<PAGE>1
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 (no fee required).
For the fiscal year ended December 31, 1997
-----------------
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (no fee required).
For the transition period from to
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Commission file Number 0-14139
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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 or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1310 Goshen Parkway, West Chester, PA 19380
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(Address of Principal Executive Offices) (Zip Code)
Registrants telephone number, including area code: (610) 431-1700
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
Registered
None N/A
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock $1.00 Par Value
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(Title of Class)
<PAGE>2
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 registrants 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.
As of February 28, 1998, the aggregate market value of the voting stock held
by non-affiliates was approximately $465 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 its affiliates, and by the Companys
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 28, 1998, there were 28,537,807 shares of common stock issued
and outstanding.
<PAGE>3
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Companys definitive Proxy Statement to be mailed to
shareholders on or about April 1, 1998 are incorporated by reference into
Part III of this Form 10-K.
<PAGE>4
PART I.
ITEM I. - BUSINESS
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General
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VWR Scientific Products Corporation (VWR, the Corporation, or the
Company) is a leading distributor serving the North American research
and development community. The Company distributes laboratory supplies,
chemicals and equipment to life science, educational and industrial
organizations throughout the United States and Canada. The Company also
distributes critical environment (cleanroom) supplies and apparel to
manufacturers of electronics, medical devices and pharmaceuticals and
is the largest national supplier in this industry. The Company offers a
line of more than 200,000 products from more than 2,000 manufacturers
through its network of five highly automated regional distribution
centers and over 50 smaller service centers and just-in-time (JIT)
facilities.
The Companys history extends more than 100 years, and in 1986 it became
a public company when it was spun off from Univar Corporation. 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. The Company is 49.89% owned by
affiliates of Merck KGaA, Darmstadt, Germany.
The Company significantly expanded its national presence in September
1995 when it acquired the Industrial Distribution Business (Baxter
Industrial) of Baxter Healthcare Corporation (Baxter Healthcare) for
approximately $432 million, doubling the Companys revenue base to over
$1 billion. During 1996, the Baxter Industrial business was integrated
into the Companys infrastructure on a region-by-region basis. The
integration process was substantially completed in early 1997.
In November 1997, the Company completed a public offering of 3,025,000
common shares and a concurrent private placement with affiliates of
Merck KGaA, Darmstadt, Germany, of 3,011,719 common shares, resulting
in net proceeds of $133 million. The net proceeds were used to repay
outstanding borrowings under the credit agreement among the Company and
several senior bank lenders (Credit Facility).
Services
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The Company offers a comprehensive range of distribution and supply-
chain management services. These services can be tailored to meet the
diversified needs of customers ranging from single-site laboratories to
large multinational corporations, and include the following:
<PAGE>5
Distribution Services:
The Company distributes more than 200,000 brand name and private label
products through a network of five highly automated regional
distribution centers and over 50 smaller service centers and JIT
facilities. VWR Scientific Products uses advanced forecasting
technology to manage inventory levels to maintain high service levels
to customers of all sizes. The Company differentiates itself by the
overall quality and reliability of its distribution services as
evidenced by the fact that over 95% of orders are filled and shipped
within 24 hours. In addition, the Company employs sophisticated
telephone technology to manage calls from customers. Incoming calls are
automatically routed to the call center and customer service
representative that can most efficiently respond to the customer
inquiry or order. Detailed information about the customer is
automatically provided to the customer service representative taking
the call. Call Centers are staffed from 7:00 a.m. Eastern Standard Time
to 6:00 p.m. Pacific Standard Time to support customers varying working
schedules.
The Company customizes the delivery of products to individual customers
to meet the needs of their internal scheduling and receiving
operations. Products are palletized and delivered to specific campus
locations, buildings, individual laboratories or production lines.
Specialized labeling and bar-coding assist customers in streamlining
the receiving and stocking processes.
The Company further differentiates itself by providing superior
customer service. The Company has invested in employee training and in
building the infrastructure and systems which enable customers to
obtain information on products, place orders and track delivery
schedules. The Company offers numerous order entry options, including
direct call-in orders, faxed orders, mail orders or electronic orders,
including electronic data interface (EDI), and direct input of orders
via the Internet.
Supply-Chain Management Services:
The Company offers a full range of supply-chain management services.
These services are designed to assist customers in the administration
of their particular supply requirements, allowing them to become more
efficient, reduce costs and logistical burdens and focus on their core
businesses.
The Company provides customers with one or more of the following
supply-chain management products and services:
. software solutions for all aspects of on-site supply-chain
management including inventory management, demand forecasting,
procurement and replenishment;
. paperless electronic commerce solutions to integrate customer
systems with those of the Company, providing customized reporting
and order tracking (LabLogic(TM));
<PAGE>6
. storeroom management operations including deliveries, usage
tracking, order replenishment and billing by utilizing the
Companys on-site personnel and PC-based storeroom management
system (StockLogic(TM)); and
. third-party purchasing of products not normally supplied by the
Company.
Some customers utilize the entire spectrum of the Companys supply-chain
services to procure, manage and supply products at the customers site.
Other customers require a less-comprehensive array of services, and the
Company has the flexibility to implement only those services needed by
the customer. The Company believes that its customers needs will
continue to evolve, and it will seek to maintain the capability to
provide whatever level of integration and service its customers may
require. The Company either incorporates the price for these services
in its product prices or charges the customer a separate fee.
The development and delivery of these and other supply-chain and cost-
management services require extensive knowledge of customer
requirements in the areas of laboratory science, the procurement
process and information technology. The Company has trained specialists
in the areas of distribution and inventory logistics, as well as a team
of business systems information technology professionals who work
directly with customers and suppliers to ensure the delivery of value
and quality. The Company has capitalized on its knowledge of customer
needs, skilled professional staff and relationships with manufacturers
to establish over 100 large partnership accounts.
Distribution Network
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The Companys distribution network consists of five regional
distribution centers called Customer Fulfillment Centers (CFCs) and
over 50 smaller service centers and JIT facilities for customer-
specific requirements. CFCs are located in Philadelphia, Chicago,
Atlanta, San Francisco and Toronto. Within these centers are two
operational units, the Call Center and the Distribution Center. The
Call Centers have responsibility for order entry and customer service.
The Distribution Centers order and receive products from suppliers,
manage inventory and fill and ship customer orders.
The Company operates several smaller, more focused facilities (Service
Centers) adjacent to selected customer locations. Service Centers are
designed to supply a limited number of products to those customers that
require higher-than-standard service levels. Most of the Service
Centers support the large critical environment customers, and several
also house cleanroom laundry and garment re-processing lines, operated
by G&K Technologies, an alliance partner of VWR. The Company also
operates JIT facilities at or near customer sites to meet customer
needs promptly.
<PAGE>7
The Companys domestic CFC operations are coordinated through a
paperless warehouse management system known as its Quality Service
System (QSS). This system provides the Company with speed, accuracy and
flexibility in shipping orders while allowing the Company to operate
the centers efficiently and economically. The QSS system uses radio-
frequency hand-held computers and bar-coded labels that identify
location, routing and inventory picking and replacement, allowing the
Company to monitor inventory and track individual customer orders
throughout its distribution system.
Sales and Marketing
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VWR Scientific Products principal marketing arm is its field sales
organization, consisting of approximately 600 employee sales
professionals. The field sales organization is divided into three
groups, the first focused on servicing the large partnership accounts,
the second dedicated to critical environment customers and the third
responsible for general sales. Augmenting the field sales organization
is an in-house direct telemarketing group, VWR Direct, which calls
primarily on customers in areas not covered by a field sales
representative. Supporting the sales organization are three specialist
groups, for laboratory furniture, electronic commerce and logistics.
There are approximately 500 customer service representatives in the
Call Centers. These customer service representatives, many of whom have
a science background, provide technical support and are responsible for
assisting customers in purchasing decisions. They utilize on-line
computer terminals to enter customer orders and to access information
about products, product availability, pricing, promotions and customer
buying history. Customer service representatives also market
complementary and promotional products.
The Company also markets its products through the VWR Scientific
Products Catalog, a 2,400 page biannual publication covering over
55,000 products. The Catalog is supplemented by several specialty
catalogs for safety products, critical environment applications and
other, more specific, laboratory focus areas.
The Companys Internet site (www.vwrsp.com) features a fully-indexed and
searchable catalog covering the Companys entire product line of over
200,000 products. This electronic catalog includes product
descriptions, technical specifications and cross-referenced data. The
website allows customers to enter orders directly and the Company to
communicate new product releases, promotions and other Company news.
Customers
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VWR Scientific Products customers include many of the nations leading
companies in important research-driven industries, such as
pharmaceuticals, biotechnology, petrochemical, consumer products and
microelectronics. VWR Scientific Products has over 125,000 active
customers, whose individual annual purchases of the Companys products
range in size from less than $1,000 to over $35 million. The 100
largest customers represent approximately one-third of the Companys
revenues, but no single customer accounts for more than 3% of
total revenues.
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Supplier Relationships
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The Company distributes products from more than 2,000 manufacturers,
representing substantially all of the major manufacturers in the
laboratory chemical, glass and plasticware and equipment markets. The
Company continually evaluates new suppliers and product additions to
keep its product lines up-to-date and to reflect advancements in
laboratory technology. In many cases, the Company has established
exclusive supply and distribution arrangements with major
manufacturers. For example, VWR Scientific Products has an exclusive
agreement with Allegiance Corporation for the sale and distribution of
its products to the critical environment market. The Company believes
that its volume of purchases, national presence and ability to provide
manufacturers with access to multiple markets enable it to obtain
attractive terms from manufacturers, including volume discounts. VWR
Scientific Products is leading initiatives with manufacturers to reduce
supply-chain costs and develop more effective joint-marketing programs.
In addition, the Company applies its knowledge of customer needs and
purchasing patterns to assist manufacturers in rationalizing and
enhancing their product lines, product packaging and design.
Competition
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The Company operates in a highly competitive environment. VWR
Scientific Products competes primarily with one other large national
distributor and with many smaller regional, local and specialty
distributors. The Company also competes with manufacturers that sell
directly to end users. Competitive factors include price, service and
delivery, breadth of product line, customer support and the ability to
meet the special requirements of customers.
The Company believes that most of its customers place a high value on
services such as regional and local inventory centers and a single-
source of supply. In addition, the Company believes its value-added
services, such as on-site storeroom management and customized delivery
programs, as well as increased connectivity between VWR Scientific
Products and the customers information systems, will become more
important competitive factors. The Company believes that it can compete
effectively due to its complete package of products and services
promoted by its professional sales organization.
Acquisition of the Baxter Industrial Distribution Business
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On September 15, 1995, VWR completed the acquisition of the Industrial
Distribution Business of the Industrial and Life Sciences Division of
Baxter Healthcare 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, certain rights
in specified trademarks and also assumed certain liabilities for a
purchase price of approximately $432 million, as adjusted.
<PAGE>9
During 1996, the Baxter Industrial business was substantially
transitioned into VWRs infrastructure on a regional basis. This
transition was completed in early 1997. Prior to the transition of any
region into VWRs infrastructure, Baxter Industrial customers were
serviced by Baxter Healthcare under the terms of a Services Agreement
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. In September 1996, Baxter International spun off a portion of
its business as Allegiance Corporation (Allegiance) and Allegiance
assumed Baxter Healthcares responsibilities under the Services
Agreement. Services performed by Baxter Healthcare and Allegiance
included order entry, shipping, invoicing, credit and collection, and
inventory stocking and replenishment. Upon the cessation of services by
Baxter Healthcare or Allegiance at each particular facility, the
Company was required to purchase from Baxter Healthcare or Allegiance
the inventory of laboratory supplies and equipment held for sale to
customers of the Baxter Industrial business.
Relationship with Merck KGaA
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The Company has a strategic relationship with Merck KGaA, a
manufacturer and distributor of pharmaceuticals, laboratory supplies
and products, and specialty chemicals. Merck KGaA owns 49.89% of the
outstanding Common Shares and is represented by five members on the
Companys Board of Directors. EM Laboratories, Incorporated, (EML), an
affiliate of Merck KGaA, entered into a Standstill Agreement with the
Company in connection with Merck KGaAs investment in the Company,
pursuant to which EML agreed that it and its affiliates would not,
subject to certain specified exceptions, until April 1999, increase its
beneficial ownership of the Companys common shares above 49.89% without
prior consent of the Company.
On September 15, 1995, in conjunction with the Baxter Industrial
acquisition, the Company issued a Debenture to EML in the principal
amount of $135 million. The Debenture has been assigned to another
affiliate of EML. The Debenture matures in a single installment in
September 2005 and is subordinated to the Companys obligations under
the Credit Facility. The Debenture bears interest at 13% per annum, due
quarterly. Until such time as Merck KGaA 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, and thereafter, until September 14, 1997, interest
on the Debenture is deferred, with accumulated interest thereon, until
the Debenture matures. Interest on the Debenture is payable quarterly
in cash after September 14, 1997 through the maturity date.
During 1996, the Company issued 1,230,315 common shares as payment of
interest on the Debenture. In conjunction with the Companys public
offering in 1997, affiliates of Merck KGaA purchased 3,011,719 common
shares, for an aggregate cash purchase price of approximately $68.5
million, in order to maintain Merck KGaAs 49.89% beneficial ownership.
In addition, Merck KGaA purchased 52,163 common shares in 1997 in order
to maintain Merck KGaAs 49.89% beneficial ownership as a result of the
Companys issuance of common shares under its stock
<PAGE>10
incentive plans at prices ranging from $7.79 to $13.25. The common
shares sold to affiliates of Merck KGaA in 1997 were not registered
under the Securities Act of 1993 in reliance upon the exemption
afforded by Section 4(2) of that Act.
Merck KGaA has been a supplier of chemicals and other products to the
Company for over 15 years. Merck KGaA is currently the Companys second
largest supplier of chemicals.
Governmental Regulation
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The Company is subject to various U.S. federal and state laws,
regulations, agency actions and court decisions as well as
international laws and regulations relating to the storage, handling,
disposal and transportation of toxic or other hazardous substances.
Failure to comply with these laws and regulations or to correct any
problems or violations to the satisfaction of government authorities
could lead to fines or other liabilities. The Company believes that it
is in compliance in all material respects with all government
regulations.
VWR has been designated by the EPA as a potentially responsible party
in connection with several sites. Management believes that the
Companys alleged contribution to each of these sites is de minimis and
that the potential financial impact of these matters is not material to
the Companys consolidated financial statements.
Employees
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There were 2,217 persons employed by VWR as of February 28, 1998.
Approximately 11% of the Companys employees are represented by unions.
The Company believes its relations with employees are good.
Foreign Operations and Export Sales
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The Company has operations in Canada which serve that countrys
industrial, educational, governmental and biomedical markets. Canadian
operations represent less than 10 percent of consolidated assets and
revenues as of and for the year ended December 31, 1997.
The Company also exports scientific equipment to 78 countries worldwide, with
primary markets in the Middle East, Central America, South America, and the
Pacific Rim. The export business represents less than 10 percent of
consolidated revenues for the year ended December 31, 1997.
<PAGE>11
EXECUTIVE OFFICERS OF THE REGISTRANT
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NAME AGE BUSINESS EXPERIENCE POSITION HELD
LAST FIVE YEARS SINCE
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Jerrold B. Harris 55 President and Chief March 1990
Executive Officer to Present
Paul J. Nowak 43 Executive Vice President January 1998
to Present
Senior Vice President November 1992
Eastern Sales to December 1997
David M. Bronson 44 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.
David S. Barth 45 Senior Vice President September 1995
Western Sales to Present
Area Vice President, July 1992 to
Industrial and Life September 1995
Sciences Division,
Baxter Healthcare Corp.
Matthew Malenfant 36 Senior Vice President January 1998
Eastern Sales to Present
Vice President Sales September 1995 to
Midwest Region December 1997
Area Vice President, May 1993 to
Scientific Products September 1995
Division,
Baxter Healthcare Corp.
Director, National Accounts January 1993 to
Scientific Products April 1993
Division,
Baxter Healthcare Corp.
Hal G. Nichter 51 Senior Vice President October 1995
Customer Fulfillment to Present
Vice President Marketing October 1992 to
October 1995
<PAGE>12
EXECUTIVE OFFICERS OF THE REGISTRANT (CONT.)
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NAME AGE BUSINESS EXPERIENCE POSITION HELD
LAST FIVE YEARS SINCE
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Robert R. Rosenfeld 47 Senior Vice President September 1997 to
Marketing Present
Vice President Sales September 1995 to
Northeast Region September 1997
Vice President Sales February 1993 to
Mid-Atlantic Region September 1995
John G. Griffith 54 Senior Vice President August 1995 to
International Present
Director of Finance, December 1990 to
Merck Ltd, England August 1995
<PAGE>13
ITEM 2 - PROPERTIES
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VWR owns and leases office and warehouse space throughout the United States
and Canada for distribution of the products supplied by it as follows:
Chicago, Illinois Owned
Bridgeport, New Jersey (Philadelphia) Owned
San Francisco, California Leased
Suwanee, Georgia (Atlanta) Leased
Mississauga, Ontario, Canada (Toronto) Leased
Marietta, Georgia Leased
Bridgeport, New Jersey Leased
Houston, Texas Leased
Tualatin, Oregon Leased
San Dimas, California Leased
The Company also leases 25 smaller facilities throughout the United States
and two smaller facilities in Canada which support the sales and warehouse
functions. The Company leases office space in West Chester, Pennsylvania, for
executive, financial, information systems, marketing, and other
administrative activities.
All facilities have been designed to serve the Companys purposes (warehouse
functions and generic office). The facilities are sufficient for current
operations.
ITEM 3. - LEGAL PROCEEDINGS
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The Company is not currently a party to any material litigation. In the
ordinary course of business, the Company is from time to time involved
in various environmental, contractual, warranty, product liability and
other cases and claims. None of the cases or claims currently pending
is expected, individually or in the aggregate, to have a material
adverse effect on the Company.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1997.
<PAGE>14
PART II.
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ITEM 5 - MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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VWR common shares, $1.00 par value, are traded on the NASDAQ Stock Market
under the VWRX symbol. On February 28, 1998, there were approximately 6,700
shareholders represented by 1,501 holders of record.
The quarterly ranges of high and low sale prices of the Corporations common
shares during the years ended December 31, 1997 and 1996 as reported by
NASDAQ are set forth below.
VWR Common Stock 1997 1996
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Quarter High Low High Low
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First $17.75 $13.00 $15.75 $11.94
Second 17.38 14.50 17.00 13.25
Third 24.00 15.75 19.50 14.75
Fourth 29.63 20.63 17.75 12.50
The Corporations Credit Facility entered into on September 14, 1995, as
amended, prohibits the Corporation from paying dividends during the term of
the Credit Facility.
Refer to the caption Relationship with Merck KGaA in Part I, Item I for
information concerning common shares issued by the Company in 1997 which were
not registered under the Securities Act of 1933.
<PAGE>15
ITEM 6. - SELECTED FINANCIAL DATA
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The following table of selected financial data should be read in conjunction
with the Consolidated Financial Statements and Notes thereto included
elsewhere herein.
For the Years Ended December 31,
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(Thousand of dollars,
except per share data) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Operations:
Sales $1,244,795 $1,117,286 $ 718,684 $ 535,179 $509,235
Gross margin 277,715 246,907 159,119 113,198 116,274
Income before
extraordinary charge
and cumulative effect of
accounting change 24,735 7,023 1,935 2,053 3,890
Extraordinary charge,
net of tax (406)
Cumulative effect of
accounting change,
net of tax (1,400)
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Net income $ 24,329 $ 7,023 $ 1,935 $ 2,053 $ 2,490
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Per Share Data:
Book value $ 12.01 $ 8.21 $ 7.60 $ 3.63 $ 3.73
Dividends - - 0.08 0.34 0.40
Basic Income Per Share Data:
Income before
extraordinary charge
and cumulative effect of
accounting change $ 1.08 $ .32 $ .13 $ .19 $ .35
Extraordinary charge,
net of tax (.02)
Cumulative effect of
accounting change,
net of tax (.13)
---------------------------------------------------
Net income per share $ 1.06 $ .32 $ .13 $ .19 $ .22
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Diluted Income Per Share Data:
Income before
extraordinary charge
and cumulative effect of
accounting change $ 1.05 $ .32 $ .13 $ .18 $ .35
Extraordinary charge,
net of tax (.01)*
Cumulative effect of
accounting change,
net of tax (.13)
---------------------------------------------------
Net income per share $ 1.04 $ .32 $ .13 $ .18 $ .22
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<PAGE>16
For the Years Ended December 31,
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(Thousands of dollars,
except statistical data) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Financial Position:
Working capital $182,064 $143,975 $ 87,940 $ 75,120 $ 65,197
Property and equipment-net 50,846 48,184 37,648 38,259 41,562
Total assets 717,566 705,302 621,472 173,375 148,777
Short-term debt 22,500 20,000 2,250 150
Long-term debt 232,409 367,965 334,327 79,170 61,757
Shareholders equity 342,007 183,437 160,089 40,168 41,057
Total invested capital 574,416 573,902 514,416 121,588 102,964
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Operating and Financial Statistics:
Gross margin to sales 22.31% 22.10% 22.14% 21.15% 22.83%
Income, before
extraordinary charge
and cumulative effect of
accounting change, to sales 1.99% 0.63% 0.27% 0.38% 0.76%
Current ratio 2.52 2.02 1.75 2.67 2.80
Return on average
shareholders equity 11.38% 4.07% 2.29% 5.05% 5.68%
- -----------------------------------------------------------------------------
All data presented for continuing operations only.
* Difference due to rounding.
Note: Results include acquisition-related expenses from the Baxter
Industrial acquisition of $0.3 million, $5.1 million and $3.8
million for 1997, 1996 and 1995, respectively. 1994 results include
acquisition-related expenses of $0.9 million from the Canlab
acquisition. 1993 results include restructuring and other charges of
$3.3 million. The earnings per share amounts prior to 1997 have
been restated as required to comply with Statement of Financial
Accounting Standards No. 128, Earnings per Share.
<PAGE>17
ITEM 7 - MANAGEMENTS 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, 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.
On September 15, 1995, the Company acquired the Industrial Distribution
Business (Baxter Industrial) of Baxter Healthcare Corporation (Baxter
Healthcare), a subsidiary of Baxter International.
Results of Operations
- ---------------------
Sales over the last three years are as follows (in thousands):
1997 1996 1995
------ ------ ----
$1,245 $1,117 $719
The gross margin percentage over the last three years is as follows:
1997 1996 1995
---- ---- ----
22.3% 22.1% 22.1%
Total operating expenses, excluding acquisition-related expenses, as a
percentage of sales over the last three years are as follows:
1997 1996 1995
---- ---- ----
16.1% 17.3% 19.1%
1997 versus 1996
- ----------------
Sales increased in 1997 by $127.5 million, or 11.4%, to $1.24 billion from
$1.12 billion in 1996. The sales increase was principally due to increased
sales to the Companys large partnership accounts, increased growth in sales
to small to medium-size customers, growth in the Companys critical
environment business and, to a lesser extent, improved pricing.
Gross margin increased by $30.8 million, or 12.5%, to $277.7 million from
$246.9 million in 1996. As a percentage of sales, gross margin increased from
22.1% in 1996 to 22.3% in 1997. The increase in the Companys gross margin
percentage is primarily attributable to the continued focus on margin
improvement through internal programs.
<PAGE>18
Total operating expenses increased $2.1 million, or 1.1%, to $200.4 million
from $198.3 million in 1996. As a percentage of sales, total operating
expenses decreased from 17.7% in 1996 to 16.1% in 1997. Excluding the effect
of acquisition-related expenses, total operating expenses increased $7.0
million, or 3.6%, to $200.1 million from $193.1 million in 1996. Excluding
the impact of acquisition-related expenses, total operating expenses as a
percentage of sales decreased from 17.3% in 1996 to 16.1% in 1997. The
decreases in the ratios are principally due to 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 related to the Baxter Industrial acquisition.
Acquisition-related expenses consisted primarily of relocation, severance and
integration charges directly attributable to the Baxter Industrial
acquisition.
Interest expense and other was $35.4 million for 1997 and $36.8 million for
1996. The interest expense decrease in 1997 is largely attributable to the
effect of the Companys public offering and concurrent private placement in
the fourth quarter (described in Note 7), the proceeds of which were used to
repay debt, and the Companys lower interest rates under the Credit Facility
during 1997. These decreases were partially offset by the higher outstanding
balance of the Companys Debenture (as described in Note 5).
In 1997, the effective tax rate, before the extraordinary charge, increased
from 40.5% to 41.1% primarily due to increased foreign effective tax rates.
See Note 6 for a description of the differences between the statutory and
effective income tax rates.
In the fourth quarter of 1997, the Company recorded an extraordinary charge
of $0.4 million (net of tax) for the early extinguishment of debt as a result
of the public offering and concurrent private placement.
The increase in weighted average shares outstanding, for earnings per share
calculations, reflects the Companys public offering and concurrent private
placement to affiliates of Merck KGaA totaling approximately 6 million common
shares in November 1997 (as discussed in Note 7).
1996 versus 1995
- ----------------
Sales for 1996 increased $398.6 million, or 55.5%, to $1.12 billion from
$718.7 million in 1995, primarily due to the Baxter Industrial acquisition.
The Company also experienced growth in its existing business.
Gross margin for 1996 increased $87.8 million, or 55.2%, to $246.9 million
from $159.1 million in 1995. As a percentage of sales, gross margins remained
constant at 22.1% for both 1996 and 1995, although through the third quarter
of 1996, gross margins had been higher than in the comparable period of 1995.
The Company experienced declining margins in the second half of 1996
attributable to operational issues from the integration of the Baxter
Industrial business resulting in a full-year 1996 margin percentage of 22.1%.
The integration was substantially completed in early 1997.
<PAGE>19
Total operating expenses for 1996 increased $57.0 million, or 40.3%, to
$198.3 million from $141.3 million in 1995. Excluding the effect of
acquisition-related expenses, total operating expenses increased $55.6
million, or 40.4%, to $193.1 million from $137.5 million in 1995. Total
operating expenses, excluding acquisition-related expenses, decreased as a
percentage of sales to 17.3% from 19.1% in 1995. The Baxter Industrial
acquisition increased the volume of business without a proportionate increase
in operating expenses. Depreciation and amortization expense increased for
1996 primarily as a result of amortization of the excess of cost over net
assets of businesses acquired and depreciation expense for facilities
expansion, both related to the Baxter Industrial acquisition. Acquisition-
related expenses consisted primarily of relocation, severance, lease
termination, and integration charges directly attributable to the Baxter
Industrial acquisition.
Interest expense and other for 1996 increased $22.0 million, or 148.8%, to
$36.8 million from $14.8 million in 1995. Interest expense and other
increased for 1996 due to the full-year effect of the debt incurred to
finance the Baxter Industrial acquisition and working capital requirements
for the integration of the Baxter Industrial business into the Companys
infrastructure. At the time of the Baxter Industrial acquisition, the Company
issued the Debenture and incurred incremental borrowings under the Credit
Facility of approximately $170 million.
In 1996, the effective tax rate increased to 40.5% from 36.1% due to
increases in state taxes and the improved profitability of the Canadian
subsidiary. See Note 6 of Notes to Consolidated Financial Statements for a
description of the differences between the statutory and effective income tax
rates.
Earnings per share in 1996 reflects the full-year effect of the shares issued
to Merck KGaA in 1995, as well as shares issued in 1996 in lieu of interest
payments on the Debenture. Under the terms of the Debenture, additional
shares were issued to Merck KGaA, in lieu of interest payments, until Merck
KGaA obtained a 49.89% ownership in the Company.
Liquidity and Capital Resources
- -------------------------------
The ratio of debt to equity at December 31 for each of the past three years
is as follows:
1997 1996 1995
---- ---- ----
0.7 2.1 2.2
The ratio of operating income, plus depreciation and amortization, to
interest paid over the past three years is as follows:
1997 1996 1995
---- ---- ----
4.8 3.7 3.5
<PAGE>20
In 1997, operations generated $48.0 million of cash flow while in 1996,
operations used $28.1 million of cash. The improvement in cash from
operations is largely attributable to the improved operating results and 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. In 1997, the Companys sales increased 11.4% while inventories
decreased 4.2% primarily as a result of inventory management programs.
The Companys current ratio was 2.5 at December 31, 1997 as compared to 2.0 at
December 31, 1996 and 1.8 at December 31, 1995. 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 increased
due to higher sales and a backlog in collection efforts resulting from the
Baxter Industrial integration. This issue has been addressed and the Company
is taking actions to reduce its accounts receivable days outstanding. 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 Services Agreement (as described in Note 12) at
December 31, 1995.
Debt increased in 1996 due to the expansion of distribution facilities and
the need to fund working capital requirements for the Baxter Industrial
acquisition. Debt decreased in 1997 due to cash generated from operations and
the public offering and concurrent private placement of approximately 6
million shares, the net proceeds of which were $132.7 million. Equity
increases reflect the 1997 public offering and concurrent private placement
and the 1996 issuance of shares to Merck KGaA in lieu of payment for interest
on the Debenture as well as net income for each period.
As discussed in Note 5, the Company and certain of its subsidiaries are
parties to a Credit Facility which expires in September 2000. Pursuant to the
Credit Facility, the Banks extended the Company the Revolver in an amount up
to $150 million and the Term Loan. In 1996, the Company increased the amount
available under the Revolver to $175 million. At December 31, 1997, the
Revolvers limit reverted to $150 million. Outstanding borrowings under the
Term Loan were repaid in 1997 using a portion of the net proceeds received
from the Companys sale of common shares as described in Note 7. Approximately
$81.5 million was outstanding at December 31, 1997 under the Revolver. The
Credit Facility is secured by liens in favor of the Banks on
substantially all of the Companys tangible and intangible property, excluding
real estate.
The Credit Facility includes financial covenants with respect to: minimum
earnings before interest, taxes, depreciation and amortization; maximum
senior leverage ratio; minimum interest coverage; minimum net worth; and
minimum fixed-charge coverage ratio. The Companys financial performance has
met or exceeded these covenants throughout 1997 and 1996. The Credit Facility
prohibits the Company from paying dividends and making other distributions
(except for the issuance of shares as required by the Debenture).
<PAGE>21
As discussed in Note 5, the Company incurred indebtedness in 1995 of $135
million evidenced by the Debenture. The Debenture matures in a single
installment in September 2005. The Debenture is subordinated to the Companys
obligations to its primary bank lending institutions. The Debenture bears
interest at 13% per annum, due quarterly. 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, and thereafter until September 14, 1997,
interest on the Debenture is deferred, with accumulated interest thereon,
until the Debenture matures. Interest on the Debenture is payable quarterly
in cash after September 14, 1997 through the maturity date.
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 swaps are based upon obligations under the Credit
Facility and expected actual debt levels during the term of the Credit
Facility. The Company provides protection to meet actual exposures and does
not speculate in derivatives. As a result of the fourth quarter 1997 public
offering and concurrent private placement, the Company terminated $60 million
of swap agreements due to the repayment of existing debt balances. In
addition, $35 million of swap agreements expired under their original terms.
At December 31, 1997, the Company had a notional amount of $65 million of
swaps in effect. These swaps expire between 1998 and 2000. The amount of
floating rate debt protected by the swaps ranges from $65 million to $10
million during the period outstanding with fixed rates ranging from 5.5% to
6.4%. Net receipts or payments under the agreements are recognized as an
adjustment to interest expense. At December 31, 1997, the fair market value
of the swap agreements, which is not recorded in the consolidated financial
statements, is a net payable of approximately $0.1 million. The fair market
value of the swap agreements is based on the present value of the future cash
flows determined by the difference between the contracts fixed interest rate
and the then-current replacement interest rate. The other parties to the
interest rate swap agreements expose the Company to credit loss in the event
of nonperformance although the Company does not anticipate such
nonperformance.
The Companys use of swaps and collars for interest rate protection increased
interest expense by $0.2 million, $0.7 million, and $0.3 million in 1997,
1996,and 1995, respectively. Pursuant to the Credit Facility, the Company is
obligated to provide interest rate protection on at least 25% of the
outstanding borrowings under the Credit Facility.
As discussed in Note 12, 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, requires the Company to purchase a
minimum dollar amount of products. The minimum for the 1997 contract year was
$71 million, which was satisfied. The minimum requirements, which are subject
to annual adjustments, for the remaining fiscal years are $77 million for
1998, $89 million for 1999, and $96 million for 2000. 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 averages
approximately $23 million. Purchases made for the 1997 contract year were $18
million. The Company intends to satisfy the 1997 deficiency under this
agreement by purchasing the necessary amount of products. Such purchases are
not expected to have a material effect on the Companys financial condition or
results of operations for 1998.
<PAGE>22
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 Companys Consolidated Financial Statements.
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 Companys 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. As of December 31, 1997,
the Company has expended approximately $6 million and the remaining amounts
are expected to be expended over the next eighteen months. A substantial
portion of the costs associated with the replacement of existing systems will
be recorded as assets and amortized over their useful lives.
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 Companys 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 Companys 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 has also initiated
discussions with its significant suppliers and large customers to ensure that
those parties have appropriate plans to remediate Year 2000 issues where
their systems interface with the Companys systems or otherwise impact its
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.
Certain information in this report contains forward-looking statements as
such term is defined in Section 27A of the Securities Act and Section 21E of
the Exchange Act. Certain factors such as competitive pressures, customer and
product mix, system conversion and Year 2000 issues, regulatory changes, and
capital markets could cause actual results to differ materially from those in
forward-looking statements.
<PAGE>23
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
VWR SCIENTIFIC PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1997 1996 1995
- -----------------------------------------------------------------------------
(Thousands, except per share data)
Sales $1,244,795 $1,117,286 $718,684
Cost of sales 967,080 870,379 559,565
---------- ---------- --------
Gross margin 277,715 246,907 159,119
Operating expenses 177,995 172,407 124,317
Depreciation and amortization 22,148 20,740 13,212
Acquisition-related expenses 253 5,128 3,761
---------- ---------- --------
Total operating expenses 200,396 198,275 141,290
---------- ---------- --------
Operating income 77,319 48,632 17,829
Interest expense and other 35,355 36,827 14,803
---------- ---------- --------
Income before income taxes
and extraordinary charge 41,964 11,805 3,026
Income taxes 17,229 4,782 1,091
---------- ---------- --------
Income before extraordinary
charge 24,735 7,023 1,935
Extraordinary charge, net of
income taxes 406
---------- ----------- --------
Net income $ 24,329 $ 7,023 $ 1,935
========== =========== ========
Basic earnings per share:
Income before extraordinary
Charge $ 1.08 $ 0.32 $ 0.13
Extraordinary charge (.02)
---------- ---------- --------
Net income $ 1.06 $ 0.32 $ 0.13
========== ========== ========
Diluted earnings per share:
Income before extraordinary
Charge $ 1.05 $ 0.32 $ 0.13
Extraordinary charge (.01)*
----------- ---------- --------
Net income $ 1.04 $ 0.32 $ 0.13
=========== ========== ========
<PAGE>24
Weighted average shares outstanding:
Basic 22,969 21,892 14,738
Diluted 23,494 22,290 14,853
Difference due to rounding.
See Notes to Consolidated Financial Statements.
<PAGE>25
VWR SCIENTIFIC PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of dollars,
except per share data)
December 31,
ASSETS 1997 1996
- -----------------------------------------------------------------------------
Current assets:
Trade receivables,
less reserves of $2,512 and $1,505 $180,345 $161,235
Other receivables 6,632 7,159
Inventories 103,445 108,009
Other 11,166 8,691
-------- --------
Total current assets 301,588 285,094
Property and equipment--net 50,846 48,184
Excess of cost over net assets of
businesses acquired--net 354,961 361,329
Other assets--net 10,171 10,695
-------- --------
$717,566 $705,302
======== ========
<PAGE>26
VWR SCIENTIFIC PRODUCTS CORPORATION
CONSOLIDATED BALANCE SHEETS (CONT.)
(Thousands of dollars,
except per share data)
December 31,
LIABILITIES AND SHAREHOLDERS EQUITY 1997 1996
- -----------------------------------------------------------------------------
Current liabilities:
Bank checks outstanding, less cash in bank $ 10,077 $ 10,274
Current portion of long-term debt 22,500
Accounts payable 91,887 92,999
Accrued liabilities 17,560 15,346
-------- --------
Total current liabilities 119,524 141,119
-------- --------
Long-term debt:
Revolving credit facility 81,462 142,256
Term loan 86,900
Subordinated debenture 150,947 138,809
-------- --------
Total long-term debt 232,409 367,965
-------- --------
Deferred income taxes and other 23,626 12,781
Shareholders equity:
Preferred stock, $1 par value, 1,000,000
shares authorized, none issued
Common stock, $1 par value, 30,000,000
shares authorized, 28,487,251 and
22,346,909 shares issued 28,487 22,347
Additional paid-in capital 280,068 152,157
Retained earnings 35,798 11,471
Treasury stock at cost, 4,978
and 2,911 shares (94) (45)
Unamortized ESOP contribution (1,144) (1,464)
Unamortized restricted stock awards (184) (357)
Cumulative translation adjustment (924) (672)
-------- --------
Total shareholders equity 342,007 183,437
-------- --------
$717,566 $705,302
======== ========
See Notes to Consolidated Financial Statements.
<PAGE>27
VWR SCIENTIFIC PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
(Thousands of dollars) 1997 1996 1995
- -----------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 24,329 $ 7,023 $ 1,935
Adjustments to reconcile net income
to cash provided by (used in)
operating activities:
Depreciation and amortization,
including deferred debt
issuance costs 23,234 22,051 13,532
Debentures and stock issued in lieu of
payment of interest 12,138 19,114 3,702
Provision for deferred taxes 7,372 4,284 560
Loss on early extinguishment
of debt, net 680
Change in operating assets and
liabilities, net of effect
of business acquired:
Receivables (18,583) (31,574) 6,130
Inventories 3,364 (55,262) (13,256)
Other current assets (5,927) (2,367) (3,322)
Accounts payable (1,112) 19,761 37,455
Accrued liabilities and other 2,490 (11,162) 12,737
--------- --------- ----------
Cash provided by (used in)
operating activities 47,985 (28,132) 59,473
--------- --------- ----------
INVESTING ACTIVITIES
Acquisition of business 1,683 (434,184)
Sale of joint venture investment 2,881
Additions to property and
equipment, net (11,551) (23,417) (6,342)
Proceeds from sale of property
and equipment 5,664
Other (165) (699)
--------- --------- ----------
Cash used in investing activities $(11,551) $ (13,354) $ (441,225)
--------- --------- ----------
<PAGE>28
VWR SCIENTIFIC PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
Year Ended December 31,
(Thousands of dollars) 1997 1996 1995
- ----------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt $ 224,006 $ 206,788 $ 115,408
Repayment of long-term debt (394,200) (174,459) (153,595)
Net proceeds from common stock issuance 132,708 104,171
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
Debt issuance costs (4,971)
Net change in bank checks outstanding (197) 8,526 350
Cash dividends (1,474)
Proceeds from exercise of stock options 560 308 371
Proceeds from shares issued
under Merck KGaA ownership rights 547
Other 142 323 (45)
--------- --------- ----------
Cash (used in) provided by
financing activities (36,434) 41,486 381,752
--------- --------- ----------
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 during the year for:
Interest $ 20,797 $ 18,584 $ 8,989
Income taxes 7,101 1,175 321
Acquisition of Baxter Industrial business:
Working capital $ 65,683
Property and equipment 862
Other, principally excess of cost over net assets
of business acquired 365,956
----------
Net cash used to acquire business $ 432,501
==========
See Notes to Consolidated Financial Statements.
<PAGE>29
VWR SCIENTIFIC PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Thousands of dollars,
except per share data) Unamortized
ESOP
Common Contribution,
Stock Additional Restricted
$1 Par Paid-in Retained Treasury Stock,
Value Capital Earnings Stock and Other
- -----------------------------------------------------------------------------
Balance at
December 31, 1994 $11,316 $ 29,269 $ 4,941 $(2,463) $(2,895)
Net income 1,935
Issuance of 8,650,978
shares of common stock 8,651 95,520
Exercise of warrants
for 967,015 shares
of common stock 967 9,670
Issuance of 297,615 shares
of common stock as
payment for
debenture interest 298 3,404
Cash dividends
($.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)
--------------------------------------------------
<PAGE>30
VWR SCIENTIFIC PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (CONT.)
(Thousands of dollars
except per share data) Unamortized
ESOP
Common Contribution,
Stock Additional Restricted
$1 Par Paid-in Retained Treasury Stock,
Value Capital Earnings Stock and Other
- ----------------------------------------------------------------------------
Net income $ $ $ 7,023 $ $
Issuance of 1,230,315
shares of common stock
as payment for
debenture interest 1,230 14,075
Allocation of shares
to ESOP participants 293
Restricted stock awards--
4,230 shares 4 52 (56)
Amortization of
restricted stock 398
Exercise of stock options 44 264
Foreign currency
translation adjustment 40
Other 1 13 (9) (36) 12
Balance at ---------------------------------------------------
December 31, 1996 22,347 152,157 11,471 (45) (2,493)
---------------------------------------------------
Net income 24,329
Issuance of 6,036,719
shares of common stock 6,037 126,671
Allocation of shares
to ESOP participants 320
Amortization of
restricted stock 173
Exercise of stock options 51 509
Shares issued under
Merck KGaA ownership
rights 52 495
Tax benefit on exercise
of stock options 236
Foreign currency
translation adjustment (252)
Other (2) (49)
Balance at -------------------------------------------------------
December 31, 1997 $28,487 $280,068 $35,798 $(94) $(2,252)
=======================================================
See Notes to Consolidated Financial Statements.
<PAGE>31
VWR SCIENTIFIC PRODUCTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
Basis of Presentation
- ---------------------
VWR Scientific Products Corporation (VWR or the Company) distributes
laboratory supplies, chemicals, and equipment to life science, educational
and industrial organizations throughout the United States and Canada. The
Company also distributes critical environment (cleanroom) supplies and
apparel to manufacturers of electronics, medical devices and pharmaceuticals.
The consolidated financial statements include the accounts of VWR Scientific
Products Corporation and all of its subsidiaries. Significant intercompany
accounts and transactions have been eliminated.
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.
Capitalization, Depreciation and Amortization
- ---------------------------------------------
Property 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. 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 to three 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 acquisition of the Industrial Distribution Business of Baxter
Healthcare in 1995 and is being amortized on a straight-line basis over 40
years. Accumulated amortization at December 31, 1997 and 1996 was $23.8
million and $13.0 million, respectively. The carrying value of excess of cost
over net assets of businesses acquired is evaluated periodically in relation
to the operating performance and expected future undiscounted cash flows of
the underlying businesses.
Revenue Recognition
- -------------------
The Company recognizes revenue when products are shipped.
Concentrations of Credit Risk
- -----------------------------
Trade receivables reflect VWRs diverse customer base and the customer bases
wide geographic dispersion. As a result, at December 31, 1997, the Company
had no significant concentrations of credit risk.
<PAGE>32
New Accounting Standards
- ------------------------
The Financial Accounting Standards Board (FASB) has 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 Companys results of operations,
financial position, capital resources or liquidity.
Reclassifications
- -----------------
Certain prior years amounts have been reclassified to conform to the current
years presentation.
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, for approximately $432 million, as adjusted.
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.
Cost in excess of net assets acquired is primarily the result of the
acquisition of Baxter Industrial and amounted to $366 million.
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 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 Companys
credit agreement entered into on September 14, 1995.
The following unaudited pro forma information has been prepared assuming that
the Baxter Industrial acquisition and related financings had occurred on
January 1, 1995. 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. Cost savings from combining
the operations are not reflected because it is not practical to do so. Also,
Baxter Industrials inventory, as reflected in cost of sales, is valued at the
lower of cost or market (as determined on a first-in, first-out basis) in the
pro forma information below. Cost of sales for 1995 has not been adjusted to
give the pro forma effect of adopting VWRs accounting policy of valuing
inventory on the last-in, first-out method because it is not practical to
calculate the pro forma adjustments.
<PAGE>33
The following unaudited pro forma information is provided for information
purposes only and does not purport to be indicative of VWRs results of
operations that would actually have been achieved had the Baxter Industrial
acquisition and related financing transactions been completed on January 1,
1995.
Year Ended December 31, 1995
(Thousands of dollars, except per share data)
- -----------------------------------------------------------------------------
Sales $1,072,789
Net income $ 1,219
Basic earnings per share $ 0.06
Diluted earnings per share $ 0.05
In connection with the combination of the Baxter Industrial business with
VWR, the Company made organizational and facility location decisions
involving the Companys selling and distribution activities. Certain costs
related to the activities of the Baxter Industrial business have been
considered in the allocation of the purchase price of the acquired business,
and the additional costs related to VWRs existing operations were expensed.
Acquisition-related expenses consist of lease termination costs related to
the decision to upgrade the Companys computer hardware; severance and
relocation of VWR employees; training of the combined sales force regarding
the transition; consulting services; inventory relocation and other
incremental costs related to the acquisition. The Company allocated $3.6
million to the purchase price and expensed $0.3 million, $5.1 million and
$3.8 million as acquisition-related expenses in 1997, 1996 and 1995,
respectively, which have been funded as of December 31, 1997.
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 89% of inventory carrying value at December 31, 1997 and 1996. Cost
of the remaining inventories is determined using the first-in, first-out
(FIFO) method.
LIFO cost at December 31, 1997 and 1996, was approximately $32.9 million and
$30.8 million, respectively, less than current cost.
<PAGE>34
4. Fixed Assets
------------
Net property and equipment at December 31, 1997 and 1996, is:
(Thousands of dollars) 1997 1996
- ----------------------------------------------------------------------
Land $ 738 $ 738
Buildings 15,340 15,504
Equipment and computer software 76,636 72,182
Capital additions in process 7,247 177
----------------------------
99,961 88,601
Less accumulated depreciation (49,115) (40,417)
----------------------------
Net property and equipment $ 50,846 $ 48,184
============================
Depreciation expense for the years ended December 31, 1997, 1996, and 1995,
was $8.7 million, $7.2 million, and $6.6 million, respectively.
5. Long-Term Debt and Revolving Credit Facilities
----------------------------------------------
On September 14, 1995, the Company entered into a five-year Credit Facility
consisting of a $150 million revolving line of credit (the Revolver) and a
five-year $135 million amortizing term loan (the Term Loan). Outstanding
borrowings under the Term Loan were repaid in 1997 using a portion of the net
proceeds received from the Companys sale of common shares as described in
Note 7. During 1996, the Company increased the Revolvers limit to $175
million to fund working capital requirements through December 31, 1997, at
which time the Revolver limit reverted to $150 million. The Revolver provides
for the ability to borrow the equivalent in Canadian dollars up to $17
million U.S. dollars. The Revolver is secured by liens on substantially all
of the Companys tangible and intangible property, excluding real estate, and
bears an interest rate 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, between .15% and .30%.
The margin on interest and the commitment fees will vary depending on the
relationship between the Companys 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, 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).
<PAGE>35
On September 15, 1995, in conjunction with the Baxter Industrial acquisition,
the Company issued the Debenture to EML in the principal amount of $135
million. The Debenture has been assigned to another affiliate of EML. The
Debenture matures in a single installment in September 2005 and is
subordinated to the Companys obligations under the Credit Facility. The
Debenture bears interest at 13% per annum, due quarterly. Until such time as
Merck KGaA 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, and
thereafter, until September 14, 1997, interest on the Debenture is deferred,
with accumulated interest thereon, until the Debenture matures. Interest on
the Debenture is payable quarterly in cash after September 14, 1997 through
the maturity date.
At December 31, 1997 and 1996, the approximate weighted average interest rate
on borrowings under the outstanding Credit Facility was 6.9% and 7.4%,
respectively. Interest expense under the credit facilities for the years
ended December 31, 1997, 1996, and 1995, was $15.9 million, $17.6 million,
and $9.6 million, respectively, resulting in a weighted average interest rate
of 7.1%, 7.4%, and 8.2%, respectively.
The carrying value of the Revolver approximates its fair value. The fair
value of the Debenture is not readily determinable due to the nature of the
instrument.
In 1997, the Company recorded an extraordinary charge in the amount of $0.7
million ($0.4 million net of tax) representing the write-off of $0.9 million
of unamortized debt issuance costs related to the early extinguishment of the
Term Loan, net of $0.2 million of gains on the termination of interest rate
swaps due to the repayment of amounts under the Credit Facility.
Aggregate maturities of long-term debt are as follows: $81.5 million in 2000
and $150.9 million in 2005.
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 swaps are based upon obligations under the Credit
Facility and expected actual debt levels during the term of the Credit
Facility. The Company provides protection to meet actual exposures and does
not speculate in derivatives. At December 31, 1997, the Company had a
notional amount of $65 million of swaps in effect. These swaps expire between
1998 and 2000. The amount of floating rate debt protected by the swaps ranges
from $65 million to $10 million during the period outstanding with fixed
rates ranging from 5.5% to 6.4%. Net receipts or payments under the
agreements are recognized as an adjustment to interest expense. At December
31, 1997, the fair market value of the swap agreements, which is not recorded
in the consolidated financial statements, is a net payable of approximately
$0.1 million. The fair market value of the swap agreements is based on the
present value of the future cash flows determined by the difference between
the contracts fixed interest rate and the then-current replacement interest
rate. The other parties to the interest rate swap agreements expose the
Company to credit loss in the event of nonperformance although the Company
does not anticipate such nonperformance.
<PAGE>36
6. Income Taxes
------------
Taxes on income are based on income before income taxes and extraordinary
charge as follows:
(Thousands of dollars) 1997 1996 1995
- -----------------------------------------------------------------------------
Domestic $38,148 $10,187 $ 2,351
Canada 3,816 1,618 675
-----------------------------------------
$41,964 $11,805 $ 3,026
=========================================
The provision for income taxes consists of:
(Thousands of dollars) 1997 1996 1995
- ----------------------------------------------------------------------------
Current:
Federal $ 7,037 $ 70 $ 487
State 697 44
Foreign 2,123 428
----------------------------------------
9,857 498 531
----------------------------------------
Deferred:
Federal 5,876 3,460 481
State 1,399 603 (183)
Foreign 97 221 262
----------------------------------------
7,372 4,284 560
----------------------------------------
Total tax provision $17,229 $ 4,782 $ 1,091
========================================
The reconciliation of tax computed at the federal statutory tax rate of 35%
of income before income taxes to the actual income tax provision is as
follows:
(Thousands of dollars) 1997 1996 1995
- ----------------------------------------------------------------------------
Statutory tax $14,687 $ 4,132 $ 1,059
State income taxes net
of federal tax benefit 1,362 392 (93)
Foreign rate differential 667 151
Other--net 513 107 125
----------------------------------------
Total tax provision $17,229 $ 4,782 $ 1,091
========================================
<PAGE>37
Deferred tax liabilities (assets) as of December 31, 1997 and 1996 are
comprised of the following:
(Thousands of dollars) 1997 1996
- ----------------------------------------------------------------------------
Depreciation $ 3,438 $ 4,861
Pension 3,718 3,077
Goodwill amortization 14,015 8,385
------------------------
Deferred tax liabilities 21,171 16,323
-------------------------
Postretirement benefits (698) (788)
Other compensation benefits (1,035) (1,759)
Net operating loss carryforwards (683) (1,021)
Inventory capitalization (1,610) (1,175)
Other--net (1,097) (2,505)
-------------------------
Deferred tax assets (5,123) (7,248)
-------------------------
Net deferred tax liability $ 16,048 $ 9,075
=========================
Net current deferred tax assets are $3.8 million and $2.3 million at December
31, 1997 and 1996, respectively. The Company has state net operating loss
carryforwards that expire at various times through 2011.
7. 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 6,832,797 common
shares at a price of $12.44 and exercised the Warrant, raising Merck KGaAs
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 Companys common shares above 49.89% without
the prior consent of the Company. Under the terms of the Debenture, interest
was payable in common shares, at an issue price per share of $12.44, until
Merck KGaAs beneficial ownership reached 49.89%. In addition, upon issuance
of stock by the Company, including its stock incentive plans, Merck KGaA has
the option to purchase additional shares from the Company to retain its
49.89% ownership interest for which the purchase price equals the price the
Company receives for the stock. Merck KGaA beneficially owns 49.89% of the
issued and outstanding common shares as of December 31, 1997.
In November 1997, the Company completed a public offering of 3,025,000 common
shares and a concurrent private placement with affiliates of Merck KGaA of
3,011,719 common shares, resulting in proceeds of $132.7 million (net of
issuance costs of $4.6 million). The net proceeds were used to repay the
outstanding amount of the Companys Term Loan of $88.8 million and $43.9
million of the Revolver.
<PAGE>38
Shareholder Rights Agreement
- ----------------------------
On May 20, 1988, the Company established a Shareholder Rights Agreement that
was amended in 1995 in conjunction with the issuance of common shares and the
Warrant to EML. 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. Under the Agreement, the Company has
distributed a dividend of one Right for each outstanding share of the
Companys stock. When exercisable, each Right will entitle its holder to buy
two shares of the Companys 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 Companys common stock. EML and its
affiliates are excluded from the definition of an Acquiring Person. 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 Rights then-current full exercise price, shares of the Companys 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.
8. Earnings Per Share
------------------
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings per Share, which required the
Company to change the method used to compute earnings per share (EPS) and to
restate all prior periods presented. The presentation of primary and fully
diluted EPS has been replaced with basic and diluted EPS, respectively. Basic
earnings per share is computed using the weighted average number of common
shares outstanding during the period. The computation of diluted earnings per
share includes the dilutive effect of securities that could be exercised or
converted into common stock. The following is a reconciliation between the
weighted average outstanding shares used in the calculation of basic and
diluted EPS:
(Thousands) 1997 1996 1995
- -----------------------------------------------------------------------------
Basic weighted average
common shares outstanding 22,969 21,892 14,738
Net effect of dilutive
stock options 263 199 85
Effect of Merck KGaA
ownership rights 262 199 30
----------------------------------------
Diluted weighted average
common shares outstanding 23,494 22,290 14,853
=========================================
<PAGE>39
Shares issued in payment of Debenture interest were included in the share
calculation as interest expense was recognized. Shares issued in connection
with the 1997 public offering and concurrent private placement with
affiliates of Merck KGaA totaling approximately 6 million shares are included
in the weighted average shares outstanding for approximately one month in
1997.
9. Stock and Incentive Programs
----------------------------
The Company follows Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock-based compensation. The Company has adopted
the disclosure-only option under SFAS No. 123, Accounting for Stock-Based
Compensation.
The Companys stock incentive plans allow for the grant of nonqualified and
incentive stock options or restricted stock awards. In addition to
outstanding options, 827,400 shares were available for issuance at December
31, 1997.
Stock Options
- -------------
Options 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
contain various vesting provisions ranging from 4 to 9 years. Beginning in
1995, grants issued vest at the earlier of nine years following issuance or
in 50% allotments based on the performance of the Companys stock over a
certain period of time.
Changes in options outstanding were:
Average
Shares Price
- -----------------------------------------------------------------------------
Outstanding at December 31, 1994 355,967 $ 8.86
Exercised (47,166) 7.87
Granted 1,020,000 12.00
Cancelled (87,200) 11.67
-------------------------
Outstanding at December 31, 1995 1,241,601 11.28
Exercised (43,983) 7.03
Granted 189,000 13.25
Cancelled (60,000) 12.00
-------------------------
Outstanding at December 31, 1996 1,326,618 11.67
Exercised (51,460) 11.19
Granted 167,000 18.75
Cancelled (66,200) 11.82
-------------------------
Outstanding at December 31, 1997 1,375,958 $ 12.51
=========================
At December 31, 1997, there were 1,200,336 options exercisable at an average
price of $11.60. Outstanding options at December 31, 1997 have exercise
prices ranging from $7.79 to $18.75 and have a weighted average remaining
life of 7 years.
<PAGE>40
Pro forma disclosure, as required by SFAS No. 123, regarding net income and
earnings per share has been determined as if the Company had accounted for
its employee stock options under the fair value method. Option valuation
models use highly subjective assumptions to determine the fair value of
traded options with no vesting or trading restrictions. Because options
granted under the Companys Stock Option Plans have vesting requirements and
cannot be traded, and because changes in the assumptions can materially
affect the fair value estimate, in managements opinion, the existing
valuation models do not necessarily provide a reliable measure of the fair
value of its employee stock options.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995: risk-free interest rate of 6.40%, 5.60%
and 5.60%, respectively; no dividends; a volatility factor of the expected
market price of the Companys common stock of 0.476, 0.416, and 0.416,
respectively; and a weighted-average expected life of the options
of 7 years.
For purposes of pro forma disclosures, the estimated fair value of the
options ($10.90, $6.99 and $6.31 for the 1997, 1996 and 1995 grants,
respectively) is amortized to expense over the options assumed vesting
period. SFAS No. 123 requires only that the income effects of options granted
beginning in 1995 be included in the pro forma disclosures. Since a portion
of the Companys stock options vest over several years and additional options
may be granted each year, the pro forma effect on net income reported below
is not representative of the effect of fair value stock option expense on
future years pro forma net income. The Companys pro forma information
follows:
Years ended December 31,
(Thousands, except per share data) 1997 1996 1995
- -----------------------------------------------------------------------------
Pro forma net income $21,255 $6,152 $1,717
Pro forma basic earnings per share 0.93 0.28 0.12
Pro forma diluted earnings per share 0.90 0.28 0.12
Savings Investment Plan
- -----------------------
The Company has a savings investment plan whereby it matches 50% of the
employees contribution up to 3% of the employees pay. Depending on the
Companys profitability in any year, the Company will make an additional match
of 50% of the employee contributions between 3% and 7.5% of their pay.
Expenses under this plan for the years ended December 31, 1997, 1996, and
1995, were $0.9 million, $0.9 million, and $0.7 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 242,200 shares are allocated to participants at
December 31, 1997. All full-time and part-time employees, except certain
union employees, are eligible to participate in the plan.
<PAGE>41
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 Companys profitability or the minimum allocation required
per the ESOP agreement. Expenses are recognized based on shares allocated for
the year and are reduced for dividends paid, if any, on unallocated shares.
10. Postretirement Benefits
-----------------------
Pension Plan
- ------------
The Company has a defined benefit pension plan 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 plan 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 Companys Consolidated
Balance Sheets at December 31, 1997 and 1996, are:
(Thousands of dollars) 1997 1996
- -------------------------------------------------------------------------
Actuarial present value of plan
benefit obligations:
Vested benefit obligation $43,229 $37,777
Nonvested benefit obligation 1,786 1,541
-------------------------
Accumulated benefit obligation $45,015 $39,318
=========================
Plan assets at fair value $62,339 $50,044
Projected benefit obligation 53,158 44,927
-------------------------
Plan assets in excess of
projected benefit obligation 9,181 5,117
Prior service costs not yet recognized
in net periodic pension cost (362) (464)
Unrecognized net transition obligation 216 267
Unrecognized actuarial (gain) loss (1,481) 788
-------------------------
Prepaid pension expense included in
consolidated balance sheets $ 7,554 $ 5,708
=========================
The assets of the Company plan consist primarily of undivided interests in
several funds structured to duplicate the performance of various stock and
bond indexes.
<PAGE>42
Net pension expense under the Company plan includes the following components:
(Thousands of dollars) 1997 1996 1995
- ----------------------------------------------------------------------------
Service cost (benefits earned
during the year) $ 2,180 $ 2,234 $ 1,353
Interest cost on projected
benefit obligation 3,587 3,289 3,051
Actual return on plan assets (12,272) (6,828) (9,501)
Net amortization and deferral 7,241 2,706 6,342
---------------------------------------
Net pension expense $ 736 $ 1,401 $ 1,245
=======================================
The assumptions used were:
Discount rate 7.50% 8.00% 7.50%
Rate of increase in
compensation levels 4% 4% 4%
Expected long-term rate of
return on plan assets 10% 10% 10%
The Company maintains a supplemental pension plan for certain senior
officers. Expenses incurred under this plan in 1997, 1996, and 1995 were
approximately $0.1 million, $0.2 million, and $0.1 million, respectively.
Certain employees are covered under union-sponsored, collectively bargained
plans. Expenses under these plans for each of the years ended December 31,
1997, 1996, and 1995, were $0.3 million, $0.5 million, and $0.3 million,
respectively, as determined in accordance with negotiated labor contracts.
Retiree Medical Benefits Program
- --------------------------------
The Company provides health benefits to certain retirees and a limited number
of active employees and their spouses. These benefit plans are unfunded. The
accumulated postretirement benefit obligation was $1.7 million and $1.8
million at December 31, 1997 and 1996, respectively. The weighted average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.50% and 8.0% at December 31, 1997 and 1996, respectively.
The annual expense for such benefits was not material.
11. Leases
------
The Company leases office and warehouse space and computer equipment under
operating leases, certain of which extend up to 17 years, subject to renewal
options. Rental expense was $9.8 million, $9.8 million, and $5.4 million for
the years ended December 31, 1997, 1996, and 1995, respectively.
<PAGE>43
Future minimum lease payments as of December 31, 1997, under noncancelable
operating leases having initial lease terms of more than one year are:
Years Ending December 31
(Thousands of dollars)
- ------------------------------------------------------------------
1998 $ 7,325
1999 5,807
2000 4,900
2001 4,008
2002 3,444
Thereafter 26,563
-------
Total minimum payments $52,047
=======
12. Material Agreements
-------------------
Services Agreement
- ------------------
The Company entered into a Services Agreement with Allegiance Corporation,
Allegiance, formerly the domestic healthcare distribution, surgical, and
respiratory therapy products and healthcare cost management business of
Baxter Healthcare, to provide for the orderly transfer of the Baxter
Industrial business to the Company. Services provided under this agreement
included order entry, shipping, invoicing, credit and collection, and
inventory stocking and replenishment. As the Baxter Industrial business was
transitioned to VWR facilities on a regional basis in 1996 and early 1997,
VWR directed Allegiance to discontinue the provision of such services.
No service fees were payable during the first three months of the Services
Agreement. For the remaining term, the Company was required to make payments
equal to 5.5% of sales to customers of the Baxter Industrial business or a
minimum of $18.6 million. The Company expensed $0.7 million, $11.3 million,
and $6.6 million in 1997, 1996, and 1995, respectively, under the Services
Agreement using an effective-rate method.
Distribution Agreements
- -----------------------
In connection with the Baxter Industrial Acquisition, the Company entered
into 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 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 three fiscal years of the
Distribution Agreement, are $77 million, $89 million and $96 million. During
the 1997 contract year, the minimum requirement under this agreement of $71
million was satisfied. Purchases under this contract are not expected to have
a material effect on the Companys financial condition or results of
operations for 1998.
<PAGE>44
The Company also has a similar agreement with another manufacturer under
which the Company is required to meet minimum annual purchase requirements,
or, if such minimums are not achieved, to purchase products or pay the
related estimated gross margin that would otherwise have been earned by the
supplier. The minimum purchase commitment for the 1997 contract year was $22
million, of which the Company purchased $18 million. The minimum purchase
commitment for each of the years 1998 through 2000 is $23 million, $24
million, and $24 million, respectively. The Company intends to satisfy the
1997 deficiency by purchasing the necessary amount of products. These
purchases are not expected to have a material effect on the Companys
financial condition or results of operations for 1998.
13. Contingencies and Commitments
-----------------------------
The Company is involved in various environmental, contractual, and product
liability cases and claims, which are considered routine to the Companys
business. In the opinion of management, the potential financial impact of
these matters is not material to the consolidated financial statements.
14. Transactions with Affiliates
----------------------------
In the ordinary course of business, the Company purchases inventory from
affiliates of Merck KGaA. Such purchases represent less than 5% of total
purchases.
<PAGE>45
15. Quarterly Financial Data (Unaudited)
- -----------------------------------------------------------------------------
(Thousands of dollars,
except per share data)
Basic Diluted
Gross Operating Net Earnings Earnings
Sales Margin Income Income (Loss) (Loss)
(Loss) Per Share** Per Share**
- -----------------------------------------------------------------------------
Year Ended - December 31, 1997
First Quarter $ 290,826 $ 63,416 $15,393 $ 3,551 $ .16 $ .16
Second Quarter 310,513 68,504 19,881 6,080 .27 .27
Third Quarter 329,079 74,113 22,984 8,395 .38 .37
Fourth Quarter 314,377 71,682 19,061 6,303 .25 .25
---------------------------------------------------------
Total $1,244,795 $277,715 $77,319 $24,329 $1.06 $1.04*
=========================================================
Year Ended - December 31, 1996
First Quarter $ 276,458 $ 62,106 $ 12,298 $ 2,110 $ .10 $.10
Second Quarter 278,961 63,149 14,265 3,073 .14 .14
Third Quarter 289,280 63,962 15,910 3,960 .18 .18
Fourth Quarter 272,587 57,690 6,159 (2,120) (.09) (.09)
---------------------------------------------------------
Total $1,117,286 $246,907 $ 48,632 $ 7,023 $ .32* $.32*
=========================================================
Note: The first quarter of 1997 includes $253 of acquisition-related expenses
from the Baxter Industrial acquisition. The 1996 amounts include Baxter
Industrial acquisition-related expenses of $1,188, $1,845, $1,093 and $1,002
for the first, second, third and fourth quarters, respectively. The fourth
quarter of 1997 includes an extraordinary charge of $406 million (net of tax)
or $0.02 per basic share and $0.01 per diluted share due to the early
extinquishment of debt.
* 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.
** Earnings per share for 1996 and for the first three quarters of 1997 have
been restated to conform to SFAS No. 128. As a result of the restatement,
basic earnings per share for the third quarter for 1997 of $.01 higher than
earnings per share originally reported.
<PAGE>46
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, 1997 and 1996, and the related consolidated
statements of operations, shareholdersequity, and cash flows for each of the
three years in the period ended December 31, 1997. 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 Companys
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, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, 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.
BY (SIGNATURE)
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 17, 1998
<PAGE>47
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
- ------ --------------------------------------------------------------
None.
PART III.
- --------
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- ---------------------------------------------------
The information required by this item is incorporated by reference from the
section captioned Election of Directors and the section captioned Ownership
of VWR Scientific Products Corporation Common Shares - Section 16(a)
Beneficial Ownership Reporting Compliance contained in the Companys
definitive Proxy Statement, which the Company will have filed with the
Commission pursuant to Regulation 14A on or about April 1, 1998.
Information regarding executive officers of the Company is included in Part I
of this Form 10-K.
ITEM 11. - EXECUTIVE COMPENSATION
- ------- ----------------------
The information required by this item is incorporated by reference from the
sections captioned Fees to Directors and Committees of the Board and
Executive Compensation contained in the Companys definitive Proxy Statement,
which the Company will have filed with the Commission pursuant to Regulation
14A on or about April 1, 1998.
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ---------- ----------------------------------------------------------
The information required by this item is incorporated by reference from the
section captioned Ownership of VWR Scientific Products Corporation Common
Shares contained in the Companys definitive Proxy Statement, which the
Company will have filed with the Commission pursuant to Regulation 14A on or
about April 1, 1998.
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The information required by this item is incorporated by reference from the
section captioned Election of Directors contained in the Companys definitive
Proxy Statement, which the Company will have filed with the Commission
pursuant to Regulation 14A on or about April 1, 1998.
<PAGE>48
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 23
Consolidated Balance Sheets 25
Consolidated Statements of Cash Flows 27
Consolidated Statements of Shareholders Equity 29
Notes to Consolidated Financial Statements 31
Report of Independent Auditors 46
(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.
<PAGE>49
(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 Registrants
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 Registrants 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 Exhibit 2 of the
Registrants Form 10-K for the year ended December 31, 1994.
3(a) Amended and Restated Articles of Incorporation; incorporated by
reference to Exhibit 3 of the Registrants 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 Registrants Form
8-K dated September 15, 1995.
3(c) Amended and Restated Bylaws; incorporated by reference to Exhibit 3.1
of the Registrants 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
Registrants 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
Registrants 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 Registrants 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 Registrants 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
<PAGE>50
EM Laboratories, Incorporated; incorporated by reference to
Exhibit 4(c) of the Registrants Form 8-K dated September 15, 1995.
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 Registrants
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
Registrants 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 Registrants 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 Registrants
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; incorporated by reference to Exhibit 4
of the Registrants Form 10-K for the year ended December 31, 1994.
4(k) Amendment No. 1 to the 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 of the Registrants Form 10-K for
the year ended December 31, 1996.
4(l) Amendment No. 2 to the 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 of the Registrants Form 10-K for
the year ended December 31, 1996.
4(m) Amendment No. 3 to the 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 of the Registrants Form 10-K for
the year ended December 31, 1996.
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 Registrants 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 Registrants
Form 8-K dated September 15, 1995.
<PAGE>51
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 Registrants 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 Registrants Form 8-K dated September 15, 1995.
10(e) Change of Control agreement between VWR Corporation and
Paul J. Nowak; incorporated by reference to Exhibit 10 of
the Registrants 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 Registrants 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 Registrants
Form 10-K for the year ended December 31, 1991. (1)
21 Subsidiaries of the Company
23 Consent of Independent Auditors
24 Power of Attorney
27(a)Financial Data Schedule for year ended December 31, 1997 (submitted
only in electronic format pursuant to Item 601(c)(1)(v) of
Regulation S-K).
27(b)Financial Data Schedule for the period ended September 30, 1997
(submitted only in electronic format pursuant to Item 601(c)(1)(v) of
Regulation S-K). Restated for change in accounting for earnings per
share.
(1)May be deemed a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
None
<PAGE>52
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
BY (SIGNATURE)
Jerrold B. Harris,
President and Chief
Executive Officer
Date: March 30, 1998
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.
BY (SIGNATURE)
David M. Bronson
Senior Vice President Finance
(Principal Financial and
Accounting Officer)
Date: March 30, 1998
DIRECTORS
James W. Bernard
Richard E. Engebrecht
Jerrold B. Harris
Wolfgang Honn BY (SIGNATURE)
Dieter Janssen
Stephen J. Kunst
Edward A. McGrath, Jr.
Donald P. Nielsen
N. Stewart Rogers Jerrold B. Harris
Harald Schroder
Walter W. Zywottek Attorney-in-fact
Power of Attorney
dated March 25, 1998
Date: March 25, 1998
<PAGE>53
VWR SCIENTIFIC PRODUCTS CORPORATION
------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
(Thousands of dollars)
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions (1) Other of Year
- ----------- --------- ---------- -------------- ----- --------
Allowances for losses
(deducted from trade
receivables) for:
Year Ended
December 31, 1997 $1,505 $2,196 $1,189 $2,512
====== ====== ====== ==== ======
Year Ended
December 31, 1996 $ 739 $ 909 $ 943 $800(2) $1,505
====== ====== ====== ==== ======
Year Ended
December 31, 1995 $ 619 $ 876 $ 756 $ 739
====== ====== ===== ==== ======
(1) Uncollectible accounts written off, net of recoveries.
(2) Reserves established in connection with the Baxter Industrial
acquisition.
<PAGE>54
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 Registrants
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 Registrants 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 Exhibit 2 of the
Registrants Form 10-K for the year ended December 31, 1994.
3(a) Amended and Restated Articles of Incorporation; incorporated by
reference to Exhibit 3 of the Registrants 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 Registrants Form
8-K dated September 15, 1995.
3(c) Amended and Restated Bylaws; incorporated by reference to Exhibit 3.1
of the Registrants 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
Registrants 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
Registrants 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 Registrants 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 Registrants 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
<PAGE>55
EM Laboratories, Incorporated; incorporated by reference to
Exhibit 4(c) of the Registrants Form 8-K dated September 15, 1995.
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 Registrants
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
Registrants 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 Registrants 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 Registrants
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; incorporated by reference to Exhibit 4
of the Registrants Form 10-K for the year ended December 31, 1994.
4(k) Amendment No. 1 to the 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 of the Registrants Form 10-K for
the year ended December 31, 1996.
4(l) Amendment No. 2 to the 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 of the Registrants Form 10-K for
the year ended December 31, 1996.
4(m) Amendment No. 3 to the 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 of the Registrants Form 10-K for
the year ended December 31, 1996.
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 Registrants 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 Registrants
Form 8-K dated September 15, 1995.
<PAGE>56
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 Registrants 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 Registrants Form 8-K dated September 15, 1995.(1)
10(e) Change of Control agreement between VWR Corporation and
Paul J. Nowak; incorporated by reference to Exhibit 10 of
the Registrants 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 Registrants 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 Registrants
Form 10-K for the year ended December 31, 1991.
21 Subsidiaries of the Company, page 57.
23 Consent of Independent Auditors, page 58.
24 Power of Attorney, page 59.
27(a)Financial Data Schedule for year ended December 31, 1997 (submitted
only in electronic format pursuant to Item 601(c)(1)(v) of
Regulation S-K).
27(b)Financial Data Schedule for the period ended September 30, 1997
(submitted only in electronic format pursuant to Item 601(c)(1)(v) of
Regulation S-K). Restated for change in accounting for earnings per
share.
<PAGE>58
EXHIBIT 23
----------
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements No. 333-12343, 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 17, 1998, 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, 1997.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 24, 1998
<PAGE>59
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, 1997, 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 (SIGNATURE)
James W. Bernard
Director March 25, 1998
BY (SIGNATURE)
Richard E. Engebrecht
Director March 25, 1998
BY (SIGNATURE)
Jerrold B. Harris
Director March 25, 1998
BY (SIGNATURE)
Wolfgang Honn
Director March 25, 1998
BY (SIGNATURE)
Dieter Janssen
Director March 25, 1998
BY (SIGNATURE)
Stephen J. Kunst
Director March 25, 1998
BY (SIGNATURE)
Edward A. McGrath, Jr.
Director March 25, 1998
<PAGE>60
BY (SIGNATURE)
Donald P. Nielsen
Director March 25, 1998
BY (SIGNATURE)
N. Stewart Rogers
Director March 25, 1998
BY (SIGNATURE)
Harald J. Schroder
Director March 25, 1998
BY (SIGNATURE)
Walter W. Zywottek
Director March 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000788043
<NAME> VWR SCIENTIFIC PRODUCTS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 182,857
<ALLOWANCES> 2,512
<INVENTORY> 103,445
<CURRENT-ASSETS> 301,588
<PP&E> 99,961
<DEPRECIATION> 49,115
<TOTAL-ASSETS> 717,566
<CURRENT-LIABILITIES> 119,524
<BONDS> 232,409
0
0
<COMMON> 28,487
<OTHER-SE> 313,520
<TOTAL-LIABILITY-AND-EQUITY> 717,566
<SALES> 1,244,795
<TOTAL-REVENUES> 1,244,795
<CGS> 967,080
<TOTAL-COSTS> 967,080
<OTHER-EXPENSES> 200,396
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,355
<INCOME-PRETAX> 41,964
<INCOME-TAX> 17,229
<INCOME-CONTINUING> 24,735
<DISCONTINUED> 0
<EXTRAORDINARY> 406
<CHANGES> 0
<NET-INCOME> 24,329
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.04
</TABLE>
<PAGE>57
EXHIBIT 21
----------
SUBSIDIARIES
DECEMBER 31, 1997
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.
<TABLE> <S> <C>
<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> 22,376
<OTHER-SE> 179,363
<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> .81
<EPS-DILUTED> .79
</TABLE>
