**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-Q**

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| (Mark One)                                                                                                                                           |                                                                                                    |
|------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
| **S**                                                                                                                                                | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| **For the quarterly period ended June 30,  2006**                                                                                               |
| **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 filenumber:  333-124100**

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**CDRV INVESTORS, INC.**

(Exact name of registrantas specified in its charter)
| **Delaware**                              | **56-2445503**       |
|-------------------------------------------|----------------------|
| (State or other  jurisdiction of          | (I.R.S. Employer     |
| incorporation or  organization)           | Identification  No.) |
| **1310 Goshen Parkway**                   |                 |
| **P.O. Box  2656**                   |                 |
| **West  Chester, PA**                     | **19380**            |
| (Address of  principal executive offices) | (Zip code)           |

 

**(610)431-1700**(Registrant’s telephonenumber, including area code)

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes oNo x

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):
| Large  accelerated filer o | Accelerated filer o | Non-accelerated filer x |
|---------------------------------|---------------------|-------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).  Yes oNo x

Asof June 30, 2006, there was no established public market for theregistrant’s common stock, par value $0.01 per share. The number of shares ofthe registrant’s common stock outstanding at August 11, 2006 was5,795,156.

 

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**CDRV INVESTORS,INC.FORM 10-QFOR THE QUARTER ENDED JUNE 30, 2006**

**INDEX**

**PART I. FINANCIAL INFORMATION:**

|                                       | ** ** | ** **                                                                                                                                        | ** ** | **Page No.** |
|---------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|
| Item  1.                              |       | Financial  Statements:                                                                                                                            |       |              |
|                                  |       | Consolidated Balance Sheets—as of June 30, 2006  (Unaudited) and December 31, 2005                                                 |       | 3                 |
|                                  |       | Consolidated Statements of Operations (Unaudited)—the  three and six months ended June 30, 2006 and 2005                                |       | 4                 |
|                                  |       | Consolidated Statement of Stockholders’ Equity and  Other Comprehensive Income (Unaudited)—for the six months ended June 30,  2006 |       | 5                 |
|                                  |       | Consolidated Statements of Cash Flows (Unaudited)—for  the six months ended June 30, 2006 and 2005                                      |       | 6                 |
|                                  |       | Notes to Consolidated Financial Statements (Unaudited)                                                                                            |       | 7                 |
| Item 2.                               |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                                                       |       | 21                |
| Item 3.                               |       | Quantitative and Qualitative Disclosures about Market  Risk                                                                                       |       | 31                |
| Item  4.                              |       | Controls  and Procedures                                                                                                                          |       | 31                |
| **PART II.  OTHER INFORMATION:** |       |                                                                                                                                              |
| Item  1.                              |       | Legal Proceedings                                                                                                                                 |       | 32                |
| Item  1A.                             |       | Risk Factors                                                                                                                                      |       | 32                |
| Item 2.                               |       | Unregistered Sales of Equity Securities and Use of  Proceeds                                                                                      |       | 32                |
| Item 4.                               |       | Submission of Matters to a Vote of Security Holders                                                                                               |       | 32                |
| Item 6.                               |       | Exhibits                                                                                                                                          |       | 32                |
| Signature                             |       | 33                                                                                                                                                |

 

2

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**PART I -FINANCIAL INFORMATION**

**Item 1 - *Financial Statements***

**CDRVINVESTORS, INC.Consolidated Balance Sheets(Dollars in millions, except share data)**

| ** **                                                                         | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                         | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                         | ** ** | **(Unaudited)**   | ** ** | ** **            | ** ** |
| Current Assets:                                                                    |       |              |       |                  |       |   |   |   |   |
| Cash and cash equivalents                                                          |       |              | $          | 143.2                 |       |   |   | $ | 126.1 |   |   |
| Trade accounts receivable, less reserves of $8.7 and  $6.6, respectively           |       |              | 448.2      |                  |       |   | 407.3 |   |   |
| Other receivables                                                                  |       |              | 24.9       |                  |       |   | 31.0 |   |   |
| Inventories                                                                        |       |              | 258.5      |                  |       |   | 270.4 |   |   |
| Other current assets                                                               |       |              | 32.6       |                  |       |   | 30.6 |   |   |
| Total current assets                                                               |       |              | 907.4      |                  |       |   | 865.4 |   |   |
| Property and  equipment, net                                                       |       |              | 159.0      |                  |       |   | 156.8 |   |   |
| Investments                                                                        |       |              | 8.1        |                  |       |   | 7.8 |   |   |
| Goodwill                                                                           |       |              | 932.6      |                  |       |   | 910.0 |   |   |
| Other intangible  assets, net                                                      |       |              | 557.8      |                  |       |   | 552.7 |   |   |
| Deferred income  taxes                                                             |       |              | 13.8       |                  |       |   | 8.7 |   |   |
| Other assets                                                                       |       |              | 45.2       |                  |       |   | 45.9 |   |   |
| Total assets                                                                       |       |              | $          | 2,623.9               |       |   |   | $ | 2,547.3 |   |   |
| **Liabilities  and Stockholders’ Equity**                                     | ** ** |              |       |                  |       |   |   |   |   |
| Current Liabilities:                                                               |       |              |       |                  |       |   |   |   |   |
| Short-term portion of bank debt and current portion  of capital lease obligations  |       |              | $          | 6.4                   |       |   |   | $ | 45.5 |   |   |
| Accounts payable                                                                   |       |              | 375.6      |                  |       |   | 370.3 |   |   |
| Accrued expenses                                                                   |       |              | 169.3      |                  |       |   | 139.1 |   |   |
| Total current liabilities                                                          |       |              | 551.3      |                  |       |   | 554.9 |   |   |
| Long-term debt                                                                     |       |              | 1,365.2    |                  |       |   | 1,342.9 |   |   |
| Capital lease  obligations                                                         |       |              | 4.9        |                  |       |   | 5.0 |   |   |
| Other long-term  liabilities                                                       |       |              | 90.6       |                  |       |   | 87.1 |   |   |
| Deferred income  taxes                                                             |       |              | 232.6      |                  |       |   | 233.5 |   |   |
| Total liabilities                                                                  |       |              | 2,244.6    |                  |       |   | 2,223.4 |   |   |
| Common stock  purchase subject to guarantee agreement                              |       |              | 2.6        |                  |       |   | 2.6 |   |   |
| Commitments and  contingences                                                      |       |              |       |                  |       |   |   |   |   |
| Stockholders’ equity:                                                         |       |              |       |                  |       |   |   |   |   |
| Common stock,  $0.01 par value; 7,000,000 shares authorized; 5,846,636 shares      |       |              |       |                  |       |   |   |   |   |
| issued and  5,793,106 outstanding at June 30, 2006; 5,779,178 shares issued   |       |              |       |                  |       |   |   |   |   |
| and 5,753,428 outstanding at December 31, 2005                                |       |              | 0.1        |                  |       |   | 0.1 |   |   |
| Additional paid-in capital                                                         |       |              | 273.0      |                  |       |   | 268.0 |   |   |
| Retained earnings                                                                  |       |              | 68.0       |                  |       |   | 43.6 |   |   |
| Unamortized value of restricted stock issued                                       |       |              | —     |                  |       |   | (1.6 | ) |   |
| Accumulated other comprehensive income                                             |       |              | 39.2       |                  |       |   | 12.7 |   |   |
| Treasury stock, at  cost, 53,530 shares at June 30, 2006 and 25,750 shares at |       |              |       |                  |       |   |   |   |   |
| December 31, 2005                                                             |       |              | (3.6       | )                     |       |   | (1.5 | ) |   |
| Total stockholders’ equity                                                    |       |              | 376.7      |                  |       |   | 321.3 |   |   |
| Total liabilities  and stockholders’ equity                                   |       |              | $          | 2,623.9               |       |   |   | $ | 2,547.3 |   |   |

 

See accompanying notes to consolidated financial statements.

3

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**CDRVINVESTORS, INC.Consolidated Statements of Operations(Dollars in millions)(Unaudited)**

| ** **                                    | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                    | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net sales                                     |       | $                                | 815.0      |                           | $          | 794.8 |   | $ | 1,610.8 |   | $ | 1,548.9 |   |
| Cost of goods  sold                           |       | 595.9                            |       | 594.0                          |       | 1,177.3 |   | 1,155.4 |   |
| Gross profit                                  |       | 219.1                            |       | 200.8                          |       | 433.5 |   | 393.5 |   |
| Selling, general  and administrative expenses |       | 174.4                            |       | 162.9                          |       | 342.9 |   | 328.5 |   |
| Restructuring  (credits) charges              |       | (0.8                             | )          | 5.1                            |       | (1.0 | ) | 7.2 |   |
| Operating income                              |       | 45.5                             |       | 32.8                           |       | 91.6 |   | 57.8 |   |
| Interest income                               |       | (1.5                             | )          | (0.4                           | )          | (2.8 | ) | (1.0 | ) |
| Interest expense                              |       | 28.2                             |       | 26.0                           |       | 56.9 |   | 51.7 |   |
| Other (income)  expense, net                  |       | (0.4                             | )          | (0.8                           | )          | 0.4 |   | (1.8 | ) |
| Income before income taxes                    |       | 19.2                             |       | 8.0                            |       | 37.1 |   | 8.9 |   |
| Income tax  provision                         |       | 5.8                              |       | 3.2                            |       | 12.7 |   | 3.6 |   |
| Net income                                    |       | $                                | 13.4       |                           | $          | 4.8 |   | $ | 24.4 |   | $ | 5.3 |   |

 

See accompanying notes to consolidated financial statements.

4

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**CDRVINVESTORS, INC.Consolidated Statement of Stockholders’ Equity and Other Comprehensive IncomeSix Months Ended June 30, 2006(Dollars in millions)(Unaudited)**

| ** **                                                                   | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | ** **     | ** ** | **Unamortized**       | ** ** | **Accumulated**  | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|----------------|------------|-----------------------|------------|------------------|------------|--------------------------|------------|------------|------------|------------|------------|
| ** **                                                                   | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **     | ** ** | **value of**     | ** ** | **other**        | ** ** | **Treasury Stock,** | ** ** | ** ** | ** ** |
| ** **                                                                   | ** ** | **Common Stock** | ** ** | **paid-in** | ** ** | **Retained**   | ** ** | **restricted** | ** ** | **comprehensive**     | ** ** | **at cost** | ** ** | ** **               | ** ** |
| ** **                                                                   | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **capital**    | ** ** | **earnings**   | ** ** | **stock issued** | ** ** | **income**       | ** ** | **Shares**               | ** ** | **Amount** | ** ** | **Total**  | ** ** |
| Balance at December 31, 2005                                            |       | 5,779,178             |       |        | $          | 0.1            |       |           |       | $                     | 268.0      |             |       |                     | $          | 43.6       |       |       |       | $ | (1.6 | ) |   |   | $ | 12.7 |   |   | 25,750 |   |   | $ | (1.5 | ) |   | $ | 321.3 |   |
| Equity reclassification   (Note 4(b))                                        |       | —                |       |        | —     |           |       |           | (1.6       | )                     |       |             | —     |                     |       |       | 1.6        |       |       |   | — |   |   | — |   |   | — |   |   | — |   |
| Issuance of common stock inconnection with our stock  incentive plan         |       | 46,498                |       |        | —     |           |       |           | 3.1        |                  |       |             | —     |                     |       |       | —     |       |       |   | — |   |   | — |   |   | — |   |   | 3.1 |   |
| Exercise of stock options                                                    |       | 20,960                |       |        | —     |           |       |           | 1.1        |                  |       |             | —     |                     |       |       | —     |       |       |   | — |   |   | — |   |   | — |   |   | 1.1 |   |
| Compensation expense recognized for options                                  |       | —                |       |        | —     |           |       |           | 2.2        |                  |       |             | —     |                     |       |       | —     |       |       |   | — |   |   | — |   |   | — |   |   | 2.2 |   |
| Compensation expense recognized for amortization of  restricted common stock |       | —                |       |        | —     |           |       |           | 0.2        |                  |       |             | —     |                     |       |       | —     |       |       |   | — |   |   | — |   |   | — |   |   | 0.2 |   |
| Acquisition of treasury stock                                                |       | —                |       |        | —     |           |       |           | —     |                  |       |             | —     |                     |       |       | —     |       |       |   | — |   |   | 27,780 |   |   | (2.1 | ) |   | (2.1 | ) |
| Comprehensive  income                                                        |       |                  |       |        |       |           |       |           |       |                  |       |             |       |                     |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                   |       | —                |       |        | —     |           |       |           | —     |                  |       |             | 24.4       |                     |       |       | —     |       |       |   | — |   |   | — |   |   | — |   |   | 24.4 |   |
| Foreign currency translation adjustment                                      |       | —                |       |        | —     |           |       |           | —     |                  |       |             | —     |                     |       |       | —     |       |       |   | 27.0 |   |   | — |   |   | — |   |   | 27.0 |   |
| Unrealized loss on derivatives, net of tax                                   |       | —                |       |        | —     |           |       |           | —     |                  |       |             | —     |                     |       |       | —     |       |       |   | (0.5 | ) |   | — |   |   | — |   |   | (0.5 | ) |
| Total comprehensive income                                                   |       |                  |       |        |       |           |       |           |       |                  |       |             |       |                     |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   | 50.9 |   |
| Balance at  June 30, 2006                                               |       | 5,846,636             |       |        | $          | 0.1            |       |           |       | $                     | 273.0      |             |       |                     | $          | 68.0       |       |       |       | — |   |   |   | $ | 39.2 |   |   | 53,530 |   |   | $ | (3.6 | ) |   | $ | 376.7 |   |

 

See accompanying notes to consolidated financial statements.

5

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**CDRVINVESTORS, INC.Consolidated Statements of Cash Flows(Dollars in millions)(Unaudited)**

| ** **                                                                         | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                         | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Cash flows from operating  activities:                                             |       |                                          |       |   |   |
| Net income                                                                         |       | $                                             | 24.4       |   | $ | 5.3 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |                                          |       |   |   |
| Depreciation and amortization                                                      |       | 16.2                                          |       | 16.9 |   |
| Gain on sale of assets                                                             |       | (0.7                                          | )          | (0.1 | ) |
| Non-cash interest accretion                                                        |       | 15.9                                          |       | 14.5 |   |
| Non-cash equity compensation expense                                               |       | 2.4                                           |       | — |   |
| Amortization of debt issuance costs                                                |       | 2.8                                           |       | 2.8 |   |
| Deferred income tax (benefit) expense                                              |       | (1.3                                          | )          | 4.9 |   |
| Provision for doubtful accounts                                                    |       | 3.1                                           |       | 1.7 |   |
| Changes  in working capital:                                                       |       |                                          |       |   |   |
| Trade accounts receivable                                                          |       | (27.4                                         | )          | (24.0 | ) |
| Other receivables                                                                  |       | 8.5                                           |       | 4.3 |   |
| Inventories                                                                        |       | 18.9                                          |       | (9.0 | ) |
| Other assets                                                                       |       | (3.8                                          | )          | (10.7 | ) |
| Accounts payable                                                                   |       | 11.8                                          |       | 59.1 |   |
| Other liabilities                                                                  |       | 11.2                                          |       | (23.7 | ) |
| Net cash provided by operating activities                                          |       | 82.0                                          |       | 42.0 |   |
| Cash flows from investing  activities:                                             |       |                                          |       |   |   |
| Capital expenditures                                                               |       | (10.0                                         | )          | (8.5 | ) |
| Acquisitions of businesses and other intangible  assets                            |       | (0.6                                          | )          | (41.4 | ) |
| Transaction costs                                                                  |       | (0.2                                          | )          | (1.0 | ) |
| Proceeds from sales of property and equipment                                      |       | 5.1                                           |       | 0.3 |   |
| Net cash used in investing activities                                              |       | (5.7                                          | )          | (50.6 | ) |
| Cash flows from financing  activities:                                             |       |                                          |       |   |   |
| Proceeds from debt                                                                 |       | 0.2                                           |       | 2.4 |   |
| Repayment of debt                                                                  |       | (45.5                                         | )          | (7.8 | ) |
| Net change in bank checks outstanding                                              |       | (18.0                                         | )          | (24.9 | ) |
| Proceeds from stock incentive plan                                                 |       | 4.0                                           |       | 1.2 |   |
| Cash paid for debt issuance costs                                                  |       | —                                        |       | (0.5 | ) |
| Acquisition of treasury stock                                                      |       | (2.1                                          | )          | (0.7 | ) |
| Net cash used in financing activities                                              |       | (61.4                                         | )          | (30.3 | ) |
| Effect of exchange rate changes on cash                                            |       | 2.2                                           |       | (3.7 | ) |
| Net increase (decrease) in cash and cash equivalents                               |       | 17.1                                          |       | (42.6 | ) |
| Cash and cash equivalents beginning of period                                      |       | 126.1                                         |       | 116.9 |   |
| Cash and cash equivalents end of period                                            |       | $                                             | 143.2      |   | $ | 74.3 |   |
| Supplemental disclosures  of cash flow information:                                |       |                                          |       |   |   |
| Cash  paid during the period for:                                                  |       |                                          |       |   |   |
| Interest                                                                           |       | $                                             | 38.4       |   | $ | 33.9 |   |
| Income taxes paid,  net                                                            |       | $                                             | 3.0        |   | $ | 9.0 |   |

 

See accompanying notes to consolidated financial statements.

6

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**CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Dollars in millions, except share data) (Unaudited)CDRV INVESTORS, INC.**

**(1) Nature ofOperations, Background and Basis of Presentation**

***(a) Nature of Operations***

CDRV Investors, Inc.(“CDRV”, the “Company”, “we” or “our”), through its indirect wholly-ownedsubsidiary VWR International, Inc. (“VWR”), distributes scientificsupplies, chemicals, and equipment, primarily in North America and Europe. Thebusiness is diversified across products and services, customer groups, andgeography. We report financial results on the basis of the following threebusiness segments: North American laboratory distribution (“North American Lab”),European laboratory distribution (“European Lab”) and Science Education. Boththe North American Lab and European Lab segments distribute scientific suppliesto customers engaged in pharmaceuticals, biotechnology, chemicals, technology,and food processing; governmental agencies; colleges and universities; andenvironmental organizations. Science Education manufactures and distributesscientific supplies and specialized kits to primary and secondary schools aswell as distribution of scientific supplies to universities and researchinstitutes.

***(b) Background***

On April 7, 2004, Merck KGaA sold all of theoutstanding shares of capital stock of VWR’s predecessor, VWR InternationalCorporation, to CDRV Acquisition Corporation (“CDRVA”), a wholly-ownedsubsidiary of CDRV Holdings, Inc., a wholly-owned subsidiary of theCompany (the “Acquisition”). In connection with the Acquisition, CDRVA issued$200.0 of 67¤8%Unsecured Senior Notes due 2012 and $320.0 of 8% Unsecured Senior SubordinatedNotes due 2014 (the “VWR Notes”) and obtained financing under a new seniorsecured credit facility (the “Senior Secured Credit Facility”). Following thecompletion of the Acquisition, there were a series of internal reorganizations,pursuant to which, among other things, (i) VWR International Corporationmerged with and into VWR, with VWR surviving, and (ii) thereafter, CDRVAmerged with and into VWR, with VWR surviving and assuming the obligations ofCDRVA.

On December 16, 2004,we issued $481.0 of 95¤8%Senior Discount Notes due 2015 (“Senior Discount Notes”). Prior to thisissuance, we had not had any significant operating, investing or financingactivities other than being the holding company of CDRV Holdings, Inc.,which in turn, had not had any significant operating, investing or financingactivities other than being the holding company of VWR and the indirect holderof the approximately 6% equity ownership in VWR International Immobilien GmbHthat VWR did not hold. The net proceeds from the issuance of the SeniorDiscount Notes of approximately $297.9 were used to pay a cash dividend to theholders of our common stock.

***(c) Basis of Presentation***

The accompanying consolidated financial statementsinclude the accounts of CDRV and its subsidiaries after elimination of allintercompany balances and transactions. The financial statements includedherein have been prepared by the Company without audit, pursuant to the rules andregulations of the Securities and Exchange Commission. Certain information andfootnote disclosures normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America have been condensed or omitted pursuant to such rules andregulations. The December 31, 2005 balance sheet is the balance sheetincluded in the audited financial statements as 

7

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**CDRV INVESTORS, INC.CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Continued) (Dollars in millions, except share data) (Unaudited)**

**(1) Natureof Operations, Background and Basis of Presentation**(Continued)

shown in the Company’s2005 Annual Report on Form 10-K for the year ended December 31,2005. The Company believes that the disclosures included herein are adequate tomake the information presented not misleading when read in conjunction with thefinancial statements, footnotes and related disclosures included in the Company’sAnnual Report on Form 10-K for the year ended December 31,2005.

The financial information presented herein reflectsall adjustments (consisting only of normal-recurring adjustments) that are, inthe 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 resultsto be expected for the full year.

The preparation of financial statements in conformitywith accounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. While actual results coulddiffer from those estimates, management believes that the estimates arereasonable.

Certain amounts from priorperiods have been reclassified to conform to the current presentation.

**(2)** NewAccounting Standard

During July 2006, theFinancial Accounting Standards Board (“FASB”) issued Interpretation No. 48,*Accounting for Uncertainty in Income Taxes*(“FIN 48”). This Statement clarifies the accounting for uncertainty in incometaxes recognized in accordance with FASB Statement of Financial AccountingStandards (“SFAS”) No. 109, *Accountingfor Income Taxes.*FIN 48 provides guidance on the financialstatement recognition and measurement of a tax position taken or expected to betaken in a tax return; derecognition; classification; interest and penalties;accounting in interim periods; disclosures; and transition. FIN 48 is effectivefor fiscal years beginning after December 15, 2006. We are currentlyevaluating the impact this Interpretation will have on our consolidatedfinancial statements.

**(3) Acquisitions**

On April 1, 2005, we acquired AGB Scientific Ltd.(“AGB”) and Advanced Instruments Sales & Services, Inc. (“AI”)for cash consideration of approximately $40.6 and common stock of approximately$0.5. AGB distributes scientific supplies and is headquartered in Dublin,Ireland. AI performs services and distributes scientific supplies to the PuertoRican market and is headquartered in San Juan, Puerto Rico. On July 1,2005, we acquired Technical Service Lab B.V. (“TSL”) for cash consideration ofapproximately $3.1. TSL performs technical services on laboratory equipment inthe Netherlands, Germany, Belgium and France. The results of AGB and TSL havebeen included in the European Lab segment from the date of acquisition. Theresults of AI have been included in the North American Lab segment from thedate of acquisition.

8

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**CDRV INVESTORS, INC.CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Continued) (Dollars in millions, except share data) (Unaudited)**

**(3) Acquisitions**(Continued)

The excess investment madeby the Company over the estimates of the fair market value of the identifiableassets and liabilities for the three acquisitions discussed above and one otherminor acquisition was $23.3 and is summarized below.

| Purchase price,  including $0.5 of CDRV stock |   | $     | 45.0   |   |
|-----------------------------------------------|--------|-------|--------|--------|
| Transaction costs                             |   | 1.5   |   |
| Net tangible assets  acquired                 |   | (9.3  | )      |
| Intangible assets  acquired                   |   | (13.9 | )      |
| Goodwill                                      |   | $     | 23.3   |   |

 

Had these acquisitions occurred at the beginning of2005, the pro-forma consolidated statements of operations would not have beenmaterially different from the amounts reported.

Cash consideration forthese acquisitions was funded from cash and cash equivalents on hand.

**(4) Stock-BasedCompensation**

***(a) Stock Options***

We adopted the CDRV Investors, Inc. StockIncentive Plan (the “Stock Plan”). Under the Stock Plan, our board of directorsmay grant rights to purchase shares of our common stock and options to purchaseshares of our common stock to any of our executive officers or other employees,including our named executive officers. Under the Stock Plan, the board ofdirectors may also grant shares of common stock, rights to purchase shares ofcommon stock and other share-based awards to our directors, who are not alsoour employees or associated with Clayton, Dubilier & Rice (“CD&R”).Options granted under the plan vest in equal annual installments on each of thefirst five anniversaries of the grant date and expire ten years from the grantdate. As of June 30, 2006, there were 1,026,591 shares of common stockavailable for all types of awards. Based on shares issued, options outstandingand restricted units granted under the Stock Plan as of June 30, 2006,there are 134,145 shares available for future awards.

During the first quarter of 2006, we had the followingstock transactions with our employees, directors and former employees. Closedan offering with our new President and Chief Executive Officer for the purchaseof 19,643 shares at $56.00 per share. The offer to purchase the shares wasissued in the fourth quarter of 2005 and the fair value of the shares wassubsequently determined to be $75 per share. In accordance with the guidanceset forth in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees(“APB 25”), we recorded a compensation charge in the fourth quarter of 2005 of$0.7 applying the intrinsic value guidance set forth in APB 25. Coincident withthis purchase, this executive was granted options to purchase 58,929 shares at$75.00 per share. Issued 1,049 shares to certain directors who are not also ouremployees or associated with CD&R for director compensation and issued1,360 shares at $50.52 per share in connection with the exercise of vestedstock options.

During the second quarter of 2006, we had thefollowing stock transactions with our employees, directors and formeremployees. Offered 85 of our officers and employees the option to purchase40,166 shares at $75.00 per share. The fair value of this purchase option,calculated in accordance with the provisions of SFAS No. 123 Revised, Share-Based Payment (“SFAS 123R”), of$1.3 was charged to 

9

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**CDRV INVESTORS, INC.CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Continued) (Dollars in millions, except share data) (Unaudited)**

**(4) Stock-BasedCompensation**(Continued)

operations in the secondquarter of 2006. We closed the offering with 51 of our officers and employeesfor the purchase of 25,070 shares in the second quarter of 2006 and will grantthese officers and employees 50,140 options at grant date fair value during thethird quarter of 2006. As a result of the delay in the issuance of the options,these officers and employees will receive a special bonus totaling $2.2 in thethird quarter of 2006, which will be recorded as a compensation charge,primarily in the third quarter of 2006. Issued 736 shares to certain directorswho are not also our employees or associated with CD&R for director compensationand issued 19,600 shares at $50.52 per share in connection with the exercise ofvested stock options.

During the six months ended June 30, 2005, we hadthe following stock transactions with our employees and directors. Closedofferings in respect of 15 of our officers and employees for the purchase of21,210 shares at $56.00 per share and granted options to purchase 42,420shares at $56.00 per share. In connection with the acquisition of AI discussedin Note 3, issued 8,929 shares, as consideration (for value of $0.5), andgranted options to purchase 17,858 shares at $56.00 per share. Closed anoffering with 1 of our directors for 447 shares at $56.00 per share andissued 2,812 shares to certain directors who are not also our employees or associatedwith CD&R for director compensation.

Effective January 1, 2006, the Company adoptedSFAS 123R, which requires companies to recognize in the income statement, thegrant date value of stock options and other forms of equity-based compensationissued to employees. The Company previously accounted for stock options usingthe intrinsic value method of APB 25. Under APB 25, the Company did notrecognize compensation expense for options because such options had an exerciseprice equal to their fair market value on the date of grant.

The Company adopted SFAS 123R using the modifiedprospective transition method. Under this transition method, compensation costincludes the cost for all options granted prior to, but not yet vested as of January 1,2006 and all prospective awards without restatement of prior periods. Theimpact of adopting SFAS 123R, including the charge for the purchase option of$1.3 discussed above, for the three and six months ended June 30, 2006 wasan increase to selling, general and administrative expenses of $1.8 and $2.2,respectively, and a reduction to income tax provision of $0.7 and $0.9,respectively.

Hadcompensation expense for stock options granted been determined based on thefair value at the grant date for awards under the plan, consistent with theprovisions of SFAS 123R, the Company’s net income for the three and six monthsended June 30, 2005 would have approximated the pro-forma amountsindicated below:

| ** **                                                                                                     | ** ** | **Three Months** | ** ** | **Six Months** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|---------------------|------------|
| ** **                                                                                                     | ** ** | **Ended**             | ** ** | **Ended**           | ** ** |
| ** **                                                                                                     | ** ** | **June 30,**     | ** ** | **June 30,**   | ** ** |
| ** **                                                                                                     | ** ** | **2005**              | ** ** | **2005**            | ** ** |
| Net income, as reported                                                                                        |       |                  | $          | 4.8                 |       |   |   | $ | 5.3 |   |   |
| Deduct: stock-based  compensation expense determined using fair value based method for all awards,  net of tax |       |                  | (0.3       | )                   |       |   | (0.6 | ) |   |
| Pro-forma net income                                                                                           |       |                  | $          | 4.5                 |       |   |   | $ | 4.7 |   |   |

 

10

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**CDRV INVESTORS, INC.CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Continued) (Dollars in millions, except share data) (Unaudited)**

**(4) Stock-BasedCompensation**(Continued)

The fair value of eachoption was estimated using the Black-Scholes option-pricing model. No optionswere granted during the three months ended June 30, 2006. The weightedaverage fair value of options granted and the assumptions used for each of thereporting periods when options were granted are as follows:

| ** **                     | ** ** | **Three Months  Ended** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------|------------|------------------------------|------------|-----------------------------------------------|------------|
| ** **                     | ** ** | **June 30, 2005**  | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Fair value of options  granted |       |                         | $          | 25.57                                         |       |   | $ | 33.61 |   | $ | 25.57 |   |
| Risk-free interest rate        |       |                         | 4.10       | %                                             |       | 4.76 | % | 4.10 | % |
| Expected life of options       |       |                         | 6.5 years  |                                          |       | 6.5 years |   | 6.5 years |   |
| Volatility                     |       |                         | 38         | %                                             |       | 35 | % | 38 | % |
| Expected dividend yield        |       |                         | 0.0        | %                                             |       | 0.0 | % | 0.0 | % |
|                                |            |                              |            |                                               |            |  |  |  |  |  |  |  |

 

The risk-free interest rate is based on the U.S.treasury yield curve in effect at the time of grant, the expected life iscalculated using the “simplified” method allowable under SEC Staff AccountingBulletin No. 107, and volatility is estimated based on historical industrydata.

We recognize compensation expense for stock options,which are considered fixed awards with pro-rata vesting, on a straight-linebasis.

Informationregarding stock options under the Stock Plan for the six months ended June 30,2006 is as follows:

| ** **                           | ** ** | **Number  of  Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|--------------------------------------|------------|------------------------|------------|----------------------------------------|------------|
| Outstanding at  January 1, 2006 |       | 483,728                |       |                                   | $          | 51.24 |   |   |
| Granted                              |       | 58,929                 |       |                                   | 75.00      |   |   |
| Forfeited                            |       | (46,608                | )          |                                   | 50.52      |   |   |
| Canceled                             |       | (752                   | )          |                                   | 50.52      |   |   |
| Exercised                            |       | (20,960                | )          |                                   | 50.52      |   |   |
| Outstanding at  June 30, 2006   |       | 474,337                |       |                                   | 54.30      |   |   |
| Exercisable at June 30, 2006    |       | 86,142                 |       |                                   | 51.29      |   |   |

 

Cash received by as a result of stock optionsexercised was $1.1 for the six months ended June 30, 2006. In connectionwith these exercises, the tax benefit realized by the Company was $0.1 for thesix months ended June 30, 2006.

Total intrinsic value related to stock optionsexercised was $0.5 for the three and six months ended June 30, 2006. Nooptions were exercised during the three and six months ended June 30,2005.

11

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**CDRV INVESTORS, INC.CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Continued) (Dollars in millions, except share data) (Unaudited)**

**(4) Stock-BasedCompensation**(Continued)

Information regardingunvested stock options for the six months ended June 30, 2006 is asfollows:

| ** **                                | ** ** | **Number  of  Shares** | ** ** | **Weighted  Average  Fair  Value** | ** ** |
|-------------------------------------------|------------|------------------------|------------|------------------------------------|------------|
| Unvested options at  January 1, 2006 |       | 398,330                |       |                               | $          | 17.18 |   |   |
| Granted                                   |       | 58,929                 |       |                               | 33.61      |   |   |
| Forfeited                                 |       | (46,608                | )          |                               | 15.58      |   |   |
| Vested                                    |       | (22,456                | )          |                               | 20.94      |   |   |
| Unvested options at June 30, 2006    |       | 388,195                |       |                               | 19.65      |   |   |

 

Thefollowing is a summary of outstanding stock options as of June 30, 2006.

| ** **         | ** ** | **Weighted**          | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** **    | ** ** |
|--------------------|------------|-----------------------|------------|------------------------------|------------|------------------------------|------------|------------|------------|---------------|------------|
| ** **         | ** ** | **Average**           | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
| ** **         | ** ** | **Remaining**         | ** ** | **Number**                   | ** ** | **Aggregate**                | ** ** | **Number** | ** ** | **Aggregate** | ** ** |
| ** **         | ** ** | **Contractual**       | ** ** | **of**                       | ** ** | **Intrinsic**                | ** ** | **of**     | ** ** | **Intrinsic** | ** ** |
| **Exercise Price** | ** ** | **Life (Years)** | ** ** | **Shares**                   | ** ** | **Value**                    | ** ** | **Shares** | ** ** | **Value**     | ** ** |
| $50.52             |       |                  | 8.3        |                         |       | 351,630                      |       |       | $          | 24.1          |       |   |   | 74,086 |   |   |   | $ | 5.1 |   |   |
|   56.00  |       |                  | 8.8        |                         |       | 63,778                       |       |       | 4.0        |          |       |   | 12,056 |   |   |   | 0.8 |   |   |
|   75.00  |       |                  | 9.7        |                         |       | 58,929                       |       |       | 2.6        |          |       |   | — |   |   |   | — |   |   |
|               |       |                  |       |                         |       | 474,337                      |       |       | $          | 30.7          |       |   |   | 86,142 |   |   |   | $ | 5.9 |   |   |

 

***(b) Restricted Stock Units***

In 2005, we granted 21,333 restricted stock units witha total fair value of approximately $1.6 to certain of our officers and otherkey executives that will vest in equal annual installments over a five-yearperiod. The restricted units will all vest earlier in certain circumstances ifwe have a change in control. The granting of these units was reflected in the December 31,2005 financial statements by increasing additional paid-in capital by $1.6 anda contra-equity account of unamortized value of restricted stock issued of$1.6. In accordance with the provisions of SFAS 123R, the unamortized value ofrestricted stock issued of $1.6 as of the adoption date of January 1, 2006was eliminated against additional paid-in capital. The unearned compensation isbeing amortized as compensation expense over the five-year vesting periodof the restricted units granted. Compensation expense related to theserestricted stock units was $0.1 and $0.2 for the three and six months ended June 30,2006, respectively.

As of June 30, 2006, the aggregate estimatedfuture compensation expense related to nonvested options outstanding and theunamortized value of restricted stock issued is $7.8. This expense will berecognized over a weighted average period of 3.9 years.

It is our policy to issuenew shares upon share option exercise or restricted stock unit conversion.

12

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**CDRV INVESTORS, INC.CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Continued) (Dollars in millions, except share data) (Unaudited)**

**(5) Restructuring**

***(a)***    Restructuringas a Result of the Acquisition

Subsequent to theAcquisition, we initiated restructuring activities designed to reduce operatingcosts and improve the operating and administrative capabilities of the Company.These charges have been recorded as adjustments to acquisition costs (increasesto goodwill) pursuant to the provisions of Emerging Issues Task Force Issue No. 95-3,*Recognition of Liabilities in Connectionwith a Purchase Business Combination*.

The following table setsforth the activity associated with the Company’s liabilities for restructuringas a result of the Acquisition.

| ** **                       | ** ** | **Severance  and  termination  benefits** | ** ** | **Facilities  related** | ** ** | **Total** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|-------------------------|------------|-----------|------------|
| Balance at  January 1, 2006 |       |                                      | $          | 7.6                     |       |      |       | $ | 5.6 |   |   | $ | 13.2 |   |
| Cash payments/other              |       |                                      | (2.7       | )                       |       |      | (1.4       | ) |   | (4.1 | ) |
| Currency translation  changes    |       |                                      | 0.4        |                    |       |      | 0.4        |   |   | 0.8 |   |
| Balance at June 30, 2006    |       |                                      | $          | 5.3                     |       |      |       | $ | 4.6 |   |   | $ | 9.9 |   |

 

***(b) Other restructuring activities***

In addition, we initiated several cost reductionprograms in response to relatively static market conditions and implementedreductions in force and other cost containment measures during 2005. Inconnection with these actions, we recorded accruals and charges to operationsrelated to severance and facility exit costs of approximately $5.1 and $7.2 forthe three and six months ended June 30, 2005, respectively. For the threeand six months ended June 30, 2006 we reversed $0.8 and $1.0,respectively, of excess accruals and credited operations as a result of there-deployment of certain personnel originally included in the programs and netreductions to other estimated severance and termination benefit accruals.

The following table setsforth the activity associated with the Company’s liabilities for these costreduction programs.

| ** **                                                                  | ** ** | **Three Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                  | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| ** **                                                                  | ** ** | **Severance**                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **Severance** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                  | ** ** | **and**                                             | ** ** | ** ** | ** ** | ** ** | ** ** | **and** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                  | ** ** | **termination**                                     | ** ** | **Facilities** | ** ** | ** ** | ** ** | **termination** | ** ** | **Facilities** | ** ** | ** ** | ** ** |
| ** **                                                                  | ** ** | **benefits**                                        | ** ** | **related** | ** ** | **Total** | ** ** | **benefits** | ** ** | **related** | ** ** | **Total** | ** ** |
| Balance at beginning of  period                                             |       |                                                | $          | 4.2 |   |   |   | $ | 0.1 |   |   | $ | 4.3 |   |   | $ | 2.1 |   |   |   | $ | — |   |   | $ | 2.1 |   |
| Accruals (credited)  charged to earnings by segment North American Lab |       |                                                | (0.8       | ) |   |   | — |   |   | (0.8 | ) |   | 1.8 |   |   |   | — |   |   | 1.8 |   |
| European Lab                                                                |       |                                                | —     |   |   |   | — |   |   | — |   |   | 1.8 |   |   |   | 1.5 |   |   | 3.3 |   |
| Cash payments/other                                                         |       |                                                | (1.2       | ) |   |   | — |   |   | (1.2 | ) |   | (2.1 | ) |   |   | — |   |   | (2.1 | ) |
| Currency translation  changes                                               |       |                                                | 0.1        |   |   |   | — |   |   | 0.1 |   |   | — |   |   |   | — |   |   | — |   |
| Balance at end of period                                                    |       |                                                | $          | 2.3 |   |   |   | $ | 0.1 |   |   | $ | 2.4 |   |   | $ | 3.6 |   |   |   | $ | 1.5 |   |   | $ | 5.1 |   |

 

13

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**CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Continued) (Dollars in millions, except share data) (Unaudited)**

**(5) Restructuring**(Continued)

| ** **                                                                  | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                  | ** ** | **2006**                                          | ** ** | **2005** | ** ** |
| ** **                                                                  | ** ** | **Severance**                                     | ** ** | ** ** | ** ** | ** ** | ** ** | **Severance** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                  | ** ** | **and**                                           | ** ** | ** ** | ** ** | ** ** | ** ** | **and** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                  | ** ** | **termination**                                   | ** ** | **Facilities** | ** ** | ** ** | ** ** | **termination** | ** ** | **Facilities** | ** ** | ** ** | ** ** |
| ** **                                                                  | ** ** | **benefits**                                      | ** ** | **related** | ** ** | **Total** | ** ** | **benefits** | ** ** | **related** | ** ** | **Total** | ** ** |
| Balance at beginning  of period                                             |       |                                              | $          | 9.8 |   |   |   | $ | 0.3 |   |   | $ | 10.1 |   |   | $ | — |   |   |   | $ | — |   |   | $ | — |   |
| Accruals (credited) charged to earnings by segment North American  Lab |       |                                              | (1.0       | ) |   |   | — |   |   | (1.0 | ) |   | 3.9 |   |   |   | — |   |   | 3.9 |   |
| European Lab                                                                |       |                                              | —     |   |   |   | — |   |   | — |   |   | 1.8 |   |   |   | 1.5 |   |   | 3.3 |   |
| Cash payments/other                                                         |       |                                              | (6.6       | ) |   |   | (0.2 | ) |   | (6.8 | ) |   | (2.1 | ) |   |   | — |   |   | (2.1 | ) |
| Currency translation changes                                                |       |                                              | 0.1        |   |   |   | — |   |   | 0.1 |   |   | — |   |   |   | — |   |   | — |   |
| Balance at end of period                                                    |       |                                              | $          | 2.3 |   |   |   | $ | 0.1 |   |   | $ | 2.4 |   |   | $ | 3.6 |   |   |   | $ | 1.5 |   |   | $ | 5.1 |   |

 

At June 30, 2006,$6.0 of our aggregate restructuring liabilities are included in accruedexpenses and $6.3 are included in other long-term liabilities. At December 31,2005, $16.6 of our aggregate restructuring liabilities are included in accruedexpenses and $6.7 are included in other long-term liabilities.

**(6) Goodwill andOther Intangible Assets**

***(a)*** Goodwill

Goodwill represents the excess of costs over fairvalue of assets of businesses acquired. Goodwill included in the financialstatements primarily represents the excess of acquisition cost over the fairvalue of net assets acquired in connection with the Acquisition.

Changesin the carrying amount of goodwill by segment for the six months ended June 30,2006 are as follows:

| ** **                                              | ** ** | **North**             | ** ** | **European** | ** ** | **Science**   | ** ** | ** ** | ** ** |
|---------------------------------------------------------|------------|-----------------------|------------|--------------|------------|---------------|------------|------------|------------|
| ** **                                              | ** ** | **American Lab** | ** ** | **Lab**      | ** ** | **Education** | ** ** | **Total**  | ** ** |
| Balance at January 1,  2006                        |       |                  | $          | 647.3        |       |          |       | $          | 195.0      |   |   |   | $ | 67.7 |   |   | $ | 910.0 |   |
| Purchase accounting adjustment for the TSL  acquisition |       |                  | —     |         |       |          | (1.0       | )          |       |   | — |   |   | (1.0 | ) |
| Currency translation changes                            |       |                  | 7.5        |         |       |          | 16.1       |       |       |   | — |   |   | 23.6 |   |
| Balance at June 30,  2006                          |       |                  | $          | 654.8        |       |          |       | $          | 210.1      |   |   |   | $ | 67.7 |   |   | $ | 932.6 |   |

 

14

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**CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Continued) (Dollars in millions, except share data) (Unaudited)**

**(6) Goodwilland Other Intangible Assets**(Continued)

***(b) Other Intangible Assets***

Otherintangible assets, net for each of the reporting periods is shown in the tablebelow:

| ** **                                                                                                  | ** ** | **Weighted**     | ** ** | ** **        | ** ** | ** **            | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                  | ** ** | **Average**      | ** ** | ** **        | ** ** | ** **            | ** ** |
| ** **                                                                                                  | ** ** | **Amortization** | ** ** | ** **        | ** ** | ** **            | ** ** |
| ** **                                                                                                  | ** ** | **Period**       | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
| ** **                                                                                                  | ** ** | **(Years)**      | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Amortizable  intangible assets:                                                                             |       |             |       |              |       |                  |       |   |   |   |   |   |   |
| Customer relationships in North America (net of  accumulated amortization of $16.7 and $13.2, respectively) |       |             | 32.8       |              |       |                  | $          | 230.1 |   |   |   | $ | 232.7 |   |   |
| Customer relationships in Europe (net of accumulated  amortization of $8.9 and $6.3, respectively)          |       |             | 20.3       |              |       |                  | 74.3       |   |   |   | 69.5 |   |   |
| Chemical supply agreements (net of accumulated  amortization of $7.2 and $5.2, respectively)                |       |             | 10.0       |              |       |                  | 24.5       |   |   |   | 24.2 |   |   |
| Other (net of accumulated amortization of $0.8 and  $0.4, respectively)                                     |       |             | 3.0        |              |       |                  | 0.4        |   |   |   | 0.8 |   |   |
| Total amortizable intangible assets (net of  accumulated amortization of $33.6 and $25.1, respectively)     |       |             |       |              |       |                  | 329.3      |   |   |   | 327.2 |   |   |
| Indefinite-lived  intangible assets:                                                                        |       |             |       |              |       |                  |       |   |   |   |   |   |   |
| Trademarks and tradenames                                                                                   |       |             |       |              |       |                  | 228.5      |   |   |   | 225.5 |   |   |
| Total intangible  assets, net                                                                               |       |             |       |              |       |                  | $          | 557.8 |   |   |   | $ | 552.7 |   |   |

 

Amortizationexpense for each of the reporting periods is shown in the table below:

| ** **            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **            | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **            | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Amortization  expense |       |                             | $          | 3.9                            |       |   |   | $ | 3.6 |   |   |   | $ | 7.8 |   |   |   | $ | 7.2 |   |   |
|                       |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

15

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**CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Continued) (Dollars in millions, except share data) (Unaudited)**

**(7) Debt**

Thefollowing is a summary of ourdebt obligations:

| ** **                                       | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Senior Secured  Credit Facility                  |       | $                 | 504.2      |                  |       | $ | 537.1 |   |   |
| 67¤8%  Unsecured Senior Notes due 2012      |       | 200.0             |       |                  | 200.0      |   |   |
| 8% Unsecured  Senior Subordinated Notes due 2014 |       | 320.0             |       |                  | 320.0      |   |   |
| 95¤8%  Senior Discount Notes due 2015       |       | 346.1             |       |                  | 330.2      |   |   |
| Bank loans                                       |       | 0.3               |       |                  | 0.3        |   |   |
| Capital leases                                   |       | 5.9               |       |                  | 5.8        |   |   |
| Total debt                                       |       | 1,376.5           |       |                  | 1,393.4    |   |   |
| Less short-term  portion                         |       | (6.4              | )          |                  | (45.5      | ) |   |
| Total long-term  portion                         |       | $                 | 1,370.1    |                  |       | $ | 1,347.9 |   |   |

 

***(a) Senior Secured Credit Facility***

The Senior Secured Credit Facility provides foraggregate maximum borrowings of approximately $654.2 under (1) a term loanfacility providing for a loan denominated in Euros in an aggregate principalamount currently outstanding of €121.8 million (orapproximately $155.6 on a U.S. dollar equivalent basis as of June 30, 2006), (2) aterm loan facility providing for a term loan denominated in U.S. dollars in anaggregate principal amount currently outstanding of $348.6, and (3) amulti-currency revolving credit facility, providing for up to $150.0 inmulti-currency revolving loans (including standby and commercial letters ofcredit) outstanding at any time. Undrawn amounts under the multi-currencyrevolving credit facility will be available on a revolving credit basis for generalcorporate purposes. As of June 30, 2006, we had $9.6 of undrawn letters ofcredit and our remaining borrowing availability under the $150.0 multi-currencyrevolving credit facility was $140.4.

The term loan facilities will mature in 2011 and themulti-currency revolving credit facility will mature in 2009. The principalamount of the term loans are amortized in annual installments for the first sixyears and quarterly installments during the seventh year, subject toadjustments for prepayments.

Subject to certainexceptions, the Senior Secured Credit Facility is subject to mandatoryprepayment and reduction in an amount equal to:

·       Thenet proceeds of (1) any permitted receivables securitization program, (2) certaindebt offerings, (3) certain asset sales and (4) certain insurancerecovery and condemnation events; and

·       50% of VWR’s excess cashflow (as defined) for any fiscal year unless certain leverage ratio targets aremet. A prepayment of $44.5 was made in March 2006 based on VWR’s excesscash flow (as defined) generated in 2005. This amount was included inshort-term bank debt in our consolidated balance sheet at December 31,2005.

16

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**CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Continued) (Dollars in millions, except share data) (Unaudited)**

**(7) Debt**(Continued)

***Security; Guarantees***

The obligations under the Senior Secured CreditFacility are guaranteed by VWR’s parent, CDRV Holdings, Inc., and eachsignificant direct and indirect domestic subsidiary of VWR, as that term isdefined in the credit agreement. As of June 30, 2006, none of the domesticsubsidiaries of VWR met the definition of significant subsidiary under thecredit agreement. In addition, the Senior Secured Credit Facility and theguarantees thereunder are secured by security interests in and pledges of orliens on substantially all of the tangible and intangible assets of VWR and itssubsidiaries.

The Senior Secured CreditFacility and the guarantees thereunder are secured by a pledge of 65% of thecapital stock of the foreign subsidiary holding companies of CDRV Holdings, Inc.and VWR, which in turn hold the capital stock of certain of our foreignsubsidiaries.

***Interest***

At our election, the interest rates applicable to theU.S. dollar-denominated term loan can be based on a fluctuating rate ofinterest measured by reference to either (1) an adjusted London inter-bankoffered rate, or LIBOR, plus a borrowing margin or (2) an alternate baserate, or ABR, plus a borrowing margin. The interest rate applicable to theEuro-denominated term loan is based on a fluctuating rate of interest measuredby reference to an adjusted EURIBOR plus a borrowing margin. As of June 30,2006, the interest rates on the U.S. dollar-denominated and Euro-denominatedterm loans were 7.34% and 5.53%, respectively.

Effective July 21,2004, VWR entered into an interest rate cap to hedge a portion of thevariability of cash flows related to potential changes in interest rates on €35.0million of our Euro-denominated term loan. The instrument has a 5.0% 3-monthEURIBOR cap that terminated on July 21, 2006. The 3-month EURIBORrate was approximately 3.1% as of June 30, 2006.

***Covenants***

The Senior Secured CreditFacility contains a number of covenants that, among other things, limit orrestrict our ability to dispose of assets, incur additional indebtedness, incurguarantee obligations, prepay other indebtedness, make acquisitions, modifyterms of the indentures, engage in mergers or consolidations, change thebusiness conducted by us taken as a whole, make capital expenditures, or engagein certain transactions with affiliates. In addition, the Senior Secured CreditFacility requires VWR to comply with specified financial ratios and tests,including a minimum interest expense coverage ratio, a maximum leverage ratioand a maximum capital expenditures test. As of June 30, 2006, VWR was incompliance with all covenants.

***(b) The VWR Notes***

The 67¤8% UnsecuredSenior Notes mature on April 15, 2012. The 8% Unsecured SeniorSubordinated Notes mature on April 15, 2014. Both the senior and seniorsubordinated notes require semiannual cash interest payments on April 15and October 15 to holders of record at the close of business 

17

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**CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Continued) (Dollars in millions, except share data) (Unaudited)**

**(7) Debt**(Continued)

as of the preceding April 1and October 1. The senior subordinated notes are subordinated in right ofpayment to all secured debt of the Company and the senior notes.

Under the indentures forthe VWR Notes, additional securities may be issued in one or more series fromtime to time, subject to certain covenant limitations.

***(c) Senior Discount Notes***

On December 16, 2004, we issued $481.0 aggregateprincipal amount at maturity ($299.4 gross proceeds) of Senior Discount Notes.The notes are senior unsecured obligations of the Company and are structurallysubordinated to all obligations and other liabilities of the Company’s existingand future subsidiaries.

No cash interest will accrue on the Senior Discount Notesprior to January 1, 2010. Thereafter, cash interest will accrue on thenotes and be payable semiannually in arrears on January 1, and July 1of each year, commencing on July 1, 2010, at the rate of 95¤8%per annum, provided that on any interest payment date, interest will be payableonly to the extent funds are available for distribution by our subsidiaries tous (net of applicable taxes and expenses) under specified provisions of theindentures governing the VWR Notes and applicable law. VWR does not guaranteethe obligations under the Senior Discount Notes.

The indenture for theSenior Discount Notes contains covenants that, among other things, limits theamount of additional indebtedness CDRV Investors, Inc. may incur, pay cashdividends, sell assets and subsidiary stock, enter into transactions withaffiliates, place liens on assets, and make certain other payments. At June 30,2006, the Company was in compliance with all covenants.

**(8) Defined Benefit Plans**

The Company sponsors various retirement plans for mostfull-time employees. Pension plan benefits for the defined benefit plans arebased primarily on participants’ compensation and years of credited service. Ithas been the Company’s policy to fund the minimum amount required by localregulations of current and prior year service costs under its funded definedbenefit plans.

Netperiodic pension cost for our U.S. defined benefit plan and our significantNon-U.S. defined benefit plans in Germany, France and the UK for each of thereporting periods include the following components:

| ** **                      | ** ** | **Three Months Ended June 30,** | ** ** |
|---------------------------------|------------|-----------------------------------------------------|------------|
| ** **                      | ** ** | ** **                                          | ** ** | ** ** | ** ** | **German, French** | ** ** |
| ** **                      | ** ** | **U.S. Plan**                                  | ** ** | **and UK Plans** | ** ** |
| ** **                      | ** ** | **2006**                                            | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service cost                    |       | $                                                   | 0.7        |   | $ | 1.4 |   | $ | 0.7 |   | $ | 0.9 |   |
| Interest cost                   |       | 2.1                                                 |       | 2.1 |   | 1.1 |   | 1.1 |   |
| Expected return  on plan assets |       | (2.2                                                | )          | (2.1 | ) | (0.9 | ) | (1.0 | ) |
| Recognized net  actuarial loss  |       | 0.1                                                 |       | — |   | 0.1 |   | — |   |
| Net periodic  pension cost      |       | $                                                   | 0.7        |   | $ | 1.4 |   | $ | 1.0 |   | $ | 1.0 |   |

** **

18

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**CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Continued) (Dollars in millions, except share data) (Unaudited)**

**(8) DefinedBenefit Plans**(Continued)

 

| ** **                      | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------|------------|---------------------------------------------------|------------|
| ** **                      | ** ** | ** **                                        | ** ** | ** ** | ** ** | **German, French** | ** ** |
| ** **                      | ** ** | **U.S. Plan**                                | ** ** | **and UK Plans** | ** ** |
| ** **                      | ** ** | **2006**                                          | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service cost                    |       | $                                                 | 1.4        |   | $ | 3.3 |   | $ | 1.4 |   | $ | 1.8 |   |
| Interest cost                   |       | 4.2                                               |       | 4.3 |   | 2.0 |   | 2.2 |   |
| Expected return  on plan assets |       | (4.5                                              | )          | (4.2 | ) | (1.8 | ) | (2.0 | ) |
| Recognized net  actuarial loss  |       | 0.2                                               |       | — |   | 0.2 |   | — |   |
| Net periodic  pension cost      |       | $                                                 | 1.3        |   | $ | 3.4 |   | $ | 1.8 |   | $ | 2.0 |   |

 

Net periodic pension cost for the U.S. plan is lowerin 2006 than 2005 primarily as a result of a curtailment of the plan effective June 1,2005. Future benefits were frozen effective May 31, 2005 for mostparticipants and most participants will earn no further benefits under the planafter that date. This curtailment was recorded as reductions to pensionliabilities, goodwill and deferred tax assets in 2005.

The Company madecontributions to the U.S. and Non-U.S. plans of approximately $4.0 and $0.8 forthe six months ended June 30, 2006, respectively, and expects to makeadditional contributions to the U.S. and Non-U.S. plans of approximately $4.4and $0.9, respectively, during the remainder of 2006.

**(9) ComprehensiveIncome (Loss)**

Comprehensiveincome (loss) is determined as follows:

| ** **                                        | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                        | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                        | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net income                                        |       |                             | $          | 13.4                           |       |   |   | $ | 4.8 |   |   |   | $ | 24.4 |   |   |   | $ | 5.3 |   |   |
| Other comprehensive  income (loss):               |       |                             |       |                           |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign currency translation adjustment           |       |                             | 20.8       |                           |       |   | (27.4 | ) |   |   | 27.0 |   |   |   | (33.4 | ) |   |
| Unrealized (loss) gain on derivatives, net of tax |       |                             | (1.0       | )                              |       |   | 0.4 |   |   |   | (0.5 | ) |   |   | 0.7 |   |   |
| Comprehensive income  (loss)                      |       |                             | $          | 33.2                           |       |   |   | $ | (22.2 | ) |   |   | $ | 50.9 |   |   |   | $ | (27.4 | ) |   |

 

**(10) Commitments andContingencies**

The Company is involved in various environmental,contractual and product liability cases and claims which are considered routineto our business and from time to time we are named as a defendant in cases as aresult of our distribution of scientific supplies, including litigationresulting from the distribution of products containing asbestos by us andcertain of our predecessors. While the impact of this litigation has typicallybeen immaterial, there can be no assurance that the impact of the pending andany future claims will not be material to our business, financial condition orresults of operations in the future.

During 2005, the German Federal Cartel Officeinitiated an investigation with regard to our European Distribution Agreementwith Merck KGaA. The purpose of the investigation is to determine 

19

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**CDRV INVESTORS, INC. Notes to Consolidated Financial Statements (Continued) (Dollars in millions, except share data) (Unaudited)**

**(10) Commitmentsand Contingencies**(Continued)

whether this agreementviolates or otherwise infringes the general prohibition of anti-competitiveagreements under either German or EU rules. The Company has submittedinformation to the German Federal Cartel Office and is awaiting formal feedbackin connection with this matter. At the current time we cannot complete ourassessment as to the likely outcome of the investigation or potential economicimpact associated with an adverse ruling. In connection with the Acquisition,we recorded intangible assets of approximately €24.8million (or $31.7 on a U.S. dollar equivalent basis as of June 30, 2006)related to our European Distribution Agreement with Merck KGaA. As of June 30,2006, the unamortized net book value of these intangible assets isapproximately  €19.2million (or $24.5 on a U.S. dollar equivalent basis).

On March 28, 2006,the Company was served with a complaint filed in the United States DistrictCourt, Western District of New York, by Corning Incorporated (“Corning”)alleging a breach of contract and unliquidated damages. On April 5, 2006,Corning amended its complaint to allege additional trademark and unfaircompetition claims. On May 2, 2006, the Company filed a motion to dismissCorning’s breach of contract claim. The Company will vigorously defend itselfin this matter. Until further information is obtained we cannot assess thelikely outcome of this litigation.

**(11) Segment FinancialInformation**

TheCompany reports financial results on the basis of the following three businesssegments: North American Lab, European Lab and Science Education. The Company’soperating segments have been identified giving consideration to both geographicareas and the nature of products among businesses within its geographic area.

Selectedsegment financial information and reconciliation of reported operating incomeby segment to income before income taxes are presented below. Inter-segmentactivity has been eliminated. Therefore, revenues reported for each operatingsegment are substantially all from external customers.

| ** **                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                   | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                   | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Net Sales**                |       |                             |       |                           |       |   |   |   |   |   |   |   |   |
| North American Lab           |       |                             | $          | 500.3                          |       |   |   | $ | 479.5 |   |   | $ | 992.5 |   | $ | 940.4 |   |
| European Lab                 |       |                             | 277.6      |                           |       |   | 281.2 |   |   | 550.5 |   | 550.0 |   |
| Science Education            |       |                             | 37.1       |                           |       |   | 34.1 |   |   | 67.8 |   | 58.5 |   |
| Total                        |       |                             | $          | 815.0                          |       |   |   | $ | 794.8 |   |   | $ | 1,610.8 |   | $ | 1,548.9 |   |
| **Operating Income**         |       |                             |       |                           |       |   |   |   |   |   |   |   |   |
| North American Lab           |       |                             | $          | 27.2                           |       |   |   | $ | 19.8 |   |   | $ | 56.6 |   | $ | 34.3 |   |
| European Lab                 |       |                             | 14.4       |                           |       |   | 10.4 |   |   | 28.7 |   | 21.5 |   |
| Science Education            |       |                             | 3.9        |                           |       |   | 2.6 |   |   | 6.3 |   | 2.0 |   |
| Total                        |       |                             | 45.5       |                           |       |   | 32.8 |   |   | 91.6 |   | 57.8 |   |
| Interest income              |       |                             | (1.5       | )                              |       |   | (0.4 | ) |   | (2.8 | ) | (1.0 | ) |
| Interest expense             |       |                             | 28.2       |                           |       |   | 26.0 |   |   | 56.9 |   | 51.7 |   |
| Other (income) expense,  net |       |                             | (0.4       | )                              |       |   | (0.8 | ) |   | 0.4 |   | (1.8 | ) |
| Income before income taxes   |       |                             | $          | 19.2                           |       |   |   | $ | 8.0 |   |   | $ | 37.1 |   | $ | 8.9 |   |

 

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**Item 2—*Management’s Discussion and Analysis of Financial Condition and Resultsof Operations***

**Overview**

Our net sales are derived primarily from the sale ofscientific supplies, including laboratory supplies, research chemicals,apparatus, and to a lesser extent laboratory furniture and services. Freightcosts that are billed to our customers are also included in net sales.

Our cost of sales consists primarily of the cost ofinventory shipped and the cost of labor for services we provide on-site at ourcustomer’s locations, such as storeroom management and product delivery. Costof sales also includes freight expenses incurred to deliver products tocustomers as well as credits for rebates earned from suppliers.

Selling, general andadministrative expenses primarily reflect the costs of operations dedicated togenerating new sales, maintaining existing customer relationships, enhancingtechnology capabilities, receiving customer orders and operating ourdistribution center facilities. These expenses also include depreciation andamortization.

**Business Segments**

We report our financialresults on the basis of the following three business segments: North AmericanLab, European Lab, and Science Education. Both the North American Lab andEuropean Lab segments distribute scientific supplies to customers inpharmaceuticals, biotechnology, chemicals, technology, and food processing;governmental agencies; colleges and universities; and environmentalorganizations. Science Education manufactures and distributes scientificsupplies and specialized kits principally to primary and secondary schools inNorth America.

**Acquisitions**

We acquired AGB ScientificLtd. (“AGB”) and Advanced Instruments Sales & Service, Inc. (“AI”)on April 1, 2005 and Technical Service Lab B.V. (“TSL”) on July 1,2005. The results of AGB and TSL have been included in the European Lab segmentand the results of AI have been included in the North American Lab segment fromthe date of the acquisitions.

**Restructuring**

Since the Acquisition on April 7, 2004, we haveinitiated various restructuring activities designed to rationalize operatingcosts and improve our operating and administrative capabilities. We recordedrestructuring accruals of $29.7 million in 2004, primarily related toreductions in headcount in Europe primarily due to the reorganization of ourEuropean sales and marketing functions. In early 2005, we recorded additionalrestructuring accruals of $24.5 million, primarily for severance and other exitcosts including estimates for environmental remediation associated withcessation of manufacturing operations at a plant in France and severance costsassociated with the consolidation of certain sales and marketing personnel inour German and UK operations. These charges have been recorded as adjustmentsto acquisition costs (increases to goodwill) pursuant to the provisions ofEmerging Issues Task Force Issue No. 95-3, *Recognition of Liabilities in Connection with aPurchase Business Combination*.

Throughout 2005, the Company recorded various restructuringcharges in response to relatively static market conditions and implementedreductions in force and other cost containment measures that did not qualify asacquisition costs. In connection with these actions, we recorded restructuringcharges related to severance and facility exit costs totaling approximately$20.6 million for the year ended December 31, 2005. For the three months ended June 30,2005 we recorded $1.8 million of suchcharges related to North American Lab programs and $3.3 million relatedto European Lab programs. For the six months ended 

21

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June 30, 2005 werecorded $3.9 million ofsuch charges related to North American Lab programs and $3.3 millionrelated to European Lab programs.

These programs are complete and no such charges havebeen recorded in 2006. During the three and six months ended June 30, 2006 wereversed $0.8 million and $1.0 million, respectively, of excess accrualsrelated to North American Lab programs.

**Constant CurrencyAnalysis**

We maintain operations inNorth America and in Europe. Approximately 41% of our net sales originate incurrencies other than the U.S. dollar, principally the Euro, the British poundsterling and the Canadian dollar. As a result, changes in our revenues andoperating profits include the impact of changes in foreign currency exchangerates. We provide “constant currency” disclosures in the following discussionand analysis to quantify the impact of the fluctuation in foreign exchangerates and utilize constant currency results in our analysis of segmentperformance. We believe that this calculation is a useful measure, indicatingtrue operating performance. Earnings from our subsidiaries are not generallyrepatriated to the United States, and we typically do not incur significantgains or losses on foreign currency transactions with our subsidiaries.Therefore, changes in foreign currency exchange rates primarily impact onlyreported earnings and not our financial position.

**Compliance with theSarbanes-Oxley Act**

We launched a compliance program to address therequirements of Section 404 of the Sarbanes-Oxley Act in anticipation ofthe mandatory compliance date of December 31, 2007. Compliance with theserequirements has required significant incremental internal resources andfinancial investments including, but not limited to, use of outside experts,additional audit fees, and changes in systems design, security and structure.

A component of thisprogram is focused on the quality, security, and functionality of ourinformation systems. While we have developed sound plans to address all of ourcompliance requirements and believe our efforts to date have been effective,there can be no assurance that future efforts will not have an impact on, orpotentially distract our management team from, day-to-day activities.

**Results ofOperations**

***Net Sales***

Thefollowing table presents net sales and changes in net sales by reportablesegment for the three and six months ended June 30, 2006 and 2005 (dollarsin millions):

| ** **         | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **         | ** ** | **2006**                                            | ** ** | **% Change**                                 | ** ** | **2005** | ** ** | **2006** | ** ** | **% Change** | ** ** | **2005** | ** ** |
| North American Lab |       | $                                                   | 500.3      |                                              |       | 4.3 | % |   | $ | 479.5 |   | $ | 992.5 |   |   | 5.5 | % |   | $ | 940.4 |   |
| European Lab       |       | 277.6                                               |       |                                              | (1.3       | %) |   | 281.2 |   | 550.5 |   |   | 0.1 | % |   | 550.0 |   |
| Science Education  |       | 37.1                                                |       |                                              | 8.8        | % |   | 34.1 |   | 67.8 |   |   | 15.9 | % |   | 58.5 |   |
| Total              |       | $                                                   | 815.0      |                                              |       | 2.5 | % |   | $ | 794.8 |   | $ | 1,610.8 |   |   | 4.0 | % |   | $ | 1,548.9 |   |

 

Net sales for the three and six months ended June 30,2006 increased $20.2 million and $61.9 million, respectively, over thecomparable periods of 2005. Foreign currency and the acquisition of TSLfavorably impacted net sales by $4.2 million and $0.7 million, respectively,for the three months ended June 30, 2006. Foreign currency unfavorablyimpacted net sales by $16.9 million and the acquisitions of AGB, AI and TSLfavorably impacted net sales by $12.5 million for the six months ended June 30,2006. Excluding these effects, net sales increased by 1.9% and 4.3%,respectively, from the comparable periods of 2005. These increases primarilyreflect improvements in product pricing.

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Net sales in the North American Lab segment for thethree and six months ended June 30, 2006 increased $20.8 million and $52.1million, respectively, over the comparable periods of 2005. Foreign currencychanges accounted for $4.8 million and $8.2 million of the increase for thethree and six months ended June 30, 2006, respectively. The acquisition ofAI favorably impacted net sales by $3.4 million for the six months ended June 30,2006. Excluding these effects, net sales increased 3.3% and 4.3%, respectively,from the comparable periods of 2005. These increases reflect improvements inproduct pricing, partially offset by one less billing day for the three monthsended June 30, 2006. For the three months ended June 30, 2006 our netsales in the bio-pharmaceutical and clinical markets experienced low-singledigit growth, our net sales in the industrial market achieved mid-single digitgrowth and our net sales in the production safety market achieved growth ofapproximately 13%. These increases were partially offset by a decline in ourgovernment market. For the six months ended June 30, 2006 our net sales inthe bio-pharmaceutical market experienced low-single digit growth, our netsales in the industrial and clinical markets achieved mid-single digit growthand our net sales in the production safety market achieved growth ofapproximately 13%. These increases were partially offset by a decline in ourgovernment market.

Net sales in the European Lab segment for the threeand six months ended June 30, 2006 decreased $3.6 million and increased$0.5 million, respectively, from the comparable periods of 2005. Foreigncurrency changes unfavorably impacted net sales by $0.6 million and $25.1million for the three and six months ended June 30, 2006, respectively.The acquisitions of AGB and TSL favorably impacted net sales by $0.7 millionand $9.1 million for the three and six months ended June 30, 2006.Excluding these effects, net sales decreased 1.3% and increased 3.0%,respectively, from the comparable periods of 2005. The decrease for the threemonths ended June 30, 2006 reflects approximately three fewer billingdays. For the three months ended June 30, 2006 our net sales in thebio-pharmaceutical market were consistent with the comparable period of 2005and our net sales in our other markets each declined primarily as a result ofthe three fewer billing days. For the six months ended June 30, 2006 ournet sales in the bio-pharmaceutical market experienced low-single digit growthand our net sales in the industrial market achieved mid-single digit growth.These increases were partially offset by declines in our education, resellersand clinical market.

Net sales in the ScienceEducation segment for the three and six months ended June 30, 2006increased $3.0 million or 8.8% and $9.3 million or 15.9%, respectively, overthe comparable periods of 2005. The increase for the three months ended June 30,2006 was a result of growth in both our direct education and publishersmarkets. The increase for the six months ended June 30, 2006 was a resultof growth in our direct education market, including the fulfillment of a largeinternational order, and growth in our publishers market.

***Gross Profit***

Thefollowing table presents gross profit for the three and six months ended June 30,2006 and 2005 (dollars in millions):

| ** **                             | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                             | ** ** | **2006**                                        | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| Gross profit                           |       | $                                               | 219.1      |                                              | $          | 200.8 |   | $ | 433.5 |   | $ | 393.5 |   |
| Percentage of net sales (gross margin) |       | 26.9                                            | %          | 25.3                                              | %          | 26.9 | % | 25.4 | % |
|                                        |            |                                                 |            |                                                   |            |  |  |  |  |  |  |  |  |

 

Gross profit for the threeand six months ended June 30, 2006 increased $18.3 million and $40.0million, respectively, over the comparable periods of 2005. Foreign currencyand the acquisition of TSL favorably impacted gross profit by $1.0 million and$0.5 million, respectively, for the three months ended June 30, 2006.Foreign currency unfavorably impacted gross profit by $5.8 million and theacquisitions of AGB, AI and TSL favorably impacted gross profit by $4.7 millionfor the six months ended June 30, 2006. Excluding these effects, grossprofit increased $16.8 million or 8.4% and $41.1 million or 10.4% from the 

23

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comparableperiods of 2005 as a result of the net sales increases and improved pricingdiscussed above. Our gross margin percentages improved in each of our segments overthe comparable periods of 2005. The increases in North American Lab andEuropean Lab are primarily a result of favorable pricing, better mix andimproved recovery of freight costs. The increases in Science Education areprimarily a result of improved pricing, partially offset by increasedinternational net sales, which generate somewhat lower margins.

***Selling, General, and Administrative Expenses***

Thefollowing table presents selling, general, and administrative expenses (“SG&A”) for the three and six monthsended June 30, 2006 and 2005 (dollars in millions):

| ** **                                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Selling, general  and administrative expenses |       | $                                               | 174.4      |                                          | $          | 162.9 |   | $ | 342.9 |   | $ | 328.5 |   |
| Percentage of net sales                       |       | 21.4                                            | %          | 20.5                                          | %          | 21.3 | % | 21.2 | % |
|                                               |            |                                                 |            |                                               |            |  |  |  |  |  |  |  |  |

 

SG&A for the three and six months ended June 30,2006 increased $11.5 million and $14.4 million, respectively, over thecomparable periods of 2005. Foreign currency and the acquisition of TSL eachincreased SG&A by $0.4 million for the three months ended June 30,2006. Foreign currency favorably impacted SG&A by $5.3 million and theacquisitions of AGB, AI and TSL increased SG&A by $4.4 million for the sixmonths ended June 30, 2006. Excluding these effects, SG&A increased$10.7 million or 6.6% and $15.3 million or 4.7% from the comparable periods of2005.

Included in theseincreases are stock-based compensation charges of $1.8 million and $2.2 millionfor the three and six months ended June 30, 2006, respectively, as aresult of our adoption of SFAS 123R in 2006. The balance of these increases areprimarily a result of inflation; increased information technology andSarbanes-Oxley costs of approximately $2.9 million and $4.2 million for thethree and six months ended June 30, 2006, respectively; and investments inour sourcing function and our BioSciences business; partially offset by savingsfrom our prior restructuring programs.

***Operating Income***

Thefollowing table presents operating income and operating income as a percentageof net sales by reportable segment for the three and six months ended June 30,2006 and 2005 (dollars in millions):

| ** **         | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **         | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **         | ** ** | **Amount**                                          | ** ** | **% of  Net Sales**                     | ** ** | **Amount** | ** ** | **% of  Net Sales** | ** ** | **Amount** | ** ** | **% of  Net Sales** | ** ** | **Amount** | ** ** | **% of  Net Sales** | ** ** |
| North American Lab |       |                                                | $          | 27.2                                              |       |   |   | 5.4 | % |   |   | $ | 19.8 |   |   |   | 4.1 | % |   |   | $ | 56.6 |   |   |   | 5.7 | % |   |   | $ | 34.3 |   |   |   | 3.6 | % |   |
| European Lab       |       |                                                | 14.4       |                                              |       |   | 5.2 | % |   |   | 10.4 |   |   |   | 3.7 | % |   |   | 28.7 |   |   |   | 5.2 | % |   |   | 21.5 |   |   |   | 3.9 | % |   |
| Science Education  |       |                                                | 3.9        |                                              |       |   | 10.5 | % |   |   | 2.6 |   |   |   | 7.6 | % |   |   | 6.3 |   |   |   | 9.3 | % |   |   | 2.0 |   |   |   | 3.4 | % |   |
| Total              |       |                                                | $          | 45.5                                              |       |   |   | 5.6 | % |   |   | $ | 32.8 |   |   |   | 4.1 | % |   |   | $ | 91.6 |   |   |   | 5.7 | % |   |   | $ | 57.8 |   |   |   | 3.7 | % |   |

 

Operating income for the three and six months ended June 30,2006 increased $12.7 million and $33.8 million, respectively, over thecomparable periods of 2005. Several factors affect the comparability of theyear-over-year increase in operating performance. Operating income wasadversely impacted in 2005 by restructuring charges of $5.1 million and $7.2million for the three and six months ended June 30, 2005, respectively.For the comparable periods of 2006 we recorded reductions to the previouslyestablished restructuring reserves of $0.8 million and $1.0 million,respectively. The acquisitions favorably impacted operating income by $0.1million and $0.3 million for the three and six months ended June 30, 2006,respectively. Foreign currency favorably impacted operating income by $0.6million for the three months 

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ended June 30,2006 and unfavorably impacted operating income by $0.5 million for the sixmonths ended June 30, 2006. Excluding these effects, operating incomeincreased $6.1 million or 16.1% and $25.8 million or 39.7% from the comparableperiods of 2005. Theincrease for the three months ended June 30, 2006 was the result of a gross profitincrease of $16.8 million, partially offset by an SG&A increase of $10.7million. The increase for thesix months ended June 30, 2006 wasthe result of a gross profit increase of $41.1 million, partially offset by anSG&A increase of $15.3 million.

Operating income in theNorth American Lab segment forthe three and six months ended June 30, 2006 increased $7.4 millionand $22.3 million, respectively, over the comparable periods of 2005. Operatingincome was adversely impacted in 2005 by restructuring charges of $1.8 millionand $3.9 million for the three and six months ended June 30, 2005,respectively. For the comparable periods of 2006 we recorded reductions to thepreviously established restructuring reserves of $0.8 million and $1.0 million,respectively. Foreign currency favorably impacted operating income by $0.4million and $0.6 million for the three and six months ended June 30, 2006,respectively. The acquisition of AI unfavorably impacted operating income by$0.2 million for the six months ended June 30, 2006. Excluding theseeffects, operating income increased $4.4 million or 20.4% and $17.0 million or44.5% from the comparable periods of 2005. The increase for the three months ended June 30, 2006 was the result of a gross profit increaseof $12.4 million, partially offset by an SG&A increase of $8.0 million. The increase for the six months ended June 30,2006 was the result of a grossprofit increase of $26.6 million, partially offset by an SG&A increase of$9.6 million.

Operating income in theEuropean Lab segment forthe three and six months ended June 30, 2006 increased $4.0 millionand $7.2 million, respectively, over the comparable periods of 2005. Operatingincome was adversely impacted in 2005 by restructuring charges of $3.3 millionfor the three and six months ended June 30, 2005. The acquisitionsfavorably impacted operating income by $0.1 million and $0.5 million for thethree and six months ended June 30, 2006, respectively. Foreign currencyfavorably impacted operating income by $0.2 million for the three months ended June 30,2006 and unfavorably impacted operating income by $1.1 million for the sixmonths ended June 30, 2006. Excluding these effects, operating incomeincreased $0.4 million or 2.9% and $4.5 million or 18.1% from the comparableperiods of 2005. The increase forthe three months ended June 30, 2006 was the result of a gross profit increase of $2.8 million, partiallyoffset by an SG&A increase of $2.4 million. The increase for the six months ended June 30, 2006 was the result of a gross profitincrease of $9.8 million, partially offset by an SG&A increase of $5.3million.

Operating income in theScience Education segment forthe three and six months ended June 30, 2006 increased $1.3 millionand $4.3 million, respectively, over the comparable periods of 2005. The increase for the three monthsended June 30, 2006 was theresult of a gross profit increase of $1.6 million, partially offset by anSG&A increase of $0.3 million. Theincrease for the six months ended June 30, 2006 was the result of a gross profitincrease of $4.7 million, partially offset by an SG&A increase of $0.4million.

***Interest Expense,net of Interest Income***

Interest expense, net ofinterest income, for the three and six months ended June 30, 2006increased to $26.7 million and $54.1 million, respectively, from $25.6 millionand $50.7 million for the comparable periods of 2005. The increases in 2006 aredue to higher variable interest rates on the Senior Secured Credit Facilityterm loans, partially offset by decreased amounts outstanding under the SeniorSecured Credit Facility term loans as a result of a $44.5 million prepaymentmade in March 2006 and increased interest income earned on our cash andcash equivalents due to higher interest rates.

***Other (income)expense, net***

Other income, net was($0.4) million for the three months ended June 30, 2006, compared to($0.8) million for the comparable period of 2005. Other expense, net was $0.4million for the six months ended 

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June 30,2006, compared to ($1.8) million for the comparable period of 2005. Thedecrease for the six months ended June 30, 2006 is primarily due to a netexchange loss of $0.7 million in 2006 and a net exchange gain of ($1.5) millionin 2005.

***Income Taxes***

The effective income tax ratefor the three and six months ended June 30, 2006 was 30.0% and 34.2%,respectively, compared to 40.2% and 40.7% for the comparable periods of 2005. The2006 effective tax rates are lower as a result of reduction of certain deferredtax liabilities of $1.3 million as a consequence of reduced future foreign taxrates in Canada and the favorable impact of provision-to-return adjustments of$0.3 million related to final 2005 tax returns. The 2005 effective tax rateswere adversely impacted by losses and related valuation allowances associatedwith our operations in France and a valuation allowance for U.S. foreign taxcredits. In 2006, we do not anticipate such significant unfavorable impacts.

**Liquidity and Capital Resources**

We broadly defineliquidity as our ability to generate sufficient funds from both internal andexternal sources to meet our obligations and commitments. In addition,liquidity includes the ability to obtain appropriate debt and equity financing.Therefore, liquidity cannot be considered separately from capital resourcesthat consist of current or potentially available funds for use in achievinglong-range objectives and meeting debt service commitments.

Our significant liquidityand capital funding needs are working capital, operating expenses, capitalexpenditures, contractual obligations, commercial commitments and amounts dueon our debt obligations. Liquidity and capital resource needs are met throughcash flows from operations and borrowings under the Senior Secured CreditFacility, as required.

Based on currentoperations and expectations as to future growth, we believe that cash generatedfrom operations, together with amounts available under the $150.0 million fiveyear multi-currency revolving credit facility, which is a component of theSenior Secured Credit Facility, will be adequate to permit us to meet our debtservice obligations, capital expenditure program requirements, ongoingoperating costs and working capital needs, although no assurance can be givenin this regard.

Working capital, excludingcash and debt, was $219.3 million and $229.9 million at June 30, 2006 and December 31,2005, respectively. Trade receivables, inventories and accounts payable, threeimportant elements of working capital, are discussed below.

***Trade Accounts Receivable.***   Dayssales outstanding in accounts receivable were 50.0**days and 48.2 days for the quarterly periods ended June 30,2006 and December 31, 2005, respectively. Trade receivables are higher inEurope due to the extended payment practices in several of the countries inwhich we operate.

***Inventories.***   Dayssupply of inventory were 39.5**daysand 43.1 days for the quarterly periods ended June 30, 2006 and December 31,2005, respectively. The improvement is due to focused efforts to reduce our inventorieson hand.

***Accounts Payable.***   Dayspayables outstanding were 57.4**daysand 59.1 days for the quarterly periods ended June 30, 2006 and December 31,2005, respectively. Trade accounts payable are primarily with suppliers whoseproducts we distribute. Payment terms are negotiated and in cases whereeconomic early payment discounts are offered, we typically time our payments toearn the discounts. Days payables outstanding are generally higher in Europedue to the extended payment practices in certain countries in which we operate.Depending on the timing of payments and inventory purchases, trade accountspayable can vary each quarter and from year to year.

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**Historical CashFlows**

Thefollowing table presents cash flow from operations before investing andfinancing activities related to operations and working capital (dollars inmillions):

| ** **                                            | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                            | ** ** | **2006**                                      | ** ** | **2005** | ** ** |
| Cash flow from  operations, excluding working capital |       | $                                             | 62.8       |   | $ | 46.0 |   |
| Cash flow from  working capital changes, net          |       | 19.2                                          |       | (4.0 | ) |
| Cash flow from  operations                            |       | $                                             | 82.0       |   | $ | 42.0 |   |

 

We generated $82.0 million of cash flow fromoperations during the six months ended June 30, 2006 compared to $42.0million during the comparable period of 2005. The increase in cash flow fromoperations is primarily the result of increased net income, improved managementof inventories, reduced cash payments for restructuring charges, and highercash flows from certain other working capital changes. These increases arepartially offset by lower cash flows being provided by increases to accountspayable.

Net cash used in investing activities was $5.7 millionfor the six months ended June 30, 2006 compared to $50.6 million for thecomparable period of 2005. This decrease is mainly due to the $41.4 million ofinvestments to acquire business in 2005.

Net cash used in financing activities was $61.4million for the six months ended June 30, 2006 compared to cash used infinancing activities of $30.3 million for the comparable period of 2005. Thisincrease is primarily comprised of increased net debt payments of $39.9million, which includes the $44.5 million principal payment on the SeniorSecured Credit Facility, as discussed below, partially offset by a decrease innet change in bank checks outstanding of $6.9 million.

Under the credit agreement for the Senior SecuredCredit Facility, beginning in 2006, VWR’s Excess Cash Flow (as defined in thecredit agreement) from the prior year is required to be used to prepay creditagreement debt. On March 31, 2006, VWR prepaid $44.5 million on the SeniorSecured Credit Facility term loans as required by the Excess Cash Flowprovisions.

Our future financial and operating performance,ability to service or refinance our debt and ability to comply with covenantsand restrictions contained in our debt agreements will be subject to futureeconomic conditions and to financial, business and other factors, many of whichare beyond our control and will be substantially dependent on the globaleconomy, demand for our products, and our ability to successfully implement ouroverall business and profitability strategies. As of June 30, 2006, we had$143.2 million of cash and cash equivalents on hand.

As of June 30, 2006,we had outstanding indebtedness of $1,376.5 million, which consists primarilyof $520.0 million aggregate principal amount of the VWR Notes, $346.1 millionof accreted value of the Senior Discount Notes, a $348.6 million U.S.dollar-denominated term loan, and a $155.6 million Euro-denominated term loan.

**Indebtedness**

***Senior SecuredCredit Facility.***   The Senior Secured CreditFacility consists of (1) a term loan facility providing for a loandenominated in Euros, in an aggregate principal amount currently outstanding at€121.8million (approximately $155.6 million on a U.S. dollar equivalent basis as of June 30,2006), (2) a term loan facility denominated in U.S. dollars in anaggregate principal amount currently outstanding at $348.6 million, and (3) amulti-currency revolving credit facility, providing for up to $150.0 million inmulti-currency revolving loans (including standby and commercial letters ofcredit) outstanding at any time. As of June 30, 2006, there was nooutstanding balance on the multi-currency revolving credit facility. Undrawn 

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amounts under themulti-currency revolving credit facility are available on a revolving creditbasis for general corporate purposes of the borrower and its subsidiaries. Asof June 30, 2006, we had $9.6 million of undrawn letters of credit and ourremaining borrowing availability under the $150.0 million multi-currencyrevolving credit facility was $140.4 million.

***VWR Notes.******  ***The 67¤8%senior notes and 8% senior subordinated notes mature on April 15, 2012 andApril 15, 2014, respectively, in aggregate principal amounts of $200.0million and $320.0 million, respectively.

The indentures governing the VWR Notes contain certaincovenants that limit VWR’s ability to incur additional indebtedness, pay cashdividends and make certain other payments. The indentures also require VWR tomaintain certain financial covenants, including a specified debt toConsolidated EBITDA leverage ratio and a specified Consolidated EBITDA tointerest expense coverage ratio. At June 30, 2006, VWR was in compliancewith all such covenants.

***Senior DiscountNotes.******  ***On December 16, 2004, we issued$481.0 million aggregate principal amount at maturity ($299.4 million grossproceeds) of Senior Discount Notes. The proceeds, net of $1.5 million of debtissuance costs, were used to pay a cash dividend to holders of our common stockin December 2004. The notes are senior unsecured obligations of theCompany and are structurally subordinated to all obligations and otherliabilities of the Company’s existing and future subsidiaries.

No cash interest will accrue on the Senior DiscountNotes prior to January 1, 2010. Thereafter, cash interest will accrue onthe notes and be payable semiannually in arrears on January 1, and July 1of each year, commencing on July 1, 2010, at the rate of 95¤8%per annum, provided that on any interest payment date, interest will be payableonly to the extent funds are available for distribution by our subsidiaries tous (net of applicable taxes and expenses) under specified provisions of theindentures governing the VWR Notes and applicable law. As of June 30,2006, the accreted value of the Senior Discount Notes was $346.1 million. VWRdoes not guarantee the obligations under the Senior Discount Notes.

The indenture for the Senior Discount Notes containscovenants that, among other things, limit the amount of additional indebtednessCDRV Investors, Inc. may incur, pay cash dividends, sell assets andsubsidiary stock, enter into transactions with affiliates, place liens onassets, and make certain other payments. At June 30, 2006, the Company wasin compliance with all covenants. The terms of the Senior Secured CreditFacility and the indentures governing the VWR Notes significantly restrict VWRfrom making distributions and otherwise transferring assets to us.

***European Subsidiaries.***   OurEuropean subsidiaries operate without formal agreements with foreign banks.There are no existing financial covenants related to the bank loans to thesesubsidiaries.

**Credit AgreementFinancial Covenants; Credit Agreement EBITDA**

Borrowings under the Senior Secured Credit Facilityare a key source of our liquidity. Our ability to borrow under the SeniorSecured Credit Facility is dependent upon, among other things, VWR’s compliancewith the financial covenants that limit VWR’s ability to incur additionalindebtedness, pay cash dividends and make certain other payments as set forthin the credit agreement for the Senior Secured Credit Facility. The financialcovenants include a specified debt to Credit Agreement EBITDA leverage ratioand a specified Credit Agreement EBITDA to interest expense coverage ratio forspecified periods, as those terms are defined and relate to VWR. Failure of VWRto comply with these financial ratio covenants would result in a default underthe credit agreement for the Senior Secured Credit Facility and, absent awaiver or an amendment from our lenders, would permit the acceleration of alloutstanding borrowings under the Senior Secured Credit Facility. VWR was incompliance with these financial covenants as of June 30, 2006.

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Credit Agreement EBITDA as presented herein is a VWRfinancial performance measure that is used in the credit agreement for theSenior Secured Credit Facility. Credit Agreement EBITDA is not a defined termunder U.S. GAAP and should not be considered as an alternative to operatingincome or net income as a measure of operating results or cash flows as ameasure of liquidity. Credit Agreement EBITDA differs from the term “EBITDA” asit is commonly used. Credit Agreement EBITDA generally is defined asconsolidated net income before consolidated net interest expense, consolidatedincome taxes, consolidated depreciation and amortization, other non-cashcharges deducted in determining consolidated net income (loss), non-cashprovisions for reserves for discontinued operations, extraordinary, unusual ornon-recurring items, gain or loss associated with the sale or write down ofassets not in the ordinary course of business and the cumulative effect ofaccounting changes and earnings of, but including cash dividends or distributionsfrom, non-controlled affiliates. Credit Agreement EBITDA is reduced by theamount of certain permitted dividends from VWR to CDRV Holdings, Inc.

Credit Agreement EBITDA is not used in the indenturesfor the notes. The term “Consolidated EBITDA” is used in the indentures as partof the calculation of the term “Consolidated Coverage Ratio”, which is used fora number of purposes, including determining our ability to incur additionalindebtedness, and may include certain cost savings or synergies. “ConsolidatedEBITDA” is not the same as Credit Agreement EBITDA.

Thefollowing table presents a calculation of VWR’s Credit Agreement EBITDA for thetwelve months ended June 30, 2006 (dollars in millions):

| ** **                                                              | ** ** | **(Unaudited)** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------|------------|
| Income before  cumulative effect of a change in accounting principle(1) |       |            | $          | 61.9 |   |   |
| Income tax  provision(1)                                                |       |            | 40.5       |   |   |
| Interest expense,  net(1)                                               |       |            | 76.3       |   |   |
| Depreciation and  amortization(1)                                       |       |            | 33.2       |   |   |
| Non-cash  charges(2)                                                    |       |            | 11.7       |   |   |
| Other  extraordinary, unusual or non-recurring items(3)                 |       |            | 11.6       |   |   |
| Credit Agreement EBITDA                                                 |       |            | $          | 235.2 |   |   |

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(1)          Theseamounts include the four quarters during the twelve months ended June 30,2006 as reported in the respective Form 10-Q or Form 10-K.

(2)          Non-cashcharges include pension, postretirement and post employment benefit expenses,net of cash contributed to the respective benefit plans in that year;amortization of direct response catalog costs for those catalogs with usefullives greater than one year; charges for equity compensation; and LIFOadjustments.

(3)          Otherextraordinary, unusual or non-recurring items include one-time severance costs;non-routine inventory reserve adjustments; gains or losses on the sale ofbusinesses or facilities; and other extraordinary, unusual or non-recurringgains, losses, charges or credits.

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Thefinancial covenants specify, among other things, the following requirements foreach four-quarter period ended during the following test periods:

| ** **                                       | ** ** | **Debt to Credit Agreement** | ** ** | **Credit Agreement EBITDA**  | ** ** |
|--------------------------------------------------|------------|---------------------------------------------|------------|----------------------------------------|------------|
| ** **                                       | ** ** | **EBITDA Leverage**                    | ** ** | **to Interest Expense**      | ** ** |
| **Test Period**                             | ** ** | ** **                                  | ** ** | **Ratio Not More Than** | ** ** | **Ratio Not Less Than** | ** ** |
| December 31,  2005 - December 30, 2006 |       |                                        | 7.0 to 1.0 |                                   |       |   | 1.9 to 1.0 |   |   |
| December 31,  2006 - December 30, 2007 |       |                                        | 6.5 to 1.0 |                                   |       |   | 2.0 to 1.0 |   |   |
| December 31,  2007 - December 30, 2008 |       |                                        | 6.0 to 1.0 |                                   |       |   | 2.1 to 1.0 |   |   |
| December 31,  2008 - December 30, 2009 |       |                                        | 5.5 to 1.0 |                                   |       |   | 2.2 to 1.0 |   |   |
| December 31,  2009 - December 30, 2010 |       |                                        | 5.0 to 1.0 |                                   |       |   | 2.3 to 1.0 |   |   |
| December 31, 2010  and thereafter           |       |                                        | 5.0 to 1.0 |                                   |       |   | 2.4 to 1.0 |   |   |
|                                                  |            |                                             |            |                                        |            |  |  |  |  |  |  |

 

Thetable below sets forth VWR’s specified debt to Credit Agreement EBITDA leverageratio and Credit Agreement EBITDA to interest expense ratio for the twelvemonths ended June 30, 2006:

| ** **                                                             | ** ** | **(Unaudited)** | ** ** |
|------------------------------------------------------------------------|------------|-----------------|------------|
| Consolidated Debt  to Credit Agreement EBITDA Leverage Ratio           |       |            | 4.4 to 1.0 |   |   |
| Credit Agreement EBITDA  to Credit Agreement Interest Expense Ratio(1) |       |            | 3.3 to 1.0 |   |   |

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(1)          Forpurposes of calculating the compliance ratio noted above, credit agreementinterest expense was based on actual interest expense, net of interest income,reduced by amortization of deferred financing fees.

**Critical AccountingPolicies**

The discussion andanalysis of our financial condition and results of operations are based on ourfinancial statements, which have been prepared in accordance with accountingprinciples generally accepted in the United States of America. The preparationof these financial statements requires us to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and the disclosureof contingent assets and liabilities at the date of the financial statementsand the reported amounts of revenues and expenses during the reporting period. Onan ongoing basis, management evaluates its estimates and judgments, including,among others, those related to environmental liabilities, reserves for accountsreceivable and inventories, impairment of goodwill and intangible assets,pension plans, rebates from suppliers, agreements with customers, and productliability. Those estimates and assumptions are based on our historicalexperience, our observance of trends in the industry, and various other factorsthat are believed to be reasonable under the circumstances and form the basisfor making judgments about the carrying values of assets and liabilities thatare not readily apparent from other sources. Actual results may differ fromthese estimates under different assumptions or conditions. Refer to “Item 7 -Management’s Discussion and Analysis of Financial Condition and Results ofOperations” in our annual report on Form 10-K for the year ended December 31,2005 for the Company’s critical accounting policies.

**Forward-LookingStatements**

This Form 10-Q contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933and Section 21E of the Securities Exchange Act of 1934. All statementsother than statements of historical fact included in this Form 10-Qmay constitute forward-looking statements. We have based these forward-lookingstatements on our current expectations and projections about future events. Althoughwe believe that our assumptions made in connection with the forward-lookingstatements are reasonable, there can be no assurances that the assumptions andexpectations will prove to be correct.

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Forward-lookingstatements are inherently subject to risks, uncertainties and assumptions.Forward-looking statements are not guarantees of performance. You should notplace undue reliance on these statements. You should understand that thefollowing important factors, in addition to those discussed in “Item 1A—RiskFactors” in our annual report on Form 10-K for the year ended December 31,2005 and elsewhere in our Form 10-K and in this Form 10-Q,could affect our future results and could cause those results or other outcomesto differ materially from those expressed or implied in our forward-lookingstatements:

·       actionsby manufacturers, customers, carriers and other third parties;

·       ourability to maintain our relationships with manufacturers;

·       lossof our key executive officers;

·       ourability to consummate and integrate potential acquisitions;

·       theeffect of political and economic conditions, inflation and interest ratesworldwide;

·       theeffect of changes in laws and regulations, including changes in accountingstandards, trade, tax, price controls and other regulatory matters; and

·       increasedcompetition from other companies in our industry and our ability to retain orincrease our market shares in our principal geographical markets; and

·       ourability to generate sufficient funds to meet our debt service obligations,capital expenditure program requirements, ongoing operating costs and workingcapital needs.

All forward-lookingstatements attributable to us or persons acting on our behalf are expresslyqualified in their entirety by the foregoing cautionary statements. You arecautioned not to place undue reliance on the forward-looking statements, whichspeak only as of the date of this Quarterly Report on Form 10-Q. Weundertake no obligations to update or revise publicly any forward-lookingstatements, whether as a result of new information, future events or otherwise.

**Item 3—*Quantitative and Qualitative Disclosures about Market Risk***

Refer to “Item 7A—Quantitativeand Qualitative Disclosures about Market Risk” included in our annual report onForm 10-K for the year ended December 31, 2005, for theCompany’s quantitative and qualitative disclosure about market risk. There wasno material change in such information as of June 30, 2006.

**Item 4—*Controls and Procedures***

In connection with the preparation of this QuarterlyReport on Form 10-Q, management carried out an evaluation, with theparticipation of the Chief Executive Officer and the Chief Financial Officer,of the effectiveness of the disclosure controls and procedures pursuant toRule 13a-15 of the Securities and Exchange Act of 1934. Based onthat evaluation, the Chief Executive Officer and the Chief Financial Officerconcluded that our disclosure controls and procedures were effective at areasonable assurance level as of June 30, 2006.

There were no changes in our internal control overfinancial reporting that occurred during the quarter ended June 30, 2006that have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

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**Part II—OTHERINFORMATION**

**Item 1—*Legal Proceedings***

For information regardinglegal proceedings, see Note 10 in Item 1 of this quarterly report on Form 10-Q,which information is incorporated herein by reference into this item.

**Item 1A—*Risk Factors***

There have been nomaterial changes to the risk factors that are included in our annual report on Form 10-Kfor the year ended December 31, 2005 that could affect our business,results of operations or financial condition.

**Item 2—*Unregistered Sales of Equity Securities and Use of Proceeds***

During the second quarter of 2006, we offered 85 ofour officers and employees the opportunity to purchase up to 40,166 shares ofour common stock for an aggregate offering price of up to $3,012,450. Of theshares offered, 51 of our officers and employees purchased 25,070 shares for atotal purchase price of $1,880,250. The closing of the purchase of sharesoccurred during the second quarter of 2006. The shares were offered and sold inthe United States under an exemption from registration provided by Rule 701under the Securities Act and available exemptions under state law and injurisdictions outside of the United States under available exemptions fromregistration provided by the laws of such jurisdictions.

During the second quarterof 2006, two individuals exercised vested options to purchase 19,600 shares ofour common stock. The aggregate exercise price paid to acquire the shares was$990,152.

**Item 4—*Submission of Matters to a Vote of Security Holders***

On May 12, 2006, ourmajority shareholder, Clayton, Dubilier & Rice Fund VI LimitedPartnership, approved an increase in the number of shares of common stockauthorized for award under the CDRV Investors, Inc. Stock Incentive Plan.

**Item6—*Exhibits***

| Exhibit  Number | ** ** | **Description  of Documents**                                                                                                   | ** ** | **Method of  Filing** |
|-----------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|
| 10.1            |       | CDRV  Investors, Inc. Stock Incentive Plan, as amended.                                                                    |       | Filed herewith.       |
| 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**

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

|        | CDRV INVESTORS, INC. |
|--------|----------------------|
|   | By:                  | /s/ JACK L. WYSZOMIERSKI |
|   | Name:                | Jack L. Wyszomierski |
|   | Title:               | Executive Vice President and Chief Financial Officer |
|   |                 | (Principal Financial Officer and Duly Authorized Officer) |

 

August 11, 2006

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