SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NUMBER 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: June 18, 1997
WESTERN MICRO TECHNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
California 0-11560 94-2414428
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(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification Number)
254 East Hacienda Avenue, Campbell, CA 95008
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(Address of principal executive offices) (Zip Code)
(408) 379-0177
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(Registrant's telephone number,
including area code)
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Item 5. Other Events.
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On June 4, 1997, Western Micro Technology, Inc. (the "Company") issued
the press release attached hereto as Exhibit 99.1 and incorporated by reference.
The press release related to the Company's announcement that it had signed a
definitive stock purchase agreement (the "Purchase Agreement") to acquire the
mid-range computer systems distribution business ("Star") of Star Management
Services, Inc. (the "Star Acquisition"). Star Management Services is a holding
company for a family of companies, including Star Data Systems, Inc. dba Sirius
Computer Solutions ("Sirius Computer"), a value-added distributor for high
technology mid-range solutions in the IBM AS/400 and RS/6000 systems markets.
Sirius Computer also sells directly to end-user customers as an Industry
Remarketer ("IR") for IBM (the "Sirius End-user Business"). Prior to the closing
of the Star Acquisition, Star Management Services will spin-off the Sirius
End-user Business as a separate unaffiliated company. As used in this Report,
"Star" refers to the business of Star Management Services following the spin-off
of the Sirius End-user Business.
For its fiscal year ended October 31, 1996, Star had total revenue and
EBITDA of approximately $76.5 million and $5.8 million, respectively. Management
believes that Star is the fifth largest distributor of all IBM mid-range systems
in the United States and the second largest distributor of IBM's AS/400 product
line. Star is also one of IBM's largest remarketers of refurbished mid-range
computer systems. Star's operations primarily serve markets in the Southwest,
the South, the Midwest and the East Coast.
For the fiscal year ended October 31, 1996, the Sirius End-user
Business had total revenue and EBITDA of approximately $44.1 million and
$1.0 million, respectively. In connection with the Star Acquisition, the Company
will enter into an Industry Remarketer Affiliate ("IRA") Agreement with the
Sirius End-user Business (the "IRA Agreement"), pursuant to which the Company
will become the exclusive supplier of IBM products to the Sirius End-user
Business.
The following tables set forth selected unaudited pro forma combined
financial information of the Company and Star for the fiscal year ended December
31, 1996 and the three-month period ended March 31, 1997, and at March 31, 1997.
The unaudited pro forma information is presented for informational purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the Star Acquisition had been consummated at the
beginning of the periods presented, nor is it necessarily indicative of future
operating results or financial position. The parties intend that the Star
Acquisition will be accounted for as a purchase in accordance with Accounting
Principles Board Opinion Number 16. For pro forma purposes, the Star financial
data covers the approximate comparable financial reporting periods used by the
Company (see footnote (1) below).
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<TABLE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA
<CAPTION>
Year Ended December 31, 1996 (1) Quarter Ended March 31, 1997 (1)
------------------------------------------ -------------------------------------------
Western Pro Forma Pro Forma Western Pro Forma Pro Forma
Micro Star Adjustments Combined Micro Star Adjustments Combined
------- ---- ----------- --------- ------- ---- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales(A)................ $131,697 $76,495 $ -- $208,192 $35,950 $25,211 $ -- $61,161
Cost of goods sold.......... 114,389 66,383 -- 180,772 29,981 22,267 -- 52,248
------- ------ ----- ------- ------ ------ ------ ------
Gross profit................ 17,308 10,112 -- 27,420 5,969 2,944 -- 8,913
Selling, general and
administrative expenses,
including amortization.. 14,123 7,217 2,459 (2) 20,487 4,894 1,531 615 (2) 6,790
(2,312)(3) (250)(4)
(1,000)(4)
Operating income............ 3,185 2,895 853 6,933 1,075 1,413 (365) 2,123
----- ----- ------ ----- ----- ----- ------ -----
Interest expense............ 978 81 4,256 (5) 5,315 432 -- 1,064 (5) 1,496
Other expense (income)...... (407) -- -- (407) (91) -- -- (91)
Income tax expense.......... 276 963 (429)(6) 810 191 565 (469)(6) 287
----- ----- ------ ----- ----- ----- ------ -----
Net income(B)............... $2,338 $1,851 $(2,975) $1,214 $ 543 $ 848 $ (960) 431
===== ===== ====== ===== ===== ===== =====
Net income per share:(C)
-- Primary.............. $0.52 -- -- $0.24 $0.11 -- -- $0.08
-- Fully diluted........ 0.50 -- -- 0.23 0.11 -- -- 0.08
Number of shares used in
per share calculations:
-- Primary.............. 4,510 -- 511 (7) 5,020 4,977 -- 511 (7) 5,488
-- Fully diluted........ 4,663 -- 511 5,174 4,977 -- 511 5,488
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(1) For purposes of the pro forma combined data, Star's financial data for
its fiscal year ended October 31, 1996 and its fiscal quarter ended
January 31, 1997 have been combined with the Company's financial data for
the fiscal year ended December 31, 1996 and the quarter ended March 31,
1997, respectively.
(2) Increase in amortization of goodwill and other intangibles associated
with the Star Acquisition.
(3) Reduction in Star's executive compensation to reflect Star Acquisition.
(4) Cost reductions as a result of consolidation of certain facilities and
elimination of duplicate back-office functions.
(5) Increase in interest expense associated with the proposed Loan Financing
and $13 million original principal amount of notes proposed to be issued
to the selling stockholders in the Star Acquisition (the "Seller Notes").
(6) Tax adjustment to reflect 40% overall tax rate applicable to pro forma
results.
(7) Issuance of restricted Common Stock as consideration in proposed Star
Acquisition.
(A) If the IRA Agreement had been entered into as of the beginning of the
periods indicated, the Company believes that the pro forma combined net
sales of the Company for the year ended December 31, 1996 and the quarter
ended March 31, 1997 would have been approximately $246,914,000 and
$69,798,000, respectively.
(B) If the IRA Agreement had been entered into as of the beginning of the
periods indicated, the Company believes that the pro forma combined net
income of the Company for the year ended December 31, 1996 and the
quarter ended March 31, 1997 would have been approximately $2,230,000 and
$649,000, respectively.
(C) If the IRA Agreement had been entered into as of the beginning of the
periods indicated, the Company believes that the pro forma combined net
income per share of the Company would have been, for the year ended
December 31, 1996, approximately $.44 (Primary) and $.43 (Fully Diluted)
and, for the quarter ended March 31, 1997, approximately $.12 (Primary)
and $.12 (Fully Diluted).
</TABLE>
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<TABLE>
UNAUDITED PRO FORMA BALANCE SHEET DATA AT MARCH 31, 1997(1)
<CAPTION>
Western Pro Forma Pro Forma
Micro Star Adjustments Combined
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<S> <C> <C> <C> <C>
Working Capital........................ 8,126 4,340 (5,666)(2) (6,800)
Net trade accounts receivable.......... 27,404 10,324 (667)(3) 37,061
Inventories............................ 19,867 4,289 (333)(4) 23,823
Total assets........................... 63,682 19,340 45,568 (5) 128,590
Capital lease obligations/long-term debt 510 -- 43,016 (6) 43,526
Shareholders' equity................... 18,595 5,116 502 (7) 24,213
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(1) For purposes of the pro forma combined data, Star's financial data at
January 31, 1997 have been combined with the Company's financial data at
March 31, 1997.
(2) Net reduction in tangible assets of $2,616 (for Net Assets equal to
$2,500 at closing), increase in accounts receivable and inventory
reserves estimated at $1,000 and increase of $2,050 in accrued expenses
to reflect Star Acquisition transaction costs.
(3) Estimated increase in accounts receivable reserves.
(4) Estimated increase in inventory reserves.
(5) Increase in goodwill and other intangibles net of $1.0 million increase
in specific balance sheet reserves and a $2.6 million reduction in
current assets to reflect net assets of $2.5 million at closing.
(6) Reflects the proposed Loan Financing in the amount of $30.0 million and
$13.0 million in proposed Seller Notes. (7) Reflects write-off of prior
equity, acquisition of net assets of $2.5 million at closing, and
issuance of 510,714 shares of Common Stock at closing.
</TABLE>
The foregoing unaudited pro forma combined financial data do not
include any pro forma adjustments which reflect the potential effect of (i) the
sales revenues and other operating results that would have occurred if the IRA
Agreement had been entered into as of the beginning of the periods indicated
(except as described in footnotes (A), (B) and (C) to the pro forma statement of
operations data), (ii) any efficiencies which may result from combining the
Company's and Star's operations (other than $1.0 million attributable to
facilities consolidation and elimination of duplicate back-office functions) or
(iii) the costs of restructuring, integrating or consolidating such operations.
Certain statements in this Report concerning the Star Acquisition, including
descriptions of the Star Acquisition and pro forma financial information, are
forward-looking statements that involve risks and uncertainties. There can be no
assurance that the Star Acquisition will have the desired benefits or that it
will not have an adverse effect on the Company's business, financial condition
or results of operations. Actual results could differ materially from those
discussed herein.
The respective obligations of the Company and Star Management Services
to consummate the Star Acquisition are subject to the satisfaction of various
conditions set forth in the Purchase Agreement, including, among other things:
(i) the Company obtaining at least $30 million of additional loan or other debt
financing pursuant to loan terms that do not require repayment of principal
during the first two years of the loan (the "Loan Financing"); (ii) the Company
obtaining the consent of IBM Credit Corporation ("ICC") to the Loan Financing or
the refinancing by the Company of its existing indebtedness to ICC; (iii)
expiration or termination of the applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976; (iv) completion of the
spin-off by Sirius Computer of the Sirius End-user Business; (v) receipt of all
applicable regulatory approvals; (vi) the
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absence of any order prohibiting consummation of the Star Acquisition; (vii) the
representations and warranties of the Company and Star Management Services set
forth in the Purchase Agreement remaining true and correct in all material
respects as of the closing of the Star Acquisition; (viii) the Company and Star
Management Services having performed in all material respects each of their
respective obligations required to be performed at or prior to the closing of
the Star Acquisition; and (ix) the satisfaction or waiver of certain additional
conditions. Although the Company has engaged a placement agent to arrange for
placement of the Loan Financing with qualified lenders, there can be no
assurance that the Company will be able to obtain the Loan Financing on
commercially reasonable terms or at all. In addition, there can be no assurance
that the Company and Star Management Services will be able to satisfy in a
timely manner any of the other conditions precedent to closing the Star
Acquisition.
The Purchase Agreement may be terminated at any time by mutual agreement
of the parties. The Purchase Agreement may also be terminated by either party if
(i) there is a material breach of the Purchase Agreement by the other party
which has not been cured or waived prior to the closing date thereunder, or (ii)
the Star Acquisition has not been consummated on or before July 31, 1997 through
no fault of either party. In the event the Purchase Agreement is terminated for
any reason or if the parties fail to satisfy or waive all of the conditions set
forth therein, the Star Acquisition will not be completed and the Company will
not obtain the growth in revenues, operating leverage and cross-selling
opportunities anticipated to result from the Company's business combination with
Star. In addition, the failure of the Company to acquire Star will substantially
increase the Company's need to pursue other acquisitions as a means of achieving
growth and preserving its ability to compete effectively in the marketplace, may
jeopardize the Company's ability to maintain most favorable volume discount
status with IBM, and may otherwise materially adversely affect the Company's
business, financial condition and results of operations.
In the event the Purchase Agreement is terminated by any party as a
result of the breach of or failure to satisfy a condition to closing under the
Purchase Agreement, the party which has failed to satisfy its conditions to
closing will be required to pay the other party a break-up fee of $500,000.
Among other things, the Company's inability to obtain the Loan Financing in a
timely manner would result, subject to certain exceptions, in the Company's
obligation to pay such a break-up fee.
In the event the Star Acquisition is completed, the Company's ability to
achieve the anticipated benefits thereof will depend in part upon whether the
integration of the businesses of the Company and Star is accomplished in an
efficient and effective manner. The combination of the two businesses will
require, among other things, integration of the Company's and Star's respective
management and sales personnel, coordination of their sales and marketing
efforts, conversion of Star's computer system (including inventory, order entry
and financial reporting) to the Company's system, and integration of the
businesses' products and physical facilities. Among other things, following the
Star Acquisition, substantially all of the Company's sales and marketing
operations for IBM products will be relocated to Star's current facilities in
San Antonio, Texas and will thereafter be managed primarily by former Star
personnel. There can be no assurance that
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such coordination and integration will be accomplished smoothly or successfully.
The difficulties of such integration may be increased by the necessity of
coordinating geographically separated organizations. The integration of certain
operations following the Star Acquisition will require the dedication of
management resources which may temporarily distract attention from the
day-to-day business of the combined company. The inability of management to
integrate the operations of the two businesses successfully could have a
material adverse effect on the business and the results of operations of the
Company. In addition, as commonly occurs with mergers and acquisitions of
companies in the technology sector, during the pre-acquisition and integration
phases, aggressive competitors may undertake formal initiatives to attract
customers and to recruit key employees through various incentives. There can be
no assurance that the announcement of the Star Acquisition or the consummation
thereof will not materially adversely affect the selling and buying patterns of
manufacturers and present and potential customers of the Company and Star
Management Services.
When used in this Report, the words "estimate," "project," "intend" and
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company undertakes no obligation to publicly release updates or
revisions to these statements.
Item 7. Financial Statements and Exhibits.
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(a) Exhibits.
99.1* Press Release dated June 4, 1997.
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* Previously filed.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: June 18, 1997
WESTERN MICRO TECHNOLOGY, INC.
By /s/ James W. Dorst
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James W. Dorst
Chief Financial Officer
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EXHIBIT INDEX
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Exhibit No. Description
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99.1 Press Release dated June 4, 1997.*
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* Previously filed.
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