SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission File Number 0-25364
ANICOM, INC.
(Name of registrant as specified in its charter)
Delaware 36-3885212
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6133 North River Road, Suite 1000, Rosemont, Illinois 60018-5171
(Address of principal executive offices) (Zip Code)
(847) 518-8700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o
The number of shares outstanding of the registrant's Common Stock, par value
$.001 per share as of May 5, 1999: 25,118,058
<PAGE>
PART I. -- FINANCIAL INFORMATION
Item 1. Financial Statements
Anicom, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
<TABLE>
<CAPTION>
March 31, 1999 December 31,
(Unaudited) 1998
ASSETS ------------ ------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,061 $ 2,589
Accounts receivable, less allowance for doubtful
accounts of $4,001 and $4,140, respectively 128,788 106,043
Inventory, primarily finished goods 81,103 87,250
Other current assets 18,648 17,449
------------ ------------
Total current assets 231,600 213,331
Property and equipment, net 9,897 9,963
Goodwill, net of accumulated amortization of $4,606 and
$3,740, respectively 127,538 128,280
Other assets 1,487 1,647
------------ ------------
Total assets $ 370,522 $ 353,221
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 68,678 $ 58,205
Accrued expenses, acquisition and other liabilities 16,398 18,836
Long-term debt, current portion 271 1,227
------------ ------------
Total current liabilities 85,347 78,268
Long-term debt, net of current portion 91,656 85,516
Other liabilities 3,288 3,067
------------ ------------
Total liabilities 180,291 166,851
------------ ------------
Commitments and Contingencies
Convertible redeemable preferred stock,
series B, par value $.01 per share,
liquidation value $1,000 per share; 20 shares
authorized, issued and outstanding 20,000 20,000
------------ ------------
Stockholders' equity:
Common stock, par value $.001 per share;
100,000 shares authorized, 25,118
and 25,083 shares issued and
outstanding, respectively 17 17
Preferred stock, Series c, par value $.01 per share;
50 shares authorized; no shares issued and outstanding -- --
Preferred stock, undesignated, par value $.01 per share;
903 shares authorized; no shares issued and outstanding -- --
Additional paid-in capital 155,863 155,653
Retained earnings 13,572 10,597
Other comprehensive income 779 103
------------ ------------
Total stockholders' equity 170,231 166,370
------------ ------------
Total liabilities and stockholders' equity $ 370,522 $ 353,221
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
1
<PAGE>
Anicom, Inc.
Condensed Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
For the Three Months Ended
March 31,
(unaudited)
1999 1998
--------- ---------
Net sales $ 137,242 $ 102,099
Cost of sales 106,762 79,419
--------- ---------
Gross profit 30,480 22,680
--------- ---------
Operating expenses:
Selling 12,223 9,248
General and administrative 11,630 8,780
--------- ---------
Total operating expenses 23,853 18,028
--------- ---------
Income from operations 6,627 4,652
--------- ---------
Other income (expense):
Interest income 52 23
Interest expense (1,530) (230)
--------- ---------
Total other income (expense) (1,478) (207)
--------- ---------
Income before income taxes 5,149 4,445
Provision for income taxes 2,026 1,778
--------- ---------
Net income 3,123 2,667
Less: dividend on preferred stock (148) --
--------- ---------
Net income available to common stockholders $ 2,975 $ 2,667
========= =========
Earnings per common share:
Basic $ 0.12 $ 0.12
========= =========
Diluted $ 0.12 $ 0.11
========= =========
Weighted average common shares outstanding:
Basic 25,097 23,295
========= =========
Diluted 27,095 23,881
========= =========
Total comprehensive income was $3,651 and $2,667 for the three months ended
March 31, 1999 and 1998, respectively. Comprehensive income includes foreign
currency translation adjustments of $676 and $0 for the three months ended March
31, 1999 and 1998, respectively.
See Notes to Condensed Consolidated Financial Statements
2
<PAGE>
Anicom, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands, except per share data)
For the Three Months Ended
March 31,
(unaudited)
1999 1998
-------- --------
Cash flows from operating activities:
Net income available to common stockholders $ 2,975 $ 2,667
Adjustments to reconcile to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,423 750
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable (22,745) (17,699)
Inventory 6,146 (5,219)
Other assets (1,028) 2,235
Accounts payable 9,927 10,116
Accrued expenses and acquisition liabilities (1,899) (3,176)
-------- --------
Net cash used in operating activities (5,201) (10,326)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (362) (249)
Cash paid for acquired companies -- (1,657)
Other 642 --
-------- --------
Net cash provided by (used in)
investing activities 280 (1,906)
-------- --------
Cash flows from financing activities:
Payment of long-term debt and assumed bank debt (19,507) (13,898)
Proceeds from long-term debt 24,900 26,300
-------- --------
Net cash provided by financing activities 5,393 12,402
-------- --------
Net increase in cash and cash equivalents 472 170
Cash and cash equivalents, beginning of period 2,589 687
-------- --------
Cash and cash equivalents, end of period $ 3,061 $ 857
======== ========
See Notes to Condensed Consolidated Financial Statements
3
<PAGE>
Anicom, Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(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 March 31, 1999 and the results of its operations and
cash flows for the three months ended March 31, 1999 and 1998. Reported
interim results of operations are based, in part, on estimates that 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-K for the year ended December 31,
1998 (the "1998 Form 10-K").
2. Nature of Business
Anicom specializes in the sale and distribution of multimedia
technology products including communications related wire, cable, fiber
optics and computer network and connectivity products. The Company
operates in a single business and geographical segment.
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 in North America.
4
<PAGE>
Anicom, Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(Unaudited)
3. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended March 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
-------- --------
Numerator:
<S> <C> <C>
Net income $ 3,123 $ 2,667
Less: dividend on preferred stock (148) --
-------- --------
Net income available to common stockholders $ 2,975 $ 2,667
======== ========
Denominator:
Denominator for basic earnings per share - weighted average
common shares outstanding 25,097 23,295
Plus:
Effect of assumed conversion of convertible preferred stock 1,404 --
Effect of employee stock options and warrants 594 586
-------- --------
Denominator for diluted earnings per share 27,095 23,881
======== ========
Earnings per share:
Basic $ 0.12 $ 0.12
======== ========
Diluted $ 0.12 $ 0.11
======== ========
</TABLE>
4. Acquisitions
In September 1998, the Company purchased substantially all of the
assets and assumed certain liabilities of Texcan Cables Limited, Texcan
Cables, Inc. and Texcan Cables International, Inc. (collectively
referred to as "Texcan"). Headquartered in Vancouver, British Columbia,
Texcan is a specialist in the distribution of wire, cable, fiber optics
and connectivity products. Texcan has 13 locations throughout Canada
and seven locations in the United States. The aggregate purchase price
was approximately $56,900 and consisted of 1,404 shares of common
stock; 20 shares of Series B Preferred Stock; and approximately $27,000
in cash. In addition, Anicom repaid approximately $12,000 of Texcan
bank indebtedness upon closing.
In June 1998, the Company acquired substantially all of the assets and
assumed certain liabilities of Superior Cable & Supply, Inc.
("Superior"). Superior is a specialty distributor of multimedia wire
and cable products and has locations in Oklahoma, Arkansas, Louisiana
and Texas. The purchase price consisted of $3,044 in cash and common
stock. In addition, the Company assumed and repaid approximately $686
of bank indebtedness.
5
<PAGE>
Anicom, Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(Unaudited)
4. Acquisitions, continued
In March 1998, the Company acquired substantially all of the assets and
assumed certain liabilities of Yankee Electronics Inc. ("Yankee") and
Optical Fiber Components Inc. ("OFCI"). Yankee and OFCI are specialty
distributors of multimedia wire, cable and fiber optic cable and
accessories located in New Hampshire and Virginia, respectively. The
purchase price for these acquisitions consisted of $3,800 in cash and
common stock. In addition, the Company assumed approximately $255 of
Yankee and OFCI debt that was paid at closing.
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.
5. Stockholder Rights Plan
During the first quarter of 1999, the Company adopted a stockholder
rights plan (the "Rights Plan"). Under the Rights Plan, preferred stock
purchase rights ("Rights") were distributed to stockholders of record
as of March 31, 1999, at the rate of one Right for each outstanding
share of the Company's common stock. Generally, the Rights will not be
triggered unless a person or group acquires 15% or more of the
Company's common stock or announces a tender offer upon consummation of
which such person or group would own 15% or more of the common stock.
Each Right, when exercisable, entitles the holder to purchase shares of
the Company's common stock at 50% of the current market price. If the
Company is acquired through a merger or other business combination
transaction, or 50% or more of the Company's assets or earning power is
sold, each right will entitle the holder to purchase the surviving
company's common stock at 50% of the current market price. The Rights
will expire in ten years unless earlier redeemed or terminated. The
Company generally may amend the Rights or redeem the Rights at $0.01
per Right at any time prior to the time a person or group has acquired
15% of the Company's common stock.
6
<PAGE>
Anicom, Inc.
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
(Unaudited)
6. Supplemental Cash Flow Information
The following summarizes non-cash investing and financing activities
for the three months ended March 31, 1998. For the three months ended
March 31, 1999 there were no material non-cash investing or financing
activities. Non-cash activity related to acquisitions includes initial
amounts estimated and any subsequent changes to those initial
estimates.
March 31,
1998
---------
Acquisitions:
Fair value of assets acquired $ 9,668
Acquisition liabilities and costs (250)
Liabilities assumed (6,114)
Common stock issued (1,554)
--------
Cash paid 1,750
Less: cash acquired (93)
--------
Net cash paid for acquisitions $ 1,657
========
7. Recent Pronouncements
During the second quarter of 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"), which will be effective for the Company's fiscal year 2000.
This statement establishes accounting and reporting standards requiring
that every derivative instrument, including certain derivative
instruments imbedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. The
statement also requires that changes in the derivative's fair value be
recognized in earnings unless specific hedge accounting criteria are
met. Management does not anticipate that SFAS No.133 will have a
material impact on the Company's financial statements.
7
<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 Ended
March 31,
1999 1998
------------- ------------
Income Statement Data:
Net sales 100.0% 100.0%
Cost of goods sold 77.8 77.8
------------- ------------
Gross profit 22.2 22.2
------------- ------------
Operating expenses and other:
Selling expenses 8.9 9.1
General and administrative expenses 8.5 8.6
------------- ------------
Operating income 4.8 4.6
Interest expense (1.1) (0.2)
Interest income __ __
------------- ------------
Income before income taxes 3.8 4.4
Income taxes 1.5 1.7
------------- ------------
Net income 2.3 2.6
Less: Dividend on preferred stock (0.1) __
------------- ------------
Net income available to common stockholders 2.2% 2.6%
============= ============
- ------------------
Note: Percentages may not sum due to rounding.
Results of Operations for the three months ended March 31, 1999 compared to the
three months ended March 31, 1998
Net sales for the quarter ended March 31, 1999 increased to a record
$137.2 million, a 34.4% increase over net sales of $102.1 million in the first
quarter of 1998. The significant increase is primarily attributable to
acquisitions coupled with internal growth, which has led to new customers, new
products, increased market share, expanded market penetration and increased
volume with existing customers. For the three months ended March 31, 1999, net
income and diluted earnings per share were $3.1 million or $0.12 per share
compared to $2.7 million or $0.11 per share for the three months ended March 31,
1998.
Anicom's gross profit for the three months ended March 31, 1999
increased by $7.8 million or 34.4% to $30.5 million versus $22.7 million for the
three months ended March 31, 1998. This increase resulted from Anicom's acquired
sales volume and internal growth. As a percentage of net sales, gross profit was
22.2% for the three months ended March 31, 1999 and 1998. 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 which have
historically had lower margin product offerings. Management continues to work to
mitigate the impact of these historically lower gross margins by increasing the
depth and breadth of products offered at these locations and by continuing to
leverage our purchasing volume with vendors.
8
<PAGE>
Selling expenses as a percentage of net sales improved from 9.1% of net
sales for the three months ended March 31, 1998 to 8.9% of net sales for the
three months ended March 31, 1999. These improvements resulted primarily from
the Company continuing to realize operating leverage from its growth and
acquisitions and conforming the selling incentive programs of acquired companies
with those of Anicom. Selling expenses increased by $3.0 million for the three
months ended March 31, 1999 compared to the same period in 1998. This increase
occurred in conjunction with the Company's increase in net sales and the
increase in sales headcount resulting from the Company's acquisitions and
internal growth.
General and administrative expenses as a percentage of net sales,
improved to 8.5% for the three months ended March 31, 1999 from 8.6% for the
same period in 1998. This improvement relates to the continued reduction of
acquired companies' overhead costs as the Company further realized operating
leverage from its acquisition-based integrated growth strategy. The impact of
this continued reduction of overhead costs was offset by $365,000 of additional
costs incurred to settle certain lease and labor obligations in connection with
the divestiture of the Company's Broadband division. General and administrative
expenses increased from $8.8 million for the three months ended March 31, 1998
to $11.6 million for the three months ended March 31, 1999. The Company's
acquisitions during the first nine months of 1998, led to these increases.
For the three months ended March 31, 1999 interest expense increased to
$1.5 million compared to $230,000 for the same period in 1998. This is primarily
a result of the Company's increased borrowings under its credit facility to fund
the cash consideration and debt payoff related to acquisitions, and to meet the
increased working capital requirements associated with sales growth experienced
during the last three quarters of 1998 and the first quarter of 1999.
The provision for income taxes increased to $2.0 million for the three
months ended March 31, 1999 from $1.8 million for the same period in 1998. The
increase is a result of the increase in income before income taxes. For three
months ended March 31, 1999 the provision for income taxes, as a percentage of
income before income taxes, decreased to 39.3% from 40.0% during the same period
in 1998.
Net income for the three months ended March 31, 1999 was $3.1 million
as compared to $2.7 million for the same period in 1998. For the three months
ended March 31, 1999 basic and diluted earnings per common share were $.12 per
share, compared to $.12 and $.11 per share, respectively for the same period in
1998. Diluted weighted average shares increased approximately 13.5% from the
same period in 1998. Excluding the impact of additional costs incurred to settle
certain lease and labor obligations in connection with the divestiture of the
Company's Broadband division, management believes that basic and diluted
earnings per share would have been $0.13 for the three months ended March 31,
1999.
Liquidity and Capital Resources
Management believes that cash flows from operations and borrowings
available under 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 that it believes cannot be funded
from the sources discussed below. 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 line of credit.
9
<PAGE>
In November 1998, the Company entered into an agreement with its
lenders to increase its revolving credit facility (the "Facility") from $100
million to $120 million. The Facility provides for borrowings of up to $15
million in currencies other than U.S. dollars. It also provides for various
interest rate options, determined from time to time, based upon the Company's
interest coverage and leverage ratios, as defined, and either the agent's
Domestic Rate less .25% to .50% or LIBOR plus .5% to 1.0%. The Facility expires
in June 2001 with extensions available at the Company's option through June
2003. The Facility contains certain financial covenants, including minimum
tangible net worth, current, interest coverage and debt to earnings ratios.
As of March 31, 1999, Anicom had working capital of approximately
$146.3 million as compared to $135.1 million as of December 31, 1998. At March
31, 1999, amounts outstanding under the Facility were approximately $91.4
million.
During the three months ended March 31, 1999 cash flows from operating
activities used $5.2 million of cash compared to $10.3 million used during the
same period in 1998. This decrease relates primarily to reductions in inventory
levels resulting from significant increases in sales during the latter part of
the first quarter of 1999 and the continued inventory consolidation of acquired
companies as these companies are integrated and brought onto the Company's
common information system. This decrease was offset in part by an increased
investment in receivables resulting from a significant increase in sales during
the latter part of the first quarter of 1999. Operating cash flow was also used
to fund acquisition-related activities, including expanding product offerings
and funding business integration liabilities.
During the three months ended March 31, 1999 cash flows from investing
activities generated approximately $280,000 compared to using approximately $1.9
million during the same period in 1998. During the first quarter of 1998, Anicom
completed the acquisitions of Yankee Electronics and Optical Fiber Components.
Cash paid for these acquisitions accounted for the majority of cash used for
investing activities the first quarter of 1998. During the first quarter of 1999
the Company received a favorable purchase price adjustment from a previous
acquisition which was offset in part by investments in property and equipment.
During the three months ended March 31, 1999 cash flows from financing
activities generated approximately $5.4 million compared to $12.4 million during
the same period in 1998. The decrease relates to a reduction in borrowings under
the Facility in the first quarter of 1999 compared to the first quarter of 1998.
During 1998 borrowings under the Facility were made to fund increased working
capital requirements and acquisition activity. During 1999 working capital
requirements have decreased when compared to 1998 due to investments made during
previous periods.
Inflation
Although the operations of Anicom are influenced by general economic
conditions, Anicom does not believe that inflation had a material effect on the
results of the operations during the first quarter of 1999.
Seasonality
In the fourth quarter, Anicom has historically experienced, and expects
to experience in future years, a modest decrease in the level of activity among
many of its customers around the Thanksgiving and Christmas holidays.
10
<PAGE>
Year 2000 Readiness and Related Risks
The Year 2000 issue is the result of computer programs being unable to
interpret dates beyond the year 1999, which could cause a system failure or
other computer errors, leading to disruptions in operations. A task force has
been established by the Company that includes information systems, accounting
and legal personnel of the Company to assess the Company's state of readiness
and to implement an action plan to correct any deficiencies of the Company. To
date, the Company has identified the following areas to assess as to Year 2000
readiness: (1) distribution and financial information systems, (2) supplier,
third-party relationships and customers, and (3) physical facility systems. For
each of these areas, the Company has established the following procedures to
assess its Year 2000 readiness: (a) identifying systems potentially susceptible
to Year 2000 compliance issues, (b) developing and implementing corrective
actions and (c) testing to ensure compliance. Management believes that the
Company is devoting the necessary resources to identify and resolve any
significant Year 2000 issues in a timely manner.
DISTRIBUTION AND FINANCIAL INFORMATION SYSTEMS: As part of its
integrated growth strategy, Anicom completed the implementation of a new
information technology system in the fourth quarter of 1997. The information
system integrates sales, inventory control and purchasing, warehouse management,
financial control and internal communications while providing real-time
monitoring of inventory levels, shipping status and other key operational and
financial benchmarks at all of Anicom's sales and distribution locations. In
implementing this system, management received written confirmation from vendors
that the enterprise system software, hardware and network operating systems
included in this information system are Year 2000 compliant. Testing of these
systems has confirmed this conclusion.
Total costs incurred to purchase the necessary hardware, software,
licenses, consulting services and training associated with the installation,
modification and implementation of the system were approximately $3.6 million.
Of this amount, approximately $2.7 million was expensed with the remainder being
capitalized and depreciated over future periods. The Company does not anticipate
incurring any material additional costs with respect to Year 2000 readiness of
this information technology system.
Texcan's Canadian financial and distribution systems were upgraded to
become Year 2000 compliant during the first quarter of 1999 at a cost of
approximately $50,000. Texcan's Canadian systems will be converted to the
Company's new information technology system sometime subsequent to the second
quarter of 1999.
SUPPLIERS, THIRD-PARTY RELATIONSHIPS AND CUSTOMERS: The Company relies
on third party suppliers for inventory, utilities, transportation and other key
supplies and services. Interruption of supplier operations due to Year 2000
issues could adversely affect the Company's operations. The Company's payroll
outsourcing service has confirmed that the systems used to process the Company's
payroll are year 2000 compliant. The Company has begun evaluating the Year 2000
readiness of its other suppliers through a survey distributed in the fourth
quarter of 1998. Responses are being evaluated and second requests will be
mailed for non-responses. Unsatisfactory responses or non-responses from
critical suppliers will be evaluated on a case by case basis in an attempt to
mitigate risk to the Company. These activities are intended to provide a
reasonable means of managing risk, but cannot eliminate the potential for
disruption due to third-party failure.
11
<PAGE>
The Company does not currently have any formal information concerning
the Year 2000 readiness of its customers, and given the breadth and diversity of
its customer base, the Company is only making a formal inquiry of selected
customers. The Company believes that the impact of isolated occurrences
resulting from any of its customers failing to be Year 2000 compliant would not
be materially adverse to the Company. However, widespread interruptions to
customers serviced by the Company could result in reduced sales, increased
inventory or receivable levels and a reduction in cash flow.
The Company has not incurred, and does not believe it will incur,
material costs related to any inquiry as to the Year 2000 readiness of its
suppliers, other third party relationships and customers.
PHYSICAL FACILITY SYSTEMS: The Company is continuing to evaluate the
Year 2000 readiness of its physical facility systems, such as phone systems,
power, security systems, heating, ventilation and air conditioning systems, etc.
The Company expects to complete the assessment phase of its physical facility
systems during the second quarter of 1999 with remedial action planned for the
third quarter of 1999.
While the Company and many other companies believe their efforts to
address the Year 2000 issues will be successful in avoiding any material adverse
effect on the Company's results of operations or financial condition, it
recognizes that a most reasonably likely worst case Year 2000 scenario would
involve the failure of a third party or a component of the infrastructure,
including national banking systems, electrical power, transportation facilities,
communication systems and governmental activities, to conduct their respective
operations after 1999 such that the Company's ability to obtain and distribute
its products and services would be limited for a period of time. If this were to
occur, it would likely cause temporary financial losses and an inability to
provide products and services to customers, and there may be no practical
alternative to some of these resources available to the Company.
The Company is currently implementing contingency plans to be carried
out in the event of an external Year 2000 failure of vendors that are critical
to normal information systems business operations. Management estimates these
plans will be completed by the third quarter of 1999. These plans include both
internal and external resources and facilities for off-site computer processing
and personnel relocation in the event of power or data communication failure
that results in the inability to utilize an existing company facility.
The foregoing assessment of the impact of the Year 2000 issue on the
Company is based on management's estimates at the present time. The assessment
is based upon numerous assumptions as to future events. There can be no
assurance that these estimates and assumptions will provide accurate, and the
actual results could differ materially. To the extent that Year 2000 issues
cause significant delays in sales, increased inventory or receivable levels or
cash flow reductions, the Company's results of operations and financial
condition could be materially adversely affected.
12
<PAGE>
Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995
In compliance with the Safe Harbor Provision of the Private Securities
Litigation Reform Act of 1995, the Company notes the statements contained in
this quarterly report that are not historical facts may be forward-looking
statements that are subject to a variety of risks and uncertainties more fully
described in Anicom's filings with the Securities and Exchange Commission
including, without limitation, those described under "Risk Factors" in Anicom's
Registration Statement on Form S-3 (File No. 333-61715), in Anicom's Annual
Report on Form 10-K for the year ended December 31, 1998, and in this quarterly
report. Whenever possible, the Company has identified these forward looking
statements by words such as "believe," "feel," "anticipate," "expect" and
similar expressions used in this quarterly report as they relate to Anicom or
its management. Anicom wishes to caution readers of this quarterly report that
these risks and uncertainties could cause Anicom's actual results in 1999 and
beyond to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, Anicom. These risks and uncertainties
include, without limitation, Anicom's limited operating history on which
expectations regarding its future performance can be based, general economic and
business conditions affecting the industries of Anicom's customers in existing
and new geographical markets, competition from, among others, national and
regional distributors that have greater financial, technical and marketing
resources and distribution capabilities than Anicom, the availability of
sufficient capital, Anicom's ability to identify the right product mix and to
maintain sufficient inventory to meet customer demand, Anicom's ability to
successfully acquire and integrate the operations of additional businesses and
Anicom's ability to operate effectively in geographical areas in which it has no
prior experience.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in foreign exchange
rates. The Company transacts certain of its business in Canadian dollars. These
transactions expose the Company to fluctuations in exchange rates, which could
have a material adverse effect on the financial results of the Company.
13
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The following exhibits are filed with this report:
Exhibit No.
-----------
4.1 Rights Agreement dated as of March 17, 1999 between
Anicom, Inc. and Harris Trust and Savings Bank, which
includes as Exhibit A the Form of Certificate of
Designations, as Exhibit B the Form of Rights
Certificate and as Exhibit C the Summary of Rights to
Purchase Preferred Stock.*
27 Financial data schedule
* Previously filed as an Exhibit to Anicom's Registration
Statement on Form 8-A, dated March 21, 1999.
(b) Reports on Form 8-K.
The following Report on 8-K was filed during the first
quarter of 1999
Form 8-K, dated March 18, 1999 (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.
Dated: May 14, 1999 By: /S/ DONALD C. WELCHKO
------------------------------
Donald C. Welchko
Vice President and
Chief Financial Officer
15
<PAGE>
ANICOM, INC.
INDEX TO EXHIBITS
Exhibit No.
-----------
4.1 Rights Agreement dated as of March 17, 1999 between
Anicom, Inc. and Harris Trust and Savings Bank, which
includes as Exhibit A the Form of Certificate of
Designations, as Exhibit B the Form of Rights
Certificate and as Exhibit C the Summary of Rights to
Purchase Preferred Stock.*
27 Financial data schedule
* Previously filed as an Exhibit to Anicom's Registration
Statement on Form 8-A, dated March 21, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDING MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFRENCE TO SUCH FORM 10-Q.
</LEGEND>
<CIK> 0000935802
<NAME> ANICOM, INC.
<MULTIPLIER> 1,000
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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<CASH> 3,061
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<RECEIVABLES> 132,789
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20,000
0
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<OTHER-EXPENSES> 23,801
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<INCOME-TAX> 2,026
<INCOME-CONTINUING> 3,123
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<EPS-PRIMARY> .12
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