<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 September 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
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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 October 31, 1996.
Class Outstanding at October 31, 1996
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Common stock, par value $1.00 22,172,275 shares
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, 1996 December 31, 1995
(Thousands of dollars) (Unaudited)
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ASSETS
Trade receivables $163,766 $134,917
Other receivables 7,714 4,879
Inventories 102,896 53,247
Other 9,081 11,390
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Total current assets 283,457 204,433
Property and equipment-net 52,463 37,648
Excess of cost over net assets
of businesses acquired and other assets 372,178 379,391
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$708,098 $621,472
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LIABILITIES AND SHAREHOLDERS' EQUITY
Bank checks outstanding, less cash in bank $ 8,598 $ 1,748
Current portion of long-term debt 20,000 20,000
Accounts payable and other 117,371 94,745
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Total current liabilities 145,969 116,493
Long-term debt 369,322 334,327
Deferred income taxes and other 10,646 10,563
Shareholders' equity 182,161 160,089
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$708,098 $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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Three Months Nine Months
(Thousands of dollars, Ended September 30, Ended September 30,
except per share data) 1996 1995 1996 1995
-------- -------- -------- --------
Sales $289,280 $170,979 $844,699 $462,165
Cost of Sales 225,318 132,036 655,482 360,240
-------- -------- -------- --------
Gross Margin 63,962 38,943 189,217 101,925
Operating Expenses 41,818 28,757 127,578 81,589
Depreciation and amortization 5,141 3,043 15,040 8,275
Acquisition-related charges 1,093 2,067 4,126 2,067
-------- -------- -------- --------
Total operating expenses 48,052 33,867 146,744 91,931
Operating Income 15,910 5,076 42,473 9,994
Interest Expense 9,308 2,848 27,234 5,669
-------- -------- -------- --------
Income before Income Taxes 6,602 2,228 15,239 4,325
Income Taxes 2,642 916 6,096 1,734
-------- -------- -------- --------
Net Income $ 3,960 $ 1,312 $ 9,143 $ 2,591
======== ======== ======== ========
Earnings per share: $ 0.18 $ 0.09 $ 0.41 $ 0.20
Weighted average number of
common shares outstanding
(thousands) 22,466 14,315 22,071 12,716
Certain prior period amounts have been reclassified to conform to the current
period's presentation.
See notes to condensed consolidated financial statements.
<PAGE>4
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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Nine Months Ended September 30,
(Thousands of dollars) 1996 1995
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Operating Activities:
Net income $ 9,143 $ 2,591
Adjustments to reconcile net income to
cash (used) provided by operating activities:
Depreciation and amortization,
including debt issuance cost amortization 16,036 8,275
Provision for acquisition-related charges,
net of payments (992) 2,067
Payment in stock for interest on debenture 11,999
Changes in assets and liabilities:
Receivables (32,977) (11,425)
Inventories (49,649) (12,386)
Other current assets 294 (315)
Accounts payable and accrued liabilities 23,627 21,384
Deferred taxes and other 76
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Cash (used) provided by Operating Activities (22,443) 10,191
-------- --------
Investing Activities:
Purchase of business (404,032)
Additions to property and equipment, net (19,952) (2,805)
Sale of joint venture investment 2,881
Other 27 (219)
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Cash used by Investing Activities (17,044) (407,056)
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Financing Activities:
Proceeds from long-term debt 148,380 102,816
Repayment of long-term debt (116,375) (129,717)
Repayment of existing bank debt
upon refinancing (73,700)
Proceeds from new senior bank debt 249,600
Proceeds from long-term subordinated debt 135,000
Debt issuance costs (4,528)
Proceeds from exercise of warrant 10,637
Proceeds from issuance of common stock 104,411
Cash dividends (1,474)
Net change in bank checks outstanding 6,850 3,536
Proceeds from exercise of stock options 288 120
Other 344 164
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Cash provided by Financing Activities 39,487 396,865
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Net change 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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<PAGE>5
Supplemental disclosures of cash flow information:
Cash paid during period for:
Interest $ 13,601 $4,449
Income taxes $ 1,174 373
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 paid to Baxter Healthcare Corporation over a 52 day
period for the purchase of certain accounts receivable.
See notes to condensed consolidated financial statements
<PAGE>6
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 and nine
months ended September 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
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
notes to the December 31, 1996 consolidated financial statements.
2. DIVIDENDS
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For the nine months ended September 30, 1995, the Company paid dividends of
$.08 per share. The Company has since been prohibited from paying dividends
under the terms of its current Credit Facility.
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3. INVENTORY PRICING
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Inventory valued using the LIFO method comprised approximately 87% of
inventory at September 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 September 30, 1996 and December 31, 1995 were approximately $30.3
million and $28.7 million, respectively, less than current cost.
<PAGE>8
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 Management's Discussion and Analysis
included in the Company's 1995 annual report on Form 10-K.
Results of Operations
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The results of operations reflect the acquisition of the Industrial
Distribution Business ("Baxter Industrial") of Baxter Healthcare Corporation
("Baxter Healthcare"), a subsidiary of Baxter International, on September 15,
1995. On September 30, 1996, Baxter International spun-off its United States'
healthcare distribution, surgical and respiratory therapy products and
healthcare cost management businesses as Allegiance Corporation
("Allegiance"). Allegiance has assumed Baxter Healthcare's responsibilities
under the Services Agreement and has assumed certain rights under the
Distribution Agreement.
Sales increased by 69.2% to $289.3 million for the third quarter of 1996 and
by 82.8% to $844.7 million on a year-to-date basis over the corresponding
periods in 1995 primarily due to the Baxter Industrial acquisition. VWR SP
also experienced growth in its existing business.
The gross margin percentage decreased from 22.8% in the third quarter of 1995
to 22.1% in the third quarter of 1996. The third quarter 1996 margins reflect
a lower relative contribution by the Company's science education business.
This business, which has its highest level of sales in the third quarter, now
constitutes a smaller percentage of the Company's business. Margins for the
third quarter of 1996 are lower than prior 1996 quarters. When the
integration of the Baxter business affected customer service, the Company
opted to incur certain additional costs to deliver goods, thus contributing to
the reduction in margins. For the nine months ended September 30, gross
margins have increased from 22.1% in 1995 to 22.4% in 1996. Gross margins on
a year-to-date basis have been favorably impacted by internal programs in VWR
SP's Domestic and Canadian businesses.
Total operating expenses, excluding acquisition-related charges, decreased as
a percentage of sales for the third quarter from 18.6% in 1995 to 16.2% in
1996. For the nine months, the ratio decreased from 19.4% to 16.9%. The
Baxter Industrial acquisition has increased the volume of business without a
proportionate increase in operating expenses. Depreciation and amortization
expense has increased primarily as a result of amortization of the excess of
cost over net assets of businesses acquired and the depreciation expense for
facilities expansion, both resulting from the Baxter Industrial acquisition.
Acquisition-related expenses consist primarily of relocation, transition, and
severance expenses directly attributable to the Baxter Industrial acquisition.
<PAGE>9
Interest expense and other increased for both the third quarter and for the
nine month period in 1996 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 in the
third quarter of 1996 as compared to prior quarters 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.
Financial Condition and Liquidity
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The Company's current ratio was 1.9 at September 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 to a lesser extent, an increase in days sales
outstanding due to the transition of customer accounts. 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 nine months ended September 30, 1996, operating activities used $22
million of cash flow. To the extent that the Company is operating under the
terms of the Services Agreement with Allegiance, 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 next six months, as servicing of former Baxter Industrial customers
continues to be transitioned by VWR SP into its facilities, the Company will
be required to purchase from Allegiance the remaining inventory of laboratory
supplies and equipment for sale to customers of the Baxter Industrial business
held by Allegiance. Inventory on-hand at Allegiance for sale to Baxter
Industrial customers was approximately $17 million at September 30, 1996.
In connection with the Baxter Industrial acquisition, the Company entered into
a five-year Distribution Agreement with Baxter Healthcare. On September 30,
1996, Allegiance assumed certain rights under the Distribution Agreement. 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 or Allegiance an amount equal to any such deficiency.
<PAGE>10
The minimum requirement for the agreement's fiscal year ended September 30,
1996 was met. The minimum requirement for the year ending September 30, 1997
is $74 million. Under the terms of the Distribution Agreement, this
requirement is subject to adjustment based on various factors.
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
completion of the integration of the business into VWR SP's infrastructure;
realization of expected operating efficiencies; retention of the combined
customer base; satisfying the obligations under the Distribution Agreement;
the continued provision of distribution services by Allegiance 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 $132 million was outstanding under the Revolver
and $120 million was outstanding under the Term Loan at September 30, 1996.
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 964,494 shares to EML and its affiliates. At September 30,
1996, EML and its affiliates owned 49.3% of the issued and outstanding common
shares.
The Company has entered into various interest rate swap agreements with
financial institutions which effectively change the Company's 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 Company's use of swaps and collars for interest-rate protection increased
interest expense by $0.1 million and $0.2 million for the three months ending
September 30, 1996 and 1995, respectively. The corresponding amounts for the
nine months ended September 30, 1996 and 1995 were $0.5 million and $0.2
million, respectively. Pursuant to the Credit Facility, the Company is
obligated to provide interest-rate protection on at least 25% of the Credit
Facility. At September 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. Subsequent to September 30, the Company sold a
distribution facility and will combine its operations into an expanded
existing facility. The net proceeds of $5.6 million approximated the carrying
<PAGE>11
cost of the distribution facility and were used to pay down the Credit
Facility. In addition, management estimates that acquisition-related expenses
totaling $1 million to $1.5 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 Company's estimate of total
acquisition-related expenses reflects fine tuning of the Company's operating
structure and reallocation of resources to ensure that the economies of the
acquisition are achieved.
PART II - OTHER INFORMATION
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
September 30, 1996.
<PAGE>12
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 November 14, 1996
<PAGE>13
EXHIBIT INDEX
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EXHIBIT NUMBER DESCRIPTION PAGE
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11 Computation of Earnings Per Share 15
27 Financial Data Schedule
(submitted only in electronic format)
<PAGE>15
EXHIBIT 11
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COMPUTATION OF EARNINGS PER SHARE
Three Months
Ended September 30,
1996 1995
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(Amounts in thousands, except per share data)
PRIMARY
Average shares outstanding 22,039 14,216
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 427 99
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TOTAL 22,466 14,315
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Net income $ 3,960 $ 1,312
======= =======
Per share amount $ .18 $ .09
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FULLY DILUTED
Average shares outstanding 22,039 14,216
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 433 130
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TOTAL 22,472 14,346
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Net Income $ 3,960 $ 1,312
======= =======
Per Share Amount $ .18 $ .09
======= =======
<PAGE>16
COMPUTATION OF EARNINGS PER SHARE
Nine Months
Ended September 30,
1996 1995
---- ----
(Amounts in thousands, except per share data)
PRIMARY
Average shares outstanding 21,717 12,646
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 354 70
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TOTAL 22,071 12,716
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Net income $ 9,143 $ 2,591
======= =======
Per share amount $ .41 $ .20
======= =======
FULLY DILUTED
Average shares outstanding 21,717 12,646
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 453 229
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TOTAL 22,170 12,875
======= =======
Net Income $ 9,143 $ 2,591
======= =======
Per Share Amount $ .41 $ .20
======= =======
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<NAME> VWR SCIENTIFIC PRODUCTS CORPORATION
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<RECEIVABLES> 173,528
<ALLOWANCES> 2,048
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<CGS> 655,482
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