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 June 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
The number of shares outstanding of the registrant's Common Stock, par value
$.001 per share as of August 11, 1997: 16,794,917.
<PAGE>
PART I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
ANICOM, INC.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
June 30, 1997 December 31,
(Unaudited) 1996
ASSETS
Current assets:
Cash and cash equivalents $ 1,638 $ 195
Marketable securities 16,711 4,345
Accounts receivable, less allowance for doubtful
accounts of $1,607 and $980, respectively 38,895 26,972
Inventory, primarily finished goods 31,046 23,453
Deferred income taxes 1,799 1,557
Other current assets 2,095 1,017
------------- -------------
Total current assets 92,184 57,539
-------------- -------------
Property and equipment, net 3,670 2,820
Goodwill, net of accumulated amortization of $888
and $479, respectively 33,140 26,771
Other assets, primarily notes receivable 1,189 824
============== =============
Total assets $ 130,183 $ 87,954
============== =============
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ANICOM, INC.
Condensed Consolidated Balance Sheets
(In thousands, except per share amounts)
June 30, 1997 December 31,
(Unaudited) 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 32,760 $ 20,727
Accrued expenses 1,590 1,818
Long-term debt, current portion 2,090 1,598
--------------- -----------------
Total current liabilities 36,440 24,143
--------------- -----------------
Long-term debt, net of current portion 1,863 3,013
Deferred income taxes _ 165
Other liabilities 866 774
--------------- -----------------
Total liabilities 39,169 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 27,000 _
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, 15,913 and
15,560 shares issued and outstanding,
respectively 8 7
Additional paid-in capital 58,776 56,465
Retained earnings 5,230 3,387
---------------- -----------------
Total stockholders' equity 91,014 59,859
---------------- -----------------
Total liabilities and stockholders' equity $ 130,183 $ 87,954
================ =================
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ANICOM, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
(unaudited) (unaudited)
------------------------------------ -----------------------------------
1997 1996 1997 1996
<C> <C> <C> <C> <C>
Net sales $ 52,480 $ 28,675 $ 97,491 $ 43,211
Cost of sales 40,419 21,492 74,956 32,551
----------------- ----------------- ----------------- ----------------
Gross profit 12,061 7,183 22,535 10,660
----------------- ----------------- ----------------- ----------------
Operating expenses and other:
Selling 5,374 3,382 10,196 5,036
General and administrative 4,946 2,872 9,622 4,307
Gain on sale of assembly product line -- -- (483) --
----------------- ----------------- ----------------- ----------------
Total operating expenses and other 10,320 6,254 19,335 9,343
----------------- ----------------- ----------------- ----------------
Income from operations 1,741 929 3,200 1,317
----------------- ----------------- ----------------- ----------------
Other income (expense):
Interest income 128 96 170 351
Interest expense (126) (81) (195) (111)
----------------- ----------------- ----------------- ----------------
Total other income (expense) 2 15 (25) 240
----------------- ----------------- ----------------- ----------------
Income before income taxes 1,743 944 3,175 1,557
Provision for income taxes 662 333 1,206 532
----------------- ----------------- ----------------- ----------------
Net income
1,081 611 1,969 1,025
Less: dividend on preferred stock (124) -- (124) --
----------------- ----------------- ----------------- ----------------
Net income available to common stockholders $ 957 $ 611 $ 1,845 $ 1,025
================= ================= ================= ================
Earnings per common share and share equivalent:
Primary and fully diluted $ .06 $ .05 $ .12 $ .08
================= ================= ================= ================
Weighted average common shares and share
equivalents outstanding:
Primary 16,405 12,916 16,255 12,593
================= ================= ================= ================
Fully diluted 17,829 12,916 17,131 12,744
================= ================= ================= ================
</TABLE>
See Notes to Condensed Consolidated Financial Statements
<PAGE>
ANICOM, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
For the Six Months Ended
June 30,
(unaudited)
------------------------------
1997 1996
Cash flows from operating activities:
Net income $ 1,969 $ 1,025
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 445 149
Amortization 409 156
Deferred income taxes (142) --
Gain on sale of product line (483) --
Increase (decrease) in cash attributable to
changes in assets and liabilities
Marketable securities (12,366) 20,524
Accounts receivable (9,272) (2,526)
Inventory (5,267) (1,953)
Prepaid expenses (824) (424)
Other assets (74) (133)
Accounts payable 9,077 551
Accrued expenses (1,825) (1,252)
------------- -------------
Net cash (used in) provided by
operating activities (18,353) 16,117
------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (1,091) (336)
Cash paid for acquired companies (1,765) (10,040)
Other 200 --
------------- ---------------
Net cash used in investing activities (2,656) (10,376)
------------- ---------------
Cash flows from financing activities:
Payment of long-term debt and assumed
bank debt (12,448) (5,673)
Proceeds from long-term debt 8,600 --
Proceeds from issuance of convertible
preferred stock, net of offering
costs 26,300 --
Other -- (64)
------------- ---------------
Net cash provided by (used in)
financing activities 22,452 (5,737)
------------- ---------------
Net increase in cash and cash equivalents 1,443 4
Cash and cash equivalents, beginning of period 195 3
------------- ---------------
Cash and cash equivalents, end of period 1,638 $ 7
============= ===============
See Notes to Condensed Consolidated Financial Statements
<PAGE>
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 June 30, 1997 and December 31, 1996, the results of
operations for the three month and six month periods ended June 30,
1997 and 1996 and their cash flows for the six months ended June 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 5.
<PAGE>
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 six months ended June 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.
<PAGE>
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. 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. 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 $
15.1 million.
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 $26.3 million.
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. Under certain
circumstances, the Preferred Stock conversion price is subject to a
potential downward adjustment.
Mandatory conversion of the Preferred Stock into Common Stock occurs if
certain closing market price levels for the Company's Common Stock are
achieved. If, during the first 12 months following issuance, the 10 day
average trading price of the Company's Common Stock exceeds 130% of the
then current conversion price, one-third of the then outstanding
Preferred Stock converts into Common Stock. If, during the first 24
months following issuance, the 10 day average trading price of the
Company's Common Stock exceeds 160% of the then current conversion
price, two-thirds of the then outstanding Preferred Stock converts into
Common Stock. If, during the first 24 months following issuance, the 10
day average trading price of the
<PAGE>
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. Convertible Preferred Stock, continued
Company's Common Stock exceeds 190% of the then current conversion
price, any remaining outstanding Preferred Stock converts into Common
Stock. See Note 8.
For the period from the second to the fifth anniversary of issuance, if
any portion of the Preferred Stock remains outstanding, it will all
convert to Common Stock if, the 10 day average trading price of the
Company's Common Stock exceeds 140% (year 3), 150% (year 4) or 175%
(year 5) of the then current conversion price.
For the first five years after issuance, the Preferred Stock pays an
annual dividend equal to 5%. Subsequent to the fifth anniversary, if
any of the Preferred Stock remains outstanding, the annual dividend
increases to 15% per year. 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.
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.
The holders of the Preferred Stock may, on matters subject to voting by
the holders of Common Stock, vote together with the Common Stock as one
class on an as converted basis, as defined. On certain matters
affecting the Preferred Stock, the holders may vote as a separate
class.
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.
<PAGE>
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
5. Acquisitions and Dispositions, continued
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.
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.
<PAGE>
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
5. Acquisitions and Dispositions, continued
The following pro forma condensed consolidated quarterly financial
information assumes that all material acquisitions and the common stock
issuance discussed in Note 3, which was a significant source of the
funds used in certain of 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.
Six Months Ended June 30,
(In thousands, except share amounts)
1997 1996
Net sales $ 102,207 $ 82,538
============= =============
Operating income $ 3,044 $ 1,473
============= =============
Net income available to common
stockholders $ 1,754 $ 1,149
============= =============
Earnings per common share and
share equivalent $ .11 $ .07
============= =============
Pro forma weighted average common
shares and share equivalents 16,221,306 15,942,706
============= =============
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.
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.
<PAGE>
ANICOM, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
7. Supplemental Cash Flow Information
The following is a summary of the non-cash investing and financing
activity for six months ended June 30, 1997 and 1996:
Six Months Ended June 30,
(In thousands)
1997 1996
Acquisitions:
Fair value of assets acquired $ 12,812 $ 36,236
Business integration liabilities
established (1,274) (2,728)
Liabilities assumed (6,527) (18,908)
Long-term debt issued _ (3,000)
Common stock issued (3,011) (1,560)
---------- ----------
Cash paid 2,000 10,040
Less: cash acquired (235) _
---------- ----------
Net cash paid for acquisitions $ 1,765 $ 10,040
========== ==========
Dispositions:
Value of assets sold, net of
transaction costs $ 117
==========
Notes receivable accepted $ 400
==========
8. Subsequent Events
On July 3, 1997, the Company replaced its previous $10 million
revolving 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.
On July 9, 1997, the average trading price of the Common Stock, as
defined in the Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock of Anicom, Inc., triggered a
mandatory conversion of one-third of the then outstanding Preferred
Stock into approximately 1,044,000 shares of Common Stock.
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. Energy had net sales of approximately
$61 million from its 12 locations in the United States during 1996. 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.
<PAGE>
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 Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
Income Statement Data:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 77.0 74.9 76.9 75.3
--------- --------- --------- -------
Gross profit 23.0 25.1 23.1 24.7
--------- --------- --------- -------
Operating expenses and other:
Selling expenses 10.2 11.8 10.5 11.6
General and administrative
expenses 9.4 10.1 9.9 10.0
Gain on sale of product line --- --- (.5) ---
--------- --------- --------- -------
Operating income 3.3 3.2 3.3 3.1
Interest (expense) (.2) (.2) (.2) (.3)
Interest income .2 .3 .2 .8
--------- --------- --------- -------
Income before income taxes 3.3 3.3 3.3 3.6
Income taxes 1.3 1.2 1.2 1.2
========= ========= ========= =======
Net income 2.1% 2.1% 2.0% 2.4 %
========= ========= ========= =======
__________________
Note: Percentages may not sum due to rounding.
Results of Operations for the Three and Six Months Ended June 30, 1997 Compared
to the Three and Six Months Ended June 30, 1996
Net sales for the second quarter of 1997 increased to a record $52.5 million, an
83% increase over net sales of $28.7 million in the second quarter of 1996. Net
sales for the first six months of 1997 rose by 126% to a record $97.5 million
when compared to net sales of $43.2 million for the first half of 1996. The
significant increase is primarily 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 for the quarter ended June 30, 1997 increased by $4.9
million or approximately 68% to $12.1 million versus $7.2 million for the same
period of 1996. For the first six months of 1997, gross profit increased to
$22.5 million from $10.7 million in the first half of 1996, an increase of more
than 111%. These increases resulted from Anicom's acquired sales volume and
internal growth. As a percentage of net sales, gross profit for the three and
six month periods ended June 30 declined from 25.1% and 24.7%, respectively, in
1996 to 23.0% and 23.1%, 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.
<PAGE>
Selling expenses for the second quarter of 1997 improved from 11.8% of net sales
in 1996 to 10.2% of net sales in 1997. For the first six months of 1997, selling
expenses as a percentage of net sales were reduced to 10.5% from 11.6%, as the
Company began to realize operating leverage resulting from its growth and
acquisitions and conforming the selling incentive programs of acquired companies
with those of Anicom. Management believes that Anicom's selling incentive
programs more effectively reward sales personnel for their contribution to gross
profit. Selling expenses increased by $2.0 million and $5.2 million,
respectively, for the three and six months ended June 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 in 1996 and the first quarter of
1997.
General and administrative expenses increased from $2.9 million and $4.3 million
in the second quarter and first six months of 1996, respectively, to $5.4
million and $10.2 million, respectively, for the same periods in 1997. The
Company's acquisitions in the last half of 1996, as well as its acquisitions of
Carolina Cable and Security Supply in the first quarter of 1997, resulted in an
increase in general and administrative expenses. As a percentage of net sales,
general and administrative expenses improved to 9.4% in the second quarter of
1997 from 10.1% in the second quarter of 1996. For the first six months of 1997,
general and administrative expenses as a percentage of net sales were reduced to
9.9% from 10.0% in 1996. This change is attributed 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 increased by 34.0% to $128,000 in the second quarter of 1997
from $96,000 in the second quarter of 1996. On a year to date basis, interest
income decreased from $351,000 in 1996 to $170,000 in 1997. 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
acquisitions and related expenditures. In the second quarter 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 period of
time these funds were invested prior to their use for intended purposes.
In the second quarter of 1997, interest expense increased to $126,000 from
$81,000 for the second quarter of 1996. The increase is due in part to the
Company borrowing against its credit facility for a period of time during the
second quarter of 1997. For the six months ended June 30, 1997, interest expense
rose by $85,000 to $195,000. The increase was a result of borrowings against the
credit facility during the second quarter of 1997 and debt issued in conjunction
with an acquisition completed during the latter portion of the first quarter of
1996.
The provision for income taxes increased to $662,000 in the second quarter of
1997 from $332,000 in the second quarter of 1996. For the six months ended June
30, 1997, the provision for income taxes increased to $1.2 million from $533,000
for the same period in 1996. The increase is a result of the increase in income
before income taxes. For both the three and six months ended June 30, 1997, the
provision for income taxes as a percentage of income before income taxes,
increased to 38.0% from 35.2% and 34.2%, respectively, for the same periods in
1996. These changes are primarily attributable to income earned on tax-exempt
securities in the first half of 1996.
<PAGE>
Net income for the quarter ended June 30, 1997 increased 76.7% to $1.1 million
as compared to $611,000 for the second quarter of 1996. For the six months ended
June 30, 1997, net income nearly doubled to $1.9 million, up from $1.0 million
for the first half of 1996.
Primary and fully diluted earnings per common share and share equivalents for
the three month period ended June 30, 1997 increased 20% to $.06 versus $.05 for
the prior year despite an approximate 27% and 38% increase, respectively, in
primary and fully diluted weighted average shares and share equivalents
outstanding. Primary earnings per common share and share equivalent for 1997
reflect a deduction of approximately $124,000, or $.01 per share, for the
dividend earned during the quarter by holders of the convertible preferred
stock.
For the six months ended June 30, 1997, primary and fully diluted earnings per
common share and share equivalents increased by approximately 50.0% to $.12 from
$.08 for the same period in 1996 while primary and fully diluted weighted
average common shares and share equivalents outstanding increased by
approximately 29.0% and 34%, respectively.
Liquidity and Capital Resources
As of June 30, 1997, Anicom had working capital of approximately $55.7 million
as compared to $33.4 million as of December 31, 1996. The funds raised in the
private placement of convertible preferred stock, offset by acquisitions
completed during the first quarter of 1997, principally accounted for the
increase in working capital.
The Company had cash and cash equivalents of $1.6 million and marketable
securities of $16.7 million at June 30, 1997. On July 3, 1997, Anicom closed 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 facility.
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 $26.3 million after related costs and
expenses. The Preferred Stock automatically converts into shares of Common Stock
if certain closing market price levels for the Company's Common Stock are
achieved over the next five years. Additionally, the Preferred Stock is
convertible into shares of Common Stock upon written notice by the holders at
the then current conversion ratio. All dividends are payable in cash or, at the
Company's option, shares of Common Stock. Subsequent to the end of the quarter,
the market price of Anicom's Common Stock triggered a mandatory conversion of
one-third of the Preferred Stock issued. See Note 4 to the Condensed
Consolidated Financial Statements.
Management believes that existing cash, cash equivalents, marketable securities,
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.
<PAGE>
For the six months ended June 30, 1997, operating activities used $18.4 million
of cash compared with the $16.1 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 $6.0
million of cash in operating activities during the six months ended June 30,
1997 compared with the use of $4.4 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 principally funded by an increase
in accounts payable in both periods. In addition, working capital deficiencies
of acquired companies and business integration liabilities were also funded.
Investing activities utilized approximately $2.7 million in the six months ended
June 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. Cash paid for these
acquisitions accounted for the majority of cash used for investing activities.
The remainder represented funds used to expand the Company's facilities to
accommodate growth.
Subsequent to June 30, 1997, the Company acquired Energy Electric Cable, a
division of Connectivity Products, Inc. ("Energy"). Based in Auburn Hills,
Michigan, Energy is a national specialist in the sale and distribution of
multimedia wiring products. Energy had net sales of approximately $61 million
from its 12 locations in the United States during 1996. The purchase price
consisted of $12 million in cash and Common Stock and the pay down of $17
million of Connectivity Products, Inc. bank debt by Anicom.
Cash flows from financing activities in the first six months of 1997 totaled
$22.5 million. The private placement of the Preferred Stock raised approximately
$26.3 million after offering costs. During this period, the Company drew against
the revolving credit facility. These draws were fully repaid by June 30, 1997
through cash from operations and proceeds from the sale of Preferred Stock.
Additionally, the Company paid approximately $3.5 million of bank debt assumed
in the Carolina Cable acquisition and debt issued with a 1996 acquisition.
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.
<PAGE>
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.
<PAGE>
PART II -- OTHER INFORMATION
Item 2. Changes in Securities
Pursuant to an agreement dated May 20, 1997, the Company issued and sold 27,000
shares of its Series A Convertible Preferred Stock, $.01 par value per share
("Series A Preferred Stock") for an aggregate offering price of $27 million to
certain individuals and entities pursuant to Rule 506 of Regulation D of the
Securities Act of 1933, as amended. The Company relied upon such investors'
representations that they are accredited investors within the definition of
Regulation D of the Securities Act of 1933, as amended.
The holders of Series A Preferred Stock have the right to convert at any time
all or any portion of the Series A Preferred Stock, together with any accrued
and unpaid dividends, into the Company's common stock, $.001 par value per share
("Common Stock") at a conversion price of $8.625 per share, ("Conversion
Price"), subject to certain adjustments.
The Series A Preferred Stock may also be subject to mandatory conversion as
described below. The outstanding shares of Series A Preferred Stock will be
deemed to have been converted into shares of Common Stock at the Conversion
Price automatically upon the following terms and conditions: (i) if, at any time
during the first year following the date of issuance of the Series A Preferred
Stock (the "Issuance Date"), the 10-day average trading price of the Common
Stock is at least 130% of the Conversion Price, then 33-1/3% of the then
outstanding Series A Preferred Stock will convert into Common Stock; (ii) if, at
any time during the two years following the Issuance Date, the 10-day average
trading price of the Common Stock is at least 160% of the Conversion Price, then
66-2/3% of the then outstanding Series A Preferred Stock will convert into
Common Stock; and (iii) 100% of the then outstanding Series A Preferred Stock
will convert into Common Stock if the 10-day average trading price of the Common
Stock is equal to or exceeds (A) 190% of the Conversion Price during the two
years following the Issuance Date, (B) 140% of the Conversion Price during the
third year following the Issuance Date, (C) 150% of the Conversion Price during
the fourth year following the Issuance Date, or (D) 175% of the Conversion Price
during the fifth year following the Issuance Date. Notwithstanding the
foregoing, no mandatory conversion will occur unless the shares of Common Stock
to be issued have been registered under the Securities Act and listed for
trading on the principal securities exchange or trading market where the
Company's Common Stock is then listed or traded.
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Stockholders of the Company was held on May 21, 1997.
1. The stockholders voted to elect three Class II Directors to serve for
three year terms expiring at the Annual Meeting of Stockholders in
2000, with the following vote:
Authority Broker
Directors For Against Withheld Non-Votes
------------------ ---------- --------- ---------- -----------
Alan B. Anixter 14,296,875 __ 308,287 __
Donald C. Welchko 14,299,075 __ 306,087 __
Michael Segal 14,299,115 __ 306,047 __
The following directors' terms of office continued after the meeting:
Scott C. Anixter (term expiring in 1999), Carl E. Putnam (term
expiring in 1999), Lee B. Stern (term expiring in 1999), Robert
Brzustewicz, Sr. (term expiring in 1998), William R. Anixter (term
expiring in 1998) and Ira J. Kaufman (term expiring in 1998).
<PAGE>
2. The Stockholders also voted to approve an amendment to the Company's
Restated Certificate of Incorporation, with the following vote:
Authority Broker
For Against Withheld Abstentions Non-Votes
---------- ---------- ---------- ----------- ---------
14,407,052 146,318 51,792 __ __
3. The Stockholders also voted to approve an amendment to the Anicom,
Inc. 1996 Stock Incentive Plan, with the following vote:
Authority Broker
For Against Withheld Abstentions Non-Votes
---------- ---------- ---------- ----------- ---------
13,246,368 700,177 80,476 __ 578,141
4. The Stockholders also voted to approve an amendment to the Amended
and Restated Anicom, Inc. 1995 Directors Stock Option Plan, with the
following vote:
Authority Broker
For Against Withheld Abstentions Non-Votes
---------- ---------- ---------- ----------- ---------
11,047,473 3,465,003 92,686 __ __
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.
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.
<PAGE>
(b) Reports on Form 8-K.
The following Report on Form 8-K was filed during the second
quarter of 1997:
Form 8-K, dated May 22, 1997 (Press Release, Series A
Convertible Preferred Stock)
Form 8-K, dated May 30, 1997 (Series A Convertible Preferred
Stock)
Form 8-K, dated June 5, 1997 (Press Release)
<PAGE>
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: August 15, 1997 By: /S/ DONALD C. WELCHKO
------------------------
Donald C. Welchko
Vice President and Chief
Financial Officer
<PAGE>
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.
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.
Exhibit 11
ANICOM, INC.
Computation of Earnings per Share
(In thousands, except per share amounts)
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
(unaudited) (unaudited)
--------------- ---------------
Earnings per common share
===========================================
Net income $1,081 $ 611 $1,969 $1,025
Less: dividend on preferred stock (124) --- (124) ---
======= ======== ======= =======
Net income available to common stockholders $ 957 $ 611 $1,845 $1,025
======= ======== ======= =======
Weighted average common shares outstanding 15,918 12,535 15,792 12,408
======= ======== ======= =======
Earnings per common share $ .06 $ .05 $ .13 $ .08
======= ======== ======= =======
Earnings per common share and share
equivalent - Primary
==========================================
Weighted average common shares outstanding 15,918 12,535 15,791 12,408
Add: common share equivalents (options
and warrants) (1) 487 381 464 185
------- ------- -------- --------
Weighted average common share and share
equivalents outstanding 16,405 12,916 16,255 12,593
======= ======= ======== ========
Earnings per common share and share
equivalent - Primary $ .06 $ .05 $ .12 $ .08
======= ======= ======== ========
Earnings per common share and share
equivalent - Fully diluted
==========================================
Net income $1,081 $ 611 $1,969 $ 1,025
======= ======= ======= ========
Weighted average common share and share
equivalents outstanding 16,405 12,916 16,255 12,593
Add: convertible preferred stock (2) 1,424 --- 876 ---
------- ------- -------- --------
17,829 12,916 17,131 12,593
======= ======= ======== ========
Earnings per common share and share
equivalent - Fully diluted $ .06 $ .05 $ .12 $ .08
======= ======= ======== ========
(1) - Calculated using the treasury stock method.
(2) - Calculated using the if-converted method.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDING MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<CIK> 0000935802
<NAME> ANICOM, INC.
<MULTIPLIER> 1,000
<CURRENCY> dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 1,638
<SECURITIES> 16,711
<RECEIVABLES> 40,502
<ALLOWANCES> 1,607
<INVENTORY> 31,046
<CURRENT-ASSETS> 92,184
<PP&E> 4,811
<DEPRECIATION> 1,141
<TOTAL-ASSETS> 130,183
<CURRENT-LIABILITIES> 36,440
<BONDS> 0
0
27,000
<COMMON> 8
<OTHER-SE> 58,776
<TOTAL-LIABILITY-AND-EQUITY> 130,183
<SALES> 97,491
<TOTAL-REVENUES> 97,491
<CGS> 74,956
<TOTAL-COSTS> 74,956
<OTHER-EXPENSES> 19,335
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<INTEREST-EXPENSE> 170
<INCOME-PRETAX> 3,175
<INCOME-TAX> 1,206
<INCOME-CONTINUING> 1,969
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<EXTRAORDINARY> 0
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<NET-INCOME> 1,969
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
