**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

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| (Mark One) |
|------------|
| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|       | ** ** | **For the quarterly period ended March 31,  2006** |
|       | ** ** | **or** |
| **o**      | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|       |   | **For the transition period from             to            ** |

 

**Commissionfile number:  333-118658**

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**VWR INTERNATIONAL, INC.**

(Exact name of registrantas specified in its charter)

| **Delaware**                              |   | **91-1319190**       |
|-------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of          |   | (I.R.S. Employer     |
| incorporation or  organization)           |   | Identification  No.) |
| **1310 Goshen Parkway**                   |   |                 |
| **P.O. Box  2656**                   |   |                 |
| **West  Chester, PA**                     |   | **19380**            |
| (Address of principal  executive offices) |   | (Zip code)           |

 

**(610) 431-1700**

(Registrant’s telephonenumber, including area code)

Indicate by check 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 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes o    No x

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

Large accelerated filer o     Acceleratedfiler o     Non-acceleratedfiler 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 March 31, 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 May 11, 2006 was 100.

 

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**VWRINTERNATIONAL, INC.FORM 10-QFOR THE QUARTER ENDED MARCH 31, 2006**

**INDEX**
|                                          | ** ** | ** **                                                                                                                                           | ** ** | **Page No.** | ** ** |
|------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| **PART I.  FINANCIAL INFORMATION:** |       |                                                                                                                                                 |       |              |       |
| Item  1.                                 |       | Financial  Statements:                                                                                                                               |       |              |       |   |   |
|                                     |       | Consolidated  Balance Sheets—as of March 31, 2006 (Unaudited) and December 31,  2005                         |       |              | 3          |   |   |
|                                     |       | Consolidated Statements of Operations (Unaudited)—for  the three months ended March 31, 2006 and 2005                                      |       |              | 4          |   |   |
|                                     |       | Consolidated Statement of Stockholders’ Equity and  Other Comprehensive Income (Unaudited)—for the three months ended  March 31, 2006 |       |              | 5          |   |   |
|                                     |       | Consolidated Statements of Cash Flows (Unaudited)—for  the three months ended March 31, 2006 and 2005                                      |       |              | 6          |   |   |
|                                     |       | Notes to Consolidated Financial Statements (Unaudited)                                                                                               |       |              | 7          |   |   |
| Item 2.                                  |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations                            |       |              | 18         |   |   |
| Item 3.                                  |       | Quantitative and Qualitative Disclosures about Market  Risk                                                                                          |       |              | 28         |   |   |
| Item  4.                                 |       | Controls  and Procedures                                                                                                                             |       |              | 28         |   |   |
| **PART II.  OTHER INFORMATION:**    |       |                                                                                                                                                 |       |              |       |
| Item 1.                                  |       | Legal Proceedings                                                                                                                                    |       |              | 28         |   |   |
| Item 1A.                                 |       | Risk Factors                                                                                                                                         |       |              | 28         |   |   |
| Item 5.                                  |       | Other Information                                                                                                                                    |       |              | 28         |   |   |
| Item 6.                                  |       | Exhibits                                                                                                                                             |       |              | 29         |   |   |
| Signature                                |       |                                                                                                                                                 | 30         |              |       |

 

2

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**PART I—FINANCIALINFORMATION**

**Item 1—*Financial Statements***

**VWR INTERNATIONAL, INC.Consolidated Balance Sheets(Dollars in millions, except share data)**
|                                                                                     | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                          | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| ** **                                                                          | ** ** | **(Unaudited)**    | ** ** | ** **            | ** ** |
| **Assets**                                                                          |       |               |       |                  |       |   |   |   |   |
| Current Assets:                                                                     |       |               |       |                  |       |   |   |   |   |
| Cash and cash equivalents                                                           |       |               | $          | 123.1                 |       |   |   | $ | 126.1 |   |   |
| Trade accounts receivable, less reserves of $7.2 and  $6.6, respectively            |       |               | 441.0      |                  |       |   | 407.3 |   |   |
| Other receivables                                                                   |       |               | 22.8       |                  |       |   | 30.8 |   |   |
| Inventories                                                                         |       |               | 259.7      |                  |       |   | 270.4 |   |   |
| Other current assets                                                                |       |               | 32.8       |                  |       |   | 30.6 |   |   |
| Total current assets                                                                |       |               | 879.4      |                  |       |   | 865.2 |   |   |
| Property and  equipment, net                                                        |       |               | 158.9      |                  |       |   | 156.8 |   |   |
| Investments                                                                         |       |               | 7.9        |                  |       |   | 7.8 |   |   |
| Goodwill                                                                            |       |               | 915.0      |                  |       |   | 910.0 |   |   |
| Other intangible  assets, net                                                       |       |               | 551.8      |                  |       |   | 552.7 |   |   |
| Deferred income  taxes                                                              |       |               | 5.5        |                  |       |   | 5.6 |   |   |
| Other assets                                                                        |       |               | 44.2       |                  |       |   | 44.3 |   |   |
| Total assets                                                                        |       |               | $          | 2,562.7               |       |   |   | $ | 2,542.4 |   |   |
| **Liabilities  and Stockholders’ Equity**                                      | ** ** |               |       |                  |       |   |   |   |   |
| Current Liabilities:                                                                |       |               |       |                  |       |   |   |   |   |
| Short-term portion of bank debt and current portion  of capital lease obligations   |       |               | $          | 1.2                   |       |   |   | $ | 45.5 |   |   |
| Accounts payable                                                                    |       |               | 382.8      |                  |       |   | 370.3 |   |   |
| Accrued expenses                                                                    |       |               | 165.3      |                  |       |   | 143.4 |   |   |
| Total current liabilities                                                           |       |               | 549.3      |                  |       |   | 559.2 |   |   |
| Long-term debt                                                                      |       |               | 1,017.0    |                  |       |   | 1,013.3 |   |   |
| Capital lease  obligations                                                          |       |               | 4.8        |                  |       |   | 5.0 |   |   |
| Other long-term  liabilities                                                        |       |               | 89.8       |                  |       |   | 87.1 |   |   |
| Deferred income  taxes                                                              |       |               | 233.0      |                  |       |   | 233.5 |   |   |
| Total liabilities                                                                   |       |               | 1,893.9    |                  |       |   | 1,898.1 |   |   |
| Parent Company  common stock purchase subject to guarantee agreement                |       |               | 2.4        |                  |       |   | 2.6 |   |   |
| Commitments and  contingencies                                                      |       |               |       |                  |       |   |   |   |   |
| Stockholders’ equity:                                                          |       |               |       |                  |       |   |   |   |   |
| Common stock, $0.01 par value; 100 shares  authorized, issued and outstanding  |       |               | —     |                  |       |   | — |   |   |
| Additional paid-in capital                                                          |       |               | 557.7      |                  |       |   | 557.4 |   |   |
| Retained earnings                                                                   |       |               | 89.3       |                  |       |   | 73.2 |   |   |
| Unamortized value of restricted stock issued                                        |       |               | —     |                  |       |   | (1.6 | ) |   |
| Accumulated other comprehensive income                                              |       |               | 19.4       |                  |       |   | 12.7 |   |   |
| Total stockholders’ equity                                                     |       |               | 666.4      |                  |       |   | 641.7 |   |   |
| Total liabilities and  stockholders’ equity                                    |       |               | $          | 2,562.7               |       |   |   | $ | 2,542.4 |   |   |

 

See accompanying notes to consolidated financial statements.

3

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**VWR INTERNATIONAL, INC.Consolidated Statements of Operations(Dollars in millions)(Unaudited)**
|                                               | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | **March 31,**               | ** ** |
| ** **                                    | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| Net sales                                     |       | $                                | 795.8      |   | $ | 754.1 |   |
| Cost of goods  sold                           |       | 581.4                            |       | 561.4 |   |
| Gross profit                                  |       | 214.4                            |       | 192.7 |   |
| Selling, general  and administrative expenses |       | 168.5                            |       | 165.5 |   |
| Restructuring  (credits) charges              |       | (0.2                             | )          | 2.1 |   |
| Operating income                              |       | 46.1                             |       | 25.1 |   |
| Interest income                               |       | (1.3                             | )          | (0.6 | ) |
| Interest expense                              |       | 20.7                             |       | 18.4 |   |
| Other expense  (income), net                  |       | 0.8                              |       | (1.0 | ) |
| Income before income taxes                    |       | 25.9                             |       | 8.3 |   |
| Income tax  provision                         |       | 9.8                              |       | 3.2 |   |
| Net income                                    |       | $                                | 16.1       |   | $ | 5.1 |   |

 

See accompanying notes to consolidated financial statements.

4

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**VWR INTERNATIONAL, INC.Consolidated Statement of Stockholders’ Equity and Other Comprehensive IncomeThree Months Ended March 31, 2006(Dollars in millions)(Unaudited)**
|                                                                                                                      | ** ** | ** ** | ** ** | ** **     | ** ** | ** **   | ** ** | **Unamortized**       | ** ** | **Accumulated**   | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|--------------|------------|-----------------------|------------|-------------------|------------|------------|------------|
| ** **                                                                                                           | ** ** | ** ** | ** ** | **Additional** | ** ** | ** **   | ** ** | **value of**     | ** ** | **other**         | ** ** | ** ** | ** ** |
| ** **                                                                                                           | ** ** | **Common** | ** ** | **paid-in**    | ** ** | **Retained** | ** ** | **restricted**        | ** ** | **comprehensive** | ** ** | ** ** | ** ** |
| ** **                                                                                                           | ** ** | **stock**  | ** ** | **capital**    | ** ** | **earnings** | ** ** | **stock issued** | ** ** | **income**        | ** ** | **Total**  | ** ** |
| Balance at January 1, 2006                                                                                      |       |       | $          | —         |       |         |       | $                     | 557.4      |              |       |       | $          | 73.2 |   |   |   | $ | (1.6 | ) |   |   | $ | 12.7 |   |   | $ | 641.7 |   |
| Equity reclassification (Note 3(b))                                                                             |       |       | —     |           |       |         | (1.6       | )                     |       |              | —     |       |       |   | 1.6 |   |   |   | — |   |   | — |   |
| Capital contributions                                                                                                |       |       | —     |           |       |         | 1.2        |                  |       |              | —     |       |       |   | — |   |   |   | — |   |   | 1.2 |   |
| Capital contribution for compensation expense  recognized for Parent Company options                                 |       |       | —     |           |       |         | 0.4        |                  |       |              | —     |       |       |   | — |   |   |   | — |   |   | 0.4 |   |
| Capital contribution for compensation expense  recognized for amortization of Parent Company restricted common stock |       |       | —     |           |       |         | 0.1        |                  |       |              | —     |       |       |   | — |   |   |   | — |   |   | 0.1 |   |
| Reduction of Parent Company common stock purchase  subject to guarantee agreement                                    |       |       | —     |           |       |         | 0.2        |                  |       |              | —     |       |       |   | — |   |   |   | — |   |   | 0.2 |   |
| Comprehensive  income:                                                                                               |       |       |       |           |       |         |       |                  |       |              |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Net income                                                                                                           |       |       | —     |           |       |         | —     |                  |       |              | 16.1       |       |       |   | — |   |   |   | — |   |   | 16.1 |   |
| Foreign currency translation adjustment                                                                         |       |       | —     |           |       |         | —     |                  |       |              | —     |       |       |   | — |   |   |   | 6.2 |   |   | 6.2 |   |
| Unrealized gain on derivatives, net of tax                                                                      |       |       | —     |           |       |         | —     |                  |       |              | —     |       |       |   | — |   |   |   | 0.5 |   |   | 0.5 |   |
| Total comprehensive income                                                                                           |       |       |       |           |       |         |       |                  |       |              |       |       |       |   |   |   |   |   |   |   |   | 22.8 |   |
| Balance at  March 31, 2006                                                                                      |       |       | $          | —         |       |         |       | $                     | 557.7      |              |       |       | $          | 89.3 |   |   |   | $ | — |   |   |   | $ | 19.4 |   |   | $ | 666.4 |   |

 

See accompanying notes to consolidated financial statements.

5

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**VWR INTERNATIONAL, INC.Consolidated Statements of Cash Flows(Dollars in millions)(Unaudited)**
|                                                                                    | ** ** | **Three Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **March 31,**               | ** ** |
| ** **                                                                         | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| Cash flows from  operating activities:                                             |       |                             |       |   |   |
| Net income                                                                         |       | $                                | 16.1       |   | $ | 5.1 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                             |       |   |   |
| Depreciation and amortization                                                      |       | 8.2                              |       | 8.4 |   |
| Gain on sale of assets                                                             |       | (0.1                             | )          | (0.2 | ) |
| Non-cash (credit) provision for restructuring                                      |       | (0.2                             | )          | 2.1 |   |
| Non-cash equity compensation expense                                               |       | 0.5                              |       | — |   |
| Amortization of debt issuance costs                                                |       | 1.5                              |       | 1.5 |   |
| Deferred income tax expense                                                        |       | (0.3                             | )          | 2.5 |   |
| Provision for doubtful accounts                                                    |       | 0.7                              |       | 0.9 |   |
| Changes in  working capital:                                                       |       |                             |       |   |   |
| Trade accounts receivable                                                          |       | (30.2                            | )          | (7.8 | ) |
| Other receivables                                                                  |       | 9.5                              |       | (1.7 | ) |
| Inventories                                                                        |       | 12.5                             |       | 9.3 |   |
| Other assets                                                                       |       | (2.8                             | )          | (4.4 | ) |
| Accounts payable                                                                   |       | 19.5                             |       | 47.9 |   |
| Other liabilities                                                                  |       | 22.0                             |       | 3.7 |   |
| Net cash provided by operating activities                                          |       | 56.9                             |       | 67.3 |   |
| Cash flows from  investing activities:                                             |       |                             |       |   |   |
| Capital expenditures                                                               |       | (4.8                             | )          | (4.3 | ) |
| Transaction costs                                                                  |       | (0.2                             | )          | — |   |
| Proceeds from sales of property and equipment                                      |       | 0.2                              |       | 0.2 |   |
| Net cash used in investing activities                                              |       | (4.8                             | )          | (4.1 | ) |
| Cash flows from  financing activities:                                             |       |                             |       |   |   |
| Proceeds from debt                                                                 |       | 0.1                              |       | 0.3 |   |
| Repayment of debt                                                                  |       | (45.3                            | )          | (4.4 | ) |
| Net change in bank checks outstanding                                              |       | (9.9                             | )          | (26.8 | ) |
| Net cash used in financing activities                                              |       | (55.1                            | )          | (30.9 | ) |
| Effect of  exchange rate changes on cash                                           |       | —                           |       | (1.9 | ) |
| Net (decrease) increase in cash and cash equivalents                               |       | (3.0                             | )          | 30.4 |   |
| Cash and cash  equivalents beginning of period                                     |       | 126.1                            |       | 116.1 |   |
| Cash and cash  equivalents end of period                                           |       | $                                | 123.1      |   | $ | 146.5 |   |
| Supplemental  disclosures of cash flow information:                                |       |                             |       |   |   |
| Cash paid during  the period for:                                                  |       |                             |       |   |   |
| Interest                                                                           |       | $                                | 9.8        |   | $ | 6.8 |   |
| Income taxes  paid, net                                                            |       | $                                | 3.1        |   | $ | 3.1 |   |

 

See accompanying notes to consolidated financial statements.

6

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

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

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

VWR International, Inc.(“VWR”, the “Company”, “we” or “our”) distributes scientific supplies,chemicals, and equipment, primarily in North America and Europe. The businessis diversified 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 are comprised of the distribution ofscientific supplies to customers engaged in pharmaceuticals, biotechnology,chemicals, technology, and food processing; governmental agencies; colleges anduniversities; and environmental organizations. Science Education is comprisedof the distribution of scientific supplies and specialized kits to primary andsecondary schools as well as distribution of scientific supplies touniversities and research institutes.

***(b)******          Background***

On April 7,2004, Merck KGaA sold all of the outstanding shares of capital stock of ourpredecessor, VWR International Corporation, to CDRV Acquisition Corporation (“CDRVA”),a wholly-owned subsidiary of CDRV Holdings, Inc., a wholly-ownedsubsidiary of CDRV Investors, Inc. (“CDRV”) (the “Acquisition”). CDRVis our ultimate parent company. 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 and obtained financing under a new senior secured creditfacility (the “Senior Secured Credit Facility”). Following the completion of the Acquisition,there were a series of internal reorganizations, pursuant to which, among otherthings, (i) VWR International Corporation merged with and into VWR, withVWR surviving, and (ii) thereafter, CDRVA merged with and into VWR, withVWR surviving and assuming the obligations of CDRVA.

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

The accompanying consolidated financial statementsinclude the accounts of VWR 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 Company believes that the disclosures included herein are adequate to makethe information presented not misleading when read in conjunction with thefinancial statements, footnotes and related disclosures included in the Company’sAnnual Report on Form 10-K for the year ended December 31,2005.

The financial information presented herein reflectsall adjustments (consisting only of normal-recurring adjustments) that are, inthe opinion of management, necessary for a fair presentation of the****results for the interim periods presented.The results for interim periods are not necessarily indicative of the resultsto be expected for the full year.

7

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

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.

Certainamounts from prior periods have been reclassified to conform to the currentpresentation.

**(2)   NewAccounting Standards**

During November 2004,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 151, *InventoryCosts*. This Statement clarifies the accounting for abnormal amountsof idle facility expenses, freight handling costs, and spoilage. This Statementrequires such excess costs be charged as current-period expenses. ThisStatement also specifies that allocated overhead costs to inventory must bebased on normal capacity measures. This Statement became effective forinventory costs incurred beginning January 1, 2006. The adoption of thisStatement did not materially impact the Company.

Effective December 31,2005, we adopted FASB Interpretation No. 47, *Accounting for Conditional Asset Retirement Obligations* (“FIN 47”).FIN 47 clarifies that the term conditional asset retirement obligationrefers to a legal obligation to perform an asset retirement activity in whichthe timing and/or method of settlement are conditional on a future event thatmay or may not be within the control of the Company. FIN 47 requires thata liability for the fair value of a conditional asset retirement obligation berecognized if the fair value of the liability can be reasonably estimated. Theimpact of FIN 47 for the three months ended March 31, 2006 was anincrease to selling, general and administrative expenses of $0.1.

**(3)   Stock-BasedCompensation**

***(a)******         Stock Options***

CDRV adopted the CDRVInvestors, Inc. Stock Incentive Plan (the “Stock Plan”). Under the StockPlan, CDRV’s board of directors may grant rights to purchase shares of CDRVcommon stock and options to purchase shares of CDRV 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 CDRVcommon stock, rights to purchase shares of CDRV common stock and othershare-based awards to our directors, who are not also our employees orassociated with Clayton, Dubilier & Rice (“CD&R”). Options grantedunder the plan vest in equal annual installments on each of the first fiveanniversaries of the grant date and expire ten years from the grant date. As ofMarch 31, 2006, there were 909,271 shares of CDRV common stock availablefor all types of awards. Based on shares issued, options outstanding andrestricted units granted under the Stock Plan as of March 31, 2006, thereare 82,071 shares available for future awards.

During the three monthsended March 31, 2006, CDRV had the following stock transactions with ouremployees, directors and former employees: (1) closed an offering with ournew President and Chief Executive Officer for the purchase of19,643 shares at $56.00 per share (during the fourth quarter of 2005 

8

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

whenthese shares were offered we recorded compensation expense of $0.7 using theintrinsic value guidance of Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees* (“APB 25”)for all shares offered at a discount from the $75.00 per share fair marketvalue) and granted options to purchase 58,929 shares at $75.00 per share, (2) issued1,049 shares to certain directors who are not also our employees or associatedwith CD&R for director compensation and (3) issued 1,360 shares at$50.52 per share in connection with the exercise of stock options. During thethree months ended March 31, 2005, CDRV closed an offering with 1 of ourdirectors for 446 shares at $56.00 per share and issued 1,313 shares tocertain directors who are not also our employees or associated with CD&Rfor director compensation. These issuances are reflected as capitalcontributions from CDRV of $1.2 and $0.1 for the three months ended March 31,2006 and 2005, respectively.

Effective January 1,2006, the Company adopted SFAS No. 123 Revised, *Share-Based Payment* (“SFAS 123R”), which requires companiesto recognize in the income statement, the grant date value of stock options andother forms of equity-based compensation issued to employees. The Companypreviously accounted for stock options granted to our employees using theintrinsic value method of APB 25. Under APB 25, the Company did not recognizecompensation expense for CDRV options granted to our employees because suchoptions had an exercise price equal to their fair market value on the date ofgrant. Compensation costs related to the grant of stock-based compensation isrecorded in our financial statements with a corresponding capital contributionfrom CDRV.

The Company adopted SFAS123R using the modified prospective transition method. Under this transitionmethod, compensation cost includes the cost for all options granted prior to,but not yet vested as of January 1, 2006 and all prospective awardswithout restatement of prior periods. The impact of adopting SFAS 123R for thethree months ended March 31, 2006 was an increase to selling, general andadministrative expenses of $0.4 and a reduction to income tax provision of$0.1.

Hadcompensation expense for CDRV stock options granted been determined based onthe fair value at the grant date for awards under the plan, consistent with theprovisions of SFAS 123R, the Company’s net income for the three monthsended March 31, 2005 would have approximated the pro-forma amountsindicated below:

| Net income, as  reported                                                                                       |   | $    | 5.1 |   |
|----------------------------------------------------------------------------------------------------------------|--------|------|-----|--------|
| Deduct:  stock-based compensation expense determined using fair value based method for  all awards, net of tax |   | (0.3 | )   |
| Pro-forma net income                                                                                           |   | $    | 4.8 |   |

 

Thefair value of each option was estimated using the Black-Scholes option-pricingmodel. No options were granted during the three months ended March 31,2005. The fair value of options granted and the assumptions used during thethree months ended March 31, 2006 were as follows:

| Fair value of  options granted |   | $         | 33.61  |   |
|--------------------------------|--------|-----------|--------|--------|
| Risk-free  interest rate       |   | 4.76      | %      |
| Expected life of  options      |   | 6.5 years |   |
| Volatility                     |   | 35        | %      |
| Expected dividend yield        |   | 0.0       | %      |

 

9

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

 

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 CDRV stockoptions granted to our employees, which are considered fixed awards withpro-rata vesting, on a straight-line basis.

Informationregarding CDRV stock options granted to our employees under the Stock Plan forthe three months ended March 31, 2006 is as follows:

| ** **                          | ** ** | **Number** | ** ** | **Weighted  Average** | ** ** |
|-------------------------------------|------------|------------|------------|-----------------------|------------|
| ** **                          | ** ** | **of**     | ** ** | **Exercise**          | ** ** |
| ** **                          | ** ** | **Shares** | ** ** | **Price**             | ** ** |
| Outstanding at  beginning of period |       | 483,728    |       |                  | $          | 51.24 |   |   |
| Granted                             |       | 58,929     |       |                  | 75.00      |   |   |
| Forfeited                           |       | (36,408    | )          |                  | 50.52      |   |   |
| Canceled                            |       | (252       | )          |                  | 50.52      |   |   |
| Exercised                           |       | (1,360     | )          |                  | 50.52      |   |   |
| Outstanding at  end of period       |       | 504,637    |       |                  | $          | 54.07 |   |   |
| Exercisable at  end of period       |       | 92,786     |       |                  | 50.52      |   |   |

 

Informationregarding unvested CDRV stock options for the three months ended March 31,2006 is as follows:

| ** **                                  | ** ** | ** ** | ** ** | **Weighted** | ** ** |
|---------------------------------------------|------------|------------|------------|--------------|------------|
| ** **                                  | ** ** | **Number** | ** ** | **Average**  | ** ** |
| ** **                                  | ** ** | **of**     | ** ** | **Fair**     | ** ** |
| ** **                                  | ** ** | **Shares** | ** ** | **Value**    | ** ** |
| Unvested options  at December 31, 2005 |       | 398,330    |       |         | $          | 17.18 |   |   |
| Granted                                     |       | 58,929     |       |         | 33.61      |   |   |
| Forfeited                                   |       | (36,408    | )          |         | 15.58      |   |   |
| Vested                                      |       | (9,000     | )          |         | 15.58      |   |   |
| Unvested options at  March 31, 2006    |       | 411,851    |       |         | $          | 19.70 |   |   |

 

Thefollowing is a summary of outstanding CDRV stock options as of March 31,2006.

| ** **   | ** ** | **Weighted**          | ** ** | ** **                   | ** ** | ** **                   | ** ** | ** ** | ** ** | ** **    | ** ** |
|--------------|------------|-----------------------|------------|------------------------------|------------|------------------------------|------------|------------|------------|---------------|------------|
| ** **   | ** ** | **Average**           | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
| ** **   | ** ** | **Remaining**         | ** ** | **Number**                   | ** ** | **Aggregate**                | ** ** | **Number** | ** ** | **Aggregate** | ** ** |
| **Exercise** | ** ** | **Contractual**       | ** ** | **of**                       | ** ** | **Intrinsic**                | ** ** | **of**     | ** ** | **Intrinsic** | ** ** |
| **Price**    | ** ** | **Life (Years)** | ** ** | **Shares**                   | ** ** | **Value**                    | ** ** | **Shares** | ** ** | **Value**     | ** ** |
|         | $          | 50.52                 |       |                         |       | 8.5                          |       |       | 381,930    |          |       | $ | 9.4 |   |   |   | 92,786 |   |   |   | $ | 2.3 |   |   |
|         | 56.00      |                  |       |                         | 9.1        |                         |       | 63,778     |       |          | 1.2        |   |   |   | — |   |   |   | — |   |   |
|         | 75.00      |                  |       |                         | 9.9        |                         |       | 58,929     |       |          | —     |   |   |   | — |   |   |   | — |   |   |
|         |       |                  |       |                         |       |                         |       | 504,637    |       |          | $          | 10.6 |   |   |   | 92,786 |   |   |   | $ | 2.3 |   |   |

 

10

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

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

In 2005, CDRV granted 21,333 CDRV restricted stockunits with a total fair value of approximately $1.6 to certain of our officersand other key executives that will vest in equal annual installments over afive-year period. The restricted units will all vest earlier in certaincircumstances if CDRV has a change in control. The granting of these units wasreflected in the December 31, 2005 financial statements by increasingadditional paid-in capital by $1.6 and a contra-equity account of unamortizedvalue of restricted stock issued of $1.6. In accordance with the provisions ofSFAS 123R, the unamortized value of restricted stock issued of $1.6 as of theadoption date of January 1, 2006 was eliminated against additional paid-incapital. The unearned compensation is being amortized as compensation expenseover the five-year vesting period of the restricted units granted.Compensation expense related to these restricted stock units was $0.1 for thethree months ended March 31, 2006.

As of March 31, 2006, the aggregate estimatedfuture compensation expense related to nonvested options outstanding and theunamortized value of restricted stock issued is $8.4. This expense will berecognized over a weighted average period of 4.1 years.

It is CDRV’s policy toissue new shares upon share option exercise or restricted stock unitconversion.

**(4)**   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*.

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              |       |            | (1.2       | )              |       |       | (0.3       | ) |   | (1.5 | ) |
| Currency translation changes     |       |            | 0.1        |           |       |       | 0.1        |   |   | 0.2 |   |
| Balance at  March 31, 2006  |       |            | $          | 6.5            |       |       |       | $ | 5.4 |   |   | $ | 11.9 |   |

 

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

In addition, we initiated several cost reductionprograms in response to relatively static market conditions and implementedreductions in force and other cost containment measures during 2005. Inconnection with these actions, we recorded accruals and charges to operationsfor the three months ended March 31, 2005 related to severance andtermination benefits of approximately $2.1. For the three months ended March 31,2006 we reversed $0.2 of these accruals and credited operations.

11

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

Thefollowing table sets forth the activity associated with the Company’sliabilities for these cost reduction programs.
|                                                     | ** ** | **Three Months Ended March 31,** | ** ** |
|-----------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                          | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| ** **                                          | ** ** | **Severance**                                        | ** ** | ** ** | ** ** | ** ** | ** ** | **Severance** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                          | ** ** | **and**                                              | ** ** | ** ** | ** ** | ** ** | ** ** | **and** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                          | ** ** | **termination**                                      | ** ** | **Facilities** | ** ** | ** ** | ** ** | **termination** | ** ** | **Facilities** | ** ** | ** ** | ** ** |
| ** **                                          | ** ** | **benefits**                                         | ** ** | **related** | ** ** | **Total** | ** ** | **benefits** | ** ** | **related** | ** ** | **Total** | ** ** |
| Balance at  beginning of period                     |       |                                                 | $          | 9.8 |   |   |   | $ | 0.3 |   |   | $ | 10.1 |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | — |   |   |
| Accruals  (credited) charged to earnings by segment |       |                                                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| North American Lab                                  |       |                                                 | (0.2       | ) |   |   | — |   |   | (0.2 | ) |   | 2.1 |   |   |   | — |   |   |   | 2.1 |   |   |
| European Lab                                        |       |                                                 | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Science Education                                   |       |                                                 | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Cash payments/other                                 |       |                                                 | (5.4       | ) |   |   | (0.2 | ) |   | (5.6 | ) |   | — |   |   |   | — |   |   |   | — |   |   |
| Balance at end of period                            |       |                                                 | $          | 4.2 |   |   |   | $ | 0.1 |   |   | $ | 4.3 |   |   | $ | 2.1 |   |   |   | $ | — |   |   |   | $ | 2.1 |   |   |

 

At March 31, 2006,$9.9 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.

**(5)   Goodwilland Other Intangible Assets**

***(a)******         Goodwill***

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

Changesin the carrying amount of goodwill by segment for the three months ended March 31,2006 are as follows:

| ** **                       | ** ** | **North**             | ** ** | **European** | ** ** | **Science**   | ** ** | ** ** | ** ** |
|----------------------------------|------------|-----------------------|------------|--------------|------------|---------------|------------|------------|------------|
| ** **                       | ** ** | **American Lab** | ** ** | **Lab**      | ** ** | **Education** | ** ** | **Total**  | ** ** |
| Balance at  January 1, 2006 |       |                  | $          | 647.3        |       |          |       | $          | 195.0      |   |   |   | $ | 67.7 |   |   | $ | 910.0 |   |
| Currency translation changes     |       |                  | (0.1       | )            |       |          | 5.1        |       |       |   | — |   |   | 5.0 |   |
| Balance at  March 31, 2006  |       |                  | $          | 647.2        |       |          |       | $          | 200.1      |   |   |   | $ | 67.7 |   |   | $ | 915.0 |   |

 

12

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

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

Otherintangible assets, net for each of the reporting periods is shown in the tablebelow:
|                                                                                                             | ** ** | **Weighted**     | ** ** | ** **         | ** ** | ** **            | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                  | ** ** | **Average**      | ** ** | ** **         | ** ** | ** **            | ** ** |
| ** **                                                                                                  | ** ** | **Amortization** | ** ** | ** **         | ** ** | ** **            | ** ** |
| ** **                                                                                                  | ** ** | **Period**       | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
| ** **                                                                                                  | ** ** | **(Years)**      | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| Amortizable intangible  assets:                                                                             |       |             |       |               |       |                  |       |   |   |   |   |   |   |
| Customer relationships in North America (net of  accumulated amortization of $15.1 and $13.2, respectively) |       |             | 32.8       |               |       |                  | $          | 230.8 |   |   |   | $ | 232.7 |   |   |
| Customer relationships in Europe (net of accumulated  amortization of $7.4 and $6.3, respectively)          |       |             | 20.5       |               |       |                  | 70.2       |   |   |   | 69.5 |   |   |
| Chemical supply agreements (net of accumulated  amortization of $6.1 and $5.2, respectively)                |       |             | 10.0       |               |       |                  | 24.0       |   |   |   | 24.2 |   |   |
| Other (net of accumulated amortization of $0.6 and  $0.4, respectively)            |       |             | 2.4        |               |       |                  | 0.8        |   |   |   | 0.8 |   |   |
| Total amortizable intangible assets (net of accumulated  amortization of $29.2 and $25.1, respectively)     |       |             |       |               |       |                  | 325.8      |   |   |   | 327.2 |   |   |
| Indefinite-lived  intangible assets:                                                                        |       |             |       |               |       |                  |       |   |   |   |   |   |   |
| Trademarks and tradenames                                                                                   |       |             |       |               |       |                  | 226.0      |   |   |   | 225.5 |   |   |
| Total intangible  assets, net                                                                               |       |             |       |               |       |                  | $          | 551.8 |   |   |   | $ | 552.7 |   |   |

 

Amortization expense forthe three months ended March 31, 2006 and 2005 was $3.9 and $3.6,respectively.

**(6)   Debt**

Thefollowing is a summary of ourdebt obligations:

| ** **                                       | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| Senior Secured  Credit Facility                  |       |               | $          | 496.4                 |       |   |   | $ | 537.1 |   |   |
| 67¤8%  Unsecured Senior Notes due 2012      |       |               | 200.0      |                  |       |   | 200.0 |   |   |
| 8% Unsecured  Senior Subordinated Notes due 2014 |       |               | 320.0      |                  |       |   | 320.0 |   |   |
| Loan from CDRV  Holdings, Inc.              |       |               | 0.6        |                  |       |   | 0.6 |   |   |
| Bank loans                                       |       |               | 0.1        |                  |       |   | 0.3 |   |   |
| Capital leases                                   |       |               | 5.9        |                  |       |   | 5.8 |   |   |
| Total debt                                       |       |               | 1,023.0    |                  |       |   | 1,063.8 |   |   |
| Less short-term  portion                         |       |               | (1.2       | )                     |       |   | (45.5 | ) |   |
| Total long-term  portion                         |       |               | $          | 1,021.8               |       |   |   | $ | 1,018.3 |   |   |

 

13

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

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

The Senior Secured Credit Facility provides foraggregate maximum borrowings of approximately $646.4 under (1) a term loanfacility providing for a loan denominated in Euros in an aggregate principalamount currently outstanding of €121.8 million (orapproximately $147.8 on a U.S. dollar equivalent basis as of March 31, 2006), (2) a term loanfacility providing for a term loan denominated in U.S. dollars in an aggregateprincipal amount currently outstanding of $348.6, 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 March 31,2006, we had $9.2 of undrawn letters of credit and our remaining borrowingavailability under the $150.0 multi-currency revolving credit facility was$140.8.

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 expected to be subject tomandatory prepayment and reduction in an amount equal to:

·       The netproceeds of (1) any permitted receivables securitizationprogram, (2) certain debt offerings, (3) certain asset sales and (4) certaininsurance recovery and condemnation events; and

·       50% of excess cash flow (asdefined) for any fiscal year unless certain leverage ratio targets are met. Aprepayment of $44.5 was made in March 2006 based on excess cash flow (asdefined) generated in 2005. This amount has been included in short-term bank debtin our consolidated balance sheet at December 31, 2005.

***Security; Guarantees***

The obligations under the Senior Secured CreditFacility are guaranteed by our parent, CDRV Holdings, Inc., and eachsignificant direct and indirect domestic subsidiary of VWR, as that term isdefined in the credit agreement. As of March 31, 2006, none of the domestic subsidiaries of VWRmet the definition of significant subsidiary under the credit agreement. Inaddition, the Senior Secured Credit Facility and the guarantees thereunder aresecured by security interests in and pledges of or liens on substantially allof the tangible and intangible assets of VWR and its subsidiaries.

The Senior Secured Credit Facility and the guaranteesthereunder are secured by a pledge of 65% of the capital stock of the foreignsubsidiary holding companies of CDRV Holdings, Inc. and VWR, which in turnhold the capital stock of certain of our foreign subsidiaries.

14

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

***Interest***

At our election, the interest rates applicable to theU.S. dollar-denominated term loan can be based on a fluctuating rate ofinterest measured by reference to either (1) an adjusted London inter-bankoffered rate, or LIBOR, plus a borrowing margin or (2) an alternate baserate, or ABR, plus a borrowing margin. The interest rate applicable to theEuro-denominated term loan is based on a fluctuating rate of interest measuredby reference to an adjusted EURIBOR plus a borrowing margin. As of March 31, 2006, the interestrates on the U.S. dollar-denominated and Euro-denominated term loans were 7.12%and 5.26%, respectively.

Effective July 21,2004, VWR entered into an interest rate cap to hedge a portion of thevariability of cash flows related to potential changes in interest rates on €35.0million of our Euro-denominated term loan. The instrument has a 5.0% 3-monthEURIBOR cap that terminates on July 21, 2006. The 3-month EURIBORrate was approximately 2.8% as of March 31,2006.

***Covenants***

The Senior SecuredCredit Facility contains a number of covenants that, among other things, limitor restrict our ability to dispose of assets, incur additional indebtedness,incur guarantee obligations, prepay other indebtedness, make acquisitions,modify terms 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 us 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 March 31, 2006, the Company wasin compliance with all covenants.

***(b)******          The Senior and Senior Subordinated 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.

Underthe Senior Indenture and the Senior Subordinated Indenture, additionalsecurities may be issued in one or more series from time to time, subject tocertain covenant limitations.

**(7)   DefinedBenefit 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.

15

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

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

|                                 | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------|------------|------------------------------------------------------|------------|
| ** **                      | ** ** | **U.S. Plan**                                   | ** ** | **German, French  and UK Plans** | ** ** |
| ** **                      | ** ** | **2006**                                             | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service cost                    |       | $                                                    | 0.7        |   | $ | 1.9 |   | $ | 0.7 |   | $ | 0.9 |   |
| Interest cost                   |       | 2.1                                                  |       | 2.2 |   | 0.9 |   | 1.1 |   |
| Expected return  on plan assets |       | (2.3                                                 | )          | (2.1 | ) | (0.9 | ) | (1.0 | ) |
| Recognized net  actuarial loss  |       | 0.1                                                  |       | —   |   | 0.1 |   | — |   |
| Net periodic  pension cost      |       | $                                                    | 0.6        |   | $ | 2.0 |   | $ | 0.8 |   | $ | 1.0 |   |

 

Net periodic pension cost for the U.S. defined benefitplan is lower in 2006 than 2005 as a result of a curtailment of the planeffective June 1, 2005. Future benefits were frozen effective May 31,2005 for most participants. Most participants will earn no further benefitsunder the plan after that date.

The Company made combinedcontributions to the Non-U.S. defined benefit plans of approximately $0.3 forthe three months ended March 31,2006 and expects to make additional contributions to the U.S. plan and Non-U.S.plans of approximately $8.5 and $1.4, respectively, during the remainder of2006.

**(8)   ComprehensiveIncome (Loss)**

Comprehensiveincome (loss) is determined as follows:

| ** **                                 | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|
| ** **                                 | ** ** | **March 31,**               | ** ** |
| ** **                                 | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| Net income                                 |       |                             | $          | 16.1 |   |   | $ | 5.1 |   |
| Other comprehensive  income (loss):        |       |                             |       |   |   |   |   |
| Foreign currency translation adjustment    |       |                             | 6.2        |   |   | (6.0 | ) |
| Unrealized gain on derivatives, net of tax |       |                             | 0.5        |   |   | 0.3 |   |
| Comprehensive income  (loss)               |       |                             | $          | 22.8 |   |   | $ | (0.6 | ) |

 

**(9)   Commitmentsand Contingencies**

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

During 2005, the German Federal Cartel Officeinitiated an investigation with regard to our European Distribution Agreementwith Merck KGaA. The purpose of the investigation is to determine whether thisagreement violates or otherwise infringes the general prohibition ofanti-competitive agreements under either German or EU rules. The Company hassubmitted information to the German 

16

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

Federal Cartel Office andis awaiting feedback in connection with this matter. At the current time wecannot assess 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 €24.8 million(or $30.1 on a U.S. dollar equivalent basis as of March 31, 2006)related to our European Distribution Agreement with Merck KGaA. As of March 31,2006, the unamortized net book value of these intangible assets isapproximately  €19.8million (or $24.0 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 alleging a breachof contract and unliquidated damages. The Company will vigorously defend itselfin this matter. Until further information is obtained we cannot assess thelikely outcome of this litigation.

**(10)   SegmentFinancial Information**

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.

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

| ** **                  | ** ** | **Three Months Ended** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **March 31,**               | ** ** |
| ** **                  | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| **Net Sales**               | ** ** | ** **                       | ** ** | ** ** | ** ** |
| North American Lab          |       | $                                | 492.2      |   | $ | 460.9 |   |
| European Lab                |       | 272.9                            |       | 268.8 |   |
| Science Education           |       | 30.7                             |       | 24.4 |   |
| Total                       |       | $                                | 795.8      |   | $ | 754.1 |   |
| **Operating  Income**       | ** ** | ** **                       | ** ** | ** ** | ** ** |
| North American Lab          |       | $                                | 29.4       |   | $ | 14.6 |   |
| European Lab                |       | 14.3                             |       | 11.1 |   |
| Science Education           |       | 2.4                              |       | (0.6 | ) |
| Total                       |       | 46.1                             |       | 25.1 |   |
| Interest income             |       | (1.3                             | )          | (0.6 | ) |
| Interest expense            |       | 20.7                             |       | 18.4 |   |
| Other income, net           |       | 0.8                              |       | (1.0 | ) |
| Income before  income taxes |       | $                                | 25.9       |   | $ | 8.3 |   |

 

17

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

**Overview**

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

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

Selling, general and administrative expenses primarilyreflect the costs of operations dedicated to generating new sales, maintainingexisting customer relationships, enhancing technology capabilities, receivingcustomer orders and operating our distribution center facilities. Theseexpenses also include depreciation and amortization.

We acquired AGB ScientificLtd. (“AGB”) and Advanced Instruments Sales & Service, Inc. (“AI”)on April 1, 2005 and Technical Service Lab B.V. (“TSL”) on July 1,2005. The results of AGB and TSL have been included in the European Lab segmentand the results of AI have been included in the North American Lab segment fromthe date of the acquisitions. AGB had net sales of $7.9 million, gross profitof $2.3 million and operating income of $0.4 million for the three months endedMarch 31, 2006. AI had net sales of $3.4 million, gross profit of $1.5million and operating loss of $0.2 million for the three months ended March 31,2006. TSL had net sales of $0.5 million, gross profit of $0.4 million andbreak-even operating results for the three months ended March 31, 2006.

**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 requires significant incremental internal resources and financialinvestments including, but not limited to, use of outside experts, additionalaudit fees, and potential changes in systems design, security and structure.

A component of thisprogram will also focus on the quality, security, and functionality of ourinformation systems. While we have developed sound plans to address all of ourcompliance requirements, there can be no assurance that such efforts will nothave an impact on, or otherwise distract our management team from, day-to-dayactivities.

**Constant CurrencyAnalysis**

We maintain operations inNorth America and in Europe. Approximately 42% of our net sales originate incurrencies other than the U.S. dollar, principally the Euro, the British poundsterling and the Canadian dollar. As a result, changes in our revenues andoperating profits include the impact of changes in foreign currency exchangerates. We provide “constant currency” disclosures in the following discussionand analysis to quantify the impact of the fluctuation in foreign exchangerates and utilize constant currency results in our analysis of segmentperformance. We believe that this calculation is a useful measure, indicatingtrue operating performance. Earnings from our subsidiaries are not generallyrepatriated to the United States, and we typically do not incur significantgains or losses on foreign currency transactions with our subsidiaries.Therefore, changes in foreign currency exchange rates primarily impact onlyreported earnings and not our financial position.

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**Restructuring**

Since the Acquisition, we have initiated variousrestructuring activities designed to rationalize operating costs and improveour operating and administrative capabilities. We recorded restructuringaccruals of $29.7 million in 2004, primarily related to reductions in headcountin Europe due to the reorganization of our European sales and marketing functions.In early 2005, we recorded additional restructuring accruals of $24.5 million,primarily for severance and other exit costs 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, theCompany recorded various restructuring charges in response to relatively staticmarket conditions and implemented reductions in force and other costcontainment measures that did not qualify as acquisition costs. In connectionwith these actions, we recorded restructuring charges related to severance andfacility exit costs totaling approximately $20.6 million for the year ended December 31,2005. These programs arecomplete and no such charges were recorded in the first quarter of 2006. Duringthe three months ended March 31, 2006 we reversed $0.2 million of theseaccruals related to North American Lab programs. For the three months ended March 31,2005 we recorded $2.1 million of suchcharges related to North American Lab programs.

**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 are comprised of the distribution of scientific suppliesto customers in pharmaceuticals, biotechnology, chemicals, technology, and foodprocessing; governmental agencies; colleges and universities; and environmentalorganizations. Science Education is comprised of the manufacture anddistribution of scientific supplies and specialized kits principally to primaryand secondary schools in North America.

**Results ofOperations**

***Net Sales***

Thefollowing table presents net sales and changes in net sales by reportablesegment for the three months ended March 31, 2006 and 2005 (dollars inmillions):

| ** **          | ** ** | **Three Months Ended** | ** ** |
|---------------------|------------|----------------------------------|------------|
| ** **          | ** ** | **March 31,**               | ** ** |
| ** **          | ** ** | **2006**                         | ** ** | **% Change** | ** ** | **2005** | ** ** |
| North American  Lab |       | $                                | 492.2      |   |   | 6.8 | % |   | $ | 460.9 |   |
| European Lab        |       | 272.9                            |       |   | 1.5 | % |   | 268.8 |   |
| Science Education   |       | 30.7                             |       |   | 25.8 | % |   | 24.4 |   |
| Total               |       | $                                | 795.8      |   |   | 5.5 | % |   | $ | 754.1 |   |

 

Net sales for the three months ended March 31,2006 increased $41.7 million over the comparable period of 2005. Foreign currencyunfavorably impacted net sales by $21.1 million and the acquisitions of AGB, AIand TSL favorably impacted net sales by $11.8 million for the three monthsended March 31, 2006. Excluding these effects, net sales increased by 6.8%from the comparable period of 2005 reflecting a few additional billing days andimproved pricing, particularly in North American Lab.

Net sales in the North American Lab segment for thethree months ended March 31, 2006 increased $31.3 million over thecomparable period of 2005. The acquisition of AI and the effects of foreigncurrency 

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each accounted for $3.4million of the increase. Excluding these effects, net sales increased 5.3% fromthe comparable period of 2005 reflecting two additional billing days andimproved pricing. For the three months ended March 31, 2006 our net salesin the bio-pharmaceutical and education markets experienced low-single digitgrowth, our net sales in the industrial market achieved mid-single digit growthand our net sales in the production safety and clinical markets achieved growthof approximately 11%.

Net sales in the European Lab segment for the threemonths ended March 31, 2006 increased $4.1 million over thecomparable period of 2005. Foreign currency unfavorably impacted net sales by$24.5 million and the acquisitions of AGB and TSL favorably impacted netsales by $8.4 million for the three months ended March 31, 2006. Excludingthese effects, net sales increased 7.5% from the comparable period of 2005reflecting approximately three additional billing days, improved pricing, andgrowth in private label consumables and equipment sales. For the three monthsended March 31, 2006 our net sales in the bio-pharmaceutical marketachieved mid-single digit growth, our net sales in the industrial marketachieved growth of approximately 13% and our net sales in the education marketexperienced low-single digit growth. These increases were partially offset bydeclines in our resellers and clinical markets.

Net sales in the ScienceEducation segment for the three months ended March 31, 2006 increased$6.3 million or 25.8% over the comparable period of 2005. This increasewas primarily driven by significant increases in our publishers market and thefulfillment of a large international order.

***Gross Profit***

Thefollowing table presents gross profit for the three months ended March 31,2006 and 2005 (dollars in millions):

| ** **                              | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|
| ** **                              | ** ** | **March 31,**               | ** ** |
| ** **                              | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| Gross profit                            |       | $                                | 214.4      |   | $ | 192.7 |   |
| Percentage of net sales  (gross margin) |       | 26.9                             | %          | 25.6 | % |
|                                         |            |                                  |            |  |  |  |  |

 

Gross profit for the threemonths ended March 31, 2006 increased $21.7 million over the comparableperiod of 2005. Foreign currency unfavorably impacted gross profit by $6.8million and the acquisitions of AGB, AI and TSL favorably impacted gross profitby $4.2 million for the three months ended March 31, 2006. Excluding theseeffects, gross profit increased 12.6% from the comparable period of 2005reflecting the additional billing days and improved pricing discussed above.Our gross margin percentages improved significantly in our North American Laband Science Education segments and slightly in our European Lab segment. Thegross margin increase in North American Lab is primarily a result of favorablepricing, better mix and improved recovery of freight costs. The gross marginincrease in Science Education is primarily a result of increased marginsrelated to our publishers business, partially offset by increased internationalnet sales with lower margins.

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

Thefollowing table presents selling, general, and administrative expenses (“SG&A”) for the three monthsended March 31, 2006 and 2005 (dollars in millions):

| ** **                                    | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | **March 31,**               | ** ** |
| ** **                                    | ** ** | **2006**                         | ** ** | **2005** | ** ** |
| Selling, general  and administrative expenses |       | $                                | 168.5      |   | $ | 165.5 |   |
| Percentage of net sales                       |       | 21.2                             | %          | 21.9 | % |
|                                               |            |                                  |            |  |  |  |  |

 

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SG&A for the threemonths ended March 31, 2006 increased $3.0 million over the comparableperiod of 2005. Foreign currency favorably impacted SG&A by $5.7 millionand the acquisitions of AGB, AI and TSL unfavorably impacted SG&A by $4.0million for the three months ended March 31, 2006. Excluding theseeffects, SG&A increased $4.7 million or 2.8% from the comparable period of2005. This increase includes costs associated with a one-time bonus for ourPresident and Chief Executive Officer of $1.1 million, duplicateexpenditures incurred in our UK operations related to the transition of certainservices of $0.8 million, severance for certain personnel of $0.5 million andstock-based compensation of $0.4 million. The balance of the increase reflectsspending in selected areas and inflation; partially offset by savings from ourprior restructuring programs.

***Operating Income***

Thefollowing table presents operating income and operating income as a percentageof net sales by reportable segment for the three months ended March 31,2006 and 2005 (dollars in millions):

| ** **          | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------|------------|------------------------------------------------------|------------|
| ** **          | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| ** **          | ** ** | ** **                                           | ** ** | **% of** | ** ** | ** ** | ** ** | **% of** | ** ** |
| ** **          | ** ** | **Amount**                                           | ** ** | **Net Sales** | ** ** | **Amount** | ** ** | **Net Sales** | ** ** |
| North American  Lab |       |                                                 | $          | 29.4 |   |   |   | 6.0 | % |   |   | $ | 14.6 |   |   |   | 3.2 | % |   |
| European Lab        |       |                                                 | 14.3       |   |   |   | 5.2 | % |   |   | 11.1 |   |   |   | 4.1 | % |   |
| Science Education   |       |                                                 | 2.4        |   |   |   | 7.8 | % |   |   | (0.6 | ) |   |   | (2.5 | )% |   |
| Total               |       |                                                 | $          | 46.1 |   |   |   | 5.8 | % |   |   | $ | 25.1 |   |   |   | 3.3 | % |   |

 

As a result of the factors described above, operatingincome for the three months ended March 31, 2006 increased $21.0 millionover the comparable period of 2005. The restructuring programs and acquisitionsdiscussed above favorably impacted operating income by $2.3 million and $0.2million, respectively, and foreign currency unfavorably impacted operatingincome by $1.1 million from the comparable period of 2005. Excluding theseeffects, operating income increased $19.6 million or 72.1% from the comparableperiod of 2005. This increase was the result of a gross profit increase of$24.3 million, partially offset by an SG&A increase of $4.7 million.

Operating income in the North American Lab segment forthe three months ended March 31, 2006 increased $14.8 million over thecomparable period of 2005. The restructuring programs discussed above andforeign currency favorably impacted operating income by $2.3 million and $0.2million, respectively, and the acquisition of AI unfavorably impacted operatingincome by $0.2 million from the comparable period of 2005. Excluding theseeffects, operating income increased $12.5 million or 74.9% from the comparableperiod of 2005. This increase was the result of a gross profit increase of$14.2 million, partially offset by an SG&A increase of $1.7 million.

Operating income in the European Lab segment for thethree months ended March 31, 2006 increased $3.2 million over thecomparable period of 2005. Foreign currency unfavorably impacted operatingincome by $1.3 million and the acquisitions of AGB and TSL favorably impactedoperating income by $0.4 million from the comparable period of 2005. Excludingthese effects, operating income increased $4.1 million or 36.9% from thecomparable period of 2005. This increase was the result of a gross profitincrease of $7.0 million, partially offset by an SG&A increase of $2.9million.

Operating income in theScience Education segment for the three months ended March 31, 2006increased $3.0 million over the comparable period of 2005. The increase for thethree months ended March 31, 2006 is the result of increased gross profitof $3.1 million, partially offset by an SG&A increase of $0.1 million.

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

Interest expense, net ofinterest income, for the three months ended March 31, 2006, increased to$19.4 million from $17.8 million for the comparable period of 2005. Thisincrease is due to higher variable interest rates on the Senior Secured CreditFacility term loans, partially offset by increased interest income earned onour cash and cash equivalents.

***Other Expense (Income), net***

Other expense, net was$0.8 million for the three months ended March 31, 2006 compared to otherincome, net of $1.0 million for the comparable period of 2005. The change isprimarily due to a net exchange loss of $1.0 million in 2006 and a net exchangegain of $0.7 million in 2005.

***Income Taxes***

The effective income taxrate for the three months ended March 31, 2006 was 37.8% compared to 38.6%for the comparable period of 2005. The 2005 effective tax rate was adverselyimpacted by losses and related valuation allowances associated with ouroperations in France and a valuation allowance for U.S. foreign tax credits. In2006, 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 beconsidered separately from capital resources that consist of current orpotentially available funds for use in achieving long-range objectives andmeeting debt service commitments.

Our significant liquidity and capital funding needsare working capital, operating expenses, capital expenditures, contractualobligations, and commercial commitments. Liquidity and capital resource needsare met through cash flows from operations and borrowings under the SeniorSecured Credit Facility.

Based on current operations and expectations as tofuture growth, we believe that cash generated from operations, together withamounts available under the revolving credit facility, will be adequate topermit us to meet our debt service obligations, capital expenditure programrequirements, ongoing operating costs and working capital needs, although noassurance can be given in this regard.

Working capital, excluding cash and debt, was $208.2million and $225.4 million at March 31, 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 49.9**daysand 48.2 days for the quarterly periods ended March 31, 2006 andDecember 31, 2005, respectively. Trade receivables are higher in Europedue to the extended payment practices in several of the countries in which weoperate. The increase in our trade receivables as of March 31, 2006 fromDecember 31, 2005 is primarily due to net sales growth.

***Inventories.***   Dayssupply of inventory were 40.2**daysand 43.1 days for the quarterly periods ended March 31, 2006 andDecember 31, 2005, respectively, due to focused efforts to reduce ourinventories on hand.

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***Accounts Payable.***   Dayspayables outstanding were 59.3**daysand 59.1 days for the quarterly periods ended March 31, 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):

| ** **                                            | ** ** | **Three Months  Ended** | ** ** |
|-------------------------------------------------------|------------|------------------------------|------------|
| ** **                                            | ** ** | **March 31,**           | ** ** |
| ** **                                            | ** ** | **2006**                     | ** ** | **2005** | ** ** |
| Cash flow from  operations, excluding working capital |       | $                            | 26.4       |   | $ | 20.3 |   |
| Cash flow from  working capital changes, net          |       | 30.5                         |       | 47.0 |   |
| Cash flow from  operations                            |       | $                            | 56.9       |   | $ | 67.3 |   |

 

We generated $56.9 million of cash flow fromoperations during the three months ended March 31, 2006 compared to $67.3million during the comparable period of 2005. The decrease in cash flow fromoperations is primarily the result of lower cash flow from working capitalchanges, partially offset by the increase in net income.

Net cash used in investing activities was $4.8 millionfor the three months ended March 31, 2006 compared to $4.1 million for thecomparable period of 2005. This increase is primarily due to increased capitalexpenditures of $0.5 million. We anticipate increased capital expenditures in2006 over 2005 amounts.

Net cash used in financing activities was $55.1million for the three months ended March 31, 2006 compared to cash used infinancing activities of $30.9 million for the comparable period of 2005. Thisincrease is comprised of increased net debt payments of $41.1 million, whichincludes the $44.5 million principal payment on the Senior Secured CreditFacility, partially offset by a decrease in net change in bank checksoutstanding of $16.9 million.

Under the credit agreement for the Senior SecuredCredit Facility, beginning in 2006, Excess Cash Flow (as defined in the creditagreement) from the prior year will be required to be used to prepay creditagreement debt. On March 31, 2006, we prepaid $44.5 million on the SeniorSecured Credit Facility term loans as required by the Excess Cash Flowprovisions. Based upon current levels of operations and expectations as tofuture growth, we believe that cash on hand, cash to be generated fromoperations, together with amounts available under the $150.0 million five yearmulti-currency revolving credit facility, which is a component of the Senior SecuredCredit Facility, will be adequate to permit us to meet our debt serviceobligations, capital expenditure requirements, ongoing operating costs andworking capital needs until the maturity of the Senior Secured Credit Facility,although no assurance can be given in this regard. Our future financial andoperating performance, ability to service or refinance our debt and ability tocomply with covenants and restrictions contained in our debt agreements will besubject to future economic conditions and to financial, business and otherfactors, many of which are beyond our control and will be substantiallydependent on the global economy, demand for our products, and our ability tosuccessfully implement our overall business and profitability strategies. As ofMarch 31, 2006, we had $123.1 million of cash and cash equivalents onhand.

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As of March 31, 2006,we had outstanding indebtedness of $1,023.0 million, which consists primarilyof $520.0 million aggregate principal amount of notes, a $348.6 million U.S. dollar-denominatedterm loan, and a $147.8 million Euro-denominated term loan.

**Indebtedness**

***Senior SecuredCredit Facility.***   The Senior Secured CreditFacility consists of (1) a term loan facility providing for a loandenominated in Euros, in an aggregate principal amount currently outstanding at€121.8million (approximately $147.8 million on a U.S. dollar equivalent basis as of March 31,2006), (2) a term loan facility denominated in U.S. dollars in anaggregate principal amount currently outstanding at $348.6 million, and (3) amulti-currency revolving credit facility, providing for up to $150.0 million inmulti-currency revolving loans (including standby and commercial letters ofcredit) outstanding at any time. As of March 31, 2006, there was nooutstanding balance on the multi-currency revolving credit facility. Undrawnamounts under the multi-currency revolving credit facility are available on arevolving credit basis for general corporate purposes of the borrower and itssubsidiaries. As of March 31, 2006, we had $9.2 million of undrawn lettersof credit and our remaining borrowing availability under the $150.0 millionmulti-currency revolving credit facility was $140.8 million.

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

The indentures governing the senior notes and thesenior subordinated notes contain certain covenants that limit the Company’sability to incur additional indebtedness, pay cash dividends and make certainother payments. The indentures also require the Company to maintain certainfinancial covenants, including a specified debt to Consolidated EBITDA leverageratio and a specified Consolidated EBITDA to interest expense coverage ratio.At March 31, 2006, the Company was in compliance with all such covenants.

***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, our compliancewith the financial covenants that limit the Company’s ability to incuradditional indebtedness, pay cash dividends and make certain other payments asset forth in the credit agreement for the Senior Secured Credit Facility. Thefinancial covenants include a specified debt to Credit Agreement EBITDAleverage ratio and a specified Credit Agreement EBITDA to interest expensecoverage ratio for specified periods. Failure to comply with these financialratio covenants would result in a default under the credit agreement for theSenior Secured Credit Facility and, absent a waiver or an amendment from ourlenders, would permit the acceleration of all outstanding borrowings under theSenior Secured Credit Facility. We were in compliance with these financialcovenants as of March 31, 2006.

Credit Agreement EBITDA as presented herein is afinancial performance measure that is used in the credit agreement for theSenior Secured Credit Facility. Credit Agreement EBITDA is not a defined termunder U.S. GAAP and should not be considered as an alternative to operatingincome or net income as a measure of operating results or cash flows as ameasure of liquidity. Credit Agreement EBITDA differs from the term “EBITDA” asit is commonly used. Credit Agreement EBITDA generally is defined asconsolidated net income before consolidated net interest expense, consolidatedincome taxes, consolidated depreciation and amortization, other non-cashcharges deducted in determining consolidated net income (loss), non-cashprovisions for reserves for discontinued operations, extraordinary, unusual ornon-

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recurring items, gain orloss associated with the sale or write down of assets not in the ordinarycourse of business and the cumulative effect of accounting changes and earningsof, but including cash dividends or distributions from, non-controlledaffiliates. Credit Agreement EBITDA is reduced by the amount of certainpermitted dividends to CDRV Holdings, Inc.

Credit Agreement EBITDA is not used in the indenturesfor the senior and senior subordinated notes. The term “Consolidated EBITDA” isused in the indentures as part of the calculation of the term “ConsolidatedCoverage Ratio”, which is used for a number of purposes, including determiningour ability to incur additional indebtedness, and may include certain costsavings or synergies. “Consolidated EBITDA” is not the same as Credit AgreementEBITDA.

Thefollowing table presents a calculation of Credit Agreement EBITDA for the twelvemonths ended March 31, 2006 (dollars in millions):

| ** **                                                                | ** ** | **(Unaudited)** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------|------------|
| Income before  cumulative effect of a change in   accounting principle(1) |       |            | $          | 52.8 |   |   |
| Income tax  provision(1)                                                  |       |            | 37.6       |   |   |
| Interest expense,  net(1)                                                 |       |            | 75.9       |   |   |
| Depreciation and  amortization(1)                                         |       |            | 33.7       |   |   |
| Non-cash charges(2)                                                       |       |            | 12.5       |   |   |
| Other  extraordinary, unusual or non-recurring items(3)                   |       |            | 18.1       |   |   |
| Credit Agreement EBITDA                                                   |       |            | $          | 230.6 |   |   |

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(1)          These amounts includethe four quarters during the twelve months ended March 31, 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:

|                                                  | ** ** | **Debt to Credit Agreement** | ** **   | **Credit Agreement EBITDA**  | ** ** |
|--------------------------------------------------|------------|---------------------------------------------|--------------|----------------------------------------|------------|
| ** **                                       | ** ** | **EBITDA Leverage**                    | ** **   | **to Interest Expense**      | ** ** |
| **Test Period**                             | ** ** | ** **                                  | ** **   | **Ratio Not More Than** | ** ** | **Ratio Not Less Than** | ** ** |
| December 31,  2005 - December 30, 2006 |       |                                        | 7.00 to 1.00 |                                   |       |   | 1.90 to 1.00 |   |   |
| December 31,  2006 - December 30, 2007 |       |                                        | 6.50 to 1.00 |                                   |       |   | 2.00 to 1.00 |   |   |
| December 31,  2007 - December 30, 2008 |       |                                        | 6.00 to 1.00 |                                   |       |   | 2.10 to 1.00 |   |   |
| December 31,  2008 - December 30, 2009 |       |                                        | 5.50 to 1.00 |                                   |       |   | 2.20 to 1.00 |   |   |
| December 31,  2009 - December 30, 2010 |       |                                        | 5.00 to 1.00 |                                   |       |   | 2.30 to 1.00 |   |   |
| December 31, 2010  and thereafter           |       |                                        | 5.00 to 1.00 |                                   |       |   | 2.40 to 1.00 |   |   |
|                                                  |            |                                             |              |                                        |            |  |  |  |  |  |  |

 

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Thetable below sets forth the specified debt to Credit Agreement EBITDA leverageratio and Credit Agreement EBITDA to interest expense ratio for the twelvemonths ended March 31, 2006:

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

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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.

**Debt of CDRVInvestors, Inc.**

CDRV Investors, Inc., our indirect parent, issued$481.0 million aggregate principal amount at maturity ($297.9 million in netproceeds) of 95¤8%senior discount notes due 2015 (“CDRV Senior Discount Notes”) on December 16,2004. The net proceeds of the issuance were used to pay a dividend to theholders of the common stock of CDRV Investors, Inc. The CDRV SeniorDiscount Notes are senior unsecured obligations of CDRV Investors, Inc.and are structurally subordinated to all obligations and other liabilities ofCDRV Investors, Inc.’s existing and future subsidiaries, including us. Nocash interest will accrue on the CDRV Senior Discount Notes prior to January 1,2010. Thereafter, cash interest will accrue and be payable semiannually, onlyto the extent funds are available for distribution to CDRV Investors, Inc.under specified provisions of the indentures governing our senior notes andsenior subordinated notes and applicable law. As of March 31, 2006, the accretedvalue of the CDRV Senior Discount Notes was $338.2 million.

We do not guarantee theobligations under the CDRV Senior Discount Notes. The terms of the SeniorSecured Credit Facility and the indentures governing our senior notes andsenior subordinated notes significantly restrict us from making distributionsand otherwise transferring assets to CDRV Investors, Inc.

**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.

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**Forward-LookingStatements**

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

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

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

·       ourability to maintain our relationships with manufacturers;

·       lossof our key executive officers;

·       ourability to consummate and integrate potential acquisitions;

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

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

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

All forward-looking statements attributable to us orpersons acting on our behalf are expressly qualified in their entirety by theforegoing cautionary statements. You are cautioned not to place undue relianceon the forward-looking statements, which speak only as of the date of thisQuarterly Report on Form 10-Q. We undertake no obligations to updateor revise publicly any forward-looking statements, whether as a result of newinformation, future events or otherwise.

 

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

Refer to “Item 7A -Quantitative and Qualitative Disclosures about Market Risk” included in ourannual report on Form 10-K for the year ended December 31,2005, for the Company’s quantitative and qualitative disclosure about marketrisk. There was no material change in such information as of March 31,2006.

**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 Securities and Exchange Act of 1934. Based on that evaluation, the ChiefExecutive Officer and the Chief Financial Officer concluded that our disclosurecontrols and procedures were effective at a reasonable assurance level as of March 31,2006.

There were no changes inour internal control over financial reporting that occurred during the quarterended March 31, 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 9 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 5—*Other Information***

The form of Restricted Stock Unit Agreement (the “Agreement”)that will be used to grant awards of restricted stock units in CDRV Investors, Inc.to certain of the Company’s executive officers and other key employees pursuantto the CDRV Investors, Inc. Stock Incentive Plan was amended to complywith transition rules promulgated under § 409A of the InternalRevenue Code. The amendment provides that the restricted stock units will notbe settled in 2006 as a result of a change of control or termination of agrantee’s employment due to the grantee’s death or disability.

This description of theAgreement is qualified in its entirety by the actual terms of the Agreement,which is attached hereto as Exhibit 10.1 and incorporated herein by thisreference.

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**Item6—*Exhibits***
| Exhibit  Number | ** ** | **Description of Documents**                                                                                                         | ** ** | **Method of Filing** |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|
| 10.1            |       | Form of Restricted  Stock Unit Agreement under CDRV Investors, Inc. Stock Incentive Plan                                   |       | 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.

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

 

May 11, 2006

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