VWR International, LLC
VWR Corp (Form: 10-Q, Received: 08/12/2015 17:47:34)

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 001-36673
 
VWR Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
26-0237871
(State of incorporation)
(I.R.S. Employer Identification No.)
Radnor Corporate Center, Building One, Suite 200
100 Matsonford Road
Radnor, Pennsylvania 19087
(Address of principal executive offices)
(610) 386-1700
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý  Yes ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý  Yes ¨  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. ¨  Large accelerated filer ¨  Accelerated filer ý  Non‑accelerated filer ¨  Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨  Yes ý  No
On August 7, 2015 , 131,358,700 shares of the registrant’s common stock, $0.01 par value per share, were outstanding.
 



VWR Corporation and Subsidiaries
Form 10-Q
For the Quarterly Period Ended June 30, 2015
Table of Contents
 
Page
 
 
 
 
 
 
 
 
 

i


Glossary of Commonly Used Terms
Term
 
Description
the Company, we, us, our
 
VWR Corporation and its consolidated subsidiaries
4.625% Senior Notes
 
4.625% unsecured senior notes due 2022
7.25% Senior Notes
 
7.25% unsecured senior notes due 2017
Adjusted EBITDA*
 
our earnings or loss before interest, taxes, depreciation, amortization and certain other adjustments
Adjusted EBITDA margin*
 
the ratio of Adjusted EBITDA to net sales
Adjusted EPS*
 
our Adjusted Net Income divided by diluted weighted average shares outstanding, normalized for the shares issued in our IPO
Adjusted Net Income*
 
our net income or loss adjusted for certain items
Americas
 
a geographically-defined reportable segment covering North, Central and South America
Annual Report
 
our Annual Report on Form 10-K filed with the SEC on March 4, 2015
A/R Facility
 
an accounts receivable securitization facility due 2018
Biopharma
 
the combination of the pharmaceutical and biotechnology sectors
EMEA-APAC
 
a geographically-defined reportable segment covering Europe, Middle East, Africa and Asia-Pacific
GAAP
 
United States generally accepted accounting principles
IPO
 
our initial public offering, which occurred on October 1, 2014 and closed on October 7, 2014
ITRA
 
the income tax receivable agreement with VWR Holdings
LTM Adjusted EBITDA*
 
our Adjusted EBITDA over the most recent twelve-month period
Net Debt*
 
our indebtedness less cash and cash equivalents and compensating cash balance
Net Leverage*
 
the ratio of Net Debt to LTM Adjusted EBITDA
SEC
 
the United States Securities and Exchange Commission
Senior Credit Facility
 
a senior secured credit facility, consisting of term loans denominated in euros and U.S. dollars and a multi-currency revolving loan facility
SG&A expenses
 
selling, general and administrative expenses as defined by GAAP and SEC regulations
SG&A items
 
four items in SG&A expenses that are discussed in Part I, Item 2 of this report and contributed significantly to our prior period comparisons
Subordinated Notes
 
10.75% unsecured senior subordinated notes, which were redeemed in the fourth quarter of 2014
VWR Holdings
 
Varietal Distribution Holdings, LLC, our parent company
 
*
Denotes non-GAAP financial measurements. See Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Indicators of Performance and Financial Condition” for more information, including where to find reconciliations from the most directly comparable GAAP-based financial measurements.

ii


Cautionary Factors Regarding Forward-Looking Statements
This report contains forward-looking statements. All statements other than statements of historical fact included in this report are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. These statements may be preceded by, followed by or include the words “aim,” “anticipate,” believe,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “outlook,” “plan,” “potential,” “project,” “projection,” “seek,” “can,” “could,” “may,” “should,” “would,” “will,” the negatives thereof and other words and terms of similar meaning.
Forward-looking statements are inherently subject to risks, uncertainties and assumptions; they are not guarantees of performance. You should not place undue reliance on these statements. We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, we cannot assure you that the assumptions and expectations will prove to be correct.
You should understand that the following important factors, in addition to those discussed in Item 1A, “Risk Factors,” and elsewhere in our Annual Report, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:
unfavorable political, economic, capital and credit market conditions in the regions where we operate;
changes in our customers’ research and development and other scientific endeavors;
changes to the life science industry adversely affecting our business;
increased competition from other companies in our industry and our ability to increase our market shares in the geographic regions where we operate;
our ability to maintain relationships with our customers and suppliers;
our ability to consummate and integrate recent and future acquisitions;
the international scope of our operations;
the need to record impairment charges against our goodwill, other intangible and/or other long-lived assets;
existing and increased government regulations to which we and our suppliers are subject;
our ability to comply with applicable antitrust or competition laws;
increased costs to comply with environmental, health and safety laws and regulations;
product liability and other claims in the ordinary course of business;
our ability to hire, train and retain executive officers and other key personnel;
significant interruptions in the operations of our distribution centers or the operations of our suppliers;
failure of our information services and its connectivity to our customers, suppliers and/or certain service providers;
our failure to register and in some cases own the existing applications and registrations for our material trademarks or service marks in certain countries where we do business;
foreign currency exchange rate fluctuations; and
unanticipated increases to our income tax liabilities.
All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. In addition, all forward-looking statements speak only as of the date of this report. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise other than as required under the federal securities laws.


iii


PART I — FINANCIAL INFORMATION
Item 1.
Financial Statements
VWR Corporation and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(in millions, except per share data)
 
June 30,
2015
 
December 31,
2014
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
129.9

 
$
118.0

Trade accounts receivable, net of reserves of $12.6 and $12.2
607.4

 
583.5

Other receivables
40.4

 
62.1

Inventories
398.7

 
394.5

Other current assets
47.9

 
44.5

Total current assets
1,224.3

 
1,202.6

Property and equipment, net
221.2

 
231.5

Goodwill
1,817.0

 
1,853.6

Other intangible assets, net
1,518.5

 
1,594.9

Other assets
111.7

 
106.2

Total assets
$
4,892.7

 
$
4,988.8

Liabilities, Redeemable Equity and Stockholder Equity
 
 
 
Current liabilities:
 
 
 
Current portion of debt and capital lease obligations
$
128.3

 
$
95.3

Accounts payable
459.6

 
466.2

Employee-related liabilities
64.4

 
82.3

Other current liabilities
158.0

 
142.3

Total current liabilities
810.3

 
786.1

Debt and capital lease obligations, net of current portion
1,938.2

 
2,016.6

Due to VWR Holdings — ITRA, net of current portion
137.6

 
163.1

Deferred income tax liabilities
478.4

 
462.2

Other liabilities
174.4

 
169.7

Total liabilities
3,538.9

 
3,597.7

Commitments and contingencies (Note 8)

 

Redeemable equity, at redemption value
45.9

 
51.4

Stockholder equity:
 
 
 
Preferred stock, $0.01 par value; 50.0 shares authorized, no shares issued and outstanding

 

Common stock, $0.01 par value; 750.0 shares authorized, 131.4 shares issued and outstanding
1.3

 
1.3

Additional paid-in capital
1,724.2

 
1,716.3

Accumulated deficit
(58.2
)
 
(148.0
)
Accumulated other comprehensive loss
(359.4
)
 
(229.9
)
Total stockholder equity
1,307.9


1,339.7

Total liabilities, redeemable equity and stockholder equity
$
4,892.7


$
4,988.8

See accompanying notes to condensed consolidated financial statements.

1


VWR Corporation and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(in millions, except per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net sales
$
1,081.2

 
$
1,102.7

 
$
2,110.8

 
$
2,159.3

Cost of goods sold
782.7

 
791.4

 
1,521.1

 
1,535.4

Gross profit
298.5

 
311.3

 
589.7

 
623.9

Selling, general and administrative expenses
220.9

 
249.3

 
438.3

 
484.9

Operating income
77.6

 
62.0

 
151.4

 
139.0

Interest expense
(28.4
)
 
(45.1
)
 
(55.7
)
 
(91.1
)
Interest income

 
0.2

 
0.1

 
0.4

Other income (expense), net
(18.6
)
 
8.3

 
51.7

 
5.2

Loss on extinguishment of debt
(0.6
)
 

 
(2.4
)
 

Income before income taxes
30.0

 
25.4

 
145.1

 
53.5

Income tax provision
(11.7
)
 
(8.8
)
 
(55.3
)
 
(19.5
)
Net income
18.3

 
16.6

 
89.8

 
34.0

Accretion of dividends on redeemable convertible preferred stock

 
(12.6
)
 

 
(25.0
)
Net income applicable to common stockholders
$
18.3

 
$
4.0

 
$
89.8

 
$
9.0

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 


 


Basic
$
0.14

 
$
40.00

 
$
0.68

 
$
90.00

Diluted
0.14

 
40.00

 
0.68

 
90.00

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
131.4

 
0.1

 
131.4

 
0.1

Diluted
132.1

 
0.1

 
132.0

 
0.1

See accompanying notes to condensed consolidated financial statements.

2


VWR Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income or Loss (Unaudited)
(in millions)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income
$
18.3

 
$
16.6

 
$
89.8

 
$
34.0

Other comprehensive income (loss), net of taxes:
 
 
 
 
 
 
 
Foreign currency translation:
 
 
 
 
 
 
 
Net unrealized gain (loss) arising during the period
35.8

 
(1.5
)
 
(130.2
)
 
(7.6
)
Derivative instruments:
 
 
 
 
 
 
 
Net unrealized loss arising during the period
(0.9
)
 
(0.3
)
 
(0.8
)
 
(0.9
)
Reclassification of net loss into earnings
0.2

 

 
0.2

 
0.2

Defined benefit plans:
 
 
 
 
 
 
 
Net unrealized gain arising during the period

 
3.7

 

 
3.7

Reclassification of net loss (gain) into earnings
0.6

 
(4.2
)
 
1.3

 
(3.9
)
Other comprehensive income (loss)
35.7

 
(2.3
)
 
(129.5
)
 
(8.5
)
Comprehensive income (loss)
$
54.0

 
$
14.3

 
$
(39.7
)
 
$
25.5

See accompanying notes to condensed consolidated financial statements.

3


VWR Corporation and Subsidiaries
Condensed Consolidated Statements of Redeemable Equity and Stockholder Equity (Unaudited)
(in millions)
 
 
 
Stockholder Equity
 
Redeemable Equity
 
Common Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Loss
 
Total
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2014
$
51.4

 
131.4

 
$
1.3

 
$
1,716.3

 
$
(148.0
)
 
$
(229.9
)
 
$
1,339.7

Share-based compensation expense

 

 

 
2.4

 

 

 
2.4

Reclassifications to state redeemable equity at redemption value
(5.5
)
 

 

 
5.5

 

 

 
5.5

Net income

 

 

 

 
89.8

 

 
89.8

Other comprehensive loss

 

 

 

 

 
(129.5
)
 
(129.5
)
Balance at June 30, 2015
$
45.9

 
131.4

 
$
1.3

 
$
1,724.2

 
$
(58.2
)
 
$
(359.4
)
 
$
1,307.9

See accompanying notes to condensed consolidated financial statements.

4


VWR Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in millions)
 
Six Months Ended June 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
89.8

 
$
34.0

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
61.3

 
66.3

Net foreign currency remeasurement gain
(50.2
)
 
(6.7
)
Impairment charges

 
11.3

Share-based compensation expense
2.4

 
0.4

Amortization of debt issuance costs
2.8

 
3.7

Deferred income tax provision (benefit)
31.0

 
(8.6
)
Loss on extinguishment of debt
2.4

 

Other, net
3.9

 
0.8

Changes in working capital, net of business acquisitions:
 
 
 
Trade accounts receivable
(43.1
)
 
(43.8
)
Inventories
(12.0
)
 
(20.2
)
Accounts payable
6.0

 
19.7

Other assets and liabilities
2.8

 
11.6

Net cash provided by operating activities
97.1

 
68.5

Cash flows from investing activities:
 
 
 
Acquisitions of businesses, net of cash acquired
(44.6
)
 
(28.1
)
Capital expenditures
(16.5
)
 
(15.1
)
Other investing activities
1.9

 

Net cash used in investing activities
(59.2
)
 
(43.2
)
Cash flows from financing activities:
 
 
 
Proceeds from debt
1,188.9

 
362.0

Repayment of debt
(1,193.0
)
 
(359.9
)
Net change in bank overdrafts
(0.8
)
 
(11.4
)
Net change in compensating cash balance
2.5

 
8.9

Repurchases of redeemable equity

 
(7.5
)
Payment to VWR Holdings under ITRA
(9.8
)
 

Payment of debt issuance costs
(5.2
)
 
(1.1
)
Other financing activities
(2.3
)
 

Net cash used in financing activities
(19.7
)
 
(9.0
)
Effect of exchange rate changes on cash
(6.3
)
 
(0.3
)
Net increase in cash and cash equivalents
11.9

 
16.0

Cash and cash equivalents at beginning of period
118.0

 
135.6

Cash and cash equivalents at end of period
$
129.9

 
$
151.6

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
44.9

 
$
84.5

Cash paid for income taxes, net
19.7

 
16.7

See accompanying notes to condensed consolidated financial statements.

5


VWR Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
( 1 )
Nature of Operations and Basis of Presentation
VWR Corporation, together with its consolidated subsidiaries (the “Company,” “we,” “us,” and “our”), is a leading, independent provider of laboratory products, services and solutions to the global life science, general research and applied markets. We have a significant market share position in Europe and North America. We also have operations in Asia-Pacific and other key emerging markets to support our multinational customers across the globe. We serve a critical role in connecting customer sites with core laboratory product suppliers across multiple industries and geographies. We offer one of the broadest portfolios of branded and private label laboratory products. We also offer a full range of value-added services, including custom manufacturing, to meet our customers’ needs. These services represent a growing but currently small portion of our overall net sales. We offer a wide selection of unique products and have developed an extensive global infrastructure including thousands of sales and service-focused professionals. We deliver value to our customers by improving the costs, efficiency and effectiveness of their research laboratories and production operations. We deliver value to our suppliers by providing them with cost-effective channel access to a global and diverse customer base.
Basis of Presentation
We report financial results on the basis of two reportable segments organized by geographic region: (i) North, Central and South America (collectively, the “Americas”); and (ii) Europe, Middle East, Africa and Asia Pacific (collectively, “EMEA-APAC”).
We have prepared the condensed consolidated financial statements included herein without audit pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) has been condensed or omitted pursuant to such rules and regulations. The financial information presented herein reflects all adjustments (consisting only of normal, recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The results for interim periods are not necessarily indicative of the results to be expected for the full year.
We believe that the disclosures included herein are adequate to make the information presented not misleading in any material respect when read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2014 included in our most recent Annual Report on Form 10-K. Those audited consolidated financial statements include a summary of our significant accounting policies, to which there have been no material changes.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of VWR Corporation, its subsidiaries and certain accounts of our parent company after the elimination of intercompany balances and transactions. The following describes our corporate organization at June 30, 2015 and the principles followed in consolidating our financial statements:

6


Varietal Distribution Holdings, LLC (“VWR Holdings”) — Prior to our initial public offering in the fourth quarter of 2014 (“IPO”), VWR Corporation was a wholly-owned subsidiary of VWR Holdings, a Delaware limited liability company. Private equity funds managed by Madison Dearborn Partners, Avista Capital Partners and their affiliates (collectively, the “Sponsors”) hold a controlling interest in VWR Holdings.
Our consolidated balance sheets reflect the investment cost basis of VWR Holdings in the assets and liabilities acquired in a merger in June 2007 and the estimated fair values of those assets and liabilities at that time. This resulted in a significant increase in the carrying value of our identifiable intangible assets and goodwill. In addition, we re-valued our pension obligations, recorded significant deferred income taxes and incurred substantial additional indebtedness.
VWR Holdings sponsors a share-based compensation program for the benefit of certain of our employees and others. We present the expense and changes to equity related to this program in our consolidated financial statements. We also present as redeemable equity the redemption value of certain of VWR Holdings’ equity held by management.
VWR Corporation — VWR Corporation, a Delaware corporation, was formed in June 2007 as VWR Investors, Inc. in connection with a merger. In June 2014, VWR Investors, Inc. changed its name to VWR Corporation. VWR Corporation has no operations other than its ownership of VWR Funding, Inc.
VWR Funding, Inc. and its wholly-owned subsidiaries (“VWR Funding”) — VWR Funding is our wholly-owned subsidiary and the primary issuer of our debt. VWR Funding’s debt agreements limit its ability to, among other things, pay dividends to us.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, expenses, income and loss during the reporting period. Actual results could differ significantly from those estimates.
( 2 )
New Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued comprehensive revenue recognition guidance. The new guidance provides a single model for entities to use in accounting for revenue arising from contracts with customers and will supersede most current revenue recognition guidance. The new standard also requires expanded disclosures regarding the qualitative and quantitative information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new guidance is effective for us beginning in the first quarter of 2018. The standard may be adopted using either a full retrospective or a modified retrospective approach. We are continuing to evaluate the impact of this pronouncement and the method by which we will adopt it.
In April 2015, the FASB issued new guidance about the presentation of debt issuance costs. Under the new guidance, deferred debt issuance costs will be presented on our balance sheet as a reduction to debt and capital lease obligations instead of as a component of other assets, as currently required by GAAP. The new guidance becomes effective for us beginning in the first quarter of 2016. We plan to adopt the standard for our consolidated financial statements for the fiscal year ended December 31, 2015. Had we adopted the new standard in the accompanying condensed consolidated financial statements, it would have caused us to reclassify $13.3 million and $12.4 million of deferred debt issuance costs from other assets to debt and capital lease obligations at June 30, 2015 and December 31, 2014 , respectively.
( 3 )
Earnings or Loss per Share
Basic earnings or loss per share is computed by dividing net income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings or loss per share is computed in a similar way but adjusted for the dilutive effect, if any, of the assumed exercise or conversion of dilutive instruments into common stock.

7


The following table presents the reconciliation of the denominators of basic and diluted earnings or loss per share (in millions):
 
Three Months Ended
June 30, 2015
 
Six Months Ended
June 30, 2015
Weighted average shares outstanding, basic
131.4

 
131.4

Dilutive effect of stock options
0.7

 
0.6

Weighted average shares outstanding, diluted
132.1

 
132.0

For the three and six months ended June 30, 2015 , the numerators of basic and diluted earnings or loss per share were the same because there were no expenses that would have been eliminated upon the assumed conversion of the stock options. For the three and six months ended June 30, 2014 , the numerators and denominators of basic and diluted earnings or loss per share were the same because there were no instruments that could have been converted into common share during those periods. No convertible instruments were excluded from diluted EPS in any period on the basis that they were anti-dilutive to the calculation.
( 4 )
Acquisitions
We have acquired a number of businesses to broaden our product offerings and strengthen our market positions. The following list provides information about businesses we acquired since December 31, 2013 (collectively, the “Acquisitions”):
on May 1, 2015, we acquired Hichrom Limited and its subsidiaries (“Hichrom”), a UK-based chromatography column manufacturer and distributor;
on February 2, 2015, we acquired National Biochemicals Corporation (“NBC”), a domestic full service raw material manufacturer and supplier to the biochemical industry;
on November 7, 2014, we acquired Integra Companies, Inc. (“Integra”) and STI Components, Inc. (“STI”). Integra and STI are two separate domestic manufacturers and distributors of single-use disposable products and clean room kitting for bioprocessing applications;
on September 8, 2014, we acquired Klinipath BV and its affiliates (collectively, “Klinipath”), a manufacturer and distributor of equipment, consumables and reagents based in The Netherlands and Belgium;
on June 1, 2014, we acquired a business, and in August 2014, we subsequently rescinded the purchase agreement, receiving a full refund of the purchase price; and
on March 3, 2014, we acquired Peqlab Biotechnologie GmbH, including its subsidiaries and operations in the United States, the United Kingdom, Austria and Germany (collectively, “Peqlab”). Peqlab is headquartered in Germany and develops, manufactures and supplies molecular and cell biology reagents, consumables and instruments.
None of the Acquisitions had an individually material impact on our consolidated financial statements. The Acquisitions were funded through a combination of cash and cash equivalents on hand and incremental borrowings under our credit facilities.
The results of NBC, Integra and STI have been included in our Americas segment, and the results of Hichrom and Klinipath have been included in our EMEA-APAC segment, each from their respective dates of acquisition. The results of Peqlab from its date of acquisition have been included in our EMEA-APAC segment, except for Peqlab’s operations in the United States which have been included in the Americas segment. The results of the disposed business were included in our Americas segment from June 1, 2014 through its disposition in August 2014.

8


The following table presents the components and allocation of the purchase price and the weighted average life of acquired amortizable intangible assets for the Acquisitions in the aggregate (in millions, except as indicated):
 
Six Months Ended
June 30, 2015
Components of purchase price:
 
Cash paid, net of cash acquired
$
44.6

Estimated fair value of contingent consideration
13.4

Deferred purchase price, net of (settlements)
(2.4
)
Purchase price
$
55.6

Allocation of purchase price:
 
Net tangible assets
$
5.5

Identifiable intangible assets
16.9

Goodwill
33.2

Purchase price
$
55.6

 
 
Weighted average life of acquired amortizable intangible assets
9.7 years

The purchase price for the Acquisitions was higher than the fair value of the acquired identifiable assets, resulting in goodwill, due to our expectations of the synergies that will be realized by combining the businesses with ours. During the six months ended June 30, 2015 , we recorded goodwill of $16.1 million that we expect to be deductible for tax purposes. The purchase price allocations for the acquisitions of Hichrom and NBC are preliminary pending finalization of opening balance sheets and may be adjusted subsequently.
The acquisitions completed in 2015 contributed aggregate net sales of $4.9 million and $6.3 million and aggregate operating income of $0.7 million and $0.8 million for the three and six months ended June 30, 2015 , respectively.
The following table presents unaudited supplemental pro forma financial information as if the Acquisitions, excluding the disposed business, had occurred as of January 1, 2014 (in millions, except per share data):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net sales
$
1,082.5

 
$
1,122.2

 
$
2,116.6

 
$
2,202.1

Net income
18.4

 
17.8

 
90.3

 
36.3

Earnings per share:
 
 
 
 
 
 
 
Basic
0.14

 
52.00

 
0.69

 
113.00

Diluted
0.14

 
52.00

 
0.68

 
113.00

These results do not purport to be indicative of our results of operations which actually would have resulted had the Acquisitions, excluding the disposed business, occurred on January 1, 2014, or of our future results of operations.

9


( 5 )
Goodwill and Other Intangible Assets, net
The following table presents changes in goodwill by segment (in millions):
 
Americas
 
EMEA-APAC
 
Total
Balance at December 31, 2014
$
1,042.3

 
$
811.3

 
$
1,853.6

Acquisitions
16.1

 
17.1

 
33.2

Currency translation
(7.0
)
 
(62.6
)
 
(69.6
)
Other

 
(0.2
)
 
(0.2
)
Balance at June 30, 2015
$
1,051.4

 
$
765.6

 
$
1,817.0

The following table presents the gross amount of goodwill and accumulated impairment losses by segment (in millions):
 
June 30, 2015
 
December 31, 2014
 
Gross Carrying Amount
 
Accumulated Impairment Losses
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Impairment Losses
 
Net Carrying Amount
Americas
$
1,258.0

 
$
206.6

 
$
1,051.4

 
$
1,248.9

 
$
206.6

 
$
1,042.3

EMEA-APAC
765.6

 

 
765.6

 
811.3

 

 
811.3

Total
$
2,023.6

 
$
206.6

 
$
1,817.0

 
$
2,060.2

 
$
206.6

 
$
1,853.6

The following table presents the components of other intangible assets (in millions):
 
June 30, 2015
 
December 31, 2014
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Amortizable intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
1,427.5

 
$
554.1

 
$
873.4

 
$
1,456.9

 
$
531.3

 
$
925.6

Other
28.3

 
13.6

 
14.7

 
28.2

 
12.1

 
16.1

Total
1,455.8

 
567.7

 
888.1

 
1,485.1

 
543.4

 
941.7

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Trademarks and tradenames
630.4

 

 
630.4

 
653.2

 

 
653.2

Other intangible assets
$
2,086.2

 
$
567.7

 
$
1,518.5

 
$
2,138.3

 
$
543.4

 
$
1,594.9


10


( 6 )
Debt and Capital Lease Obligations
Debt and capital lease obligations consist of: (i) an accounts receivable securitization facility due 2018 (the “A/R Facility”); (ii) a senior secured credit facility consisting of term loans denominated in euros, a multi-currency revolving loan facility and, prior to their repayment in the second quarter of 2015, term loans denominated in U.S. dollars (collectively, the “Senior Credit Facility”); (iii) 7.25% unsecured senior notes due 2017 (the “7.25% Senior Notes”); (iv) 4.625% unsecured senior notes due 2022 (the “4.625% Senior Notes”); (v) capital lease obligations; and (vi) other debt.
All of our debt and capital lease obligations are that of our wholly-owned subsidiary, VWR Funding. Certain of those debt instruments limit the ability of VWR Funding to make payments to VWR Corporation. Any disclosures about debt and capital lease obligations that refer to “we,” “us,” and “our” apply only to VWR Funding unless otherwise noted.
The following table presents the components of debt and capital lease obligations, interest rate terms and weighted-average interest rates (dollars in millions):
 
June 30, 2015
 
December 31,
2014
 
Interest Terms
 
Rate
 
Amount
 
A/R Facility
LIBOR plus 1.15%
 
1.34
%
 
$
99.0

 
$
73.0

Senior Credit Facility:
 
 
 
 
 
 
 
Euro-denominated term loans
EURIBOR plus 3.50%
 
3.42
%
 
627.8

 
686.7

U.S. dollar-denominated term loans

 
581.4

Multi-currency revolving loan facility
Various rates
 
2.76
%
 
15.7

 

7.25% Senior Notes
Fixed rate
 
7.25
%
 
750.0

 
750.0

4.625% Senior Notes, net of discount of $4.1
Fixed rate
 
4.63
%
 
556.7

 

Capital lease obligations
14.5

 
15.9

Other debt
2.8

 
4.9

Debt and capital lease obligations
$
2,066.5


$
2,111.9

 
 
 
 
Current portion of debt and capital lease obligations
$
128.3

 
$
95.3

Debt and capital lease obligations, net of current portion
1,938.2

 
2,016.6

Debt and capital lease obligations
$
2,066.5

 
$
2,111.9

The following summarizes the priority of our debt instruments. Borrowings under the A/R Facility are collateralized by the trade accounts receivable of certain of our domestic wholly-owned subsidiaries. Those receivables are not available to satisfy the claims of other creditors. Borrowings under the Senior Credit Facility are secured by substantially all of our other assets and rank higher than the remainder of our debt.
A/R Facility
At June 30, 2015 , we had $61.8 million of available borrowing capacity under the A/R Facility. Available borrowing capacity was calculated as: (i) the lesser of (a) the $175.0 million maximum amount of the facility and (b) a borrowing base of $172.1 million , calculated as a percentage of eligible trade accounts receivable; less (ii) undrawn letters of credit outstanding of $11.3 million and (iii) outstanding borrowings of $99.0 million .
In May 2015, we amended the A/R Facility. The amendment extended the maturity date to May 18, 2018 and decreased the interest rate on borrowings to LIBOR plus 1.15% per annum. In connection with the amendment, we paid financing fees of $0.2 million during the three months ended June 30, 2015, which were deferred and are being recognized as interest expense through the maturity date.

11


Senior Credit Facility
At June 30, 2015 , we had $218.6 million of available borrowing capacity under our multi-currency revolving loan facility. Available borrowing capacity was calculated as: (i) the maximum borrowing capacity of $241.3 million , less (ii) undrawn letters of credit outstanding of $7.0 million and (iii) outstanding borrowings of $15.7 million .
Using a portion of the net proceeds from the issuance of the 4.625% Senior Notes (see below) and availability under our credit facilities, we repaid all of our U.S. dollar-denominated term loans during the first half of 2015. As a result, we incurred a loss on extinguishment of debt of $0.6 million and $2.4 million for the three and six months ended June 30, 2015 , respectively, representing the write-off of unamortized deferred financing costs.
4.625% Senior Notes
In March 2015, we completed the private sale of €503.8 million of 4.625% Senior Notes due 2022. The notes were offered at an original issue discount of €3.8 million . We paid debt issuance costs of $5.0 million during the six months ended June 30, 2015 and accrued an additional $0.4 million of debt issuance costs at June 30, 2015 . The original issue discount and the debt issuance costs were deferred and are being recognized as interest expense through the maturity date.
The 4.625% Senior Notes will mature on April 15, 2022 . Interest on the notes is payable in arrears on April 15 and October 15 of each year commencing October 15, 2015 at a rate of 4.625% per annum.
Redemption
We may, at our option, redeem some or all of the 4.625% Senior Notes prior to April 15, 2018 at a price equal to the present value of: (i) the redemption price on April 15, 2018 plus (ii) all remaining interest payments through April 15, 2018. Beginning on April 15, 2018, 2019 and 2020, the redemption price changes to 102.3125% , 101.1563% and 100% , respectively, of the principal amount of the notes to be redeemed. In addition, at any time prior to April 15, 2018, on one or more occasions, we may redeem up to 35% of the aggregate principal amount of the notes with the net proceeds of one or more equity offerings, as described in the indenture, at a redemption price equal to 104.625% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date. If we experience certain change of control events, holders of the notes may require us to repurchase all or part of their notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the repurchase date.
Guarantees
The obligations under the 4.625% Senior Notes are guaranteed, jointly and severally and fully and unconditionally, on a senior basis by each of our wholly-owned U.S. subsidiaries other than our U.S. foreign subsidiary holding companies (the “Subsidiary Guarantors”). The Subsidiary Guarantors’ obligations under the guarantees of the notes are not secured by any of our assets, VWR Funding’s assets or the Subsidiary Guarantors’ assets.
Covenants
The indenture governing the 4.625% Senior Notes contains a number of customary affirmative and negative covenants. As of June 30, 2015 , we were in compliance with the covenants under the indenture.
The indenture governing the 4.625% Senior Notes restricts VWR Funding’s ability to make payments to VWR Corporation, including for the purpose of paying dividends on capital stock. Under those restrictions, lifetime payments to VWR Corporation cannot exceed the sum of (i) $100.0 million and (ii) an additional amount equal to 50% of VWR Funding’s consolidated net income since January 1, 2015 and any amounts it has received from sales of equity or capital contributions since March 25, 2015 that are not used for other restricted payments, provided that there is no default under the indenture and that VWR Funding meets a fixed charge coverage ratio after giving effect to any such restricted payment.

12


( 7 )
Financial Instruments and Fair Value Measurements
Our financial instruments include cash and cash equivalents, trade accounts receivable, accounts payable, debt and capital lease obligations and an amount due to VWR Holdings. Our financial instruments are held or issued by a number of institutions, which reduces the risk of material non-performance, except for the amount due to VWR Holdings.
Assets and Liabilities for which Fair Value is Only Disclosed
The carrying amount of cash and cash equivalents is stated at its fair value, a Level 1 measurement. The carrying amounts for trade accounts receivable and accounts payable approximate fair value due to their short-term nature and are Level 2 measurements.
The following table presents the carrying amounts and estimated fair values of our primary debt instruments (in millions):
 
June 30, 2015
 
December 31, 2014
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
A/R Facility
$
99.0

 
$
99.0

 
$
73.0

 
$
73.0

Senior Credit Facility
643.5

 
645.5

 
1,268.1

 
1,256.5

7.25% Senior Notes
750.0

 
777.2

 
750.0

 
780.2

4.625% Senior Notes
556.7

 
541.9

 

 

The fair values of our primary debt instruments are based on estimates using quoted market prices and standard pricing models that take into account the present value of future cash flows as of the respective balance sheet date. We believe that these qualify as Level 2 measurements, except for our publicly-traded 7.25% Senior Notes, which we believe qualify as a Level 1 measurement. The carrying amounts of the remainder of our debt and capital lease obligations not included in the table above approximate fair value due to their primarily short-term nature and are Level 2 measurements.
At June 30, 2015 and December 31, 2014 , the amount due to VWR Holdings under the ITRA (see Note 13 ) had a fair value of $130.0 million and $132.0 million , respectively, and a carrying amount of $163.1 million and $172.9 million , respectively. The fair value was estimated using a combination of observable and unobservable inputs using an income-based approach, a Level 3 measurement.
Recurring Fair Value Measurements with Significant Unobservable Inputs
The following table presents changes in recurring fair value measurements with significant unobservable inputs, which are Level 3 measurements (in millions):
 
Contingent Consideration
Balance at December 31, 2014
$
11.6

Acquisitions
13.4

Changes to estimated fair value recognized as (income) loss in earnings
(0.2
)
Settlements in cash
(2.3
)
Currency translation
(0.2
)
Balance at June 30, 2015
$
22.3

Contingent Consideration
Certain of the business acquisitions we completed entitle the sellers to contingent consideration if earnings targets are met during a period of time following the acquisition. The fair value of contingent consideration was estimated using the average of probability-weighted potential earn-out payments specified in the purchase agreements, ranging from approximately $1 million to $24 million at June 30, 2015 . The significant assumptions used in these calculations include forecasted results and the estimated likelihood for each performance scenario.
In the table above, acquisitions includes finalization of provisional amounts from acquisitions completed in the fourth quarter of 2014.

13


Derivative Instruments and Hedging Activities
We engage in hedging activities to reduce our exposure to changes in foreign currency exchange rates. Our hedging activities are designed to mitigate specific foreign currency risks according to our strategies, as summarized below, which may change from time to time. Our hedging activities consist of the following:
Net investment hedging — We hedge a portion of our net investment in euro-denominated foreign operations using our euro-denominated 4.625% Senior Notes; and
Cash flow hedging — Some of our subsidiaries hedge short-term foreign-denominated business transactions using foreign currency forward contracts. There have been no significant changes to our cash flow hedging since December 31, 2014 . Cash flow hedging is not material to our consolidated financial statements.
Net Investment Hedging
In March 2015, we designated our euro-denominated 4.625% Senior Notes as a hedge protect a portion of our net investment in euro-denominated foreign operations from the impact of changes in the euro to U.S. dollar exchange rate (see Note 14 ). As a result of the hedge designation, the net foreign currency remeasurement gain or loss on the 4.625% Senior Notes, which otherwise would be recognized in earnings (see Note 10 ), is deferred as accumulated other comprehensive income or loss. That deferred net gain or loss equally offsets the net unrealized gain or loss that is recognized in other comprehensive income or loss from the translation of the hedged portion of our net investment in euro-denominated foreign operations. The hedge has no other impact to our financial position, financial performance or cash flows.
The following table presents the balance sheet classification and fair value of the hedging instrument, a Level 2 measurement (in millions):
 
Balance Sheet Classification
 
June 30, 2015
4.625% Senior Notes
Debt and capital lease obligations, net of current portion
 
$
541.9

The following table presents information about the net unrealized gain (loss) recognized in other comprehensive income as a result of net investment hedging (in millions):
 
Description
 
Three Months Ended
June 30, 2015
 
Six Months Ended
June 30, 2015
Euro-denominated net investment in foreign operations
Hedged item
 
$
19.5

 
$
22.2

4.625% Senior Notes
Hedging instrument
 
(19.5
)
 
(22.2
)
We determined that our hedge of the net investment was fully effective for the three and six months ended June 30, 2015 , and no amounts were recognized in or reclassified to earnings.

14


( 8 )
Commitments and Contingencies
Our business involves risk of product liability, patent infringement and other claims in the ordinary course of business arising from the products that we source from various manufacturers or produce ourselves, as well as from the services we provide. Our exposure to such claims may increase as we seek to increase the geographic scope of our sourcing activities and sales of private label products and to the extent that we expand our manufacturing operations. We maintain insurance policies, including product liability insurance, and in many cases the manufacturers of the products we distribute have indemnified us against such claims. We cannot assure you that our insurance coverage or indemnification agreements with manufacturers will be available in all pending or any future cases brought against us. Furthermore, our ability to recover under any insurance or indemnification arrangements is subject to the financial viability of our insurers, our manufacturers and our manufacturers’ insurers, as well as legal enforcement under the local laws governing the arrangements. In particular, as we seek to expand our sourcing from manufacturers in the Asia-Pacific region and other developing locations, we expect that we will increase our exposure to potential defaults under the related indemnification arrangements. Insurance coverage in general or coverage for certain types of liabilities, such as product liability or patent infringement in these developing markets may not be readily available for purchase or cost-effective for us to purchase. Furthermore, insurance for liability relating to asbestos, lead and silica exposure is not available, and we do not maintain insurance for product recalls. Accordingly, we could be subject to uninsured and unindemnified future liabilities, and an unfavorable result in a case for which adequate insurance or indemnification is not available could result in a material adverse effect on our business, financial condition and results of operations.
We are also involved in various disputes, litigation and regulatory matters incidental to our business, including employment matters, commercial disputes, government contract compliance matters, disputes regarding environmental clean-up costs, and other matters arising out of the normal conduct of our business. We intend to vigorously defend ourselves in such matters. From time to time, we are named as a defendant in cases as a result of our distribution of laboratory supplies, including litigation resulting from the alleged prior distribution of products containing asbestos by certain of our predecessors or acquired companies. While the impact of these disputes or litigation has historically been immaterial, and we believe the range of reasonably possible loss from current matters continues to be immaterial, there can be no assurance that the impact of the pending and any future claims will not be material to our business, financial condition or results of operations in the future.
Employment Agreements
The employment agreements with our executive officers include non-compete, non-solicitation and non-hire covenants as well as severance provisions. In general, if the executive officer is terminated without “Cause” or resigns for “Good Reason” (as such terms are defined in the respective employment agreements) the executive officer is entitled to one and a half times (two times in the case of our President and Chief Executive Officer) the sum of base salary plus the target bonus for the year in which such termination or resignation occurs and continued health benefits for the 12 -month period ( 18 -month period in the case of our President and Chief Executive Officer) following termination or resignation. Salary and bonus payments are payable in equal installments over the 12 -month period following such termination or resignation. The aggregate potential payments under these employment agreements for terminations without Cause and resignations for Good Reason, including estimated costs associated with continued health benefits, is approximately $11.4 million as of June 30, 2015 .
Registration Rights Agreement
We are party to a registration rights agreement with VWR Holdings that could require us to pay securities registration costs in future periods. Under the registration rights agreement, VWR Holdings is entitled to request that we register (i) any shares of our common stock that it held at October 7, 2014 and (ii) any shares held by Madison Dearborn Partners. Should we register such common stock, we would be required to pay costs related to the registration as well as VWR Holdings’ expenses in connection with its exercise of these rights.
In June 2015, we incurred expenses pursuant to the registration rights agreement. See Note 13 .

15


( 9 )
Benefit Plans
We sponsor a number of defined benefit plans for our employees worldwide. We present our defined benefit plans in two groups due to their different geographies, characteristics and actuarial assumptions: (i) the defined benefit plan in the United States (the “U.S. Retirement Plan”); and (ii) the defined benefit plans in Germany, France and the United Kingdom in the aggregate (the “German, French and UK Plans”).
U.S. Retirement Plan
The following table presents the components of net periodic pension income for the U.S. Retirement Plan (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Service cost
$
0.2

 
$
0.2

 
$
0.4

 
$
0.4

Interest cost
1.9

 
2.2

 
3.8

 
4.6

Expected return on plan assets
(3.5
)
 
(3.7
)
 
(7.1
)
 
(7.4
)
Recognized net actuarial gain

 
(0.1
)
 

 
(0.2
)
Gain from partial settlement

 
(6.9
)
 

 
(6.9
)
Net periodic pension income
$
(1.4
)
 
$
(8.3
)
 
$
(2.9
)
 
$
(9.5
)
We made no contributions to the U.S. Retirement Plan during the six months ended June 30, 2015 and expect to make no contributions during the remainder of 2015.
German, French and UK Plans
The following table presents the components of net periodic pension cost for the German, French and UK Plans (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Service cost
$
0.4

 
$
0.4

 
$
0.8

 
$
0.8

Interest cost
1.3

 
1.7

 
2.6

 
3.4

Expected return on plan assets
(1.2
)
 
(1.5
)
 
(2.4
)
 
(2.9
)
Recognized net actuarial loss
0.9

 
0.5

 
1.8

 
1.0

Net periodic pension cost
$
1.4

 
$
1.1

 
$
2.8

 
$
2.3

We made $0.1 million of contributions to the German, French and UK Plans during the six months ended June 30, 2015 and expect to make contributions of $0.7 million during the remainder of 2015.
( 10 )
Other Income (Expense), net
Other income (expense), net, consists primarily of foreign currency remeasurement gains and losses. We have a significant amount of foreign-denominated debt on our U.S. dollar-denominated balance sheet. The translation of that debt is reported in other income (expense), net each period, except for our 4.625% Senior Notes, which qualify as a hedge of our net investment in foreign operations (see Note 7 ). Such gains or losses are unrealized until repayment of the debt and relate to the weakening or strengthening, respectively, of the euro against the U.S. dollar.
The U.S. dollar has strengthened against most foreign currencies. For additional information, see Note 14 .

16


( 11 )
Income Taxes
Since the year ended December 31, 2014, our effective tax rate has increased, reflecting a higher proportion of pretax income from jurisdictions with higher tax rates and the recognition of a non-recurring deferred charge of $1.4 million in the first quarter of 2015 related to an intercompany asset transfer.
( 12 )
Comprehensive Income or Loss
The following table presents changes in the components of accumulated other comprehensive income (loss), net of tax (in millions):
 
Foreign
Currency
Translation
 
Derivative
Instruments
 
Defined
Benefit Plans
 
Total
Balance at December 31, 2014
$
(190.9
)
 
$
(0.3
)
 
$
(38.7
)
 
$
(229.9
)
Net unrealized loss arising during the period
(130.2
)
 
(0.8
)
 

 
(131.0
)
Reclassification of net loss into earnings

 
0.2

 
1.3

 
1.5

Balance at June 30, 2015
$
(321.1
)
 
$
(0.9
)
 
$
(37.4
)
 
$
(359.4
)
The following table presents details about the reclassification of net (gain) loss from accumulated other comprehensive income or loss into earnings (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Derivative instruments:
 
 
 
 
 
 
 
Cost of goods sold
$

 
$

 
$
(0.4
)
 
$
0.2

Interest expense
0.1

 
0.1

 
0.2

 
0.3

Loss on extinguishment of debt
0.1

 

 
0.3

 

Income tax provision

 
(0.1
)
 
0.1

 
(0.3
)
Net income
$
0.2

 
$

 
$
0.2

 
$
0.2

Defined benefit plans:
 
 
 
 
 
 
 
Selling, general and administrative expenses
$
0.9

 
$
(6.8
)
 
$
1.9

 
$
(6.4
)
Income tax provision
(0.3
)
 
2.6

 
(0.6
)
 
2.5

Net income
$
0.6

 
$
(4.2
)
 
$
1.3

 
$
(3.9
)
The following table presents the income tax effects of the components of comprehensive income or loss (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Foreign currency translation:
 
 
 
 
 
 
 
Net unrealized income tax benefit arising during the period
$
8.7

 
$

 
$
8.7

 
$

Derivative instruments:
 
 
 
 
 
 
 
Net unrealized income tax benefit (provision) arising during the period

 
0.2

 
(0.1
)
 
0.5

Reclassification of net income tax (benefit) provision into earnings

 
(0.1
)
 
0.1

 
(0.3
)
Defined benefit plans:
 
 
 
 
 
 
 
Net unrealized income tax provision arising during the period

 
(2.4
)
 

 
(2.4
)
Reclassification of net income tax (benefit) provision into earnings
(0.3
)
 
2.6

 
(0.6
)
 
2.5


17


( 13 )
Related Party Transactions
Due to VWR Holdings — ITRA
We are party to an income tax receivable agreement (“ITRA”) with VWR Holdings. The ITRA provides for the payment of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax realized as a result of utilizing net operating losses that were generated in periods prior to the IPO. As noted previously, our Sponsors own a controlling interest in VWR Holdings.
The timing of payments under the ITRA corresponds to the beginning of the year in which the net operating loss carryforwards are claimed on our tax return. We made a payment under the ITRA of $9.8 million in the first quarter of 2015. At June 30, 2015 , the liability due to VWR Holdings under the ITRA was $163.1 million . We have included $25.5 million of the ITRA liability within other current liabilities, representing our estimate of the payment that will become due in the beginning of 2016 based on current forecasts.
Registration Rights Agreement
In the second quarter of 2015, VWR Holdings completed a registered sale of 18.4 million shares of our common stock. We received no proceeds from this sale and issued no additional shares of our common stock. Pursuant to our registration rights agreement with VWR Holdings (see Note 8 ), we incurred expenses of $0.9 million in connection with the registration and the sale of common stock.
( 14 )
Risks and Uncertainties
Strengthening of the U.S. Dollar
The U.S. dollar has strengthened against most foreign currencies. For example, since its month-end high in April 2014 of $1.39 = €1.00, the spot euro exchange rate has declined to $1.11 = €1.00 at June 30, 2015 . Year-over-year, the average euro exchange rate was $1.37 = €1.00 for the second quarter of 2014 compared to $1.11 = €1.00 for the second quarter of 2015. Further strengthening of the U.S. dollar would impact us for the remainder of 2015 as follows:
It would have a negative impact on the reported results of our foreign-denominated operations proportional to the decline in the applicable foreign currency exchange rates. Of our total net sales for the year ended December 31, 2014, approximately one-half were foreign-denominated.
It would have a negative impact on the reported value of our foreign-denominated net assets proportional to the decline in the applicable foreign currency exchange rates. Of our total assets at December 31, 2014, approximately one-half were foreign-denominated.
In order to partially offset our exposure to these changes, in March 2015 we designated our 4.625% Senior Notes as a hedge of our net investment in euro-denominated foreign operations. See Note 7 .
We are not able to predict the impact that future changes in currency exchange rates may have on our operating results, but their impact could be significant.
( 15 )
Segment Financial Information
We report financial results on the basis of two reportable segments organized by geographic region: the Americas and EMEA-APAC. Both the Americas and EMEA-APAC segments provide laboratory products, services and solutions to customers in the life science, general research and applied markets, including the pharmaceutical, biotechnology, agricultural, chemical, environmental, food and beverage, health care, microelectronic and petrochemical industries, as well as governmental agencies, universities and research institutes and environmental organizations.
Beginning January 1, 2015, we are comprised of two operating segments: Americas and EMEA-APAC. Previously, we had a third operating segment, Emerging Businesses, which is now part of the Americas. We changed our operating segments to align with our new basis of managing the business. Our operating segments are now the same as our reportable segments.
Corporate costs are managed centrally and attributed to the Americas segment.

18


The following table presents segment financial information (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net sales:
 
 
 
 
 
 
 
Americas
$
651.8

 
$
614.8

 
$
1,257.1

 
$
1,183.2

EMEA-APAC
429.4

 
487.9

 
853.7

 
976.1

Total
$
1,081.2

 
$
1,102.7

 
$
2,110.8

 
$
2,159.3

Operating income:
 
 
 
 
 
 
 
Americas
$
41.2

 
$
22.5

 
$
76.9

 
$
52.1

EMEA-APAC
36.4

 
39.5

 
74.5

 
86.9

Total
$
77.6

 
$
62.0

 
$
151.4

 
$
139.0

Inter-segment activity has been eliminated; therefore, net sales for each reportable segment are all from external customers.
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Basis of Presentation
Pursuant to the rules and regulations of the SEC for reports covering interim periods, we have prepared this discussion and analysis to enable you to assess material changes in our financial condition and results of operations since December 31, 2014, the end of the most recent annual period covered by our Annual Report. Therefore, this discussion and analysis should be read in conjunction with the Annual Report as well as the condensed consolidated financial statements and related notes included in Part I, Item 1 — “Financial Statements.”
Overview
We are a leading, independent provider of laboratory products, services and solutions to the global life science, general research and applied markets. We have a significant market share position in Europe and North America. We also have operations in Asia-Pacific and other key emerging markets to support our multinational customers across the globe. We serve a critical role in connecting customer sites with core laboratory product suppliers across multiple industries and geographies. We offer one of the broadest portfolios of branded and private label laboratory products. We also offer a full range of value-added services, including custom manufacturing, to meet our customers’ product needs. These services represent a growing but currently small portion of our overall net sales. We offer a wide selection of unique products and have developed an extensive global infrastructure including thousands of sales and service-focused professionals. We deliver value to our customers by improving the costs, efficiency and effectiveness of their research laboratories and production operations. We deliver value to our suppliers by providing them with cost-effective channel access to a global and diverse customer base.
Our growth strategies include expanding our global strategic relationships, developing complementary new products and services, expanding our customer and supplier base, implementing best practices across our operations, broadening our offerings to underserved customer segments and executing our targeted acquisition strategy.
We report financial results on the basis of two reportable segments organized by geographic region: the Americas and EMEA-APAC. Both the Americas and EMEA-APAC segments provide laboratory products, services and solutions to customers in the life science, general research and applied markets, including the Biopharma, agricultural, chemical, environmental, food and beverage, healthcare, microelectronic and petrochemical industries, as well as governmental agencies, universities, primary education and research institutes and environmental organizations.

19


Trends and Key Factors Affecting our Performance and Financial Condition
Certain trends and key factors have affected our recent operating results and may continue to affect our performance and financial condition in future periods.
Debt Refinancing
During the six months ended June 30, 2015 , we completed a number of refinancing activities that extended the maturity of our debt and lowered our rates of interest.
In March 2015, we completed the private sale of €503.8 million of 4.625% Senior Notes due 2022. The notes were offered at an original issue discount of €3.8 million . We paid debt issuance costs of $5.0 million during the six months ended June 30, 2015 and accrued an additional $0.4 million of debt issuance costs at June 30, 2015 . The original issue discount and the debt issuance costs were deferred and are being recognized as interest expense through the maturity date.
In May 2015, we amended the A/R Facility. The amendment extended the maturity date to May 18, 2018 and decreased the interest rate on borrowings to LIBOR plus 1.15% per annum. In connection with the amendment, we paid financing fees of $0.2 million during the three months ended June 30, 2015, which were deferred and are being recognized as interest expense through the maturity date.
Using a portion of the net proceeds from the issuance of the 4.625% Senior Notes and availability under our credit facilities, we repaid all of our U.S. dollar-denominated term loans during the first half of 2015. As a result, we incurred a loss on extinguishment of debt of $0.6 million and $2.4 million for the three and six months ended June 30, 2015 , respectively, representing the write-off of unamortized deferred financing costs.
Should interest rates remain at or near current levels, we anticipate refinancing and extending our Senior Credit Facility and our 7.25% Senior Notes in the second half of 2015. This has the potential to significantly lower our interest expense in future periods.
Strengthening of the U.S. Dollar
The U.S. dollar has strengthened against most foreign currencies. For example, since its month-end high in April 2014 of $ 1.39 = €1.00, the spot euro exchange rate has declined to $ 1.11 = €1.00 at June 30, 2015 . Year-over-year, the average euro exchange rate was $ 1.37 = €1.00 for the second quarter of 2014 compared to $ 1.11 = €1.00 for the second quarter of 2015. Further strengthening of the U.S. dollar would impact us for the remainder of 2015 as follows:
It would have a negative impact on the reported results of our foreign-denominated operations proportional to the decline in the applicable foreign currency exchange rates. Of our total net sales for the year ended December 31, 2014, approximately one-half were foreign-denominated.
It would have a negative impact on the reported value of our foreign-denominated net assets proportional to the decline in the applicable foreign currency exchange rates. Of our total assets at December 31, 2014, approximately one-half were foreign-denominated.
In order to partially offset our exposure to these changes, in March 2015 we designated our 4.625% Senior Notes as a hedge of our net investment in euro-denominated foreign operations.
We are not able to predict the impact that future changes in currency exchange rates may have on our operating results, but their impact could be significant.
Acquisitions
On May 1, 2015, we acquired Hichrom Limited and its subsidiaries, a UK-based chromatography column manufacturer and distributor.
On February 2, 2015, we acquired National Biochemicals Corporation, a domestic full service raw material manufacturer and supplier to the biochemical industry.

20


Key Indicators of Performance and Financial Condition
To evaluate our performance, we monitor a number of key indicators of our performance and financial condition as follows:
Net sales , operating income and operating income margin , which we discuss on both a consolidated and reportable segment basis in the section entitled “Results of Operations;”
Gross margin and net income or loss , which we discuss on a consolidated basis in the section entitled “Results of Operations;”
Adjusted EBITDA , Adjusted EBITDA margin , Adjusted Net Income and Adjusted EPS , which are non-GAAP financial measurements and key performance indicators used by our investors, creditors and management to measure and evaluate our operating performance. A reconciliation Adjusted Net Income and Adjusted EBITDA from net income or loss, the most directly comparable GAAP-based financial measurement, the calculations of Adjusted EBITDA margin and Adjusted EPS and our discussion and analysis of changes therein are included at the end of the section entitled “Results of Operations” under the subheading “Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Adjusted EPS.”
Beginning in the first quarter of 2015, we changed our calculations of Adjusted Net Income and Adjusted EPS so that they include share-based compensation expense. Adjusted EBITDA and Adjusted EBITDA margin continue to exclude share-based compensation expense;
Net Debt and Net Leverage , which are non-GAAP financial measurements and key performance indicators used by our creditors, investors and management to monitor our financial condition and our continuing ability to service debt. Our calculation of Net Debt reduces our total debt and capital lease obligations by the amount of cash and cash equivalents on hand as well as by our compensating cash balance, a component of other current assets. Net Leverage is calculated by dividing our Net Debt by LTM Adjusted EBITDA. A reconciliation of Net Debt from total debt and capital lease obligations, the most directly comparable GAAP-based financial measurement, the calculation of Net Leverage and the reconciliation of LTM Adjusted EBITDA from net income or loss are included in the section entitled “Liquidity and Capital Resources” under the subheading “Net Debt and Net Leverage;” and
Cash flows, particularly cash flows from operating activities and Free Cash Flow . Free Cash Flow is a non-GAAP financial measurement and a key performance indicator used by our investors, creditors and management to measure and evaluate our ability to generate cash. A reconciliation of Free Cash Flow to cash flows from operating activities, the most directly comparable GAAP-based financial measurement, and our discussion and analysis of changes therein are included at the end of the section entitled “Liquidity and Capital Resources” under the subheading “Historical Cash Flows.”
Non-GAAP Financial Measurements
As appropriate, we supplement our results of operations determined in accordance with GAAP with certain non-GAAP financial measurements that we believe are useful to investors, creditors and others in assessing our performance. These measurements should not be considered in isolation or as a substitute for reported GAAP results because they may include or exclude certain items as compared to similar GAAP-based measurements, and such measurements may not be comparable to similarly-titled measurements reported by other companies. Rather, these measurements should be considered as an additional way of viewing aspects of our operations that provide a more complete understanding of our business. We strongly encourage readers to review our consolidated financial statements included elsewhere herein and in publicly filed reports in their entirety and not rely solely on any one, single financial measurement.
Comparable Operations
Another way in which we evaluate our performance is to exclude certain non-comparable items when reviewing the changes in our reported results. When we discuss our results in this way, we refer to them as comparable operations. We believe that removing non-comparable items from our reported results provides a useful means for readers to understand and evaluate our operating performance. Our results from comparable operations exclude the following items:
Changes in foreign currency exchange rates — Our presentation of results from comparable operations excludes the impact of changes in foreign currency exchange rates. We calculate the impact of such changes by comparing our current period results derived using current period average exchange rates to our current period results recalculated using average foreign exchange rates in effect during the comparable prior period(s).
Recent acquisitions — Our presentation of results from comparable operations excludes the contribution from recent acquisitions to the extent such contributions were not present in the comparable period.

21


Results of Operations
This discussion and analysis includes a summary of our historical results of operations below, followed by detailed comparisons of our results for the three and six months ended June 30, 2015 and 2014 . We have derived this data from our condensed consolidated financial statements included elsewhere in this report.
The following table presents a summary of our results of operations (dollars in millions, except per share data):
 
Three Months Ended
June 30,
 
Reported Change
 
Six Months Ended
June 30,
 
Reported Change
 
2015
 
2014
 
Amount
 
%
 
2015
 
2014
 
Amount
 
%
Net sales
$
1,081.2

 
$
1,102.7

 
$
(21.5
)
 
(1.9
)%
 
$
2,110.8

 
$
2,159.3

 
$
(48.5
)
 
(2.2
)%
Operating income
77.6

 
62.0

 
15.6

 
25.2
 %
 
151.4

 
139.0

 
12.4

 
8.9
 %
Net income
18.3

 
16.6

 
1.7

 
10.2
 %
 
89.8

 
34.0

 
55.8

 
**

Adjusted EBITDA*
110.4

 
105.3

 
5.1

 
4.8
 %
 
217.2

 
217.0

 
0.2

 
0.1
 %
Adjusted Net Income*
44.4

 
32.1

 
12.3

 
38.3
 %
 
88.2

 
68.5

 
19.7

 
28.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross margin
27.6
%
 
28.2
%
 
(60
)
basis points
 
27.9
%
 
28.9
%
 
(100
)
basis points
Operating income margin
7.2
%
 
5.6
%
 
160

basis points
 
7.2
%
 
6.4
%
 
80

basis points
Adjusted EBITDA margin*
10.2
%
 
9.5
%
 
70

basis points
 
10.3
%
 
10.0
%
 
30

basis points
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted EPS*
$
0.34

 
$
0.24

 
$
0.10

 
41.7
 %
 
$
0.67

 
$
0.52

 
$
0.15

 
28.8
 %
 
*
Denotes non-GAAP financial measurements. See “Key Indicators of Performance and Financial Condition” above for more information, including where to find reconciliations to the most directly comparable GAAP-based financial measurements.
**
Not meaningful
The following summarizes our 2015 results of operations as compared to prior periods:
The strength of the U.S. dollar continued to negatively impact our reported results, while new acquisitions continued to benefit our reported results. Excluding currency effects and recent acquisitions, our comparable net sales, comparable operating income and comparable Adjusted EBITDA each increased.
We experienced comparable net sales growth in both segments. The Americas experienced its fifth consecutive quarter of year-over-year comparable net sales growth in the second quarter of 2015, reflecting continuing strength in Biopharma, operating leverage from infrastructure investments and our shift to a more customer-focused strategy. EMEA-APAC comparable net sales growth trends increased in the second quarter of 2015 following the passage of Easter and reflected strength in Biopharma and more purchases of integrated procurement services and other specialized offerings by our largest customers.
Four items in SG&A expenses (the “SG&A items”) contributed significantly to our prior period comparisons: (i) the second quarter of 2014 included an $11.3 million impairment charge related to a business disposal in the Americas; (ii) the first quarter of 2015 included $1.4 million of legacy facility exit charges in the Americas; and the second quarter of 2015 included (iii) $0.9 million of equity offering costs in the Americas and (iv) a $0.2 million non-cash gain on the settlement of contingent consideration in EMEA-APAC.
When excluding the impact of the SG&A items, comparable operating income and comparable Adjusted EBITDA increased as a result of the leverage of our comparable net sales growth on a scalable cost base. These increases more than offset declines to our gross margin caused by a less favorable product sales mix in the 2015 periods and changes to our supply agreements with Merck KGaA in April 2014, which negatively impacted the year-to-date comparison.

22


Adjusted Net Income and Adjusted EPS grew by double-digit rates as a result of operating income growth and reductions to interest expense, the latter caused primarily by the repayment of our Subordinated Notes using a portion of the net proceeds from our IPO. In March 2015, we took advantage of a favorable interest rate environment in Europe to issue new unsecured senior notes, and in May 2015 we refinanced our A/R Facility at a lower interest rate. Should interest rates remain at or near current levels, we anticipate refinancing and extending our Senior Credit Facility and our 7.25% Senior Notes in the second half of 2015. This has the potential to significantly lower our interest expense in future periods.
Net income for the six months ended June 30, 2015 also benefited from the remeasurement of certain of our euro-denominated debt, the carrying value of which decreased significantly with the strengthening of the U.S. dollar. In order to partially offset our exposure to these changes, in March 2015 we designated our 4.625% Senior Notes as a hedge of our net investment in euro-denominated foreign operations.
Net Sales
The following table presents net sales and net sales changes by reportable segment (dollars in millions):
 
Three Months Ended
June 30,
 
 
 
 
 
Components of Reported Change
 
 
Reported Change
 
 
 
 
 
Comparable Operations
 
2015
 
2014
 
Amount
 
%
 
Currency
 
Acquisitions
 
Amount
 
%
Americas
$
651.8

 
$
614.8

 
$
37.0

 
6.0
 %
 
$
(7.9
)
 
$
16.2

 
$
28.7

 
4.7
%
EMEA-APAC
429.4

 
487.9

 
(58.5
)
 
(12.0
)%
 
(87.4
)
 
6.2

 
22.7

 
4.7
%
Total
$
1,081.2

 
$
1,102.7

 
$
(21.5
)
 
(1.9
)%
 
$
(95.3
)
 
$
22.4

 
$
51.4

 
4.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
June 30,
 
 
 
 
 
Components of Reported Change
 
 
Reported Change
 
 
 
 
 
Comparable Operations
 
2015
 
2014
 
Amount
 
%
 
Currency
 
Acquisitions
 
Amount
 
%
Americas
$
1,257.1

 
$
1,183.2

 
$
73.9

 
6.2
 %
 
$
(15.5
)
 
$
31.8

 
$
57.6

 
4.9
%
EMEA-APAC
853.7

 
976.1

 
(122.4
)
 
(12.5
)%
 
(167.5
)
 
12.9

 
32.2

 
3.3
%
Total
$
2,110.8

 
$
2,159.3

 
$
(48.5
)
 
(2.2
)%
 
$
(183.0
)
 
$
44.7

 
$
89.8

 
4.2
%
Net sales from comparable operations for the three and six months ended June 30, 2015 increase d $51.4 million or 4.7% and increase d $89.8 million or 4.2% , respectively, compared to prior periods. Growth in our comparable net sales was driven by improved performance in both segments, reflecting continued strength in Biopharma and increased growth levels in EMEA-APAC in the second quarter of 2015.
Net sales from comparable operations in our Americas segment for the three and six months ended June 30, 2015 increase d $28.7 million or 4.7% and increase d $57.6 million or 4.9% , respectively, compared to prior periods. Exclusive of foreign currency changes, net sales by customer group for the three and six months ended June 30, 2015 were as follows: (i) Biopharma customers increased by double-digit rates; (ii) healthcare, educational and governmental customers each increased by mid single-digit rates; and (iii) industrial customers decreased by mid single-digit rates. Exclusive of foreign currency changes, net sales by product group for the three and six months ended June 30, 2015 were as follows: (i) consumables, excluding chemicals, increased by mid single-digit rates; (ii) chemicals increased by double-digit rates; and (iii) durable goods increased by high single-digit rates.
Net sales from comparable operations in our EMEA-APAC segment for the three and six months ended June 30, 2015 increase d $22.7 million or 4.7% and increase d $32.2 million or 3.3% , respectively, compared to prior periods. Exclusive of foreign currency changes, net sales by customer group for the three and six months ended June 30, 2015 were as follows: (i) Biopharma customers increased by high single-digit to double-digit rates; (ii) healthcare customers increased by mid single-digit rates; (iii) educational customers decreased by low single-digit rates; (iv) governmental customers decreased by mid single-digit rates; and (v) industrial customers increased by low single-digit rates. Exclusive of foreign currency changes, net sales by product group for the three and six months ended June 30, 2015 were as follows: (i) consumables, excluding chemicals, increased by mid single-digit rates; and (ii) chemicals and durable goods each increased by low single-digit rates.

23


Gross Profit
The following table presents gross profit, gross margin and changes therein (dollars in millions):
 
Three Months Ended
June 30,
 
 
 
 
 
Components of Reported Change
 
 
Reported Change
 
 
 
 
 
Comparable Operations
 
2015
 
2014
 
Amount
 
%
 
Currency
 
Acquisitions
 
Amount
 
%
Gross profit
$
298.5

 
$
311.3

 
$
(12.8
)
 
(4.1
)%
 
$
(29.4
)
 
$
9.0

 
$
7.6

 
2.4
%
Gross margin
27.6
%
 
28.2
%
 
(60
)
basis points
 
 
 
 
 
(60
)
basis points
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
June 30,
 
 
 
 
 
Components of Reported Change
 
 
Reported Change
 
 
 
 
 
Comparable Operations
 
2015
 
2014
 
Amount
 
%
 
Currency
 
Acquisitions
 
Amount
 
%
Gross profit
$
589.7

 
$
623.9

 
$
(34.2
)
 
(5.5
)%
 
$
(57.0
)
 
$
17.4

 
$
5.4

 
0.9
%
Gross margin
27.9
%
 
28.9
%
 
(100
)
basis points
 
 
 
 
 
(90
)
basis points
Gross profit from comparable operations for the three and six months ended June 30, 2015 increase d $7.6 million or 2.4% and increase d $5.4 million or 0.9% , respectively, compared to prior periods. The increase s were caused by our comparable net sales growth, which was partially offset by declines in gross margin.
Gross margin from comparable operations for the three and six months ended June 30, 2015 decrease d 60 basis points and decrease d 90 basis points , respectively, compared to prior periods. The decreases were mainly caused by a less favorable product sales mix in the 2015 periods and changes to our supply agreements with Merck KGaA in April 2014, which negatively impacted the year-to-date comparison.
SG&A Expenses
The following table presents SG&A expenses, SG&A expenses as a percentage of net sales and changes therein (dollars in millions):
 
Three Months Ended
June 30,
 
 
 
 
 
Components of Reported Change
 
 
Reported Change
 
 
 
 
 
Comparable Operations
 
2015
 
2014
 
Amount
 
%
 
Currency
 
Acquisitions
 
Amount
 
%
SG&A expenses
$
220.9

 
$
249.3

 
$
(28.4
)
 
(11.4
)%
 
$
(22.1
)
 
$
6.2

 
$
(12.5
)
 
(5.0
)%
SG&A expenses as a percentage of net sales
20.4
%
 
22.6
%
 
(220
)
basis points
 
 
 
 
 
(210
)
basis points
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended
June 30,
 
 
 
 
 
Components of Reported Change
 
 
Reported Change
 
 
 
 
 
Comparable Operations
 
2015
 
2014
 
Amount
 
%
 
Currency
 
Acquisitions
 
Amount
 
%
SG&A expenses
$
438.3

 
$
484.9

 
$
(46.6
)
 
(9.6
)%
 
$
(42.4
)
 
$
12.3

 
$
(16.5
)
 
(3.4
)%
SG&A expenses as a percentage of net sales
20.8
%
 
22.5
%
 
(170
)
basis points
 
 
 
 
 
(170
)
basis points
SG&A expenses from comparable operations for the three and six months ended June 30, 2015 decrease d $12.5 million or 5.0% and decrease d $16.5 million or 3.4% , respectively, compared to prior periods. In addition to the SG&A items discussed previously, the remaining net decreases to SG&A expenses were mainly the result of lower overall personnel costs in the 2015 periods partially offset by (i) a gain on the partial settlement of our U.S. Retirement Plan in the 2014 periods and (ii) increases in share-based compensation expense of $1.1 million and $2.0 million for the three and six months ended June 30, 2015 , respectively.

24


Operating Income
The following table presents operating income, operating income margin and changes therein by reportable segment (dollars in millions):