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United States
Securities & Exchange Commission
Washington, DC 20549
Form 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended March 31, 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
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(Exact name of registrant as specified in its charter)
Pennsylvania 91-1319190
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(State of Incorporation) (I.R.S. Employer Identification No.)
1310 Goshen Parkway, West Chester, PA 19380
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(Address of principal executive offices) (zip code)
Registrant's telephone number (610-431-1700)
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(Former name, address, and fiscal year if changed since last report)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes(x) No( )
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of April 30, 1997.
Class Outstanding at April 30, 1997
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Common stock, par value $1.00 22,346,498 shares
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VWR SCIENTIFIC PRODUCTS CORPORATION
INDEX
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Page No.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 8
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBIT INDEX 12
EXHIBIT 11 13
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VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31, 1997 December 31, 1996
(Thousands of dollars) (Unaudited)
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ASSETS
Trade receivables $184,754 $161,235
Other receivables 2,884 7,159
Inventories 99,924 108,009
Other 10,199 8,691
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Total current assets 297,761 285,094
Property and equipment-net 47,552 48,184
Excess of cost over net assets
of businesses acquired and other assets 370,409 372,024
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$715,722 $705,302
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LIABILITIES AND SHAREHOLDERS' EQUITY
Bank checks outstanding, less cash in bank $ 10,225 $ 10,274
Current portion of long-term debt 25,000 22,500
Accounts payable and other 126,160 108,345
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Total current liabilities 161,385 141,119
Revolving credit facilities 137,450 142,256
Term loans 73,800 86,900
Subordinated debenture 143,210 138,809
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Total long-term debt 354,460 367,965
Deferred income taxes and other 12,870 12,781
Shareholders' equity 187,007 183,437
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$715,722 $705,302
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See notes to condensed consolidated financial statements.
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VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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(Thousands of dollars, Three Months Ended March 31,
except per-share data) 1997 1996
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Sales $290,826 $276,458
Cost of sales 227,410 214,352
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Gross margin 63,416 62,106
Operating expenses 42,339 43,575
Depreciation and amortization 5,431 5,045
Acquisition-related charges 253 1,188
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Total operating expenses 48,023 49,808
Operating income 15,393 12,298
Interest expense and other 9,271 8,781
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Income before income taxes 6,122 3,517
Income taxes 2,571 1,407
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Net income $ 3,551 $ 2,110
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Earnings per share: $ 0.16 $ 0.10
Weighted average number of
common shares outstanding- 22,599 21,600
Certain prior year amounts have been reclassified to conform to the current
years presentation.
See notes to condensed consolidated financial statements.
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VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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Three Months Ended March 31,
(Thousands of dollars) 1997 1996
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Operating Activities
Net income $ 3,551 $ 2,110
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization,
including deferred debt
issuance costs 5,702 5,426
Debentures and stock issued in
lieu of payment of interest 4,401 4,376
Changes in assets and liabilities:
Receivables (19,244) (17,896)
Inventories 8,085 (20,811)
Other current assets (3,492) 966
Acquisition-related expenses (129) (287)
Accounts payable and other 18,033 14,957
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Cash provided by (used in) operating activities 16,907 (11,159)
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Investing Activities
Additions to property and equipment (1,450) (4,685)
Sale of joint venture investment 2,881
Other 22 123
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Cash used in investing activities (1,428) (1,681)
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Financing Activities
Proceeds from long-term debt 62,450 39,400
Repayment of long-term debt (77,856) (37,680)
Net change in bank checks outstanding (49) 10,955
Proceeds from exercise of stock options 75
Other (24) 90
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Cash (used in) provided by financing activities (15,479) 12,840
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Net change in cash 0 0
Cash at beginning of year 0 0
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Cash at end of year $ 0 $ 0
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Three Months Ended March 31,
(Thousands of dollars) 1997 1996
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Supplemental disclosures of cash flow information:
Cash paid (received) during period for:
Interest $ 2,977 $ 2,699
Income taxes (1,241) 30
See notes to condensed consolidated financial statements
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VWR SCIENTIFIC PRODUCTS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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BASIS OF PRESENTATION
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The accompanying unaudited condensed consolidated financial statements 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 month period ended March 31, 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.
NEW ACCOUNTING STANDARDS
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In February, 1997, the Financial Accounting Standards Board 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 impacted for the quarters ending March 31, 1997 and 1996
and is not expected to have a material impact on the Companys full year
earnings per share.
INVENTORY PRICING
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Inventory valued using the LIFO method comprised approximately 89% of
inventory at March 31, 1997 and 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 March 31, 1997 and December 31, 1996 were approximately $32.0
million and $30.8 million, respectively, less than current cost.
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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 Managements Discussion and Analysis
included in the Companys 1996 annual report on Form 10-K.
Results of Operations
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Sales increased by 5.2% in the first quarter of 1997 to $290.8 million
compared to the first quarter of 1996 as a result of large new contracts won
in 1996 and growth in existing business.
The gross margin percentage decreased from 22.5% in the first quarter of 1996
to 21.8% in the first quarter of 1997 and increased from the fourth quarter
1996 percentage of 21.2%. The Company experienced declining margins in the
second half of 1996 attributable to operating issues from the transition of
the acquired Baxter Industrial business. The transition was completed in the
first quarter of 1997.
Total operating expenses, excluding acquisition-related charges, as a
percentage of sales have decreased from 17.6% in the first quarter of 1996 to
16.4% in the first quarter of 1997, reflecting synergies realized as a result
of the acquisition of the Industrial Distribution Business (Baxter Industrial)
of Baxter Healthcare Corporation, a subsidiary of Baxter International, on
September 15, 1995. Depreciation and amortization expense has increased
primarily as a result of 1996 distribution infrastructure investments
resulting from the Baxter Industrial acquisition. Acquisition-related
expenses consist primarily of relocation and transition expenses directly
attributable to the Baxter Industrial acquisition.
Interest expense and other increased in the first quarter of 1997 primarily
due to higher average borrowings under the Companys Credit Facility and
deferred interest on the Companys Subordinated Debenture (the Debenture)
which matures in 2005. Interest on the Debenture was payable in common shares
in 1996 up until EM Laboratories, Inc. (EML), an affiliate of Merck KGaA,
Darmstadt, Germany, reached a 49.89% ownership of the Company. Beginning in
the fourth quarter of 1996 and ending on September 15, 1997, interest on the
Debenture is deferred until the Debenture matures in 2005. Interest is
accumulated on the deferred interest.
The Companys annual estimated effective tax rate has risen from 40% in 1996
to 42% in 1997 reflecting the relative income contribution of the Canadian
subsidiary and increases in effective state taxes.
Earnings per share in 1997 reflect the effect of shares issued in 1996 to an
affiliate of EML in lieu of interest payments on the Debenture.
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Financial Condition and Liquidity
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In the first quarter of 1997, operations have generated $16.9 million of cash
flow compared to an $11.2 million use of cash flow in the comparable period of
1996. The completion in the first quarter of 1997 of the Baxter Industrial
transition has enabled the Company to rationalize and decrease its inventory
levels in 1997. In 1996, the Company was required to purchase inventory to
service the Baxter Industrial business as it was transitioned into VWR
facilities on a regional basis. Also, the Company increased inventory levels
in advance of the regional transitions to service the business without
interruption to the customer.
VWR's current ratio was 1.8 at March 31, 1997 as compared to 2.0 at December
31, 1996. The increase in accounts receivable is due to increases in sales
during the latter part of the first quarter of 1997 and is largely offset by
the increase in accounts payable and accrued liabilities. The decrease in
inventory is the result of programs to improve inventory management after the
final Baxter Industrial transition phase.
Under the terms of the Debenture, interest is payable quarterly at 13% per
annum, but prior to such time as EML and its affiliates owned 49.89% of the
aggregate number of issued and outstanding common shares in the fourth quarter
of 1996, interest was payable solely in common shares at a price of $12.44 per
share. Interest on the Debenture is deferred until September 15, 1997 and
becomes part of the principle balance. Interest is payable quarterly in cash
after September 15, 1997 through the maturity date. At March 31, 1997, EML
and its affiliates owned 49.89% of the issued and outstanding common shares.
The Company has entered into various interest rate swap agreements with
financial institutions which effectively change the Companys interest-rate
exposure on a notional amount of debt from variable rates to fixed rates. The
notional amounts of the interest rate swaps are based upon expected actual
debt levels during the period of the Credit Facility. The Company provides
protection to meet actual exposures and does not speculate in derivatives.
The Companys use of swaps and collars for interest rate protection increased
interest expense by $0.2 million and $0.3 million in the first quarter 1997
and 1996, respectively. Pursuant to the Credit Facility, the Company is
obligated to provide interest rate protection on at least 25% of the Credit
Facility. At March 31, 1997, the Company had a notional amount of $160 million
of swaps in effect.
The Company expects that estimated working capital requirements and estimated
capital expenditures will be funded by cash from operations and availability
under the Credit Facility.
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OTHER INFORMATION
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ITEM 6 - EXHIBIT AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 11--Computation of Earnings per Share
Exhibit 27--Financial Data Schedule (submitted only in
electronic format)
b. None
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SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
(REGISTRANT) VWR SCIENTIFIC PRODUCTS CORPORATION
BY (SIGNATURE)
(NAME AND TITLE) DAVID M. BRONSON
SENIOR VICE PRESIDENT FINANCE
AND CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting Officer)
DATE May 5, 1997
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EXHIBIT INDEX
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EXHIBIT NUMBER DESCRIPTION PAGE
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11 Computation of Earnings per Share 13
27 Financial Data Schedule
(submitted only in electronic format)
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EXHIBIT 11
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COMPUTATION OF EARNINGS PER SHARE
Three Months Ended March 31,
1997 1996
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(Amounts in thousands, except per share data)
PRIMARY
Average shares outstanding 22,344 21,367
Net effect of dilutive stock options-
based on the treasury stock method
using average market price 255 233
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TOTAL 22,599 21,600
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Net income $ 3,551 $ 2,110
Per share amount .16 .10
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FULLY DILUTED
Average shares outstanding 22,344 21,367
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 289 336
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TOTAL 22,633 21,703
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Net Income $ 3,551 $ 2,110
Per Share Amount .16 .10
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000788043
<NAME> VWR SCIENTIFIC PRODUCTS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 188,989
<ALLOWANCES> 1,351
<INVENTORY> 99,924
<CURRENT-ASSETS> 297,761
<PP&E> 90,032
<DEPRECIATION> 42,480
<TOTAL-ASSETS> 715,722
<CURRENT-LIABILITIES> 161,385
<BONDS> 354,460
0
0
<COMMON> 22,347
<OTHER-SE> 164,660
<TOTAL-LIABILITY-AND-EQUITY> 715,722
<SALES> 290,826
<TOTAL-REVENUES> 290,826
<CGS> 227,410
<TOTAL-COSTS> 227,410
<OTHER-EXPENSES> 48,023
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,271
<INCOME-PRETAX> 6,122
<INCOME-TAX> 2,571
<INCOME-CONTINUING> 3,551
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 3,551
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
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