SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): May 10, 1994
Owens & Minor, Inc.*
(Exact Name of Registrant as Specified in Charter)
Virginia 0-6430* 54-1701843
(State of Incorporation) (Commission File No.)(IRS Employer
Identification No.)
4800 Cox Road, Glen Allen, Virginia 23060
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (804) 747-9794
*
(Former Name or Former Address, if Changed Since Last Report)
* This report is being made by Owens & Minor, Inc., formerly
O&M Holding, Inc., a successor issuer to the corporation
formerly named Owens & Minor, Inc.
Item 2. Acquisition or Disposition of Assets.
On May 10, 1994 Owens & Minor, Inc., formerly O&M Holding, Inc.
(the "Company") completed its business combination with Stuart
Medical, Inc. ("SMI") pursuant to the Agreement of Exchange (the
"Agreement of Exchange") dated as of December 22, 1993, as amended
and Restated on March 31, 1994, by and among the Company, Owens &
Minor Medical, Inc. (formerly, Owens & Minor, Inc.) ("O&M Medical"),
SMI and the former shareholders of SMI. Pursuant to the Agreement of
Exchange, the outstanding shares of common stock of SMI were
exchanged for an aggregate of $40.2 million in cash and $115 million
par value of convertible preferred stock of the Company. The Company
also issued one share of its common stock in exchange for each
outstanding share of common stock of O&M Medical. The Company now
owns all of the outstanding stock of O&M Medical and SMI.
The amount of consideration paid by the Company to the former
shareholders of SMI was determined on the basis of arm's length
negotiations, which took into account the relative earning power and
financial condition of both companies, based upon both historical and
anticipated operations, financial positions and anticipated synergies
resulting from the combination of SMI's operations with existing
operations of the Company.
The former shareholders of SMI have agreed to certain
standstill arrangements limiting their ownership of Company stock and
obligating them to vote their shares proportionately with other
holders of Company stock. The preferred stock and the underlying
common stock of the Company are subject to certain restrictions on
transfers by the former SMI shareholders and their transferees.
The Company financed the cash required for the SMI acquisition
through a credit facility provided by a syndicate of banks led by
NationsBank of North Carolina, N.A., as Agent and Administrative
Agent, and Crestar Bank and Chemical Bank, as Co-Agents. In
connection with the SMI combination, the Company also refinanced
approximately $140 million in pro forma debt of SMI.
SMI is a distributor of medical products and supplies and will
continue its operations under the Owens & Minor name as a wholly-
owned subsidiary of the Company.
The SMI acquisition is described in greater detail in the
Company's Registration Statement on Form S-4 (File No. 33-52979),
reference to which is hereby made.
The Company's press release announcing the combination with SMI
attached as Exhibit 99 hereto is incorporated by reference herein.
Item 5. Other Events.
On May 10, 1994 G. Gilmer Minor, III was elected chairman
of the board of the Company and G. Gilmer Minor, Jr. was named
chairman emeritus.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial Statements of Business Acquired.
The following financial statements of SMI and the related
report of independent auditors are set forth on pages
F-18 through F-30 of the Company's Proxy Statement/Prospectus (the
"Proxy Statement/Prospectus") included in the Registration Statement
on Form S-4 (No. 33-52979), reference to which is hereby made.
Balance Sheets as of December 31, 1993 and 1992.
Statements of Income for the year ended December 31,
1993, the eight months ended December 31, 1992 and the
years ended April 30, 1992 and 1991.
Statements of Shareholders' Equity at December 31, 1993 and
1992 and April 30, 1992, 1991 and 1990.
Statements of Cash Flows for the year ended December 31,
1993, the eight months ended December 31, 1992 and the
years ended April 30, 1992 and 1991.
The following unaudited financial statements of SMI are filed
herewith:
Balance Sheets as of March 31, 1994 and December 31, 1993.
Statements of Income for the three months ended March 31,
1994 and 1993.
Statements of Cash Flow for the three months ended March
31, 1994 and 1993.
(b) Pro Forma Financial Information.
The following unaudited pro forma combined financial statements
of the Company and SMI are set forth under the caption
"Unaudited Pro Forma Combined Condensed Financial Statements" on
pages 22 through 27 of the Proxy Statement/Prospectus.
Unaudited Pro Forma Combined Condensed Statement of
Income for the year ended December 31, 1993.
Unaudited Pro Forma Combined Condensed Balance Sheet as of
December 31, 1993.
The following unaudited pro forma combined financial
information is filed herewith:
Unaudited Pro Forma Combined Condensed Statement of
Income for the three months ended March 31, 1994.
Unaudited Pro Forma Combined Condensed Balance Sheet as
of March 31, 1994.
(c) Exhibits.
(2) Agreement of Exchange dated as of December 22, 1993, as
amended and Restated on March 31, 1994, by and among the Company,
Owens & Minor Medical, Inc. (formerly Owens & Minor, Inc.), Stuart
Medical, Inc. ("SMI") and certain shareholders of SMI (incorporated
by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-4 (No. 33-52979), Exhibit 2.1).
(99) Press Release issued by the Company on May 10, 1994
announcing the completion by the Company of its combination with SMI.
UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
Introduction
The following unaudited pro forma combined condensed
financial statements have been prepared by management of
Owens & Minor, Inc. (O&M) from the historical consolidated
financial statements of O&M (contained in O&M's Form 10-Q
filed May 4, 1994) and SMI (included in this filing).
The unaudited pro forma combined condensed financial
statements have been prepared on the basis of assumptions
described in the notes there to and include assumptions
relating to the allocation of the consideration paid for SMI
to the assets and liabilities of SMI based on preliminary
estimates of their respective fair values. The actual
allocation of such consideration may differ from that
reflected in the pro forma consolidated financial statements
after an appropriate review of the fair values of the
consolidated assets and liabilities of SMI has been
completed. Amounts allocated will be based upon the
estimated fair values at the time of the acquisition which
could vary significantly from the amounts reflected in the
unaudited pro forma combined condensed financial statements.
The acquisition has been accounted for using the purchase
method of accounting.
The pro forma financial information presented is not
necessarily indicative of actual results that would have
been achieved had the acquisition closed on the dates
assumed in the unaudited pro forma combined condensed
financial statements that follow. Moreover, they are not
intended to be indicative of future results of operations or
financial position.
The unaudited pro forma financial statements should be read
in conjunction with the historical financial statements of
O&M (contained in O&M's Form 10-Q filed May 4, 1994) and SMI
(included in this filing).
Unaudited Pro Forma Combined Condensed Statement of Income
Three Months Ended March 31, 1994
(In thousands, except Pro Forma Pro Forma
per share data) O&M SMI Adjustments Combined
Net sales $ 390,794 $ 243,123 $ - $ 633,917
Cost of sales 351,668 216,987 - 568,655
Gross margin 39,126 26,136 - 65,262
Selling, general and administrative expenses 28,373 19,872 (622)(3c) 47,623
Depreciation and amortization 2,302 1,876 (222)(3a) 3,956
Service charges to affiliates and other - (447) - (447)
Interest expense, net 768 1,795 403 (3b) 2,966
Total expenses 31,443 23,096 (441) 54,098
Income before income taxes 7,683 3,040 441 11,164
Provision for income taxes 2,927 40 2,017 (3d) 4,984
Net income 4,756 3,000 (1,576) 6,180
Dividends on preferred stock 1,294 (3e) 1,294
Net income attibutable to common stock $ 4,756 $ 3,000 $ (2,870) $ 4,886
Net income per common share $ 0.15 $ 0.16
Weighted average common shares and
common share equivalents 31,133 31,133
See accompanying notes to the unaudited pro forma combined condensed
financial statements.
Unaudited Pro Forma Combined Condensed Balance Sheet
March 31, 1994
(In thousands, except Pro Forma Pro Forma
per share data) O&M SMI Adjustments Results
Assets
Cash and cash equivalents $ 2,042 $ 1,942 $ - $ 3,984
Accounts and notes receivable, net 145,290 12,455 82,000 (4a) 239,745
Merchandise inventories 145,924 117,220 1,800 (2) 264,944
Other current assets 11,258 2,462 6,900 (2) 20,620
Total current assets 304,514 134,079 90,700 529,293
Property and equipment, net 22,825 18,355 (1,400) 39,780
Excess of purchase price over net
assets acquired, net 16,864 33,862 110,024 (2) 160,750
Other assets 10,580 527 - 11,107
Total assets $ 354,783 $ 186,823 $ 199,324 $ 740,930
Liabilities
Current maturities of long term-debt $ 1,502 $ 459 $ (459)(4b)$ 1,502
Accounts payable 123,691 80,128 - 203,819
Accrued payroll and related liabilities 5,332 4,037 - 9,369
Other accrued liabilities 15,196 7,325 8,139 (2) 30,660
Total current liabilities 145,721 91,949 7,680 245,350
Long-term debt 62,312 48,859 122,659 (4a),( 233,830
Accrued pension and retirement plan 3,980 - - 3,980
Total liabilities 212,013 140,808 130,339 483,160
Stockholders' Equity
Preferred stock - - 115,000 (2) 115,000
Common stock 40,763 5 (5)(2) 40,763
Paid-in capital 11,208 4,026 (4,026)(2) 11,208
Retained earnings 90,799 41,984 (41,984)(2) 90,799
Total stockholders' equity 142,770 46,015 68,985 257,770
Total liabilities and stockholders' $ 354,783 $ 186,823 $ 199,324 $ 740,930
equity
See accompanying notes to the unaudited pro forma combined condensed financial
statements.
Notes to Unaudited Pro Forma
Combined Condensed Financial Statements
1. Basis of Presentation
The accompanying unaudited pro forma combined condensed statement of
income for the three months ended March 31, 1994 has been prepared by
combining the consolidated statement of income of O&M with the statement
of income of SMI. The unaudited pro forma combined condensed statements
of income reflect adjustments as if the acquisition of SMI, had occurred
on January 1, 1994. The accompanying unaudited combined condensed
balance sheet as of March 31, 1994 presents the historical balance sheets
of O&M and SMI, with pro forma adjustments as if the acquisition of SMI
had occurred on March 31, 1994, in a transaction accounted for using the
purchase method of accounting.
The unaudited pro forma financial statements may not necessarily reflect
the actual results of operations of the Company which would have resulted
had the purchase of SMI occurred as of the dates presented. The pro
forma information is not necessarily indicative of future results of
operations for the combined companies.
2. Allocation of Purchase Price
Under the purchase method of accounting, the allocation of the purchase
price to SMI's assets and liabilities is required to reflect fair values
and to eliminate the historical stockholders' equity of the company. A
final allocation of the purchase price has not yet been performed;
however, the following sets forth certain preliminary adjustments (in
thousands, except share and per share data):
Purchase price:
Payment of cash to be financed by borrowings
(see note 3b and 4b) $ 40,200
Issuance of 1,150,000 shares of 4.5% cumulative, convertible
Series B Preferred Stock, with a liquidation preference of
$100 per share 115,000
Total 155,200
Allocation of purchase price:
Net assets acquired - SMI stockholders' equity at
March 31, 1994, exclusive of goodwill of $33,862 12,153
Adjustments to assets and liabilities to reflect preliminary
estimated fair values:
Inventory 1,800
Property and equipment (1,400)
Deferred tax asset, net 6,900
Provision for estimated costs of integrating
operations and acquisition related expenses (8,139)
Pro forma net assets after adjustments 11,314
Pro forma excess of purchase price over net
assets acquired $143,886
3. Income Statement Adjustments
(a) To amortize over forty years the cost in excess of fair value of
net assets acquired net of goodwill amortization previously recorded by
SMI, and to depreciate the fair value of acquired property and equipment
over useful lives consistent with those used by O&M.
(In thousands)
Amortization of excess of purchase price over net assets acquired $ 900
Reversal of SMI historical goodwill amortization (594)
Depreciation adjustment to reflect consistent fixed asset lives and
asset revaluations (528)
Net $ (222)
(b) O&M funded the $40.2 million cash portion of the purchase price
from a $350 million Senior Credit Facility with interest based on LIBOR.
In addition, O&M funded the repayment of the long-term debt of SMI,
certain of the long-term debt of O&M, and the working capital
requirements associated with financing SMI's accounts receivables (see
note 4a) with borrowings under the Senior Credit Facility. For purposes
of the pro forma statements, an annual interest rate of 4.33% is assumed
for borrowings under the Senior Credit Facility. This adjustment records
pro forma interest expense on borrowings under the Senior Credit Facility
net of interest previously recorded. A .125% variance on the annual
interest rate would increase or decrease quarterly net income by
approximately $42,000, net of income tax.
(c) To adjust for reductions in selling, general and administrative
expenses associated with the elimination of duplicate costs. Management
expects that there will be significant cost reductions as SMI's business
directly complements O&M's and that corporate administrative functions
and certain distribution arrangements will be combined.
(d) Prior to the combination SMI qualified as an S Corporation under
the Internal Revenue Code as well as in a number of states in which they
file tax returns. The historical financial statements of SMI reflect
only income taxes for states that do not recognize S Corporation status.
This adjustment records income tax expense using an effective rate of
53.1% for SMI, net of previously recorded state income tax expense. In
addition, the adjustment utilizes a 42.0% tax rate to record the tax
effect of the pro forma adjustments except for adjustments related to the
amortization of goodwill.
(e) To record the preferential annual dividend of $4.50 per share on
the 1,150,000 shares of Series B Preferred Stock.
4. Balance Sheet Adjustments
(a) Prior to the combination SMI sold its trade accounts receivables
to Stuart Funding Corp. (SFC) at a discount and received cash for
approximately 90% of the discounted eligible accounts and an interest
bearing note for the remaining balance. Effective with the execution of
the Agreement of Exchange SMI's trade receivables are no longer sold to
SFC. This adjustment records pro forma accounts receivables for SMI of
$82 million and pro forma borrowings to finance these receivables.
(b) O&M funded the $40.2 million cash portion of the purchase price
from a $350 million Senior Credit Facility with interest based on LIBOR.
In addition, O&M funded the repayment of the long-term debt of SMI,
certain of the long-term debt of O&M, and the working capital
requirements associated with financing SMI's accounts receivables (see
note 4a) with borrowings under the Senior Credit Facility. This
adjustment records the net borrowings under these assumptions.
5. Service Charges to Affiliates
The unaudited pro forma combined condensed statements of income include
approximately $0.4 million of service charges to affiliates that will not
be recurring to the combined company. These service charges related to
certain warehousing, delivery and administrative services SMI provided
to an affiliate. The net effect of this non recurring item increases pro
forma net income per common share by less than $0.01.
6. Restructuring Charges
It is anticipated that certain non-recurring charges will result from the
combination of O&M and SMI which have not been reflected in the pro forma
financial statements. These charges will be incurred pursuant to a
restructuring plan currently under development and be reflected as pre-
tax restructuring charges in O&M's income statement during the year
ending December 31, 1994.
Simultaneous with the execution of the Exchange Agreement with SMI, a
portion of the restructuring charges comprised primarily of the costs
related to the writedown of certain O&M software, costs associated with
the closure of certain O&M distribution facilities and severance costs
associated with the termination of employees will be recorded. It is
also anticipated that additional costs will be recorded as restructuring
charges over the remainder of 1994 as these costs are incurred. The
components of these costs anticipated to be incurred subsequent to the
combination are the direct incremental costs to be incurred with respect
to restructuring corporate administrative functions, and employee costs
associated with relocation and distribution rationalization.
The total restructuring charges, whether incurred simultaneous with the
execution of the Exchange Agreement or later in 1994, are estimated to
total $18.7 million on a pre-tax basis. Of this amount, approximately
$2.5 million would represent a non-cash charge to earnings.
7. Stock Split
All applicable share and per share information has been restated to
reflect a 3 for 2 stock split declared on May 10, 1994 for shareholders
of record as of May 24, 1994.
Stuart Medical, Inc.
Statements of Income
(In thousands, except per share data)
Three Months Ended
March 31,
1994 1993
Net sales $ 243,123 $ 219,689
Cost of sales 216,987 195,301
Gross margin 26,136 24,388
Selling, general and administrative expenses 19,872 18,201
Depreciation and amortization 1,876 2,129
Non-recurring expenses - 1,009
Total expenses 21,748 21,339
Operating income 4,388 3,049
Other income (expense):
Discount on sale of trade receivables (1,053) (805)
Interest expense, net (742) (1,058)
Service charges to affiliate 365 422
Other 82 84
(1,348) (1,357)
Net income from continuing operations before state income tax 3,040 1,692
State income tax expense 40 115
Net income from continuing operations 3,000 1,577
Income from discontinued operations net of state income tax - 345
Net income $ 3,000 $ 1,922
See Notes to Financial Statements
Stuart Medical, Inc.
Balance Sheets
(In thousands, except per share data)
March 31, December 31,
1994 1993
Assets
Current assets
Cash and cash equivalents $ 1,942 $ 5,896
Accounts and notes receivable, net 12,455 13,520
Merchandise inventories 117,220 107,298
Other current assets 2,462 2,657
Total current assets 134,079 129,371
Property and equipment, net 18,355 19,158
Excess of purchase price over net assets acquired, net 33,862 29,617
Other assets 527 574
Total assets $ 186,823 $ 178,720
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 459 $ 452
Accounts payable 80,128 75,223
Accrued payroll and related liabilities 4,037 3,501
Other accrued liabilities 7,325 7,987
Total current liabilities 91,949 87,163
Long-term debt 48,859 47,976
Total liabilities 140,808 135,139
Stockholders' equity
Common stock 5 5
Paid-in capital 4,026 4,026
Retained earnings 41,984 39,550
Total stockholders' equity 46,015 43,581
Total liabilities and stockholders' equity $ 186,823 $ 178,720
See Notes to Financial Statements
Stuart Medical, Inc.
Statements of Cash Flows
Three Months Ended
(In thousands) March 31,
1994 1993
Operating Activities
Net income and noncash charges
Net income $ 3,000 $ 1,922
Noncash charges to income
Depreciation and amortization 1,876 2,129
Cash provided by net income and noncash charges 4,876 4,051
Changes in working capital
Accounts and notes receivable 1,065 9,676
Merchandise inventories and other assets (2,375) (10,559)
Accounts payable and accrued expenses 2,665 (13,521)
Cash provided by (used for) operating activities 6,231 (10,353)
Investing Activities
Business acquisition, net of cash acquired (6,600) -
Additions to property and equipment (190) (174)
Cash used for investing activities (6,790) (174)
Financing Activities
Additions to long-term debt 21,000 4,000
Reductions of long-term debt (23,829) (5,415)
Shareholder distributions (566) -
Cash used for financing activities (3,395) (1,415)
Net decrease in cash and cash equivalents (3,954) (11,942)
Cash and cash equivalents at beginning of year 5,896 12,517
Cash and cash equivalents at end of period $ 1,942 $ 575
See Notes to Financial Statements
Stuart Medical, Inc.
Notes to Financial Statements
1. Accounting Policies
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (which are comprised of only normal
recurring accruals and the use of estimates) necessary to present fairly
the financial position of Stuart Medical, Inc. as of March 31, 1994 and
the results of operations and cash flows for the three month periods
ended March 31, 1994 and 1993.
2. Interim Results of Operations
The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year.
SIGNATURES
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.
Date: 5/20/94 OWENS & MINOR, INC.
By:\s\G. Gilmer Minor, III
G. Gilmer Minor, III
President and Chief
Executive Officer
Exhibits Index
Exhibit No.
(2) Agreement of Exchange dated as of December 22, 1993, as
amended and Restated on March 31, 1994, by and among the Company, Owens
& Minor Medical, Inc. (formerly Owens & Minor, Inc.), Stuart Medical,
Inc. ("SMI") and certain shareholders of SMI (incorporated by reference
to Amendment No. 1 to the Company's Registration Statement on Form S-4
(No. 33-52979), Exhibit 2.1).
(99) Press Release issued by the Company on May 10, 1994
announcing the completion by the Company of its combination with SMI.
Exhibit 99
May 10, 1994
OWENS & MINOR, INC. ANNOUNCES COMPLETION
OF BUSINESS COMBINATION WITH STUART MEDICAL, INC.
Richmond, VA . . . Owens & Minor, Inc. (NYSE-OMI) announced today that
it has completed its business combination with Stuart Medical, Inc. of
Greensburg, PA.
The transaction with Stuart Medical, which was approved today by the
shareholders of Owens & Minor, Inc., creates a company able to provide
products and services in all 50 states. The pro forma 1993 revenues of
the combined companies was in excess of $2.3 billion. The combination
further enhances Owens & Minor's position as the low-cost distributor of
medical and surgical supplies in the country and this combination will
allow the company to strengthen its efforts to assist healthcare
providers in containing and reducing costs.
The consideration paid to the shareholders of Stuart Medical, Inc. was
$40.2 million in cash and $115 million par value of convertible preferred
stock. The convertible preferred stock was issued by a holding company
which was formed for the purposes of the combination and which also
exchanged one share of its common stock for one share of each outstanding
share of common stock of Owens & Minor, Inc. The holding company, which
has been renamed Owens & Minor, Inc., now owns all of the outstanding
stock of the former Owens & Minor, Inc., now named Owens & Minor Medical,
Inc., and Stuart Medical, Inc. The convertible preferred stock is: (a)
convertible into approximately 4.65 million shares of common stock of
Owens & Minor, Inc. (or about 18.2% of the pro forma fully diluted
outstanding shares); (b) entitled to an annual cash dividend of 4-1/2%;
and (c) redeemable by Owens & Minor, Inc. under certain circumstances
after 3 years. The former shareholders of Stuart Medical have agreed to
certain standstill arrangements limiting their ownership of Owens &
Minor, Inc. shares and obligating them to vote their shares
proportionately with other holders of Owens & Minor, Inc. stock. The
preferred stock and the underlying common stock of Owens & Minor, Inc.
is subject to certain restrictions on transfers by the former Stuart
shareholders and their transferees. Owens & Minor, Inc. has also
refinanced Stuart Medical, Inc.'s pro forma debt in the approximate
amount of $140 million. Until such time as the preferred stock may be
converted into common shares, the former Stuart shareholders are entitled
to name one Director to the Board of Directors of Owens & Minor, Inc.
Owens & Minor, Inc. is a national wholesale distributor of medical and
surgical supplies, pharmaceuticals and other related products to
hospitals and alternate medical care facilities.