<PAGE>1
United States
Securities & Exchange Commission
Washington, DC 20549
Form 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended March 31, 1999
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________________ to _________________
Commission File No. 0-14139
VWR SCIENTIFIC PRODUCTS CORPORATION
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(Exact name of registrant as specified in its charter)
Pennsylvania 91-1319190
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(State of Incorporation) (I.R.S. Employer Identification No.)
1310 Goshen Parkway, West Chester, PA 19380
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(Address of principal executive offices) (zip code)
Registrant's telephone number (610-431-1700)
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(Former name, address, and fiscal year if changed since last report)
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes(x) No( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of March 31, 1999.
Class Outstanding at March 31, 1999
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Common stock, par value $1.00 28,962,527 shares
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31, 1999 December 31, 1998
(Thousands of dollars) (Unaudited)
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ASSETS
Trade receivables, net $231,746 $191,068
Other receivables 8,584 24,564
Inventories 125,442 140,826
Other 16,424 13,431
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Total current assets 382,196 369,889
Property and equipment, net 91,580 91,072
Excess of cost over net assets of
businesses acquired and other
assets, net 449,707 450,628
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$923,483 $911,589
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LIABILITIES AND SHAREHOLDERS' EQUITY
Bank checks outstanding,
less cash in bank $ 3,228 $ 9,658
Accounts payable and
accrued liabilities 139,684 122,685
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Total current liabilities 142,912 132,343
Revolving credit facility 197,391 202,490
Debenture 153,594 153,175
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Total long-term debt 350,985 355,665
Deferred income taxes and other 40,110 40,034
Shareholders' equity 389,476 383,547
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$923,483 $911,589
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See notes to condensed consolidated financial statements.
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VWR SCIENTIFIC PRODUCTS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
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(Thousands of dollars, Three Months Ended March 31,
except per share data) 1999 1998
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Sales $360,265 $320,478
Cost of sales 277,178 248,840
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Gross margin 83,087 71,638
Operating expenses 55,719 45,979
Depreciation and amortization 7,388 6,047
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Total operating expenses 63,107 52,026
Operating income 19,980 19,612
Interest expense 7,841 6,249
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Income before income taxes 12,139 13,363
Income taxes 4,855 5,445
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Net income $ 7,284 $ 7,918
======== ========
Earnings per share:
Basic earnings per share $ 0.25 $ 0.28
Diluted earnings per share $ 0.25 $ 0.27
Basic weighted average number of
common shares outstanding 28,963 28,592
Diluted weighted average number of
common shares outstanding 29,501 29,526
See notes to condensed consolidated financial statements.
<PAGE>4
VWR SCIENTIFIC PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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Three Months Ended March 31,
(Thousands of dollars) 1999 1998
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OPERATING ACTIVITIES:
Net income $ 7,284 $ 7,918
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization,
including deferred debt issuance costs 7,451 6,179
Debentures issued in lieu of payment
of interest 419 560
Changes in assets and liabilities:
Receivables (28,178) (10,927)
Inventories 15,144 (2,893)
Other current assets (4,517) (1,635)
Accounts payable and other 15,465 27,574
Deferred taxes and other 91 1,330
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Cash provided by operating activities 13,159 28,106
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INVESTING ACTIVITIES:
Additions to property and equipment, net (3,340) (6,834)
Acquisition of businesses 2,317
Other (767)
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Cash used in investing activities (1,790) (6,834)
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FINANCING ACTIVITIES:
Proceeds from long-term debt 60,675 40,401
Repayment of long-term debt (65,774) (62,374)
Net change in bank checks outstanding (6,430) (1,856)
Proceeds from exercise of stock options 1,288
Proceeds from shares issued under
Merck KGaA ownership rights 1,256
Other 160 13
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Cash used in financing activities (11,369) (21,272)
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Net change in cash 0 0
Cash at beginning of period 0 0
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Cash at end of period $ 0 $ 0
======== ========
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Supplemental disclosures of cash flow information:
Cash paid (received) during period for:
Interest $ 7,537 $ 6,119
Income taxes $(10,603) $ (1,217)
See notes to condensed consolidated financial statements
<PAGE>6
VWR SCIENTIFIC PRODUCTS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. BASIS OF PRESENTATION
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The accompanying unaudited condensed consolidated financial statements
of VWR Scientific Products Corporation (the Company) have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of only normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 1999
are not necessarily indicative of the results which may be expected for
the year ended December 31, 1999. Refer to the consolidated financial
statements and footnotes thereto included in the Company's 1998 Annual
Report on Form 10-K for further information.
New Accounting Standards
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Effective January 1, 1999, the Company adopted Accounting Standards
Executive Committee Statement of Position 98-1 (SOP 98-1), Accounting
for the Costs of Computer Software Developed or Obtained for Internal
Use. SOP 98-1 requires all costs related to the development of internal
use software other than those incurred during the application
development stage to be expensed as incurred. Costs incurred during the
application development stage are required to be capitalized and
amortized over the estimated useful life of the software. Adoption is
not expected to have a material effect on the Company's consolidated
financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards, Accounting for Derivative Instruments
and Hedging Activities, (SFAS No. 133). SFAS No. 133 is effective for
fiscal years beginning after June 15, 1999. SFAS No. 133 requires that
all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designed as part of a hedge transaction and, if
it is, the type of hedge transaction. The Company is evaluating the
effect of this standard on its financial statements.
2. INVENTORY PRICING
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Inventory valued using the LIFO method comprised approximately 95% of
inventory at March 31, 1999 and December 31, 1998. Cost of the
remaining inventories is determined using the FIFO method. Because the
actual inventory determination under the LIFO method is an annual
calculation, interim financial results are based on estimated LIFO
amounts and are subject to final year-end LIFO inventory adjustments.
Inventory values under the LIFO method at March 31, 1999 and December
31, 1998 were approximately $35.0 million and $33.7 million,
respectively, less than current cost.
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3. EARNINGS PER SHARE
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The following table sets forth the computation of basic and diluted earnings
per share:
Three Months Ended March 31,
(Thousands) 1999 1998
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Basic weighted average
common shares outstanding 28,963 28,592
Net effect of dilutive
stock options 269 468
Effect of Merck KGaA
ownership rights 269 466
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Diluted weighted average
common shares outstanding 29,501 29,526
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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 pursuant to a Standstill Agreement.
There were 1,296,000 options outstanding at an exercise price of $32.13 which
were not included in the computation of diluted earnings per share because the
effect would be antidilutive.
4. COMPREHENSIVE INCOME
--------------------
Comprehensive income is comprised of net income and other comprehensive
income. Other comprehensive income includes certain changes in equity that are
excluded from net income, such as translation adjustments. Comprehensive
income for the three months ended March 31, 1999 and 1998 was $5.9 million and
$7.9 million, respectively.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
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The following commentary should be read in conjunction with the
Consolidated Financial Statements and Notes to Consolidated Financial
Statements (Notes) for the year ended December 31, 1998 and Management's
Discussion and Analysis of Results of Operations and Financial Condition
included in the Company's 1998 Annual Report on
Form 10-K.
Results of Operations
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Sales for the three months ended March 31, 1999 increased $39.8 million,
or 12.4%, to $360.3 million from $320.5 million in the comparable period
of 1998. Approximately 60% of the sales increase was due to acquisitions
made in the second and third quarters of 1999, primarily the acquisition
of the Science Kit Group of Companies (Science Kit)on July 31, 1998. The
remaining sales increase was principally due to growth in the Company's
existing business and, to a lesser extent, increased prices.
Gross margin for the three months ended March 31, 1999 increased $11.4
million, or 16.0%, to $83.1 million from $71.6 million in the comparable
period of 1998. As a percentage of sales, gross margin for the three months
ended March 31, 1999 increased to 23.1% from 22.4% for the comparable period
of 1998. The increase in the Company's gross margin percentage for 1999 is
primarily attributable the acquisition of Science Kit.
Total operating expenses for the three months ended March 31, 1999
increased $11.1 million, or 21.3%, to $63.1 million from $52.0 million
for the comparable period of 1998. As a percentage of sales, total
operating expenses for the three months ended March 31, 1999 increased
to 17.5% from 16.2% in the comparable period of 1998. The increase in
total operating expenses, as a percentage of sales, is primarily due to
the Science Kit acquisition. Also contributing to higher expenses as a
percentage of sales are increased expenses as a result of the
implementation of the Company's new enterprise computer system.
Interest expense for the three months ended March 31, 1999 increased
$1.6 million, or 25.5%, to $7.8 million from $6.2 million in the
comparable period of 1998. The interest expense increase in the first
quarter of 1999 compared to the first quarter of 1998 is largely
attributable to higher average borrowings under the Company's Credit
Facility from the 1998 acquisitions, partially offset by lower interest
rates.
The Company's annual estimated effective tax rate for the three months
ended March 31, 1999 decreased to 40.0% from 40.7% in the comparable
period of 1998, reflecting increased contributions of the Company's U.S.
operations compared to the Canadian operations.
<PAGE>9
Liquidity and Capital Resources
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In the first three months of 1999, operations generated $12.9 million of
cash compared to $28.1 million in the comparable period of 1998. The
Company's current ratio was 2.7 at March 31, 1999 as compared to 2.8 at
December 31, 1998. The increase in accounts receivable during the first
quarter of 1999 was due to increases in sales. The inventory decrease
during the first quarter of 1999 reflects inventory management programs
and the timing of required purchases under distribution agreements. The
increase in accounts payable and other accrued liabilities is
attributable to growth in the business and timing of payments.
Debt decreased during the first quarter of 1999 due to cash generated
from operations which was used to pay down outstanding borrowings under
the Company's Credit Facility.
In March 1999, the Company agreed to transfer information concerning
VWR's third-party purchasing services to Chemdex Corporation in return
for an equity position of approximately 10% in Chemdex. The companies
have agreed that Chemdex will provide third-party purchasing services to
VWR customers. In addition, the companies have agreed to develop an
online purchasing system for VWR customers and for Chemdex to offer
VWR's core product line to Chemdex customers. The transaction for
Chemdex to provide third-party purchasing services to VWR customers,
which represented approximately $85 million of sales in 1998, is not
expected to have a material impact on 1999 earnings because this
business generally has lower gross margins. The Company expects to
realize a gain on the acquisition of the Chemdex stock.
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.
Computer Systems and Year 2000
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The Company is implementing enhancements to its computer systems to
satisfy its future requirements. This is resulting in the replacement of
many of the Company's systems including order entry, purchasing, and
financial systems. A substantial portion of the costs associated with
the replacement of existing systems has been recorded as assets and are
being amortized. As of March 31, 1999, the Company has expended
approximately $43 million for the new systems. The Company estimates
that the remaining amounts to be expended will range from $3 to $4
million, which will be incurred over the next three to six months.
The Year 2000 issue is the result of computer programs being written
using two digits (rather than four) to define the applicable year. Any
of the Company's programs that have time-sensitive software may
recognize a date using 00 as the year 1900 rather than the year 2000,
which could cause the Company's computer systems to perform inaccurate
calculations. Such inaccurate calculations could have a material adverse
effect on the Company. In addition, the Year 2000 issue could affect
non-computer systems used in the Company's operations.
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The Company's system enhancement project, together with other planned
system changes, is intended to correct the Year 2000 issue. The Company
completed the initial implementation of its new systems during the
fourth quarter of 1998. The Company is transitioning to the new systems
on a regional basis and expects to be completed early in the third
quarter of 1999. The Company had an external review conducted by an
independent information technology consulting firm to identify the
Company's legacy computer systems that could be affected by the Year
2000 issue, when they would be affected, and how the Year 2000 issues
may be remedied. The extent of Year 2000 remediation performed by the
Company was coordinated with the new systems implementation timetable.
The amounts expensed to correct the Year 2000 issue on the Company's
legacy system which will not be replaced by the systems enhancement
project did not have a material effect on the results of operations.
With respect to its non-computer systems, the Company has reviewed its
significant operational systems and has remediated those requiring such
action.
The Company is also making inquiries of its significant suppliers and
large customers to assess their Year 2000 readiness where their systems
interface with the Company's systems or otherwise impact its operations.
Based on the nature of their responses, the Company will develop
contingency plans as appropriate.
Factors that could cause the Company's Year 2000 efforts to be less than
fully effective include the Company's failure to implement its new
systems in a timely and successful manner, and customers' and vendors'
failure to be Year 2000 compliant. In addition, the Year 2000 issues
present a number of other risks that are beyond the Company's reasonable
control, such as continued service from outside parties including
utility companies, financial institutions, and transportation and
delivery companies. While the Company does not currently foresee any
material problems, there can be no assurance that the Company and its
material customers and vendors will be Year 2000 compliant by January 1,
2000 and that any such noncompliance will not have a material adverse
effect on the Company.
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.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company's market
risks as described in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998.
PART II - OTHER INFORMATION
ITEM 6 - EXHIBIT AND REPORTS ON FORM 8-K
a. Exhibit
Exhibit 27--Financial Data Schedule (submitted only in
electronic format)
b. No reports on Form 8-K were filed during the three-month period
ended March 31, 1999
<PAGE>12
SIGNATURES
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Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
(REGISTRANT) VWR SCIENTIFIC PRODUCTS CORPORATION
BY (SIGNATURE)
(NAME AND TITLE) DAVID M. BRONSON
SENIOR VICE PRESIDENT FINANCE
AND CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting Officer)
DATE May 14, 1999
<PAGE>13
EXHIBIT INDEX
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EXHIBIT NUMBER DESCRIPTION
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Financial Data Schedule (submitted only in electronic format)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000788043
<NAME> VWR SCIENTIFIC PRODUCTS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 244,067
<ALLOWANCES> 3,737
<INVENTORY> 125,442
<CURRENT-ASSETS> 382,196
<PP&E> 160,836
<DEPRECIATION> 69,256
<TOTAL-ASSETS> 923,483
<CURRENT-LIABILITIES> 142,912
<BONDS> 350,985
0
0
<COMMON> 28,966
<OTHER-SE> 360,510
<TOTAL-LIABILITY-AND-EQUITY> 923,483
<SALES> 360,265
<TOTAL-REVENUES> 360,265
<CGS> 277,178
<TOTAL-COSTS> 277,178
<OTHER-EXPENSES> 63,107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,841
<INCOME-PRETAX> 12,139
<INCOME-TAX> 4,855
<INCOME-CONTINUING> 7,284
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,284
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
