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 September 30, 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 November 12, 1997: 19,493,485.
PART I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
ANICOM, INC.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
September 30, December 31,
1997 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,125 $ 195
Marketable securities _ 4,345
Accounts receivable, less allowance for
doubtful accounts of $2,303 and $980,
respectively 55,995 26,972
Inventory, primarily finished goods 43,448 23,453
Deferred income taxes 2,059 1,557
Other current assets 1,441 1,017
---------------- ----------------
Total current assets 104,068 57,539
---------------- ----------------
Property and equipment, net 5,206 2,820
Goodwill, net of accumulated amortization
of $1,197 and $479, respectively 53,098 26,771
Other assets, primarily notes receivable 1,848 824
================ ================
Total assets $ 164,220 $ 87,954
================ ================
See Notes to Condensed Consolidated Financial Statements
ANICOM, INC.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
September 30, December 31,
1997 1996
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46,509 $ 20,727
Accrued expenses 3,473 1,818
Long-term debt, current portion 1,938 1,598
----------------
----------------
Total current liabilities 51,920 24,143
----------------
----------------
Long-term debt, net of current portion 14,940 3,013
Deferred income taxes _ 165
Other liabilities 2,486 774
---------------- ----------------
Total liabilities 69,346 28,095
---------------- ----------------
Commitments and Contingencies
Stockholders' Equity:
Convertible preferred stock, Series A,
par value $.01 per share, liquidation
value $1,000 per share, 27 and 0
shares authorized and issued, respectively _ _
Preferred stock, undesignated, par value
$.01 per share; 973 and 1,000 shares
authorized; no shares issued and outstanding _ _
Common stock, par value $.001 per share; 60,000
shares authorized, 19,263 and 15,560
shares issued and outstanding, respectively 11 7
Additional paid-in capital 87,971 56,465
Retained earnings 6,892 3,387
---------------- ---------------
Total stockholders' equity 94,874 59,859
---------------- ---------------
Total liabilities and stockholders'
equity $ 164,220 $ 87,954
================ ===============
See Notes to Condensed Consolidated Financial Statements
ANICOM, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
(unaudited) (unaudited)
------------------------------------ -----------------------------------
1997 1996 1997 1996
Net sales $ 75,340 $ 33,221 $ 172,831 $ 76,432
Cost of sales 57,205 24,694 132,161 57,245
----------------- ----------------- ----------------- ----------------
Gross profit 18,135 8,527 40,670 19,187
----------------- ----------------- ----------------- ----------------
Operating expenses and other:
Selling 8,024 3,867 18,213 8,904
General and administrative 6,951 3,553 16,581 7,860
Gain on sale of assembly product line (483)
----------------- ----------------- ----------------- ----------------
Total operating expenses and other 14,975 7,420 34,311 16,764
----------------- ----------------- ----------------- ----------------
Income from operations 3,160 1,107 6,359 2,423
----------------- ----------------- ----------------- ----------------
Other income (expense):
Interest income 45 111 214 462
Interest expense (245) (86) (440) (197)
----------------- ----------------- ----------------- ----------------
Total other income (expense) (200) 25 (226) 265
----------------- ----------------- ----------------- ----------------
Income before income taxes 2,960 1,132 6,133 2,688
Provision for income taxes 1,124 389 2,331 921
----------------- ----------------- ----------------- ----------------
Net income 1,836 743 3,802 1,767
Less: dividend on preferred stock (173) (297)
----------------- ----------------- ----------------- ----------------
Net income available to common stockholders $ 1,663 $ 743 $ 3,505 $ 1,767
================= ================= ================= ================
Earnings per common share and share equivalent:
Primary and fully diluted $ .09 $ .06 $ .21 $ .14
================= ================= ================= ================
Weighted average common shares and share
equivalents outstanding:
Primary 18,636 13,466 17,127 12,878
================= ================= ================= ================
Fully diluted 20,371 13,618 18,482 13,130
================= ================= ================= ================
See Notes to Condensed Consolidated Financial Statements
ANICOM, INC.
Consolidated Statements of Stockholders' Equity
(In thousands, except per share amounts)
Convertible
Preferred Stock Common Stock
Additional Total
-------------------- --------------------
Paid-In Retained Stockholders'
Shares Amount Shares Amount Capital Earnings Equity
Balance, January 1, 1996 12,213 $ 6 $ 36,371 $ 764 $ 37,141
Proceeds from issuance of common
stock, net of offering costs 2,423 1 15,053 15,054
Issuance of common stock for
acquisitions 872 _ 5,537 5,537
Exercise of stock options 9 _ 11 11
Exercise of warrants to purchase
common stock 98 _ _ _
Receipt and cancellation of common
stock received in sale of a (55) _ (507) (507)
business
Net income 2,623 2,623
----------- ------ -------- -------- ----------
Balance, December 31, 1996 15,560 7 56,465 3,387 59,859
Dividends issued to convertible
preferred stock holders in common 29 _ 297 (297) _
stock
Proceeds from issuance of
convertible preferred stock, net 27 26,155 _ _ _ 26,155
of offering costs
Conversion of convertible preferred
stock to common stock (27) (26,155) 3,130 3 26,152 _
Issuance of common stock for
acquisitions 544 1 5,057 5,058
Net income 3,802 3,802
----------- ----------- ----------- ------ -------- -------- ----------
Balance, September 30, 1997 _ _ 19,263 $ 11 $ 87,971 $ 6,892 $ 94,874
=========== =========== =========== ====== ========= ======== ==========
See Notes to Condensed Consolidated Financial Statements
ANICOM, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
For the Nine Months Ended
September 30,
(unaudited)
--------------------------------
1997 1996
Cash flows from operating activities:
Net income $ 3,802 $ 1,767
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 1,544 260
Amortization 719 292
Deferred income taxes (92)
Gain on sale of product line (483)
Increase (decrease) in cash attributable
to changes in assets and liabilities:
Marketable securities 4,345 16,525
Accounts receivable (13,116) (6,378)
Inventory (12,060) (5,344)
Other assets 6 (617)
Accounts payable 15,622 3,906
Accrued expenses (3,319) (1,752)
---------------- ---------------
Net cash (used in) provided by
operating activities (3,032) 8,659
---------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (2,736) (774)
Cash paid for acquired companies (28,732) (14,436)
Other 200
---------------- ---------------
Net cash used in investing activities (31,268) (15,210)
---------------- ---------------
Cash flows from financing activities:
Payment of long-term debt and assumed
bank debt (27,749) (12,754)
Proceeds from long-term debt 36,824 4,190
Proceeds from equity offerings, net of
related costs 26,155 15,177
Other 11
---------------- ---------------
Net cash provided by financing activities 35,230 6,624
---------------- ---------------
Net increase in cash and cash equivalents 930 73
Cash and cash equivalents, beginning of period 195 3
---------------- ---------------
Cash and cash equivalents, end of period $ 1,125 $ 76
================ ===============
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 necessary to present
fairly the financial position of Anicom, Inc. (the "Company" or
"Anicom") as of September 30, 1997, the results of operations for the
three month and nine month periods ended September 30, 1997 and 1996
and its cash flows for the nine months ended September 30, 1997 and
1996. Reported interim results of operations are based, in part, on
estimates which may be subject to year-end adjustment. In addition,
these interim results of operations are not necessarily indicative of
those expected for the year.
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 6.
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 that reported for the three
and nine months ended September 30, 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 and common share
equivalents is based on the weighted average number of common shares
outstanding during each period and common share equivalents (options
and warrants) assumed to be outstanding based on the average share
price during the period. Fully diluted earnings per common share
reflects the use of the closing share price as of the last day in the
period, if it is greater than the average share price for the same
period, in determining common share equivalents assumed to be
outstanding and further assumes the conversion of the Company's
Preferred Stock to Common Stock on the date of issuance.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards No. 128, Earnings Per Share
("SFAS 128"), was issued in February 1997. SFAS 128 specifies the
computation, presentation, and disclosure requirements for earnings per
share. The Company will adopt SFAS 128 for the year ended December 31,
1997. Management has not determined the impact of implementing this
standard.
Statement of Financial Accounting Standards No. 129, Disclosure of
Information about Capital Structure ("SFAS No. 129"), was issued in
February 1997. SFAS No. 129 establishes standards for disclosing
information about an entity's capital structure by superseding and
consolidating previously issued accounting standards. The Company's
financial statements are prepared in accordance with the requirements
of SFAS No. 129.
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS No. 130"), was issued in June 1997. SFAS
No. 130 requires the reporting of comprehensive income in a financial
statement that is presented with the same prominence as other financial
statements. Comprehensive income is defined by Concepts Statement No.
6, Elements of Financial Statements, as the change in equity of a
business enterprise during a period from transactions and other events
and circumstances from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by or
distribution to owners. SFAS No. 130 is effective for years beginning
after December 15, 1997. The Company has not determined the impact of
implementing this standard.
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. Nature of Business and Summary of Significant Accounting Policies,
continued
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS No. 131"), was
issued in June 1997. SFAS No. 131 is not expected to impact the
Company's disclosure requirements.
3. Long-Term Debt
On July 3, 1997, the Company replaced its previous unsecured $10
million revolving credit facility with a $50 million unsecured
revolving credit facility (the "Facility") with a syndicate of lenders,
including Harris Trust and Savings Bank, LaSalle National Bank and The
First National Bank of Chicago. The Facility provides various interest
rate options, determined from time to time, based upon the Company's
leverage ratio, as defined and either the agent's Domestic Rate less
.50% to .25% or LIBOR plus .50% to 1.00%. The Facility also contains
customary financial covenants, including minimum tangible net worth and
current, interest coverage and debt to earnings ratios.
4. Convertible Preferred Stock
Pursuant to an agreement dated May 20, 1997, the Company sold 27,000
shares of $.01 par value, Series A Convertible Preferred Stock (the
"Preferred Stock") for $27 million. Net proceeds after related costs
and expenses were approximately $26.2 million.
For the first five years after issuance, the Preferred Stock pays an
annual dividend equal to 5%. Accrued dividends are payable quarterly,
in arrears. All dividends are payable in cash or, at the Company's
option, shares of Common Stock valued at the ten day average trading
price, as defined.
The Preferred Stock is convertible into shares of Common Stock upon
written notice by the holders at the then current conversion ratio. The
initial conversion price is $8.625 per share. Mandatory conversion of
the Preferred Stock into Common Stock occurs if certain closing market
price levels for the Company's Common Stock are achieved. On July 9,
1997, the 10 day average trading price of the Company's Common Stock
exceeded 130% of the then current conversion price and one-third of the
then outstanding Preferred Stock was converted to Common Stock. On
August 25, 1997, the 10 day average trading price of the Company's
Common Stock exceeded 160% of the then current conversion price and
two-thirds of the then outstanding Preferred Stock was converted to
Common Stock. On September 23, 1997, the 10 day average trading price
of the Company's Common Stock exceeded 190% of the then current
conversion price and all remaining Preferred Stock was converted to
Common Stock.
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. Convertible Preferred Stock, continued
All Common Stock issued upon a mandatory conversion or in payment of
accrued dividends must be registered and listed. As a result, the
Company has filed a registration statement on Form S-3, which includes
the registration of approximately 3.5 million shares of Common Stock to
be issued upon the occurrence of these events.
5. Common Stock
On June 10, 1997, the number of authorized shares of Common Stock was
increased from 30,000,000 to 60,000,000 following approval of such
action by the Company's stockholders at its annual meeting. This
increase will provide additional authorized but unissued shares of
Common Stock to be used for general corporate purposes, future
acquisitions and equity financings.
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.
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
$15.2 million.
6. Acquisitions and Dispositions
The Company acquired Energy Electric Cable, a division of Connectivity
Products, Inc. ("Energy") on July 11, 1997. Energy is a national
specialist in the sale and distribution of multimedia wiring products
based in Auburn Hills, Michigan. During 1996, Energy had net sales of
approximately $61 million from its 12 locations in the United States.
The purchase price consisted of $12 million in cash and Common Stock
and the pay down of $17 million of Connectivity Products, Inc.
("Connectivity") bank debt by Anicom. In addition, the Company entered
into a supply agreement with Connectivity.
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.
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
6. Acquisitions and Dispositions, continued
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)
6. 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 the Northern, Norfolk, Carolina Cable and
Energy acquisitions and the issuances of equity discussed in Notes 3
and 4, which were a significant source of the funds used in certain of
the acquisitions, occurred on January 1, 1996. It further assumes that
the equity transaction discussed in Note 4 resulted in the issuance of
common stock, based on the conversion of the Preferred Stock to Common
Stock approximately four months after its issuance. 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.
Nine Months Ended
September 30,
(In thousands, except
per share amounts)
1997 1996
Net sales $211,619 $173,852
======== ========
Operating income $ 7,194 $ 4,218
======== ========
Net income available to common stockholders $ 4,136 $ 2,633
======== ========
Earnings per common share and share equivalent $ .21 $ .14
======== ========
Pro forma weighted average common shares and
share equivalents 19,806 19,319
======== ========
On October 17, 1997, the Company acquired certain assets of
Zack-DataCom, the voice and data division of Zack Electronics, Inc.
("Zack") of San Jose, California, a leader in the sale and distribution
of multimedia low voltage products. Zack had net sales of approximately
$10 million in 1996. The purchase price was $4.7 million payable in
cash and stock.
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.
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
7. 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.
In connection with certain acquisitions, the Company has entered into
employment agreements with certain former officers of 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 whom are now executive officers of the
Company, is approximately $863,000.
8. Supplemental Cash Flow Information
The following is a summary of the non-cash investing and financing
activities:
Nine Months Ended
September 30,
(In thousands)
1997 1996
Acquisitions:
Fair value of assets acquired 54,113 52,638
Business integration liabilities established (4,274) (2,728)
Liabilities assumed (15,781) (26,673)
Long-term debt issued _ (3,000)
Common stock issued (5,058) (5,660)
--------- ---------
Cash paid 29,000 14,577
Less: cash acquired (268) (141)
--------- ---------
Net cash paid for acquisitions $ 28,732 $ 14,436
========= =========
Dispositions:
Value of assets sold, net of transaction
costs $ 117
=========
Notes receivable accepted $ 400
=========
Conversion of Convertible Preferred Stock:
Conversion to common stock $ 27,000
=========
Payment of dividends in common stock $ 297
=========
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:
For the Three Months For the Nine Months
Ended Ended
September 30, September 30,
1997 1996 1997 1996
Income Statement Data:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 75.9 74.3 76.5 74.9
--------- -------- -------- --------
Gross profit 24.1 25.7 23.5 25.1
--------- -------- -------- --------
Operating expenses and other:
Selling expenses 10.7 11.6 10.5 11.6
General and administrative expenses 9.2 10.7 9.6 10.3
Gain on sale of product line --- --- (.3) ---
--------- -------- -------- --------
Operating income 4.2 3.4 3.7 3.2
Interest (expense) (.3) (.3) (.3) (.3)
Interest income .1 .3 .1 .6
--------- -------- -------- --------
Income before income taxes 3.9 3.4 3.5 3.5
Income taxes 1.5 1.2 1.3 1.2
========= ======== ======== ========
Net income 2.4% 2.2% 2.2% 2.3%
========= ======== ======== ========
__________________
Note: Percentages may not sum due to rounding.
Results of Operations for the Three and Nine Months Ended September 30, 1997
Compared to the Three and Nine Months Ended September 30, 1996
Net sales for the third quarter of 1997 increased to a record $75.3 million, a
126.8% increase over net sales of $33.2 million in the third quarter of 1996.
Net sales for the first nine months of 1997 rose by 126.1% to a record $172.8
million, when compared to net sales of $76.4 million for the comparable period
of 1996. The significant increase is primarily attributable to acquisitions
coupled with internal growth which has lead to new customers, increased market
share, expanded market penetration and increased volume with existing customers.
Anicom's gross profit for the quarter ended September 30, 1997 increased by $9.6
million or 112.7% to $18.1 million versus $8.5 million for the same period of
1996. For the first nine months of 1997, gross profit increased to $40.7 million
from $19.2 million in the first three quarters of 1996, an increase of 112.0%.
These increases resulted from Anicom's acquired sales volume and internal
growth. As a percentage of net sales, gross profit for the three and nine month
periods ended September 30 declined from 25.7% and 25.1%, respectively, in 1996
to 24.1% and 23.5%, respectively, in 1997. The gross margin improvements that
resulted from the economic efficiencies created by Anicom's increased purchasing
volume were offset by the impact of lower historical gross profit margins of
certain of the Company's recent acquisitions. The decrease in gross margin in
1997 also reflects the impact of the Company's efforts to open new markets and
increase existing market share.
Selling expenses increased by $4.2 million and $9.3 million, respectively, for
the three and nine months ended September 30, 1997 in conjunction with the
Company's increase in net sales and the increase in sales headcount that
resulted from the Company's acquisitions and internal growth. Selling expenses
as a percentage of net sales improved from 11.6% of net sales in the third
quarter of 1996 to 10.7% of net sales in the third quarter of 1997. Selling
expenses as a percentage of net sales improved from 11.6% for the first nine
months of 1997 to 10.5% for the first nine months of 1996. These improvements
resulted from the Company realizing operating leverage from its growth and
acquisitions and conforming the selling incentive programs of companies acquired
in 1996 with those of Anicom. These improvements were, in part, offset by
differences in the selling incentive programs in place at Energy, acquired in
July, 1997.
General and administrative expenses increased from $3.6 million and $7.9 million
in the third quarter and first nine months of 1996, respectively, to $7.0
million and $16.6 million, respectively, for the same periods in 1997. The
Company's acquisitions in the last half of 1996 and 1997 resulted in an increase
in general and administrative expenses. As a percentage of net sales, general
and administrative expenses improved to 9.2% in the third quarter of 1997 from
10.7% in the third quarter of 1996. As a percentage of net sales, general and
administrative expenses improved from 10.3% in the first nine months of 1996 to
9.6% in the first nine months of 1997. These improvements were attributable to
increases in net sales outpacing required expenses for general and
administrative costs as the Company further realized operating leverage from its
acquisition-based, integrated growth strategy.
Interest income decreased to $45,000 in the third quarter of 1997 from $111,000
in the third quarter of 1996. On a year to date basis, interest income has
decreased from $462,000 in 1996 to $214,000 in 1997. During the first and third
quarters of 1996, the Company earned interest income on invested funds raised in
common stock offerings. In the second and third quarters of 1997, the Company
earned interest on funds raised in its May private placement of convertible
preferred stock. The changes noted are a result of the amounts and periods of
time these funds were invested prior to their use.
In the third quarter of 1997, interest expense increased to $245,000 from
$86,000 for the third quarter of 1996. The increase is due to the Company
borrowing against its credit facility for its acquisition of Energy and to fund
increases in working capital. For the nine months ended September 30, 1997,
interest expense rose by $243,000 to $440,000. The increase was principally a
result of borrowings against the credit facility.
The provision for income taxes increased to $1.1 million in the third quarter of
1997 from $389,000 in the third quarter of 1996. For the nine months ended
September 30, 1997, the provision for income taxes increased to $2.3 million
from $921,000 for the same period in 1996. The increase is a result of the
increase in income before income taxes. For both the three and nine months ended
September 30, 1997, the provision for income taxes as a percentage of income
before income taxes, increased to 38.0% from 34.4% and 34.3%, respectively, for
the same periods in 1996. These changes are primarily attributable to income
earned on tax-exempt securities in 1996.
Net income for the third quarter of 1997 increased 147.1% to $1.8 million as
compared to $743,000 for the third quarter of 1996. For the nine months ended
September 30, 1997, net income increased 115.1% to $3.8 million, up from $1.8
million for the nine months of 1996.
Primary and fully diluted earnings per common share and share equivalents for
the three month period ended September 30, 1997 increased 50.0% to $.09 versus
$.06 for the prior year despite a 38.4% and 49.6% increase, respectively, in
primary and fully diluted weighted average shares and share equivalents
outstanding. Primary earnings per common share and share equivalent for the
third quarter of 1997 reflect a deduction of approximately $173,000, or $.01 per
share, for the dividend earned during the quarter by holders of the convertible
preferred stock. As of September 23, 1997, all the remaining shares of Preferred
Stock were converted to Common Stock.
For the nine months ended September 30, 1997, primary and fully diluted earnings
per common share and share equivalents increased by approximately 50.0% to $.21
from $.14 for the same period in 1996 while primary and fully diluted weighted
average common shares and share equivalents outstanding increased by
approximately 33.0% and 40.8%, respectively. Primary earnings per common share
and share equivalent for the nine months ended September 30, 1997 reflect a
deduction of approximately $297,000, or $.02 per share, for the dividend earned
during the second and third quarter by holders of the convertible preferred
stock.
Liquidity and Capital Resources
As of September 30, 1997, Anicom had working capital of approximately $52.1
million as compared to $33.4 million at December 31, 1996, including cash and
cash equivalents of $1.1 million at September 30, 1997. Anicom also has a $50
million unsecured revolving credit facility (the "Facility") with a syndicate of
lenders, including Harris Trust and Savings Bank, LaSalle National Bank and The
First National Bank of Chicago. The Facility provides various interest rate
options, determined from time to time, based upon the Company's leverage ratio,
as defined and either the agent's Domestic Rate less .50% to .25% or LIBOR plus
.50% to 1.00%. The Facility expires in July, 2000 and contains customary
financial covenants, including minimum tangible net worth and current, interest
coverage and debt to earnings ratios. The Facility replaces the Company's
previous $10 million unsecured revolving credit facility. At September 30, 1997,
the amount outstanding under the Facility was $13.2 million.
Management believes that existing cash, cash equivalents, cash flows from
operations and 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
cannot 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 nine months ended September 30, 1997, operating activities used $3.0
million of cash compared with the $8.7 million provided during the same period
of 1996. The significant change between years is principally a result of the
classification of the Company's net marketable securities activity. This
activity consists of investing funds raised in financing activities until their
liquidation in connection with the Company's acquisition and integrated growth
strategy. Excluding the impact of marketable securities, Anicom used $7.4
million of cash in operating activities during the nine months ended September
30, 1997 compared with the use of $7.9 million during the same period in 1996.
The largest use of cash in operations resulted from funding acquisition related
activities, including expanding product offerings at acquired locations.
Investments in receivables and inventory were funded, in part, by an increase in
accounts payable in both periods. Additional funding in 1997 was provided by
borrowings against the Facility while 1996 funding was provided by the private
placement of equity. In addition, funding working capital deficiencies of
acquired companies and business integration liabilities were significant uses of
operating cash flows.
Investing activities utilized approximately $31.3 million in the nine months
ended September 30, 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. During the third quarter of
1997, the Company acquired Energy. Cash paid for these acquisitions accounted
for the majority of cash used for investing activities. The remainder represents
funds used to expand the Company's facilities to accommodate growth and the cost
of a new, fully integrated business solution software platform which will be
implemented at the end of the fourth quarter of 1997.
Cash flows from financing activities in the first nine months of 1997 totaled
$35.2 million. Pursuant to an agreement dated May 20, 1997, the Company sold
27,000 shares of Series A Convertible Preferred Stock (the "Preferred Stock").
The sale of the Preferred Stock raised approximately $26.2 million after related
costs and expenses. The Preferred Stock automatically converted into shares of
Common Stock if certain closing market price levels for the Company's Common
Stock were achieved. During the third quarter, the market price of Anicom's
Common Stock achieved the three thresholds required for mandatory conversions of
the Preferred Stock. Accordingly, all of the outstanding shares of Preferred
Stock have been converted to Common Stock. See Note 4 to the Condensed
Consolidated Financial Statements. Additionally, the Company paid approximately
$3.5 million of bank debt assumed in the Carolina Cable acquisition and $1
million of debt issued with a 1996 acquisition. During this period, the Company
drew against and made repayments on its revolving credit facilities.
Recently Issued Accounting Standards
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.
Statement of Financial Accounting Standards No. 129, Disclosure of Information
about Capital Structure ("SFAS No. 129"), was issued in February 1997. SFAS No.
129 establishes standards for disclosing information about an entity's capital
structure by superseding and consolidating previously issued accounting
standards. The Company's financial statements are prepared in accordance with
the requirements of SFAS No. 129.
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS No. 130"), was issued in June 1997. SFAS No. 130 requires the
reporting of comprehensive income in a financial statement that is presented
with the same prominence as other financial statements. Comprehensive income is
defined by Concepts Statement No. 6, Elements of Financial Statements, as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from non-owner sources. It includes all changes
in equity during a period except those resulting from investments by owners and
distribution to owners. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. The Company has not yet determined the impact of
implementing this standard.
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information ("SFAS No. 131"), was issued in June
1997. SFAS No. 131 is not expected to impact the Company's disclosure
requirements.
PART II -- OTHER INFORMATION
Item 2. Changes in Securities
In July 1997, the Company issued shares of the Company's common stock
("Common Stock") to Connectivity Products, Incorporated ("CPI")
pursuant to an agreement dated July 11, 1997 ("Agreement"), under which
the Company purchased certain assets and assumed certain liabilities of
CPI. Under the Agreement, the Company paid $2.0 million of the purchase
price in shares of Common Stock. The 190,476 shares issued pursuant to
the Agreement were issued in reliance upon Section 4 (2) of the
Securities Act of 1933, as amended, and the rules promulgated
thereunder, as a transaction by an issuer not involving any public
offering. An appropriate legend was affixed to the share certificate
issued to CPI.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed with this report:
Exhibit No.
3.1* Restated Certificate of Incorporation of the Company
3.3** Certificate of Amendment of Restated Certificate of
Incorporation of the Company
3.4*** Certificate of Designations, Preferences and Rights
of the Series A Convertible Preferred Stock
3.5**** Certificate of Amendment of Restated Certificate of
Incorporation of the Company
10.19 Supply Agreement, dated as of July 11, 1997 between
the Company and Connectivity Products,
Incorporated
11 Computation of Earnings per Share
27 Financial Data Schedule
* Previously filed as an Exhibit to the Company's Registration
Statement on Form SB-2, as amended (Registration Statement No.
33-87736C) and incorporated herein by reference.
** Previously filed as an Exhibit to the Company's current report
on Form 10-QSB for the quarter ended September 30, 1996 and
incorporated herein by reference.
*** Previously filed as an Exhibit to the Company's current report
on Form 8-K, dated May 22, 1997 and incorporated herein by
reference.
**** Previously filed as an Exhibit to the Company's Registration
Statement on Form S-3, as amended (Registration Statement No.
333-30791) and incorporated herein by reference.
(b) Reports on Form 8-K.
The following Reports on Form 8-K were filed during the
third quarter of 1997:
Form 8-K, dated July 25, 1997 (Energy Electric Cable)
Form 8-K/A, dated August 25, 1997 (Energy Electric Cable)
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
Dated: November 14, 1997 By: /S/ DONALD C. WELCHKO
Donald C. Welchko
Vice President and Chief Financial Officer
ANICOM, INC.
INDEX TO EXHIBITS
Exhibit No.
3.1* Restated Certificate of Incorporation of the Company
3.3** Certificate of Amendment of Restated Certificate of
Incorporation of the Company
3.4*** Certificate of Designations, Preferences and Rights
of the Series A Convertible Preferred Stock
3.5**** Certificate of Amendment of Restated Certificate of
Incorporation of the Company
10.19 Supply Agreement, dated as of July 11, 1997 between
the Company and Connectivity Products,
Incorporated
11 Computation of Earnings per Share
27 Financial Data Schedule
* Previously filed as an Exhibit to the Company's Registration
Statement on Form SB-2, as amended (Registration Statement No.
33-87736C) and incorporated herein by reference.
** Previously filed as an Exhibit to the Company's current report
on Form 10-QSB for the quarter ended September 30, 1996 and
incorporated herein by reference.
*** Previously filed as an Exhibit to the Company's current report
on Form 8-K, dated May 22, 1997 and incorporated herein by
reference.
**** Previously filed as an Exhibit to the Company's Registration
Statement on Form S-3, as amended (Registration Statement No.
333-30791) and incorporated herein by reference.