<PAGE>1
United States
Securities and 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 June 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
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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 July 31, 1997.
Class Outstanding at July 31, 1997
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Common stock, par value $1.00 22,351,308 shares
<PAGE>2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30, 1997 December 31, 1996
(Thousands of dollars) (Unaudited)
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ASSETS
Trade receivables, net $185,378 $161,235
Other receivables 2,209 7,159
Inventories 102,045 108,009
Other 8,508 8,691
-------- --------
Total current assets 298,140 285,094
Property and equipment, net 46,874 48,184
Excess of cost over net assets of
businesses acquired and other assets, net 367,917 372,024
-------- --------
$712,931 $705,302
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank checks outstanding, less cash in bank $ 10,199 $ 10,274
Current portion of long-term debt 27,500 22,500
Accounts payable and other 126,229 108,345
-------- --------
Total current liabilities 163,928 141,119
Revolving credit facilities 128,616 142,256
Term loans 66,300 86,900
Subordinated debenture 147,949 138,809
-------- --------
Total long-term debt 342,865 367,965
Deferred income taxes and other 12,948 12,781
Shareholders' equity 193,190 183,437
-------- --------
$712,931 $705,302
======== ========
See notes to condensed consolidated financial statements.
<PAGE>3
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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Three Months Six Months
(Thousands of dollars, Ended June 30, Ended June 30,
except per-share data) 1997 1996 1997 1996
-------------------- ---------------------
Sales $310,513 $278,961 $601,339 $555,419
Cost of sales 242,009 215,812 469,419 430,164
-------- -------- -------- --------
Gross margin 68,504 63,149 131,920 125,255
Operating expenses 43,340 42,185 85,679 85,760
Depreciation and amortization 5,283 4,854 10,714 9,899
Acquisition-related charges -- 1,845 253 3,033
-------- -------- -------- --------
Total operating expenses 48,623 48,884 96,646 98,692
-------- -------- -------- --------
Operating income 19,881 14,265 35,274 26,563
Interest expense 9,399 9,145 18,670 17,926
-------- -------- -------- --------
Income before income taxes 10,482 5,120 16,604 8,637
Income taxes 4,402 2,047 6,973 3,454
-------- -------- -------- --------
Net income $ 6,080 $ 3,073 $ 9,631 $ 5,183
======== ======== ======== ========
Earnings per share: $ 0.27 $ 0.14 $ 0.43 $ 0.24
Weighted average number of
common shares outstanding
(thousands) 22,689 22,074 22,644 21,865
See notes to condensed consolidated financial statements.
<PAGE>4
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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Six Months Ended June 30,
(Thousands of dollars) 1997 1996
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Operating Activities
Net income $ 9,631 $ 5,183
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization,
including deferred debt issuance costs 11,274 10,587
Debenture and stock issued in lieu
of payment of interest 9,140 8,799
Changes in assets and liabilities:
Receivables (19,193) (23,206)
Inventories 5,964 (36,654)
Other current assets (2,615) 143
Accounts payable and other liabilities 17,884 5,843
Deferred taxes and other 167 121
-------- --------
Cash provided by (used in)
operating activities 32,252 (29,184)
-------- --------
Investing Activities
Additions to property and equipment, net (2,959) (15,274)
Sale of joint venture investment 2,881
Other (16) 142
--------- --------
Cash used in investing activities (2,975) (12,251)
--------- --------
Financing Activities
Proceeds from long-term debt 110,575 108,603
Repayment of long-term debt (139,815) (73,380)
Net change in bank checks outstanding (75) 6,012
Proceeds from exercise of stock options 58 229
Other (20) (29)
--------- --------
Cash (used in) provided by
financing activities (29,277) 41,435
--------- --------
Net change in cash 0 0
Cash at beginning of period 0 0
--------- --------
Cash at end of period $ 0 $ 0
========= ========
<PAGE>5
Supplemental disclosures of cash flow information:
Cash paid (received) during period for:
Interest $ 8,827 $ 8,401
Income taxes $(1,088) $ 798
See notes to condensed consolidated financial statements
<PAGE>6
VWR SCIENTIFIC PRODUCTS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements of VWR
Scientific Products Corporation (VWR SP or Company) have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six
months ended June 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
periods presentation.
New Accounting Standards
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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 impacted for the periods ended June
30, 1997 and 1996 and is not expected to have a material impact on the
Companys 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 effect on
the Companys results of operations, financial position, capital resources or
liquidity.
<PAGE>7
2. INVENTORY PRICING
-----------------
Inventory valued using the LIFO method comprised approximately 90% of
inventory at June 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 June 30, 1997 and December 31, 1996 were approximately $32.2 million
and $30.8 million, respectively, less than current cost
<PAGE>8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
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The following commentary should be read in conjunction with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements (Notes)
for the year ended December 31, 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 11% to $310.5 million for the second quarter of 1997 and by
8% to $601.3 million on a year-to-date basis over the corresponding periods in
1996 as a result of the continued growth related to large new contracts won in
1996 and increased business from smaller and mid-size customers following the
transition of the Industrial Distribution Business (Baxter Industrial) of
Baxter Healthcare Corporation, a subsidiary of Baxter International, which was
acquired on September 15, 1995. In addition, the Company experienced growth
from customers in the electronics business.
The gross margin percentage was 22.1% in the second quarter of 1997 versus
22.6% in the second quarter of 1996 and has increased from 21.2% and 21.8% in
the fourth quarter of 1996 and first quarter of 1997, respectively. The gross
margin percentage was 21.9% in the first half of 1997 versus 22.6% in the
first half of 1996. The Company experienced declining margins in the second
half of 1996 attributable to operating issues from the transition of the
Baxter Industrial business. The transition was completed in the first quarter
of 1997. The increase in the Companys margin percentage in the second quarter
of 1997 is primarily attributable to the implementation of internal programs
to improve margins.
Total operating expenses, excluding acquisition-related charges, as a
percentage of sales have decreased from 16.9% in the second quarter of 1996 to
15.7% in the second quarter of 1997. For the six month periods, the ratio has
decreased from 17.2% in 1996 to 16.0% in 1997. The decreases in the ratios
reflect continued synergies realized as a result of the Baxter Industrial
acquisition. 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 and transition expenses directly attributable to the
Baxter Industrial acquisition.
Interest expense has increased in the second quarter of 1997 primarily due to
interest accumulating on the deferred interest of the Companys Subordinated
Debenture (the Debenture) which matures in 2005. Interest on the Debenture
was payable in common shares in 1996 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 and accumulated until the
<PAGE>9
Debenture matures in 2005. Interest expense has increased on a year-to-date
basis due to a combination of interest accumulating on the deferred interest
on the Debenture and higher average borrowings under the Companys Credit
Facility.
The Companys annual estimated effective tax rate has increased from 40% in
1996 to 42% in 1997 reflecting the relative income contribution of the
Canadian subsidiary and increases in the effective state tax rates.
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.
Financial Condition and Liquidity
- ---------------------------------
In the first six months of 1997, operations have generated $32.3 million of
cash flow compared to a $29.2 million use of cash flow in the comparable
period of 1996. The improvement in cash from operations is largely
attributable to the completion of the Baxter Industrial transition which has
enabled the Company to continue 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 in 1996, 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 June 30, 1997 as compared to 2.0 at December
31, 1996. The increase in accounts receivable is due to increases in sales
during 1997 and is largely offset by the increase in accounts payable and
accrued liabilities. The decrease in inventory since December 31, 1996 is the
result of continued efforts to improve inventory management following the
final Baxter Industrial transition phase. Inventory levels have increased
since March 31, 1997 primarily to support the Companys science education
business in the third quarter.
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. Until September 15, 1997, interest on the Debenture is deferred and
becomes part of the principal balance. Interest is payable quarterly in cash
after September 15, 1997 through the maturity date. At June 30, 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 debt
levels during the period of the Credit Facility. The Company provides
protection to meet expected exposures and does not speculate in derivatives.
<PAGE>10
The Companys use of swaps and collars for interest rate protection increased
interest expense by $0.2 million and $0.4 million for the first six months of
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 June 30, 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.
<PAGE>11
PART II - OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on May 8, 1997. At
the meeting, shareholders were asked (a) to elect three directors for three-
year terms and (b) to ratify the selection of Ernst & Young LLP as independent
auditors for the year ending December 31, 1997.
(a) The following is a summary of the votes for elected directors:
Nominee Votes For Votes Withheld
------- ---------- --------------
Wolfgang Honn 21,095,792 105,967
Edward A. McGrath, Jr. 21,092,269 109,490
N. Stewart Rogers 21,089,309 112,450
(b) The following is a summary of the votes on the proposal regarding
Ernst & Young LLP:
Votes For Votes Against Abstentions
---------- ------------- -----------
21,127,449 39,004 35,306
<PAGE>12
ITEM 6 - EXHIBIT AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 11--Computation of Earnings per Share
Exhibit 27--Financial Data Schedule (submitted only in
electronic format)
b. No reports on Form 8-K were filed during the three-month period ended
June 30, 1997
<PAGE>13
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 August 11, 1997
<PAGE>14
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION PAGE
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11 Computation of Earnings Per Share 15
27 Financial Data Schedule
(submitted only in electronic format)
<PAGE>15
EXHIBIT 11
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COMPUTATION OF EARNINGS PER SHARE
Three Months Ended June 30,
1997 1996
---- ----
(Amounts in thousands, except per share data)
PRIMARY
Average shares outstanding 22,349 21,743
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 340 331
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TOTAL 22,689 22,074
======== ========
Net income $ 6,080 $ 3,073
======== ========
Per share amount $ .27 $ .14
======== ========
FULLY DILUTED
Average shares outstanding 22,349 21,743
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 340 377
-------- --------
TOTAL 22,689 22,120
======== ========
Net income $ 6,080 $ 3,073
======== ========
Per share amount $ .27 $ .14
======== =======
<PAGE>16
EXHIBIT 11 (cont.
- -------------------
COMPUTATION OF EARNINGS PER SHARE
Six Months Ended June 30,
1997 1996
---- ----
(Amounts in thousands, except per share data)
PRIMARY
Average shares outstanding 22,347 21,555
Net effect of dilutive stock options--
based on the treasury stock method
using average market price 297 310
-------- --------
TOTAL 22,644 21,865
======== ========
Net income $ 9,631 $ 5,183
======== ========
Per share amount $ .43 $ .24
======== ========
FULLY DILUTED
Average shares outstanding 22,347 21,555
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 340 405
-------- --------
TOTAL 22,687 21,960
======== ========
Net income $ 9,631 $ 5,183
======== ========
Per share amount $ .42 $ .24
======== ========
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<CIK> 0000788043
<NAME> VWR SCIENTIFIC PRODUCTS CORPORATION
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<S> <C>
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<PERIOD-END> JUN-30-1997
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