Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
Use of estimates | Use of Estimates |
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue, expenses, income and loss during the reporting period. Actual results could differ significantly from those estimates. |
Additional disclosures are provided about significant estimates and assumptions in the following areas: (i) impairment testing, particularly determining whether indicators of impairment were present and whether assets were impaired (see Notes 6, 8, 10 and 22); (ii) estimating the valuation allowance on deferred tax assets, including such allowances on our net operating loss carryforwards, which also affects the estimated value of the amount due to VWR Holdings under the ITRA (see Notes 19 and 21); (iii) accounting for defined benefit plans, in particular determining key assumptions such as discount rates and the expected return on plan assets (see Note 16); (iv) estimating outcomes of loss contingencies (see Note 11); and (v) estimating fair value, particularly related to measurements based on unobservable inputs (see Note 10). |
Recapitalization | Recapitalization |
For all periods presented, except where indicated, the number of shares of common stock outstanding has been adjusted for a stock split that occurred on October 7, 2014. The conversion of all shares of common stock and redeemable convertible preferred stock into newly-issued shares of common stock on July 31, 2014 is presented as a retirement and issuance of shares on that date. |
The consolidated statements of operations present the accretion of accrued but unpaid dividends on the redeemable convertible preferred stock for periods prior to July 31, 2014. Following the recapitalization, the accretion of these dividends ceased, and all accrued but unpaid dividends and unreturned capital on the redeemable convertible preferred stock became available to common stockholders. |
For additional information about the recapitalization, see Note 13. |
Principles of consolidation | Principles of Consolidation |
The accompanying consolidated financial statements include the accounts of VWR Corporation, its subsidiaries and certain accounts of our parent company after the elimination of intercompany balances and transactions. The following describes our corporate organization at December 31, 2014 and the principles followed in consolidating our financial statements: |
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• | Varietal Distribution Holdings, LLC (“VWR Holdings”) — Prior to our initial public offering (“IPO,” see Note 13), VWR Corporation was a wholly-owned subsidiary of VWR Holdings, a Delaware limited liability company. Private equity funds managed by Madison Dearborn Partners, Avista Capital Partners and their affiliates (collectively, the “Sponsors”) hold a controlling interest in VWR Holdings. | | | | | | |
Our consolidated balance sheets reflect the investment cost basis of VWR Holdings in the assets and liabilities acquired in a merger in June 2007 and the estimated fair values of those assets and liabilities at that time. This resulted in a significant increase in the carrying value of our identifiable intangible assets and goodwill. In addition, we re-valued our pension obligations, recorded significant deferred income taxes and incurred substantial additional indebtedness. |
VWR Holdings sponsors a share-based compensation program for the benefit of certain of our employees and others. We present the expense and changes to equity related to this program in our consolidated financial statements. We also present as redeemable equity the redemption value of certain of VWR Holdings’ equity held by our management. See Notes 12 and 14. |
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• | VWR Corporation — VWR Corporation, a Delaware corporation, was formed in June 2007 as VWR Investors, Inc. in connection with a merger. In June 2014, VWR Investors, Inc. changed its name to VWR Corporation. VWR Corporation has no operations other than its ownership of VWR Funding, Inc. Following the completion of the IPO in the fourth quarter of 2014, VWR Corporation became 22.4% owned by public investors. | | | | | | |
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• | VWR Funding, Inc. and its wholly-owned subsidiaries (“VWR Funding”) — VWR Funding is our wholly-owned subsidiary and the sole issuer of our debt. VWR Funding’s debt agreements limit its ability to, among other things, pay dividends to us. | | | | | | |
Cash and Cash Equivalents | Cash and Cash Equivalents |
Cash and cash equivalents are comprised of highly liquid investments with original maturities of three months or less, primarily consisting of euro-denominated overnight deposits. |
Compensating Cash Balance | Compensating Cash Balance |
We use a notional cash pooling arrangement to provide cash to certain of our international subsidiaries. This arrangement is with a single financial institution with specific provisions for the right to offset positive and negative cash balances. However, we believe it is unlikely that we would offset an underlying cash deficit with a cash surplus from another country. Accordingly, we present a positive amount of cash, equal to the aggregate bank overdraft position of subsidiaries participating in our notional cash pooling arrangement, as compensating cash balance, a component of current assets, and an equal amount within current portion of debt and capital lease obligations at each period-end. |
Trade Accounts Receivable | Trade Accounts Receivable, net of Reserves |
Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. The carrying amount of trade accounts receivable is presented net of a reserve representing our estimate of the amounts that will not be collected 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 collectability. Account balances are written off against the allowance when we determine it is probable that the receivable will not be recovered. |
Inventories | Inventories |
Our inventories consist primarily of products held for sale. Inventories are valued at the lower of cost or market, cost being primarily determined by the last-in, first-out (“LIFO”) method for our U.S. subsidiaries and the first-in, first-out method for all other subsidiaries. We regularly review quantities of inventories on hand and compare these amounts to the expected use of each product or product line. We record a charge to cost of goods sold for the amount required to reduce the carrying value of inventory to net realizable value. |
The following table presents information about inventories valued using the LIFO method (amounts in millions). |
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| December 31, |
| 2014 | | 2013 |
Portion of inventories valued using LIFO method | 45 | % | | 39 | % |
Excess of current cost over LIFO value | $ | 22.1 | | | $ | 19.4 | |
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Property and Equipment | Property and Equipment |
Property and equipment are recorded at cost. Property and equipment held under capital leases are recorded at the present value of minimum lease payments. Depreciation is recognized using the straight-line method over estimated useful lives of 10 to 40 years for buildings and improvements and 3 to 15 years for equipment and computer software. Property and equipment held under capital leases and leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the assets or the estimated remaining life of the lease. Costs for repairs and maintenance that do not significantly increase the value or estimated lives of property and equipment are treated as expense as such costs are incurred. |
Impairment of Long-Lived Assets | Impairment of Long-Lived Assets |
We evaluate the recoverability of long-lived assets used in operations when events or changes in circumstances indicate a possible inability to recover carrying amounts. We assess recoverability by comparing the carrying value of the asset to estimated undiscounted future cash flows expected to be generated by the asset. If an 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 and Intangible Assets | Goodwill and Other Intangible Assets |
Goodwill represents the excess of purchase price over the fair value of net assets acquired in a business combination. Other intangible assets consist of both amortizable and indefinite-lived intangible assets. Amortizable intangible assets are amortized over their estimated useful lives on a straight-line basis. Indefinite-lived intangible assets are not amortized. |
We reevaluate the estimated useful lives of our amortizable intangible assets annually. For indefinite-lived intangible assets, we reevaluate annually whether they continue to have indefinite lives, considering whether they have any legal, regulatory, contractual, competitive or economic limitations and whether they are expected to contribute to the generation of cash flows indefinitely. |
Goodwill and other indefinite-lived intangible assets are tested annually for impairment on October 1 of each year. Goodwill impairment testing is performed at the reporting unit level. We have determined that our reporting units are the same as our operating segments, which are: (i) U.S. Lab and Distribution Services (“US Lab”), (ii) a collection of laboratory supply and other businesses primarily operating in North, Central and South America (“Emerging Businesses”); and (iii) EMEA-APAC. All of our intangible assets, including goodwill, are tested for impairment whenever an indication of potential impairment arises. Events or circumstances that might require an interim evaluation include unexpected adverse business conditions, economic factors, unanticipated technological changes or competitive activities, loss of key personnel and acts or anticipated acts by governments and courts. Indefinite-lived intangible assets are tested for impairment prior to testing of goodwill or amortizable intangible assets. |
The impairment analysis for goodwill and indefinite-lived intangible assets consists of an optional qualitative assessment potentially followed by a two-step quantitative analysis. If we determine that the carrying value of goodwill or indefinite-lived intangible assets exceeds its fair value, an impairment charge is recorded for the excess. Impairment charges cannot be reversed in subsequent periods. |
The impairment analysis for amortizable intangible assets is performed in the same way in which we evaluate our other long-lived assets for impairment, as previously discussed. |
Fair Value Measurement | Fair Value Measurements |
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at a measurement date. Classification within the fair value hierarchy is determined based on the lowest of the following levels that is significant to the fair value measurement: |
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• | Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities | | | | | | |
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• | Level 2 — Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability | | | | | | |
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• | Level 3 — Inputs that are unobservable for the asset or liability based on the Company’s own assumptions (about the assumptions market participants would use in pricing the asset or liability) | | | | | | |
We exercise considerable judgment when estimating fair value, particularly when evaluating what assumptions market participants would likely make. The use of different assumptions or estimation methodologies could have a material effect on the estimated fair values. |
Commitments and Contingencies | Commitments and Contingencies |
Loss contingencies are reflected in the consolidated financial statements based on our assessments of the expected outcome of legal proceedings or the expected resolution of other contingencies. Liabilities for estimated losses are accrued if the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable. Due to uncertainties related to these matters, accruals are based only on the information available at the time. As additional information becomes available, we reassess potential liabilities related to pending claims and litigation and may revise our previous estimates. |
Revenue Recognition | Revenue Recognition |
We record product revenue on a gross basis when persuasive evidence of an arrangement exists, the price is fixed or determinable, title and risk of loss have been transferred to the customer and collectability of the resulting receivable is reasonably assured. Title and risk of loss is transferred at the time of shipment or upon delivery to customers, depending upon the terms of the arrangement with the customer. Products are delivered without post-sale obligations to the customer. Provisions for discounts, rebates to customers, sales returns and other adjustments are provided for as a reduction of sales in the period the related sales are recorded. |
We record shipping and handling charges billed to customers in net sales and record shipping and handling costs in cost of goods sold for all periods presented. Sales taxes, value-added taxes and certain excise taxes collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. |
Services represent a growing but currently small portion of our net sales and were not material to our consolidated financial statements. |
Share-Based Compensation | Share-Based Compensation |
Share-based compensation consists primarily of stock options awarded to employees and directors. Share-based compensation expense is measured using the grant-date fair value of awards ultimately expected to vest and, for awards with service conditions only, is recognized on a straight-line basis from the date of grant through the end of the requisite service period. Our expectation is to issue new shares of common stock upon the exercise of stock options. |
The grant-date fair value of stock options is measured using a closed-form option pricing model, using assumptions based on the terms of each stock option agreement, the expected behavior of grant recipients and peer company data. We have limited historical data about our own awards upon which to base our assumptions. Expected volatility is calculated based on the observed equity volatility for a peer group over a period of time equal to the expected life of the stock options. The risk-free interest rate is based on U.S. Treasury observed market rates continuously compounded over the duration of the expected life. The expected life of stock options is determined using the simplified method, which is calculated as the midpoint of the weighted average vesting period and the contractual term. |
The number of awards ultimately expected to vest is determined by use of an estimated forfeiture rate. The estimated forfeiture rate is based on historical data for the employee group awarded options and expected employee turnover rates, which management reevaluates each period. |
Defined Benefit Plans | Defined Benefit Plans |
We have defined benefit plans covering certain of our employees. The benefits include pension, salary continuance, life insurance and healthcare. Benefits are accrued over the employees’ service periods. We use actuarial methods and assumptions in the valuation of defined benefit obligations and the determination of net periodic pension income or expense. Differences between actual and expected results or changes in the value of defined benefit obligations and plan assets, if any, are not recognized in earnings as they occur but rather systematically over subsequent periods. |
Foreign Currency Translation | Foreign Currency Translation |
Assets and liabilities of our foreign subsidiaries, where the functional currency is the local currency, are translated into U.S. dollars using period-end exchange rates. Revenues, expenses, income and losses are translated using average exchange rates. Resulting translation adjustments are reported in accumulated other comprehensive income or loss. Foreign currency remeasurement gains and losses related to financing activities are reported in other income (expense), net within our consolidated statements of operations, while gains and losses associated with operating activities are reported within the applicable component of operating income. |
Income Taxes | 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. |
We recognize 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 more likely than not 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 recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense in our consolidated financial statements. |
Due to VWR Holdings-ITRA | Due to VWR Holdings — ITRA |
We record the estimated amount payable to VWR Holdings under an income tax receivable agreement (“ITRA”), entered into in connection with our IPO, as a noncurrent liability, except for the portion payable within twelve months, which is presented within other current liabilities. The ITRA liability was initially recognized through an adjustment to additional paid-in capital and measured at its expected future value, similar to the underlying deferred tax assets to which it relates. Subsequent changes in the value of the ITRA liability will be classified as other income (expense), net in the consolidated statements of operations. Cash payments under the ITRA will be classified as a financing activity on the consolidated statements of cash flows. |
Earnings Per Share | Basic earnings or loss per share is computed by dividing net income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings or loss per share is computed in a similar way but adjusted for the dilutive effect, if any, of the assumed exercise or conversion of dilutive instruments into common stock. |