**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

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(MarkOne)

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe quarterly period ended September 30, 2006**

**or**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

For the transition periodfrom                    to

**Commissionfile number:  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  incorporation or organization) |   | (I.R.S. Employer  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 markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes o   No x

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

| Large accelerated  filer o |   | Accelerated  filer o |   | Non-accelerated  filer x |
|---------------------------------|--------|---------------------------|--------|-------------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o   No x

Asof September 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 November 14, 2006 was 5,797,680.

 

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

**INDEX**

**PART I.**   FINANCIALINFORMATION:

|                                                   | ** ** | ** **                                                                                                                                              | ** ** | **Page No.** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| Item 1.                                           |       | Financial Statements:                                                                                                                                   |       |              |       |
|                                              |       | Consolidated  Balance Sheets—as of September 30, 2006 (Unaudited) and  December 31, 2005                                                 |       |   1     |       |
|                                              |       | Consolidated Statements of Operations (Unaudited)—for  the three and nine months ended September 30, 2006 and 2005                            |       |   2     |       |
|                                              |       | Consolidated Statement of Stockholders’ Equity and  Other Comprehensive Income (Unaudited)—for the nine months ended  September 30, 2006 |       |   3     |       |
|                                              |       | Consolidated Statements of Cash Flows (Unaudited)—for  the nine months ended September 30, 2006 and 2005                                      |       |   4     |       |
|                                              |       | Notes to Consolidated Financial Statements (Unaudited)                                                                                                  |       |   5     |       |
| Item 2.                                           |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                                             |       | 21                |       |
| Item 3.                                           |       | Quantitative  and Qualitative Disclosures about Market Risk                                                                                             |       | 32                |       |
| Item 4.                                           |       | Controls and  Procedures                                                                                                                                |       | 32                |       |
| **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  6.                                          |       | Exhibits                                                                                                                                                |       | 33                |       |
| Signature                                         |       | 34                                                                                                                                                      |       |

 

i

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**PART I—FINANCIALINFORMATION**

**Item 1—*Financial Statements***

**CDRV INVESTORS, INC.Consolidated Balance Sheets(Dollars in millions, except share data)**
|                                                                                                                                                                                                                        | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                             | ** ** | **(Unaudited)**              | ** ** | ** **                  | ** ** |
| **Assets**                                                                                                                                                                                                             | ** ** |                         | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| Current Assets:                                                                                                                                                                                                        |       |                         |       |                        |       |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                              |       |                         | $          | 104.7                       |       |   |   | $ | 126.1 |   |   |
| Trade accounts receivable, less reserves  of $9.0 and $6.6, respectively                                                                                                                                               |       |                         | 458.8      |                        |       |   | 407.3 |   |   |
| Other receivables                                                                                                                                                                                                      |       |                         | 26.5       |                        |       |   | 31.0 |   |   |
| Inventories                                                                                                                                                                                                            |       |                         | 243.8      |                        |       |   | 270.4 |   |   |
| Other current assets                                                                                                                                                                                                   |       |                         | 37.8       |                        |       |   | 30.6 |   |   |
| Total current assets                                                                                                                                                                                                   |       |                         | 871.6      |                        |       |   | 865.4 |   |   |
| Property and equipment, net                                                                                                                                                                                            |       |                         | 157.3      |                        |       |   | 156.8 |   |   |
| Investments                                                                                                                                                                                                            |       |                         | 8.0        |                        |       |   | 7.8 |   |   |
| Goodwill                                                                                                                                                                                                               |       |                         | 931.1      |                        |       |   | 910.0 |   |   |
| Other intangible assets, net                                                                                                                                                                                           |       |                         | 553.0      |                        |       |   | 552.7 |   |   |
| Deferred income taxes                                                                                                                                                                                                  |       |                         | 9.4        |                        |       |   | 8.7 |   |   |
| Other assets                                                                                                                                                                                                           |       |                         | 40.9       |                        |       |   | 45.9 |   |   |
| Total assets                                                                                                                                                                                                           |       |                         | $          | 2,571.3                     |       |   |   | $ | 2,547.3 |   |   |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                                          | ** ** |                         | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| Current Liabilities:                                                                                                                                                                                                   |       |                         |       |                        |       |   |   |   |   |
| Short-term portion of bank debt and  current portion of capital lease obligations                                                                                                             |       |                         | $          | 1.0                         |       |   |   | $ | 45.5 |   |   |
| Accounts payable                                                                                                                                                                                                       |       |                         | 349.1      |                        |       |   | 370.3 |   |   |
| Accrued expenses                                                                                                                                                                                                       |       |                         | 177.2      |                        |       |   | 139.1 |   |   |
| Total current liabilities                                                                                                                                                                                              |       |                         | 527.3      |                        |       |   | 554.9 |   |   |
| Long-term debt                                                                                                                                                                                                         |       |                         | 1,317.6    |                        |       |   | 1,342.9 |   |   |
| Capital lease obligations                                                                                                                                                                                              |       |                         | 4.8        |                        |       |   | 5.0 |   |   |
| Other long-term liabilities                                                                                                                                                                                            |       |                         | 89.0       |                        |       |   | 87.1 |   |   |
| Deferred income taxes                                                                                                                                                                                                  |       |                         | 237.9      |                        |       |   | 233.5 |   |   |
| Total liabilities                                                                                                                                                                                                      |       |                         | 2,176.6    |                        |       |   | 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; 5,854,710 sharesissued and 5,799,430 outstanding at September 30, 2006; 5,779,178  shares issued and 5,753,428 outstanding at December 31, 2005 |       |                         | 0.1        |                        |       |   | 0.1 |   |   |
| Additional paid-in capital                                                                                                                                                                                             |       |                         | 274.4      |                        |       |   | 268.0 |   |   |
| Retained earnings                                                                                                                                                                                                      |       |                         | 83.6       |                        |       |   | 43.6 |   |   |
| Unamortized value of restricted stock  issued                                                                                                                                                                          |       |                         | —     |                        |       |   | (1.6 | ) |   |
| Accumulated other comprehensive income                                                                                                                                                                                 |       |                         | 37.7       |                        |       |   | 12.7 |   |   |
| Treasury stock, at cost, 55,280 shares  at September 30, 2006 and 25,750 sharesat December 31, 2005                                                                                                          |       |                         | (3.7       | )                           |       |   | (1.5 | ) |   |
| Total stockholders’ equity                                                                                                                                                                                        |       |                         | 392.1      |                        |       |   | 321.3 |   |   |
| Total liabilities and stockholders’ equity                                                                                                                                                                        |       |                         | $          | 2,571.3                     |       |   |   | $ | 2,547.3 |   |   |

 

See accompanying notes to consolidated financial statements.

1

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

| ** **                                    | ** ** | **Three Months Ended**                                                               | ** ** | **Nine Months Ended** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                    | ** ** | **      September 30,      ** | ** ** | **September 30,**          | ** ** |
| ** **                                    | ** ** | **    2006    **                                       | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net sales                                     |       |                                                                                           | $          | 817.6                           |       |   | $ | 812.0 |   | $ | 2,428.4 |   | $ | 2,360.9 |   |
| Cost of goods sold                            |       |                                                                                           | 594.0      |                            |       | 602.4 |   | 1,771.3 |   | 1,757.8 |   |
| Gross profit                                  |       |                                                                                           | 223.6      |                            |       | 209.6 |   | 657.1 |   | 603.1 |   |
| Selling, general and administrative  expenses |       |                                                                                           | 168.9      |                            |       | 158.0 |   | 511.8 |   | 486.5 |   |
| Restructuring charges (credits)               |       |                                                                                           | —     |                            |       | 4.3 |   | (1.0 | ) | 11.5 |   |
| Operating income                              |       |                                                                                           | 54.7       |                            |       | 47.3 |   | 146.3 |   | 105.1 |   |
| Interest income                               |       |                                                                                           | (2.1       | )                               |       | (0.8 | ) | (4.9 | ) | (1.8 | ) |
| Interest expense                              |       |                                                                                           | 30.0       |                            |       | 27.1 |   | 86.9 |   | 78.8 |   |
| Other (income) expense, net                   |       |                                                                                           | (0.1       | )                               |       | (1.3 | ) | 0.3 |   | (3.1 | ) |
| Income before income taxes                    |       |                                                                                           | 26.9       |                            |       | 22.3 |   | 64.0 |   | 31.2 |   |
| Income tax provision                          |       |                                                                                           | 11.3       |                            |       | 10.0 |   | 24.0 |   | 13.6 |   |
| Net income                                    |       |                                                                                           | $          | 15.6                            |       |   | $ | 12.3 |   | $ | 40.0 |   | $ | 17.6 |   |

 

See accompanying notes to consolidated financial statements.

2

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**CDRV INVESTORS, INC.Consolidated Statement of Stockholders’ Equity and Other Comprehensive IncomeNine Months Ended September 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(d))                                          |       | —                |       |        | —     |           |       |           | (1.6       | )                     |       |             | —     |                     |       |       | 1.6        |   |   |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| Issuance of common stock in connection with our stock incentive plan         |       | 51,672                |       |        | —     |           |       |           | 3.8        |                  |       |             | —     |                     |       |       | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 3.8 |   |
| Exercise of stock options                                                    |       | 23,860                |       |        | —     |           |       |           | 1.2        |                  |       |             | —     |                     |       |       | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 1.2 |   |
| Compensation expense recognized for options                                  |       | —                |       |        | —     |           |       |           | 2.6        |                  |       |             | —     |                     |       |       | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 2.6 |   |
| Compensation expense recognized for amortization of restricted common  stock |       | —                |       |        | —     |           |       |           | 0.3        |                  |       |             | —     |                     |       |       | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 0.3 |   |
| Tax benefit related to stock options                                         |       | —                |       |        | —     |           |       |           | 0.1        |                  |       |             | —     |                     |       |       | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 0.1 |   |
| Acquisition of treasury stock                                                |       | —                |       |        | —     |           |       |           | —     |                  |       |             | —     |                     |       |       | —     |   |   |   | — |   |   |   | 29,530 |   |   |   | (2.2 | ) |   | (2.2 | ) |
| Comprehensive  income                                                        |       |                  |       |        |       |           |       |           |       |                  |       |             |       |                     |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                   |       | —                |       |        | —     |           |       |           | —     |                  |       |             | 40.0       |                     |       |       | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   | 40.0 |   |
| Foreign currency translation  adjustment                                     |       | —                |       |        | —     |           |       |           | —     |                  |       |             | —     |                     |       |       | —     |   |   |   | 25.2 |   |   |   | — |   |   |   | — |   |   | 25.2 |   |
| Unrealized loss on derivatives, net of tax                                   |       | —                |       |        | —     |           |       |           | —     |                  |       |             | —     |                     |       |       | —     |   |   |   | (0.2 | ) |   |   | — |   |   |   | — |   |   | (0.2 | ) |
| Total comprehensive income                                                   |       |                  |       |        |       |           |       |           |       |                  |       |             |       |                     |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 65.0 |   |
| Balance at September 30, 2006                                           |       | 5,854,710             |       |        | $          | 0.1            |       |           |       | $                     | 274.4      |             |       |                     | $          | 83.6       |       |   |   | $ | — |   |   |   | $ | 37.7 |   |   |   | 55,280 |   |   |   | $ | (3.7 | ) |   | $ | 392.1 |   |

 

See accompanying notes to consolidated financial statements.

3

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

| ** **                                                                         | ** ** | **Nine Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                         | ** ** | **September 30,**          | ** ** |
| ** **                                                                         | ** ** | **2006**                        | ** ** | **2005** | ** ** |
| Cash flows from operating activities:                                              |       |                            |       |   |   |
| Net income                                                                         |       | $                               | 40.0       |   | $ | 17.6 |   |
| Adjustments to reconcile net income to  net cash provided by operating activities: |       |                            |       |   |   |
| Depreciation and amortization                                                      |       | 25.5                            |       | 25.2 |   |
| Loss (gain) on sale of assets                                                      |       | 0.2                             |       | (0.1 | ) |
| Non-cash interest accretion                                                        |       | 24.2                            |       | 22.1 |   |
| Non-cash equity compensation expense                                               |       | 2.9                             |       | — |   |
| Amortization of debt issuance costs                                                |       | 4.5                             |       | 4.1 |   |
| Deferred income tax (benefit) expense                                              |       | 3.1                             |       | 6.0 |   |
| Provision for doubtful accounts                                                    |       | 4.6                             |       | 2.6 |   |
| Changes in working capital:                                                        |       |                            |       |   |   |
| Trade accounts receivable                                                          |       | (40.5                           | )          | (61.9 | ) |
| Other receivables                                                                  |       | 6.7                             |       | (1.3 | ) |
| Inventories                                                                        |       | 33.3                            |       | (24.2 | ) |
| Other assets                                                                       |       | (5.3                            | )          | (8.9 | ) |
| Accounts payable                                                                   |       | 12.6                            |       | 35.0 |   |
| Accrued expenses and other long-term liabilities                                   |       | 23.4                            |       | (2.0 | ) |
| Net cash provided by operating activities                                          |       | 135.2                           |       | 14.2 |   |
| Cash flows from investing activities:                                              |       |                            |       |   |   |
| Capital expenditures                                                               |       | (15.1                           | )          | (12.1 | ) |
| Acquisitions of businesses and other intangible assets                             |       | (0.6                            | )          | (44.5 | ) |
| Transaction costs                                                                  |       | (0.2                            | )          | (1.2 | ) |
| Proceeds from sales of property and equipment                                      |       | 5.2                             |       | 0.3 |   |
| Net cash used in investing activities                                              |       | (10.7                           | )          | (57.5 | ) |
| Cash flows from financing activities:                                              |       |                            |       |   |   |
| Proceeds from debt                                                                 |       | 0.3                             |       | 2.9 |   |
| Repayment of debt                                                                  |       | (105.9                          | )          | (11.3 | ) |
| Net change in bank checks outstanding                                              |       | (44.7                           | )          | (3.1 | ) |
| Proceeds from stock incentive plan                                                 |       | 4.7                             |       | 1.3 |   |
| Cash paid for debt issuance costs                                                  |       | —                          |       | (0.8 | ) |
| Acquisition of treasury stock                                                      |       | (2.2                            | )          | (1.3 | ) |
| Net cash used in financing activities                                              |       | (147.8                          | )          | (12.3 | ) |
| Effect of exchange rate changes on cash                                            |       | 1.9                             |       | (2.4 | ) |
| Net decrease in cash and cash equivalents                                          |       | (21.4                           | )          | (58.0 | ) |
| Cash and cash equivalents beginning of  period                                     |       | 126.1                           |       | 116.9 |   |
| Cash and cash equivalents end of period                                            |       | $                               | 104.7      |   | $ | 58.9 |   |
| Supplemental disclosures of cash flow  information:                                |       |                            |       |   |   |
| Cash paid during the period for:                                                   |       |                            |       |   |   |
| Interest                                                                           |       | $                               | 48.7       |   | $ | 42.0 |   |
| Income taxes paid, net                                                             |       | $                               | 6.2        |   | $ | 13.1 |   |

 

See accompanying notes to consolidated financial statements.

4

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

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

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

CDRV Investors, Inc.(“CDRV”, the “Company”, “we” or “our”) through its wholly-owned subsidiary VWRInternational, Inc. (“VWR”) distributes scientific supplies, chemicals,and equipment, primarily in North America and Europe. The business isdiversified across products and services, customer groups, and geography. Wereport financial results on the basis of the following three business segments:North American laboratory distribution (“North American Lab”), Europeanlaboratory distribution (“European Lab”) and Science Education. Both the NorthAmerican Lab and European Lab segments distribute scientific supplies tocustomers in the pharmaceutical, biotechnology, chemical, technology, and foodprocessing industries; governmental agencies; colleges and universities; andenvironmental organizations. Science Education manufactures and distributesscientific supplies and specialized kits to primary and secondary schools as wellas distribution of scientific supplies to universities and research institutes.

***(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 CDRV (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 shown in the Company’s 2005Annual Report on Form 10-K for the year ended December 31, 2005.The 

5

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**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)**

Company believes that thedisclosures included herein are adequate to make the information presented notmisleading when read in conjunction with the financial statements, footnotesand related disclosures included in the Company’s Annual Report on Form 10-Kfor 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) New AccountingStandards**

During July 2006, the Financial AccountingStandards Board (“FASB”) issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes*(“FIN 48”). This Interpretation clarifies the accounting for uncertainty inincome taxes recognized in accordance with FASB Statement of FinancialAccounting Standards (“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.

During September 2006, the FASB issued SFAS No. 158,*Employers’ Accounting for Defined Benefit Pension andOther Postretirement Plans—an amendment of SFAS No 87, 88, 106, and 132(R)*(“SFAS 158”). This Statement requires balance sheet recognition of thefunded status for all pension and postretirement benefit plans. The impact ofthe initial adjustment will be recorded as an adjustment to other comprehensiveincome. Subsequent changes in funded status will also be recognized as acomponent of other comprehensive income to the extent they have not yet beenrecognized as a component of net periodic benefit cost. We have pension andpostretirement benefit plans that will be subject to the provisions of SFAS 158.SFAS 158 requires adoption by the Company for our fiscal year ending December 31,2007. At this time we have not completed our assessment of the impact thisStatement will have on our consolidated financial statements.

During September 2006,the FASB issued SFAS No. 157, *FairValue Measurements* (“SFAS 157”). This Statement defines fairvalue, establishes a framework for measuring fair value and expands disclosuresabout fair value measurements required under other accounting pronouncements,but does not change existing guidance as to whether or not an instrument iscarried at fair value. SFAS 157 is effective 

6

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

**(2) New AccountingStandards (Continued)**

forfiscal years beginning after November 15, 2007. We are currentlyevaluating the impact this Statement will have on our consolidated financialstatements.

**(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 ServiceLab B.V. (“TSL”) for cash consideration of approximately $3.1. TSL performstechnical services on laboratory equipment in the Netherlands, Germany, Belgiumand France. The results of AGB and TSL have been included in the European Labsegment from the date of acquisition. The results of AI have been included inthe North American Lab segment from the date of acquisition.

Theexcess investment made by the Company over the estimates of the fair marketvalue of the identifiable assets and liabilities for the three acquisitionsdiscussed above and one other minor acquisition was $23.3 and is summarizedbelow.

| 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) CDRV Investors, Inc. Stock Incentive Plan***

We adopted the CDRVInvestors, Inc. Stock Incentive Plan (the “Stock Plan”). Under the StockPlan, our board of directors may grant rights to purchase shares of our commonstock and options to purchase shares of our common stock to any of ourexecutive officers or other employees, including our named executive officers.Under the Stock Plan, the board of directors may also grant shares of commonstock, rights to purchase shares of common stock and other share-based awardsto our directors, who are not also our employees or associated with Clayton,Dubilier & Rice (“CD&R”). Options granted under the plan vest inequal annual installments on each of the first five anniversaries of the grantdate and expire ten years from the grant date. As of September 30, 2006,there were 1,026,591 shares of common stock available for all types of awardsunder the stock plan. Based on shares issued, options outstanding and 

7

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

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

restrictedunits granted under the Stock Plan as of September 30, 2006, there are120,988 shares available for future awards.

***(b) Stock and Option Activity***

During the first quarter of 2006, we closed anoffering with our President and Chief Executive Officer for the purchase of19,643 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. Also during the first quarter of 2006, we issued 1,050 sharesto certain directors who are not also our employees or associated with CD&Rfor director compensation and issued 1,360 shares at $50.52 per share in connectionwith the exercise of vested stock options.

During the second quarter of 2006, we offered 85 ofour officers and employees the option to purchase 40,166 shares at $75.00per share. The fair value of this purchase option, calculated in accordance withthe provisions of SFAS No. 123 Revised, Share-Based Payment (“SFAS 123R”), of $1.3 was charged tooperations in the second quarter of 2006. Fifty-one of our officers andemployees ultimately purchased 25,070 shares in the second quarter of 2006. Inconnection with these purchases, these officers and employees were to begranted two options, for each share purchased, at grant date fair value duringthe third quarter of 2006. As a result of the delay in the issuance of theoptions, these officers and employees received a special bonus totaling $2.2that was recorded as a compensation charge, primarily in the third quarter of2006. Also during the second quarter of 2006, we issued 900 shares to certaindirectors who are not also our employees or associated with CD&R fordirector compensation and issued 19,600 shares at $50.52 per share inconnection with the exercise of vested stock options.

During the third quarter of 2006, we closed anoffering with our President and Chief Executive Officer for the purchase of4,201 shares at $119.00 per share. Coincident with this purchase, thisexecutive was granted options to purchase 12,603 shares at $119.00 per share.Also during the third quarter of 2006, we granted options to purchase 49,140shares at $119.00 per share to 50 of our officers and employees in connectionwith the offering discussed above that occurred in the second quarter of 2006,issued 808 shares to certain directors who are not also our employees orassociated with CD&R for director compensation and issued 2,900 shares at$50.52 per share in connection with the exercise of vested stock options.

During the nine monthsended September 30, 2005, we closed offerings in respect of 17 of ourofficers and employees for the purchase of 22,960 shares at $56.00 pershare and granted options to purchase 45,920 shares at $56.00 per share; inconnection with the acquisition of AI discussed in Note 3, issued 8,929 shares,as consideration (for value of $0.5), and granted options to purchase 17,858shares at $56.00 per share; closed an offering with 1 of our directors for447 shares at $56.00 per share; and issued 4,219 shares to certaindirectors who are not also our employees or associated with CD&R fordirector compensation.

8

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

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

***(c) Adoption of SFAS 123R***

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 second quarter charge for the stockpurchase option of $1.3 discussed above, for the three and nine months ended September 30,2006 was an increase to selling, general and administrative expenses of $0.4and $2.6, respectively, and a reduction to income tax provision of $0.1 and$1.0, 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 nine monthsended September 30, 2005 would have approximated the pro-forma amountsindicated below:

| ** **                                                                                                     | ** ** | **Three Months  Ended  September 30,  2005** | ** ** | **Nine Months   Ended  September 30,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| Net income, as  reported                                                                                       |       |                                                   | $          | 12.3                                                        |       |   |   | $ | 17.6 |   |   |
| Deduct:  stock-based compensation expense determined using fair value based method for  all awards, net of tax |       |                                                   | (0.3       | )                                                           |       |   | (0.9 | ) |   |
| Pro-forma net income                                                                                           |       |                                                   | $          | 12.0                                                        |       |   |   | $ | 16.7 |   |   |

 

Thefair value of each option was estimated using the Black-Scholes option-pricingmodel. The weighted average fair value of options granted and the assumptionsused for each of the reporting periods are as follows:

| ** **                     | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|--------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                     | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Fair value of  options granted |       | $                                                    | 52.11      |                                                | $          | 25.30 |   | $ | 43.07 |   | $ | 25.56 |   |
| Risk-free  interest rate       |       | 4.63                                                 | %          | 4.23                                                | %          | 4.69 | % | 4.11 | % |
| Expected life of  options      |       | 6.5 years                                            |       | 6.5 years                                           |       | 6.5 years |   | 6.5 years |   |
| Volatility                     |       | 34                                                   | %          | 37                                                  | %          | 34 | % | 38 | % |
| Expected dividend yield        |       | 0.0                                                  | %          | 0.0                                                 | %          | 0.0 | % | 0.0% |   |
|                                |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

 

9

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

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

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 the stockoptions, which are considered fixed awards applying pro-rata vesting, on astraight-line basis.

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

| ** **                              | ** ** | **Number   of   Shares** | ** ** | **Weighted  Average  Exercise   Price** | ** ** |
|-----------------------------------------|------------|------------------------------------|------------|----------------------------------------------|------------|
| Outstanding at  January 1, 2006    |       | 483,728                            | ** ** |                                         | $          | 51.24 | ** ** |   |
| Granted                                 |       | 120,672                            |       |                                         | 97.51      | ** ** |   |
| Forfeited                               |       | (49,528                            | )          |                                         | 50.52      | ** ** |   |
| Canceled                                |       | (1,452                             | )          |                                         | 50.52      | ** ** |   |
| Exercised                               |       | (23,860                            | )          |                                         | 50.52      | ** ** |   |
| Outstanding at  September 30, 2006 |       | 529,560                            |       |                                         | 61.89      | ** ** |   |
| Exercisable at  September 30, 2006 |       | 152,948                            |       |                                         | 50.98      | ** ** |   |

 

Cash received as a result of stock options exercisedwas $1.2 for the nine months ended September 30, 2006. In connection withthese exercises, the tax benefit realized by the Company was $0.1 for the ninemonths ended September 30, 2006.

Total intrinsic value related to stock optionsexercised was $0.1 and $0.6 for the three and nine months ended September 30,2006, respectively. No options were exercised during the three and nine monthsended September 30, 2005.

Informationregarding unvested stock options for the nine months ended September 30,2006 is as follows:

| ** **                                   | ** ** | **Number  of  Shares** | ** ** | **Weighted  Average  Fair  Value** | ** ** |
|----------------------------------------------|------------|------------------------|------------|------------------------------------|------------|
| Unvested options  at January 1, 2006    |       | 398,330                |       |                               | $          | 17.18 |   |   |
| Granted                                      |       | 120,672                |       |                               | 43.07      |   |   |
| Forfeited                                    |       | (49,528                | )          |                               | 15.58      |   |   |
| Vested                                       |       | (92,862                | )          |                               | 16.95      |   |   |
| Unvested options at  September 30, 2006 |       | 376,612                |       |                               | 25.74      |   |   |

 

10

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

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

The following is a summaryof outstanding stock options as of September 30, 2006.

|                           | ** ** | **Weighted**                                  | ** ** | ** **                   | ** ** | ** **                            | ** ** | ** **             | ** ** | ** **                      | ** **         |
|---------------------------|------------|-----------------------------------------------|------------|------------------------------|------------|---------------------------------------|------------|------------------------|------------|---------------------------------|--------------------|
| ** **                | ** ** | **Average**                                   | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**          | ** ** |
| **Exercise   Price** | ** ** | **Remaining  Contractual  Life (Years)** | ** ** | **Number  of  Shares**       | ** ** | **Aggregate   Intrinsic  Value** | ** ** | **Number  of  Shares** | ** ** | **Aggregate  Intrinsic  Value** | ** **         |
|                           | $          | 50.52                                         |       |                         |       | 8.0                                   |       |                   | 345,110    |                            |               | $ | 23.6 |   |   | 140,192 |   |   | $ | 9.6 |   |   |
|                      | 56.00      |                                          |       |                         | 8.6        |                                  |       | 63,778                 |       |                            | 4.0                |   |   | 12,756 |   |   | 0.8 |   |   |
|                           | 75.00      |                                          |       |                         | 9.4        |                                  |       | 58,929                 |       |                            | 2.6                |   |   | — |   |   | — |   |   |
|                      | 119.00     |                                          |       |                         | 9.7        |                                  |       | 61,743                 |       |                            | —   |   |   | — |   |   | — |   |   |
|                           |       |                                          |       |                         |       |                                  |       | 529,560                |       |                            | $                  | 30.2 |   |   | 152,948 |   |   | $ | 10.4 |   |   |

 

***(d) 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 recognized as compensation expense over the five-year vestingperiod of the restricted units granted. Compensation expense related to theserestricted stock units was $0.1 and $0.3 for the three and nine months ended September 30,2006, respectively.

As of September 30, 2006, the aggregate estimatedfuture compensation expense related to nonvested options outstanding and theunamortized value of restricted stock issued is $10.2. This expense will berecognized over a weighted average period of 4.0 years.

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

**(5) Restructuring**

***(a) Restructuring as a Result of the Acquisition***

Subsequent to the Acquisition, we initiatedrestructuring activities designed to reduce operating costs and improve theoperating and administrative capabilities of the Company. These charges havebeen recorded as adjustments to acquisition costs (increases to goodwill)pursuant to the provisions of Emerging Issues Task Force Issue No. 95-3,*Recognition of Liabilities in Connectionwith a Purchase Business Combination*.

11

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

**(5) Restructuring(Continued)**

Thefollowing table sets forth the activity associated with the Company’sliabilities for restructuring as a result of the Acquisition.

| ** **                          | ** ** | **Severance**   | ** ** | ** **     | ** ** | ** ** | ** ** |
|-------------------------------------|------------|-----------------|------------|----------------|------------|------------|------------|
| ** **                          | ** ** | **and**         | ** ** | ** **     | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **termination** | ** ** | **Facilities** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **benefits**    | ** ** | **related**    | ** ** | **Total**  | ** ** |
| Balance at  January 1, 2006    |       |            | $          | 7.6            |       |       |       | $ | 5.6 |   |   | $ | 13.2 |   |
| Cash payments/other                 |       |            | (3.7       | )              |       |       | (1.2       | ) |   | (4.9 | ) |
| Currency translation changes        |       |            | 0.3        |           |       |       | 0.3        |   |   | 0.6 |   |
| Balance at  September 30, 2006 |       |            | $          | 4.2            |       |       |       | $ | 4.7 |   |   | $ | 8.9 |   |

 

***(b) Otherrestructuring 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 $4.3 and $11.5for the three and nine months ended September 30, 2005, respectively. Forthe nine months ended September 30, 2006, we reversed $1.0 of excessaccruals and credited operations as a result of the re-deployment of certainpersonnel originally included in the programs and net reductions to otherestimated severance and termination benefit accruals.

Thefollowing table sets forth the activity associated with the Company’s liabilitiesfor these cost reduction programs.

| ** **                                          | ** ** | **Three Months Ended September 30,** | ** ** |                    |
|-----------------------------------------------------|------------|----------------------------------------------------------|------------|-------------------------|
| ** **                                          | ** ** | **2006**                                                 | ** ** | **2005**                | ** ** |   |
| ** **                                          | ** ** | **Severance  and  termination  benefits**                | ** ** | **Facilities  related** | ** ** | **Total** | ** ** | **Severance  and  termination  benefits** | ** ** | **Facilities  related** | ** ** | **Total** | ** ** |   |
| Balance at beginning of period                      |       |                                                     | $          | 2.3                     |   |   |   | $ | 0.1 |   |   | $ | 2.4 |   |   | $ | 3.6 |   |   |   | $ | 1.5 |   |   | $ | 5.1 |   |
| Accruals (credited) charged to earnings  by segment |       |                                                     |       |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| North American Lab                                  |       |                                                     | —     |                    |   |   | — |   |   | — |   |   | 0.4 |   |   |   | 0.1 |   |   | 0.5 |   |
| European Lab                                        |       |                                                     | —     |                    |   |   | — |   |   | — |   |   | 4.2 |   |   |   | (0.4 | ) |   | 3.8 |   |
| Cash payments/other                                 |       |                                                     | (0.4       | )                       |   |   | — |   |   | (0.4 | ) |   | (3.3 | ) |   |   | — |   |   | (3.3 | ) |
| Currency translation changes                        |       |                                                     | (0.1       | )                       |   |   | — |   |   | (0.1 | ) |   | — |   |   |   | — |   |   | — |   |
| Balance at end of period                            |       |                                                     | $          | 1.8                     |   |   |   | $ | 0.1 |   |   | $ | 1.9 |   |   | $ | 4.9 |   |   |   | $ | 1.2 |   |   | $ | 6.1 |   |
|                                                     |            |                                                          |            |                         |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

** **

12

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

**(5) Restructuring(Continued)**

 

| ** **                                         | ** ** | **Nine Months Ended September 30,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                         | ** ** | **2006**                                                | ** ** | **2005** | ** ** |
| ** **                                         | ** ** | **Severance  and  termination  benefits**               | ** ** | **Facilities  related** | ** ** | **Total** | ** ** | **Severance  and  termination  benefits** | ** ** | **Facilities  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 | ) |   | 4.3 |   |   |   | 0.1 |   |   | 4.4 |   |
| European Lab                                       |       |                                                    | —     |   |   |   | — |   |   | — |   |   | 6.0 |   |   |   | 1.1 |   |   | 7.1 |   |
| Cash payments/other                                |       |                                                    | (7.1       | ) |   |   | (0.2 | ) |   | (7.3 | ) |   | (5.4 | ) |   |   | — |   |   | (5.4 | ) |
| Currency translation changes                       |       |                                                    | 0.1        |   |   |   | — |   |   | 0.1 |   |   | — |   |   |   | — |   |   | — |   |
| Balance at end of period                           |       |                                                    | $          | 1.8 |   |   |   | $ | 0.1 |   |   | $ | 1.9 |   |   | $ | 4.9 |   |   |   | $ | 1.2 |   |   | $ | 6.1 |   |

 

At September 30,2006, $4.5 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 and OtherIntangible 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 nine months ended September 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                            |       |                  | 7.6        |         |       |          | 14.5       |       |       |   | — |   |   | 22.1 |   |
| Balance at  September 30, 2006                     |       |                  | $          | 654.9        |       |          |       | $          | 208.5      |   |   |   | $ | 67.7 |   |   | $ | 931.1 |   |

 

13

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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) OtherIntangible Assets***

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

| ** **                                                                                                  | ** ** | **Weighted  Average  Amortization  Period  (Years)** | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Amortizable intangible assets:                                                                              |       |                                                 |       |                         |       |                        |       |   |   |   |   |   |   |
| Customer relationships in North America (net of accumulated  amortization of $18.6 and $13.2, respectively) |       |                                                 | 32.8       |                         |       |                        | $          | 228.3 |   |   |   | $ | 232.7 |   |   |
| Customer relationships in Europe (net of accumulated amortization of  $9.9 and $6.3, respectively)          |       |                                                 | 20.3       |                         |       |                        | 72.7       |   |   |   | 69.5 |   |   |
| Chemical supply agreements (net of accumulated amortization of $7.9  and $5.2, respectively)                |       |                                                 | 10.0       |                         |       |                        | 23.5       |   |   |   | 24.2 |   |   |
| Other (net of accumulated amortization of $1.0 and $0.4, respectively)                                      |       |                                                 | 4.1        |                         |       |                        | 0.2        |   |   |   | 0.8 |   |   |
| Total amortizable intangible assets (net of accumulated amortization  of $37.4 and $25.1, respectively)     |       |                                                 |       |                         |       |                        | 324.7      |   |   |   | 327.2 |   |   |
| Indefinite-lived intangible assets:                                                                         |       |                                                 |       |                         |       |                        |       |   |   |   |   |   |   |
| Trademarks and tradenames                                                                                   |       |                                                 |       |                         |       |                        | 228.3      |   |   |   | 225.5 |   |   |
| Total intangible assets, net                                                                                |       |                                                 |       |                         |       |                        | $          | 553.0 |   |   |   | $ | 552.7 |   |   |

 

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

| ** **            | ** ** | **Three Months Ended  September 30,**     | ** ** | **Nine Months Ended  September 30,**      | ** ** |
|-----------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **            | ** ** | **    2006    ** | ** ** | **    2005    ** | ** ** | **    2006    ** | ** ** | **    2005    ** | ** ** |
| Amortization  expense |       |                                                     | $          | 3.8                                                      |       |   |   | $ | 3.5 |   |   |   | $ | 11.6 |   |   |   | $ | 10.7 |   |   |
|                       |            |                                                          |            |                                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

14

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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:

| ** **                                       | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|--------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Senior Secured Credit Facility                   |       |                         | $          | 443.2                       |       |   |   | $ | 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        |       |                         | 354.4      |                        |       |   | 330.2 |   |   |
| Bank loans                                       |       |                         | —     |                        |       |   | 0.3 |   |   |
| Capital leases                                   |       |                         | 5.8        |                        |       |   | 5.8 |   |   |
| Total debt                                       |       |                         | 1,323.4    |                        |       |   | 1,393.4 |   |   |
| Less short-term portion                          |       |                         | (1.0       | )                           |       |   | (45.5 | ) |   |
| Total long-term portion                          |       |                         | $          | 1,322.4                     |       |   |   | $ | 1,347.9 |   |   |

 

***(a) Senior SecuredCredit Facility***

The Senior Secured Credit Facility provides foraggregate maximum borrowings of approximately $593.2 under (1) a term loanfacility providing for a loan denominated in Euros in an aggregate principalamount currently outstanding of €107.3 million (orapproximately $136.1 on a U.S. dollar equivalent basis as of September 30, 2006), (2) aterm loan facility providing for a term loan denominated in U.S. dollars in anaggregate principal amount currently outstanding of $307.1, and (3) a multi-currencyrevolving credit facility, providing for up to $150.0 in multi-currencyrevolving loans (including standby and commercial letters of credit)outstanding at any time. Undrawn amounts under the multi-currency revolvingcredit facility will be available on a revolving credit basis for generalcorporate purposes. As of September 30, 2006, we had $9.5 of undrawnletters of credit and our remaining borrowing availability under the $150.0multi-currency revolving credit facility was $140.5. During the third quarterof 2006, the Senior Secured Credit Facility was amended to allow for anadditional $60.0 to be spent on acquisitions.

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 excess cash flow net of any voluntary principal prepayments (as defined) forany fiscal year unless certain leverage ratio targets are met. VWR made a $44.5principal prepayment in March 2006 based on VWR’s excess cash flow (asdefined) generated in 2005. This amount was included in short-term bank debt inour consolidated balance sheet at December 31, 2005.

In September 2006,VWR made a $60.0 voluntary principal prepayment on the Senior Secured CreditFacility term loans.

15

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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 September 30, 2006, none of thedomestic subsidiaries of VWR met the definition of significant subsidiary underthe credit 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 the capitalstock 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, theinterest rates applicable to the U.S. dollar-denominated term loan can be basedon a fluctuating rate of interest measured by reference to either (1) anadjusted London inter-bank offered rate, or LIBOR, plus a borrowing margin or (2) analternate base rate, or ABR, plus a borrowing margin. The interest rate applicableto the Euro-denominated term loan is based on a fluctuating rate of interestmeasured by reference to an adjusted EURIBOR plus a borrowing margin. As of September 30,2006, the interest rates on the U.S. dollar-denominated and Euro-denominatedterm loans were 7.77% and 5.87%, respectively.

***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 September 30, 2006, VWR wasin compliance 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 as of thepreceding April 1 and October 1. The senior subordinated notes aresubordinated in right of payment to all secured debt of the Company and thesenior 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.

16

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

**(7) Debt (Continued)**

***(c)  SeniorDiscount 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 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. VWR does not guaranteethe obligations under the Senior Discount Notes.

The indenture for theSenior Discount Notes contains covenants that, among other things, limit theamount of additional indebtedness we may incur, pay cash dividends, sell assetsand subsidiary stock, enter into transactions with affiliates, place liens onassets, and make certain other payments. At September 30, 2006, theCompany 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 September 30,** | ** ** |
|---------------------------------|------------|----------------------------------------------------------|------------|
| ** **                      | ** ** | **U.S.Plan**                                             | ** ** | **German, French  and UK Plans** | ** ** |
| ** **                      | ** ** | **2006**                                                 | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service cost                    |       | $                                                        | 0.2        |   | $ | 0.6 |   | $ | 0.7 |   | $ | 0.8 |   |
| Interest cost                   |       | 2.0                                                      |       | 1.9 |   | 1.1 |   | 1.0 |   |
| Expected return  on plan assets |       | (2.2                                                     | )          | (2.1 | ) | (1.0 | ) | (0.9 | ) |
| Recognized net  actuarial loss  |       | —                                                   |       | — |   | 0.1 |   | — |   |
| Net periodic  pension cost      |       | $                                                        | —     |   | $ | 0.4 |   | $ | 0.9 |   | $ | 0.9 |   |

** **

17

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

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

 

| ** **                      | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------------------|------------|---------------------------------------------------------|------------|
| ** **                      | ** ** | **U.S.Plan**                                            | ** ** | **German, French  and UK Plans** | ** ** |
| ** **                      | ** ** | **2006**                                                | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service cost                    |       | $                                                       | 1.6        |   | $ | 3.9 |   | $ | 2.1 |   | $ | 2.6 |   |
| Interest cost                   |       | 6.2                                                     |       | 6.2 |   | 3.1 |   | 3.2 |   |
| Expected return  on plan assets |       | (6.7                                                    | )          | (6.3 | ) | (2.8 | ) | (2.9 | ) |
| Recognized net  actuarial loss  |       | 0.2                                                     |       | — |   | 0.3 |   | — |   |
| Net periodic  pension cost      |       | $                                                       | 1.3        |   | $ | 3.8 |   | $ | 2.7 |   | $ | 2.9 |   |

 

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 $12.4 and $1.3for the nine months ended September 30, 2006, respectively, and expects tomake additional contributions to the Non-U.S. plans of approximately $0.5during the remainder of 2006.

**(9) Comprehensive Income(Loss)**

Comprehensiveincome (loss) is determined as follows:

| ** **                                        | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                        | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                        | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net income                                        |       | $                                | 15.6       |                            | $          | 12.3 |   | $ | 40.0 |   | $ | 17.6 |   |
| Other  comprehensive income (loss):               |       |                             |       |                            |       |   |   |   |   |
| Foreign currency translation adjustment           |       | (1.8                             | )          | 13.4                            |       | 25.2 |   | (20.0 | ) |
| Unrealized gain (loss) on derivatives, net of tax |       | 0.3                              |       | (1.0                            | )          | (0.2 | ) | (0.3 | ) |
| Comprehensive income (loss)                       |       | $                                | 14.1       |                            | $          | 24.7 |   | $ | 65.0 |   | $ | (2.7 | ) |

 

**(10) Commitments andContingencies**

The Company is involved in various environmental,employment, contractual and product liability cases and claims which areconsidered routine to our business and from time to time we are named as adefendant in cases as a result of our distribution of scientific supplies,including litigation resulting from the distribution of products containingasbestos by us and certain of our predecessors. While the impact of thislitigation has typically been immaterial, there can be no assurance that theimpact of pending cases, including those described below, and any future claimswill not be material to our business, financial condition or results ofoperations 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 

18

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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 $31.5 on a U.S. dollar equivalent basis as of September 30, 2006)related to our European Distribution Agreement with Merck KGaA. As of September 30,2006, the unamortized net book value of these intangible assets isapproximately  €18.5million (or $23.5 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”) alleginga breach of contract and unliquidated damages. On April 5, 2006, Corningamended its complaint to allege additional trademark and unfair competitionclaims. On May 2, 2006, the Company filed a motion to dismiss Corning’sbreach of contract claim and the court heard oral arguments on the motion on September 28,2006. The Company believes Corning’s claims are without merit and willvigorously defend itself in this matter.

**(11) Segment FinancialInformation**

The Company reports financial results on the basis ofthe following three business segments: North American Lab; European Lab; andScience Education. The Company’s operating segments have been identified givingconsideration to both geographic areas and the nature of products amongbusinesses within its geographic area.

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

**(11) SegmentFinancial Information (Continued)**

Selected segment financialinformation and reconciliation of reported operating income by segment toincome before income taxes are presented below. Inter-segment activity has beeneliminated. Therefore, revenues reported for each operating segment aresubstantially all from external customers.

| ** **                  | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                  | ** ** | **   2006   **         | ** ** | **   2005   **        | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Net Sales**               | ** ** |                                                 | ** ** |                                                |       |   | ** ** |   |   | ** ** | ** ** | ** ** | ** ** |
| North American Lab          |       |                                                 | $          | 492.5                                               |       |   |   | $ | 490.0 |   |   | $ | 1,485.0 |   | $ | 1,430.4 |   |
| European Lab                |       |                                                 | 270.6      |                                                |       |   | 264.4 |   |   | 821.1 |   | 814.4 |   |
| Science Education           |       |                                                 | 54.5       |                                                |       |   | 57.6 |   |   | 122.3 |   | 116.1 |   |
| Total                       |       |                                                 | $          | 817.6                                               |       |   |   | $ | 812.0 |   |   | $ | 2,428.4 |   | $ | 2,360.9 |   |
| **Operating Income**        | ** ** |                                                 | ** ** |                                                |       |   | ** ** |   |   | ** ** | ** ** | ** ** | ** ** |
| North American Lab          |       |                                                 | $          | 27.8                                                |       |   |   | $ | 28.7 |   |   | $ | 84.4 |   | $ | 63.0 |   |
| European Lab                |       |                                                 | 14.6       |                                                |       |   | 7.1 |   |   | 43.3 |   | 28.6 |   |
| Science Education           |       |                                                 | 12.3       |                                                |       |   | 11.5 |   |   | 18.6 |   | 13.5 |   |
| Total                       |       |                                                 | 54.7       |                                                |       |   | 47.3 |   |   | 146.3 |   | 105.1 |   |
| Interest income             |       |                                                 | (2.1       | )                                                   |       |   | (0.8 | ) |   | (4.9 | ) | (1.8 | ) |
| Interest expense            |       |                                                 | 30.0       |                                                |       |   | 27.1 |   |   | 86.9 |   | 78.8 |   |
| Other (income) expense, net |       |                                                 | (0.1       | )                                                   |       |   | (1.3 | ) |   | 0.3 |   | (3.1 | ) |
| Income before income taxes  |       |                                                 | $          | 26.9                                                |       |   |   | $ | 22.3 |   |   | $ | 64.0 |   | $ | 31.2 |   |

 

**(12) Subsequent Event**

On October 2, 2006, the Company announced theacquisition of Sino Chemical Company (Pte.) Limited (“Sino”). Sino is locatedin Singapore and distributes laboratory chemicals, equipment and consumables.This acquisition is not expected to have a material impact on the financialposition or results of operations of the Company for 2006.

20

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

**Overview**

Our net sales are derived primarily from the sale ofscientific supplies, including laboratory supplies, research chemicals,equipment, and to a lesser extent laboratory furniture and services, which arerecorded on a gross basis. Freight costs that are billed to our customers arealso 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 in thepharmaceutical, biotechnology, chemical, technology, and food processingindustries; governmental agencies; colleges and universities; and environmentalorganizations. Science Education manufactures and distributes scientificsupplies and specialized kits principally to primary and secondary schools inNorth America.

**Seasonality**

Our results of operationsare subject to seasonal trends primarily affecting our Science Educationsegment, which tend to result in increased net sales and operating income inthe third quarter in comparison to other quarters of the year. This strongerquarterly performance is a result of schools purchasing supplies in preparationfor the beginning of the new school year. Quarterly net sales are alsoinfluenced by the number of shipping days in a given fiscal period.

**Acquisitions**

We acquired AGB Scientific Ltd. (“AGB”) and AdvancedInstruments Sales & Service, Inc. (“AI”) on April 1, 2005and Technical Service Lab B.V. (“TSL”) on July 1, 2005. The results of AGBand TSL have been included in the European Lab segment and the results of AIhave been included in the North American Lab segment from the date of theacquisitions.

On October 2, 2006,the Company announced the acquisition of Sino Chemical Company (Pte.) Limited (“Sino”).Sino is located in Singapore and distributes laboratory chemicals, equipmentand consumables. This acquisition is not expected to have a material impact onthe financial position or results of operations of the Company for 2006.

**Restructuring**

Since the Acquisition on April 7, 2004, we haveinitiated various restructuring activities designed to reduce operating costsand 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 

21

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including estimates forenvironmental remediation associated with cessation of manufacturing operationsat a plant in France and severance costs associated with the consolidation ofcertain sales and marketing personnel in our German and UK operations. Thesecharges have been recorded as adjustments to acquisition costs (increases togoodwill) pursuant to the provisions of Emerging Issues Task Force Issue No. 95-3,*Recognition of Liabilities in Connectionwith a Purchase Business Combination*.

Throughout 2005, the Company recorded variousrestructuring charges in response to relatively static market conditions andimplemented reductions in force and other cost containment measures that didnot qualify as acquisition costs. In connection with these actions, we recordedrestructuring charges related to severance and facility exit costs totalingapproximately $20.6 million for the year ended December 31, 2005. For thethree months ended September 30, 2005 we recorded $0.5 million of suchcharges related to North American Lab programs and $3.8 million related toEuropean Lab programs. For the nine months ended September 30, 2005 werecorded $4.4 million of such charges related to North American Lab programsand $7.1 million related to European Lab programs.

These programs arecomplete and no such charges have been recorded in 2006. During the nine monthsended September 30, 2006 we reversed $1.0 million of excess accrualsrelated to North American Lab programs.

**Constant CurrencyAnalysis**

We maintain operationsprimarily in North America and in Europe. Approximately 41% of our net salesoriginate in currencies other than the U.S. dollar, principally the Euro, theBritish pound sterling and the Canadian dollar. As a result, changes in ourrevenues and operating profits include the impact of changes in foreigncurrency exchange rates. We provide “constant currency” disclosures in the followingdiscussion and analysis to quantify the impact of the fluctuation in foreignexchange rates 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.

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**Results ofOperations**

***Net Sales***

Thefollowing table presents net sales and changes in net sales by reportablesegment for the three and nine months ended September 30, 2006 and 2005(dollars in millions):

| ** **          | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **          | ** ** | **2006**                                                 | ** ** | **% Change**                                       | ** ** | **2005** | ** ** | **2006** | ** ** | **% Change** | ** ** | **2005** | ** ** |
| North American  Lab |       | $                                                        | 492.5      |                                                    |       | 0.5 | % |   | $ | 490.0 |   | $ | 1,485.0 |   |   | 3.8 | % |   | $ | 1,430.4 |   |
| European Lab        |       | 270.6                                                    |       |                                                    | 2.3        | % |   | 264.4 |   | 821.1 |   |   | 0.8 | % |   | 814.4 |   |
| Science Education   |       | 54.5                                                     |       |                                                    | (5.4       | )% |   | 57.6 |   | 122.3 |   |   | 5.3 | % |   | 116.1 |   |
| Total               |       | $                                                        | 817.6      |                                                    |       | 0.7 | % |   | $ | 812.0 |   | $ | 2,428.4 |   |   | 2.9 | % |   | $ | 2,360.9 |   |

 

Net sales for the three and nine months ended September 30,2006 increased $5.6 million and $67.5 million, respectively, over thecomparable periods of 2005. Foreign currency favorably impacted net sales by$14.8 million for the three months ended September 30, 2006. Foreigncurrency unfavorably impacted net sales by $2.2 million and the acquisitions ofAGB, AI and TSL favorably impacted net sales by $12.5 million for the ninemonths ended September 30, 2006. Excluding these effects, net salesdecreased 1.1% and increased 2.4%, respectively, from the comparable periods of2005.

Net sales in the North American Lab segment for thethree and nine months ended September 30, 2006 increased $2.5 million and$54.6 million, respectively, over the comparable periods of 2005. Foreigncurrency changes accounted for $3.2 million and $11.3 million of the increasefor the three and nine months ended September 30, 2006, respectively. Theacquisition of AI favorably impacted net sales by $3.4 million for the ninemonths ended September 30, 2006. Excluding these effects, net salesdecreased 0.1% and increased 2.8%, respectively, from the comparable periods of2005. The decrease for the three months ended September 30, 2006 is aresult of one less shipping day, partially offset by improved pricing. Theincrease for the nine months ended September 30, 2006 primarily reflectsimprovements in product pricing. For the nine months ended September 30,2006, our net sales to customers in the pharmaceutical industry experiencedlow-single digit growth and our net sales to customers in the biotechnology andindustrial industries achieved mid-single digit growth. These increases wereoffset by declines in net sales to our education customers.

Net sales in the European Lab segment for the threeand nine months ended September 30, 2006 increased $6.2 million and $6.7million, respectively, from the comparable periods of 2005. Foreign currencyfavorably impacted net sales by $11.6 million for the three months ended September 302006. Foreign currency unfavorably impacted net sales by $13.5 million and theacquisitions of AGB and TSL favorably impacted net sales by $9.1 million forthe nine months ended September 30, 2006. Excluding these effects, netsales decreased 2.0% and increased 1.4%, respectively, from the comparableperiods of 2005. The decrease for the three months ended September 30,2006 is primarily a result of one less shipping day. The increase for the ninemonths ended September 30, 2006 reflects improvements in product pricing.For the nine months ended September 30, 2006, our net sales to ourbio-pharmaceutical and industrial customers experienced low-single digitgrowth. These increases were partially offset by declines in net sales to oureducation, reseller and clinical customers.

Net sales in the ScienceEducation segment for the three and nine months ended September 30, 2006decreased $3.1 million or 5.4% and increased $6.2 million or 5.3%,respectively, over the comparable periods of 2005. The decrease for the threemonths ended September 30, 2006 is a result of a decrease in net sales toour direct education customers, partially offset by an increase in net sales toour publisher customers. The increase for the nine months ended September 30,2006 is primarily a result of growth in net sales to our publisher customersand partially due to growth in net sales to our direct education customers,including the fulfillment of a large international order.

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***Gross Profit***

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

| ** **                              | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                              | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Gross profit                            |       | $                                                    | 223.6      |                                                | $          | 209.6 |   | $ | 657.1 |   | $ | 603.1 |   |
| Percentage of net sales  (gross margin) |       | 27.3                                                 | %          | 25.8                                                | %          | 27.1 | % | 25.5 | % |
|                                         |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

 

Gross profit for the threeand nine months ended September 30, 2006 increased $14.0 million and $54.0million, respectively, over the comparable periods of 2005. Foreign currencyfavorably impacted gross profit by $4.3 million for the three months ended September 30,2006. Foreign currency unfavorably impacted gross profit by $1.5 million andthe acquisitions of AGB, AI and TSL favorably impacted gross profit by $4.7million for the nine months ended September 30, 2006. Excluding theseeffects, gross profit increased $9.7 million or 4.6% and $50.8 million or 8.4%from the comparable periods of 2005 as a result of the improved pricingdiscussed above. Our gross margin percentages improved in each of our segmentsover the 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 nine months ended September 30, 2006 and 2005 (dollarsin millions):

| ** **                                    | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| Selling, general  and administrative expenses |       | $                                                    | 168.9      |                                                | $          | 158.0 |   | $ | 511.8 |   | $ | 486.5 |   |
| Percentage of net sales                       |       | 20.7                                                 | %          | 19.5                                                | %          | 21.1 | % | 20.6 | % |
|                                               |            |                                                      |            |                                                     |            |  |  |  |  |  |  |  |  |

 

SG&A for the three and nine months ended September 30,2006 increased $10.9 million and $25.3 million, respectively, over thecomparable periods of 2005. Foreign currency increased SG&A by $3.4 millionfor the three months ended September 30, 2006. Foreign currency favorablyimpacted SG&A by $2.0 million and the acquisitions of AGB, AI and TSLincreased SG&A by $4.4 million for the nine months ended September 30,2006. Excluding these effects, SG&A increased $7.5 million or 4.7% and $22.9million or 4.7% from the comparable periods of 2005.

Charges related tostock-based compensation, including the adoption of SFAS 123R and the specialbonus of $2.2 million, in 2006 have increased SG&A by $2.6 million and $4.8million for the three and nine months ended September 30, 2006,respectively. Other factors contributing to the increases include inflation,increased information technology and Sarbanes-Oxley compliance costs ofapproximately $1.7 million and $5.9 million for the three and nine months endedSeptember 30, 2006, respectively, and investments in our sourcing functionand our BioSciences business.

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***Operating Income***

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

| ** **          | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|---------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **          | ** ** | **2006**                                                 | ** ** | **2005**                                                | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **          | ** ** | **Amount**                                               | ** ** | **% of  Net Sales**                           | ** ** | **Amount** | ** ** | **% of  Net Sales** | ** ** | **Amount** | ** ** | **% of  Net Sales** | ** ** | **Amount** | ** ** | **% of  Net Sales** | ** ** |
| North American  Lab |       |                                                     | $          | 27.8                                                    |       |   |   | 5.6 | % |   |   | $ | 28.7 |   |   |   | 5.9 | % |   |   | $ | 84.4 |   |   |   | 5.7 | % |   |   | $ | 63.0 |   |   |   | 4.4 | % |   |
| European Lab        |       |                                                     | 14.6       |                                                    |       |   | 5.4 | % |   |   | 7.1 |   |   |   | 2.7 | % |   |   | 43.3 |   |   |   | 5.3 | % |   |   | 28.6 |   |   |   | 3.5 | % |   |
| Science Education   |       |                                                     | 12.3       |                                                    |       |   | 22.6 | % |   |   | 11.5 |   |   |   | 20.0 | % |   |   | 18.6 |   |   |   | 15.2 | % |   |   | 13.5 |   |   |   | 11.6 | % |   |
| Total               |       |                                                     | $          | 54.7                                                    |       |   |   | 6.7 | % |   |   | $ | 47.3 |   |   |   | 5.8 | % |   |   | $ | 146.3 |   |   |   | 6.0 | % |   |   | $ | 105.1 |   |   |   | 4.5 | % |   |

 

Operating income for the three and nine months ended September 30,2006 increased $7.4 million and $41.2 million, respectively, over the comparableperiods of 2005. Several factors affect the comparability of the year-over-yearincrease in operating performance. Operating income was adversely impacted in2005 by restructuring charges of $4.3 million and $11.5 million for the threeand nine months ended September 30, 2005, respectively. In the nine monthsended September 30, 2006 we recorded reductions to the previouslyestablished restructuring reserves of $1.0 million. The acquisitions favorablyimpacted operating income by $0.3 million for the nine months ended September 30,2006. Foreign currency favorably impacted operating income by $0.9 million and$0.5 million for the three and nine months ended September 30, 2006,respectively. Excluding these effects, operating income increased $2.2 million or4.3% and $27.9 million or 23.9% from the comparable periods of 2005. Theincrease for the three months ended September 30, 2006 was the result of agross profit increase of $9.7 million, partially offset by an SG&A increaseof $7.5 million. The increase for the nine months ended September 30, 2006was the result of a gross profit increase of $50.8 million, partially offset byan SG&A increase of $22.9 million.

Operating income in the North American Lab segmentdecreased $0.9 million and increased $21.4 million for the three and ninemonths ended September 30, 2006, respectively, from the comparable periodsof 2005. Operating income was adversely impacted in 2005 by restructuringcharges of $0.5 million and $4.4 million for the three and nine months ended September 30,2005, respectively. In the nine months ended September 30, 2006 werecorded reductions to the previously established restructuring reserves of$1.0 million. Foreign currency favorably impacted operating income by $0.3million and $1.0 million for the three and nine months ended September 30,2006, respectively. The acquisition of AI unfavorably impacted operating incomeby $0.2 million for the nine months ended September 30, 2006. Excludingthese effects, operating income decreased $1.7 million or 5.8% and increased$15.2 million or 22.6% from the comparable periods of 2005. The decrease forthe three months ended September 30, 2006 was the result of an SG&Aincrease of $9.5 million, which includes charges for stock-based compensationof $2.2 million and increased information technology and Sarbanes-Oxleycompliance costs of approximately $1.7 million. This decrease is partiallyoffset by a gross profit increase of $7.8 million. The increase for the ninemonths ended September 30, 2006 was the result of a gross profit increaseof $34.4 million, partially offset by an SG&A increase of $19.2 million,which includes charges for stock-based compensation of $4.1 million andincreased information technology and Sarbanes-Oxley compliance costs of approximately$5.9 million.

Operating income in the European Lab segment for thethree and nine months ended September 30, 2006 increased $7.5 million and$14.7 million, respectively, over the comparable periods of 2005. Operatingincome was adversely impacted in 2005 by restructuring charges of $3.8 millionand $7.1 million for the three and nine months ended September 30, 2005,respectively. The acquisitions of AGB and TSL favorably impacted operatingincome by $0.5 million for the nine months ended September 30, 2006. 

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Foreign currency favorablyimpacted operating income by $0.6 million for the three months ended September 30,2006 and unfavorably impacted operating income by $0.5 million for the ninemonths ended September 30, 2006. Excluding these effects, operating incomeincreased $3.1 million or 28.4% and $7.6 million or 21.3% from the comparableperiods of 2005. The increase for the three months ended September 30,2006 was the result of a gross profit increase of $1.8 million and an SG&Adecrease of $1.3 million. The increase for the nine months ended September 30,2006 was the result of a gross profit increase of $11.6 million, partiallyoffset by an SG&A increase of $4.0 million.

Operating income in theScience Education segment for the three and nine months ended September 30,2006 increased $0.8 million and $5.1 million, respectively, over the comparableperiods of 2005. The increase for the three months ended September 30,2006 was the result of a gross profit increase of $0.1 million and an SG&Adecrease of $0.7 million. The increase for the nine months ended September 30,2006 was the result of a gross profit increase of $4.8 million and an SG&Adecrease of $0.3 million.

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

Interest expense, net ofinterest income, for the three and nine months ended September 30, 2006increased to $27.9 million and $82.0 million, respectively, from $26.3 millionand $77.0 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($0.1) million for the three months ended September 30, 2006, compared to($1.3) million for the comparable period of 2005. Other expense, net was $0.3 millionfor the nine months ended September 30, 2006, compared to other income,net of ($3.1) million for the comparable period of 2005. Other expense, net forthe nine months ended September 30, 2006 includes a net exchange loss of$0.7 million. Other income, net includes net exchange gains of ($1.3) millionand ($2.8) million for the three and nine months ended September 30, 2005,respectively.

***Income Taxes***

The effective income taxrate for the three and nine months ended September 30, 2006 was 41.9% and 37.5%,respectively, compared to 44.8% and 43.5% 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 recorded in the second quarter of 2006, which are partiallyoffset by the unfavorable impact of provision-to-return and other adjustmentsof $0.4 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 andCapital Resources**

We broadly define liquidity as our ability to generatesufficient funds from both internal and external sources to meet ourobligations and commitments. In addition, liquidity includes the ability toobtain appropriate debt and equity financing. Therefore, liquidity cannot be consideredseparately from capital resources that consist of current or potentiallyavailable funds for use in achieving long-range objectives and meeting debtservice commitments.

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Our significant liquidity and capital funding needsare working capital, operating expenses, capital expenditures 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 current operations and expectations as tofuture growth, we believe that cash generated from operations, together withamounts available under the $150.0 million five year multi-currency revolvingcredit facility, which is a component of the Senior Secured Credit Facility, willbe adequate to permit us to meet our debt service obligations, capitalexpenditure program requirements, ongoing operating costs and working capitalneeds, although no assurance can be given in this regard.

Working capital, excluding cash and debt, was $240.6million and $229.9 million at September 30, 2006 and December 31,2005, respectively. Trade receivables, inventories and accounts payable, threeimportant elements of working capital, are discussed below.

***Trade AccountsReceivable.***   Days sales outstanding inaccounts receivable were 51.6**daysand 48.2 days for the quarterly periods ended September 30, 2006 and December 31,2005, respectively. Trade receivables are higher in Europe due to the extendedpayment practices in several of the countries in which we operate. In addition,our trade receivables tend to increase during the summer months in Europe andin the third quarter for our Science Education segment, which has higher netsales in that quarter.

***Inventories.***   Dayssupply of inventory were 37.8**daysand 43.1 days for the quarterly periods ended September 30, 2006 and December 31,2005, respectively. The improvement is due to focused efforts to reduce ourinventories on hand.

***Accounts Payable.***   Dayspayables outstanding were 54.1**daysand 59.1 days for the quarterly periods ended September 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.

**Historical CashFlows**

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

| ** **                                            | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                            | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| Cash flow from operations, excluding  working capital |       | $                                                   | 105.0      |   | $ | 77.5 |   |
| Cash flow from working capital changes,  net          |       | 30.2                                                |       | (63.3 | ) |
| Cash flow from operations                             |       | $                                                   | 135.2      |   | $ | 14.2 |   |

 

We generated $135.2 million of cash flow fromoperations during the nine months ended September 30, 2006 compared to$14.2 million during the comparable period of 2005. The increase in cash flowfrom operations is primarily the result of increased net income, improvedmanagement of trade accounts receivable and inventories, reduced cash paymentsfor restructuring charges, increased taxes payable due to increased net income,and higher cash flows from certain other working capital changes. Theseincreases are partially offset by decreased cash flows due to lower accountspayable increases in the current period.

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Net cash used in investing activities was $10.7million for the nine months ended September 30, 2006 compared to $57.5million for the comparable period of 2005. This decrease is mainly due to the$44.5 million of investments to acquire businesses in 2005.

Net cash used in financing activities was $147.8million for the nine months ended September 30, 2006 compared to cash usedin financing activities of $12.3 million for the comparable period of 2005. Thisincrease is primarily a result of increased net debt payments of $97.2 million,which includes the $44.5 million and $60.0 million principal payments on theSenior Secured Credit Facility, discussed below, and a larger decrease in bankchecks outstanding of $41.6 million due primarily to the timing of vendorpayments.

Under the credit agreement for the Senior SecuredCredit Facility, beginning in 2006, VWR’s Excess Cash Flow net of any voluntaryprincipal prepayments (as defined in the credit agreement) from the prior yearis required to be used to prepay credit agreement debt. On March 31, 2006,VWR prepaid $44.5 million on the Senior Secured Credit Facility term loans asrequired by the Excess Cash Flow provisions. In September 2006, VWR made a$60.0 million voluntary principal prepayment on the Senior Secured CreditFacility term loans.

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 September 30, 2006,we had $104.7 million of cash and cash equivalents on hand.

As of September 30,2006, we had outstanding indebtedness of $1,323.4 million, which consistsprimarily of $520.0 million aggregate principal amount of the VWR Notes, $354.4million of accreted value of the Senior Discount Notes, a $307.1 million U.S.dollar-denominated term loan, and a $136.1 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 outstanding at September 30,2006 of €107.3million (approximately $136.1 million on a U.S. dollar equivalent basis as of September 30,2006), (2) a term loan facility denominated in U.S. dollars in anaggregate principal amount outstanding at September 30, 2006 of $307.1million, and (3) a multi-currency revolving credit facility, providing forup to $150.0 million in multi-currency revolving loans (including standby andcommercial letters of credit) outstanding at any time. As of September 30,2006, there were no outstanding borrowings under the multi-currency revolvingcredit facility. Undrawn amounts under the multi-currency revolving creditfacility are available on a revolving credit basis for general corporatepurposes of the borrower and its subsidiaries. As of September 30, 2006,we had $9.5 million of undrawn letters of credit and our remaining borrowingavailability under the $150.0 million multi-currency revolving credit facilitywas $140.5 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 VWRNotes contain certain covenants that limit VWR’s ability to incur additionalindebtedness, pay cash dividends and make certain other payments. Theindentures also require VWR to maintain certain financial covenants, includinga specified debt to Consolidated EBITDA leverage ratio and a specifiedConsolidated EBITDA to interest expense coverage ratio. At September 30,2006, VWR was in compliance with all such covenants.

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***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 September 30,2006, the accreted value of the Senior Discount Notes was $354.4 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 indebtednesswe may incur, pay cash dividends, sell assets and subsidiary stock, enter intotransactions with affiliates, place liens on assets, and make certain otherpayments. At September 30, 2006, the Company was in compliance with allcovenants. The terms of the Senior Secured Credit Facility and the indenturesgoverning the VWR Notes significantly restrict VWR from making distributionsand 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 September 30, 2006.

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 as consolidatedincome before consolidated net interest expense, consolidated income taxes,consolidated depreciation and amortization, other non-cash charges deducted indetermining consolidated net income (loss), non-cash provisions for reservesfor discontinued operations, extraordinary, unusual or non-recurring items,gain or loss associated with the sale or write down of assets not in theordinary course of business and the cumulative effect of accounting changes andearnings of, but including cash dividends or distributions from, non-controlledaffiliates. Credit Agreement EBITDA is reduced by the amount of certainpermitted 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”, 

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which is used for a numberof 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 September 30, 2006 (dollars in millions):

| ** **                                                              | ** ** | **(Unaudited)** | ** ** |
|-------------------------------------------------------------------------|------------|-----------------|------------|
| Income before  cumulative effect of a change in accounting principle(1) |       |            | $          | 65.7 |   |   |
| Income tax  provision(1)                                                |       |            | 42.1       |   |   |
| Interest expense,  net(1)                                               |       |            | 77.1       |   |   |
| Depreciation and  amortization(1)                                       |       |            | 34.2       |   |   |
| Non-cash  charges(2)                                                    |       |            | 11.3       |   |   |
| Other  extraordinary, unusual or non-recurring items(3)                 |       |            | 10.3       |   |   |
| Credit Agreement EBITDA                                                 |       |            | $          | 240.7 |   |   |

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(1)          These amounts includethe four quarters during the twelve months ended September 30, 2006 asreported in the respective Form 10-Q or Form 10-K.

(2)          Non-cash charges includepension, postretirement and post employment benefit expenses, net of cashcontributed to the respective benefit plans in that year; amortization ofdirect response catalog costs for those catalogs with useful lives greater thanone year; charges for equity compensation; and LIFO adjustments.

(3)          Other extraordinary,unusual or non-recurring items include one-time severance costs; non-routineinventory reserve adjustments; gains or losses on the sale of businesses orfacilities; and other extraordinary, unusual or non-recurring gains, losses,charges or credits.

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

| **Test Period**                                | ** ** | ** ** | ** ** | **Debt to Credit  Agreement  EBITDA Leverage  Ratio Not More Than** | ** ** | **Credit Agreement EBITDA  to Interest Expense  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 September 30, 2006:

| ** **                                                             | ** ** | **(Unaudited)** | ** ** |
|------------------------------------------------------------------------|------------|-----------------|------------|
| Consolidated Debt  to Credit Agreement EBITDA Leverage Ratio           |       |            | 4.0 to 1.0 |   |   |
| Credit Agreement EBITDA  to Credit Agreement Interest Expense Ratio(1) |       |            | 3.4 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.

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**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’sDiscussion and Analysis of Financial Condition and Results of Operations” inour 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 of1933, as amended, (the “Securities Act”) and Section 21E of the SecuritiesExchange Act of 1934, as amended, (the “Exchange Act”). All statements otherthan statements of historical fact included in this Form 10-Q mayconstitute 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.

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 the followingimportant factors, in addition to those discussed in “Item 1A—Risk Factors” inour 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;

·       increasedcompetition from other companies in our industry and our ability to retain orincrease our market shares in the principal geographical areas in which we operate;and

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

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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 the Company’squantitative and qualitative disclosure about market risk. There was nomaterial change in such information as of September 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 to Rule 13a-15of the Exchange Act. Based on that evaluation, the Chief Executive Officer andthe Chief Financial Officer concluded that our disclosure controls andprocedures were effective at a reasonable assurance level as of September 30,2006.

There were no changes inour internal control over financial reporting that occurred during the quarterended September 30, 2006 that have materially affected, or are reasonablylikely to materially affect, our internal control over financial reporting.

**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 third quarterof 2006, we closed an offering with our President and Chief Executive Officerfor the purchase of 4,201 shares at $119.00 per share for a total purchaseprice of $499,919 and issued 2,900 shares to two individuals that exercisedvested options for a total purchase price of $146,508. These shares wereoffered and sold in the United States under an exemption from registrationprovided by Rule 701 under the Securities Act and available exemptionsunder state law and in jurisdictions outside of the United States underavailable exemptions from registration provided by the laws of suchjurisdictions.

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**Item 6—*Exhibits***
| Exhibit     Number    | ** ** | **Description of Documents** | ** ** | **Method of Filing**                                                                                                  | ** ** |
|-----------------------------------------------------|------------|----------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                | 10.1       |                                   |       | CDRV Investors, Inc. Stock Incentive Plan,  Amended and Restated as of September 20, 2006.                            |       | 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/ GREGORY L. COWAN |
|                   | Name:                | Gregory L. Cowan |
|                   | Title:               | *Vice President and Corporate Controller (Chief Accounting  Officer and Duly Authorized Officer)* |
| November 14, 2006 |                 |   |

 

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