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United States
Securities & Exchange Commission
Washington, DC 20549
Form 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1995
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________________ to _________________
Commission File No. 0-14139
VWR SCIENTIFIC PRODUCTS CORPORATION
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(Exact name of company as specified in its charter)
Pennsylvania 91-1319190
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(State of Incorporation) (I.R.S. Employer Identification No.)
1310 Goshen Parkway, West Chester, PA 19380
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(Address of principal executive offices) (zip code)
Company's telephone number (610-431-1700)
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VWR CORPORATION
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(Former name, address, and fiscal year if changed since last report)
Indicate by a check mark whether the company(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
company was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes(x) No( )
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of October 31, 1995.
Class Outstanding at October 31, 1995
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Common stock, par value $1.00 20,749,748
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VWR SCIENTIFIC PRODUCTS CORPORATION
INDEX
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Page No.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1995, and December 31, 1994 3
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1995, and 1994 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995, and 1994 5
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 2 - Changes in Securities 18
Item 4 - Submission of Matters to a Vote of
Security Holders 18
Item 6 - Exhibits and Reports on Form 8-K 18
SIGNATURES
INDEX
EXHIBIT
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, 1995 December 31, 1994
(Thousands of dollars) (Unaudited)
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ASSETS
Receivables $157,955 $ 73,530
Inventories 52,539 40,091
Other 6,693 6,378
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Total Current Assets 217,187 119,999
Property and Equipment-net 36,494 38,259
Other Assets 377,841 15,117
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$631,522 $173,375
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LIABILITIES AND SHAREHOLDERS' EQUITY
Bank Checks Outstanding, less Cash in Bank $ 4,934 $ 1,398
Current Portion of Long-term Debt 16,095 2,250
Accounts Payable and Other 93,544 41,231
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Total Current Liabilities 114,573 44,879
Long-term Debt 350,750 79,170
Deferred Income Taxes and Other 9,140 9,158
Shareholders' Equity 157,059 40,168
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$631,522 $173,375
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See notes to condensed consolidated financial statements.
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VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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Three Months Nine Months
(Thousands of dollars, Ended September 30, Ended September 30,
except per-share data) 1995 1994 1995 1994
------------------- -------------------
Sales $170,979 $145,562 $462,165 $398,502
Cost of Sales 132,036 114,701 360,240 314,219
-------- -------- -------- --------
Gross Margin 38,943 30,861 101,925 84,283
Operating Expenses 28,757 24,028 81,589 69,482
Depreciation and amortization 3,043 2,615 8,275 7,247
Acquisition-related charges 2,067 -- 2,067 --
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Total Operating Expenses 33,867 26,643 91,931 76,729
Operating Income 5,076 4,218 9,994 7,554
Interest Expense and Other 2,848 1,142 5,669 3,313
-------- -------- -------- --------
Income before Income Taxes 2,228 3,076 4,325 4,241
Income Taxes 916 948 1,734 1,414
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Net Income $ 1,312 $ 2,128 $ 2,591 $ 2,827
======== ======== ======== ========
Earnings per share: $ 0.09 $ 0.19 $ 0.20 $ 0.25
Weighted average number of
common shares outstanding-
(thousands) 14,315 11,086 12,716 11,112
See notes to condensed consolidated financial statements.
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VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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Nine Months Ended September 30,
(Thousands of dollars) 1995 1994
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Operating Activities
Net Income $ 2,591 $ 2,827
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,275 7,247
Provision for acquisition related
charges 2,067
Changes in assets and liabilities
net of amounts acquired:
Receivables (11,425) (16,969)
Inventories (12,386) (14,441)
Other current assets (315) (265)
Accounts payable and other 21,384 23,609
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Cash Provided by Operating Activities 10,191 2,008
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Investing Activities
Purchase of business (404,032) 0
Investment in Joint Venture 0 (2,881)
Additions to property and equipment,net (2,805) (2,368)
Other (219) (2,042)
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Cash Used by Investing Activities (407,056) (7,291)
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Financing Activities
Proceeds from long-term debt 102,816 119,733
Repayment of long-term debt (129,717) (112,220)
Repayment of existing bank debt
upon refinancing (73,700) 0
Proceeds from new senior bank debt 249,600 0
Net change in bank checks outstanding 3,536 1,036
Proceeds from long-term subordinated debt 135,000 0
Debt issuance costs (4,528)
Proceeds from exercise of warrant 10,637 0
Proceeds from issuance of common stock 104,411 0
Cash dividends (1,474) (3,312)
Proceeds from exercise of stock options 120 109
Other 164 (63)
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Cash Provided by Financing Activities 396,865 5,283
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Net decrease in cash 0 0
Cash at beginning of period 0 0
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Cash at end of period $ 0 $ 0
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Supplemental disclosures of cash flow information:
Cash paid (received) during period for:
Interest (net of capitalized interest) $ 4,449 $ 3,283
Income taxes 373 (978)
Acquisition of business:
Working capital 44,200
Property, plant and equipment 862
Other, principally goodwill 358,970
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Net cash used to acquire business $404,032*
========
* Excludes $28.6 million payable to Baxter Healthcare Corporation over a 52
day period for the purchase of certain accounts receivable.
See notes to condensed consolidated financial statements.
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VWR SCIENTIFIC PRODUCTS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. CORPORATE NAME CHANGE
On September 15, 1995, the Company changed its name from "VWR Corporation" to
"VWR Scientific Products Corporation."
2. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of only normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three and nine-month periods ended September 30, 1995, are not necessarily
indicative of the results which may be expected for the year ended December
31, 1995. Refer to the consolidated financial statements and footnotes
thereto included in the Company's 1994 Annual Report on Form 10-K for further
information.
3. STOCK ISSUANCE AND PURCHASE OF BUSINESS
On September 15, 1995, VWR Corporation purchased certain designated assets and
assumed certain liabilities of the Industrial Distribution Business of Baxter
Healthcare Corporation ("Baxter"), including, but not limited to, all of the
domestic trade accounts receivable, certain tangible personal property, rights
and benefits under certain contracts and certain rights in specified
trademarks for, approximately $400 million (the "Acquisition"). In addition
to the cash paid at closing, the Company is required to pay to Baxter and its
affiliates the sum of approximately $28.6 million over 52 days for accounts
receivable in the same amount. The cash purchase price paid by the Company is
subject to a post-closing adjustment on or before December 15, 1995 on a
dollar-for-dollar basis to the extent that net tangible assets acquired
exceeds or is less than $73 million. During the next fifteen to eighteen
months, the servicing of Baxter customers will be moved to VWR facilities and
the Company will be required to purchase from Baxter the inventory of
laboratory supplies and equipment for sale to customers of the Industrial
Distribution Business held by Baxter at Baxter's facilities. At September 30,
1995, the estimated Baxter-held inventory was approximately $49.7 million.
The Company's payment for any such inventory will be payable fifteen days from
receipt. The acquisition has been accounted for under the purchase method of
accounting and, accordingly, the results of Baxter have been included in the
consolidated operating results since the date of acquisition. The Company's
balance sheet at September 30, 1995 include estimates of the fair value of the
assets and liabilities acquired in connection with the
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acquisition of Baxter. The cost in excess of net assets acquired of
approximately $359 million is being amortized on a straight-line basis over
forty years. Changes in purchase accounting estimates made within one year of
the date of acquisition related to the resolution of issues that existed at
the date of acquisition and restructuring decisions related may result in a
reallocation of the purchase price.
The consideration paid has been financed by the proceeds received by the
Company from: (i) the sale of 6,832,797 common shares of the Company (the
"Purchase Shares") at a price of $12.44 per share to EM Laboratories,
Incorporated, ("EML"); (ii) the sale of a $135,000,000 subordinated debenture
of the Company to EML; (iii) the exercise by EML of a warrant to purchase
967,015 common shares of the Company for approximately $10.6 million and (iv)
borrowings under the Company's $285 million credit agreement entered into by
the Company on September 15, 1995. See notes 5 and 6 below.
The following unaudited pro forma information has been prepared assuming that
the Acquisition and related financings had occurred at the beginning of the
periods presented. Pro forma adjustments included increased amortization for
purchase price in excess of assets acquired; increased interest expense from
the acquisition debt and related income tax effects. Potential cost savings
from combining the operations are not reflected because Baxter's and VWR's
business are not expected to be fully integrated until after the first
anniversary date of the closing. Also, Baxter's inventory, as reflected in
cost of sales, is valued at the lower of cost (determined on a "first-in,
first-out" basis) or market in the pro-forma information below. Cost of sales
has not been adjusted to give the pro forma effect of adopting VWR's
accounting policy of valuing inventory on the "last-in, first-out" method
because it is not practical to calculate the pro forma adjustments.
(In thousands, except 9 Months Ended September 30, 1995
per share data) 1995 1994
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Net Sales $816,270 $741,991
Net Income $ 1,875 $ 1,897
Net Income Per Share $ .09 $ .09
Weighted average number of
shares outstanding $ 21,309 $ 21,202
See Notes 5 and 6 below related to the Acquisition financing.
The pro forma information is provided for information purposes only and does
not purport to be indicative of VWR's results of operations that would
actually have been achieved had the Acquisition and related financing
transactions been completed for the periods presented, or results that may be
obtained in the future.
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In connection with the combination of the Baxter business with VWR, the
Company is in the process of making organizational and facility location
decisions. These decisions involve the company's selling and distribution
activities. At September 30, 1995, the plans were not finalized because the
detailed analysis had not been completed. The final decisions will result in
inventory relocation, severance, personnel relocation, and other costs being
incurred subsequent to the third quarter of 1995. Certain costs related to
activities of the Baxter business will be considered in the final allocation
of the purchase price of the acquired business and the costs related to VWR's
existing operations will be expensed. Although these efforts are continuing,
it is estimated that such total costs will range between $3 million and $4
million.
In the third quarter, the Company expensed $2.1 million as acquisition-related
expenses including lease termination costs ($1.1 million) related to the
decision, in the third quarter of 1995, to upgrade the Company's computer
hardware and the costs related to two executives' decisions, in the third
quarter of 1995, to terminate their employment pursuant to "change in control"
agreements ($1 million).
4. INVENTORY COSTING
Inventory valued using the LIFO method comprised approximately 86% and 88% of
inventory at September 30, 1995 and December 31, 1994, respectively. Cost of
the remaining inventories is determined using the FIFO method. Because the
actual inventory determination under the LIFO method is an annual calculation,
interim financial results are based on estimated LIFO amounts and are subject
to final year-end LIFO inventory adjustments.
Inventory values under the LIFO method at September 30, 1995 and December 31,
1994, were approximately $29.1 million and $27.9 million, respectively, less
"than current cost.
5. PRIVATE PLACEMENT OF EQUITY AND DEBT SECURITIES; EXERCISE OF WARRANT
On September 15, 1995, pursuant to an agreement with EM Industries,
Incorporated, EML's direct parent corporation ("EMI"), the Corporation issued
and sold the Purchase Shares (6,832,797 common shares) to EML at a purchase
price of $12.44 per share and a subordinated debenture (the "Debenture") in
the principal amount of $135,000,000. In addition, on September 15, 1995 EML
exercised its warrant (the "Warrant") to purchase 967,015 common shares at an
exercise price of $11.00 per share. The proceeds from the issuance and sale
of the Purchase Shares and Debenture (approximately $220 million) and the
exercise of the Warrant (approximately $10.6 million) were used to fund, in
part, the cash paid by the Company at the closing of the Acquisition. The
Debenture matures in a single installment on September 15, 2005. The Debenture
is subordinated to the Company's obligations to its primary bank lending
institutions. Interest is payable on the unpaid principal of the Debenture
quarterly at 13% per annum, as follows: by issuance of common shares in
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the first year in an amount that will enable EM to obtain an ownership
percentage of 49.89% based on a fixed price of $12.44 per share; deferred in
year two which will be paid with accumulated interest thereon at maturity of
the Debenture and; in cash thereafter beginning in year three.
On April 13, 1995, EML purchased from the Company the Warrant and 1,818,181
common shares. In connection with the agreement to purchase such securities,
EMI entered into a Standstill Agreement with the Company, dated February 27,
1995 (the "Standstill Agreement"), and amended on September 15, 1995, pursuant
to which EMI agreed that it and its affiliates would not, subject to certain
specified exceptions, for a period of four years, increase its beneficial
ownership of the Company's Common Shares above 49.89% without the prior
consent of the Company. EML presently owns approximately 46.0% of the issued
and outstanding common shares. Pursuant to the Standstill Agreement, as
amended, four additional persons nominated by EML were elected to Company's
Board of Directors, giving EML six representatives on the fifteen-member Board
of Directors.
6. SENIOR BANK CREDIT AGREEMENT
On September 14, 1995, the Company entered into a Credit Agreement (the
"Credit Agreement") with a 23-member bank group (the "Banks"), led by Bank of
America National Trust and Savings Association, PNC Bank N.A. and CoreStates
Bank, N.A. which acted as agents. Pursuant to the Credit Agreement, the Banks
have extended the Company a five-year amortizing term loan in the original
principal amount of $135 million (the "Term Loan") and established a
$150 million revolving line of credit (the "Revolver") available through
September 13, 2000. The Term Loan and Revolver are secured by liens in favor
of the Banks on substantially all of the Borrowers' tangible and intangible
personal property. In addition, the Company has agreed not to create any
liens on its real property and has agreed to grant liens on its real property
to secure the Term Loan and Revolver in the event the Banks should later
request it to do so. The proceeds of the Term Loan and the initial advance
under the Revolver were used by the Borrowers principally as follows: (i)
approximately $74 million was used by the Company to repay indebtedness
outstanding under the Company's former credit facility led by CoreStates Bank,
N.A., as agent, and (ii) approximately $170 million was used to fund the
balance of the cash portion of the purchase price paid by the Company at the
closing of the Acquisition. Both the Term Loan and the Revolver bear interest
rates based on the London Interbank Offered Rate ("LIBOR") or the CoreStates
announced prime rate, plus the applicable margin. In the case of LIBOR, such
applicable margin is between .75% and 2.5%. In the case of Prime, such
applicable margin is between 0% and 1%. Such margins will vary depending upon
the relationship between the Corporation's earnings before interest, taxes,
depreciation and amortization ("EBITDA") and the then aggregate amount
outstanding under the Credit Agreement. The Corporation is also required to
pay commitment fees on the unused portion of the Revolver of between .25% and
.5% also varying depending on the relationship between the Corporation's
EBITDA and aggregate borrowings under the Credit Agreement.
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The terms of the Revolver provide that the Corporation must have at least
$20 million undrawn on the Revolver for at least thirty consecutive days in
the first twelve months following the closing and at least $30 million undrawn
for at least thirty consecutive days during each twelve month period
thereafter. Borrowings under the Revolver are limited to 85% of eligible
accounts receivable and 50% of eligible inventory.
The Credit Agreement includes various financial covenants of the Corporation,
including covenants with respect to minimum EBITDA, maximum senior leverage
ratio, minimum interest coverage, minimum net worth, and minimum fixed
coverage ratio. The Credit Agreement prohibits the Corporation from paying
dividends and making other distributions (except for the issuance of Common
Shares as required by the Debenture) and prohibits "changes of control" of the
Corporation, including through mergers and acquisitions, changes in the
composition of the current majority of the Corporation's board of directors,
acquisitions by persons other than EMI and its subsidiaries of more than 20%
of the Corporation's voting stock, and acquisitions by EMI and its
subsidiaries of more than 50% of the Corporation's voting stock.
In connection with the Credit Agreement, the Company incurred approximately
$4.5 million of debt issuance cost. Such amounts are included in other assets
and are being amortized to interest expense using the effective interest rate
method related to the term portion of the Credit Agreement, and the straight-
line method related to the revolving portion of the Credit Agreement.
7. 1995 STOCK INCENTIVE PLAN
The Board of Directors adopted, subject to the approval of the shareholders,
the "The 1995 Stock Incentive Plan, " (the "Plan"). Under the Plan, up to
2,000,000 common shares are available for issuance for non-qualified and
incentive stock options and restricted stock awards.
On September 15, 1995, options were granted to purchase 910,000 of these
common shares at the fair market value of $12 per share. The options become
exercisable at the earlier of nine years following issuance or 50% when the
market value (as defined) of the Company's common shares reaches $18 per share
and 50% when the market value (as defined) reaches $21 per share.
8. MATERIAL AGREEMENTS
Services Agreement. On September 15, 1995, the Company entered into a
Services Agreement with Baxter that governs the provision by Baxter of certain
services to the Company to enable the uninterrupted continuation of the
Industrial Distribution Business after the Closing of the Acquisition
described in Note 3, above, as well as an orderly transfer of the Industrial
Distribution Business to the Company. Under the Services Agreement, Baxter is
required to continue to provide the same type of services to the customers of
the Industrial Distribution Business as it had provided prior to the
completion of the Acquisition. Such services include order entry, shipping,
invoicing, credit and collection, and inventory stocking and replenishment.
<PAGE>12
While the term of the Services Agreement is for two years, upon prior notice,
the Company may direct Baxter to discontinue the provision of services in any
particular region. No service fees are payable for services under the
Services Agreement during the first three months of the term of such
Agreement. The Company is required to make monthly payments during the
remaining term of the Services Agreement to Baxter at the rate of 5.5% of the
total sales of certain products sold to customers of the Industrial
Distribution Business which are serviced by Baxter; provided, however, the
Company is obligated to pay a minimum of $18.6 million to Baxter during the
first fifteen months of such Agreement. Upon the cessation of services by
Baxter at a particular facility, the Company is required to purchase from
Baxter the inventory of laboratory supplies and equipment held by Baxter at
such facility for sale to customers of the Industrial Distribution Business.
Distribution Agreement. On September 15, 1995, the Company entered into a
Distribution Agreement with Baxter pursuant to which Baxter has granted to the
Company the right to sell and distribute for non-patient use (anywhere except
in Canada and Japan) certain products and accessories manufactured by Baxter
and its affiliates. The Distribution Agreement, which has a term ending on
September 30, 2000, provides, among other things, that the Company is
obligated during each year to either purchase a minimum dollar amount of
products for sale in each of the United States and internationally, or, if
such minimum requirements have not been met during such year, purchase
products or pay to Baxter an amount, in each case, equal to any such
deficiency. The minimum aggregate domestic and international requirements for
each of the five years of the Baxter Distribution Agreement are as follows:
Year 1 - $63 million; Year 2 - $74 million; Year 3 - $82 million; Year 4 -
$89 million; and Year 5 - $96 million.
Supply Agreement. On September 15, 1995, the Company entered into a Supply
Agreement with Baxter pursuant to which the Company is obligated to supply
Baxter and its affiliates with certain equipment and supplies manufactured by
third parties. The Supply Agreement has a term ending on September 30, 2000.
9. DIVIDENDS
For the three months ended September 30, 1995 and 1994, dividends of $.04 per
share and $.10 per share, respectively, were paid. For the Nine months ended
September 30, 1995, and 1994, dividends of $.12 per share and $.30 per share,
respectively, were paid. In view of the restrictions contained in the Senior
Bank Credit Agreement, discussed above, no dividends have since been declared
<PAGE>13
VWR SCIENTIFIC PRODUCTS CORPORATION
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
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This discussion and analysis of financial condition and results of operations
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto for the year ended December 31, 1994, and management's
discussion and analysis of financial condition and results of operations
included in the Company's Annual Report on Form 10-K.
Capitalized terms used below and not otherwise defined have the meanings given
to them in the notes to condensed consolidated financial statements
(unaudited) in Item 1, above.
OPERATIONS AND EARNINGS
Sales for the three- and nine-month periods ended September 30, 1995 increased
17.5% and 16%, respectively, from the comparable prior year periods. The
growth in the third quarter was due primarily to the acquisition of Canlab in
October, 1994, and the acquisition of Baxter's industrial distribution
business in September, 1995. For the nine months, approximately 80% of the
growth in sales was due to the acquisition of Canlab in October, 1994, and the
acquisition of Baxter's industrial distribution business in September, 1995.
Gross margin percentages of 22.8% and 22.1% for the respective three- and
nine-month periods ended September 30, 1995 were above the 21.2% and 21.1%,
respectively, achieved in the comparable periods of the prior year. The
increase is primarily the result of the implementation of internal programs to
improve margins, improvement in our Canadian operations and higher Baxter
margins.
The operating expense increases of 27.1% for the quarter and 19.8% for the
nine months were greater than the rate of sales growth because of acquisition-
related charges of $2.1 million for the third quarter of 1995, higher
depreciation and amortization expense related to the acquisition of Baxter's
industrial distribution business and approximately $1.2 million (pre-tax) of
office consolidation costs in the first nine months of 1995.
Operating income for the three- and nine-month periods ended September 30,
1995 was 3.0% and 2.2% of sales compared to the 2.9% and 1.9% levels achieved
in comparable 1994 periods. The increase is a result of the Company's higher
sales and gross margin offset by increased operating expenses discussed above.
Interest expense for the three- and nine-month periods ended September 30,
1995 increased 149.4% and 71.1%, respectively, when compared to prior year
comparable periods. The increase is a result of increased borrowing levels
which occurred primarily from the acquisitions of Baxter's industrial
distribution business and of Canlab and higher effective interest rates.
<PAGE>14
Net income for the three- and nine-month periods ended September 30, 1995
decreased 38.3% and 8.4%, respectively, from the comparable 1994 periods. The
decrease is primarily due to acquisition-related expenses and higher interest
costs related to the acquisition of Baxter's industrial distribution business
and the acquisition of Canlab.
In connection with the combination of the Baxter business with VWR, the
Company is in the process of making organizational and facility location
decisions. These decisions involve the company's selling and distribution
activities. At September 30, 1995, the plans were not finalized because the
detailed analysis had not been completed. The final decisions will result in
inventory relocation, severance, personnel relocation and other costs being
incurred subsequent to the third quarter of 1995. Certain costs related to
activities of the Baxter business will be considered in the final allocation
of the purchase price of the acquired business and the costs related to VWR's
existing operations will be expensed. Although these efforts are continuing,
it is estimated that such total costs and expenses will range between $3
million and $4 million.
FINANCIAL CONDITION AND LIQUIDITY
For the nine months ended September 30, 1995, operating income, plus
depreciation and amortization and acquisition related charges was 3.6 times
interest expense and 3.6 times for the third quarter of 1995. VWR's current
ratio was 1.9 at September 30, 1995 and 2.7 at December 31, 1994. Accounts
receivable increased since December 31, 1994 primarily due to the acquisition
from Baxter and to support higher sales levels. Inventories increased to
support higher sales levels. Other assets increased due primarily to goodwill
related to the acquisition from Baxter. Accounts payable and other
liabilities increased due to payables to Baxter related to the Acquisition and
inventory.
As discussed in Note 3 of Item 1 above, VWR Corporation completed the
Acquisition on September 15, 1995 for a cash purchase price of approximately
$400 million. In addition to the cash paid at closing, the Company is
required to pay to Baxter and its affiliates the sum of approximately $28.6
million by November 30, 1995 for accounts receivable in the same amount.
During the period over the next fifteen to eighteen months, the servicing of
Baxter customers will be moved by VWR into its facilities and the Company will
be required to purchase from Baxter the inventory of laboratory supplies and
equipment for sale to customers of the Industrial Distribution Business held
by Baxter at Baxter's facilities. At September 30, 1995, the estimated
Baxter-held inventory was approximately $49.7 million. The Company's payment
for any such inventory will be payable fifteen days from receipt.
As discussed in Note 6 of Item 1 above, the Company and certain of its
subsidiaries entered into a Credit Agreement. Pursuant to the Credit
Agreement, the Banks have extended the Borrowers a five-year amortizing term
loan in the original principal amount of $135 million (the "Term Loan") and
<PAGE>15
established for the Borrowers from September 15, 1995 until September 13, 2000
a revolving line of credit in an amount not to exceed $150 million.
Approximately $95.7 million was outstanding at September 30, 1995 under the
Revolver. The Term Loan and Revolver are secured by liens in favor of the
Banks on substantially all of the Borrowers' tangible and intangible personal
property. In addition, the Company has agreed not to create any liens on its
real property and has agreed to grant liens on its real property to secure the
Term Loan and Revolver in the event the Banks should later request it to do
so.
The terms of the Revolver provide that the Corporation must have at least
$20 million undrawn on the Revolver for at least thirty consecutive days in
the first twelve months following the closing and at least $30 million undrawn
for at least thirty consecutive days during each twelve month period
thereafter. Borrowings under the Revolver are limited to 85% of eligible
accounts receivable and 50% of eligible inventory.
The Credit Agreement includes various financial covenants of the Corporation,
including covenants with respect to minimum EBITDA, maximum senior leverage
ratio, minimum interest coverage, minimum net worth, and minimum fixed
coverage ratio. The Credit Agreement prohibits the Corporation from paying
dividends and making other distributions (except for the issuance of Debenture
Shares as required by the Debenture) and prohibits "changes of control" of the
Corporation, including through mergers and acquisitions, changes in the
composition of the current majority of the Corporation's board of directors,
acquisitions by persons other than EMI and its subsidiaries of more than 20%
of the Corporation's voting stock, and acquisitions by EMI and its
subsidiaries of more than 50% of the Corporation's voting stock.
As discussed in Note 5 of Item 1 above, the Company incurred indebtedness of
$135 million evidenced by the Debenture. The Debenture matures in a single
installment on September 15, 2005. The indebtedness evidenced by the Debenture
is subordinated to the Company's obligations to its primary bank lending
institutions. Interest is payable on the unpaid principal of the Debenture
quarterly at 13% per annum, but until such time as EML and its affiliates own
49.89% of the aggregate number of issued and outstanding Common Shares,
interest shall be payable solely in common shares at a price of $12.44
per share. Thereafter and until September 15, 1997, the payment of any cash
interest otherwise accruing will be deferred until maturity of the Debenture.
On April 13, 1995, EML purchased from the Company the Warrant and 1,818,181
common shares.
<PAGE>16
During the next fifteen to eighteen months, the Company expects to incur
capital expenditures of approximately $17 to $22 million to provide for
additional distribution and office facilities to support the additional
business related to the acquisition of Baxter.
Included in interest expense for the three months ended September 30, 1994 and
1995 were net payments of $.1 million and $.2 million, respectively, related
to the Company's use of collars and swaps for interest rate protection. The
corresponding amounts for the nine months ended September 30, 1995 and 1994
were $.2 million and $1.0 million, respectively. For the calendar years ended
December 31, 1994, 1993 and 1992, the amounts were $1.2 million, $2.2 million
and $1.8 million, respectively. Pursuant to the Bank Credit Agreement, the
Company is obligated to provide interest rate protection on at least 25% of
the credit facility.
The consolidation of the U.S. sales offices was completed during the third
quarter of 1995. Approximately, $1.2 million of expenses, primarily
personnel-related, were incurred during the first nine months of 1995.
Savings from the consolidation began to be realized during the second half of
1995.
The Company expects that estimated working capital and estimated capital
expenditures will be funded by expected cash from operations and expected
availability under the Credit Agreement.
<PAGE>17
OTHER INFORMATION
- -----------------
ITEM 1 - LEGAL PROCEEDINGS
Litigation relating to the issuance by VWR of approximately 8,242,000 Common
Shares and a $135 million subordinated Debenture to EML Laboratories, Inc.
("EML") pursuant to the terms of a Common Share and Debenture Purchase
Agreement (the "Securities Purchase Agreement") dated May 24, 1995 between VWR
and EMI Industries, Incorporated ("EMI"), EML's parent company, was commenced
in the Delaware Court of Chancery on July 21, 1995 by Donald W. Alexander,
alleging he is a shareholder of VWR, against VWR, VWR's President and Chief
Executive Officer, seven members of VWR's board of directors and EMI. In the
complaint the plaintiff seeks to have the action certified as a class action
and, on behalf of all shareholders of VWR (except those named as defendants),
to enjoin VWR from consummating the transactions contemplated by the
securities Purchase Agreement, an award of class rescissory and/or
compensatory damages, an award of costs and disbursements (including fees of
attorneys and experts) and such other further relief as the court might deem
just and proper. In addition, the plaintiff, on behalf of the shareholders,
seeks an order that the director defendants take appropriate measures to
maximize shareholder value, including, without limitation, creating an active
auction for VWR.
The plaintiff alleged, among other things, that the consummation of the
transactions contemplated by the Securities Purchase Agreement would transfer
control of VWR to EMI and because EMI would own nearly 50% of VWR, no third
party will make a bid for VWR. The plaintiff also alleged that the individual
defendants participated in unfair dealings towards plaintiff and the other
shareholders by failing to implement procedures for maximization of
shareholder value and permitting the transfer of control of VWR at a value
which fails to reflect the long term value of VWR's Common Shares,
particularly in light of VWR's future prospects upon consummation of VWR's
acquisition of the industrial distribution business of the Industrial and Life
Sciences Division of Baxter Healthcare Corporation ("Baxter") and the
industrial distribution business conducted by certain Baxter affiliates.
VWR believes that this suit is without merit and VWR, EMI and the individual
defendants intend to vigorously defend this action. VWR believes that the
Standstill Agreement dated February 27, 1995 by and between VWR and EMI, as
amended pursuant to the Securities Purchase Agreement, will protect
shareholder value following the consummation of the transactions contemplated
by the Securities Purchase Agreement.
On September 15, 1995, VWR and the individual defendants filed motions to
dismiss this action on both procedural and substantive grounds.
<PAGE>18
ITEM 2 - CHANGES IN SECURITIES
Under the terms of the Senior Bank Credit Agreement, the Company is not
permitted to make dividend payments without prior approval of the banks.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a. Special Meeting - September 13, 1995
b. Not Applicable
c. Approval of the issuance to EM Laboratories, Incorporated pursuant to
agreements between the Corporation and EMI Industries, Incorporated, EML's
parent corporation, of Common Shares, par value $1.00 per share, of the
Corporation which will result in EML's ownership of up to 49.89% of the issued
and outstanding Common shares of the Corporation.
Shares voted for 10,651,543
Shares voted against 98,561
Shares abstaining 116,924
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit Number
(Referenced to
Item 601 of
Regulation S-K Description of Exhibit
- -------------- ----------------------
1 Amendment to Articles of Incorporation dated September
15, 1995; incorporated by reference to Exhibit 1 of
Registrant's Form 8-K dated September 29, 1995.
2(a) Asset Purchase Agreement dated as of May 24, 1995 by
and among VWR Corporation, Baxter Healthcare
Corporation and EM Laboratories, Incorporated;
incorporated by reference to Exhibit VI of
Registrant's definitive proxy statement filed with the
Commission on August 11, 1995.
2(b) Amendment to Asset Purchase Agreement dated as of
September 15, 1995 by and among VWR Corporation,
Baxter Healthcare Corporation and EM Laboratories,
Incorporated; incorporated by reference to Exhibit
2(b) of Registrant's Form 8-K dated September 29,
1995.
<PAGE>19
4(a) Standstill Agreement between VWR Corporation and
EM Industries, Incorporated dated February 27, 1995;
incorporated by reference to Exhibit 4(a) of
Registrant's Form 8-K dated April 13, 1995.
4(b) Amendment Number One to the Standstill Agreement dated
September 15, 1995 by and among VWR Corporation, EM
Industries, Incorporated and EM Laboratories,
Incorporated; incorporated by reference to Exhibit
4(b) of Registrant's Form 8-K dated September 29,
1995.
4(c) Subordinated Debenture dated as of September 14, 1995
in the principal amount of $135,000,000 payable to the
order of EM Laboratories, Incorporated; incorporated
by reference to Exhibit 4(c) of Registrant's Form 8-K
dated September 29, 1995.
4(d) Credit Agreement dated as of September 14, 1995 by and
among the Registrant, Bank of America National Trust
and Savings Association, PNC Bank, N.A., CoreStates
Bank, N.A., et. al.; incorporated by reference to
Exhibit 4(d) of Registrant's Form 8-K dated September
29, 1995.
4(e) Term Note dated September 15, 1995 in the principal
sum of $135,000,000; incorporated by reference to
Exhibit 4(e) of Registrant's Form 8-K dated September
29, 1995.
4(f) Revolving Credit Note dated September 15, 1995 in the
principal sum of $150,000,000; incorporated by
reference to Exhibit 4(f) of Registrant's Form 8-K
dated September 29, 1995.
10(a) Common Share and Debenture Purchase Agreement dated as
of May 24, 1995 between VWR Corporation and EM
Industries, Incorporated; incorporated by reference to
Exhibit II of Registrant's definitive proxy statement
filed with the Commission on August 11, 1995.
10(b) Distribution Agreement between VWR Corporation and
Baxter Healthcare Corporation dated as of September
15, 1995; incorporated by reference to Exhibit 10(b)
of Registrant's Form 8-K dated September 29, 1995.
10(c) Services Agreement between VWR Corporation and Baxter
Healthcare Corporation dated as of September 15, 1995;
incorporated by reference to Exhibit 10(c) of
Registrant's Form 8-K dated September 29, 1995.
<PAGE>20
10(d) Supply Agreement between VWR Corporation and Baxter
Healthcare Corporation dated as of September 15,
1995; incorporated by reference to Exhibit 10(d)
of Registrant's Form 8-K dated September 29, 1995.
10(e) Employment Agreement between Jerrold B. Harris and
VWR Corporation dated as of September 15, 1995;
incorporated by reference to Exhibit 10(e) of
Registrant's Form 8-K dated September 29, 1995.
11. Computation of Earnings per Share. Page 22
27. Financial Data Schedule. *
* Submitted only in electronic format.
b. Report on Form 8-K dated September 29, 1995 was filed
reporting on Item 2, 5 and 7 under. Under Item 7, the
company included Financial Statements of the Industrial
Distributor Business for the six months ended June 30,
1995 and 1994 and incorporated financial statements of
the Industrial Distribution Business for the years ended
December 31, 1992, 1993 and 1994 by reference to the
company's definitive proxy statement filed with the
Commission on August 11, 1995.
<PAGE>21
SIGNATURES
- ----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(COMPANY) VWR SCIENTIFIC PRODUCTS CORPORATION
BY (SIGNATURE)
(NAME AND TITLE)
Deborah A. Corr, Assistant Treasurer
(Principal Financial Officer)
George R. Ritter, Controller
(Principal Accounting Officer)
DATE November 13, 1995
<PAGE>22
COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11
Three Months Ended September 30,
1995 1994
---- ----
(Amounts in thousands except per share data)
PRIMARY
Average shares outstanding 14,216 11,030
Net effect of dilutive stock options-
based on the treasury stock method using
average market price 99 56
------- -------
TOTAL 14,315 11,086
======= =======
Net Income $ 1,312 2,128
Per Share Amount .09 .19
======= =======
FULLY DILUTED
Average shares outstanding 14,216 11,030
Net effect of dilutive stock options-
based on the treasury stock method using
the period-end market price, if higher than
the average market price 130 71
------- -------
TOTAL 14,346 11,101
======= =======
Net Income $ 1,312 $ 2,128
Per Share Amount .09 .19
======= =======
<PAGE>23
COMPUTATION OF EARNINGS PER SHARE
Nine Months Ended September 30,
1995 1994
---- ----
(Amounts in thousands except per share data)
PRIMARY
Average shares outstanding 12,646 11,025
Net effect of dilutive stock options-
based on the treasury stock method using
average market price 70 87
------- -------
TOTAL 12,716 11,112
======= =======
Net Income $ 2,591 $ 2,827
Per Share Amount .20 .25
======= =======
FULLY DILUTED
Average shares outstanding 12,646 11,025
Net effect of dilutive stock options-
based on the treasury stock method using
the period-end market price, if higher than
the average market price 229 107
------- -------
TOTAL 12,875 11,132
======= =======
Net Income $ 2,591 $ 2,827
Per Share Amount .20 .25
======= =======
Since the effect of full dilution is not material, such amount is not
included in the Quarterly Report to Shareholders.
