 and the statements of operations and cash flows for the three
and six months ended June 30, 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)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
Condensed Consolidating Balance Sheet
June 30, 2011
June 30, 2011
Non- | ||||||||||||||||||||
Subsidiary | Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 13.9 | $ | 140.7 | $ | | $ | 154.6 | ||||||||||
Compensating cash balance |
| | 135.7 | | 135.7 | |||||||||||||||
Trade accounts receivable, net |
| 242.6 | 341.9 | | 584.5 | |||||||||||||||
Inventories |
| 160.1 | 158.5 | | 318.6 | |||||||||||||||
Other current assets |
0.1 | 24.9 | 49.3 | | 74.3 | |||||||||||||||
Intercompany receivables |
11.6 | 6.5 | 2.2 | (20.3 | ) | | ||||||||||||||
Total current assets |
11.7 | 448.0 | 828.3 | (20.3 | ) | 1,267.7 | ||||||||||||||
Property and equipment, net |
| 89.3 | 115.4 | | 204.7 | |||||||||||||||
Goodwill |
| 916.4 | 958.3 | | 1,874.7 | |||||||||||||||
Other intangible assets, net |
| 1,071.2 | 825.9 | | 1,897.1 | |||||||||||||||
Deferred income taxes |
189.0 | | 8.1 | (189.0 | ) | 8.1 | ||||||||||||||
Investment in subsidiaries |
2,736.9 | 1,846.7 | | (4,583.6 | ) | | ||||||||||||||
Other assets |
30.0 | 38.6 | 5.8 | | 74.4 | |||||||||||||||
Intercompany loans |
1,036.5 | 82.1 | 22.9 | (1,141.5 | ) | | ||||||||||||||
Total assets |
$ | 4,004.1 | $ | 4,492.3 | $ | 2,764.7 | $ | (5,934.4 | ) | $ | 5,326.7 | |||||||||
Liabilities, Redeemable
Equity Units and
Stockholders Equity |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Current portion of debt and
capital lease obligations |
$ | 119.8 | $ | 0.4 | $ | 119.1 | $ | | $ | 239.3 | ||||||||||
Accounts payable |
| 228.1 | 214.1 | | 442.2 | |||||||||||||||
Accrued expenses |
35.4 | 61.9 | 119.0 | | 216.3 | |||||||||||||||
Intercompany payables |
| 3.8 | 16.5 | (20.3 | ) | | ||||||||||||||
Total current liabilities |
155.2 | 294.2 | 468.7 | (20.3 | ) | 897.8 | ||||||||||||||
Long-term debt and capital
lease obligations |
2,692.7 | 1.1 | 14.1 | | 2,707.9 | |||||||||||||||
Other long-term liabilities |
25.0 | 25.9 | 81.5 | | 132.4 | |||||||||||||||
Deferred income taxes |
| 419.4 | 253.9 | (189.0 | ) | 484.3 | ||||||||||||||
Intercompany loans |
26.9 | 1,015.6 | 99.0 | (1,141.5 | ) | | ||||||||||||||
Total liabilities |
2,899.8 | 1,756.2 | 917.2 | (1,350.8 | ) | 4,222.4 | ||||||||||||||
Redeemable equity units |
53.1 | | | | 53.1 | |||||||||||||||
Total stockholders equity |
1,051.2 | 2,736.1 | 1,847.5 | (4,583.6 | ) | 1,051.2 | ||||||||||||||
Total liabilities, redeemable
equity units and
stockholders equity |
$ | 4,004.1 | $ | 4,492.3 | $ | 2,764.7 | $ | (5,934.4 | ) | $ | 5,326.7 | |||||||||
18
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 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 | |||||||||
19
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2011
Three Months Ended June 30, 2011
Non- | ||||||||||||||||||||
Subsidiary | Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net sales |
$ | | $ | 538.7 | $ | 506.5 | $ | (3.1 | ) | $ | 1,042.1 | |||||||||
Cost of goods sold |
| 402.9 | 348.6 | (3.1 | ) | 748.4 | ||||||||||||||
Gross profit |
| 135.8 | 157.9 | | 293.7 | |||||||||||||||
Selling, general and administrative
expenses |
0.7 | 109.1 | 129.7 | (9.7 | ) | 229.8 | ||||||||||||||
Operating (loss) income |
(0.7 | ) | 26.7 | 28.2 | 9.7 | 63.9 | ||||||||||||||
Interest expense, net of interest income |
(41.9 | ) | (8.8 | ) | (1.2 | ) | | (51.9 | ) | |||||||||||
Other income (expense), net |
(14.6 | ) | 2.8 | 7.2 | (9.7 | ) | (14.3 | ) | ||||||||||||
(Loss) income before income taxes and
equity in earnings of subsidiaries |
(57.2 | ) | 20.7 | 34.2 | | (2.3 | ) | |||||||||||||
Income tax benefit (provision) |
15.3 | (11.7 | ) | (9.9 | ) | | (6.3 | ) | ||||||||||||
Equity in earnings of subsidiaries, net
of tax |
33.3 | 24.3 | | (57.6 | ) | | ||||||||||||||
Net (loss) income |
$ | (8.6 | ) | $ | 33.3 | $ | 24.3 | $ | (57.6 | ) | $ | (8.6 | ) | |||||||
Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2010
Three Months Ended June 30, 2010
Non- | ||||||||||||||||||||
Subsidiary | Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net sales |
$ | | $ | 484.8 | $ | 400.5 | $ | (3.5 | ) | $ | 881.8 | |||||||||
Cost of goods sold |
| 359.6 | 274.5 | (3.5 | ) | 630.6 | ||||||||||||||
Gross profit |
| 125.2 | 126.0 | | 251.2 | |||||||||||||||
Selling, general and administrative
expenses |
0.8 | 100.6 | 108.5 | (7.1 | ) | 202.8 | ||||||||||||||
Operating (loss) income |
(0.8 | ) | 24.6 | 17.5 | 7.1 | 48.4 | ||||||||||||||
Interest expense, net of interest income |
(40.0 | ) | (8.5 | ) | (0.8 | ) | | (49.3 | ) | |||||||||||
Other income (expense), net |
71.8 | 17.8 | (12.0 | ) | (7.1 | ) | 70.5 | |||||||||||||
Income before income taxes and equity
in earnings of subsidiaries |
31.0 | 33.9 | 4.7 | | 69.6 | |||||||||||||||
Income tax provision |
(10.8 | ) | (17.0 | ) | (0.9 | ) | | (28.7 | ) | |||||||||||
Equity in earnings of subsidiaries, net
of tax |
20.7 | 3.8 | | (24.5 | ) | | ||||||||||||||
Net income |
$ | 40.9 | $ | 20.7 | $ | 3.8 | $ | (24.5 | ) | $ | 40.9 | |||||||||
20
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2011
Six Months Ended June 30, 2011
Non- | ||||||||||||||||||||
Subsidiary | Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net sales |
$ | | $ | 1,045.6 | $ | 994.4 | $ | (6.7 | ) | $ | 2,033.3 | |||||||||
Cost of goods sold |
| 780.5 | 681.0 | (6.7 | ) | 1,454.8 | ||||||||||||||
Gross profit |
| 265.1 | 313.4 | | 578.5 | |||||||||||||||
Selling, general and administrative
expenses |
1.4 | 217.2 | 251.0 | (19.7 | ) | 449.9 | ||||||||||||||
Operating (loss) income |
(1.4 | ) | 47.9 | 62.4 | 19.7 | 128.6 | ||||||||||||||
Interest expense, net of interest income |
(79.8 | ) | (17.4 | ) | (2.2 | ) | | (99.4 | ) | |||||||||||
Other income (expense), net |
(64.9 | ) | 0.7 | 20.9 | (19.7 | ) | (63.0 | ) | ||||||||||||
(Loss) income before income taxes and
equity in earnings of subsidiaries |
(146.1 | ) | 31.2 | 81.1 | | (33.8 | ) | |||||||||||||
Income tax benefit (provision) |
39.1 | (18.3 | ) | (22.2 | ) | | (1.4 | ) | ||||||||||||
Equity in earnings of subsidiaries, net
of tax |
71.8 | 58.9 | | (130.7 | ) | | ||||||||||||||
Net (loss) income |
$ | (35.2 | ) | $ | 71.8 | $ | 58.9 | $ | (130.7 | ) | $ | (35.2 | ) | |||||||
Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2010
Six Months Ended June 30, 2010
Non- | ||||||||||||||||||||
Subsidiary | Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net sales |
$ | | $ | 932.4 | $ | 830.9 | $ | (7.2 | ) | $ | 1,756.1 | |||||||||
Cost of goods sold |
| 689.7 | 565.7 | (7.2 | ) | 1,248.2 | ||||||||||||||
Gross profit |
| 242.7 | 265.2 | | 507.9 | |||||||||||||||
Selling, general and administrative
expenses |
1.6 | 194.8 | 221.5 | (12.5 | ) | 405.4 | ||||||||||||||
Operating (loss) income |
(1.6 | ) | 47.9 | 43.7 | 12.5 | 102.5 | ||||||||||||||
Interest expense, net of interest income |
(84.3 | ) | (17.2 | ) | (1.5 | ) | | (103.0 | ) | |||||||||||
Other income (expense), net |
128.8 | 33.9 | (21.4 | ) | (12.5 | ) | 128.8 | |||||||||||||
Income before income taxes and equity
in earnings of subsidiaries |
42.9 | 64.6 | 20.8 | | 128.3 | |||||||||||||||
Income tax provision |
(10.9 | ) | (33.0 | ) | (5.1 | ) | | (49.0 | ) | |||||||||||
Equity in earnings of subsidiaries, net
of tax |
47.3 | 15.7 | | (63.0 | ) | | ||||||||||||||
Net income |
$ | 79.3 | $ | 47.3 | $ | 15.7 | $ | (63.0 | ) | $ | 79.3 | |||||||||
21
Table of Contents
VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2011
Six Months Ended June 30, 2011
Non- | ||||||||||||||||||||
Subsidiary | Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net cash (used in) provided by operating
activities |
$ | (87.6 | ) | $ | 88.5 | $ | 34.6 | $ | | $ | 35.5 | |||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Intercompany investing transactions |
31.4 | 3.1 | | (34.5 | ) | | ||||||||||||||
Acquisitions of businesses |
(28.0 | ) | (56.4 | ) | (4.6 | ) | | (89.0 | ) | |||||||||||
Capital expenditures |
| (9.9 | ) | (6.2 | ) | | (16.1 | ) | ||||||||||||
Net cash provided by (used in) investing activities |
3.4 | (63.2 | ) | (10.8 | ) | (34.5 | ) | (105.1 | ) | |||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Intercompany financing transactions |
| (31.4 | ) | (3.1 | ) | 34.5 | | |||||||||||||
Proceeds from debt |
327.4 | | 1.1 | | 328.5 | |||||||||||||||
Repayment of debt |
(265.1 | ) | | (1.3 | ) | | (266.4 | ) | ||||||||||||
Other financing activities, net |
21.5 | 9.5 | (20.5 | ) | | 10.5 | ||||||||||||||
Net cash provided by (used in) financing
activities |
83.8 | (21.9 | ) | (23.8 | ) | 34.5 | 72.6 | |||||||||||||
Effect of exchange rate changes on cash |
| | 9.5 | | 9.5 | |||||||||||||||
Net (decrease) increase in cash and cash
equivalents |
(0.4 | ) | 3.4 | 9.5 | | 12.5 | ||||||||||||||
Cash and cash equivalents beginning of period |
0.4 | 10.5 | 131.2 | | 142.1 | |||||||||||||||
Cash and cash equivalents end of period |
$ | | $ | 13.9 | $ | 140.7 | $ | | $ | 154.6 | ||||||||||
22
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VWR FUNDING, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
June 30, 2011
(In millions)
(Unaudited)
June 30, 2011
(In millions)
(Unaudited)
Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2010
Six Months Ended June 30, 2010
Non- | ||||||||||||||||||||
Subsidiary | Guarantor | Total | ||||||||||||||||||
Parent | Guarantors | Subsidiaries | Eliminations | Company | ||||||||||||||||
Net cash (used in) provided by operating
activities |
$ | (48.2 | ) | $ | 87.5 | $ | 22.1 | $ | | $ | 61.4 | |||||||||
Cash flows from investing activities: |
||||||||||||||||||||
Intercompany investing transactions |
67.9 | 2.9 | | (70.8 | ) | | ||||||||||||||
Acquisitions of businesses |
| | 0.7 | | 0.7 | |||||||||||||||
Capital expenditures |
| (9.3 | ) | (5.3 | ) | | (14.6 | ) | ||||||||||||
Net cash provided by (used in) investing
activities |
67.9 | (6.4 | ) | (4.6 | ) | (70.8 | ) | (13.9 | ) | |||||||||||
Cash flows from financing activities: |
||||||||||||||||||||
Intercompany financing transactions |
| (67.9 | ) | (2.9 | ) | 70.8 | | |||||||||||||
Proceeds from debt |
53.2 | 0.1 | 1.3 | | 54.6 | |||||||||||||||
Repayment of debt |
(74.5 | ) | (0.2 | ) | (0.8 | ) | | (75.5 | ) | |||||||||||
Other financing activities, net |
0.9 | (1.0 | ) | (0.3 | ) | | (0.4 | ) | ||||||||||||
Net cash used in financing activities |
(20.4 | ) | (69.0 | ) | (2.7 | ) | 70.8 | (21.3 | ) | |||||||||||
Effect of exchange rate changes on cash |
| | (15.0 | ) | | (15.0 | ) | |||||||||||||
Net (decrease) increase in cash and cash
equivalents |
(0.7 | ) | 12.1 | (0.2 | ) | | 11.2 | |||||||||||||
Cash and cash equivalents beginning of period |
1.3 | 10.1 | 113.0 | | 124.4 | |||||||||||||||
Cash and cash equivalents end of period |
$ | 0.6 | $ | 22.2 | $ | 112.8 | $ | | $ | 135.6 | ||||||||||
23
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 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; |
| our ability to pass through or absorb cost increases from our suppliers; |
| 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.
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.
24
Table of Contents
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, European Lab and Science Education 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 $1,042.1 million and $2,033.3 million for the three and six months
ended June 30, 2011, respectively, representing an increase of $160.3 million or 18.2% and $277.2
million or 15.8%, respectively, compared to the same periods in 2010. Changes in foreign currency
exchange rates and the contribution from acquisitions were favorable to net sales growth in the
three and six month periods by approximately $91.0 million or 10.3% and $122.9 million or 7.0%,
respectively. Comparable net sales growth during the 2011 periods was driven by high single-digit
growth 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 $63.9 million and $128.6 million for the three and six
months ended June 30, 2011, respectively, representing an increase of $15.5 million or 32.0% and
$26.1 million or 25.5%, respectively, compared to the same periods in 2010. Changes in foreign
currency exchange rates and the contribution from acquisitions were favorable to operating income
growth in the three and six month periods by approximately $3.2 million or 6.6% and $4.1 million
or 4.0%, respectively. Comparable operating income growth was driven by increased gross profit due
to 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
volume.
We recognized consolidated net losses of $8.6 million and $35.2 million during the three and
six months ended June 30, 2011, respectively, and consolidated net income of $40.9 million and
$79.3 million during the three and six months ended June 30, 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. Through the first six months
of 2011, approximately 47% of our net sales originated in currencies other than the U.S. dollar,
principally the Euro, the British pound sterling and the Canadian dollar. As a result, changes in
our reported revenues and operating profits include the impact of changes in foreign currency
exchange rates.
Our presentation of results from comparable operations excludes the impact of fluctuations in
foreign exchange rates. 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 removing the impact of fluctuations in foreign exchange
rates provides a useful means to measure our operating performance.
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.
25
Table of Contents
Our net exchange losses of $14.3 million and $63.0 million for the three and six months
ended June 30, 2011, respectively, are substantially related to our recognition of net unrealized
losses associated with the strengthening of the Euro against the U.S. dollar. Our net exchange
gains of $70.5 million and $128.8 million for the three and six months ended June 30, 2010,
respectively, are substantially related to our recognition of net unrealized gains associated with
the weakening of the Euro against the U.S. dollar.
Acquisitions
The Company made the following acquisitions during 2011 and 2010:
Product / Service | Business | |||||||
Acquisition Date | Entity/Business Name | Offering | Location | Segment | ||||
June 1, 2011
|
BioExpress Corp. (BioExpress) | Laboratory supply | United States | North American Lab | ||||
May 2, 2011
|
Trenka Industriebedarf Handelsgesellschaft m.b.H. (Trenka) | Testing and safety equipment | Austria | European Lab | ||||
March 31, 2011
|
Alfalab Hurtownia Chemiczna Sp. z o.o (Alfalab) | 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. Our presentation of results from
comparable operations excludes the contribution from acquisitions that were completed subsequent to
the beginning of the comparable period, which we believe provides a useful means to measure
our operating performance.
In July 2011, we executed a definitive purchase
agreement to acquire LabPartner (Shanghai) Co., Ltd. (LabPartner). The completion of this transaction is
expected to occur during the fourth quarter of 2011 but is subject to customary closing conditions and Chinese regulatory
approval. Based in Shanghai, China, LabPartner is an established provider of lab equipment, reagents, consumables,
and services for research and development and supports the pharmaceutical and biopharmaceutical industries in China with a
focus on chemical distribution.
On August 1, 2011, we acquired Anachemia Canada Inc. and its affiliates (Anachemia). Based
in Montreal, Canada, 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. The acquisition of Anachemia was funded primarily from cash and cash equivalents on
hand.
Results of Operations
Net Sales
The following table presents net sales and net sales changes by reportable segment for the
three and six months ended June 30, 2011 and 2010 (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||||||
2011 | 2010 | Amount | % | 2011 | 2010 | Amount | % | |||||||||||||||||||||||||
North American Lab |
$ | 600.4 | $ | 523.9 | $ | 76.5 | 14.6 | % | $ | 1,169.1 | $ | 1,015.3 | $ | 153.8 | 15.1 | % | ||||||||||||||||
European Lab |
416.0 | 329.2 | 86.8 | 26.4 | % | 816.1 | 687.5 | 128.6 | 18.7 | % | ||||||||||||||||||||||
Science Education |
25.7 | 28.7 | (3.0 | ) | (10.5 | %) | 48.1 | 53.3 | (5.2 | ) | (9.8 | )% | ||||||||||||||||||||
Total |
$ | 1,042.1 | $ | 881.8 | $ | 160.3 | 18.2 | % | $ | 2,033.3 | $ | 1,756.1 | $ | 277.2 | 15.8 | % | ||||||||||||||||
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Net sales for the three and six months ended June 30, 2011 increased $160.3 million or
18.2% and $277.2 million or 15.8%, respectively, from the comparable periods of 2010. Changes in
foreign currency exchange rates and the contribution from the acquisitions of BioExpress, Trenka,
Alfalab, AMRESCO, Labart and ANZ Lab (the Acquisitions) caused net sales to increase by
approximately $91.0 million during the three months ended June 30, 2011. Changes in foreign
exchange rates and the contribution from the Acquisitions caused net sales to increase by
approximately $122.9 million during the the six months ended June 30, 2011. Accordingly, net sales
from comparable operations increased approximately $69.3 million or 7.9% and $154.3 million or 8.8%
during the three and six months ended June 30, 2011, respectively, from the comparable periods of
2010.
Net sales of both consumable products (including chemicals) and capital goods (including
equipment, instruments and furniture) within the laboratory distribution businesses exhibited mid
to high single-digit growth during the three and six months ended June 30, 2011, compared to the
same periods of 2010. Net sales to pharmaceutical and biotechnology customers experienced low
double-digit increases during the three and six months ended June 30, 2011, compared to the same
periods of 2010. Net sales to industrial customers reflected high single-digit growth during the
three and six months ended June 30, 2011, compared to the same periods of 2010. Net sales to
educational and governmental entities experienced mid single-digit growth over the same periods.
Net sales in our North American Lab segment for the three and six months ended June 30, 2011,
increased $76.5 million or 14.6% and $153.8 million or 15.1%, respectively, from the comparable
periods of 2010. Changes in foreign currency exchange rates and the contribution from the
acquisitions of BioExpress, AMRESCO and ANZ Lab caused net sales to increase by approximately $35.2
million and $60.5 million during the three and six months ended June 30, 2011, respectively.
Accordingly, net sales from comparable operations increased approximately $41.3 million or 7.9% and
$93.3 million or 9.2% for the three and six months ended June 30, 2011, respectively, from the
comparable periods of 2010.
Net sales in our European Lab segment for the three and six months ended June 30, 2011,
increased $86.8 million or 26.4% and $128.6 million or 18.7%, respectively, from the comparable
periods of 2010. Changes in foreign currency exchange rates and the contribution from the
acquisitions of Trenka, Alfalab and Labart caused net sales to increase by approximately $55.8
million and $62.4 million during the three and six months ended June 30, 2011, respectively.
Accordingly, net sales from comparable operations increased approximately $31.0 million or 9.4% and
$66.2 million or 9.6% during the three and six months ended June 30, 2011, respectively, from the
comparable periods of 2010.
Net sales in our Science Education segment for the three and six months ended June 30, 2011,
decreased $3.0 million or 10.5% and $5.2 million or 9.8%, respectively, from the comparable periods
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 in
the United States.
Gross Profit
The following table presents gross profit and gross profit as a percentage of net sales for
the three and six months ended June 30, 2011 and 2010 (in millions):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Gross profit |
$ | 293.7 | $ | 251.2 | $ | 578.5 | $ | 507.9 | ||||||||
Percentage of net sales (gross margin) |
28.2 | % | 28.5 | % | 28.5 | % | 28.9 | % |
Gross profit for the three and six months ended June 30, 2011, increased $42.5 million or
16.9% and $70.6 million or 13.9%, respectively, from the comparable periods of 2010. Changes in
foreign currency exchange rates and the contribution from the Acquisitions caused gross profit to
increase by approximately $29.4 million and $39.7 million during the three and six months ended
June 30, 2011, respectively. Accordingly, gross profit from comparable operations increased
approximately $13.1 million or 5.2% and $30.9 million or 6.1% for the three and six months ended
June 30, 2011, respectively, from the comparable periods of 2010.
Consolidated gross margin decreased approximately 30 basis points to 28.2% and decreased
approximately 40 basis points to 28.5% during the three and six months ended June 30, 2011,
respectively, from the comparable periods of 2010. The decrease in gross margin was driven by
the product mix associated with our net sales growth in our North American Lab and European
Lab segments.
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Table of Contents
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 and six months ended June 30, 2011 and 2010 (in millions):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Selling, general and administrative expenses |
$ | 229.8 | $ | 202.8 | $ | 449.9 | $ | 405.4 | ||||||||
Percentage of net sales |
22.1 | % | 23.0 | % | 22.1 | % | 23.1 | % |
SG&A expenses for the three and six months ended June 30, 2011, increased $27.0 million or
13.3% and $44.5 million or 11.0%, respectively, from the comparable periods of 2010. Changes in
foreign currency exchange rates and the contribution from the Acquisitions caused SG&A expenses to
increase by approximately $26.2 million and $35.6 million during the three and six months ended
June 30, 2011. Accordingly, SG&A expenses from comparable operations increased approximately $0.8
million or 0.4% and $8.9 million or 2.2% for the three and six months ended June 30, 2011,
respectively, from the comparable periods of 2010. SG&A expenses in the second quarter of 2010
included a $3.0 million charge for cost reduction initiatives in our North American Lab business.
SG&A expenses without the cost reduction initiatives were up 1.9% and 3.0% for the three and six
month periods in 2011, respectively, which is primarily attributable to increases in wage rates and
related personnel costs as well as incremental costs to support higher sales volume.
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 and six months ended June 30, 2011 and
2010 (in millions):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
% of Net | % of Net | % of Net | % of Net | |||||||||||||||||||||||||||||
2011 | Sales | 2010 | Sales | 2011 | Sales | 2010 | Sales | |||||||||||||||||||||||||
North American Lab |
$ | 37.7 | 6.3 | % | $ | 29.6 | 5.6 | % | $ | 73.4 | 6.3 | % | $ | 59.0 | 5.8 | % | ||||||||||||||||
European Lab |
29.6 | 7.1 | % | 20.0 | 6.1 | % | 63.0 | 7.7 | % | 47.1 | 6.9 | % | ||||||||||||||||||||
Science Education |
(3.4 | ) | (13.2 | )% | (1.2 | ) | (4.2 | )% | (7.8 | ) | (16.2 | )% | (3.6 | ) | (6.8 | )% | ||||||||||||||||
Total |
$ | 63.9 | 6.1 | % | $ | 48.4 | 5.5 | % | $ | 128.6 | 6.3 | % | $ | 102.5 | 5.8 | % | ||||||||||||||||
Operating income for the three and six months ended June 30, 2011, increased $15.5 million or
32.0% and $26.1 million or 25.5%, respectively, from the comparable periods of 2010. Changes in
foreign currency exchange rates and the contribution from the Acquisitions caused operating income
to increase approximately $3.2 million and $4.1 million during the three and six months ended June
30, 2011. Accordingly, operating income related to comparable operations increased approximately
$12.3 million or 25.4% and $22.0 million or 21.5% for the three and six months ended June 30, 2011,
from the comparable periods of 2010.
Operating income in our North American Lab segment for the three and six months ended June 30,
2011, increased $8.1 million or 27.4% and $14.4 million or 24.4%, respectively, from the comparable
periods of 2010. Changes in foreign currency exchange rates and the contribution from the
acquisitions of BioExpress, AMRESCO and ANZ Lab caused operating income to increase approximately
$1.6 million and $1.8 million during the three and six months ended June 30, 2011, respectively.
Accordingly, operating income related to comparable operations increased approximately $6.5 million
or 22.0% and $12.6 million or 21.4% for the three and six months ended June 30, 2011, respectively,
from the comparable periods of 2010. The increase in operating income for the three months ended
June 30, 2011 is the result of increased gross profit of $5.2 million and a $1.3 million decrease
in SG&A expenses. The increase in operating income for the six months ended June 30, 2011 is the
result of increased gross profit of $15.6 million offset by a $3.0 million increase in SG&A
expenses.
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Operating income in our European Lab segment for the three and six months ended June 30, 2011,
increased $9.6 million or 48.0% and $15.9 million or 33.8%, respectively, from the comparable
periods of 2010. Changes in foreign currency exchange rates, net of the contribution from the
acquisitions of Trenka, Alfalab and Labart caused operating income to increase approximately $1.6
million and $2.3 million during the three and six months ended June 30, 2011, respectively.
Accordingly, operating income related to comparable operations increased approximately $8.0 million
or 40.0% and $13.6 million or 28.9%, during the three and six months ended June 30, 2011,
respectively, from the comparable periods of 2010. The increase in operating income for the three
and six months ended June 30, 2011, is the result of increased gross profit of $9.0 million and
$17.5 million, respectively, partially offset by increases in SG&A expenses of $1.0 million and
$3.9 million, respectively.
Operating losses in our Science Education segment for the three and six months ended June 30,
2011, increased $2.2 million and $4.2 million, respectively, from the comparable periods of 2010.
The increase in operating losses for the three and six months ended June 30, 2011 is the result of
decreased gross profit of $1.1 million and $2.2 million, respectively, and additional SG&A expenses
of $1.1 million and $2.0 million, respectively.
Interest Expense, Net of Interest Income
Interest expense, net of interest income, increased $2.6 million for the three months ended
June 30, 2011, and decreased $3.6 million for the six months ended June 30, 2011, from the
comparable periods of 2010. The increase in net interest expense for the the three months ended
June 30, 2011 was driven by higher interest on our variable rate Euro-denominated debt and the
strengthening of the Euro against the U.S. Dollar, as well as incremental borrowings on our credit facility. The decrease in net interest expense for the
six months ended June 30, 2011, is primarily attributable to changes in the fair value of our
interest rate swaps, partially offset by the increase in interest expense on our Euro-denominated
debt and our credit facility. We recognized $11.0 of net unrealized gains on interest rate swaps during the six months
ended June 30, 2011, compared with $5.1 million during the comparable period of 2010. The
variability in the fair value of our interest rate swaps is primarily attributable to changes in
forecasted market rates of interest. 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 comprised of exchange gains and losses from foreign currency
transactions and/or translation. Our net exchange losses of $14.3 million and $63.0 million for the
three and six months ended June 30, 2011, respectively, are principally related to our recognition
of net unrealized losses associated with the strengthening of the Euro against the U.S. dollar. Our
net exchange gains of $70.5 million and $128.8 million for the three and six months ended June 30,
2010, respectively, are substantially related to our recognition of net unrealized gains associated
with the weakening of the Euro against the U.S. dollar. Due to the significant amount of
foreign-denominated debt recorded on our U.S. dollar-denominated balance sheet, other income
(expense), net may continue to experience significant fluctuations.
Income Taxes
During the three and six months ended June 30, 2011, we recognized income tax provisions of
$6.3 million and $1.4 million, respectively, on pre-tax losses of $2.3 million and $33.8 million,
respectively. The tax provisions recognized during the three and six months ended June 30, 2011 are
comprised of provisions for operating profits of our foreign operations, offset by benefits from
domestic operating losses, including the recognition of interest expenses and the net exchange
losses.
During the the three and six months ended June 30, 2010, we recognized income tax provisions
of $28.7 million and $49.0 million, respectively, on pre-tax income of $69.6 million and $128.3
million, respectively. The tax provisions recognized during the three and six months ended June 30,
2010 are comprised of provisions for net exchange gains and operating profits of our foreign
operations, partially offset by benefits from domestic operating losses, including the recognition
of interest expense.
Our tax benefits or provisions and our effective tax rates 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.
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Table of Contents
Liquidity and Capital Resources
As of June 30, 2011, we had $154.6 million of cash and cash equivalents on hand and our
compensating cash balance totaled $135.7 million. As of June 30, 2011, we had $2,947.2 million of
outstanding indebtedness, including $1,537.3 million of indebtedness under our Senior Secured
Credit Facility, $713.0 million of Senior Notes, $542.1 million of Senior Subordinated Notes and
$135.7 million of compensating cash indebtedness.
We had unused availability of $152.9 million under our multi-currency revolving loan facility
(which is a component of our Senior Secured Credit Facility) as of June 30, 2011. Borrowings under
the multi-currency revolving loan facility are a key source of our liquidity. The average
borrowings outstanding under our multi-currency revolving loan facility during the three and six
months ended June 30, 2011, were approximately $77.5 million and $80.8 million, respectively.
Periodically, 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 certain assets of the
Company and restricted subsidiaries, and materially change our lines of business. As of June 30,
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 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 its 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 regarding redemption at this time.
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 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.
30
Table of Contents
Historical Cash Flows
Operating Activities
The following table presents cash flow from operations before investing and financing
activities related to operations and working capital (dollars in millions):
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Cash flow from operations, excluding working capital |
$ | 73.3 | $ | 52.4 | ||||
Cash flow from working capital changes, net |
(37.8 | ) | 9.0 | |||||
Cash flow from operations |
$ | 35.5 | $ | 61.4 | ||||
Cash flow provided by operations was $35.5 million and $61.4 million during the six months
ended June 30, 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 $103.3 million and $64.6 million during the six months ended June 30, 2011
and 2010, respectively. Cash interest was significantly lower in the 2010 period as a result of our
PIK interest 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, which resulted in a higher
trade accounts receivable balance as of June 30, 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 that took effect in the
2010 period. Cash flow associated with accrued expenses decreased during the 2011 period when
compared to the 2010 period because of our PIK interest election in 2010 as described above.
Investing Activities
Net cash used in investing activities was $105.1 million and $13.9 million during the six
months ended June 30, 2011 and 2010, respectively. This increase was primarily attributable to the
funding of recent acquisitions discussed above and slightly higher capital expenditures during the
2011 period. We expect capital expenditures for the year ending December 31, 2011 to be
approximately $50 million.
Financing Activities
Net cash provided by (used in) financing activities was $72.6 million and $(21.3) million
during the six months ended June 30, 2011 and 2010, respectively. Cash provided by financing
activities in the 2011 period was primarily attributable to $62.1 million of net cash proceeds from
our revolving credit facility to partially finance the acquisitions discussed above, as well as an
increase in bank overdrafts. Cash used in the 2010 period was primarily attributable to $20.9
million of net repayments of debt, primarily relating to an excess cash flow payment we made in
March 2010 under our Senior Secured Credit Facility.
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 six months
ended June 30, 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. 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.
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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
June 30, 2011.
Item 4. | Controls and Procedures |
The Companys management, with the participation of the Companys Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the Companys disclosure controls and
procedures as of June 30, 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 controls and procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving their objectives and management necessarily
applies its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. Based on the evaluation of the Companys disclosure controls and procedures as of June
30, 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 June
30, 2011, that have materially affected or are reasonably likely to materially affect the Companys
internal control over financial reporting.
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Table of Contents
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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Table of Contents
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: August 5, 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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Table of Contents
EXHIBIT INDEX
Exhibit | ||||||
Number | Description of Documents | Method of Filing | ||||
31.1 | Certification of Principal Executive
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
Filed herewith. | ||||
31.2 | Certification of Principal Financial
Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
Filed herewith. | ||||
32.1 | Certification of Principal Executive
Officer pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of
2002).
|
Furnished herewith. | ||||
32.2 | Certification of Principal Financial
Officer pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of
2002).
|
Furnished herewith. |
36