<PAGE>1
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 period ended June 30, 1996
( ) 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
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 91-1319190
- ------------------------------------------------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
1310 Goshen Parkway, West Chester, PA 19380
- ------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
Registrants telephone number (610-431-1700)
--------------
- ------------------------------------------------------------------------------
(Former name, address, and fiscal year if changed since last report)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes(x) No( )
Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of July 31, 1996.
Class Outstanding at July 31, 1996
- ------------------------------------------------------------------------------
Common stock, par value $1.00 21,808,182 shares
<PAGE>2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
June 30, 1996 December 31, 1995
(Thousands of dollars) (Unaudited)
------------- -----------------
ASSETS
Receivables $161,709 $139,796
Inventories 89,901 53,247
Other 10,684 11,390
-------- --------
Total current assets 262,294 204,433
Property and equipment-net 49,614 37,648
Excess of cost over net assets
of businesses acquired and other assets 372,042 379,391
-------- --------
$683,950 $621,472
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY
Bank checks outstanding, less cash in bank $ 7,760 $ 1,748
Current portion of long-term debt 22,500 20,000
Accounts payable and other 101,475 94,745
-------- --------
Total current liabilities 131,735 116,493
Long-term debt 367,050 334,327
Deferred income taxes and other 10,684 10,563
Shareholders equity 174,481 160,089
-------- --------
$683,950 $621,472
======== ========
See notes to condensed consolidated financial statements.
<PAGE>3
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- ------------------------------------------------------------------------------
Three Months Six Months
(Thousands of dollars, Ended June 30, Ended June 30,
except per-share data) 1996 1995 1996 1995
-------------------- ---------------------
Sales $278,961 $144,810 $555,419 $291,186
Cost of Sales 215,812 112,760 430,164 228,204
-------- -------- -------- --------
Gross Margin 63,149 32,050 125,255 62,982
Operating Expenses 42,185 26,542 85,760 52,603
Depreciation and amortization 4,854 2,995 9,899 5,461
Acquisition-related charges 1,845 0 3,033 0
-------- -------- -------- --------
Total operating expenses 48,884 29,537 98,692 58,064
Operating Income 14,265 2,513 26,563 4,918
Interest Expense 9,145 1,334 17,926 2,821
-------- -------- -------- --------
Income before Income Taxes 5,120 1,179 8,637 2,097
Income Taxes 2,047 460 3,454 818
-------- -------- -------- --------
Net Income $ 3,073 $ 719 $ 5,183 $ 1,279
======== ======== ======== ========
Earnings per share: $ 0.14 $ 0.06 $ 0.24 $ 0.11
Weighted average number of
common shares outstanding-
(thousands) 22,074 12,729 21,865 11,916
Certain prior period amounts have been reclassified to conform to the current
periods presentation.
See notes to condensed consolidated financial statements.
<PAGE>4
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
- ------------------------------------------------------------------------------
Six Months Ended June 30,
(Thousands of dollars) 1996 1995
- ------------------------------------------------------------------------------
Operating Activities
Net income $ 5,183 $ 1,279
Adjustments to reconcile net income to
cash used by operating activities:
Depreciation and amortization,
including debt issuance cost amortization 10,587 5,461
Provision for acquisition-related charges,
net of payments (537)
Payment in stock for interest on debenture 8,799
Changes in assets and liabilities:
Receivables (23,206) (8,318)
Inventories (36,654) (10,585)
Other current assets 143 (2,042)
Accounts payable and other 6,501 7,309
-------- --------
Cash used by operating activities (29,184) (6,896)
-------- --------
Investing Activities
Additions to property and equipment, net (15,274) (1,502)
Sale of joint venture investment 2,881
Other 142 (2,398)
-------- --------
Cash used by investing activities (12,251) (3,900)
-------- --------
Financing Activities
Proceeds from long-term debt 108,603 75,341
Repayment of long-term debt (73,380) (87,917)
Proceeds from issuance of common stock 20,000
Cash dividends (958)
Net change in bank checks outstanding 6,012 4,397
Proceeds from exercise of stock options 229 51
Other (29) (118)
-------- --------
Cash provided by financing activities 41,435 10,796
-------- --------
Net change in cash 0 0
Cash at beginning of period 0 0
-------- --------
Cash at end of period $ 0 $ 0
======== ========
<PAGE>5
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $8,401 $ 2,789
Income taxes 798 362
In 1995, a capital lease obligation of approximately $1.4 million was
incurred.
See notes to condensed consolidated financial statements
<PAGE>6
VWR SCIENTIFIC PRODUCTS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements of VWR
Scientific Products Corporation (VWR SP or Company) 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 six
months ended June 30, 1996 are not necessarily indicative of the results which
may be expected for the year ended December 31, 1996. Refer to the
consolidated financial statements and footnotes thereto included in the
Companys 1995 annual report on Form 10-K for further information.
New Accounting Standards
- ------------------------
In January 1996, the Company adopted SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets
carrying amount. SFAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. There was no effect on the Company upon
the adoption of SFAS 121.
SFAS No. 123, Accounting for Stock-Based Compensation, is effective for fiscal
years beginning after December 15, 1995. SFAS 123 provides companies with a
choice to follow the provisions of SFAS 123 in determining stock-based
compensation expense or to continue with the provisions of APB 25, Accounting
for Stock Issued to Employees. The Company will continue to follow APB 25 and
will provide the pro forma disclosures as required by SFAS 123 in the December
31, 1996 notes to the consolidated financial statements.
2. DIVIDENDS
---------
For the six months ended June 30, 1995, dividends of $.08 per share were paid.
The Company has been prohibited from paying dividends under the terms of its
current Credit Facility.
<PAGE>7
3. INVENTORY PRICING
-----------------
Inventory valued using the LIFO method comprised approximately 87% of
inventory at June 30, 1996 and 81% at December 31, 1995. 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 June 30, 1996 and December 31, 1995 were approximately $30.7 million
and $28.7 million, respectively, less than current cost.
<PAGE>8
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
- -----------------------------------------------------------------------
The following commentary should be read in conjunction with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements (Notes)
for the year ended December 31, 1995 and Managements Discussion and Analysis
included in the Companys 1995 annual report on Form 10-K.
Results of Operations
- ---------------------
1996 results have been impacted by the acquisition of the Industrial
Distribution Business (Baxter Industrial) of Baxter Healthcare Corporation
(Baxter Healthcare), a subsidiary of Baxter International, on September 15,
1995.
Sales increased by 92.6% to $279.0 million for the second quarter of 1996 and
by 90.7% to $555.4 million on a year-to-date basis over the corresponding
period in 1995 primarily due to the Baxter Industrial acquisition. VWR SP also
experienced growth in its existing business.
The gross margin percentage increased from 22.1% in the second quarter of 1995
to 22.6% in the second quarter of 1996. For the six months ended June 30,
gross margins have increased from 21.6% in 1995 to 22.6% in 1996. Gross
margins have been favorably impacted by internal programs in VWR SPs Domestic
and Canadian businesses.
Total operating expenses, excluding acquisition-related charges, decreased as
a percentage of sales for the second quarter from 20.4% in 1995 to 16.9% in
1996. For the six months, the ratio decreased from 19.9% to 17.2%. The
Baxter Industrial acquisition has increased the volume of business without a
proportionate increase in administrative expenses. Depreciation and
amortization expense has increased primarily as a result of amortization of
the excess of cost over net assets of business acquired resulting from the
Baxter Industrial acquisition. Acquisition-related expenses consist primarily
of relocation, transition, and severance expenses directly attributable to the
Baxter Industrial acquisition.
Interest expense and other increased for both the second quarter and for the
six month period in 1996 primarily due to the effect of the debt incurred for
the Baxter Industrial acquisition. In order to partially fund the Baxter
Industrial acquisition, the Company issued a $135 million Subordinated
Debenture (Debenture) to EM Laboratories, Incorporated (EML), an affiliate of
Merck KGaA, Germany, and incurred incremental borrowings under a new Credit
Facility of approximately $170 million. Interest expense increased from the
first quarter to the second quarter of 1996 due to working capital
requirements for the transition of the Baxter Industrial business into VWR SP
facilities.
Earnings per share in 1996 reflect the full year effect of the shares issued
to affiliates of EML in 1995, as well as shares issued as interest payments on
the Debenture in 1995 and 1996.
<PAGE>9
Financial Condition and Liquidity
- ---------------------------------
The Companys current ratio was 2.0 at June 30, 1996 as compared to 1.8 at
December 31, 1995. The increase in accounts receivable is due to increases in
sales during 1996 and the transition of the Baxter Industrial business into
VWR SP. The increases in inventory and accounts payable are primarily due to
stocking of inventory related to the transition of the Baxter Industrial
business to VWR SP operations.
In the first half of 1996, operating activities used $29 million of cash flow.
To the extent that the Company is operating under the terms of the Services
Agreement with Baxter Healthcare, the Company does not pay for inventory for
Baxter Industrial sales until the items are shipped to VWR SP customers. As
the Baxter Industrial business has been transitioned to VWR SP facilities on a
regional basis, the Company has increased inventory levels in advance of the
transition of locations in order to service the customers without
interruption.
During the period over the next six to nine months, as servicing of former
Baxter Industrial customers continues to be moved by VWR SP into its
facilities, the Company will be required to purchase from Baxter Healthcare
the inventory of laboratory supplies and equipment for sale to customers of
the Baxter Industrial business held by Baxter Healthcare. Inventory on-hand at
Baxter Healthcare for sale to Baxter Industrial customers was approximately
$25 million at June 30, 1996.
In connection with the Baxter Industrial acquisition, the Company entered into
a five-year Distribution Agreement with Baxter Healthcare. The Distribution
Agreement provides, among other things, that the Company is obligated during
each year to either purchase a minimum dollar amount of products for sale in
the United States and internationally, or, if such minimum requirements have
not been met during such year, purchase products or pay to Baxter Healthcare
an amount equal to any such deficiency. The minimum requirement for the
agreements fiscal year ended September 30, 1996 is $63 million. During the
nine months ended June 30, 1996, purchases under this agreement were $44
million. The Company expects that such minimums will be met.
While management believes the Baxter Industrial acquisition enhances the
potential to increase shareholder value, the achievement of such an increase
is dependent upon various factors including: a successful and timely
integration of the business into VWR SPs infrastructure; realization of
expected operating efficiencies; retention of the combined customer base;
satisfying the obligations under the Distribution Agreement; the providing of
distribution services by Baxter Healthcare under the Services Agreement; the
general state of economic growth in the U.S.; and competitive and pricing
pressures.
The Company has a $285 million Credit Facility which consists of a five-year
amortizing term loan in the original principal amount of $135 million (Term
Loan) and a revolving line of credit (Revolver) in an amount not to exceed
$150 million. Approximately $127 million was outstanding at June 30, 1996
under the Revolver.
<PAGE>10
Under the terms of the Debenture, interest is payable 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 valued at $12.44 per share. During 1996, the
Company has issued 707,318 shares to EML and its affiliates. At June 30,
1996, EML and its affiliates owned 48.7% of the issued and outstanding common
shares.
The Company has entered into various interest rate swap agreements with
financial institutions which effectively change the Companys interest-rate
exposure on a notional amount of debt from variable rates to fixed rates. The
notional amounts of the interest rate swaps are based upon expected actual
debt levels during a five-year period. The Company had an interest rate
collar agreement which expired in the first quarter of 1996. The Company
provides protection to meet actual exposures and does not speculate in
derivatives.
The Companys use of swaps and collars for interest rate protection increased
interest expense by $0.4 million and $0.1 million for the first six months of
1996 and 1995, respectively. Pursuant to the Credit Facility, the Company is
obligated to provide interest rate protection on at least 25% of the Credit
Facility. At June 30, 1996, the Company had a notional amount of $180 million
of swaps in effect.
The Company expects that estimated working capital requirements and estimated
capital expenditures will be funded by cash from operations and availability
under the Credit Facility. In addition, management estimates that acquisition-
related expenses totaling $2 million to $3 million will be incurred during the
remainder of the transition of the Baxter Industrial business into VWR SP.
The approximately $2 million increase in the Companys estimate of total
acquisition-related expenses reflects fine tuning of the Companys operating
structure and reallocation of resources to ensure that the economies of the
acquisition are achieved.
<PAGE>11
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Litigation relating to the issuance by VWR SP of Common Shares and Debenture
sold to EM Laboratories, Incorporated (EML) was commenced in the Delaware
Court of Chancery in July 1995 against VWR SP, VWR SPs President and Chief
Executive Officer, seven members of VWR SPs Board of Directors and EML. In
the complaint, the plaintiff, Donald W. Alexander, sought, among other things,
to have the action certified as a class action, to enjoin VWR SP from
consummating the issuance of the Common Shares and the Debenture, and to
obtain an award of compensatory and other damages.
On July 24, 1996, the Delaware Court of Chancery entered an order dismissing
the action without prejudice, without the payment of any compensation by any
of the defendants to plaintiff or plaintiffs counsel. The order was entered
on the basis of a Stipulation and Order of Dismissal filed by plaintiffs
counsel.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on April 16, 1996.
At the meeting, shareholders were asked a) to elect four directors for three
year terms, b) to consider and vote on a proposal to approve the Companys 1995
Stock Incentive Plan, and c) to ratify the selection of Ernst & Young LLP as
independent auditors for the year ending December 31, 1996.
a) The following is a summary of the votes for elected directors:
Nominee Votes For Votes Withheld
James W. Bernard 18,666,917 268,818
Richard E. Engebrecht 18,798,664 137,071
Stephen J. Kunst 18,804,675 131,060
Dieter Janssen 18,804,674 131,061
b) The following is a summary of the votes on the proposal to approve
the Companys 1995 Stock Incentive Plan:
Votes For Votes Against Abstentions Broker Non-Votes
16,827,781 875,211 229,128 907,650
c) The following is a summary of the votes on the proposal regarding Ernst
& Young LLP:
Votes For Votes Against Abstentions
18,841,033 33,806 60,897
<PAGE>12
ITEM 6 - EXHIBIT AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 11--Computation of Earnings per Share
Exhibit 27--Financial Data Schedule (submitted only in
electronic format)
b. No reports on Form 8-K were filed during the three-month period ended
June 30, 1996
<PAGE>13
SIGNATURES
- ----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(REGISTRANT) VWR SCIENTIFIC PRODUCTS CORPORATION
BY (SIGNATURE)
(NAME AND TITLE) DAVID M. BRONSON
SENIOR VICE PRESIDENT FINANCE
AND CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting Officer)
DATE August 13, 1996
<PAGE>14
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- ----
11 Computation of Earnings Per Share 15
27 Financial Data Schedule
(submitted only in electronic format)
<PAGE>15
EXHIBIT 11
----------
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended June 30,
1996 1995
---- ----
(Amounts in thousands, except per share data)
PRIMARY
Average shares outstanding 21,743 12,652
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 331 77
------- -------
TOTAL 22,074 12,729
======= =======
Net income $ 3,073 $ 719
======= =======
Per share amount .14 .06
======= =======
FULLY DILUTED
Average shares outstanding 21,743 12,652
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 377 86
------- -------
TOTAL 22,120 12,738
======= =======
Net Income $ 3,073 $ 719
======= =======
Per Share Amount .14 .06
======= =======
<PAGE>16
COMPUTATION OF EARNINGS PER SHARE
Six Months Ended June 30,
1996 1995
---- ----
(Amounts in thousands, except per share data)
PRIMARY
Average shares outstanding 21,555 11,860
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 310 56
------- -------
TOTAL 21,865 11,916
======= =======
Net income $ 5,183 $ 1,279
======= =======
Per share amount .24 .11
======= =======
FULLY DILUTED
Average shares outstanding 21,555 11,860
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 405 63
------- -------
TOTAL 21,960 11,923
======= =======
Net Income $ 5,183 $ 1,279
======= =======
Per Share Amount .24 .11
======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000788043
<NAME> VWR SCIENTIFIC PRODUCTS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 163,673
<ALLOWANCES> 1,964
<INVENTORY> 89,901
<CURRENT-ASSETS> 262,294
<PP&E> 86,584
<DEPRECIATION> 36,970
<TOTAL-ASSETS> 683,950
<CURRENT-LIABILITIES> 131,735
<BONDS> 367,050
0
0
<COMMON> 21,808
<OTHER-SE> 152,673
<TOTAL-LIABILITY-AND-EQUITY> 683,950
<SALES> 555,419
<TOTAL-REVENUES> 555,419
<CGS> 430,164
<TOTAL-COSTS> 430,164
<OTHER-EXPENSES> 98,692
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,926
<INCOME-PRETAX> 8,637
<INCOME-TAX> 3,454
<INCOME-CONTINUING> 5,183
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,183
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
