<PAGE>
Page 1
United States
Securities & Exchange Commission
Washington, DC 20549
Form 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended September 30, 1997
(_) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ______________________ to _______________________
Commission File No. 0-14139
VWR SCIENTIFIC PRODUCTS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 91-1319190
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(State of Incorporation) (I.R.S. Employer Identification No.)
1310 Goshen Parkway, West Chester, PA 19380
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(Address of principal executive offices) (zip code)
Registrant's telephone number (610-431-1700)
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(Former name, address, and fiscal year if changed since last report)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes(x) No(_)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of September 30, 1997.
Class Outstanding at September 30, 1997
- --------------------------------------------------------------------------------
Common stock, par value $1.00 22,371,888 shares
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Page 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
(Thousands of dollars) (Unaudited)
------------------ -----------------
<S> <C> <C>
ASSETS
Trade receivables, net $199,008 $161,235
Other receivables 6,627 7,159
Inventories 106,475 108,009
Other 9,157 8,691
-------- --------
Total current assets 321,267 285,094
Property and equipment, net 50,590 48,184
Excess of cost over net assets of
businesses acquired and other assets,
net 364,257 372,024
-------- --------
$736,114 $705,302
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank checks outstanding, less cash in
bank $ 10,051 $ 10,274
Current portion of long-term debt 30,000 22,500
Accounts payable and other 132,109 108,345
-------- --------
Total current liabilities 172,160 141,119
Revolving credit facilities 139,281 142,256
Term loan 58,800 86,900
Subordinated debenture 151,092 138,809
-------- --------
Total long-term debt 349,173 367,965
Deferred income taxes and other 13,042 12,781
Shareholders' equity 201,739 183,437
-------- --------
$736,114 $705,302
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Page 3
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Nine Months
(Thousands of dollars, Ended September 30, Ended September 30,
except per share data) 1997 1996 1997 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
Sales $329,079 $289,280 $930,418 $844,699
Cost of sales 254,966 225,318 724,385 655,482
-------- -------- -------- --------
Gross margin 74,113 63,962 206,033 189,217
Operating expenses 45,457 41,818 131,136 127,578
Depreciation and amortization 5,672 5,141 16,386 15,040
Acquisition-related expenses -- 1,093 253 4,126
-------- -------- -------- --------
Total operating expenses 51,129 48,052 147,775 146,744
Operating income 22,984 15,910 58,258 42,473
Interest expense 8,509 9,308 27,179 27,234
-------- -------- -------- --------
Income before income taxes 14,475 6,602 31,079 15,239
Income taxes 6,080 2,642 13,053 6,096
-------- -------- -------- --------
Net income $ 8,395 $ 3,960 $ 18,026 $ 9,143
======== ======== ======== ========
Earnings per share: $ 0.37 $ 0.18 $ 0.79 $ 0.41
Weighted average number of
common shares outstanding 22,850 22,466 22,715 22,071
</TABLE>
See notes to condensed consolidated financial statements.
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Page 4
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Nine Months Ended September 30,
(Thousands of dollars) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net income $ 18,026 $ 9,143
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation and amortization,
including deferred debt issuance costs 17,229 16,036
Stock and debt issued in lieu of
payment of interest 12,283 11,999
Changes in assets and liabilities:
Receivables (37,241) (32,977)
Inventories 1,534 (49,649)
Other current assets (3,003) 294
Accounts payable and other liabilities 23,764 22,635
Deferred taxes and other 261 76
-------- --------
Cash provided by (used in) operating
activities 32,853 (22,443)
-------- --------
Investing Activities:
Additions to property and equipment, net (8,938) (19,952)
Sale of joint venture investment 2,881
Other (263) 27
-------- --------
Cash used in investing activities (9,201) (17,044)
-------- --------
Financing Activities:
Proceeds from long-term debt 162,561 148,380
Repayment of long-term debt (186,136) (116,375)
Net change in bank checks outstanding (223) 6,850
Other 146 632
-------- --------
Cash(used in)provided by financing activities (23,652) 39,487
-------- --------
Net change in cash 0 0
Cash at beginning of period 0 0
-------- --------
Cash at end of period $ 0 $ 0
======== ========
</TABLE>
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PAGE 5
<TABLE>
<CAPTION>
Supplemental disclosures of cash flow information:
Cash paid (received) during period for:
<S> <C> <C>
Interest $ 13,064 $ 13,601
Income taxes $ (227) $ 1,174
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
PAGE 6
VWR SCIENTIFIC PRODUCTS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------------
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements of VWR
Scientific Products Corporation ("VWR Scientific Products" or the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine months
ended September 30, 1997 are not necessarily indicative of the results which may
be expected for the year ended December 31, 1997. Refer to the consolidated
financial statements and footnotes thereto included in the Company's 1996 Annual
Report on Form 10-K for further information.
Certain prior-period amounts have been reclassified to conform to the current
period's presentation.
New Accounting Standards
- ------------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share", which is required to be adopted for
annual and quarterly periods ended after December 15, 1997. At that time, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods presented. Under the new
requirements for calculating primary earnings per share (referred to as Basic
EPS under SFAS No. 128), the dilutive effect of stock options will be excluded.
Earnings per share will not be materially impacted for the periods ended
September 30, 1997 and 1996 and is not expected to have a material impact on the
Company's full-year earnings per share.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" and Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Both Statements become effective for fiscal periods
beginning after December 15, 1997, with early adoption permitted. The Company is
evaluating the effects these Statements will have on its financial reporting and
disclosures. The Statements are expected to have no material effect on the
Company's results of operations, financial condition, capital resources or
liquidity.
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PAGE 7
2. INVENTORY PRICING
-----------------
Inventory valued using the LIFO method comprised approximately 90% of inventory
at September 30, 1997 and 89% at December 31, 1996. Cost of the remaining
inventories is determined using the FIFO method. Because the actual inventory
determination under the LIFO method is an annual calculation, interim financial
results are based on estimated LIFO amounts and are subject to final year-end
LIFO inventory adjustments. Inventory values under the LIFO method at September
30, 1997 and December 31, 1996 were approximately $32.5 million and $30.8
million, respectively, less than current cost.
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PAGE 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
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The following commentary should be read in conjunction with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements ("Notes")
for the year ended December 31, 1996 and Management's Discussion and Analysis of
Results of Operations and Financial Condition included in the Company's 1996
Annual Report on Form 10-K.
Results of Operations
- ---------------------
Sales for the three months ended September 30, 1997 increased $39.8 million, or
13.8%, to $329.1 million from $289.3 million in the comparable period of 1996.
Sales for the nine months ended September 30, 1997 increased $85.7 million, or
10.1%, to $930.4 million from $844.7 million in the comparable period of 1996.
The sales increase was principally due to increased sales to the Company's large
"partnership" accounts, increased growth in sales to small to medium size
customers, growth in the Company's critical environment business and, to a
lesser extent, increased prices.
Gross margin for the three months ended September 30, 1997 has increased $10.2
million, or 15.9%, to $74.1 million from $63.9 million in the comparable period
of 1996. Gross margin for the nine months ended September 30, 1997 has increased
$16.8 million, or 8.9%, to $206.0 million from $189.2 million in the comparable
period of 1996. As a percentage of sales, gross margin for the three months
ended September 30, 1997 increased to 22.5% from 22.1% for the comparable period
of 1996. Gross margin for the nine months ended September 30, 1997 decreased to
22.1% from 22.4% for the comparable period of 1996. The increase in the
Company's gross margin percentage for the three months ended September 30, 1997
is primarily attributable to the implementation of several internal programs to
improve margins. The Company experienced declining gross margin percentages in
the second half of 1996 attributable to operating issues from the integration of
the Baxter Industrial business, resulting in a full year 1996 gross margin
percentage of 22.1% as compared to 22.4% for the first nine months of 1996. The
integration was substantially completed in early 1997.
Total operating expenses for the three months ended September 30, 1997 increased
$3.1 million, or 6.4%, to $51.1 million from $48.1 million for the comparable
period of 1996. Total operating expenses for the nine months ended September 30,
1997 increased $1.0 million, or 0.7%, to $147.8 million from $146.7 million for
the comparable period of 1996. Excluding the impact of acquisition-related
expenses, total operating expenses for the three months ended September 30, 1997
increased $4.2 million, or 8.9%, to $51.1 million from $47.0 million. For the
nine months ended September 30, 1997, total operating expenses, excluding the
impact of acquisition-related expenses, increased $4.9 million, or 3.4% to
$147.5 million from $142.6 million. As a percentage of sales, total operating
expenses for three months ended September 30, 1997 decreased to 15.5% from 16.6%
in the comparable period of 1996. For the nine months ended September 30, 1997,
total operating expenses as a percentage of sales decreased to 15.9% from 17.4%
in the comparable period of 1996. Excluding the impact of acquisition-related
expenses, total operating expenses as a percentage of sales for the three months
ended September 30, 1997 decreased to 15.5% from 16.2% in the comparable period
of 1996. For the nine months ended September 30, 1997, total operating expenses
as a percentage of sales, excluding the impact of acquisition-related expenses,
decreased to 15.9% from 16.9% in the comparable period of 1996. The decreases in
the ratios are principally due to continued synergies realized as a result of
the Baxter Industrial acquisition and, to a lesser extent, smaller acquisition-
related charges in the 1997 period as compared to the 1996 period. Depreciation
and amortization expense has increased primarily as a result of 1996
distribution infrastructure investments resulting from the Baxter Industrial
acquisition. Acquisition-related expenses consisted primarily of relocation,
severance and integration charges directly attributable to the Baxter Industrial
acquisition.
Interest expense for the three months ended September 30, 1997 decreased $0.8
million, or 8.6%, to $8.5 million from $9.3 million in the comparable period of
1996. Interest expense was $27.2 million for both the nine months ended
September 30, 1997 and 1996. The interset expense decrease in the third quarter
of 1997 compared to the third quarter of 1996 is largely attributable to lower
average borrowing under the Company's Credit Facility and, to a lesser extent,
lower interest rates on the Credit Facility. On a year-to-date basis, the effect
of the Company's higher average borrowings under the Credit Facility have been
offset by lower interest rates.
The Company's annual estimated effective tax rate for the three and nine months
ended September 30, 1997 increased to 42% from 40% in the comparable period of
1996, reflecting the relative income contribution of the Canadian Subsidiary and
increases in the effective state tax rates.
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PAGE 9
Liquidity and Capital Resources
- -------------------------------
In the first nine months of 1997, operations have generated $32.9 million of
cash compared to a $22.4 million use of cash in the comparable period of 1996.
The improvement in cash from operations is largely attributable to the
completion of the Baxter Industrial integration. In 1996, the Company was
required to purchase inventory to service the Baxter Industrial business as it
was integrated into VWR Scientific Products facilities on a regional basis. Also
in 1996, the Company increased inventory levels in advance of the regional
transitions to service the business without interruption to the customer.
The Company's current ratio was 1.9 at September 30, 1997 as compared to 2.0 at
December 31, 1996. The increase in accounts receivable during 1996 was due to
increases in sales and the integration of the Baxter Industrial business. During
1997, accounts receivable have continued to increase primarily due to increased
sales. In 1996, the Company increased its inventory in order to service the
Baxter Industrial business. The increase in accounts payable during 1996 was due
to increases in inventory partially offset by a decrease in the amounts payable
for goods shipped under the Baxter Services Agreement at December 31, 1995. The
increase in receivables in 1997 is largely offset by the increase in accounts
payable and other liabilities. Debt increased in 1996 due to the expansion of
distribution facilities and the need to fund working capital requirements for
the Baxter Industrial acquisition. Equity increases reflect the 1996 issuance of
shares to Merck KGaA as payment for interest on the Debenture as well as net
income for each period.
Under the terms of the Debenture, interest is payable quarterly at 13% per
annum. Until such time as EML and its affiliates obtained an ownership of 49.89%
of the aggregate number of issued and outstanding Common Shares, interest was
payable solely in Common Shares at a price of $12.44 per share. Until September
14, 1997, interest on the Debenture was deferred until the Debenture matures.
Interest is payable quarterly in cash after September 14, 1997 through the
maturity date.
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PAGE 10
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 debt levels
during the period of the Credit Facility. The Company provides protection to
meet actual exposures and does not speculate in derivatives. At September 30,
1997, the Company had a notional amount of $160 million of swaps in effect.
These swaps expire between 1997 and 2000. The amount of floating rate debt
protected by the swaps ranges from $160 million to $25 million during the period
outstanding with fixed rates ranging from 5.3% to 6.4%. The Company is exposed
to credit loss in the event of nonperformance by the other parties to the
interest rate swap agreements. The Company does not anticipate nonperformance by
the counterparties.
The Company's use of swaps and collars for interest rate protection increased
interest expense by $0.1 million for the three months ending September 30, 1996.
There was no effect on interest expense for the three months ending September
30, 1997. For the nine months ending September 30, 1997 and 1996, interest
expense increased by $0.2 million and $0.5 million, respectively. Pursuant to
the Credit Facility, the Company is obligated to provide interest rate
protection on at least 25% of the Credit Facility.
The Company is party to a Distribution Agreement with Baxter Healthcare and
Allegiance. 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 and Allegiance an amount, in each case, equal to any such deficiency.
The minimum aggregate domestic and international requirements, which are subject
to annual adjustment, for each of the remaining four fiscal years of the
Distribution Agreement, are $71 million, $82 million, $89 million, and $96
million. During the 1996 contract year, the minimum requirement under this
agreement of $63 million was satisfied. For the contract year ended September
30, 1997, the Company intends to purchase products from Baxter Healthcare and
Allegiance Corporation to satisfy any shortfall relative to the required
amounts. These purchases are not expected to have a material effect on the
Company's financial condition or results of operations for 1997. The Company
also has a similar agreement with another manufacturer, under which its minimum
annual purchase obligation for each of the years 1997 through 2000 are $22
million, $23 million, $24 million and $24 million, respectively.
The Company has begun a project to enhance its computer systems to satisfy
its future requirements. This enhancement will result in the replacement of
many of the Company's current systems including order entry, purchasing, and
financial systems. The Company anticipates that the total cost of its new
system will be between $25 million and $30 million and is expected to be
expended over the next two years. A substantial portion of the costs associated
with the replacement of existing systems will be recorded as assets and
amortized.
In addition, the Company has conducted a review to identify the systems that
could be affected by the "Year 2000" issue. The Year 2000 issue is the result
of computer programs being written using two digits (rather than four) to
define the applicable year. Any of the Company's programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000, which could cause the Company's computer systems to perform
inaccurate calculations. The Company has developed a timeline for enhancing its
computer systems. The enhancement, together with other planned system changes,
are intended to correct the Year 2000 issue. The Company does not expect the
amounts required to be expensed over the next two years, to correct the Year
2000 issue, to have a material effect on its financial condition or results of
operations.
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.
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PAGE 11
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 11--Computation of Earnings per Share
Exhibit 27--Financial Data Schedule (submitted only in
electronic format)
b. No reports on Form 8-K were filed during the three-month period ended
September 30, 1997.
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PAGE 12
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(REGISTRANT) VWR SCIENTIFIC PRODUCTS CORPORATION
BY (SIGNATURE)
(NAME AND TITLE) DAVID M. BRONSON
SENIOR VICE PRESIDENT FINANCE
AND CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting Officer)
DATE October 22, 1997
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PAGE 13
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- ----
<S> <C> <C>
11 Computation of Earnings Per Share 14
27 Financial Data Schedule
(submitted only in electronic format)
</TABLE>
<PAGE>
Page 14
EXHIBIT 11
----------
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months
Ended September 30,
1997 1996
---- ----
<S> <C> <C>
(Amounts in thousands, except per share data)
PRIMARY
Average shares outstanding 22,371 22,039
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 479 427
------- -------
TOTAL 22,850 22,466
======= =======
Net income $ 8,395 $ 3,960
======= =======
Per share amount $ .37 $ .18
======= =======
FULLY DILUTED
Average shares outstanding 22,371 22,039
Net effect of dilutive stock options--
based on the treasury stock method using
the period-end market price, if higher
than the average market price 628 433
------- -------
TOTAL 22,999 22,472
======= =======
Net income $ 8,395 $ 3,960
======= =======
Per share amount $ .37 $ .18
======= =======
</TABLE>
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PAGE 15
EXHIBIT 11 (continued)
----------------------
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1997 1996
---- ----
<S> <C> <C>
(Amounts in thousands, except per share data)
PRIMARY
Average shares outstanding 22,358 21,717
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 357 354
------- -------
TOTAL 22,715 22,071
======= =======
Net income $18,026 $ 9,143
======= =======
Per share amount $ .79 $ .41
======= =======
FULLY DILUTED
Average shares outstanding 22,358 21,717
Net effect of dilutive stock options--
based on the treasury stock method using
the period-end market price, if higher
than the average market price 617 453
------- -------
TOTAL 22,975 22,170
======= =======
Net income $18,026 $ 9,143
======= =======
Per share amount $ .78 $ .41
======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000788043
<NAME> VWR SCIENTIFIC PRODUCTS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 207,979
<ALLOWANCES> 2,344
<INVENTORY> 106,475
<CURRENT-ASSETS> 321,267
<PP&E> 97,137
<DEPRECIATION> 46,547
<TOTAL-ASSETS> 736,114
<CURRENT-LIABILITIES> 172,160
<BONDS> 349,173
0
0
<COMMON> 22,375
<OTHER-SE> 179,364
<TOTAL-LIABILITY-AND-EQUITY> 736,114
<SALES> 930,418
<TOTAL-REVENUES> 930,418
<CGS> 724,385
<TOTAL-COSTS> 724,385
<OTHER-EXPENSES> 147,775
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,179
<INCOME-PRETAX> 31,079
<INCOME-TAX> 13,053
<INCOME-CONTINUING> 18,026
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,026
<EPS-PRIMARY> .79
<EPS-DILUTED> .78
</TABLE>
