Annual Report

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number: 333-124100

VWR FUNDING, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009

TABLE OF CONTENTS

PART I
ITEM 1. BUSINESS			1
ITEM 1A. RISK FACTORS			6
ITEM 1B. UNRESOLVED STAFF COMMENTS			17
ITEM 2. PROPERTIES			17
ITEM 3. LEGAL PROCEEDINGS			18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			18
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			18
ITEM 6. SELECTED FINANCIAL DATA			19
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			108
ITEM 9A. CONTROLS AND PROCEDURES			108
ITEM 9B. OTHER INFORMATION			110
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			110
ITEM 11. EXECUTIVE COMPENSATION			117
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			135
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			138
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES			141
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES			142
Exhibit 10.6 (a)
Exhibit 10.6 (b)
Exhibit 10.8 (a)
Exhibit 10.8 (b)
Exhibit 10.9
Exhibit 10.12 (e)
Exhibit 10.12 (f)
Exhibit 10.12 (g)
Exhibit 12.1
Exhibit 21.1
Exhibit 24
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

As used in this Annual Report on Form 10-K, the “Company,” “we,” “us,” and “our” refer to VWR Funding, Inc. and its consolidated subsidiaries before and/or after the Merger (as defined in “Item 1— Business”), as the context requires.

PART I

We report our financial results on the basis of the following three business segments: North American laboratory distribution (“North American Lab”), European laboratory distribution (“European Lab”) and Science Education. Both the North American Lab and European Lab segments are engaged in the distribution of laboratory and production supplies to customers in the pharmaceutical, biotechnology, medical device, chemical, technology, food processing and consumer products industries, as well as governmental agencies, universities and research institutes, and environmental organizations. Science Education is engaged in the assembly, manufacture and distribution of scientific supplies and specialized kits principally to academic institutions, including primary and secondary schools, colleges and universities. Our operations in the Asia Pacific region (“Asia Pacific”) are engaged in regional commercial operations and also support our North American Lab and European Lab businesses. The results of our operations in Asia Pacific are not material and are included in our North American Lab segment. During 2007, we opened a shared services center in Coimbatore, India to which we have transferred certain functions from our North American and European operations. The costs of operating our shared services center have been allocated to our business segments based on relative utilization. See Note 17 in “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information about business segments and geographical areas.

Customers and Markets

Management estimates that industry-wide revenues in the global laboratory supply industry in which our North American Lab and European Lab segments operate were approximately $28 billion in 2009 based on trade association data. Our net sales in these segments are influenced by, but not directly correlated with, the growth of research and development spending from a diversified group of end-users, and we expect that demand may vary by type of end-user.

In relation to our Science Education segment, we estimate that industry-wide annual sales of scientific supplies to primary and secondary schools in North America in 2009 were approximately $550 million. Industry sales levels are subject to fluctuations driven by state budgetary status, changes in state and local government funding and spending patterns, the timing of state by state new textbook adoption cycles and population changes. Our Science Education segment is seasonal, with increased net sales and operating income in the third quarter, in connection with school purchases of supplies in preparation for the beginning of the new school year.

We maintain a diverse and stable customer base across a diversified array of end users and geographies. Our customers include pharmaceutical, biotechnology, medical device, chemical, technology, food processing and consumer products companies. They also include universities and research institutes, governmental agencies, environmental organizations and primary and secondary schools. We serve our customers globally through our operations in more than 20 countries. We established a presence in Asia Pacific in 2006 and plan to further expand in this region to respond to the needs of our global customers who are also expanding operations there.

We seek to be the principal provider of laboratory supplies to our customer base. We are a significant provider of laboratory supplies to a majority of the world’s 20 largest pharmaceutical companies. Pharmaceutical and biotechnology companies represented approximately 34% of our 2009 net sales, and together with universities and colleges, accounted for approximately 50% of our 2009 net sales. In 2009, our top 20 customers accounted for approximately 22% of our net sales, with no single customer representing more than 3% of our net sales.

Products

We offer a wide range of products, including chemicals, glassware, plasticware, instruments and other laboratory equipment, protective clothing, laboratory furniture and scientific educational materials for primary and secondary schools. Our average order size is less than $500. Many of our products, including chemicals, laboratory and production supplies and science education products, are consumable in nature. These products are basic and essential supplies required by research and quality control laboratories and represented approximately 75% of our net sales in each of 2009, 2008 and 2007. We also offer durable products, including, but not limited to, centrifuges, fume hoods, workstations, ovens, microscopes and cold storage equipment.

We distribute products sourced from a wide array of manufacturers and are a primary distributor for a variety of major manufacturers. We offer customers a large selection of products designed to meet their individual needs from a combination of premium, “value-for-money” and lower-cost products.

Services

We provide services to customers ranging from single-site laboratories and/or production facilities to large multinational corporations with multiple locations. These services cover a broad range of customer needs and include technical services, on-site storeroom services and laboratory and furniture design, supply and installation. While we believe the provision of services is an important element of our value proposition to our customers, net sales and operating income derived from such services are not material.

Distribution Network

Our distribution network consists of strategically located distribution centers and various smaller regional service centers and “just-in-time” facilities for customer-specific requirements. Customer contact centers have the responsibility for order entry and customer service. Our distribution centers receive products from manufacturers, manage inventory and fill and ship customer orders. We also contract with third parties to ship products directly to our customers based on our instructions.

Our regional service centers are located near selected customer locations and are designed to supply a limited number of products to those customers that require a high level of service. We also operate “just-in-time” facilities at or near customer sites to meet customer needs promptly.

Sales and Marketing

We market to customers through our global sales force, our websites, and our catalogs. We have a global sales, sales support, customer service, pricing, marketing and category management workforce. Supporting the field sales organization are specialist teams who provide advanced sales and technical support for e-business integration, customized services, laboratory furniture, safety, environment, microbiology, chromatography and life science product areas.

The Internet has become an increasingly important tool for us. Net sales are derived, in part, from e-business sales and marketing channels. Our website features a fully indexed and searchable catalog covering our entire product line, is available in several languages and has been custom-designed for many of the countries in which we do business. This electronic catalog includes product descriptions, technical specifications and cross-referenced data in different languages through individual country sites. This website allows customers to enter orders directly and enables us to communicate new product releases, promotions and other news to our customers.

We also provide printed catalogs and other printed materials. Our general catalogs are printed in several languages. The general catalogs are supplemented by specialty catalogs for specific product lines.

Suppliers

We distribute products from a wide range of manufacturers. This includes a majority of the major manufacturers of laboratory chemicals, glassware, plasticware, instruments and other laboratory equipment, protective clothing and laboratory furniture who sell through distributors. In many cases, we believe we are a principal distributor for these major manufacturers.

Merck KGaA is one of our major suppliers of chemical and other products. The Company has a European Distribution Agreement with Merck KGaA to distribute certain chemical products in Europe. The European Distribution Agreement was originally entered into in April 2004 with a five year term and has been extended for a second five year term through April 2014. Merck KGaA has the right to terminate this agreement if certain events occur. During 2005, the German Federal Cartel Office initiated an investigation with regard to our European Distribution Agreement in Germany. See Note 15(b) under “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for more information regarding the investigation and related court proceedings.

The Company also has a distribution agreement with affiliates of Merck KGaA to distribute certain chemical products in North America. The North American chemical distribution agreement was originally entered into in April 2004 with a five year term and automatically extended for a second five-year term, ending April 2014. Affiliates of Merck KGaA may terminate the North America chemical distribution agreement if certain events occur.

Merck KGaA and its affiliates supplied products accounting for approximately 13% of our consolidated net sales in each of 2009, 2008, and 2007.

Trademarks and Trade Names

We have more than 50 different registered and unregistered trademarks and service marks for our products and services, substantially all of which are owned by us. In some cases, however, we do not own the existing applications and registrations for our material trademarks or service marks in each country in which we do business. Generally, registered trademarks have perpetual lives, provided that they are renewed on a timely basis and continue to be used properly as trademarks, subject only to the rights of third parties to seek cancellation of the marks.

Our business is not dependent to a material degree on patents, copyrights or trade secrets although we consider our catalogs, websites and proprietary software integral to our operations. Although we believe we have adequate policies and procedures in place to protect our intellectual property, we have not sought patent protection for our processes nor have we registered the copyrights in any of our catalogs, websites or proprietary software. Other than licenses to commercially available third party software, we have no licenses to intellectual property that are significant to our business.

Competition

We operate in a highly competitive environment. We compete in the global laboratory supply industry primarily with two other major distributors, Thermo Fisher Scientific Inc. and Sigma Aldrich Corporation. We also compete with many smaller regional, local and specialty distributors, as well as with manufacturers selling directly to their customers. Competitive factors include price, service and delivery, breadth of product line, customer support, e-business capabilities and the ability to meet the special requirements of customers.

Some of our competitors are increasing their manufacturing operations both internally and through acquisitions of manufacturers, including manufacturers that supply products to us. To date, we have not experienced an adverse impact on our ability to continue to source products from manufacturers that have been vertically integrated, although there is no assurance that we will not experience such an impact in the future.

Government Regulation

Some of the products we offer and our operations are subject to a number of complex and stringent laws and regulations governing the production, handling, transportation, import, export and distribution of chemicals, drugs and other similar products, including the operating and security standards of the United States Drug Enforcement Administration, the Bureau of Alcohol, Tobacco, Firearms and Explosives, the Food and Drug Administration, the Bureau of Industry and Security and various state boards of pharmacy as well as comparable state and foreign agencies. In addition, our logistics activities must comply with the rules and regulations of the Department of Transportation, the Federal Aviation Administration and similar foreign agencies. While we believe we are in compliance in all material respects with such laws and regulations, any non-compliance could result in substantial fines or otherwise restrict our ability to provide competitive distribution services and thereby have an adverse impact on our financial condition. For information on environmental, health and safety matters, see below under “— Environmental, Health and Safety Matters.”

Employees

As of December 31, 2009, we had approximately 6,700 employees, including approximately 3,400 employees in North America, approximately 2,800 employees in Europe and approximately 500 employees in Asia Pacific. As of December 31, 2009, approximately 7% of our employees in North America were represented by unions, and virtually all of our employees in Europe are represented by workers’ councils and/or unions. While we believe our relations with our employees are good, there can be no assurance that further union expansion will not occur and cause increased future costs.

Environmental, Health and Safety Matters

We are subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those pertaining to air emissions, water discharges, the handling, disposal and transport of solid and hazardous materials and wastes, the investigation and remediation of contamination and otherwise relating to health and safety and the protection of the environment and natural resources. As our global operations involve, and have involved, the handling, transport and distribution of materials that are, or could be classified as toxic or hazardous, there is some risk of contamination and environmental damage inherent in our operations and the products we handle, transport and distribute. Our environmental, health and safety liabilities and obligations may result in significant capital expenditures and other costs, which could negatively impact our business, financial condition and results of operations. We may be fined or penalized by regulators for failing to comply with environmental, health and safety laws and regulations. In addition, contamination resulting from our current or past operations may trigger investigation or remediation obligations, which may have a material impact on our business, financial condition and results of operations.

Based on current information, we believe that any costs we may incur relating to environmental matters will not be material. We cannot be certain, however, that identification of presently unidentified environmental conditions, more vigorous enforcement by regulatory authorities or other unanticipated events will not arise in the future and give rise to additional environmental liabilities, compliance costs or penalties which could have a material impact on our business, financial condition and results of operations. In addition, environmental laws and regulations are constantly evolving and it is not possible to predict accurately the effect they, or any new regulations or legislation, may have in future periods. We currently do not maintain third-party insurance for most of any current or future environmental liabilities.

Available Information

We file or furnish annual and quarterly reports and other information with or to the U.S. Securities and Exchange Commission (“SEC”). You may read and copy any documents we file at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. Our SEC filings are also available to the public free of charge at the SEC’s website at www.sec.gov.

You may also access our press releases, financial information and reports filed with or furnished to the SEC (for example, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K and any amendments to those forms) online at www.vwr.com. Copies of any documents on our website are available without charge, and reports filed with or furnished to the SEC will be available as soon as reasonably practicable after they are filed with or furnished to the SEC. The information found on our website is not part of this or any other report filed with or furnished to the SEC.

Corporate Information

Our principal executive offices are located at 1310 Goshen Parkway, P.O. Box 2656, West Chester, PA 19380 and our telephone number is (610) 431-1700. Our Internet website is located at www.vwr.com.

ITEM 1A. RISK FACTORS

Our business is subject to a number of important risks and uncertainties that are described below. You should carefully consider these risks and all other information included in this Annual Report on Form 10-K .

Risks Related to Our Capital Structure

Our substantial indebtedness could have a material adverse effect on our financial condition and prevent us from fulfilling our debt or contractual obligations.

We have a substantial amount of debt, which requires significant interest and principal payments. As of December 31, 2009, we had an aggregate principal amount of debt outstanding of $2,871.7 million. Our high level of debt could have important consequences to us including the following:

	•		making it more difficult for us to satisfy our debt or contractual obligations;
	•		requiring us to dedicate a substantial portion of our cash flow from operations to debt service payments, which would reduce the funds available for working capital, capital expenditures, investments or acquisitions and other general corporate purposes;
	•		limiting our flexibility in planning for, or reacting to, changes in our business, future business opportunities and the industry in which we operate;
	•		placing us at a competitive disadvantage compared to any of our less leveraged competitors;
	•		increasing our vulnerability to a downturn in our business and both general and industry-specific adverse economic conditions; and
	•		limiting our ability to obtain additional financing at a favorable cost of borrowing, or if at all, to fund future working capital, capital expenditures, investments, acquisitions or other general corporate requirements.

Despite current indebtedness levels and restrictive covenants, we may incur additional indebtedness in the future, which would intensify our leverage risks.

Although the terms of the indentures governing the Senior Notes and Senior Subordinated Notes and the credit agreement governing the Senior Secured Credit Facility restrict us and our restricted subsidiaries from incurring additional indebtedness, these restrictions are subject to exceptions and qualifications, including with respect to our ability to incur additional senior secured debt. In addition, during 2009, we elected to satisfy $43.0 million of interest payments due on the Senior Notes and the Senior Subordinated Notes by increasing the outstanding principal amount of both series of Notes, and we are permitted to continue to do so under the Senior Notes and the Senior Subordinated Notes for any interest period through July 15, 2011 and March 31, 2010, respectively. The risks that we and our subsidiaries face as a result of our leverage could intensify to the extent that we incur additional indebtedness.

Our debt agreements contain restrictions on our ability to operate our business and to pursue our business strategies, and our failure to comply with, cure breaches of, or obtain waivers for covenants could result in an acceleration of the due date of our indebtedness.

The credit agreement governing our Senior Secured Credit Facility and the indentures governing the Senior Notes and Senior Subordinated Notes contain, and agreements governing future debt issuances may contain, covenants that restrict our ability to finance future operations or capital needs, to respond to changing business and economic conditions or to engage in other transactions or business activities that may be important to our growth strategy or otherwise important to us. The credit agreement and the indentures restrict, among other things, our ability and the ability of our subsidiaries to:

	•		incur additional indebtedness;
	•		pay dividends or make distributions in respect of our capital stock or to make certain other restricted payments or investments;
	•		purchase or redeem stock;
	•		make investments or other specified restricted payments;
	•		create liens;
	•		sell assets and subsidiary stock;
	•		enter into transactions with affiliates; and
	•		enter into mergers, consolidations and sales of substantially all assets.

We cannot assure you that we will be able to maintain compliance with such covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders or note holders and/or amend the covenants. In particular, if our financial condition or operating results deteriorate, our relations with our lenders and noteholders may be materially and adversely affected, which could impact our ability to obtain waivers if necessary.

Any breach of the covenants in the credit agreement or the indentures could result in a default of the obligations under such debt and cause a default under other debt. If there were an event of default under the credit agreement related to our Senior Secured Credit Facility that was not cured or waived, the lenders under our Senior Secured Credit Facility could cause all amounts outstanding with respect to the borrowings under the Senior Secured Credit Facility to be due and payable immediately. Our assets and cash flow may not be sufficient to fully repay borrowings under our Senior Secured Credit Facility and our obligations under the Senior Notes and Senior Subordinated Notes if accelerated upon an event of default. If, as or when required, we are unable to repay, refinance or restructure our indebtedness under, or amend the covenants contained in, our Senior Secured Credit Facility, the lenders under our Senior Secured Credit Facility could institute foreclosure proceedings against the assets securing borrowings under the Senior Secured Credit Facility.

We may not be able to generate sufficient cash flows or access sufficient additional capital to meet our debt obligations or to fund our other liquidity needs.

Our business may not generate sufficient cash flow from operations, or future borrowings under our Senior Secured Credit Facility or from other sources may not be available to us in an amount sufficient, to enable us to make required interest payments on our indebtedness or to fund our other liquidity needs, including capital expenditure requirements, investments, acquisitions and other transactions that are important to the execution of our business strategy. Additionally, the revolving loan portion of our Senior Secured Credit Facility is scheduled to mature in 2013, and significant portions of our other long-term debt are scheduled to mature beginning in 2014, and we will need to refinance or satisfy this debt as it matures. We may not be able to refinance our maturing debt on favorable terms, or at all, based on general economic or market conditions, our historical or projected growth or other factors, including those beyond our control. If our cash flow from operations or other liquidity sources are not sufficient to make required interest payments or we are not able to refinance maturing debt on favorable terms, we may have to take actions such as selling assets, seeking additional equity or debt capital on commercially unreasonable terms or reducing or delaying important business transactions. Our Senior Secured Credit Facility and the indentures governing the Senior Notes and Senior Subordinated Notes restrict our ability to sell assets and use the proceeds from such sales for purposes other than debt payment obligations.

Our ability to make payments on our debt obligations depends on our ability to receive dividends, payments or other distributions from our subsidiaries.

We are a holding company operating principally through VWR International, LLC (“VWR”) and certain of its subsidiaries. As a result, we are substantially dependent on dividends, payments or other distributions from VWR (and such subsidiaries) to make payments on the Senior Notes, Senior Subordinated Notes and borrowings under the Senior Secured Credit Facility. VWR’s ability to make such dividends, payments or other distributions will depend on its and its subsidiaries’ financial and operating performance, which, in turn, is subject to prevailing economic and competitive conditions and financial and business factors, such as the following, which may be beyond our control:

	•		operating difficulties;
	•		increased operating costs;
	•		decreased demand for the products and services we offer;
	•		market cyclicality;
	•		product prices;
	•		the response of competitors or suppliers;
	•		regulatory developments;
	•		failure to successfully complete or integrate acquisitions; and
	•		delays in implementing or our inability to fund strategic projects.

In addition, the ability of VWR and its subsidiaries to pay such dividends and other distributions also may be restricted by law.

A change in the control of the Company could require us to repay certain of our outstanding indebtedness, and we may be unable to do so.

Upon a change of control, as defined in the indentures governing the Senior Notes and the Senior Subordinated Notes, subject to certain conditions, we will be required to offer to repurchase the notes at 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. The source of funds for that purchase will be our available cash or cash generated from operations or other potential sources, including borrowings, sales of assets or sales of equity. We may not have sufficient funds from such sources at the time of any change of control to make required repurchases of notes tendered. In addition, the terms of our Senior Secured Credit Facility limit our ability to repurchase the notes and certain change of control events will constitute an event of default under the indentures. If the holders of the notes exercise their right to require us to repurchase all of the notes upon a change of control, the financial effect of this repurchase could cause a default under our other debt, even if the change of control itself would not cause a default. Accordingly, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of our other debt and the notes or that restrictions in our Senior Secured Credit Facility and the indentures will not allow such repurchases.

The interests of our controlling stockholders may conflict with your interests.

Private equity funds managed by Madison Dearborn indirectly own a substantial majority of our common stock through their ownership interests in Holdings. The interests of these funds as equity holders may conflict with your interests. The controlling stockholders may have an incentive to increase the value of their investment or cause us to distribute funds at the expense of our financial condition and liquidity position, subject to the restrictions in our Senior Secured Credit Facility and the indentures. In addition, these funds have the indirect power to elect a majority of our Board of Directors and appoint new officers and management and, therefore, effectively could control many other major decisions regarding our operations. Furthermore, our controlling stockholders are in the business of making investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. Our controlling stockholders may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.

Risks Related to Our Business

Our business is affected by general economic conditions in the United States, Europe and the other regions in which we operate, and the continued volatility of global economic conditions or instability in the capital and credit markets could adversely impact our business for the foreseeable future.

Conditions in the global economy deteriorated dramatically in 2008 and most of 2009, and during that time, continuing through the present, the global capital and credit markets have experienced unprecedented volatility and disruption. Although economic conditions in the U.S., Europe and Asia-Pacific appear to have shown signs of improvement in the second half of 2009, it remains difficult to determine the duration or strength of an economic recovery and whether we have entered into a period of stability in global capital and credit markets. Continued volatility in the capital and credit markets, including the general credit availability and liquidity issues we and our counterparties (most importantly, our customers, suppliers and lenders) continue to face, could materially and adversely affect our business, financial condition and results of operations. In particular, if the economic recovery is disrupted or develops slowly, or if market instability continues or worsens, we could encounter or continue to encounter:

	•		a reduction in revenues and/or less favorable pricing or terms from new and existing customers;
	•		the inability to expand our customer base in existing or new markets;
	•		difficulties in collecting accounts receivable;
	•		an increase in product prices from our suppliers that we are not able to pass through to our customers;
	•		an acceleration of payment terms to our suppliers and/or the imposition of more restrictive credit terms and other contractual requirements;
	•		a reduction in research and development spending by our customers, especially those in the pharmaceutical and biotechnology industries;
	•		a decrease in the discretionary spending by schools and other customers to which we sell products and services through our Science Education business;
	•		the inability to access additional capital or refinance existing indebtedness;
	•		a limited availability to enter into new derivative financial instruments; and
	•		the need to record additional impairment charges against our goodwill and/or intangible and other long-lived assets.

The demand for our products depends on the level of our customers’ research and development and other scientific endeavors. Our business, financial condition and results of operations may be harmed if our customers discontinue, outsource and/or spend less on these activities.

Our customers are engaged in research, development and production in the pharmaceutical, biotechnology, medical device, education, chemical, technology, food processing, consumer products and other industries. The amount of customer spending on research, development and production has a large impact on our sales and profitability. Our customers determine the amounts that they will spend on the basis of, among other things, general economic conditions, their financial condition and liquidity, spending priorities and their need to develop new products, which, in turn, is dependent upon a number of factors, including their competitors’ research, development and production initiatives. In addition, consolidation in the industries in which our customers operate may have an impact on such spending as customers integrate acquired operations, including research and development departments and their budgets. Our customers finance their research and development spending from private and public sources. Government funding of scientific research and education has varied for several reasons, including general economic conditions, growth in population, political priorities, changes in the number of students and other demographic changes.

A continuation of global capital and credit market instability, a sluggish economic recovery or a return to a period of economic contraction could result in reductions, or further reductions as the case may be, in spending by our customers across all industry segments that we serve. In particular, we may experience a further reduction in revenues from certain of our customers in the pharmaceutical industry, which have restructured research functions resulting in workforce reductions, facility closures and budget reductions; from certain of our customers in the biotechnology industry, which are experiencing increased economic and liquidity pressures; and from schools in the United States served by our Science Education segment, which have been reducing and adjusting budgeted expenditures in light of reductions in state and local funding. A further reduction in spending by our customers could have a material adverse effect on our business, financial condition and results of operations.

The healthcare industry has and will continue to experience significant changes that could adversely affect our business.

Many of our customers in the healthcare industry have experienced significant changes in the last several years and are expected to continue to experience significant changes, including reductions in governmental support of healthcare services, lower reimbursements for research and development and adverse changes in legislation or regulations regarding the delivery or pricing of healthcare services or mandated benefits. In response to these and other changes, some of our customers have implemented or may in the future implement actions in an effort to control and reduce costs, including:

	•		development of large and sophisticated group purchasing organizations;
	•		consolidation, especially in the case of pharmaceutical companies;
	•		purchasing the products that we supply directly from manufacturers;
	•		the closing of domestic facilities and establishment of facilities at low-cost offshore locations; and
	•		significant reductions in and/or outsourcing of research, development and production activities, including outsourcing to low-cost offshore locations.

The impact of past and potential future changes in the healthcare industry and our customers’ reactions to them may result in our healthcare industry customers significantly reducing their purchases of products and services from us or the prices they are willing to pay for those products or services. In addition, we will need to adapt our business to maintain existing customer relationships and develop new customer relationships as our customers consolidate or move facilities to low-cost offshore locations or outsource certain activities domestically or to low-cost offshore locations. For instance, we intend to continue our expansion into the Asia Pacific region, but there is no assurance

that we will be successful in maintaining relationships with our existing customers who have established operations in that region or in developing new customer relationships with the outsourcing organizations in that region.

We compete in a highly competitive market. Failure to compete successfully could have a material adverse effect on our business, financial condition and results of operations.

We compete globally with two other major distributors, Thermo Fisher Scientific Inc. and Sigma Aldrich Corporation, as well as many smaller regional, local and specialty distributors, and with manufacturers selling directly to their customers. The bases upon which we compete include price, service and delivery, breadth of customer support, e-business capabilities and the ability to meet the special requirements of customers.

Some of our competitors have greater financial and other resources than we do. Most of our products are available from several sources, and some of our customers have relationships with several distributors. Our agreements with customers generally provide that the customer can terminate the agreement or reduce the scope of products or services provided pursuant to the agreement with short or no notice. Lack of product availability, stemming from either our inability to acquire products or interruptions in the supply of products from manufacturers, could have a material adverse effect on our ability to compete. Our competitors could also obtain exclusive rights to distribute some products, thereby foreclosing our ability to distribute these products. Vertically integrated distributors may also have an advantage with respect to the total delivered product cost of certain of their captive products. Additionally, manufacturers could increase their efforts to sell directly to consumers and effectively bypass distributors like us. Consolidation in the global laboratory supply industry could result in existing competitors increasing their market share through business combinations, which could have a material adverse effect on our business, financial condition and results of operations. The entry of new distributors in the industry could also have a material adverse effect on our ability to compete.

Our business, financial condition and results of operations depend upon maintaining our relationships with manufacturers.

We offer products from a wide range of manufacturers. We are dependent on these manufacturers for our supply of products. Our most significant dependence is on Merck KGaA and its affiliates, which supplied products that accounted for approximately 13% of our net sales in 2009.

Our ability to sustain our gross margins has been, and will continue to be, dependent in part upon our ability to obtain favorable terms from our suppliers. These terms may change from time to time, and such changes could adversely affect our gross margins over time. In addition, our results of operations and cash flows could be adversely impacted by the acceleration of payment terms to our suppliers and/or the imposition of more restrictive credit terms and other contractual requirements.

Some of our competitors are increasing their manufacturing operations both internally and through acquisitions of manufacturers, including manufacturers that supply products to us. To date, we have not experienced an adverse impact on our ability to continue to source products from manufacturers that have been vertically integrated, although there is no assurance that we will not experience such an impact in the future.

The loss of one or more of our large suppliers, a material reduction in their supply of products or provision of services to us, extended disruptions or interruptions in their operations or material changes in the terms we obtain from them, could have a material adverse effect on our business, financial condition and results of operations.

A significant part of our growth strategy is to engage in acquisitions or business combinations, which will subject us to a variety of risks that could harm our business.

We intend to continue to review and complete selective acquisition opportunities throughout the world as a part of our growth strategy. There can be no assurance that we will be able to complete suitable acquisitions for a variety of reasons, including competition for acquisition targets, the need for regulatory approvals, the inability of the parties to agree to the structure or purchase price of the transaction and our inability to fund the transaction. In addition, any completed acquisition will subject us to a variety of other risks:

	•		we may need to allocate substantial operational, financial and management resources in integrating new businesses, technologies and products, and management may encounter difficulties in integrating the operations, personnel or systems of the acquired businesses;
	•		future acquisitions or business combinations might have a material adverse effect on our business relationships with customers or manufacturers, or both, and could lead to a termination of, or otherwise affect our relationships with, such customers or manufacturers;
	•		we may assume substantial actual or contingent liabilities;
	•		we may incur substantial unanticipated costs or encounter other problems associated with acquired businesses; and
	•		we may not be able to retain the key personnel, customers and suppliers of the acquired business.

The international scope of our operations may adversely affect our business.

We derived approximately 47% of our 2009 net sales from operations outside the United States, and we are continuing to expand our sourcing, commercial operations and administrative activities in Asia Pacific. Accordingly, we face certain risks, including:

	•		restrictions on foreign ownership of subsidiaries;
	•		tariffs and other trade barriers and restrictions;
	•		political risks;
	•		differing laws or administrative practices;
	•		local business practices that are inconsistent with local or U.S. law, such as the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), or other applicable anti-bribery regulations;
	•		disruptions in the efficiency and effectiveness of, and difficulty in overseeing and managing, operations, supply chain and certain important administrative functions, including those that have been or in the future may be transferred to our shared services center in Coimbatore, India;
	•		fluctuations in foreign currency exchange rates; and
	•		potentially adverse tax consequences of operating in multiple jurisdictions.

In addition, an adverse change in laws or administrative practices in countries within which we operate could have a material adverse effect on us. Our operations outside the United States also may present additional risk with respect to compliance with government regulations and licensing requirements.

In 2008, we incurred, and we may in the future incur, impairment charges related to our goodwill and intangible assets, which could negatively impact our results of operations.

We have recorded significant amounts of goodwill and intangible assets, including indefinite-lived intangible assets, on our balance sheet as a result of the Merger and acquisitions completed subsequent to the Merger. Our intangible assets with finite useful lives primarily relate to customer and supplier relationships and are amortized over their respective estimated useful lives on a straight-line basis. Our indefinite-lived intangible assets relate to our trademarks and trade names.

Goodwill and other intangible assets with indefinite useful lives are not amortized and are tested annually for impairment, and they must also be tested for impairment between the annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of the asset below its carrying amount. Other amortizable intangible assets are reviewed for impairment whenever an indication of potential impairment exists. The results of our 2008 impairment testing identified impairments of our goodwill and indefinite-lived intangible assets aggregating $392.1 million. We did not record any impairment charges during 2009, but we continue to be subject to the risks which led to the impairment charges recognized during 2008. See “Item 7 — Managements Discussion & Analysis of Financial Condition — Critical Accounting Policies — Goodwill & Intangible Assets” in this Annual Report on Form 10-K for more information.

As of December 31, 2009, goodwill and intangible assets represented approximately $3.8 billion or 75% of our total assets. We may recognize additional impairment charges in the future should our operating results or market conditions decline significantly due to, among other things, ongoing or worsening economic instability and volatility or other macro economic pressures, including but not limited to rising interest rates.

If we do not comply with existing government regulations or if we or our suppliers become subject to more onerous government regulations, we could be adversely affected.

Some of the products we offer and our operations are subject to a number of complex and stringent laws and regulations governing the production, handling, transportation, import, export and distribution of chemicals, drugs and other similar products, including the operating and security standards of the United States Drug Enforcement Administration, the Bureau of Alcohol, Tobacco, Firearms and Explosives, the Food and Drug Administration, the Bureau of Industry and Security and various state boards of pharmacy as well as comparable state and foreign agencies. In addition, our logistics activities must comply with the rules and regulations of the Department of Transportation, the Federal Aviation Administration and similar foreign agencies. While we believe we are in compliance in all material respects with such laws and regulations, any non-compliance could result in substantial fines, penalties or assessments or otherwise restrict our ability to provide competitive distribution services and thereby have an adverse impact on our financial condition. We cannot assure you that existing laws and regulations will not be revised or that new, more restrictive laws will not be adopted or become applicable to us or the products that we distribute.

If our suppliers become subject to more stringent laws, they may seek to recover any or all increased costs of compliance from us by increasing the prices at which we purchase products from them, and we may not be able to recover all such increased prices from our customers. Accordingly, we cannot assure you that our business and financial condition will not be materially and adversely affected by future changes in applicable laws and regulations applicable to our suppliers.

If any of our operations are found not to comply with applicable antitrust or competition laws, our business may suffer.

Our operations are subject to applicable antitrust and competition laws in the countries in which we conduct our business, in particular in the United States and in the European Union. These laws prohibit, among other things, anticompetitive agreements and practices. If any of our commercial agreements are found to violate or infringe upon such laws, we may be subject to civil and other penalties and/or third party claims for damages. Further, agreements that infringe upon these laws may be void and unenforceable, in whole or in part, or require modification in order to be lawful and enforceable. If we are unable to enforce any of our commercial agreements, whether at all or in material part, our business could be adversely affected. See Note 15(b) of “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for information regarding our appeal of the German Federal Cartel Office’s decision to invalidate in Germany the exclusivity and non-competition provisions of our European Distribution Agreement with Merck KGaA.

We are subject to environmental, health and safety laws and regulations, and costs to comply with such laws and regulations, or any liability or obligation imposed under such laws or regulations, could negatively impact our business, financial condition and results of operations.

We are subject to a broad range of foreign, federal, state and local environmental, health and safety laws and regulations, including those pertaining to air emissions, water discharges, the handling, disposal and transport of solid and hazardous materials and wastes, the investigation and remediation of contamination and otherwise relating to health and safety and the protection of the environment and natural resources. As our global operations involve and have involved the handling, transport and distribution of materials that are or could be classified as toxic or hazardous, there is some risk of contamination and environmental damage inherent in our operations and the products we handle, transport and distribute. Our environmental, health and safety liabilities and obligations may result in significant capital expenditures and other costs, which could negatively impact our business, financial condition and results of operations. We may be fined or penalized by regulators for failing to comply with environmental, health and safety laws and regulations. In addition, contamination resulting from our current or past operations may trigger investigation or remediation obligations, which may have a material adverse effect on our business, financial condition and results of operations.

Based on current information, we believe that any costs we may incur relating to environmental, health and safety matters will not be material. We cannot be certain, however, that identification of presently unidentified environmental, health and safety conditions, new regulations, more vigorous enforcement by regulatory authorities or other unanticipated events will not arise in the future and give rise to additional liabilities, compliance costs or penalties which could have a material adverse effect on our business, financial condition and results of operations. In addition, environmental, health and safety laws and regulations are constantly evolving and it is not possible to predict accurately the effect they may have in future periods. We currently do not maintain third-party insurance for most of any current or future environmental liabilities.

We are subject to product liability and other claims in the ordinary course of business.

Our business involves risks of product liability, patent infringement and other claims in the ordinary course of business arising from the products that we source from various manufacturers. Our exposure to such claims may increase as we seek to increase the geographic scope of our sourcing activities and sales of private label products. We maintain insurance policies, including certain product liability insurance, and in many cases we have indemnification rights against such claims from the manufacturers of the products we distribute. We cannot assure you that our insurance coverage or indemnification agreements with manufacturers will be available in all pending or any future cases brought against us. Furthermore, our ability to recover under any insurance or indemnification arrangements is subject to the financial viability of our insurers, our manufacturers and our manufactures’ insurers, as well as legal enforcement under the local laws governing the arrangements. In particular, as we seek to expand our sourcing from manufacturers in Asia Pacific and other developing locations, we expect that we will increase our exposure to potential defaults under the related indemnification arrangements. Insurance coverage in general or coverage for certain types of liabilities, such as product liability or patent infringement in these developing markets may not be readily available for purchase or cost-effective for us to purchase. Furthermore, for many years, new insurance for liability relating to asbestos, lead and silica exposure has not been available on commercially reasonable terms or at all, 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.

From time to time, we are named as a defendant in cases that arise as a result of our distribution of laboratory supplies, including litigation resulting from the alleged prior distribution of products containing asbestos by certain of our predecessors or acquired companies. While the impact of this litigation on us has typically been 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 and results of operations in the future.

If we are unable to hire, train and retain key personnel, our business, financial condition and results of operations could be adversely affected.

Our success depends in large part upon our continuing ability to identify, hire, retain and motivate skilled professionals. We face intense competition for these professionals from our competitors, customers, suppliers and other companies within the industries in which we compete and the geographical regions in which we operate. Any failure on our part to hire, train, and retain a sufficient number of qualified professionals could have a significant adverse impact on our business.

We depend heavily on the services of our senior management. We believe that our future success will depend upon the continued services of our senior management. Our business may be harmed by the loss of one or more members of our senior management. We currently do not maintain key-man life insurance with respect to our executive officers.

We rely upon third parties to ship products to our customers and interruptions in their operations could harm our business, financial condition and results of operations.

We ship a significant amount of our orders through various independent package delivery providers, and prompt shipment of our products is essential to our business. Strikes or other service interruptions involving our carriers could cause our operating expenses to rise or seriously harm our ability to fulfill our customers’ orders or deliver products on a timely basis, or both. In addition, an increase in prices by these providers, due to increases in fuel prices or otherwise, could adversely impact our business, financial condition and results of operations if we are unable to find alternative providers or make adjustments to our selling prices.

Problems with or failure of our information technology, its connectivity to our customers, suppliers and certain service providers and the normal functioning of our telephone systems could significantly disrupt our operations, which could reduce our customer or supplier base and could harm our business, financial condition and results of operations.

Our success depends, in part, on the secure and uninterrupted performance of our information technology systems and our telephone systems at our customer call centers and distribution centers. Our systems, the systems of our customers, suppliers and service providers, and the connectivity among such systems are vulnerable to disruption and damage from a variety of sources, including system or network failures, malicious human acts and natural disasters. While we have taken appropriate steps to improve system redundancy and disaster recovery procedures, reduce our reliance on legacy systems and reinforce the security of our information services, there can be no guarantee that failures, disruptions, data breaches or unauthorized intrusions will not occur. We currently do not maintain third-party insurance for most of these types of events. Sustained or repeated system failures, service disruptions or unauthorized intrusions that interrupt our ability to receive and process orders, receive and process customer payments and deliver products in a timely manner could have a material adverse effect on our business, financial condition and results of operations.

In addition, we accept payment by credit card and similar payment instruments for a material portion of our sales, and our ability to accept, process and settle credit card transactions is subject to rules and regulations issued and/or amended from time to time by the payment card industry and by individual payment card companies such as American Express, VISA, MasterCard and Discover. These rules and regulations, which vary based on annual transaction volume and transaction experience, require us to safeguard customer information, including applying the minimum security standards for the manner in which we capture, store, process and transmit such information. Our failure to comply with such changing rules and standards can subject us to fines, restrictions or expulsion from these card acceptance programs, which could have a material adverse affect on our business, financial condition and results of operations.

We plan to continue to make significant technology and infrastructure investments, with particular emphasis in North America. Our technology initiatives are designed to enhance the security, reliability and effectiveness of our operations to continue to provide high quality service to our customers. The cost and potential problems and interruptions associated with the implementation of our technology initiatives could disrupt or reduce the efficiency of our operations in the near term.

We have not registered and in some cases do not own the existing applications and registrations for our material trademarks or service marks in every country in which we do business.

We serve our customers globally through our operations in more than 20 countries, and we have more than 50 different registered and unregistered trademarks and service marks for our products and services. Although we have registered our material trademarks in the United States and the primary European countries in which we conduct business, we have not registered and in some cases do not own the existing applications and registrations for our material trademarks or service marks in all countries in which we conduct business. Our efforts to protect our intellectual property rights in certain countries, especially those in the Asia Pacific region, may only provide us with limited protection. In addition, in some countries, we may be blocked from registering or otherwise protecting certain of our marks by others who have already registered identical or similar marks for similar goods or services, and in those cases, we run the risk of being sued for infringement or being unable to effectively establish brand identity.

The failure to own and have enforceable rights in the trademarks and service marks used in our business could have a material adverse effect on our business, financial condition and results of operations.

We are subject to currency risks with respect to our international operations and certain outstanding foreign-denominated debt.

While we report our consolidated financial results in U.S. dollars, we derive a significant portion of our sales and incur costs in foreign currencies (principally the Euro, the British pound sterling and the Canadian dollar) from our operations outside the United States. For example, in each of 2009 and 2008, approximately 47% of our net sales came from our operations outside the United States, primarily from our operations in Europe and Canada. Fluctuations in the relative values of currencies occur from time to time and could adversely affect our operating results. Specifically, during times of a strengthening U.S. dollar, our reported international sales and earnings will be reduced because the local currency will translate into fewer U.S. dollars. This could also make it more difficult to pay amounts due on our debt, the majority of which is denominated in U.S. dollars.

Although the majority of our outstanding debt is denominated in U.S. dollars, as of December 31, 2009, we had €723.9 million ($1,042.9 million on a U.S. dollar equivalent basis as of December 31, 2009) of foreign currency-denominated debt recorded on our U.S. dollar-denominated balance sheet, which constitutes approximately 36% of our total outstanding debt. As a result, our operating results are exposed to foreign currency risk with respect to this indebtedness. Specifically, during times of a weakening U.S. dollar, the relative value of this debt would increase, which could require us to record exchange losses.

Unanticipated increases to our income tax liabilities could adversely impact our results of operations.

As a global corporation, we are subject to income taxes and tax audits in the U.S. and numerous foreign jurisdictions. Judgment is required in determining our global provision for income taxes and other tax liabilities. Although we believe that our tax estimates are reasonable, we cannot assure you that the final determination of tax audits or tax disputes will not be different from what is reflected in our historical income tax provisions and accruals. Tax authorities in the various jurisdictions in which we have a presence and conduct business may disagree with our tax positions and assess additional taxes.

In addition, our effective tax rate in the future could be adversely affected by changes to our operating structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, changes in tax laws and the discovery of new information in the course of our tax return preparation process. The carrying value of deferred tax assets, which are predominantly in the U.S., is dependent on our ability to generate future taxable income in the U.S. In addition, President Obama’s administration has recently announced proposals for new U.S. tax legislation that, if adopted, could adversely affect our tax rate. Increases in our income tax liabilities as a result of any of the foregoing could adversely affect our financial position, results of operations and cash flows.

We also lease various regional distribution centers and service facilities in North America, Europe and Asia Pacific that support our sales and warehouse functions. For information regarding our lease commitments, see Note 15(a) under “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Recent Sales and Purchases of Unregistered Equity Securities

VWR Funding, Inc. did not sell or purchase any equity securities in 2009.

In 2009, Holdings’ sold 1,359.63 preferred units and 63,370.91 common units pursuant to Holdings’ 2007 Securities Purchase Plan (the “Successor Equity Plan”), which was established upon the consummation of the Merger to permit members of management, board members and consultants the opportunity to purchase equity units of Holdings. The cash purchase price for all issuances to management investors was $1,000 per preferred unit and $.01 per common unit. A board member purchased common units in March 2009 at a cash purchase price of $1.00 per common unit. The proceeds of these issuances have ultimately been contributed to the Company as additional capital contributions. Holdings purchased 204,437.55 common units in 2009 from employees whose employment with VWR was terminated in 2007, 2008 or 2009, in each case in accordance with Holdings’ purchase rights under the transaction documents governing the employees’ purchases of the units. These purchases were funded by Holdings’ subsidiaries.

All of the equity issued by Holdings under the Successor Equity Plan in 2008 were deemed exempt from registration under the Securities Act of 1933 in reliance upon Regulation D, Section 4(2) or Rule 701 of the Securities Act of 1933, as amended, as transactions by an issuer not involving a public offering, or transactions pursuant to compensatory benefit plans and contracts relating to compensation. The recipients of securities in each of such transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution of the securities. All recipients were either furnished with or had adequate access to, through their relationship with us, information about Holdings.

See “Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for additional information regarding the equity investors in Holdings, and see “Item 13 — “Certain Relationships and Related Transactions, and Director Independence — Certain Relationships and Related Transactions — Management Equity Arrangements” for additional information regarding the Successor Equity Plan. See Note 13(a) under “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for more information regarding the Company’s accounting pursuant to the Successor Equity Plan.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Factors Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this Form 10-K may constitute forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions. We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that our assumptions made in connection with the forward-looking statements are reasonable, we cannot assure you that the assumptions and expectations will prove to be correct.

Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Forward-looking statements are not guarantees of performance. You should not place undue reliance on these statements. Forward-looking statements include information in this Annual Report on Form 10-K regarding, among other things:

	•		management’s forecasts, plans and strategies;
	•		management’s general expectations concerning the global laboratory supply industry;
	•		efficiencies and cost savings;
	•		the economy;
	•		sales, income and margins;
	•		growth;
	•		economies of scale;
	•		future acquisitions and dispositions;
	•		litigation;
	•		potential and contingent liabilities;
	•		taxes; and
	•		capital markets and liquidity.

You should understand that the following important factors, in addition to those discussed in “Item 1A — Risk Factors” and elsewhere in this Annual Report on Form 10-K, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:

	•		actions by, and our ability to maintain existing business relationships and practices with, suppliers, customers, carriers and other third parties;
	•		loss of any of our key executive officers;
	•		our ability to consummate and integrate potential acquisitions;
	•		the effect of political, economic and credit and financial market conditions, inflation and interest rates worldwide;

	•		the effect of changes in laws and regulations, including changes in accounting standards, trade, tax, price controls and other regulatory matters;
	•		increased competition from other companies in our industry and our ability to retain or increase our market shares in the principal geographical areas in which we operate;
	•		foreign currency exchange rate fluctuations; and
	•		our ability to generate sufficient funds to meet our debt obligations, capital expenditure program requirements, ongoing operating costs, acquisition financing and working capital needs.

All forward-looking statements 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 Annual Report on Form 10-K. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

The following discussion should be read in conjunction with our consolidated financial statements and related notes included in “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K.

Overview

We generate our net sales primarily through the sale of products, and also, to a lesser extent, through the provision of services, in the global laboratory supply industry. We offer exclusive, branded and private label products that we source from a wide range of manufacturers. Our customer base is highly diversified. Many of our products, including chemicals, laboratory and production supplies and science education products, are consumable in nature. Our principal customers are major pharmaceutical, biotechnology, industrial and government organizations, as well as academic institutions, including schools, colleges and universities. We report our financial results on the basis of the following three business segments: North American Lab, European Lab and Science Education.

On June 29, 2007, the Company was acquired by affiliates of Madison Dearborn Partners, LLC pursuant to the Merger. As described below under the heading “Factors Affecting Our Operating Results — Effects of the Merger,” the Merger and the financing transactions completed in connection with the Merger have had a significant impact on our financial condition and results of operations and will continue to have a significant impact in the future.

Our results of operations on a reported basis (see “Basis of Financial Statement Presentation” below), including our consolidated operating income (loss) and net income (loss), have been volatile. For example, our consolidated net loss for the years ended December 31, 2009 and 2008 and for the periods included in the year ended December 31, 2007, was $14.1 million, $334.6 million and $74.6 million, respectively. Our results of operations during the three year period ending December 31, 2009 were impacted, in particular, by the following factors:

	•		a reduction in customer spending during the latter part of 2008 and throughout 2009 due, in part, to a general deterioration of global economic conditions, especially with respect to (i) certain of our customers in the pharmaceutical industry, which have initiated restructuring of research functions resulting in workforce reductions, facility closures and budget reductions; (ii) certain of our customers in the biotechnology industry, which are experiencing increased economic and liquidity pressures; and (iii) certain of our customers in the primary and secondary educational market, which are facing budget reductions and/or funding deficits;
	•		the effects of the Merger, including increased depreciation, amortization and interest expense in 2009, 2008 and the second half of 2007 and the recognition of certain Merger expenses in the first half of 2007;
	•		our recognition of non-cash impairment charges during 2008 associated with goodwill and intangible assets, primarily as a result of macroeconomic factors;
	•		changes in foreign currency exchange rates;
	•		acquisitions of certain businesses; and
	•		foreign currency translation, including our recognition of net unrealized translation gains (losses) on certain portions of our debt.

Strategy

Our primary goal is to enhance our position as a leader in the global laboratory supply industry. Toward this end, we have instituted a number of strategies to drive sustainable, profitable growth through organic sales growth and selective acquisitions. The principal elements of our strategy are outlined below:

Increase Productivity and Profitability. Achieving operational excellence in our customer service and support and distribution operations remains a cornerstone of our strategy. We will continue to leverage our shared services center in India to not only provide cost-effective business support but enhanced service capabilities as well. Ongoing standardization of processes and systems within our customer service network will bring enhanced service to our customer and supplier base.

Expand Global Presence. We will continue to seek opportunities to expand our presence in emerging markets as well as our global footprint through select acquisitions and expansion of existing operations.

Targeted Acquisitions and Efficient Integration. An important part of our strategy is to accelerate the Company’s growth through selective acquisitions in various locations throughout the world. Selective acquisitions present an opportunity to leverage our existing infrastructure and to establish in-country operations in new geographic areas.

Improve Sourcing Strategy. By utilizing our global scale and strong relationships with our multinational customers and suppliers and maintaining our primary focus on distribution, we intend to continue developing mutually beneficial relationships with leading manufacturers. An important part of our strategy involves providing our customers with a choice of products at varying price points. Global sourcing and supplier integration are key elements of this strategy to implement.

Increase Sales of Private Label Products. Due to increasing demand by our customers for the broadest possible product choice, we will direct our sales and marketing efforts to strike a balance between exclusive, branded and private label product offerings. We believe this strategy is timely as customers seek to realize productivity gains and reduce operating costs.

Factors Affecting Our Operating Results

Effects of Merger

The Merger has been accounted for using the purchase method of accounting. As such, our assets and liabilities were adjusted to their respective fair values as of June 29, 2007. This resulted in an increased value assigned to identifiable intangible assets relating to customer relationships, trademarks and trade names, certain adjustments to pension and post-retirement liabilities for existing plans, the recognition of other fair value adjustments, an increase in deferred income tax liabilities and the impact of the new debt and equity structure. A significant portion of the purchase price was allocated to goodwill and amortizable and indefinite-lived intangible assets. Accordingly, non-cash charges for depreciation and amortization have increased subsequent to the Merger.

In addition, immediately after the Merger, we had approximately $2.7 billion of outstanding indebtedness, compared to approximately $1.7 billion prior to the Merger. Accordingly, we are a highly leveraged company and related interest expense has increased subsequent to the Merger. This increase in our debt obligations, together with the restrictions placed on us in the documents governing our debt instruments, may limit our flexibility in planning for, or reacting to, changes in our business and future business opportunities and may make us more vulnerable to a downturn in our business, industry or the economy in general.

Predecessor expenses associated with the Merger amounted to $36.8 million for the period January 1 — June 29, 2007. These expenses consisted of investment banking, legal, accounting and advisory fees related to the Merger. There were no Merger expenses recognized after June 29, 2007.

Impairments of Goodwill and Intangible Assets

As a result of the Merger, and to a lesser extent due to acquisitions completed subsequent to the Merger, we carry significant amounts of goodwill and intangible assets, including indefinite-lived intangible assets, on our balance sheet. During the fourth quarter of 2008, we recognized aggregate impairment charges of $392.1 million, relating to the impairment of goodwill and intangible assets. The impairment charges were recognized for each of the Company’s segments ($202.1 million in North American Lab, $88.0 million in European Lab and $102.0 million in Science Education). We believe that the impairment charges recognized in our North American Lab and European Lab segments were primarily a result of macroeconomic factors (global recession and volatility in the financial markets), while the charges recognized in our Science Education segment were due to a mix of macroeconomic and industry-specific factors (reduction in discretionary spending by schools). We did not recognize any impairment charges during 2009 or 2007. See Notes 3 and 14(e) included in “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for more information on our recent impairment assessments and associated fair value measurements.

We may recognize additional impairment charges in the future should our operating results or market conditions decline significantly due to, among other things, ongoing or worsening recessionary or other macro economic pressures. See “Critical Accounting Policies” below for a discussion of risks and uncertainties associated with accounting for our goodwill and intangible assets.

Foreign Currency

We maintain operations primarily in North America and in Europe. In 2009, approximately 47% of our net sales originated in currencies other than the U.S. dollar, principally the Euro, the British pound sterling and the Canadian dollar. As a result, changes in our reported revenues and operating profits include the impact of changes in foreign currency exchange rates. We provide “constant currency” assessments in the following discussion and analysis to remove the impact of fluctuation in foreign exchange rates and utilize constant currency results in our analysis of segment performance. We calculate the approximate impact of changes in foreign exchange rates by comparing our current period results derived using current period average exchange rates to our current period results recalculated using average foreign exchange rates in effect during the prior period(s). We believe that our constant currency assessments are a useful measure, indicating the actual results of our operations.

Earnings from our subsidiaries are not generally repatriated to the United States; therefore we do not incur significant gains or losses on foreign currency transactions with our subsidiaries.

As a result of the change in our capital structure related to the Merger, we have a significant amount of foreign-denominated debt on our U.S. dollar-denominated balance sheet. The translation of foreign-denominated debt obligations that are recorded on our U.S. dollar-denominated balance sheet is recorded in other income (expense), net as a foreign currency exchange gain or loss each period. As a result, our operating results are exposed to risk based on fluctuations in foreign currency exchange rates, principally with respect to the Euro. Our net exchange loss of $23.9 million and $64.0 million for the year ended December 31, 2009 and for the periods included in the year ended December 31, 2007, respectively, are substantially related to unrealized losses due to the strengthening of the Euro against the U.S. dollar. Our net exchange gain of $22.1 million for the year ended December 31, 2008 is substantially related to unrealized gains due to the weakening of the Euro against the U.S. dollar.

The acquisitions noted above were funded through a combination of cash and cash equivalents on hand and, to a limited extent, incremental borrowings made under the Company’s Senior Secured Credit Facility.

Seasonality and Inflation

Our results of operations are subject to seasonal trends primarily affecting our Science Education segment, which tend to result in increased net sales and operating income in the third calendar quarter in comparison to other quarters of the year. For example, in 2009, 2008 and 2007, approximately 36%, 40% and 40%, respectively, of our Science Education segment’s total net sales were generated in the quarter ending September 30. This quarterly performance is typically due to increased sales volume as schools purchase supplies in preparation for the beginning of the new school year. Our results of operations are also subject to cyclical trends. For example, the Science Education segment’s publisher kitting business tends to follow a five to six-year business cycle based on certain large states’ adoption rates for new textbooks. We believe that 2007 represented the height of the most recent business cycle.

During 2009, 2008, and 2007, inflation has not had a significant impact on our results of operations, as we believe we have been able to pass through the majority of these increases to our customers. However, our earnings and cash flows could be adversely affected if we are unable to pass through future cost increases arising from inflation.

Basis of Financial Statement Presentation

Until June 29, 2007, we were controlled by CD&R. As a result of the Merger, affiliates of Madison Dearborn acquired control of the Company on June 29, 2007. Accordingly, the consolidated financial statements found in “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K reflect the results of operations, cash flows, and statements of stockholders’ equity and other comprehensive income (loss) using Predecessor and Successor periods. In order to provide investors a meaningful basis of comparing our results of operations in our discussion and analysis for the year ended December 31, 2008 to the year ended December 31, 2007, the results of operations for the “Predecessor” period (January 1, 2007 through June 29, 2007) have been combined with the results of operations for the “Successor” period (June 30, 2007 through December 31, 2007) as shown in the following table. This combined presentation is not consistent with U.S. GAAP, and may yield results that are not strictly comparable on a period-to-period basis primarily due to the impact of purchase accounting adjustments and the impact of changes in our capital structure associated with the Merger.

We believe that a combined 2007 results of operations presentation (“as reported”) is comparable to our 2008 presentation relative to net sales and gross profit due to the fact that the Merger had substantially no impact on these components. Consequently, we have not applied any pro-forma adjustments to these income statement captions in the following discussion and analysis. Other income (expense) and income taxes for the 2007 period were not adjusted as a pro-forma presentation would not provide a meaningful understanding of these components of our operating results. However, as a result of the Merger and our new capital structure, we have incurred higher expenses, including depreciation and amortization and interest expense. Accordingly, for comparative purposes in our discussion and analysis below of 2007 results of operations, with respect to SG&A expenses, operating income and interest expense, have been adjusted to reflect pro-forma adjustments assuming the Merger occurred as of January 1, 2007. The pro-forma results do not purport to be indicative of the results of operations which actually would have resulted had the Merger occurred at the beginning of 2007, or of the future results of operations of the Company. We refer to these components in the following discussion and analysis, after the effect of pro-forma adjustments, on an “as adjusted” basis.

Components of Revenues and Expenses

Our net sales are derived primarily from the sale of laboratory supplies and scientific educational materials. Net sales are also derived, to a lesser extent, from the provision of services. Freight costs that are billed to our customers are included in net sales. Provisions for discounts, rebates to customers, sales returns and other adjustments are provided for as a reduction of net sales in the period the related sales are recorded.

Our cost of goods sold consists primarily of the cost of inventory shipped and our cost of labor for services. Cost of goods sold also includes freight expenses incurred to deliver products to customers as well as credits for rebates earned from suppliers.

SG&A expenses primarily reflect the costs of operations dedicated to generating sales, maintaining existing customer relationships, enhancing technology capabilities, receiving and processing customer orders and maintaining our distribution center facilities. SG&A expenses also include our corporate, administrative and shared-service costs and depreciation and amortization expense.

Results of Operations

2009 Compared With 2008

Net Sales

The following table presents net sales by reportable segment for the years ended December 31, 2009 and 2008 and net sales growth by reportable segment from 2008 to 2009 (in millions):

Net sales for 2009 decreased $198.0 million or 5.3% from 2008. Changes in foreign currency exchange rates caused net sales to decrease by approximately $108.8 million while the acquisitions of Jencons, Spektrum, Omnilab AG, XGeek and OneMed (collectively the “Acquisitions”) increased net sales by approximately $25.5 million. Accordingly, net sales from comparable operations decreased approximately $114.7 million or 3.1% in 2009 from 2008.

Within our laboratory distribution businesses, net sales of consumable products, including chemicals, were flat in 2009 compared to 2008 while net sales of capital goods, including equipment, instruments and furniture experienced a mid to high-single digit decrease over the same period. Further, net sales to pharmaceutical and biotechnology customers experienced low single digit decreases during 2009 compared to 2008, while sales to colleges and universities increased at about the same rate. Net sales to governmental entities were essentially unchanged while sales to industrial customers experienced a mid single digit decrease.

Net sales in our North American Lab segment for 2009 decreased $75.2 million or 3.6% from 2008. Changes in foreign currency exchange rates caused net sales to decrease by approximately $21.7 million. Accordingly, net sales from comparable operations decreased approximately $53.5 million or 2.6% in 2009 from 2008. Net sales in our European Lab segment for 2009 decreased $96.2 million or 6.4% from 2008. Changes in foreign currency exchange rates caused net sales to decrease by approximately $87.1 million while the Acquisitions increased net sales by approximately $22.8 million. Accordingly, net sales from comparable operations decreased approximately $31.9 million or 2.1% in 2009 from 2008. We believe the comparable decreases in net sales across our laboratory distribution businesses are primarily a function of the global economic recession and the resulting decline in spending by the customers we serve.

Net sales in our Science Education segment for 2009 decreased $26.6 million or 16.3% from 2008. The acquisition of XGeek increased net sales by approximately $2.7 million. Accordingly, net sales from comparable operations decreased approximately $29.3 million or 17.9% in 2009 from 2008. This decrease was primarily due to lower volume in our science supplies business and our publisher kitting business. We believe the decreases in volume relate to the unfavorable economic conditions as well as the cyclical nature of the publisher kitting business.

Gross profit for 2009 decreased $49.8 million or 4.7% from 2008. Changes in foreign currency exchange rates caused gross profit to decrease by approximately $35.1 million while the Acquisitions increased gross profit by approximately $7.5 million. Accordingly, gross profit from comparable operations decreased approximately $22.2 million or 2.1% in 2009 from 2008. Reductions in comparable gross profit are largely due to decreases in sales volume across each of our operating segments. Our Science Education segment accounted for approximately 56% of the consolidated reduction in comparable gross profit.

Consolidated gross margin for 2009 increased approximately 20 basis points to 28.5% from 28.3% in 2008. Our laboratory businesses benefitted from efficient pricing actions and, to a lesser extent, from a shift in product mix including an increase in sales of private-label products. In addition, we experienced tight supply conditions in a portion of our chemical product offerings, which did contribute to gross margin improvement in 2009. These benefits were mostly offset by product price increases from our suppliers and by increases in the cost of foreign-sourced goods, especially in our European Lab segment and at our Canadian operations within our North American Lab segment. Gross margin attributable to Science Education declined during 2009 from 2008 primarily as a result of a less favorable sales mix.

SG&A Expenses

The following table presents SG&A expenses and SG&A expenses as a percentage of net sales for the years ended December 31, 2009 and 2008 (in millions):

SG&A expenses for 2009 decreased $54.8 million or 6.4% from 2008. Changes in foreign currency exchange rates caused SG&A expenses to decrease by approximately $32.3 million while the Acquisitions increased SG&A expenses by approximately $6.4 million. Accordingly, SG&A expenses from comparable operations decreased approximately $28.9 million or 3.4% in 2009 from 2008. The comparable decrease in SG&A expenses reflects our implementation of cost reduction initiatives across all segments and is further influenced by decreases in net periodic pension costs, partially offset by increases in charges associated with implementing cost reduction initiatives.

Cost reductions were achieved primarily through personnel reductions, operating efficiencies and discretionary spending discipline. Pension costs associated with our primary defined benefit obligations decreased during 2009 primarily in North American Lab where we recognized $3.7 million of pension income in 2009, due to an increase in the expected return on pension plan assets, compared to $1.7 million of pension expense in 2008. Partially offsetting the decreases in SG&A expenses noted above, we recognized $11.4 million in charges associated with implementing cost reduction initiatives during 2009, such charges representing an increase of $7.2 million ($2.9 million in North American Lab, $4.1 million in European Lab and $0.2 million in Science Education) over the comparable 2008 period. See Note 12 included in “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for more information on our defined benefit obligations.

Impairment of Goodwill and Intangible Assets

We did not recognize any impairment charges during 2009. During the fourth quarter of 2008, we recognized aggregate impairment charges of $392.1 million, relating to the impairment of goodwill and intangible assets. The impairment charges were recognized at each of the Company’s segments ($202.1 million in North American Lab, $88.0 million in European Lab and $102.0 million in Science Education). We believe that the impairment charges recognized in our North American Lab and European Lab segments were primarily a result of macroeconomic factors, while the charges recognized in our Science Education segment were due to a mix of macroeconomic and industry-specific factors.

Operating Income (Loss)

The following table presents operating income (loss) and operating income (loss) as a percentage of net sales by segment for the years ended December 31, 2009 and 2008 (in millions):

Operating income (loss) increased $397.1 million from a $188.3 million loss in 2008 to $208.8 million of income in 2009. Changes in foreign currency exchange rates caused operating income (loss) to decrease by approximately $2.8 million while the Acquisitions increased operating income (loss) by approximately $1.1 million. As discussed above, impairment charges negatively impacted operating income (loss) by $392.1 million in 2008. The following table highlights the changes in operating income (loss) from 2008 to 2009 by segment (in millions):

Operating income in our North American Lab segment for 2009 increased $209.0 million from 2008. Impairment charges of $202.1 million negatively impacted our operating income during 2008. Foreign currency decreased operating income in 2009 by approximately $1.2 million. Accordingly, operating income increased approximately $8.1 million over 2008, from comparable operations. The increase for 2009 was primarily the result of a $20.0 million decrease in SG&A expenses due to implemented cost saving initiatives and pension income during the 2009 period, partially offset by an $11.9 million decrease in gross profit as a result of reduced sales volume.

Operating income in our European Lab segment for 2009 increased $90.3 million from 2008. Impairment charges of $88.0 million negatively impacted our operating income during 2008. Foreign currency and the Acquisitions decreased operating income in 2009 by approximately $0.5 million. Accordingly, operating income increased approximately $2.8 million over 2008, from comparable operations. The increase for 2009 was primarily due to a $2.2 million increase in gross profit as a result of gross margin expansion and a $0.6 million decrease in SG&A expenses attributable to implemented cost saving initiatives, mostly offset by the increase in charges associated with cost saving initiatives.

Operating income in our Science Education segment for 2009 increased $97.8 million from 2008. Impairment charges of $102.0 million negatively impacted our operating income during 2008. Accordingly, operating income decreased approximately $4.2 million over 2008, from comparable operations, as a result of a decrease in gross profit of $12.5 million from reduced customer demand and a less favorable sales mix, offset by a decrease in SG&A expenses of $8.3 million related to a decrease in variable costs associated with reduced business activity and implemented cost reduction initiatives.

Interest Expense, Net of Interest Income

Interest expense, net of interest income, was $224.5 million and $283.9 million for 2009 and 2008, respectively. The decrease in net interest expense during 2009 is primarily attributable to a decrease in our net unrealized gain or loss on interest rate swaps, lower interest rates associated with our variable rate debt, the benefit of changes in foreign currency exchange rates and a decrease in average amounts outstanding under our multi-currency revolving facility during 2009, as compared to 2008. We recognized a net unrealized loss on interest rate swaps of $35.4 million during 2008 compared to a $0.1 million unrealized gain during 2009. As a result of our discontinuance of hedge accounting under our interest rate swap arrangements during 2008, interest expense may continue to fluctuate significantly from period to period, however, such fluctuations will not impact the Company’s operating cash flows until realized. See Note 14 included in “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for more information on our interest rate swap arrangements.

Other Income (Expense), Net

Other income (expense), net is primarily comprised of exchange gains (losses). Our net exchange loss was $23.9 million for 2009 compared to a net exchange gain of $22.1 million for 2008. Our net exchange loss for 2009 is substantially related to unrealized losses due to the strengthening of the Euro against the U.S. dollar. Our net exchange gain for 2008 is substantially related to unrealized gains due to the weakening of the Euro against the U.S. dollar. Due to the significant amount of foreign-denominated debt recorded on our U.S. dollar-denominated balance sheet, other income (expense), net may continue to experience significant fluctuations.

Income Taxes

During the years ended December 31, 2009 and 2008, we recognized an income tax benefit of $25.5 million and $115.5 million, on pre-tax losses of $39.6 million and $450.1 million, respectively, resulting in an effective income tax benefit rate of 64.4% and 25.7%, respectively.

The higher tax benefit rate in 2009 reflects our recognition of a deferred tax benefit on domestic net operating losses, a favorable tax rate reduction in Canada, a favorable foreign rate differential on operating profits in our foreign operations and a favorable settlement of a prior year uncertain tax position.

The tax benefit in 2008 primarily reflects tax benefits for the impairment charges associated with our indefinite-lived intangible assets. Impairment charges associated with goodwill are generally not deductible for tax purposes. Accordingly, our 2008 tax benefit rate was negatively impacted.

Changes to our uncertain tax positions during 2009 and 2008 are described in Note 11 in “Item 8 — Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Net sales for 2008 increased $237.2 million or 6.7% over 2007. Changes in foreign currency exchange rates and the acquisitions of KMF, B&B, Omnilabo BV, Jencons, Spektrum and Omnilab AG (the “2008/2007 Acquisitions”) increased net sales in 2008 by approximately $148.0 million. Accordingly, net sales from comparable operations increased approximately $89.2 million or 2.5% in 2008 over 2007.

Net sales in our North American Lab segment for 2008 increased $73.8 million or 3.7% over 2007. Changes in foreign currency exchange rates increased net sales by approximately $2.8 million. Accordingly, net sales from comparable operations increased approximately $71.0 million or 3.5% in 2008 over 2007. During 2008, net sales to pharmaceutical customers experienced only nominal growth while net sales to educational, industrial and clinical customers and governmental agencies experienced a higher rate of growth.

Net sales in our European Lab segment for 2008 increased $172.2 million or 12.9% over 2007. Changes in foreign currency exchange rates and the 2008/2007 Acquisitions increased net sales by approximately $145.2 million. Accordingly, net sales from comparable operations increased approximately $27.0 million or 2.0% in 2008 over 2007. During 2008, net sales to pharmaceutical customers were essentially flat while we experienced double-digit growth with our education customers and mid single-digit growth with our industrial customers and governmental agencies.

Net sales in our North American Lab and European Lab segments were negatively impacted during 2008 due to a general slowdown in sales at certain of our large customers. During the fourth quarter of 2008, sales growth in our lab businesses was negatively impacted by a reduction in customer spending due, in part, to a general deterioration of economic conditions. Additionally, certain of our customers in the pharmaceutical industry initiated restructuring of research functions resulting in workforce reductions, facility closures and budget reductions and certain of our customers in the biotechnology industry experienced increased economic and liquidity pressures.

Net sales in our Science Education segment for 2008 decreased $8.8 million or 5.1% from 2007. Declines were observed across all product lines and were primarily due to unfavorable economic conditions and the resulting reduction in discretionary spending by schools. In addition, the Science Education segment’s publisher kitting business tends to follow a five to six-year business cycle based on certain large states’ adoption rates for new textbooks.

Gross profit for 2008 increased $84.8 million or 8.6% over 2007. Changes in foreign currency exchange rates and the 2008/2007 Acquisitions increased gross profit in 2008 by $46.4 million. Accordingly, gross profit increased $38.4 million or 3.9% over 2007, from comparable operations. We experienced gross margin improvement in our North American Lab and European Lab segments in 2008. Gross margin improvement in North American Lab was primarily due to efficient pricing as well as the impact of changes in our customer mix. North American gross margin improvement was further impacted by a $2.8 million supplier-related liability reversal recorded in the fourth quarter of 2008. Gross margin improvement in European Lab is primarily due to efficient pricing and changes in customer and product mix, offset by increases in the cost of foreign-sourced goods primarily in the United Kingdom due to a sharp decline in the value of the British pound sterling against the Euro during the second half of 2008. Our gross profit from Science Education declined during 2008 primarily as a result of unfavorable economic conditions and the resulting reduction in discretionary spending by schools. Our Science Education gross margin declined during 2008 primarily as a result of a less favorable sales mix and higher product costs.

SG&A Expenses

The following table presents SG&A expenses, as reported and as adjusted, and, in each case, SG&A expenses as a percentage of net sales for the years ended December 31, 2008 and 2007 (in millions):

Adjusted SG&A expenses for 2008 increased $52.9 million or 6.5% over 2007. Changes in foreign currency exchange rates and the 2008/2007 Acquisitions increased adjusted SG&A expenses by approximately $38.6 million. Accordingly, adjusted SG&A expenses from comparable operations increased approximately $14.3 million or 1.8% over 2007. This increase in adjusted SG&A expenses reflects our continued spending discipline across all segments. The increase in adjusted SG&A expenses was primarily the result of wage and benefit increases, increased spending on information technology in our North American Lab segment of approximately $7.4 million, increased charges associated with certain cost reduction programs in our European Lab segment of $3.0 million and a charge of $1.3 million relating to the write down of certain long-lived assets within our Science Education segment.

Impairment of Goodwill and Intangible Assets

During the fourth quarter of 2008, we recognized aggregate impairment charges of $392.1 million, relating to the impairment of goodwill and intangible assets. The impairment charges were recognized at each of the Company’s segments ($202.1 million in North American Lab, $88.0 million in European Lab and $102.0 million in Science Education). We believe that the impairment charges recognized in our North American Lab and European Lab segments were primarily a result of macroeconomic factors, while the charges recognized in our Science Education segment were due to a mix of macroeconomic and industry-specific factors. We did not recognize any impairment charges during 2007.

Merger Expenses

Predecessor expenses associated with the Merger amounted to $36.8 million for the period January 1 — June 29, 2007. These expenses consisted of investment banking, legal, accounting and advisory fees related to the Merger. There were no Merger expenses incurred after June 29, 2007.

Operating (Loss) Income

The following table presents operating (loss) income, as reported and as adjusted, and, in each case, operating (loss) income as a percentage of net sales by segment for the years ended December 31, 2008 and 2007 (in millions):

Adjusted operating (loss) income decreased $323.4 million from $135.1 million of income in 2007 to a $188.3 million loss in 2008. Changes in foreign currency exchange rates and the 2008/2007 Acquisitions increased adjusted operating (loss) income by approximately $7.8 million over 2007. As discussed above, impairment charges negatively impacted adjusted operating (loss) income by $392.1 million in 2008 and Merger expenses negatively impacted adjusted operating (loss) income by $36.8 million in 2007. The following table highlights the changes in adjusted operating (loss) income from 2007 to 2008 by segment (dollars in millions):

Operating income in our North American Lab segment for 2008 decreased $191.0 million from 2007. Impairment charges of $202.1 million negatively impacted our operating income during 2008. Changes in foreign currency exchange rates decreased operating income in 2008 by approximately $0.3 million. Accordingly, operating income increased approximately $11.4 million or 11.9% over 2007, from comparable operations. The increase for 2008 was primarily the result of gross margin improvement, driven by efficient pricing actions and customer mix. Improvements in gross margin were partially offset by wage and benefit cost increases which were somewhat mitigated by reductions in discretionary spending.

Operating income in our European Lab segment for 2008 decreased $62.2 million from 2007. Impairment charges of $88.0 million negatively impacted our operating income during 2008. Changes in foreign currency exchange rates and the 2008/2007 Acquisitions increased operating income in 2008 by approximately $8.1 million. Accordingly, operating income increased approximately $17.7 million or 27.2% over 2007, from comparable operations. The increase for 2008 was primarily the result of gross margin improvement, driven by efficient pricing actions as well as favorable customer and product mix. The increase in operating income for 2008 was further influenced by disciplined spending practices and savings generated from cost reduction efforts.

Operating income in our Science Education segment for 2008 decreased $107.0 million from 2007. Impairment charges of $102.0 million negatively impacted our operating income during 2008. Operating income from comparable operations declined primarily as the result of a decrease in gross profit of $6.2 million from reduced customer demand and adverse product mix, partially offset by decreases in adjusted SG&A expenses of $1.2 million. The decrease in operating income for 2008 was primarily the result of unfavorable economic conditions and the resulting reduction in discretionary spending by schools and further due to a charge of $1.3 million related to the write down of certain long-lived assets.

Interest Expense, Net of Interest Income

The following table presents the components of interest expense, net on an as reported and as adjusted basis for the years ended December 31, 2008 and 2007 (dollars in millions):

Interest expense, net of interest income on an adjusted basis, was $283.9 million and $270.1 million for 2008 and 2007, respectively. The increase in adjusted net interest expense during 2008 is primarily attributable to increased borrowings under our Senior Secured Credit Facility as well as increased interest expense on Euro-denominated debt due to changes in foreign currency exchange rates. In addition, interest expense was further influenced in 2008 by our recognition of a net unrealized loss on interest rate swaps of $35.4 million. These increases were partially offset by the write-off of unamortized deferred financing costs of $27.8 million in 2007 related to the debt obligations that were refinanced in connection with the Merger and a commitment fee for a bridge loan of $3.4 million incurred in 2007. Our recognition of net unrealized losses on our interest rate swap arrangements is due to our discontinuance of hedge accounting with a corresponding decrease in variable rates of interest during the fourth quarter of 2008.

Other Income (Expense), Net

Other income (expense), net was $22.1 million of income for 2008 compared to $63.7 million of expense for the comparable period of 2007. Other income (expense) is primarily comprised of exchange gains (losses). Our net exchange gain for 2008 is substantially related to our recognition of net unrealized gains associated with the weakening of the Euro against the U.S. dollar. Our net exchange loss for 2007 is substantially related to our recognition of net unrealized losses associated with the strengthening of the Euro against the U.S. dollar.

Income Taxes

During the year ended December 31, 2008 and for the periods included in the year ended December 31, 2007, we recognized an income tax benefit of $115.5 million and $51.0 million, on pre-tax losses of $450.1 million and $125.6 million, respectively, resulting in an effective income tax benefit rate of 25.7% and 40.6%, respectively. The benefit recognized in 2008 reflects tax benefits for the impairment charges associated with our indefinite-lived intangible assets. Impairment charges associated with goodwill are generally not deductible for tax purposes.

The benefit recognized in the 2007 periods reflects our recognition of net operating losses and an income tax benefit of $34.6 million related to a change in tax rates on deferred taxes on European intangible assets, as a result of a reduction in the German income tax rate. The Company recognized the impact of these rate changes, consistent with the date of enactment of the legislation, offset by the recognition of tax expense of $25.5 million on dividends received from foreign operations.

Changes to our uncertain tax positions during 2008 and 2007 primarily relate to pre-Merger contingencies, and accordingly, have increased or decreased goodwill by a corresponding amount. See Note 11 in “Item 8 — Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, for more information.

Liquidity and Capital Resources

Our future financial and operating performance, ability to service or refinance our debt and ability to comply with covenants and restrictions contained in our debt agreements will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control and will be substantially dependent on the global economy, demand for our products, and our ability to successfully implement our overall business strategies. As of December 31, 2009, we had $124.4 million of cash and cash equivalents on hand and our compensating cash balance totaled $105.0 million.

As of December 31, 2009, we had $2,871.7 million of outstanding indebtedness, including $1,495.3 million of indebtedness under our Senior Secured Credit Facility, $710.0 million of Senior Notes, $541.4 million of Senior Subordinated Notes and $105.0 million of compensating cash indebtedness. We also had unused availability of $213.1 million under our multi-currency revolving loan facility (which is a component of our Senior Secured Credit Facility) as of December 31, 2009. Borrowings under the multi-currency revolving loan facility are a key source of our liquidity. From time-to-time, our liquidity needs cause the aggregate amount of outstanding borrowings under our multi-currency revolving loan facility to fluctuate. Accordingly, the amount of credit available to us can increase or decrease based on changes in our operating cash flows, debt service requirements, working capital needs and acquisition and investment activities. All borrowings under the multi-currency revolving loan facility bear interest at variable rates.

The Senior Secured Credit Facility does not contain any financial maintenance covenants that require the Company to comply with specified financial ratios or tests, such as a minimum interest expense coverage ratio or a maximum leverage ratio, unless the Company wishes to incur additional indebtedness associated with acquisitions or make certain restricted payments. The indentures governing the Senior Notes and Senior Subordinated Notes contain covenants that, among other things, limit the Company’s ability and that of its restricted subsidiaries to make restricted payments, pay dividends, incur or create additional indebtedness, issue certain types of common and preferred stock, make certain dispositions outside the ordinary course of business, execute certain affiliate transactions, create liens on assets of the Company and restricted subsidiaries, and materially change our lines of business. As of December 31, 2009, the Company was in compliance with the covenants under the Senior Secured Credit Facility and with the indentures and related requirements governing the Senior Notes and Senior Subordinated Notes.

We have the ability to elect to make non-cash payment-in-kind (“PIK”) interest elections under certain of our debt instruments. On June 25, 2009, we made an election to pay PIK interest on our Senior Notes for the semi-annual interest period commencing July 15, 2009 and ending on January 15, 2010. Accordingly, we have classified $35.0 million of accrued but unpaid interest on our Senior Notes as of December 31, 2009 within the long-term portion of debt. The Company did not make an election to pay PIK Interest on its Senior Notes for the interest period ending on July 15, 2010 and so it must satisfy the related interest payment with cash in July 2010. On June 25 and September 21, 2009, we made elections to capitalize an aggregate amount of $5.3 million and €1.9 million ($2.7 million on a U.S. dollar equivalent basis as of December 31, 2009) of cash interest payable on our Senior Subordinated Notes for the June 30 and September 30, 2009 interest payment dates. The Company paid cash interest on the Senior Subordinated Notes for the December 31, 2009 payment date. We made these PIK interest elections in order to enhance our liquidity to fund acquisition and investment opportunities. We continue to evaluate the possibility of future PIK interest elections. See “Indebtedness — Senior Notes and Senior Subordinated Notes” section below for more information on our non-cash PIK interest election options.

Subject to the Company’s continued compliance with its covenants, the Company may at any time or from time to time request additional tranches of term loans or increases in the amount of commitments under the Senior Secured Credit Facility. The actual extension of any such incremental term loans or increases in commitments would be subject to the Company and existing and any new lenders reaching agreement on applicable terms and conditions, which may depend on market conditions at the time of any request.

Based on the terms and conditions of these debt obligations and our current operations and expectations for future growth, we believe that cash generated from operations, together with available borrowings under our multi-currency revolving loan facility and our ability to make PIK interest elections under each of our Senior Notes and Senior Subordinated Notes will be adequate to permit us to meet our current and expected operating, capital investment, acquisition financing and debt service obligations prior to maturity, although no assurance can be given in this regard.

The majority of our long-term debt obligations will mature between 2014 and 2017, although the revolving loan portion of our Senior Secured Credit Facility is scheduled to mature in 2013. We currently intend to reduce our debt to earnings ratio in advance of these maturities, which we believe will be important as we seek to refinance or otherwise satisfy these debt obligations.

Financial markets continue to exhibit volatility and many market participants are experiencing difficulty obtaining liquidity to fund their business needs. We continue to assess the potential impact of current market conditions on various aspects of our liquidity, financial condition and results of operations, including, but not limited to, the continued availability and general creditworthiness of our debt and financial instrument counterparties, the impact of market conditions on our customers, suppliers and insurers and the general recoverability and realizability of our long-lived assets and certain financial instruments, including investments held under our defined benefit pension plans. To date, aside from our recognition of non-cash impairment charges related to the recoverability of long-lived intangible assets and goodwill during the fourth quarter of 2008, a limited availability to enter into new derivative instruments, a tightening of credit with certain suppliers and the factors impacting our operating results discussed above, we have not had a significant financial statement impact based on the aforementioned assessments. However, there can be no assurance that our business, liquidity, financial condition or results of operations will not be materially and adversely impacted in the future as a result of existing or future market conditions.

Historical Cash Flows

In order to provide a meaningful basis of comparing our cash flows in the following discussion and analysis of cash flow activity, we have combined our cash flow activity for the Predecessor period (January 1, 2007 through June 29, 2007) with our cash flow activity for the successor period (June 30, 2007 through December 31, 2007). This combined presentation is not consistent with U.S. GAAP, and may yield results that are not strictly comparable on a period-to-period basis primarily due to the impact of required purchase accounting adjustments and the impact of changes in our capital structure associated with the Merger. Our operating cash flows were generally unaffected by the Merger with the exception of increased cash paid for Merger related expenses and interest.

Operating Activities

The following table presents cash flow from operations before investing and financing activities related to operations and working capital (dollars in millions):

We generated $169.0 million of cash from operating activities during 2009 compared to $8.7 million and $76.4 million during 2008 and 2007, respectively. The increase in operating cash flows from 2008 to 2009 is primarily due to improvements in our working capital components (after consideration of our PIK interest deferrals) and also to lower cash paid for interest. The decrease in operating cash flows from 2007 to 2008 was primarily due to higher cash interest paid subsequent to the Merger.

We paid cash interest of $200.7 million, $242.8 million and $140.8 million during 2009, 2008 and 2007, respectively. Cash interest decreased in 2009 from 2008 primarily as a result of lower interest rates associated with our variable rate debt and, to a lesser extent, as a result of our elections to capitalize approximately $8.0 million of interest under our Senior Subordinated Notes, as discussed above.

We experienced generally favorable cash flows from working capital components in 2009 compared to 2008. For example, trade accounts receivable provided cash of $12.2 million during 2009 compared to an $11.7 million use of cash during 2008. In addition, the reduction in inventories in 2009 effectively provided $30.2 million of cash compared to only $2.4 million during 2008. These improvements in our cash flows from trade accounts receivable and inventories are primarily attributable to a decline in commercial activity and, to a lesser extent, our continued focus on cash collections and inventory management. Lastly, our trade accounts payable in 2009 represented an $18.1 million source of cash as compared to a $22.3 million use of cash in 2008. The increase in cash provided by trade accounts payable was primarily due to timing. Our cash disbursement routines follow a standardized process for payment, and so we may experience fluctuations in cash flows associated with trade accounts payable from period to period based on the calendar.

We experienced fluctuations in various components of our working capital in 2008 compared to 2007. For example, trade accounts receivable used cash of $11.7 million during 2008 compared to $7.6 million of cash provided during 2007. This decrease in cash flows was primarily the result of increased sales as receivable collection patterns were essentially unchanged during 2008. In addition, inventories in 2008 provided $2.4 million of cash compared to a use of $13.3 million of cash during 2007. This increase in cash flows was due, in part, to improved inventory management practices. Lastly, our trade accounts payable in 2008 represented a $22.3 million use of cash as compared to $7.8 million of cash used in 2007. The increase in cash used by trade accounts payable was primarily due to a general tightening of credit terms with certain suppliers, especially in the second half of 2008 as conditions in the economy deteriorated.

Investing Activities

Net cash used in investing activities was $38.1 million, $74.9 million and $3,887.0 million during 2009, 2008 and 2007, respectively. Net cash used in the 2009 period was primarily associated with the acquisitions of OneMed and XGeek and ongoing capital expenditures, partially offset by the proceeds from sales of property and equipment. Net cash used in the 2008 period was primarily associated with the acquisitions of Jencons, Spektrum and Omnilab AG and ongoing capital expenditures, partially offset by proceeds from sales of property and equipment. The change in investing cash flows from 2009 to 2008 is primarily due to the aggregate size and number of acquisitions completed. The 2007 usage primarily relates to the Merger consideration paid and the acquisitions of KMF, B&B and Omnilabo BV.

Capital expenditures decreased in 2009 from 2008 by $5.8 million, partly due to timing of cash outflows and partly reflecting our desire to manage our resources prudently during the current economic downturn. Capital expenditures increased in 2008 from 2007 reflecting increased investments in information technology and internet-based infrastructure. Capital expenditures have been approximately $30.0 million per year over the past several years. We anticipate a similar level of capital expenditures going forward. In addition, we expect incremental investments in information technology and infrastructure may average approximately $10.0 million per year over the next several years.

Financing Activities

Net cash used in financing activities was $51.1 million during 2009 and net cash provided by financing activities was $65.0 million and $3,848.2 million during 2008 and 2007, respectively. Cash used in 2009 was primarily related to $41.5 million of net repayments of debt and $6.6 million paid to repurchase redeemable equity units. Cash provided during 2008 was primarily due to $62.5 million in net cash proceeds, drawn primarily from our Senior Secured Credit Facility and used to meet our debt service, acquisition financing and general working capital needs. Cash provided during 2007 was primarily due to debt and equity issuances associated with the Merger.

Noncurrent deferred income tax liabilities as of December 31, 2009 were $495.5 million. Deferred tax liabilities are calculated based on cumulative temporary differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates. This amount is not included in the table above because this presentation would not be meaningful. These liabilities do not have a direct connection with the amount of cash taxes to be paid in any future periods and do not relate to liquidity needs. In addition, the Company has excluded from the above table uncertain tax liabilities due to the uncertainty of the period of payment. The Company had uncertain tax liabilities of $5.0 million, exclusive of interest and penalties, as of December 31, 2009. In addition, we do not provide for deferred income tax liabilities nor foreign withholding taxes on approximately $294.4 million of cumulative undistributed earnings of our foreign subsidiaries as of December 31, 2009, as we consider these earnings to be permanently reinvested. We believe that cash flows generated by our domestic operations and available credit under our Senior Secured Credit Facility will be sufficient to allow us to satisfy our domestic liquidity requirements, including mandatory principal and interest payments.

The employment agreements with our executive officers include non-compete, non-solicit 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 Chairman, 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 Chairman, 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 $11.9 million at December 31, 2009.

Indebtedness

See Note 10 in Item 8 — “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, for additional discussion of our debt obligations.

Senior Secured Credit Facility. Our Senior Secured Credit Facility is with a syndicate of lenders and provides for aggregate maximum borrowings consisting of (1) term loans denominated in Euros in an aggregate principal amount currently outstanding of €597.0 million ($860.0 million on a U.S. dollar equivalent basis as of December 31, 2009), (2) term loans denominated in U.S. dollars in an aggregate principal amount currently outstanding of $611.9 million and (3) a multi-currency revolving loan facility, providing for an equivalent in U.S. dollars of up to $250.0 million in multi-currency revolving loans (inclusive of swingline loans of up to $25.0 million and letters of credit of up to $70.0 million). The multi-currency revolving loan facility permits one or more of our foreign subsidiaries to become foreign borrowers under such facility upon the satisfaction of certain conditions.

Subject to the Company’s continued compliance with its covenants, the Company may at any time or from time to time request additional tranches of term loans or increases in the amount of commitments under the Senior Secured Credit Facility. The actual extension of any such incremental term loans or increases in commitments would be subject to the Company and existing and any new lenders reaching agreement on applicable terms and conditions, which may depend on market conditions at the time of any request. Additionally, the total amount outstanding under any incremental new tranches of term loans or incremental new revolving credit commitments may not exceed in aggregate the lesser of $300.0 million or an amount which would cause the Company to exceed certain ratios. To present, the Company has not requested any such incremental term loans or credit commitments.

As of December 31, 2009, an aggregate U.S. dollar equivalent of $23.4 million was outstanding under the multi-currency revolving loan facility as a result of £14.4 million outstanding in revolving loans. In addition, we had $13.5 million of undrawn letters of credit outstanding. As of December 31, 2009, we had $213.1 million of available borrowing capacity under the multi-currency revolving loan facility.

The term loans will mature on June 30, 2014 and the multi-currency revolving loan facility will mature on June 30, 2013. Subject to any mandatory or optional prepayments, the principal amounts of the term loans require quarterly amortization payments commencing on September 30, 2009 equal to 0.25% of their respective original principal amounts drawn, with the final amortization payments due at maturity. Based on an excess cash flow calculation required by the Senior Secured Credit Facility for the year ended December 31, 2009, the Company is required to make a principal repayment of $20.9 million on the outstanding term loans in March 2010. The excess cash flow payment will be applied against the Company’s scheduled installments of principal due in respect of the term loans in 2010 and part of 2011. We have classified the excess cash flow payment within the short term portion of debt in the accompanying balance sheet as of December 31, 2009.

As of December 31, 2009, the interest rates on the U.S. dollar-denominated and Euro-denominated term loans were 2.73% and 2.97%, respectively, which include a variable margin of 2.5%, and amounts drawn under the multi-currency revolving loan facility bear interest at a rate of 3.02%. As of December 31, 2009, there were no loans under our Senior Secured Credit Facility denominated in currencies other than the U.S. dollar, Euro and British pound sterling.

Senior Notes and Senior Subordinated Notes . The Senior Notes and Senior Subordinated Notes, and related guarantees, are unsecured obligations of the Company and are subordinate to all of the Company’s and the Subsidiary Guarantors’ obligations under all secured indebtedness, including any borrowings under the Senior Secured Credit Facility to the extent of the value of the assets securing such obligations, and are effectively subordinate to all obligations of each of the Company’s subsidiaries that is not a guarantor of the Senior Notes or the Senior Subordinated Notes (as the case may be). The Senior Notes, and related guarantees, rank senior in right of payment to all of the Company’s and the Subsidiary Guarantors’ existing and future subordinated indebtedness, including the Senior Subordinated Notes.

The Senior Notes, which amount to $710.0 million as of December 31, 2009, will mature on July 15, 2015. Interest on the Senior Notes is payable twice a year, on each January 15 and July 15. For any interest period through July 15, 2011, the Company may elect to pay interest on the Senior Notes (1) entirely in cash (“Cash Interest”), (2) entirely by increasing the principal amount of the Senior Notes (“PIK Interest”) or (3) 50% as Cash Interest and 50% as PIK Interest. PIK Interest accrues on the Senior Notes at a rate per annum equal to the Cash Interest rate of 10.25% plus 100 basis points. Prior to July 15, 2009, the Company paid its Senior Note interest obligations as Cash Interest. On June 25, 2009, we made an election to pay PIK Interest for the semi-annual interest period commencing July 15, 2009 and ending on January 15, 2010. Accordingly, we have classified $35.0 million of accrued but unpaid interest on our Senior Notes as of December 31, 2009 within the long-term portion of debt. The Company did not make an election to pay PIK Interest for the interest period ending on July 15, 2010 and so it must satisfy the related interest payment with Cash Interest. Under the terms of the Senior Notes, if the Company were to make a 100% PIK Interest election for the two remaining semi-annual interest periods for which is entitled to do so, it would be required to make a mandatory principal redemption payment on July 15, 2012 of approximately $47.2 million.

The Senior Subordinated Notes are denominated in Euros in an aggregate principal amount currently outstanding of €126.9 million ($182.7 million on a U.S. dollar equivalent basis as of December 31, 2009) and in U.S. dollars in an aggregate principal amount currently outstanding of $358.7 million. The Senior Subordinated Notes will mature on June 30, 2017. Interest on the Senior Subordinated Notes is payable quarterly on March 31, June 30, September 30 and December 31 of each year. On any interest payment date through and including March 31, 2010, the Company will have the option to capitalize up to approximately 28% per annum of the interest payable on such date by capitalizing such interest and adding it to the then outstanding principal amount of the Senior Subordinated Notes. In the absence of such an election for any interest payment date, all of the interest on the Senior Subordinated Notes is payable entirely in cash. The interest rate on the Senior Subordinated Notes does not change if the Company makes an election to capitalize interest. On June 25 and September 21, 2009, we made elections to capitalize an aggregate amount of approximately $5.3 million and €1.9 million ($2.7 million on a U.S. dollar equivalent basis as of December 31, 2009) of cash interest payable on our Senior Subordinated Notes for the June 30 and September 30, 2009 interest payment dates. The Company paid Cash Interest for the December 31, 2009 payment date. The Company will not be required to make a mandatory redemption payment in connection with any past or future elections to capitalize interest on the Senior Subordinated Notes.

Interest Rate Swap Arrangements. Borrowings under our Senior Secured Credit Facility bear interest at variable rates while our Senior Notes and Senior Subordinated Notes bear interest at fixed rates. The Company manages its exposure to changes in market interest rates by entering into interest rate swaps. The Company is party to two interest rate swaps that became effective on June 29, 2007 and mature on December 31, 2012 for the purpose of fixing the variable rate of interest on a portion of our outstanding term loan borrowings under the Senior Secured Credit Facility. The interest rate swaps carry initial notional principal amounts of $425.0 million (the “USD Swap”) and €300.0 million (the “Euro Swap”). The notional value of the USD Swap declines over its term in annual decrements of $25.0 million through December 29, 2011 and carries a final notional principal amount of $160.0 million for the period from December 30, 2011 through December 30, 2012. Beginning on December 31, 2007, the notional value of the Euro Swap declines over its term in annual decrements of €20.0 million through December 29, 2011 and carries a final notional principal amount of €110.0 million for the period from December 30, 2011 through December 30, 2012. Under the USD Swap and Euro Swap, the Company receives monthly interest at a variable rate equal to one-month U.S. Libor and one-month Euribor, respectively, and pay monthly interest at a fixed rate of 5.40% and 4.55%, respectively.

As of December 31, 2009, the Amended Swaps effectively convert $350.0 million of variable rate U.S. dollar-denominated debt and €240.0 million ($345.7 million on a U.S. dollar equivalent basis) of variable rate Euro-denominated debt to fixed rates of interest. The counterparty to our interest rate swap agreements is a major financial institution. The Company actively monitors its asset or liability position under the interest rate swap agreements and the credit ratings of the counterparty, in an effort to understand and evaluate the risk of non-performance by the counterparty.

The aggregate fair value of the interest rate swaps as of December 31, 2009 was a liability of $49.8 million and is reflected in other long-term liabilities. During the year ended December 31, 2009 and 2008, we recognized non-cash net unrealized gains (losses) on our Amended Swaps of $0.1 million and $(35.4) million, respectively, as a component of interest expense. See Note 14 in “Item 8 — Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, for a further discussion of our interest rate swap arrangements.

Compensating Cash Balance. Our foreign subsidiaries obtain their liquidity from our global cash pooling arrangement or from formal or informal lines of credit offered by local banks. The borrowings drawn by our foreign subsidiaries from local banks are limited in aggregate by certain covenants contained within the Senior Secured Credit Facility, Senior Notes and Senior Subordinated Notes. The borrowings available to our foreign subsidiaries under our global cash pooling arrangement are limited in aggregate by the amount of compensating cash balances supporting the global cash pooling arrangement. Our compensating cash balance represents bank overdraft positions of subsidiaries participating in our global cash pooling arrangement with a third-party bank. Due to the nature of these overdrafts, all amounts have been classified within the short-term portion of debt at each period end. As of December 31, 2009, our compensating cash balance was $105.0 million.

Off-Balance Sheet Arrangements

We are not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies

See Note 2 included in “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for a description of our significant accounting policies. The policies discussed below are considered by management to be critical to an understanding of our consolidated financial statements because their application places the most significant demands on management’s judgment, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. For all of these policies, management cautions that future events rarely develop exactly as forecast, and such estimates routinely require adjustment. The Company’s management has reviewed these critical accounting policies and estimates and related disclosures with its audit committee.

Goodwill and Intangible Assets. We have significant amounts of goodwill and intangible assets on our consolidated balance sheet as of December 31, 2009. Goodwill primarily represents the excess of acquisition costs over the fair value of net assets acquired in connection with the Merger and completed acquisitions subsequent to the Merger. Our intangible assets with finite useful lives primarily relate to customer and supplier relationships and are amortized over their respective estimated useful lives on a straight-line basis. Our indefinite-lived intangible assets relate to our trademarks and trade names and are not amortized.

We believe that accounting for goodwill and intangible assets represents a critical accounting policy because of the significant judgments and estimates that must be made by management in order to determine each asset’s useful life, to apply the impairment testing model required by U.S. GAAP and, when necessary, to determine various related fair value measurements.

We reevaluate the estimated useful lives of our intangible assets annually. We determined that our trademarks and trade names have indefinite lives because they do not have legal, regulatory, contractual, competitive or economic limitations and are expected to contribute to the generation of cash flows indefinitely.

Goodwill and other intangible assets with indefinite useful lives are not amortized and are tested annually for impairment or between the annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of the asset below its carrying amount. Other amortizable intangible assets are reviewed for impairment whenever indication of potential impairment exists.

Indefinite-lived intangible assets other than goodwill are tested for impairment prior to goodwill or amortizable intangible assets. An impairment charge is measured if the carrying value of an indefinite-lived intangible asset exceeds its fair value. We evaluate the recoverability of our amortizable intangible assets by comparing the carrying value to estimated undiscounted future cash flows expected to be generated. If an amortizable intangible asset is considered impaired, the impairment loss to be recognized is measured as the amount by which the asset’s carrying value exceeds its fair value.

Goodwill impairment testing is performed at the reporting unit level. We have determined that our reporting units are the same as our business segments and we have elected to perform our annual impairment testing on October 1 ^st of each year. The goodwill impairment analysis is a two-step test. The first step (“Step 1”), used to identify potential impairment, involves comparing the reporting unit’s estimated fair value to its carrying value, including goodwill. If the estimated fair value exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds its estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment, if any. The second step (“Step 2”) involves calculating an implied fair value of goodwill. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill, there is no impairment. If the carrying value of goodwill exceeds the implied fair value of goodwill, an impairment charge is recorded for the excess. Goodwill impairments cannot be reversed in subsequent periods.

The fair value of our intangible assets is determined using a discounted cash flow approach. The Company estimates the fair value of each reporting unit using both the income approach (which is a discounted cash flow technique) and market approach (which is a market multiple technique). These valuation methods required management to make various assumptions, including, but not limited to, assumptions related to future profitability, cash flows, discount rates and control premiums, as well as valuation multiples derived from comparable publicly traded companies that are applied to operating performance of the reporting unit. Our estimates are based upon historical trends, management’s knowledge and experience and overall economic factors, including projections of future earnings potential.

Developing discounted future cash flows in applying the income approach requires us to evaluate our intermediate to longer-term strategies for each reporting unit, including, but not limited to, estimates about revenue growth, our acquisition strategies, operating margins, capital requirements, inflation and working capital management. The development of appropriate rates to discount the estimated future cash flows of each reporting unit requires the selection of risk premiums, which can materially impact the present value of future cash flows. Selection of an appropriate peer group under the market approach involves judgment and an alternative selection of guideline companies could yield materially different market multiples. We seek to minimize judgment in the selection of an acquisition control premium by referring to historical control premiums observed in the marketplace. We believe the estimates and assumptions used in the valuation methods are reasonable.

2008 Assessments

During the fourth quarter of 2008, we recognized aggregate impairment charges of $392.1 million, relating to the impairment of goodwill and intangible assets. The impairment charges were recognized for each of the Company’s reporting units ($202.1 million in North American Lab, $88.0 million in European Lab and $102.0 million in Science Education). We believe that the impairment charges recognized in our North American Lab and European Lab reporting units were primarily a result of macroeconomic factors, while the charges recognized in our Science Education reporting unit were due to a mix of macroeconomic and industry-specific factors.

2009 Assessments

We observed a decline in the operating results of Science Education during the seasonally-significant third calendar quarter of 2009. We were also aware of the reduction in spending by schools due to the general economic conditions in the United States and the impact that unresolved state budgets have had on results and, accordingly, as of September 30, 2009, we reduced forecasted sales in the near term. As a result, we performed an interim impairment test of Science Education’s goodwill and intangible assets as of September 30, 2009. We determined that there was no measured impairment of the intangible assets. Our evaluation of reporting unit goodwill revealed a failure of Step 1. However, our Step 2 measurement of the implied fair value of goodwill exceeded the carrying value of goodwill primarily as a result of a decrease in the fair value of amortizable intangible assets. Accordingly, we did not recognize any impairment charges. As of September 30, 2009, any decrease in the fair value of our Science Education reporting unit would likely result in impairment charges.

As of our latest annual assessment of our indefinite-lived intangible assets and goodwill on October 1, 2009, we determined that there was no measured impairment of our indefinite-lived intangible assets and that the estimated fair values of our North American Lab and European Lab reporting units each exceeded its respective carrying value. Accordingly, no impairment was recognized. The amount by which the estimated fair value exceeded its carrying value was approximately $90.0 million in our North American Lab reporting unit and was approximately $300.0 million in our European Lab reporting unit.

The carrying value of goodwill and intangible assets as of December 31, 2009 was $929.9 million and $1,081.6 million, respectively, for North American Lab, $866.6 million and $759.8 million, respectively, for European Lab and $36.5 million and $145.3 million, respectively, for Science Education. As of December 31, 2009, we determined that there were no impairments of our goodwill or intangible assets in any of our reporting units.

Should our planned organic revenue or cash flow growth, our acquisition strategy growth or market conditions be adversely affected due to, among other things, ongoing or worsening recessionary or other macro-economic pressures; or should we experience adverse changes in market factors such as discount rates, valuation multiples derived from comparable publicly traded companies, or control premiums derived from market transactions; additional impairment charges against goodwill and intangible assets may be required. Since we recognized impairments on our indefinite-lived intangible assets at each of our reporting units in 2008, we will likely incur additional impairment charges if we experience any decrease in the fair value of these assets going forward.

Interest Rate Swap Valuations. We apply the fair value provisions of U.S. GAAP to our interest rate swap arrangements. We determine the fair value of all of our interest rate swaps using a discounted cash flow model based on the contractual terms of the instrument and using observable inputs such as interest rates, counterparty credit spread and our own credit spread. The discounted cash flow model does not involve significant management judgment and does not incorporate significant unobservable inputs. Accordingly, we classify our interest rate swap valuation measurements within Level 2 of the valuation hierarchy. We consider our interest rate swap valuations to be a critical accounting policy as we do not apply hedge accounting and therefore changes in fair value are recognized as a component of income or loss each period. We had no other material financial assets or liabilities carried at fair value and measured on a recurring basis as of December 31, 2009.

As of December 31, 2009, the incorporation of credit spreads into our discounted cash flow model had the effect of lowering the fair value (liability) of our interest rate swap arrangements by $3.1 million. As of December 31, 2009, a 100 basis point (or 1.00%) improvement (deterioration) in our own credit spread would have had the impact of increasing (decreasing) our liability for interest rate swaps by approximately $0.5 million. As of December 31, 2009, counterparty credit spread did not have a material impact on the fair value of our interest rate swaps. See Note 14 included in “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for more information on our interest rate swaps.

Accounts Receivable and Reserves. The carrying amount of trade accounts receivable reflects a reserve representing our estimate of the amounts that will not be collected for losses due to uncollectibility and for estimated sales returns and allowances. In addition to reviewing delinquent accounts receivable, we consider many factors in estimating our reserve, including historical data, experience, customer types, creditworthiness and economic trends. From time to time, we may adjust our assumptions for anticipated changes in any of these or other factors expected to affect collectibility. During 2009, bad debt expense was $3.8 million.

Inventories. Inventories are valued at the lower of cost or market, cost being determined principally by the last-in, first-out method for the U.S. subsidiaries and the first-in, first-out method for all other subsidiaries. We review our inventory realization based upon several factors, including customer demand, supply of inventory, inventory levels, competitive activity and technology changes and record reserves for obsolescence based upon those and other factors. From time to time, we may adjust our assumptions for anticipated changes in any of these or other factors.

Rebates from Suppliers. We earn rebates from certain of our suppliers from the achievement of certain sales growth and/or purchase volume thresholds. To the extent that rebates relate to inventory on hand, the inventory cost is reduced to reflect the lower cost. During the course of the year, estimates made concerning the achievement of these goals or milestones can vary from quarter to quarter. Generally, a proportionally larger amount of rebates are earned in the fourth quarter of each year.

Agreements with Customers. We have agreements with several of our customers, which contain provisions related to pricing, volume purchase incentives and other contractual provisions. During the course of the year, estimates are made concerning customer contracts and changes in estimates related to these contracts may vary from quarter to quarter and are recorded against net sales.

Product Liability. We are subject to product liability and other claims in the ordinary course of business and, from time to time, we are named as a defendant in cases as a result of our distribution of laboratory and production supplies. While the impact on us of this litigation has typically been 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 and results of operations in the future. Our estimates of potential liability are based on several factors, including our historical experience in similar cases, legal venue and the merits of each individual case.

Pension Plans. We have defined benefit pension plans covering a significant number of domestic and international employees. Accounting for these plans requires the use of assumptions, including estimates on the expected long-term rate of return on assets, discount rates and the average rate of increase in employee compensation. In order to make informed assumptions, management consults with actuaries and reviews public market data and general economic information. We periodically assess these assumptions based on market conditions, and if those conditions change, our pension cost and pension obligation may be adjusted accordingly. See Note 12 included in “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for more information on our defined benefit pension plans.

Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes and net operating loss and credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized.

The Company recognizes the effect of income tax positions only if those positions are more likely than not to be sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs, as a result of information that arises or when a tax position is effectively settled.

We must make assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset. Our assumptions, judgments and estimates take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities and estimates of the amount of future taxable income, if any. Any of the assumptions, judgments and estimates could cause our actual income tax obligations to differ from our estimates. See Note 11 included in “Item 8 — Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for more information on income taxes.

Estimates and Other Accounting Policies. The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Those estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. We adjust such estimates and assumptions when we believe relevant facts and circumstances warrant an adjustment. Current adverse economic conditions, illiquid credit markets, volatile equity and foreign currency markets, and declines in customer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from those estimates. Changes in those estimates resulting from continued changes in the economic environment will be reflected in our consolidated financial statements in future periods.

New Accounting Standards

See Note 2 in “Item 8 — Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, for a complete description of new accounting standards, including those standards adopted as of December 31, 2009 and to be adopted in future periods.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements and schedule of the Company for the periods indicated are included in this Annual Report on Form 10-K. The term “Successor” refers to the Company after giving effect to the consummation of the Merger (as defined in Note 1) on June 29, 2007. The term “Predecessor” refers to the Company prior to giving effect to the consummation of the Merger. As a result of the Merger, including changes in our capital structure and the effects of purchase accounting, the Predecessor and Successor financial statements are not comparable. See Note 1.

		Page
Report of Independent Registered Public Accounting Firm			48
Consolidated Balance Sheets as of December 31, 2009 and 2008			49
Consolidated Statements of Operations for the years ended December 31, 2009 and 2008 and for the periods included in the year ended December 31, 2007			50
Consolidated Statements of Stockholders’ Equity and Other Comprehensive Income (Loss) for the years ended December 31, 2009 and 2008 and for the periods included in the year ended December 31, 2007			51
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008 and for the periods included in the year ended December 31, 2007			53
Notes to Consolidated Financial Statements			54
Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2009 and 2008 and for the periods included in the year ended December 31, 2007			148

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
VWR Funding, Inc.:

We have audited the accompanying consolidated balance sheets of VWR Funding, Inc. and subsidiaries (Successor) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity and other comprehensive income (loss), and cash flows for the years ended December 31, 2009 and 2008 and for the period from June 30, 2007 to December 31, 2007 (Successor periods) and for the period from January 1, 2007 to June 29, 2007 (Predecessor period). In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule for the Successor and Predecessor periods as listed on the index on page 47. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the Successor consolidated financial statements referred to above present fairly, in all material respects, the financial position of VWR Funding, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the Successor periods, in conformity with U.S. generally accepted accounting principles. Further, in our opinion, the aforementioned Predecessor consolidated financial statements present fairly, in all material respects, the results of operations and the cash flows of CDRV Investors, Inc. and its subsidiaries for the Predecessor period, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of VWR Funding, Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2010 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

As discussed in Note 1 to the consolidated financial statements, effective June 29, 2007, VWR Funding, Inc. acquired all of the outstanding stock of CDRV Investors, Inc. in a business combination accounted for as a purchase (the “Merger”). As a result of the Merger, the consolidated financial information for the periods after the Merger are presented on a different cost basis than that for the periods before the Merger and, therefore, are not comparable.

As discussed in Notes 2 and 14 to the consolidated financial statements, the Company has changed its method of accounting for fair value measurements for recurring financial assets and liabilities on January 1, 2008 and for non-financial assets and liabilities that are not required or permitted to be measured at fair value on a recurring basis on January 1, 2009 due to the adoption of Accounting Standard Codification Topic 820, Fair Value Measurements.

/s/ KPMG LLP
Philadelphia, Pennsylvania
March 15, 2010

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.