<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(x) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (fee required).
For the fiscal year ended December 31, 1995
-----------------
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (fee required).
For the transition period from
--------------- -----------
Commission file Number 0-14139
-------
VWR Scientific Products Corporation
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 91-1319190
------------ ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1310 Goshen Parkway, West Chester, PA 19380
- ------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (610) 431-1700
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
Registered
None N/A
- ------------------- ----------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $1.00 Par Value
- -------------------------------------------------------------------------
(Title of Class)
<PAGE>
Indicate by 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 twelve (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 XX NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. XX
As of February 29, 1996 the aggregate market value of the voting stock held by
non-affiliates was approximately $136 million. In calculating this value, the
Registrant has treated as voting stock held by affiliates only the voting stock
held by EM Laboratories, Inc. and by the Company's directors and executive
officers. This calculation does not reflect a determination by the Company that
any or all such holders are in fact affiliates.
As of February 29, 1996, there were 21,083,360 shares of common stock issued and
outstanding.
2
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Company's definitive
Proxy Statement mailed to shareholders on or about
March 15, 1996 are incorporated by reference
into Part III of this Form 10-K
3
<PAGE>
PART I.
ITEM I. - BUSINESS
- ------ --------
VWR Scientific Products Corporation ("VWR," "the Corporation," or "the Company")
is one of the nation's largest suppliers of laboratory equipment, chemicals, and
general laboratory and clean room supplies to the scientific marketplaces with
sales of $719 million, $535 million, and $509 million in 1995, 1994 and 1993,
respectively. VWR was incorporated in Delaware (as VWR Corporation) on January
3, 1986, in order to complete the Distribution Plan of Univar Corporation. In
1994, the Company changed its State of Incorporation to Pennsylvania. In 1995,
the Company changed its name from VWR Corporation to VWR Scientific Products
Corporation.
Acquisition of the "Baxter Industrial Distribution Business"
- ------------------------------------------------------------
On September 15, 1995, VWR completed the acquisition of the industrial
distribution business of the Industrial and Life Sciences Division of Baxter
Healthcare Corporation, a Delaware corporation ("Baxter Healthcare") and the
industrial distribution business conducted by certain Baxter affiliates
(collectively, "Baxter Industrial"). In the acquisition, VWR purchased certain
assets of Baxter Industrial, 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. The
cash purchase price paid by the Registrant at closing was $400,062,000. In
addition to the cash paid at closing, VWR was required to pay to Baxter
Healthcare and its affiliates the sum of $28,549,000 within 52 days of the
closing for accounts receivable in the same amount. VWR also assumed certain
liabilities of Baxter Industrial for accrued vacation pay, post-closing
liabilities and obligations under acquired contracts, certain liabilities and
obligations to Baxter Healthcare employees working solely in Baxter Industrial
and all liabilities for warranty claims for products sold by Baxter Industrial.
The cash purchase price paid by VWR is subject to a post-closing adjustment on a
dollar-for-dollar basis to the extent that the amount obtained by subtracting
the accrued vacation pay liabilities assumed by VWR, from the sum of trade
accounts receivable plus tangible personal property purchased by VWR, exceeds or
is less than $73,611,000.
The consideration paid by VWR for the Baxter Industrial business was determined
by negotiations between VWR and Baxter Healthcare, was approved by the Board of
Directors of VWR and was financed by the proceeds received from: (i) the sale of
6,832,797 common shares (the "Purchase Shares"), par value $1.00 per share at a
price of $12.44 per share to EM Laboratories, Incorporated, a New York
corporation ("EML"), an affiliate of Merck KGaA, Germany; (ii) the sale of a
$135,000,000 subordinated debenture of the Registrant (the "Debenture") to EML;
(iii) the exercise by EML of a warrant to purchase 967,015 common shares at a
price of $11 per share ("Warrant"); and (iv) borrowings under the Company's
$285,000,000 Credit Facility entered into on September 14, 1995.
4
<PAGE>
Private Placements of Equity and Debt Securities; Exercise of Warrant
- ---------------------------------------------------------------------
On September 15, 1995, pursuant to an agreement with EM Industries, Incorporated
("EMI"), EML's direct parent corporation, the Corporation issued and sold to EML
the Purchase Shares and the Debenture. In addition, on September 15, 1995, EML
exercised the Warrant. The proceeds from the issuance and sale of the Purchase
Shares and Debenture (approximately $220,000,000) and the exercise of the
Warrant (approximately $10,600,000) were used to fund, in part, the cash paid by
the Company at the closing of the acquisition, as discussed above.
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 is payable solely in common shares valued at
$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. 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"), pursuant to which EMI agreed that it and its
affiliates would not, subject to certain exceptions, for a period of four years,
increase its beneficial ownership of VWR's common shares above 20.1% without the
prior consent of the Company. (EML directly assumed such restrictions on April
13, 1995 when it purchased securities from the Company.) On September 15, 1995,
EMI, EML and the Company entered into Amendment Number One to the Standstill
Agreement which, among other things, increased the 20.1% percentage limitation
to 49.89%. As a result of the issuance of the Purchase Shares, the exercise of
the Warrant and the issuance of common shares for interest on the Debenture, EML
owned approximately 47.1% of the issued and outstanding common shares at
February 29, 1996. Pursuant to the Standstill Agreement, VWR is required
annually to cause representatives of EML to be nominated for election to the
Board so as to provide EML with Board representation, rounded down to the next
whole number, which is commensurate with the proportion of common shares of VWR
owned by EML and its affiliates. Six members of VWR's current Board, which
consists of fourteen Directors, are representatives of EML.
Senior Bank Credit Facility
- ---------------------------
On September 14, 1995, the Company entered into a Credit Facility with a 23-
member bank group (the "Banks"). Pursuant to the Credit Facility, the Banks
have extended the Company a five-year amortizing term loan in the original
principal amount of $135,000,000 (the "Term Loan") and established for the
Company from September 14, 1995 until September 13, 2000 a revolving line of
credit in an amount not to exceed $150,000,000 (the "Revolver"). The Term Loan
and Revolver are secured by liens in favor of the Banks on substantially all of
the Company's 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
5
<PAGE>
Revolver in the event the Banks should later request it to do so. The proceeds
of the Term Loan and initial advance under the Revolver were used by the Company
principally as follows: (i) approximately $74,000,000 was used by the Company to
repay indebtedness outstanding under the Company's former credit facility and
(ii) approximately $170,000,000 was used to fund the balance of the cash portion
of the purchase price paid by the Company at the closing of the Baxter
Industrial acquisition.
Both the Term Loan and the Revolver bear interest rates based, in such relative
principal amounts as the Corporation shall elect, on the London Interbank
Offered Rate ("LIBOR") or the prime rate announced from time to time ("Prime").
The Corporation is obligated to pay amounts in excess of such floating rates
which 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 Facility. The
Corporation is also required to pay commitment fees on the unused portion of the
Revolver of between .20% and .50% also varying depending on the relationship
between the Corporation's EBITDA and aggregate borrowings under the Credit
Facility.
The Credit Facility 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 Facility prohibits the Corporation from paying dividends and making
other distributions (except for the issuance of common shares for interest
expense as required by the Debenture) and prohibits a change-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.
Material Agreements
- -------------------
Services Agreement. On September 15, 1995, the Company entered into a Services
Agreement with Baxter Healthcare that governs the provision by Baxter Healthcare
of certain services to the Company to enable the uninterrupted continuation of
the Baxter Industrial business after the Closing of the acquisition described
above, as well as an orderly transfer of the Baxter Industrial business to the
Company. Under the Services Agreement, Baxter Healthcare is required to continue
to provide the same type and level of services to the customers of the Baxter
Industrial 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. While the term of the
Services Agreement is for two years, upon prior notice, the Company may direct
Baxter Healthcare to discontinue the provision of services in any particular
region. No service fees were 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 Healthcare at the rate of 5.5% of the total sales to
customers of the Baxter Industrial business which are serviced by Baxter
Healthcare; provided, however, the Company is obligated
6
<PAGE>
to pay a minimum of $18,645,000 to Baxter Healthcare during the first fifteen
months of such agreement. Upon the cessation of services by Baxter Healthcare at
a particular facility, the Company is required to purchase from Baxter
Healthcare the inventory of laboratory supplies and equipment held by Baxter
Healthcare for sale to customers of the Baxter Industrial business.
Distribution Agreement. On September 15, 1995, the Company entered into a
Distribution Agreement with Baxter Healthcare pursuant to which Baxter
Healthcare 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 Heathcare 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 Healthcare 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 Distribution
Agreement are as follows: Year 1 - $63,000,000; Year 2 - $74,000,000; Year 3 -
$82,000,000; Year 4 - $89,000,000; and Year 5 - $96,000,000.
Acquisition of Canlab
- ---------------------
In October 1994, the Company expanded its Canadian operations through the
acquisition of certain assets related to the laboratory supply business of
Canlab, a division of Baxter International, for approximately $13.9 million.
Principal Customers
- -------------------
VWR and its subsidiaries are not dependent on a single customer or a few
customers, the loss of any one or more of which would have a material adverse
effect on its operations.
Competition
- -----------
The Company competes in the industrial, governmental, biomedical, and
educational market for laboratory equipment, chemicals, and supplies with
manufacturers who sell their product lines directly and with numerous national
and regional distributors. In addition, there are numerous distributors of
specialty lines of products. In the opinion of management, the Corporation is
the nation's second largest independent distributor of laboratory equipment and
supplies.
In all of VWR's markets, a combination of quality, price, and service are the
major determining competitive factors. All activities are considered highly
competitive.
Environmental Regulation
- ------------------------
VWR has been designated by the EPA as a potentially responsible party in
connection with several sites. Management believes that the Company's alleged
contribution to each of these sites is de minimis and that the potential
7
<PAGE>
financial impact of these matters is not material to the Company's consolidated
financial statements.
Employees
- ---------
Approximately 1,830 persons were employed by VWR as of February 29, 1996.
Approximately 11% of the Company's employees are represented by unions. The
Company believes its relations with employees are excellent.
Methods of Distribution
- -----------------------
Approximately 50% of the Company's employees are full-time outside and inside
sales personnel who provide product information and technical support to our
customers. With continuous reference to the "VWR Catalog," customers also
place individual orders by telephone with an inside sales representative,
directly with an outside sales representative or by computer. Orders are
shipped from local or central warehouses, depending on the nature of the product
ordered. As noted under "Material Agreements," Baxter Industrial customers are
serviced by Baxter Healthcare. It is currently expected that servicing of this
business will be transitioned to VWR facilities and systems throughout 1996.
Foreign Operations and Export Sales
- -----------------------------------
The Company has operations in Canada which serve the country's industrial,
educational, governmental and biomedical markets. See "Foreign and Domestic
Operations" in the Notes to Consolidated Financial Statements in Item 8 below.
The Company also exports scientific equipment to 54 countries worldwide, with
primary markets in the Middle East, Central and South America, and the Pacific
Rim.
Availability of Products
- ------------------------
The Company does not manufacture any of the products distributed by it.
Numerous sources of supply generally exist for all products essential to the
business of the Company.
8
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
NAME AGE BUSINESS EXPERIENCE POSITION HELD
LAST FIVE YEARS SINCE
- ------------------ --- ------------------- -------------
<S> <C> <C> <C>
Jerrold B. Harris 53 President and Chief March 1990
Executive Officer to Present
David M. Bronson 42 Senior Vice President November 1995
Finance, Chief to Present
Financial Officer and
Corporate Secretary
Vice President Finance and May 1992 to
Business Development November 1995
Scientific Products Division
Baxter Healthcare Corp.
Vice President, Controller 1988 to
Baxter Dade Division May 1992
Baxter Healthcare Corp.
Paul J. Nowak 41 Senior Vice President November 1992
to Present
Vice President and General 1989 - 1992
Manager of Sargent-Welch
David S. Barth 43 Senior Vice President November 1995
to Present
Area Vice President, July 1992 to
Industrial and Life September 1995
Sciences Division,
Baxter Healthcare, Corp.
Field Director, Baxter April 1991 to
Diagnostics, Inc. July 1992
Partnership Program
Sales Manager-Scientific 1987 to April
Products, Biomedical 1991
Division, Baxter
Healthcare, Corp.
John G. Griffith 52 Senior Vice President August 1995 to
International Present
Director of Finance, December 1990 to
Merck Ltd, England August 1995
Hal G. Nichter 49 Senior Vice President October 1995
Customer Fulfillment to Present
Vice President Marketing October 1992 to
October 1995
Vice President and 1991 to
General Manager, Henry October 1992
Troemner Corp.
</TABLE>
9
<PAGE>
ITEM 2 - PROPERTIES
- ------ ----------
VWR owns and leases office and warehouse space throughout the United States and
Canada for distribution of the products supplied by it as follows:
Batavia, Illinois Owned
Bridgeport, New Jersey Owned
Buffalo Grove, Illinois Owned
Tempe, Arizona Leased
Cerritos, California Leased
San Francisco, California Leased
San Dimas, California Leased
Houston, Texas Leased
Marietta, Georgia Leased
Bridgeport, New Jersey Leased
Morrisville, North Carolina Leased
Tualatin, Oregon Leased
Catano, Puerto Rico Leased
Mississauga, Ontario, Canada Leased
Edmonton, Alberta, Canada Leased
The Company leases office space in West Chester, Pennsylvania, for executive,
financial, information systems, marketing, and other administrative activities.
The Company also leases twenty-eight smaller facilities throughout the United
States and three smaller facilities in Canada which support the sales and
warehouse functions. All facilities have been designed to serve the Company's
purposes (warehouse functions and generic office). The facilities have been
sufficient for its current operations and certain expansions are underway in
order to service the acquired Baxter Industrial business.
ITEM 3. - LEGAL PROCEEDINGS
- ------ -----------------
The Corporation is involved in various environmental, contractual, warranty, and
public liability cases and claims, which are considered normal to the
Corporation's business.
Litigation relating to the issuance by VWR of common shares and the Debenture to
EML pursuant to the terms of a Common Share and Debenture Purchase Agreement
(the "Securities Purchase Agreement") dated May 24, 1995 between VWR and EML was
commenced in the Delaware Court of Chancery on July 21, 1995 against VWR, VWR's
President and Chief Executive Officer, seven members of VWR's Board of Directors
and EML. 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
10
<PAGE>
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 EML and because EML 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 Baxter
Industrial.
VWR believes that this suit is without merit and VWR, EML 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 EML, 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.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1995.
11
<PAGE>
PART II.
- --------
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
- ------------------------------------------------------------------------
VWR common shares, $1.00 par value, are traded on the NASDAQ Stock Market under
the VWRX symbol. On February 29, 1996, there were approximately 6,400
shareholders represented by 1,666 holders of record.
The quarterly ranges of high and low bid prices of the Corporation's common
shares during the years ended December 31, 1995, and 1994 as reported by NASDAQ
are set forth below.
<TABLE>
<CAPTION>
Year Ended Year Ended
VWR Common Stock December 31, 1995 December 31, 1994
- ---------------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Quarter High Low High Low
------- ---- --- ---- ---
First $10.25 $ 7.75 $12.13 $9.75
Second 12.50 9.00 12.25 9.63
Third 15.00 9.25 11.75 6.50
Fourth 15.00 10.50 12.00 7.00
</TABLE>
The Corporation declared dividends of $0.04 per share in April and August during
the year ended December 31, 1995. The Corporation declared quarterly dividends
of $0.10 per share in April, August and October and $.04 per share in December
for the year ended December 31, 1994. The Corporation's Credit Facility entered
into on September 14, 1995 prohibits the Corporation from paying dividends
during the term of the Credit Facility.
12
<PAGE>
ITEM 6. - SELECTED FINANCIAL DATA
- ------ -----------------------
The following table of selected financial data should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
For the Years Ended December 31
-----------------------------------------------
1995 1994 1993* 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations
(Thousand of dollars,
except per share data)
Sales $718,684 $535,179 $509,235 $490,168 $440,983
Gross margin 159,119 113,198 116,274 114,431 104,924
Income before
cumulative effect
of accounting change 1,935 2,053 3,890 9,430 7,743
Cumulative effect of
accounting change,
net of tax (1,400)
Net income $ 1,935 $ 2,053 $ 2,490 $ 9,430 $ 7,743
- -----------------------------------------------------------------------------
Per share Data**
Dividends $0.08 $0.34 $0.40 $0.40 $0.40
Book value*** 7.60 3.63 3.73 3.86 3.37
Income before
cumulative effect
of accounting change $0.13 $0.18 $0.35 $0.85 $0.71
Cumulative effect
of accounting change (0.13)
-----------------------------------------------------
Net income per share $0.13 $0.18 $0.22 $0.85 $0.71
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31
----------------------------------------------
1995 1994 1993* 1992 1991
---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Financial Position
(thousands of dollars)
Working capital $ 87,940 $ 75,120 $ 65,197 $ 57,881 $ 52,928
Property and equipment-net 37,648 38,259 41,562 33,608 32,662
Total assets 621,472 173,375 148,777 136,093 126,896
Short-term debt 20,000 2,250 150 218 272
Long-term debt 334,327 79,170 61,757 47,553 46,747
Shareholders' equity 160,089 40,168 41,057 42,257 36,832
Total invested capital 514,416 121,588 102,964 90,028 83,851
- --------------------------------------------------------------------------------
Operating and Financial Statistics
Gross margin to sales 22.14% 21.15% 22.83% 23.35% 23.79%
Income before cumulative effect
of accounting change to sales 0.27% . 38% .76% 1.92% 1.76%
Current ratio 1.75 2.67 2.80 2.46 2.42
Return on average
shareholders' equity*** 2.29% 5.05% 5.68% 23.73% 22.18%
- ------------------------------------------------------------------------------
</TABLE>
All data presented for continuing operations only.
* Results before cumulative effect of accounting change include restructuring
and other charges of $3.3 million pretax ($1.9 million net of tax).
** All share and per share data reflect a two-for-one stock split effective
May 9, 1992.
*** Prior-year amounts have been restated to conform to current year
calculation.
14
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
- -----------------------------------------------------------------------
The following commentary should be read in conjunction with the Consolidated
Financial Statements, Notes to Consolidated Financial Statements ("Notes"), and
Selected Financial Data included elsewhere herein. Capitalized terms have the
same meanings as defined in the Consolidated Financial Statements and the Notes.
Results of Operations
- ---------------------
The gross margin percentage over the last four years is as follows:
1995 1994 1993 1992
---- ---- ---- ----
22.1% 21.2% 22.8% 23.3%
Total operating expenses as a percentage of sales over the last four years is as
follows:
1995 1994 1993* 1992
----- ----- ----- -----
19.7% 19.6% 20.6% 19.4%
* 20.0% before restructuring charge.
1995 versus 1994
- ----------------
1995 results have been impacted by the acquisitions of the Industrial
Distribution Business ("Baxter Industrial") of Baxter Healthcare Corporation
("Baxter Healthcare"), a subsidiary of Baxter International on September 15,
1995 and Canlab, the Toronto-based distribution division of Baxter
International, on October 31, 1994.
Sales increased by 34.3% in 1995 to $718.7 million. The Baxter Industrial
acquisition accounted for 74% of the increase in sales. The full-year effect of
the Canlab acquisition accounted for 19% of the increase. The remainder of the
sales growth occurred in the existing VWR business.
Gross margins increased from 21.2% in 1994 to 22.1% in 1995. The increase is the
result of the implementation of internal programs to improve margins of VWR's
Domestic and Canadian businesses.
Total operating expenses have remained relatively constant as a percentage of
sales. Approximately 62% of the increase in expenses is due to the Baxter
Industrial acquisition and 13% is due to the full-year effect of the Canlab
acquisition in the fourth quarter of 1994. Depreciation and amortization
expense has increased primarily as a result of amortization of the Baxter
Industrial excess of cost over net assets of business acquired. Acquisition-
related expenses consist of lease termination, severance, relocation,
15
<PAGE>
training, and transition expenses directly attributable to the acquisitions of
Baxter Industrial and Canlab in 1995 and 1994, respectively.
In December 1994, the Company made the decision to consolidate certain sales
offices and functions. As a result, the Company incurred approximately $1.2
million in charges which were primarily for severance and other personnel-
related costs. The costs were recognized prior to the Baxter Industrial
acquisition in September 1995. Due to the effects of the Baxter Industrial
acquisition, the Company is not able to measure the benefits related to these
costs and has classified these costs as operating expenses.
Interest expense and other increased in 1995 primarily due to the effect of the
debt incurred for the Baxter Industrial acquisition. In order to partially fund
the acquisition, the Company issued a $135 million Debenture and incurred
incremental borrowings under a new Credit Facility of approximately $170
million. The interest on the Debenture and the incremental borrowings on the
Credit Facility account for 94% of the increase in interest expense. In
addition, average borrowings under the former credit facility had increased due
to the Canlab acquisition in the fourth quarter of 1994.
Note 8 of the Notes describes the difference between the statutory and effective
income tax rates. In 1995, the effective tax rate increased from 32.0% to 36.1%
because in 1994, the Company recognized a tax benefit on prior year losses from
the Canadian operations. In 1995, due primarily to programs to improve gross
margin and the effect of the Canlab acquisition, the Canadian operations
recognized a profit.
Earnings per share in 1995 reflect the weighted average shares issued to
affiliates of Merck KGaA, Darmstadt, Germany as more fully discussed in
Note 9.
1994 versus 1993
- ----------------
The sales increase in 1994 was due to growth in all areas of our business. The
acquisition of Canlab in the fourth quarter of 1994 accounted for approximately
20% of the sales growth for the year. During the second half of 1994, Canadian
operations showed strong sales growth, improving margins and operating results.
In 1994, gross margin as a percent of sales declined primarily as a result of
continued competitive price pressures and customer mix.
Operating expenses grew at a rate lower than sales growth. Approximately 28% of
the increase in operating expenses is the result of the acquisition of Canlab in
the fourth quarter of 1994.
In the fourth quarter of 1993, the Company made the decision to refocus certain
information systems efforts into customer service systems and to take actions
that would reduce operating expenses. As a result of this effort, the Company
recorded a $3.3 million charge which included $2 million related to the
consolidation of functions and facilities (consisting primarily of severance and
other personnel-related costs) and non-cash charges of $1.3
16
<PAGE>
million (primarily for software development costs that did not have continuing
value). These efforts were completed in 1994.
At December 31, 1993, it was anticipated that the impact of the consolidation of
certain functions and the reduction of expenses would result in annualized cost
savings of approximately $2 million, beginning in the first-half of 1994.
Actual cost savings for fiscal 1994 were approximately $1.2 million. Planned
investments in sales and marketing offset those savings in 1994.
In 1994, interest expense and other increased primarily due to increased
borrowings for the acquisition of Canlab, partially offset by replacing expired
interest rate collars with fixed-rate interest rate swaps.
The lower effective tax rate in 1994 reflects the recognition of the benefits of
a portion of the Canadian net operating loss carryforwards and lower state
taxes. The higher effective tax rate in 1993 reflects the carryforward to future
years of Canadian tax benefits not recognized in 1993.
Financial Condition and Liquidity
- ---------------------------------
The ratio of debt to equity at December 31 of each of the past four years is as
follows:
1995 1994 1993 1992
- --------------------------------------------------------------
2.2 2.0 1.5 1.1
The ratio of operating income, plus depreciation and amortization, to interest
paid over the past four years is as follows:
1995 1994 1993 1992
- --------------------------------------------------------------
3.5 3.9 5.0 7.9
VWR's current ratio was 1.8 at December 31, 1995 as compared to 2.7 at December
31, 1994. The increase in accounts receivable is due to the Baxter Industrial
acquisition. The increase in inventory is primarily due to various marketing
programs, supporting new supplier partnerships with several customers, and
stocking of inventory in advance of the transition of the Baxter Industrial
business to VWR operations. The increase in accounts payable is due to amounts
payable for goods shipped under the Services Agreement and also due to the
increase in inventory. Excess of cost over net assets of businesses acquired
increased due to the Baxter Industrial acquisition. Debt has increased as a
result of the Debenture and incremental borrowings used to partially finance the
Baxter Industrial acquisition. Equity increases reflect the initial issuance of
1.8 million shares to an affiliate of Merck KGaA in April 1995 and 7.8 million
additional shares to an affiliate of Merck KGaA in September 1995. The proceeds
from the additional shares issued in September were used to partially fund the
Baxter Industrial acquisition. Sufficient credit availability existed at
December 31, 1995 to provide for the amount of bank checks outstanding less cash
in bank of $1.7 million.
17
<PAGE>
In 1995, operations generated $59.5 million of cash flow. The Services
Agreement (as described in Note 14) accounted for $32.8 million primarily
because the Company does not pay for inventory for Baxter Industrial sales until
the items are shipped. As the Baxter Industrial business is transitioned to VWR
facilities on a regional basis during 1996, the Company will be required to
carry additional inventory. Inventory on-hand at Baxter Healthcare for sale to
Baxter Industrial customers was approximately $46 million at December 31, 1995.
As discussed in Note 2, VWR completed the Baxter Industrial acquisition on
September 15, 1995 for a cash purchase price of approximately $434 million.
During the period over the next twelve to fifteen months, the servicing of
former Baxter Industrial customers is expected to be moved by VWR into its
facilities, and 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.
As discussed in Note 14, the Company entered into a Distribution Agreement with
Baxter Healthcare. 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 Healthcare 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 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. During 1995, purchases under this agreement were $14 million. The
Company expects that such minimums will be met.
As discussed in Note 7, the Company and certain of its subsidiaries entered into
a Credit Facility. Pursuant to the Credit Facility, the Banks have extended the
Company a five-year amortizing term loan in the original principal amount of
$135 million ("Term Loan") and established for the Company from September 14,
1995 until September 13, 2000 a revolving line of credit ("Revolver") in an
amount not to exceed $150 million. Approximately $84.3 million was outstanding
at December 31, 1995 under the Revolver. The Term Loan and Revolver are secured
by liens in favor of the banks on substantially all of the Company's tangible
and intangible property, excluding real estate.
The Credit Facility includes various financial covenants of the Company,
including covenants with respect to minimum earnings before taxes; depreciation
and amortization; maximum senior leverage ratio; minimum interest coverage;
minimum net worth; and minimum fixed coverage ratio. The Credit Facility
prohibits the Company from paying dividends and making other distributions
(except for the issuance of shares as required by the Debenture) and has change-
of-control provisions.
As discussed in Note 7, the Company incurred indebtedness of $135 million
evidenced by the Debenture. 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
18
<PAGE>
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 1.8 million common shares at
$11 per share and the Warrant for 1.0 million shares, exercisable at $11 per
share. On September 15, 1995, in conjunction with the Baxter Industrial
acquisition, EML exercised the Warrant and purchased an additional 6.8 million
common shares at a price of $12.44 per share.
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's infrastructure; realization of expected operating
efficiencies; retention of the combined customer base; satisfying the
obligations under the Distribution Agreement; the provision 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 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 provides protection to meet
actual exposures and does not speculate in derivatives. At December 31, 1995,
the Company had a notional amount of $120 million of swaps in effect and had
committed another $60 million to take effect in 1996. These swaps expire
between 1996 and 2000. The amount of floating rate debt protected by the swaps
ranges from $180 million to $25 million during the period outstanding with fixed
rates ranging from 4.9% to 6.4%. Net receipts or payments under the agreements
are recognized as an adjustment to interest expense. The fair market value of
the swap agreements is based on the present value of the future cash flows
determined by the interest rate difference between the contracts' fixed rate and
the then-current replacement rate. At December 31, 1995, the fair market value
of the swap agreements, which is not recorded in the consolidated financial
statements, is a net payable of approximately $1.9 million. The Company is
exposed to credit loss in the event of nonperformance by the other parties to
the interest rate swap agreements. However, the Company does not anticipate
nonperformance by the counterparties. The Company also has an interest rate
collar on $30 million which expires on March 1, 1996. The collar is based on
the three-month London Interbank Offered Rate ("LIBOR") and has a floor of 6.75%
and a ceiling of 9.5%.
The Company's use of swaps and collars for interest rate protection increased
interest expense by $.3 million, $1.2 million, and $2.2 million in 1995, 1994,
and 1993, respectively. Pursuant to the Credit Facility, the Company is
obligated to provide interest rate protection on at least 25% of the Credit
Facility.
19
<PAGE>
VWR has been designated by the EPA as a potentially responsible party for
various sites. Management believes that any required expenditures would be
immaterial to the Company's Consolidated Financial Statements.
As of December 31, 1995, the estimated cost for capital improvement projects is
between $18 million and $23 million in 1996 related primarily to expansion of
facilities required to transfer the Baxter Industrial business to VWR
facilities. In addition, management estimates that acquisition-related expenses
totalling $3 million to $4 million will be incurred in 1996.
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.
20
<PAGE>
Operating Income Return on Average Invested Capital**
- ---------------------------------------------------
1995 1994 1993 1992
- ---------------------------------------------------------------------
7.3% 7.5% 11.1% 21.7%
1993 before
restructuring
charges 14.4%
Operating Income to Sales
- -------------------------
1995 1994 1993 1992
- ---------------------------------------------------------------------
2.5% 1.5% 2.2% 3.9%
1993 before
restructuring
charges 2.9%
Average Invested Capital to Sales**
- ---------------------------------
1995 1994 1993 1992
- ---------------------------------------------------------------------
34.2% 20.4% 19.9% 18.0%
Days Sales in Accounts Receivable
- ---------------------------------
1995* 1994* 1993 1992
- ---------------------------------------------------------------------
45.7 45.7 42.6 41.5
Inventory Turnover (Before LIFO)
- --------------------------------
1995* 1994* 1993 1992
- ---------------------------------------------------------------------
5.5 6.7 6.9 6.4
*Excludes the effect of the Baxter Industrial acquisition in 1995 and the Canlab
acquisition in 1994.
**Prior year amounts have been restated to conform to current year calculations.
21
<PAGE>
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
VWR SCIENTIFIC PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- --------------------------------------------------------------------------------------
(Thousands of dollars, except per share data)
<S> <C> <C> <C>
Sales $718,684 $535,179 $509,235
Cost of sales 559,565 421,981 392,961
-------- -------- --------
Gross margin 159,119 113,198 116,274
Operating expenses 124,317 94,333 92,510
Depreciation and amortization 13,212 9,791 9,203
Acquisition-related expenses 3,761 916
Restructuring and other
charges 3,300
-------- -------- --------
Total operating expenses 141,290 105,040 105,013
Operating income 17,829 8,158 11,261
Interest expense and other 14,803 5,137 4,708
-------- -------- --------
Income before income taxes
and cumulative effect of
accounting change 3,026 3,021 6,553
Income taxes 1,091 968 2,663
-------- -------- --------
Income before cumulative effect
of accounting change 1,935 2,053 3,890
Cumulative effect of change in
accounting for postretirement
benefits, net of income tax
benefit of $860 (1,400)
-------- -------- --------
Net Income $ 1,935 $ 2,053 $ 2,490
======== ======== ========
Earnings (Loss) Per Share:
Income before cumulative effect
of accounting change $ 0.13 $ 0.18 $ 0.35
Cumulative effect of accounting
change (0.13)
-------- -------- --------
Net Income $ 0.13 $ 0.18 $ 0.22
======== ======== ========
Weighted average number of common
shares outstanding (thousands) 14,831 11,128 11,153
</TABLE>
See Notes to Consolidated Financial Statements.
22
<PAGE>
VWR SCIENTIFIC PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars,
except share data)
<TABLE>
<CAPTION>
December 31,
ASSETS 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Receivables--
Trade receivables,
less reserves of $739 and $619 $134,917 $ 70,777
Other receivables 4,879 2,753
Inventories 53,247 40,091
Other 11,390 6,378
-------- --------
Total current assets 204,433 119,999
Property and equipment--net 37,648 38,259
Excess of cost over net assets of
businesses acquired 369,930 7,365
Other assets 9,461 7,752
-------- --------
$621,472 $173,375
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------
Current liabilities:
Bank checks outstanding, less cash in bank $ 1,748 $ 1,398
Accounts payable 73,238 35,783
Accrued liabilities 21,507 5,448
Current portion of long-term debt 20,000 2,250
-------- --------
Total current liabilities 116,493 44,879
-------- --------
Long-term debt:
Revolving credit facilities 84,327 61,920
Term loans 115,000 17,250
Subordinated debenture 135,000
-------- --------
Total long-term debt 334,327 79,170
-------- --------
Deferred income taxes and other 10,563 9,158
Shareholders' equity:
Preferred stock, $1 par value, 1,000,000
shares authorized, none issued
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
(Thousands of dollars, December 31,
except share data) 1995 1994
---- ----
<S> <C> <C>
Common stock, $1 par value, 30,000,000
shares authorized, 21,068,381 $ 21,068 $ 11,316
issued in 1995, 11,316,592 issued
in 1994
Additional paid-in capital 137,753 29,269
Retained earnings 4,457 4,941
Treasury stock at cost, 569
and 250,225 shares (9) (2,463)
Unamortized ESOP contribution (1,757) (1,786)
Unamortized restricted stock awards (711) (485)
Cumulative translation adjustment (712) (624)
-------- --------
Total shareholders' equity 160,089 40,168
-------- --------
$621,472 $173,375
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE>
VWR SCIENTIFIC PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- --------------------------------------------------------------------
<S> <C> <C> <C>
(Thousands of dollars)
OPERATING ACTIVITIES
Net income $ 1,935 $ 2,053 $ 2,490
Adjustments to reconcile
net income to cash
provided by operating
activities:
Depreciation and amortization,
including deferred debt
issuance costs 13,532 9,791 9,203
Cumulative effect of
accounting change 1,400
Provision for acquisition-
related expenses, net of
payments 2,420
Interest on debenture
paid in common stock 3,702
Change in assets and
liabilities, net of effect
of businesses acquired:
Receivables 6,130 (7,359) (4,123)
Inventories (13,256) (4,459) 2,782
Other current assets (3,322) (1,625) (5,914)
Accounts payable 37,455 9,040 (750)
Accrued liabilities 11,056 (2,013) 835
Deferred income taxes
and other (179) (330) 495
--------- -------- --------
Cash provided by
operating activities 59,473 5,098 6,418
--------- -------- --------
INVESTING ACTIVITIES
Acquisition of businesses (434,184) (13,939)
Investment in joint venture (2,881)
Additions to property and
equipment, net (6,342) (2,922) (13,402)
Other (699) (909) (1,854)
--------- -------- --------
Cash used by
investing activities $(441,225) $(20,651) $(15,256)
--------- -------- --------
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from long-term debt $115,408 $169,243 $228,983
Repayment of long-term debt (153,595) (149,730) (214,847)
Repayment of existing credit
facility upon refinancing (73,700)
Proceeds from new credit
facility 249,600
Proceeds from long-term
subordinated debenture 135,000
Proceeds from exercise
of warrant 10,637
Net proceeds from common
stock issuance 104,171
Debt issuance costs (4,971)
Net change in bank checks
outstanding 350 336 (741)
Cash dividends (1,474) (4,419) (4,395)
Proceeds from exercise of
stock options 371 135 88
Other (45) (12) (250)
------- ------- -------
Cash provided by
financing activities 381,752 15,553 8,838
------- ------- -------
Net change in cash 0 0 0
Cash at beginning of year 0 0 0
------- ------- -------
Cash at end of year $ 0 $ 0 $ 0
======= ======= =======
Supplemental disclosures of
cash flow information:
Cash paid (received) during the
year for:
Interest (net of capitalized
interest in 1993) $ 8,989 $ 4,568 $ 4,128
Income taxes 321 (254) 4,568
Acquisition of businesses:
Working capital $ 68,438 $ 8,798
Property and equipment 862 75
Other, principally excess of
cost over net assets of
businesses acquired 364,884 5,066
------- -------
Net cash used to acquire
businesses $434,184 $13,939
======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE>
VWR SCIENTIFIC PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Thousands of dollars, Unamortized
except per share data) Restricted
Stock,
Common Unamortized
Stock Additional ESOP
$1 Par Paid-in Retained Treasury Contribution,
Value Capital Earnings Stock and Other
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1992 $11,316 $28,794 $8,561 $(3,491) $(2,923)
Net income 2,490
Cash dividends
($.40 per share) (4,400)
Allocation of shares to
ESOP participants 417
Restricted stock awards
45,219 shares 222 439 (661)
Amortization of restricted
stock 290
Grant of treasury stock-
4,478 shares 28 43
Acquisition of treasury
stock - 1,783 shares (22)
Exercise of stock options (61) 149
Tax benefit on ESOP divi-
dends and restricted stock 154
Foreign currency transla-
tion adjustment (288)
Balance at ------- ------- ------ ------- -------
December 31, 1993 $11,316 $29,137 $6,651 $(2,882) $(3,165)
------- ------- ------ ------- -------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
(Thousands of dollars, Unamortized
except per share data) Restricted
Stock,
Common Unamortized
Stock Additional ESOP
$1 Par Paid-in Retained Treasury Contribution,
Value Capital Earnings Stock and Other
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $2,053
Cash dividends
($.34 per share) (3,763)
Allocation of shares to
ESOP participants $ 271
Restricted stock awards -
21,816 shares $ 28 $ 211 (239)
Amortization of restricted
stock 295
Exercise of stock options (79) 208
Tax benefit on ESOP divi-
dends and restricted stock 183
Foreign currency transla-
tion adjustment (57)
Balance at ------- ------- ------ ------- -------
December 31, 1994 $11,316 $29,269 $4,941 $(2,463) $(2,895)
------- ------- ------ ------- -------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
(Thousands of dollars, Unamortized
except per share data) Restricted
Stock,
Common Unamortized
Stock Additional ESOP
$1 Par Paid-in Retained Treasury Contribution,
Value Capital Earnings Stock and Other
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $1,935
Issuance of 8,650,978
shares of common stock,
net of issuance
costs of $829 $8,651 $95,520
Exercise of warrants
for 967,015 shares
of common stock 967 9,670
Issuance of 297,615 shares
of common stock
as payment for
debenture interest 298 3,404
Cash dividends
($.08 per share) (1,033)
Allocation of shares to
ESOP participants $ 29
Restricted stock awards -
52,589 shares 43 456 $ 97 (596)
Amortization of restricted
stock 337
Acquisition of treasury
stock - 11,160 shares (149)
Retirement of treasury
stock - 253,551 shares (254) (899) (1,386) 2,539
Exercise of stock options 47 324
Foreign currency
translation adjustment (88)
Other 9 (33) 33
Balance at ------- -------- ------ ------- -------
December 31, 1995 $21,068 $137,753 $4,457 $ (9) $(3,180)
======= ======== ====== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE>
VWR SCIENTIFIC PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Principles of Consolidation
- ---------------------------
The accompanying consolidated financial statements include the accounts of VWR
Scientific Products Corporation (formerly VWR Corporation) and all of its
subsidiaries (the "Company" or "VWR"). All significant intercompany accounts
and transactions have been eliminated.
Capitalization, Depreciation and Amortization
- ---------------------------------------------
Land, buildings, and equipment are recorded at cost. Depreciation is computed
using the straight-line method for financial reporting purposes and, generally,
accelerated methods for income tax purposes. Acquisition and development costs
for significant business systems and related software for internal use are
capitalized and amortized over their estimated useful lives of seven years. The
Company capitalizes the costs of developing and producing catalogs, which are
used by customers for ordering products. Such costs are amortized over the
period of use, generally two years.
Excess of Cost Over Net Assets of Businesses Acquired
- -----------------------------------------------------
Excess of cost over net assets of businesses acquired is primarily the result of
the acquisitions of the Industrial Distribution Business of Baxter Healthcare in
1995 and Canlab in 1994 and is being amortized over 40 years. Accumulated
amortization at December 31, 1995 and 1994 was $3.6 million and $.6 million,
respectively. The carrying value of excess of cost over net assets of
businesses acquired will be evaluated periodically in relation to the operating
performance and expected future undiscounted cash flows of the underlying
businesses.
Income Taxes
- ------------
In 1993, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," which did not have a material effect on
the Company's financial position or results of operations.
Postretirement Benefits
- -----------------------
In 1993, the Company adopted SFAS No. 106, "Accounting for Postretirement
Benefits Other Than Pensions." This Statement requires the Company to accrue
the cost of retiree medical expenses over the period earned by the participants,
which was a change from the Company's prior practice of recording these costs
when incurred.
30
<PAGE>
Earnings Per Share
- ------------------
Earnings per share are based on the weighted average number of shares and
dilutive common share equivalents outstanding during the period. Shares issued
in payment of Debenture interest are included in the share calculation as
interest expense is recognized (See Note 7).
Segment and Customer Information
- --------------------------------
The Company is engaged in one line of business, industrial distribution. No
single customer accounts for more than 10% of sales. The majority of the
Company's business activity pertains to, and accounts receivable result from,
sales of laboratory equipment and supplies to businesses across a wide
geographical area in various industries, mainly industrial, governmental,
biomedical, and educational. At December 31, 1995, the Company had no
significant concentrations of credit risk.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
New Accounting Standards
- ------------------------
In March 1995, the FASB issued 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. The Company will adopt SFAS 121 in the first quarter of 1996 and,
based on current circumstances, does not believe the effect of adoption will be
material.
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.
Reclassifications
- -----------------
Certain prior years' amounts have been reclassified to conform to the current
year's presentation.
31
<PAGE>
2. ACQUISITIONS
------------
Baxter Industrial
- -----------------
On September 15, 1995, VWR purchased certain assets and assumed certain
liabilities of the Industrial Distribution Business ("Baxter Industrial") of
Baxter Healthcare Corporation ("Baxter Healthcare"), a subsidiary of Baxter
International, 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
$434 million. In addition to the $400 million paid at closing, $28.6 million
was paid over a 52-day period for accounts receivable in the same amount and
approximately $5 million of additional liabilities were assumed. The purchase
price paid by the Company is subject to adjustment which the Company does not
believe will materially affect its financial position or results of future
operations.
The acquisition has been accounted for under the purchase method of accounting
and, accordingly, the results of Baxter Industrial have been included in the
consolidated operating results since the date of acquisition. The Company's
balance sheet at December 31, 1995 includes estimates of the fair value of the
assets and liabilities acquired in connection with the acquisition of Baxter
Industrial. Cost in excess of net assets acquired amounted to $365 million
which is being amortized on a straight-line basis over 40 years. Changes in
purchase accounting estimates related to the resolution of issues that existed
at the date of acquisition and related restructuring decisions may result in a
reallocation of the purchase price within one year of the date of acquisition.
The purchase price was 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"), an
affiliate of Merck KGaA, Germany; (ii) the issuance of a $135.0 million
subordinated debenture (the "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 $285.0
million credit agreement entered into by the Company on September 14, 1995.
During the next twelve to fifteen months, the servicing of former Baxter
Industrial customers will be moved to VWR facilities and systems, and the
Company will be required to purchase from Baxter Healthcare the inventory of
laboratory supplies and equipment held for sale to customers of Baxter
Industrial at Baxter Healthcare's facilities. At December 31, 1995, the Baxter
Industrial inventory held by Baxter Healthcare was approximately $46 million.
During 1995, the Company purchased $31.3 million of inventory from affiliates of
Merck KGaA, of which $4.5 million was payable at December 31, 1995.
Canlab
- ------
Effective October 31, 1994, the Company, through its wholly-owned Canadian
subsidiary, acquired certain assets related to the laboratory supply business of
Canlab, a division of Baxter International, for approximately $13.9 million.
The acquisition was accounted for under the purchase method of accounting and
was funded through the Company's then-outstanding secured term
32
<PAGE>
loan. Canlab's results of operations have been included in the consolidated
results of operations since the date of acquisition. The acquisition resulted in
$5.1 million of excess of cost over net assets acquired which is being amortized
over 40 years. In the fourth quarter of 1994, as a result of the acquisition,
VWR terminated certain of its employees and closed certain facilities. The total
cost of these actions, which was expensed in 1994, was $.9 million.
The following unaudited pro forma information has been prepared assuming that
the Baxter Industrial acquisition and the Canlab acquisition and related
financings had occurred on January 1, 1994 and January 1, 1993, respectively.
Pro forma adjustments include: increased amortization for the cost over net
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 Industrial's and VWR's businesses
are not expected to be fully integrated until after the first anniversary date
of the closing. Also, Baxter Industrial'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 possible
to calculate the pro forma adjustments.
<TABLE>
<CAPTION>
(In thousands, except Year Ended December 31,
per share data) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales $1,072,789 $1,036,493 $553,467
Income before cumulative
effect of accounting
change $ 1,219 $ 3,455 $ 5,766
Net income 1,219 3,455 4,366
Earnings Per Share
Before cumulative effect
of accounting change $ .05 $ .16 $ .52
Net Income .05 .16 .39
Weighted average number of
shares outstanding 22,220 21,394 11,103
</TABLE>
The unaudited 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 Baxter Industrial and Canlab acquisitions
and related financing transactions been completed for the periods presented, or
results that may be obtained in the future.
In connection with the combination of the Baxter Industrial business with VWR,
the Company has made organizational and facility location decisions involving
the Company's selling and distribution activities. At December 31, 1995, while
the overall plans had been substantially finalized, they had not been
33
<PAGE>
fully communicated or implemented. The implementation will result in additional
inventory relocation, severance, personnel relocation, and other costs being
incurred in 1996. Certain costs related to activities of the Baxter Industrial
business will be considered in the final allocation of the purchase price of the
acquired business, and the additional costs related to VWR's existing operations
were or will be expensed. In 1995, the Company accrued $2.4 million in
connection with the Baxter Industrial business and expensed $3.8 million as
acquisition-related expenses including: lease termination costs related to the
decision to upgrade the Company's computer hardware; severance and relocation of
VWR employees; training of the combined sales force regarding the transition;
consulting services; and other incremental costs related to the acquisition.
Although these efforts are continuing, it is estimated that additional costs
related to VWR's existing operations may range between $3 million and $4 million
in 1996.
3. INVENTORIES
-----------
Inventories consist of purchased goods for sale and are valued at the lower of
cost or market. Cost determined using the last-in, first-out (LIFO) method
comprised 81% and 75% of inventory carrying value at December 31, 1995 and 1994,
respectively. Cost of the remaining inventories is determined using the first-
in, first-out (FIFO) method.
LIFO cost at December 31, 1995 and 1994, was approximately $28.8 million and
$27.7 million, respectively, less than current cost. The effect of LIFO layer
liquidations decreased cost of sales by $.6 million in 1993.
4. FIXED ASSETS
------------
Net property and equipment at December 31, 1995 and 1994, is:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
(Thousands of dollars) 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
Land $ 2,130 $ 2,130
Buildings 10,249 10,249
Equipment and computer software 56,437 53,029
Construction in progress 2,687 408
-------- --------
71,503 65,816
Less accumulated depreciation (33,855) (27,557)
-------- --------
Net property and equipment $ 37,648 $ 38,259
======== ========
</TABLE>
Depreciation expense for the years ended December 31, 1995, 1994 and 1993, was
$6.6 million, $6.3 million and $5.4 million, respectively.
5. ACCRUED LIABILITIES
-------------------
Included in accrued liabilities at December 31, 1995 is accrued compensation of
approximately $9.0 million and accrued service costs under the Baxter
34
<PAGE>
Industrial Services Agreement (see Note 14) of $6.6 million. At December 31,
1994, accrued compensation was approximately $3.3 million.
6. FOREIGN CURRENCY TRANSACTIONS
-----------------------------
The Company supplies product to its Canadian subsidiary for sale to the
subsidiary's Canadian customers. The Company has entered into forward exchange
contracts to fix the rate of exchange on the Canadian dollar payments made to
the Company upon settlement of the intercompany accounts related to those
shipments to its subsidiary. As of December 31, 1995, the Company had
approximately $6.9 million of forward exchange contracts outstanding. Net
transaction gains and losses under the contracts are not material and are
included in interest expense and other.
7. LONG-TERM DEBT AND REVOLVING CREDIT FACILITIES
----------------------------------------------
On September 14, 1995, the Company entered into a five-year $285 million Credit
Facility consisting of a five-year $135 million amortizing term loan (the "Term
Loan") and a $150 million revolving line of credit (the "Revolver"). The
Revolver provides for the ability to borrow the equivalent in Canadian dollars
up to $17 million U.S. dollars. The Term Loan and Revolver are secured by liens
on substantially all of the Company's tangible and intangible property,
excluding real estate. Borrowings under the Revolver are limited to 85% of
eligible accounts receivable and 50% of eligible inventory. The proceeds of the
Term Loan and the initial advance under the Revolver were used by the Company
principally to repay indebtedness of $74 million outstanding under the Company's
former credit facility and to pay $170 million of the purchase price for the
Baxter Industrial acquisition. Both the Term Loan and the Revolver bear
interest rates based on the London Interbank Offered Rate ("LIBOR") or the prime
rate, plus the applicable margin. The Company is required to pay commitment
fees on the unused portion of the Revolver of between .20% and .50%. The margin
on interest and the commitment fees will vary depending on the relationship
between the Company's earnings before interest, taxes, depreciation and
amortization ("EBITDA") and aggregate borrowings under the Credit Facility.
The Credit Facility includes various financial covenants of the Company,
including covenants with respect to minimum EBITDA, maximum senior leverage
ratio, minimum interest coverage, minimum net worth, and minimum fixed-charge
coverage ratio. The Credit Facility prohibits the Company from paying dividends
and making other distributions (except for the issuance of common shares as
required by the Debenture) and has change-of-control provisions.
The terms of the Revolver provide that the Company 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.
On September 15, 1995, in conjunction with the Baxter Industrial acquisition,
the Company issued the Debenture to EML in the principal amount of $135.0
million. The Debenture was subsequently assigned to another affiliate of EML.
The Debenture matures in a single installment on September 15, 2005 and is
subordinated to the Company's obligations under the Credit Facility. Interest is
payable on the unpaid principal of the Debenture quarterly at 13% per annum
35
<PAGE>
by: issuance of common shares of the Company in the first year up to an amount
that will enable EML to obtain an ownership percentage of 49.89% in the Company
based on a fixed price of $12.44 per share; is deferred in year two to be paid
with accumulated interest thereon at maturity; and is payable in cash beginning
in year three.
At December 31, 1995 and 1994, the approximate weighted average interest rate on
borrowings under the outstanding Credit Facility was 7.8% and 7.4%,
respectively. Interest expense under the credit facilities for the years ended
December 31, 1995, 1994, and 1993, was $9.6 million, $4.8 million, and $4.5
million, respectively, resulting in a weighted average interest rate of 8.2%,
7.0%, and 7.9%, respectively.
The carrying values of the Revolver and Term Loan approximate their fair values.
The fair value of the Debenture is not readily determinable.
In connection with the Credit Facility and Debenture, the Company incurred
approximately $5.0 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 Loan and Debenture, and the straight-
line method related to the Revolver. Total amortization of debt issuance costs
(included in interest expense and other) was $.3 million in 1995.
Aggregate maturities of long-term debt are as follows: 1996-$20.0 million;
1997-$22.5 million; 1998-$30.0 million; 1999-$32.5 million; 2000-$114.3 million;
and $135.0 million in 2005.
The Company has entered into various interest rate swap agreements with
financial institutions which effectively changes the Company's interest rate
exposure on a notional amount of debt from variable rates to fixed rates. The
notional amounts of the swaps are based upon obligations under the Credit
Facility and expected actual debt levels during a five-year period. The Company
provides protection to meet actual exposures and does not speculate in
derivatives. At December 31, 1995, the Company had a notional amount of $120
million of swaps in effect and had committed another $60 million to take effect
in 1996. These swaps expire between 1996 and 2000. The amount of floating rate
debt protected by the swaps ranges from $180 million to $25 million during the
period outstanding with fixed rates ranging from 4.9% to 6.4%. Net receipts or
payments under the agreements are recognized as an adjustment to interest
expense. The fair market value of the swap agreements is based on the present
value of the future cash flows determined by the interest rate difference
between the contracts' fixed rate and the then-current replacement rate. At
December 31, 1995 the fair market value of the swap agreements, which is not
recorded in the consolidated financial statements, is a net payable of
approximately $1.9 million. The Company is exposed to credit loss in the event
of nonperformance by the other parties to the interest rate swap agreements.
However, the Company does not anticipate nonperformance by the counterparties.
The Company has an interest rate collar on $30 million which expires on March 1,
1996. The collar is based on the three-month London Interbank Offered Rate
("LIBOR") and has a floor of 6.75% and a ceiling of 9.5%. The cost of the
36
<PAGE>
collar is treated as a reduction of the revolving credit debt and is being
amortized as revolving credit interest expense over the term of the collar.
8. INCOME TAXES
------------
Taxes on income are based on income (loss) before income taxes and cumulative
effect of accounting change as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
(Thousands of dollars)
1995 1994 1993
- ------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $2,351 $3,470 $7,447
Foreign 675 (449) (894)
------ ------ ------
$3,026 $3,021 $6,553
====== ====== ======
</TABLE>
The provision for income taxes on income before cumulative effect of accounting
change consists of:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
(Thousands of dollars)
1995 1994 1993
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 487 $1,652 $2,320
State 44 170 200
------ ------ ------
531 1,822 2,520
------ ------ ------
Deferred:
Federal 481 (276) 286
State (183) (213) 7
Foreign 262 (365) (150)
------ ------ ------
560 (854) 143
------ ------ ------
Total tax provision $1,091 $ 968 $2,663
====== ====== ======
</TABLE>
37
<PAGE>
The reconciliation of tax computed at the federal statutory tax rate of 35%
of income before income taxes and cumulative effect of accounting change to
the actual income tax provision is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(Thousands of dollars)
1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax $1,059 $ 1,058 $ 2,293
State income taxes net
of federal tax benefit (93) (29) 137
Increase in statutory rate
on deferred tax items 164
Other-net 125 (61) 69
------ ------- -------
Total tax provision $1,091 $ 968 $ 2,663
====== ======= =======
</TABLE>
Deferred tax liabilities (assets) as of December 31, 1995 and 1994 are comprised
of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
(Thousands of dollars) 1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Depreciation $ 5,297 $ 5,942
Pension 2,250 1,730
Goodwill amortization 1,673
------- -------
Deferred tax liabilities 9,220 7,672
------- -------
Postretirement benefits (763) (800)
Other compensation benefits (1,366) (525)
Net operating loss carryforwards
from foreign operations (504) (586)
Other-net (1,000) (714)
------- -------
Deferred tax assets (3,633) (2,625)
------- -------
Net deferred tax liability $ 5,587 $ 5,047
======= =======
</TABLE>
Included in other current assets at December 31, 1995 and 1994, are
net current deferred tax assets of $1.6 million and $.8 million, respectively,
and at December 31, 1994 are refundable income taxes of approximately $.4
million. The Company has Canadian tax loss carryforwards of approximately $1.3
million which expire at various dates through 2001. Management expects that the
realization of the deferred tax assets related to the Canadian net operating
losses will result from continued improved profitability.
9. SHAREHOLDERS' EQUITY
--------------------
In April 1995, EML purchased from the Company 1,818,181 common shares (at a
price per share of $11) and a warrant (the "Warrant") to purchase an additional
967,015 shares (at a price per share of $11). In connection with the Baxter
Industrial acquisition on September 15, 1995, EML purchased
38
<PAGE>
6,832,797 common shares at a price of $12.44 and exercised the Warrant, raising
its beneficial ownership of the Company to 46%. In connection with the agreement
to purchase such securities, EML entered into a Standstill Agreement with the
Company, pursuant to which EML 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 47.1% of the
issued and outstanding common shares. Under the terms of the Debenture, interest
is payable in common shares, at an issue price per share of $12.44, until EML's
beneficial ownership reaches 49.89%. Pursuant to the Standstill Agreement, six
persons nominated by EML were elected to the Company's Board of Directors, which
consists of fourteen members.
During 1995, the Company retired 253,551 shares of treasury stock resulting in a
$.9 million and $1.4 million reduction of additional paid-in capital and
retained earnings, respectively.
Shareholder Rights Agreement
- ----------------------------
On May 20, 1988, the Company established a Shareholder Rights Agreement. The
Agreement is designed to deter coercive or unfair takeover tactics that could
deprive shareholders of an opportunity to realize the full value of their
shares. On February 23, 1995, the Company amended the Agreement to change the
definition of "Acquiring Person" to exclude any purchaser who has an agreement
with the Company, executed prior to the date of acquiring 20% or more of the
Company's common stock, which imposes one or more thresholds on the amount of
the purchasers' ownership of the Company's common stock. The Amendment also
provides that the Agreement be governed by the laws of the Commonwealth of
Pennsylvania instead of the laws of the State of Delaware.
Under the Agreement, the Company has distributed a dividend of one Right for
each outstanding share of the Company's stock. When exercisable, each Right
will entitle its holder to buy two shares of the Company's common stock at
$45.00 per share. The Rights will become exercisable if an Acquiring Person, as
defined, acquires or makes an offer to acquire 20 percent of the Company's
common stock. In the event that a purchaser acquires 20 percent of the common
stock, each Right shall entitle the holder, other than the Acquiring Person, to
purchase, at the Right's then-current full exercise price, shares of the
Company's common stock having a market value of twice the then-current full
exercise price of the Right. In the event that, under certain circumstances,
the Company is acquired in a merger or transfers 50 percent or more of its
assets or earnings to any one entity, each Right entitles the holder to purchase
common stock of the surviving or purchasing company having a market value of
twice the full exercise price of the Right. The Rights, which expire on May 31,
1998, may be redeemed by the Company at a price of $.005 per Right.
10. STOCK AND INCENTIVE PROGRAMS
----------------------------
The Company has two stock incentive plans, the 1986 Stock Incentive Plan ("1986
Plan"), which expires in 1996, and the 1995 Stock Incentive Plan ("1995 Plan").
The Board of Directors adopted the 1995 Plan, subject to the approval of the
shareholders, pursuant to which 2,000,000 common shares are available for
issuance. Shares of the Company granted under these two plans are in non-
39
<PAGE>
qualified and incentive stock options or restricted stock awards. Under the
stock incentive plans, in addition to outstanding options, 198,809 shares and
1,060,000 shares were available for issuance under the 1986 Plan and 1995 Plan,
respectively, at December 31, 1995.
Restricted Stock Awards
- -----------------------
The Company's restricted stock awards provide for grants of common stock to
certain directors, officers, and managers. The vesting periods range from one
to eight years. The fair market value of the stock at the date of grant
establishes the compensation amount, which is amortized to operations over the
vesting period. During the years ended December 31, 1995, 1994 and 1993, the
Company granted 52,589, 21,816 and 45,219 shares, respectively, at fair market
values of approximately $.6 million, $.2 million and $.7 million, respectively.
Stock Options
- -------------
Under the 1986 Plan, options, which vest over 3 to 10 years, have been granted
to certain officers and managers to purchase common stock of the Company at its
fair market value at the date of grant. Options were granted under the 1995
Plan to purchase 1,020,000 common shares (of which 80,000 were canceled) at the
then-fair market value, subject to shareholder approval. The options under the
1995 Plan become exercisable at the earlier of nine years following issuance or
50% when the market value (as defined) of the Company's common stock reaches $18
per share for 20 consecutive days and 50% when the market value (as defined)
reaches $21 per share for 20 consecutive days.
Changes in options outstanding were:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
Shares Average Price
- ----------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1992 372,813 $ 7.61
Exercised (14,469) 6.07
Granted 59,921 13.88
Canceled (12,446) 6.90
--------- ------
Outstanding at December 31, 1993 405,819 8.61
Exercised (22,007) 6.14
Granted 5,000 10.00
Canceled (32,845) 7.75
--------- ------
Outstanding at December 31, 1994 355,967 8.86
Exercised (47,166) 7.87
Granted 1,020,000 12.00
Canceled (87,200) 11.67
--------- ------
Outstanding at December 31, 1995 1,241,601 $11.28
========= ======
</TABLE>
At December 31, 1995, there were 139,721 options exercisable at an average price
of $7.71.
40
<PAGE>
Savings Investment Plan
- -----------------------
The Company has a savings investment plan whereby it matches 50% of the
employee's contribution up to 3% of the employee's pay. For employee
contributions between 3% and 7.5% of their pay, the Company will match 50% of
the contribution within prescribed limits based on the Company's profitability
for the year. All Company contributions are used to buy common shares of the
Company. Expenses under this plan for the years ended December 31, 1995, 1994,
and 1993, were $.7 million, $.6 million and $.5 million, respectively.
Employee Stock Ownership Plan
- -----------------------------
In September 1990, the Company established an employee stock ownership plan
(ESOP) by, in effect, contributing 400,000 treasury shares ($2.9 million fair
value) to the ESOP of which 157,560 shares are allocated to participants at
December 31, 1995. All full-time and part-time employees, except certain union
employees, are eligible to participate in the plan.
The ESOP shares will be allocated equally to individual participants' accounts
over a period up to ten years. Vesting occurs equally over an employment period
of five years at which time the employee is 100% vested in the plan. The total
number of shares to be allocated in a year is the higher of an amount based on
the Company's profitability or the minimum allocation required per the ESOP
agreement. Expenses are recognized based on shares allocated for the year and
have been reduced for dividends paid on unallocated shares.
11. POSTRETIREMENT BENEFITS
------------------------
Pension Plans
- -------------
The Company has two defined benefit pension plans covering substantially all of
its domestic employees, except for employees covered by independently operated
collective bargaining plans. Pension benefits are based on years of credited
service and the highest five consecutive years' average compensation.
Contributions to the Company plans are based on funding standards established by
the Employee Retirement Income Security Act of 1974 (ERISA).
The total VWR plans' funding status and the amounts recognized in the Company's
Consolidated Balance Sheets at December 31, 1995 and 1994, are:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(Thousands of dollars) 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of plan benefit
obligations:
Vested benefit obligation $ 38,237 $ 30,166
Nonvested benefit obligation 1,209 1,254
-------- --------
Accumulated benefit obligation $ 39,446 $ 31,420
======== ========
Projected benefit obligation $ 45,232 $ 35,972
Plan assets at fair value (43,172) (33,313)
</TABLE>
41
<PAGE>
<TABLE>
<S> <C> <C>
-------- --------
Projected benefit obligation in
excess of plan assets $ 2,060 $ 2,659
Prior service costs not yet recognized
in net periodic pension cost 594 699
Unrecognized net transition obligation (269) (333)
Unrecognized actuarial loss (7,351) (6,901)
-------- --------
Prepaid pension expense included in
consolidated balance sheets $ (4,966) $ (3,876)
======== ========
</TABLE>
The assets of the Company plans consist primarily of undivided interests in
several funds structured to duplicate the performance of various stock and bond
indexes.
Net pension expense under the Company plans includes the following components:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
(Thousands of dollars) 1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned
during the year) $ 1,353 $ 1,516 $ 1,252
Interest cost on projected
benefit obligation 3,051 2,922 2,758
Actual return on plan assets (9,501) (116) (3,412)
Net amortization and deferral 6,342 (2,714) 682
------- ------- -------
Net pension expense $ 1,245 $ 1,608 $ 1,280
======= ======= =======
The assumptions used were:
Discount rate 7.50% 8.75% 7.75%
Rate of increase in
compensation levels 4% 4% 4%
Expected long-term rate of
return on plan assets 10% 10% 10%
</TABLE>
The Company maintains a supplemental pension plan for certain senior officers.
Expenses incurred under this plan in 1995, 1994 and 1993 were approximately $.1
million, $.2 million and $.3 million, respectively.
Certain employees are covered under union-sponsored, collectively bargained
plans. Expenses under these plans for each of the years ended December 31,
1995, 1994 and 1993, were $.3 million, $.2 million and $.2 million,
respectively, as determined in accordance with negotiated labor contracts.
Retiree Medical Benefits Program
- --------------------------------
The Company provides certain medical benefits for retired employees. In 1993,
the Company adopted SFAS No. 106,"Accounting for Postretirement Benefits Other
Than Pensions." The Company elected to immediately recognize the calculated
42
<PAGE>
liability resulting in a one-time non-cash charge to income of approximately
$1.4 million, net of a deferred tax benefit of approximately $.9 million.
Employees retired as of December 31, 1992 and active employees who reached age
55 by December 31, 1992 are eligible to participate in the Company's retiree
health plan (the "Plan"). There are also certain provisions for participation
by spouses. The Plan is contributory, with retiree contributions based on years
of service, and includes other co-payment and co-insurance provisions.
The Company does not fund the Plan. The liability of the Plan at December 31,
1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(Thousands of dollars)
1995 1994
Accumulated postretirement benefit obligation: ---- ----
<S> <C> <C>
Retirees $1,994 $1,486
Eligible active participants 65 184
Other active participants 70 22
Unrecognized net gain (loss) (206) 307
------ ------
Accrued postretirement benefit obligation $1,923 $1,999
====== ======
</TABLE>
The net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost $ 4 $ 6 $ 7
Interest cost 162 139 174
Net amortization and deferral (3)
------ ------ ------
$ 166 $ 142 $ 181
====== ====== ======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation is 10% through 1996 declining 1% per year to a
level of 5.4% in 2001 and thereafter. The effect of a 1% annual increase in the
assumed cost trend rate would increase the accumulated postretirement benefit
obligation by approximately 9%; the annual service and interest cost components
in the aggregate would not be materially affected. A 7.5% discount rate was
used in determining the accumulated postretirement benefit obligation at
December 31, 1995 and 8.75% was used at December 31, 1994.
12. LEASES
------
The Company leases office and warehouse space, computer equipment, and
automobiles under operating leases, certain of which extend up to 19 years,
subject to renewal options.
Rental expense was approximately $5.4 million for the year ended December 31,
1995 and $5.2 million for the years ended December 31, 1994 and 1993.
43
<PAGE>
Future minimum lease payments as of December 31, 1995, under noncancelable
operating leases having initial lease terms of more than one year are:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Years Ending December 31
(Thousands of dollars)
- ------------------------------------------------------------------------------
<S> <C>
1996 $ 6,216
1997 5,410
1998 4,765
1999 3,919
2000 3,561
Thereafter 25,094
------
Total minimum payments $48,965
======
</TABLE>
13. CONTINGENCIES AND COMMITMENTS
-----------------------------
The Company is involved in various environmental, contractual, and product
liability cases and claims, which are considered routine to the Company's
business. In the opinion of management, the potential financial impact of these
matters is not material to the consolidated financial statements.
Litigation relating to the issuance by VWR of the shares sold to EML and the
Debenture was commenced in the Delaware Court of Chancery in July 1995 against
VWR, VWR's President and Chief Executive Officer, seven members of VWR's Board
of Directors and EML. In the complaint, the plaintiff seeks to have the action
certified as a class action, to enjoin VWR from consummating the issuance of the
shares sold to EML and the Debenture, and to obtain an award of compensatory and
other damages. 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.
VWR believes that this suit is without merit and VWR, EML and the individual
defendants intend to vigorously defend this action. On September 15, 1995, VWR
and the individual defendants filed motions to dismiss this action on both
procedural and substantive grounds.
14. MATERIAL AGREEMENTS
-------------------
Services Agreement
- ------------------
On September 15, 1995, the Company entered into a Services Agreement with Baxter
Healthcare that provides for an orderly transfer of the Baxter Industrial
business to the Company. Under the Services Agreement, Baxter Healthcare is
required to continue to provide the same type of services to the customers of
the Baxter Industrial business as it had provided prior to VWR's completion of
the Baxter Industrial acquisition. Such services include order entry, shipping,
invoicing, credit and collection, and inventory stocking and replenishment.
44
<PAGE>
While the term of the Services Agreement is for two years, upon prior notice,
the Company may direct Baxter Healthcare to discontinue the provision of
services in any particular region. No service fees were 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 Healthcare at the rate of
5.5% of the total sales to customers of the Baxter Industrial business which are
serviced by Baxter Healthcare; provided, however, the Company is obligated to
pay a minimum of $18.6 million to Baxter Healthcare during the first fifteen
months of such agreement. During 1995, the Company expensed $6.6 million under
the Services Agreement using an effective-rate method. Upon the cessation of
services by Baxter Healthcare at a particular facility, the Company is required
to purchase from Baxter Healthcare the inventory of laboratory supplies and
equipment held by Baxter Healthcare for sale to customers of the Baxter
Industrial business.
Distribution Agreement
- ----------------------
On September 15, 1995, the Company entered into a Distribution Agreement with
Baxter Healthcare pursuant to which Baxter Healthcare 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 Healthcare
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 Healthcare 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 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. During 1995, purchases under this agreement were $14 million.
15. JOINT VENTURE
-------------
On January 1, 1994, the Company formed a joint venture with Merck KGaA of
Germany and acquired an interest in Bender & Hobein GmbH, a distributor of
laboratory supplies and equipment in Germany. VWR has exercised its right under
the agreement to sell its interest. The sale was closed in February 1996 at no
gain or loss to the Company and the $2.9 million investment has been included in
other receivables at December 31, 1995.
16. RESTRUCTURING AND OTHER CHARGES
-------------------------------
In December 1994, the Company made the decision to consolidate certain sales
offices and functions. As a result, the Company incurred in 1995 approximately
$1.2 million in charges which were primarily for severance and other personnel-
related costs. Due to the effects of the Baxter Industrial acquisition, the
Company is not able to measure the benefits related to these costs which are
classified as operating expenses.
45
<PAGE>
In the fourth quarter of 1993, the Company made the decision to refocus certain
information systems' efforts into customer service systems and to take actions
that would reduce operating expenses. As a result of this effort, the Company
recorded a $3.3 million charge which included non-cash charges of $1.3 million
(primarily for software development costs that did not have continuing value)
and $2 million related to the consolidation of functions and facilities which
consisted primarily of severance and other personnel-related costs. All of the
Company's contemplated actions were completed during 1994.
17. FOREIGN AND DOMESTIC OPERATIONS
-------------------------------
For the years ended December 31, 1995 and 1993, sales and identifiable assets
attributable to the Canadian operations were less than 10% of the Company's
totals in each category. At December 31, 1994, identifiable assets of the
Company's Canadian operations were $28 million. Approximately half of the
Canadian assets at December 31, 1994 were attributable to the Canlab acquisition
on October 31, 1994. Because Canlab's operations are reflected in the
consolidated totals for only two months in 1994, net sales and operating income
(loss) of the Canadian operations were in each case less than 10 percent of the
consolidated total for such amounts.
46
<PAGE>
18. QUARTERLY FINANCIAL DATA (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
(Thousands of dollars, Gross Operating Net Earnings
except per share data) Sales Margin Income Income (Loss) Per
(Loss) Share
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended - December 31, 1995
First Quarter $146,376 $ 30,932 $ 2,405 $ 560 $ .05
Second Quarter 144,810 32,050 2,513 719 .06
Third Quarter 170,979 38,943 5,076 1,312 .09
Fourth Quarter 256,519 57,194 7,835 (656) (.03)
-------- -------- ------- ------ ------
Total $718,684 $159,119 $17,829 $1,935 $ .13*
======== ======== ======= ====== ======
Year Ended - December 31, 1994
First Quarter $122,044 $ 26,506 $ 1,418 $ 183 $ .02
Second Quarter 130,896 26,916 1,937 516 .05
Third Quarter 145,562 30,861 4,218 2,128 .19
Fourth Quarter 136,677 28,915 585 (774) (.07)
-------- -------- ------- ------ ------
Total $535,179 $113,198 $ 8,158 $2,053 $ .18*
======== ======== ======= ====== ======
</TABLE>
Note: The quarterly results of operations are impacted by the Baxter Industrial
acquisition in September 1995 and the Canlab acquisition in October 1994. Third
and fourth quarter 1995 amounts include Baxter Industrial acquisition-related
expenses of $2,067 and $1,694, respectively. Fourth quarter 1994 amounts
include Canlab acquisition-related expenses of $916.
* The sum of the quarterly earnings (loss) per share does not equal the total
earnings per share due to different weighted average share amounts outstanding
for quarterly and annual reporting purposes.
47
<PAGE>
REPORT OF INDEPENDENT AUDITORS
- ------------------------------
To the Shareholders of VWR Scientific Products Corporation:
We have audited the consolidated balance sheets of VWR Scientific Products
Corporation as of December 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. Our audits also included the
financial statement schedule listed in the index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of VWR
Scientific Products Corporation at December 31, 1995 and 1994, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 11 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for postretirement benefits other than
pensions.
BY (SIGNATURE)
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 20, 1996
48
<PAGE>
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
- ------ --------------------------------------------------------------
None
PART III.
- --------
The following information contained in the Company's definitive Proxy Statement
mailed to Shareholders on or about March 15, 1996, is incorporated by reference.
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- ---------------------------------------------------
Section captioned "Election of Directors" on pages 2, 3, and 4.
(Information regarding executive officers of the Company is included in Part I
of this Form 10-K.)
ITEM 11. - EXECUTIVE COMPENSATION
- ------- ----------------------
Section "Fees to Directors and Committees of the Board" on page 5, and
information on pages 9-12.
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------- ----------------------------------------------------------
Table captioned "Ownership of VWR Scientific Products Corporation Common
Shares" on page 4 and related footnotes.
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
None
49
<PAGE>
PART IV.
- -------
ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------- ------------------------------------------------------------
(a)(1) Financial Statements
The following financial statements have been included as part of this report:
Form 10-K
Page
---------
Consolidated Statements of Operations 22
Consolidated Balance Sheets 23
Consolidated Statements of Cash Flows 25
Consolidated Statements of Shareholders' Equity 27
Notes to Consolidated Financial Statements 30
Report of Independent Auditors 48
(2) Financial Statement Schedules
(a) The following financial statement schedule is submitted herewith:
-Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and have therefore been
omitted.
50
<PAGE>
(3) Exhibits
Exhibit Number and Description
------------------------------
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 the Registrant's Form 8-K dated September 15, 1995.
2(c) Agreement and Plan of Merger between VWR Corporation and
VWR New Corporation; incorporated by reference to Exibit 2 of the
Registrant's Form 10-K for the year ended December 31, 1994.
3(a) Amended and Restated Articles of Incorporation; incorporated by reference
to Exibit 3 of the Registrant's Form 10-K for the year ended December
31, 1994.
3(b) Amendment to Articles of Incorporation dated September 15, 1995;
incorporated by reference to Exhibit 1 of the Registrant's Form
8-K dated September 15, 1995.
3(c) Amended and Restated Bylaws; incorporated by reference to Exibit 3.1 of
the Registrant's Form 10-K for the year ended December 31, 1994.
4(a) Rights Agreement dated as of May 20, 1988 between VWR Corporation and The
First Jersey National Bank (filed as an exhibit to the Registrant's Form
8-A dated May 23, 1988, and incorporated herein by reference).
4(b) Amendment No. 1, dated as of February 23, 1995, to Rights Agreement,
dated as of May 20, 1988, between VWR Corporation and First
Interstate Bank of Washington, N.A., successor to The First
Jersey National Bank; incorporated by reference to Exhibit 4 of the
Registrant's Form 8-K dated February 23, 1995.
4(c) 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(d) 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 the Registrant's Form 8-K dated September 15, 1995.
4(e) Subordinated Debenture dated as of September 15, 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 the Registrant's Form 8-K dated September 15, 1995.
51
<PAGE>
4(f) 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 the Registrant's
Form 8-K dated September 15, 1995.
4(g) Term Note dated September 15, 1995 in the principal sum of
$135,000,000; incorporated by reference to Exhibit 4(e) of the
Registrant's Form 8-K dated September 15, 1995.
4(h) Revolving Credit Note dated September 15, 1995 in the principal sum
of $150,000,000; incorporated by reference to Exhibit 4(f) of
the Registrant's Form 8-K dated September 15, 1995.
4(i) Warrant to Purchase Common Shares of VWR Corporation dated April
13, 1995; incorporated by reference to Exhibit 4 of the Registrant's
Form 8-K dated April 13, 1995.
4(j) Amended and Restated Credit Agreement by and among VWR
Corporation and its Subsidiaries and CoreStates Bank, N.A.
for itself and as agent, Seattle-First National Bank,
Bank of America Canada, and PNC Bank, National Association
dated October 27, 1994.
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 the Registrant's Form 8-K dated September 15, 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 the Registrant's Form 8-K dated September 15, 1995.
10(d) Employment Agreement between Jerrold B. Harris and VWR Corporation
dated as of September 15, 1995; incorporated by reference to
Exhibit 10(e) of the Registrant's Form 8-K dated September 15, 1995. (1)
10(e) Change of Control agreement between VWR Corporation and
Paul J. Nowak; incorporated by reference
52
<PAGE>
to Exhibit 10 of the Registrant's Form 10-K Report for the year
ended December 31, 1992. (1)
10(f) VWR Corporation Executive Bonus Plan dated January 1, 1990;
incorporated by reference to Exhibit 10 of the Registrant's Form
10-K for the year ended December 31, 1991. (1)
10(g) VWR Corporation Supplemental Benefits Plan dated November 1,
1990; incorporated by reference to Exhibit 10 of the Registrant's
Form 10-K for the year ended December 31, 1991. (1)
11 Computation of Per Share Earnings
21 Subsidiaries of the Company
23 Consent of Independent Auditors
24 Power of Attorney
27 Financial Data Schedule for year ended December 31, 1995. (Submitted only
in electronic format pursuant to Item 601(c)(1)(v) of Regulation S-K).
53
<PAGE>
(1) May be deemed a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
None
54
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
VWR SCIENTIFIC PRODUCTS CORPORATION
Date BY (SIGNATURE)
/s/ Jerrold B. Harris,
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on the behalf of the registrant
in the capacities and on the dates indicated.
Date BY (SIGNATURE)
/s/ David M. Bronson
Senior Vice President Finance
(Principal Financial and
Accounting Officer)
DIRECTORS
James W. Bernard
Richard E. Engebrecht
Jerrold B. Harris
Curtis P. Lindley BY (SIGNATURE)
Edward A. McGrath, Jr.
Donald P. Nielsen
N. Stewart Rogers /s/ Jerrold B. Harris
James H. Wiborg Attorney-in-fact
Walter W. Zywottek Power of Attorney
Stephen J. Kunst dated February 28, 1996
Max J. Walser
Wolfgang Honn Date:
Harald J. Schroeder
Alfred Koch
55
<PAGE>
VWR SCIENTIFIC PRODUCTS CORPORATION
-----------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions (1) Other of Year
- ----------- ---------- ---------- -------------- ----- -------
<S> <C> <C> <C> <C> <C>
Allowances for losses
(deducted from trade
receivables) for:
Year Ended
December 31, 1995 $619 $876 $756 $739
=== === === ===
Year Ended
December 31, 1994 $259 $656 $554 $258(2) $619
=== === === === ===
Year Ended
December 31, 1993 $222 $377 $340 $259
=== === === ===
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Reserves established in connection with the Canlab acquisition.
56
<PAGE>
Exhibit Index
Exhibit Number and Description
------------------------------
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 the Registrant's Form 8-K dated September 15, 1995.
2(c) Agreement and Plan of Merger between VWR Corporation and
VWR New Corporation; incorporated by reference to Exibit 2 of the
Registrant's Form 10-K for the year ended December 31, 1994.
3(a) Amended and Restated Articles of Incorporation; incorporated by reference
to Exibit 3 of the Registrant's Form 10-K for the year ended December
31, 1994.
3(b) Amendment to Articles of Incorporation dated September 15, 1995;
incorporated by reference to Exhibit 1 of the Registrant's Form
8-K dated September 15, 1995.
3(c) Amended and Restated Bylaws; incorporated by reference to Exibit 3.1 of
the Registrant's Form 10-K for the year ended December 31, 1994.
4(a) Rights Agreement dated as of May 20, 1988 between VWR Corporation and The
First Jersey National Bank (filed as an exhibit to the Registrant's Form
8-A dated May 23, 1988, and incorporated herein by reference).
4(b) Amendment No. 1, dated as of February 23, 1995, to Rights Agreement,
dated as of May 20, 1988, between VWR Corporation and First
Interstate Bank of Washington, N.A., successor to The First
Jersey National Bank; incorporated by reference to Exhibit 4 of the
Registrant's Form 8-K dated February 23, 1995.
4(c) 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(d) 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 the Registrant's Form 8-K dated September 15, 1995.
4(e) Subordinated Debenture dated as of September 15, 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 the Registrant's Form 8-K dated September 15, 1995.
<PAGE>
4(f) 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 the Registrant's
Form 8-K dated September 15, 1995.
4(g) Term Note dated September 15, 1995 in the principal sum of
$135,000,000; incorporated by reference to Exhibit 4(e) of the
Registrant's Form 8-K dated September 15, 1995.
4(h) Revolving Credit Note dated September 15, 1995 in the principal sum
of $150,000,000; incorporated by reference to Exhibit 4(f) of
the Registrant's Form 8-K dated September 15, 1995.
4(i) Warrant to Purchase Common Shares of VWR Corporation dated April
13, 1995; incorporated by reference to Exhibit 4 of the Registrant's
Form 8-K dated April 13, 1995.
4(j) Amended and Restated Credit Agreement by and among VWR
Corporation and its Subsidiaries and CoreStates Bank, N.A.
for itself and as agent, Seattle-First National Bank,
Bank of America Canada, and PNC Bank, National Association
dated October 27, 1994.
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 the Registrant's
Form 8-K dated September 15, 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 the Registrant's Form 8-K dated September 15, 1995.
10(d) Employment Agreement between Jerrold B. Harris and VWR Corporation
dated as of September 15, 1995; incorporated by reference to
Exhibit 10(e) of the Registrant's Form 8-K dated September 15, 1995.
10(e) Change of Control agreement between VWR Corporation and
Paul J. Nowak; incorporated by reference
<PAGE>
to Exhibit 10 of the Registrant's Form 10-K Report for the year
ended December 31, 1992.
10(f) VWR Corporation Executive Bonus Plan dated January 1, 1990;
incorporated by reference to Exhibit 10 of the Registrant's Form
10-K for the year ended December 31, 1991.
10(g) VWR Corporation Supplemental Benefits Plan dated November 1,
1990; incorporated by reference to Exhibit 10 of the Registrant's
Form 10-K for the year ended December 31, 1991.
11 Computation of Per Share Earnings
21 Subsidiaries of the Company
23 Consent of Independent Auditors
24 Power of Attorney
27 Financial Data Schedule for year ended December 31, 1995. (Submitted only
in electronic format pursuant to Item 601(c)(1)(v) of Regulation S-K).
<PAGE>
EXHIBIT 11
----------
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
(Amounts in thousands, except per share data)
PRIMARY
Average shares
outstanding 14,738 11,050 10,998
Net effect of
dilutive stock
options-based on
the treasury stock
method using average
market price 93 78 155
------- ------- -------
TOTAL 14,831 11,128 11,153
======= ======= =======
Income before cumulative
effect of accounting
change $ 1,935 $ 2,053 $ 3,890
======= ======= =======
Per share amount $ 0.13 $ 0.18 $ 0.35
======= ======= =======
Cumulative effect of
accounting change $(1,400)
=======
Per share amount $ (0.13)
=======
Net income $ 1,935 $ 2,053 $ 2,490
======= ======= =======
Per share amount $ 0.13 $ 0.18 $ 0.22
======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
FULLY DILUTED*
Average shares
outstanding 14,738 11,050 10,998
Net effect of
dilutive stock
options-based on
the treasury stock
method using period-
end market price,
if greater than
average market price 199 84 161
------- ------- -------
TOTAL 14,937 11,134 11,159
======= ======= =======
Income before cumulative
effect of accounting
change $ 1,935 $ 2,053 $ 3,890
======= ======= =======
Per share amount $ 0.13 $ 0.18 $ 0.35
======= ======= =======
Cumulative effect of
accounting change $(1,400)
=======
Per share amount $ (0.13)
=======
Net income $ 1,935 $ 2,053 $ 2,490
======= ======= =======
Per share amount $ 0.13 $ 0.18 $ 0.22
======= ======= =======
</TABLE>
* This information is presented for informational purposes.
<PAGE>
EXHIBIT 21
----------
SUBSIDIARIES
DECEMBER 31, 1995
Wholly-owned subsidiaries are:
VWR Scientific International Corporation - a Delaware corporation
Scientific Holdings Corporation - a Delaware corporation
VWR Scientific of Canada Ltd. - a Canadian corporation, is a
wholly owned subsidiary of Scientific Holdings Corporation.
<PAGE>
EXHIBIT 23
----------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements No.
33-49807, 33-35684, 33-03991, 33-34262, 33-05816, and 33-07590 on Forms S-8 and
No. 33-32002 on Form S-3 of our report dated February 20, 1996, with respect to
the consolidated financial statements and schedule of VWR Scientific Products
Corporation included in the Annual Report (Form 10-K) for the year ended
December 31, 1995.
BY (SIGNATURE)
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
May 13, 1996
<PAGE>
EXHIBIT 24
----------
POWER OF ATTORNEY
- -----------------
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jerrold B. Harris and David M. Bronson, or either of
them, their attorneys-in-fact, for them in any and all capacities, to sign the
Annual Report on Form 10-K of VWR Scientific Products Corporation for the twelve
months ended December 31, 1995, and to file same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
BY /s/ James W. Bernard
James W. Bernard
Director February 28, 1996
BY /s/ Richard E. Engebrecht
Richard E. Engebrecht
Director February 28, 1996
BY /s/ Jerrold B. Harris
Jerrold B. Harris
Director February 28, 1996
BY /s/ Wolfgang Honn
Wolfgang Honn
Director February 28, 1996
BY /s/ Alfred J. Koch
Alfred J. Koch
Director February 28, 1996
BY /s/ Stephen J. Kunst
Stephen J. Kunst
Director February 28, 1996
BY /s/ Curtis P. Lindley
Curtis P. Lindley
Director February 28, 1996
BY /s/ Edward A. McGrath, Jr.
Edward A. McGrath, Jr.
Director February 28, 1996
BY /s/ Donald P. Nielsen
Donald P. Nielsen
<PAGE>
Director February 28, 1996
BY /s/ N. Stewart Rogers
N. Stewart Rogers
Director February 28, 1996
BY /s/ Harald J. Schroeder
Harald J. Schroeder
Director February 28, 1996
BY /s/ Max J. Walser
Max J. Walser
Director February 28, 1996
BY /s/ James H. Wiborg
James H. Wiborg
Director February 28, 1996
BY /s/ Walter W. Zywottek
Walter W. Zywottek
Director February 28, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000788043
<NAME> VWR SCIENTIFIC PRODUCTS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 135,656
<ALLOWANCES> 739
<INVENTORY> 53,247
<CURRENT-ASSETS> 204,433
<PP&E> 71,503
<DEPRECIATION> 33,855
<TOTAL-ASSETS> 621,472
<CURRENT-LIABILITIES> 116,493
<BONDS> 334,327
0
0
<COMMON> 21,068
<OTHER-SE> 139,021
<TOTAL-LIABILITY-AND-EQUITY> 621,472
<SALES> 718,684
<TOTAL-REVENUES> 718,684
<CGS> 559,565
<TOTAL-COSTS> 559,565
<OTHER-EXPENSES> 141,290
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,803
<INCOME-PRETAX> 3,026
<INCOME-TAX> 1,091
<INCOME-CONTINUING> 1,935
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,935
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
