SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission File Number 0-25364
ANICOM, INC.
(Name of registrant as specified in its charter)
Delaware 36-3885212
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6133 North River Road, Suite 1000, Rosemont, Illinois 60018-5171
(Address of principal executive offices) (Zip Code)
(847) 518-8700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) 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 o
The number of shares outstanding of the registrant's Common Stock, par value
$.001 per share as of May 2, 1997: 15,918,943.
PART I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
ANICOM, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
March 31, December 31,
1997 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,280 $ 195
Marketable securities 4,345
Accounts receivable, less allowance for
doubtful accounts of $1,251 and $980,
respectively 34,166 26,972
Inventory, primarily finished goods 29,938 23,453
Notes receivable, current portion 175 195
Deferred income taxes 1,779 1,557
Other current assets 1,326 822
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Total current assets 68,664 57,539
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Property and equipment, net 3,278 2,820
Notes receivable 1,120 800
Goodwill, net of accumulated amortization
of $615 and $479, respectively 32,988 26,771
Other assets 73 24
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Total assets $ 106,123 $ 87,954
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,675 $ 20,727
Accrued expenses 3,360 1,818
Long-term debt, current portion 2,019 1,598
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Total current liabilities 39,054 24,143
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Long-term debt, net of current portion 2,040 3,013
Deferred income taxes 165
Other liabilities 932 774
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Total liabilities 42,026 28,095
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Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $.001 per share;
30,000,000 shares authorized, 15,912,999
and 15,559,805 shares issued and
outstanding, respectively 8 7
Preferred stock, par value $.01 per share;
1,000,000 shares authorized; no shares
issued and outstanding -- --
Additional paid-in capital 59,815 56,465
Retained earnings 4,274 3,387
----------- ------------
Total stockholders' equity 64,097 59,859
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Total liabilities and stockholders' equity $ 106,123 $ 87,954
=========== ============
See Notes to Condensed Consolidated Financial Statements
ANICOM, INC.
Condensed Consolidated Statements of Income
(In thousands, except share amounts)
For the three Months Ended
March 31,
(Unaudited)
1997 1996
Net sales $ 45,011 $ 14,536
Cost of sales 34,537 11,059
--------------- --------------
Gross profit 10,474 3,477
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Operating expenses and other:
Selling 4,821 1,655
General and administrative 4,677 1,435
Gain on sale of assembly product line (483) --
--------------- --------------
Total operating expenses and other 9,015 3,089
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Income from operations 1,459 388
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Other income (expense):
Interest income 42 255
Interest expense (69) (30)
--------------- --------------
Total other income (expense) (27) 225
--------------- --------------
Income before income taxes 1,432 613
--------------- --------------
Provision for income taxes 544 200
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Net income $ 888 $ 413
=============== ==============
Earnings per common share $ .06 $ .03
=============== ==============
Weighted average common shares outstanding 15,664,084 12,304,636
=============== ==============
See Notes to Condensed Consolidated Financial Statements
ANICOM, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands, except share amounts)
For the three Months Ended
March 31,
(Unaudited)
1997 1996
Net cash provided by operating activities $ 6,698 $ 16,090
------------ ----------
Cash flows from investing activities:
Purchase of property and equipment (305) (113)
Cash paid for acquired companies (1,765) (10,167)
Other 200
------------ ----------
Net cash used in investing activities (1,870) (10,280)
------------ ----------
Cash flows from financing activities:
Payment of long-term debt and assumed bank debt (3,743) (5,639)
Other (73)
------------ ----------
Net cash used in financing activities (3,743) (5,712)
------------ ----------
Net increase in cash and cash equivalents 1,085 98
Cash and cash equivalents, beginning of period 195 3
------------ ----------
Cash and cash equivalents, end of period $ 1,280 $ 101
============ ==========
See Notes to Condensed Consolidated Financial Statements
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated unaudited financial statements
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments (consisting solely of
normal recurring accruals) necessary to present fairly the financial
position of Anicom, Inc. (the "Company" or "Anicom") as of December 31,
1996 and March 31, 1997, the results of their operations and their cash
flows for the quarters ended March 31, 1996 and 1997. Reported interim
results of operations are based in part on estimates which may be
subject to year-end adjustment. In addition, these quarterly results of
operations are not necessarily indicative of those expected at year
end.
These financial statements should be read in conjunction with the
Company's audited consolidated financial statements included in the
Company's Annual Report on Form 10-KSB as filed with the Securities and
Exchange Commission on March 21, 1997.
2. Nature of Business and Summary of Significant Accounting Policies
Nature of Business
Anicom specializes in the sale and distribution of communications
related wire, cable, fiber optics and computer network and connectivity
products.
The Company sells to a wide array of customers, including contractors,
systems integrators, security/fire alarm companies, regional Bell
operating companies, distributors, utilities, telecommunications and
sound contractors, wireless specialists, construction companies,
universities, governmental agencies and companies involved in the
automotive, mining, marine, petro-chemical, paper and pulp and other
natural resource industries. The Company's customers are principally
located throughout the United States of America and other parts of
North America. The Company generally sells to its customers on an
unsecured basis.
In connection with certain acquisitions completed during 1996, the
Company acquired three assembly operations. These operations produced
two lines of connector cable products and a line of copper and fiber
optic cable cutting and splicing kits which were sold through the
Company's distribution channels. On December 31, 1996, the splicing kit
line and one of the connector cable product lines were sold. On March
7, 1997, the Company sold its third assembled product line which
consisted of computer, robotics and power cable connectors. See Note 5.
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. Nature of Business and Summary of Significant Accounting Policies,
continued
Income Taxes
The Company applies an asset and liability approach to accounting for
income taxes. Deferred tax assets and liabilities are established for
the expected future tax consequences of temporary differences between
the financial statement and tax bases of assets and liabilities, using
enacted tax rates.
The nature of reconciling items between the provision for income taxes
computed at the federal statutory rate and the provision for income
taxes reported for the quarters ended March 31, 1997 and 1996 are
consistent with those discussed in the Company's Annual Report on Form
10-KSB.
Earnings Per Common Share
The computation of earnings per common share is based on the weighted
average number of common shares and common equivalents outstanding
during each period.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128"). SFAS 128 specifies the computation, presentation, and
disclosure requirements for earnings per share. SFAS 128 is effective
for financial statements issued for periods ending after December 15,
1997. The Company will adopt SFAS 128 for the year ended December 31,
1997. Management has not yet determined the impact of implementing this
standard.
3. Notes Receivable
In connection with the March 1997 sale of a cable connector product
line, the Company accepted a $400,000 promissory note with a stated
interest rate of 8%. The note is collateralized by the assets of the
acquiring company. The note provides for five equal annual installments
of principal and interest beginning on March 7, 1998.
4. Common Stock
On September 25, 1996, the number of authorized shares of common stock
was increased from 10,000,000 to 30,000,000 following approval of such
action by the Company's stockholders at a special meeting. Following
such action, a 2-for-1 stock split effected in the form of a 100% stock
dividend was declared for holders of record as of October 1, 1996,
payable October 7, 1996. All share data and periods presented have been
restated to retroactively reflect the 100% stock dividend.
On September 16, 1996, the Company completed a private placement of
2,423,080 shares of its common stock at $ 6.50 per share. Net proceeds
to the Company after related costs and expenses were approximately $
15,100,000.
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
5. Acquisitions and Dispositions
Anicom purchased all of the issued and outstanding common stock of
Security Supply, Inc. ("Security Supply") of New Orleans, Louisiana on
March 21, 1997. Security Supply is a distributor of alarm, security and
life safety products in Louisiana and surrounding states. The purchase
price was approximately $2 million payable in cash and common stock.
On February 28, 1997, the Company acquired substantially all of the
assets and assumed certain liabilities of Carolina Cable & Connector,
Inc. ("Carolina Cable") of Raleigh, North Carolina. Carolina Cable is a
specialist in the sale and distribution of wire and cable, fiber optics
and computer network and connectivity products. Carolina Cable has
seven locations in the Carolinas and Tennessee. The purchase price
consisted of $3.5 million in cash and common stock. In addition, the
Company assumed approximately $3.5 million of Carolina Cable
indebtedness which was paid in full at closing.
On September 3, 1996, the Company acquired substantially all of the
assets and assumed certain liabilities of Western Wire and Alarm
Products, Inc. ("Western") of Denver Colorado, a specialist in the sale
and distribution of security devices and wire. The purchase price was
$300,000 payable in cash and common stock. In connection with the
acquisition, the Company paid in full $50,000 of Western's bank
indebtedness.
On September 1, 1996, the Company acquired Norfolk Wire & Electronics,
Inc. ("Norfolk"), through the purchase of all issued and outstanding
shares of common stock. Norfolk's operations consisted principally of
the sale and distribution of voice and data wire, cable and ancillary
products. In addition to its four locations in the state of Virginia,
Norfolk had locations in Tinton Falls, New Jersey and Gaithersburg,
Maryland. The purchase price was $8 million payable in cash and common
stock. At the closing, the Company paid in full approximately $2.6
million of Norfolk bank indebtedness.
On May 30, 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of Southern Alarm Supply Co., Inc.
("Southern") of Nashville, Tennessee, a specialist in the sale and
distribution of security devices and wire. The purchase price was
$350,000 payable in cash and common stock.
On March 12, 1996, the Company acquired substantially all of the assets
and assumed certain liabilities of Northern Wire & Cable, Inc.
("Northern"), a specialist in the sale and distribution of wire, cable,
fiber optics and connectivity products for structured wiring, power
cables, cable connector assemblies for automation, computers and
robotics and value-added services for the Industrial Management and
Technology market. Northern had branches in Troy, Michigan; Cleveland,
Ohio; Atlanta, Georgia; Tampa, Florida; and Las Vegas, Nevada. The
purchase price was $13.3 million payable in cash, notes and common
stock. In connection with the acquisition, the Company assumed
approximately $5.6 million of Northern bank indebtedness which was paid
in full at closing.
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
5. Acquisitions and Dispositions, continued
On February 22, 1996, the Company acquired substantially all of the
assets and assumed certain liabilities of Medisco, Inc. ("Medisco") of
Indianapolis, Indiana, a distributor of wire and cable products. The
purchase price was $837,000 payable in cash.
All acquisitions have been recorded under the purchase method of
accounting. Accordingly, the results of operations of the acquired
businesses are included in the Company's consolidated results of
operations from the date of acquisition. The purchase price is
allocated to assets acquired and liabilities assumed based on the
estimated fair market value on the date of the acquisition.
The following pro forma condensed consolidated quarterly financial
information assumes that all material acquisitions and the common stock
transactions discussed in Note 4, which were a significant source of
the funds used in the acquisitions, occurred on January 1, 1996. The
results do not purport to be indicative of what would have occurred had
the acquisitions been made on January 1, 1996 nor are they indicative
of the results which may occur in the future.
Three months ended March 31,
(In thousands, except share amounts)
1997 1996
Net sales $ 49,727 $ 41,169
================= =================
Operating income $ 1,303 $ 536
================= =================
Net income $ 797 $ 523
================= =================
Earnings per common share $ .05 $ .03
================= =================
Pro forma weighted average
common shares 15,725,231 15,725,231
================= =================
On March 7, 1997, the Company sold its third assembled product line
which consisted of computer, robotics and power cable connectors. In
connection with the sale, the Company entered into a supply agreement
to act as the sole and exclusive distributor of certain products
assembled by the acquiring company. The selling price of $600,000 was
payable in cash and notes.
6. Commitments and Contingencies
The Company has entered into employment agreements with certain
officers. In the event of a change in control, as defined, the
employment agreements provide for severance payments if employment is
terminated. The aggregate base salary payable to these officers under
the employment agreements in 1997 is $1.3 million. In the event of a
change in control, the Company may become obligated to make payments to
these officers of up to approximately $4.8 million.
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
6. Commitments and Contingencies, continued
In connection with certain acquisitions, the Company has entered into
employment agreements with certain former officers the acquired
companies which expire on various dates from 1999 to 2001. Currently,
the aggregate base salary payable to those employees who have become
officers of the Company, two of which are now executive officers of the
Company, is approximately $863,000.
7. Supplemental Cash Flow Information
The following is a summary of the non-cash investing and financing
activity for the quarters ended March 31, 1997 and 1996:
Three months ended March 31,
(In thousands, except share amounts)
1997 1996
Acquisitions:
Fair value of assets acquired $ 13,161 $ 35,607
Business integration liabilities
established (1,229) (2,728)
Liabilities assumed (6,527) (17,942)
Long-term debt issued ____ (3,000)
Common stock issued (3,405) (1,770)
------------ ------------
Cash paid 2,000 10,167
Less: cash acquired (235) ____
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Net cash paid for acquisitions $ 1,765 10,167
============= ============
Dispositions:
Value of assets sold, net of
transaction costs $ 117
=============
Notes receivable accepted $ 400
=============
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table sets forth selected income statement data of Anicom
expressed as a percentage of net sales for the periods indicated:
1997 1996
Income Statement Data:
Net sales 100.0% 100.0%
Cost of goods sold 76.7 76.1
--------- --------
Gross profit 23.3 23.9
Operating expenses and other:
Selling expenses 10.7 11.4
General and administrative expenses 10.4 9.9
Gain on sale of product line (1.1) --
--------- --------
Operating income 3.2 2.7
Interest (expense) (.2) (.2)
Interest income .1 1.8
--------- --------
Income before income taxes 3.2 4.2
Income taxes 1.2 1.4
--------- --------
Net income 2.0% 2.8%
========= ========
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Note: Percentages may not sum due to rounding.
Results of Operations
Quarter ended March 31, 1997 compared to quarter ended March 31, 1996
Net sales for the first quarter of 1997 rose to a record $45.0 million, a 210%
increase over net sales of $14.5 million in the first quarter of 1996. The
significant increase is attributed to acquisitions coupled with internal growth
which has lead to increased market share, expanded market penetration and
increased volume with existing customers.
Anicom's gross profit increased by $7.0 million or just over 200% to $10.5
million in the first quarter of 1997 versus the same period of 1996. The
increase results from the acquired sales volume, internal growth and economic
efficiencies achieved from increased purchasing volume. However, as a percentage
of net sales, gross profit declined from 23.9% in the first quarter of 1996 to
23.3% in the first quarter of 1997. The decrease in gross margin in the first
quarter of 1997 reflects the impact of the Company's efforts to establish market
share in its seven new locations opened in the first quarter and the Company's
recent acquisitions.
Selling expenses decreased from 11.4% of net sales in the first quarter of 1996
to 10.7% of net sales in 1997 as the Company begins to realize operating
leverage resulting from its growth and acquisitions, including conforming the
selling incentive programs of the acquired companies. Selling expenses increased
by $3.2 million principally because of the Company's increase in net sales and
the increase in sales headcount that resulted from the Company's acquisitions in
1996 and the first quarter of 1997.
General and administrative expenses increased from $1.4 million in 1996 to $4.7
million in 1997. The Company's 1996 acquisitions as well as its acquisition of
Carolina Cable and Security Supply resulted in an increase in general and
administrative expenses. As a percentage of net sales, general and
administrative expenses increased from 9.9% in the first quarter of 1996 to
10.4% in the first quarter of 1997, due primarily to amortization of goodwill
resulting from acquisitions, one time costs associated with the disposition of a
the product line, and related integration expenses associated with Anicom's
implementation of its integrated growth strategy.
During the first quarter of 1997, the Company's remaining cable connector
product line was sold. The product line was acquired as part of the Northern
Wire & Cable, Inc. acquisition and was sold as the company continues to maintain
its focus as a distribution specialist. Upon the sale of this product line, the
Company recognized a pre-tax gain of approximately $464,000. As a result of this
product line divestiture the Company, during the first quarter of 1997, incurred
expenses including in selling, general and administrative that reflect
non-recurring product line cost and non-recurring post acquisition integration
cost of approximately $468,000.
Interest income decreased by 84% to $42,000 in the first three months of 1997
from $255,000 in 1996. During the first quarter of 1996 the Company earned
interest income on invested funds raised in its November 1995 follow-on offering
pending use of such funds to finance subsequent acquisitions. In 1997, interest
expense rose by $40,000 to $69,000 The increase was a result of interest
incurred on debt issued in certain acquisitions completed during 1996 and other
debt assumed in acquisitions.
The provision for income taxes increased to $544,000 in 1997 from $200,000 in
1996 as a result of the increase in income before taxes. As a percentage of
income before income taxes, the provision increased to 38.0% in 1996 from 32.6%
in 1996. This change is primarily attributable to income earned on tax-exempt
securities in the first quarter of 1996.
Net income for the quarter ended March 31, 1997 increased approximately 115% to
an all-time quarterly high of $888,000 as compared to $413,000 for first quarter
of 1996. Earnings per common share for the three months ended March 31, 1997
doubled to $0.06 as compared to $0.03 per common share for the comparable 1996
period while weighted average shares outstanding increased 27 percent to
15,664,084. In October, 1996, the Company declared a 2-for-1 stock split
effected in the form of a 100% stock dividend. Earnings per common share and the
weighted average shares outstanding discussed above for the first quarter of
1996 have been restated to retroactively reflect this 100% stock dividend.
Liquidity and Capital Resources
As of March 31, 1997, Anicom had working capital of approximately $29.6 million
as compared to $33.4 million as of December 31, 1996. The acquisitions completed
during the first quarter of 1997 principally account for the decrease in working
capital.
At March 31, 1997, the Company had cash and cash equivalents of $1.3 million. In
addition, the Company has a $10.0 million unsecured revolving credit facility
(the "Facility") with Harris Trust & Savings Bank which expires on July 31,
1998. The Facility's rate of interest is LIBOR plus 1.0% or the lender's
Domestic Base Rate, as defined, less 0.5%. The Facility contains customary
representations, warranties and covenants. As of March 31, 1997, the Company had
no amount outstanding under the Facility.
Management believes that existing cash, cash equivalents, cash flows from
operations and if necessary, draws on the Facility will be sufficient to fund
current operations, and its planned integrated growth strategy. The Company does
not currently have any significant long-term capital requirements which it
believes can not be funded from the sources discussed above. However, in
connection with its acquisition and integrated growth strategy, the Company's
capital requirements may change based upon various factors, primarily related to
the timing of acquisitions and the consideration to be used as purchase price.
The Company continues to examine opportunities to raise funds through the
issuance of additional equity or debt securities through private placements or
public offerings and to increase its available lines of credit.
For the quarter ended March 31, 1997, operating activities generated cash flows
of $6.6 million compared with $16.1 million in the same period of 1996. The
significant change between years is principally a result of the accounting
required for the Company's portfolio of marketable securities. In the first
quarter of 1996, the Company liquidated $16.5 million of these investments to
fund acquisitions and working capital requirements. During the first quarter of
1997, liquidating marketable securities generated $4.3 million of funds which
were principally used in acquisition related activities.
Excluding the impact of these investments, Anicom generated $2.3 million of cash
from operating activities in the three months ended March 31, 1997 compared with
the use of $367,000 during the same period in 1996. The cash generated by
operations in 1997 resulted in an increase in cash and cash equivalents of
approximately $1 million and was, in part, used to fund the companies
acquisition related activities. Investments in receivables and inventory during
the first quarter of 1997, funded by increases in accounts payable, result
primarily from replenishing working capital deficiencies of acquired companies
and funding business integration liabilities.
Investing activities utilized approximately $1.8 million in the three months
ended March 31, 1997. During the first quarter of 1997, Anicom completed the
acquisition of Carolina Cable & Connector, Inc. of Raleigh, North Carolina; and
Security Supply, Inc. of New Orleans, Louisiana. Cash paid for these
approximates the amount of total cash used for investing activities.
Cash flows from financing activities consists principally of payments of assumed
bank debt made at the closing of the acquisitions discussed above.
Impact of Not Yet Effective Rules
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 specifies the computation, presentation, and disclosure requirements for
earnings per share. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997. The Company will adopt SFAS 128 for the
year ended December 31, 1997. Management has not yet determined the impact of
implementing this standard.
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed with this report:
Exhibit No.
-----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
The following Report on Form 8-K was filed during the first quarter of
1997:
Form 8-K, dated March 3, 1997 (Press Release)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ANICOM,INC.
Registrant
By: /s/ Donald C. Welchko
------------------------
Donald C. Welchko
Vice President and
Chief Financial Officer
INDEX TO EXHIBITS
Exhibit No.
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27 Financial Data Schedule