<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 March 31, 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
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(Exact name of registrant 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)
Registrant's telephone number (610-431-1700)
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(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 issuer's classes
of common stock, as of April 30, 1996.
Class Outstanding at April 30, 1996
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Common stock, par value $1.00 21,442,591 shares
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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
March 31, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 9
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURES 13
INDEX 14
EXHIBIT 15
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VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31, 1996 December 31, 1995
(Thousands of dollars) (Unaudited)
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ASSETS
Receivables $156,930 $139,796
Inventories 74,058 53,247
Other 10,463 11,390
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Total current assets 241,451 204,433
Property and equipment-net 40,877 37,648
Excess of cost over net assets
of businesses acquired and other assets 373,860 379,391
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$656,188 $621,472
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LIABILITIES AND SHAREHOLDERS' EQUITY
Bank checks outstanding, less cash in bank $ 12,703 $ 1,748
Current portion of long-term debt 21,250 20,000
Accounts payable and other 110,026 94,745
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Total current liabilities 143,979 116,493
Long-term debt 334,797 334,327
Deferred income taxes and other 10,605 10,563
Shareholders' equity 166,807 160,089
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$656,188 $621,472
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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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(Thousands of dollars, Three Months Ended March 31,
except per-share data) 1996 1995
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Sales $276,458 $146,376
Cost of sales 214,189 115,444
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Gross margin 62,269 30,932
Operating expenses 43,738 26,061
Depreciation and amortization 5,045 2,466
Acquisition-related charges 1,188
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Total operating expenses 49,971 28,527
Operating income 12,298 2,405
Interest expense and other 8,781 1,487
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Income before income taxes 3,517 918
Income taxes 1,407 358
-------- --------
Net Income $ 2,110 $ 560
======== ========
Earnings per share $ 0.10 $ 0.05
Weighted average number of
common shares outstanding-(thousands) 21,600 11,103
Certain prior year amounts have been reclassified to conform to the current
years presentation.
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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Three Months Ended March 31,
(Thousands of dollars) 1996 1995
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Operating Activities
Net income $ 2,110 $ 560
Adjustments to reconcile net income to
cash used by operating activities:
Depreciation and amortization,
including debt issuance cost amortization 5,426 2,466
Provision for acquisition-related charges,
net of payments (287)
Payment in stock for interest on debenture 4,376
Changes in assets and liabilities, net of
purchase accounting adjustments:
Receivables (17,896) (10,898)
Inventories (20,811) (6,086)
Other current assets 966 (1,237)
Accounts payable and other 14,957 13,004
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Cash used by operating activities (11,159) (2,191)
-------- --------
Investing Activities
Additions to property and equipment (4,685) (533)
Sale of joint venture investment 2,881
Other 123 (496)
-------- --------
Cash used by investing activities (1,681) (1,029)
-------- --------
Financing Activities
Proceeds from long-term debt 39,400 34,756
Repayment of long-term debt (37,680) (37,078)
Cash dividends (442)
Net change in bank checks outstanding 10,955 6,119
Proceeds from exercise of stock options 75
Other 90 (135)
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Cash provided by financing activities 12,840 3,220
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Net change in cash 0 0
Cash at beginning of year 0 0
-------- --------
Cash at end of year $ 0 $ 0
======== ========
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Supplemental disclosures of cash flow information:
Cash paid (received) during period for:
Interest $2,699 $ 1,426
Income taxes 30 (61)
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. BASIS OF PRESENTATION
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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 months ended
March 31, 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 Company's 1995
annual report on Form 10-K for further information.
New Accounting Standards
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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 three months ended March 31, 1995, a dividend of $.04 per share was
paid. Under the terms of the Companys credit facility, the Company is
prohibited from paying dividends during the term of the credit facility.
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3. INVENTORY PRICING
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Inventory valued using the LIFO method comprised approximately 86% of
inventory at March 31, 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 March 31, 1996 and December 31, 1995 were approximately $30.8
million and $28.7 million, respectively, less than current cost.
<PAGE>9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
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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
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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 88.9% in 1996 to $276.5 million primarily due to the Baxter
Industrial acquisition, however, VWR SP also experienced growth in its
existing business.
The gross margin percentage increased from 21.1% in 1995 to 22.5% in 1996.
Selling 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 from 19.5% in 1995 to 17.6% in 1996. 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 and transition expenses directly attributable to the Baxter
Industrial acquisition.
Interest expense and other increased 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 (EML), an
affiliate of Merck KGaA, Germany, and incurred incremental borrowings under a
new Credit Facility of approximately $170 million.
Earnings per share in 1996 reflect the shares issued to affiliates of EML in
1995, as well as shares issued as interest payments on the Debenture in 1995
and 1996.
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Financial Condition and Liquidity
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The Companys current ratio was 1.7 at March 31, 1996 as compared to 1.8 at
December 31, 1995. The increase in accounts receivable is due to increases in
sales during the latter part of the first quarter of 1996. The increases in
inventory and accounts payable are primarily due to stocking of inventory as
part of the transition of the Baxter Industrial business to VWR SP operations.
In the first quarter of 1996, operating activities used $11 million of cash
flow. 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. As the Baxter Industrial business has been transitioned to VWR
SP facilities on a regional basis, the Company has been required to carry
additional inventory. In addition, the Company has increased inventory levels
in advance of the transition of locations in order to service the business
without interruption to the customer.
During the period over the next nine to twelve months, as servicing of former
Baxter Industrial customers is 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 $38
million at March 31, 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
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 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 six months ended March 31, 1996, purchases under this
agreement were $29 million. The Company expects that such minimums will be
met.
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 $90 million was outstanding at March 31, 1996
under the Revolver.
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 at a price of $12.44 per share. During the
first quarter of 1996, the Company issued 351,726 shares to EML and its
affiliates. At March 31, 1996, EML and its affiliates owned 47.9% of the
issued and outstanding common shares.
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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;
general state of economic growth in the U.S.; competitive and pricing
pressures; and changes in prices paid to manufacturers for distributed
products.
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 $0.3 million and $0.1 million in 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
March 31, 1996, the Company had a notional amount of $120 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 in the
remainder of 1996.
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OTHER INFORMATION
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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. None
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SIGNATURES
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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 May 14, 1996
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EXHIBIT INDEX
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EXHIBIT NUMBER DESCRIPTION PAGE
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11 Computation of Earnings per Share 14
27 Financial Data Schedule
(submitted only in electronic format)
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EXHIBIT 11
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COMPUTATION OF EARNINGS PER SHARE
Three Months Ended March 31,
1996 1995
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(Amounts in thousands, except per share data)
PRIMARY
Average shares outstanding 21,367 11,068
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 233 35
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TOTAL 21,600 11,103
====== ======
Net income $ 2,110 $ 560
Per share amount .10 .05
====== ======
FULLY DILUTED
Average shares outstanding 21,367 11,068
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 336 40
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TOTAL 21,703 11,108
====== ======
Net Income $ 2,110 $ 560
Per Share Amount .10 .05
====== ======
Since the effect of full dilution is not material, such amount is not included
in the Quarterly Report to Shareholders.
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<CIK> 0000788043
<NAME> VWR SCIENTIFIC PRODUCTS CORPORATION
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
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<RECEIVABLES> 158,199
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