U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities and Exchange
Act of 1934
For the quarterly period ended September 30, 1997
[ ] Transition report under Section 13 or 15(d) of the Securities and Exchange
Act of 1934
For the transition period from ___ to ___
COMMISSION FILE NUMBER 33-97876
ILLUMINET HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 36-4042177
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4501 Intelco Loop, Lacey, Washington 98503
(Address of principal executive office) (Zip code)
(360) 493-6000
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 past 90 days. Yes \X\ No \_\
At September 30, 1997, 5,330,027 shares of common stock, $0.01 per share par
value, and 2,460 shares of Series A convertible preferred stock, $0.01 per share
par value, were outstanding.
Transitional Small Business Disclosure Format (check one): Yes \_\ No \X\
<PAGE>
ILLUMINET HOLDINGS, INC.
INDEX TO 10-QSB FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1997
Page
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Illuminet Holdings, Inc. Consolidated Balance Sheet -
September 30, 1997 2
Illuminet Holdings, Inc. Consolidated Statements of Income -
Nine months and three months ended September 30, 1997 and 1996 4
Illuminet Holdings, Inc. Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements - September 30, 1997 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS 8
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 15
ITEM 2: CHANGES IN SECURITIES 15
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS 15
ITEM 5: OTHER INFORMATION 15
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
ILLUMINET HOLDINGS, INC.
Consolidated Balance Sheet
ASSETS September 30, 1997
------ ------------------
Current assets:
Cash and cash equivalents $10,788,694
Accounts receivable, less allowance
for doubtful accounts of $839,000 27,917,659
Prepaid expenses and other 523,287
----------
Total current assets 39,229,640
----------
Property and equipment:
Land 911,765
Building and leasehold improvements 6,918,014
Equipment and furniture 2,736,443
Network assets 29,384,516
Capitalized network costs 8,242,658
Computer hardware and software 18,130,362
----------
66,323,758
Less: Accumulated depreciation and amortization 31,139,237
----------
Total property and equipment 35,184,521
----------
Computer software product costs, less
accumulated amortization of $1,083,000 1,775,960
Other assets, net of accumulated
amortization of $96,975 2,678,926
----------
Total assets $78,869,047
==========
See accompanying notes to consolidated financial statements.
2
<PAGE>
ILLUMINET HOLDINGS, INC.
Consolidated Balance Sheet, Continued
LIABILITIES AND SHAREHOLDERS' EQUITY September 30, 1997
- ------------------------------------ ------------------
Current liabilities:
Trade accounts payable $ 6,553,790
Accrued expenses 2,322,747
Due to customers 20,981,477
Current portion of long-term debt 2,268,758
----------
Total current liabilities 32,126,772
----------
Long-term debt, less current portion 18,751,336
----------
Shareholders' equity:
Illuminet Holdings, Inc. Series A Convertible Preferred
Stock, par value $.01 per share, authorized 4,416
shares, issued and outstanding 2,460 25
Illuminet Holdings, Inc. Preferred Stock, par value $.01
per share, authorized 95,584 shares, none issued
or outstanding -
Illuminet Holdings, Inc. Common Stock, par value $.01
per share, authorized 12,000,000 shares, issued and
outstanding 5,330,027 53,300
Additional paid-in capital 11,295,565
Retained earnings 16,642,049
----------
Total shareholders' equity 27,990,939
----------
Total liabilities and shareholders' equity $78,869,047
==========
See accompanying notes to consolidated financial statements.
3
<PAGE>
ILLUMINET HOLDINGS, INC.
Consolidated Statements of Income
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Revenues $14,454,941 $11,464,336 $38,840,032 $27,827,910
---------- ---------- ---------- ----------
Expenses:
Operating 3,307,890 2,600,475 9,221,910 7,233,698
Selling, general
and administrative 2,504,615 2,188,914 7,211,516 6,160,592
Depreciation and
amortization 1,562,177 1,670,436 4,656,918 4,367,816
Network operating
expenses 4,361,778 2,625,708 11,147,604 6,480,217
Corporate realignment - - - 350,067
---------- ---------- ---------- ----------
Total expenses 11,736,460 9,085,533 32,237,948 24,592,390
---------- ---------- ---------- ----------
Operating income 2,718,481 2,378,803 6,602,084 3,235,520
Interest income 190,192 121,542 451,129 331,399
Interest expense (400,236) (362,688) (1,161,066) (920,765)
---------- ---------- ---------- ----------
Income before income
taxes 2,508,437 2,137,657 5,892,147 2,646,154
Income tax expense 52,531 - 120,205 -
---------- ---------- ---------- ----------
Net income $ 2,455,906 $ 2,137,657 $ 5,771,942 $ 2,646,154
========== ========== ========== ==========
Weighted average
common shares 5,287,478 5,161,152 5,278,504 4,847,019
========== ========== ========== ==========
Primary earnings per
common share $ .46 $ 0.41 $ 1.09 $ 0.55
========== ========== ========== ==========
Fully diluted earnings
per common share $ .40 $ 0.38 $ .96 $ 0.55
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
<PAGE>
<PAGE>
ILLUMINET HOLDINGS, INC.
Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
1997 1996
---- ----
Cash flows from operating activities:
Cash received from customers $128,325,872 $114,617,300
Interest received 443,528 332,479
Cash paid to customers, suppliers
and employees (120,169,277) (103,139,122)
Income taxes paid (196,500) -
Income tax refund - 173,795
Interest paid (1,485,389) (1,034,555)
----------- -----------
Net cash provided by operating activities 6,918,234 10,949,897
----------- -----------
Cash flows from investing activities:
Cash acquired in acquisition of Independent
Telecommunications Network, Inc. - 613,086
Investment in Authentix, Inc. - (650,000)
Capital expenditures (7,143,545) (4,623,228)
----------- -----------
Net cash used by investing activities (7,143,545) (4,660,142)
----------- -----------
Cash flows from financing activities:
Principal payments on notes payable (1,364,343) (881,400)
Payments to dissenting stockholders (136,159) (1,198,695)
----------- -----------
Net cash used by financing activities (1,500,502) (2,080,095)
----------- -----------
Net increase(decrease)in cash and cash equivalents (1,725,813) 4,209,660
Cash and cash equivalents at:
Beginning of year 12,514,507 6,992,206
----------- -----------
End of period $ 10,788,694 $ 11,201,866
=========== ===========
See accompanying notes to consolidated financial statements.
5
<PAGE>
(1) BASIS OF PRESENTATION
The consolidated financial statements of Illuminet Holdings, Inc.(formerly USTN
Holdings, Inc.), and its wholly-owned subsidiary Illuminet, Inc.,(collectively
referred to as "ILLUMINET") presented in this Form 10-QSB are unaudited and
reflect, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of ILLUMINET's
financial position, results of its operations and its cash flows for each period
presented. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. ILLUMINET believes that the
disclosures made are adequate to make the information presented not misleading.
The results of the interim periods are not necessarily indicative of future
results. These consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto included in
ILLUMINET's latest annual report on FORM 10-KSB.
(2) EARNINGS PER COMMON SHARE
Earnings per share is computed using the weighted average number of common
shares and dilutive common share equivalents outstanding during each period.
Other potentially dilutive securities include Illuminet Holdings, Inc. Series A
Preferred Stock and convertible redeemable subordinated debentures, which if
dilutive, are included in the calculation of fully diluted earnings per share.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share", which is required to be adopted on December 31, 1997.
At that time, ILLUMINET will be required to change the method currently used to
compute earnings per share and to restate all prior periods. The impact of
Statement 128 on the calculation of primary and fully diluted earnings per share
for the nine month and three month periods ended September 30, 1997 and 1996 is
not expected to be material.
(3) ACQUISITION
ILLUMINET was incorporated for the purpose of effecting the merger of U.S.
Intelco Holdings, Inc. ("U.S. Intelco") and Independent Telecommunications
Network, Inc. ("ITN") that was consummated effective February 23, 1996
("Merger"). The Merger was accounted for as a purchase business combination in
accordance with generally accepted accounting principles with U.S. Intelco
designated as the acquiring company. The results of ITN's operations are
included in the consolidated financial statements prospectively from the date of
the Merger.
<PAGE>
Assuming that the acquisition of ITN had taken place on January 1, 1996,
unaudited pro forma results of operations from continuing operations for the
nine months ended September 30, 1996 would have been as follows:
Revenues $31,637,137
==========
Net income $ 2,559,674
==========
Income per common share $ 0.50
==========
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
BASIS OF PRESENTATION
Illuminet Holdings, Inc. (formerly USTN Holdings, Inc.), and its wholly-owned
subsidiary Illuminet, Inc., (collectively referred to as "ILLUMINET") were
incorporated in the State of Delaware on August 2, 1995, to effect the merger of
U.S. Intelco Holdings, Inc. ("U.S. Intelco") and Independent Telecommunications
Network, Inc. ("ITN"). In accordance with terms of the merger, U.S. Intelco and
ITN merged with and into USTN Services, Inc. ("USTN Services") on February 23,
1996 (the "Merger"). USTN Services subsequently changed its name to Illuminet,
Inc. The Merger was accounted for as a purchase business combination with U.S.
Intelco designated as the acquiring company. The results of ITN's operations are
included in the consolidated financial statements prospectively from the date of
the Merger. The pro forma information presented in this Management's Discussion
and Analysis or Plan of Operations reflects the combined activities of U.S.
Intelco and ITN as if the Merger had occurred effective January 1, 1996.
RESULTS OF OPERATIONS
Nine months Ended September 30, 1997 and 1996
REVENUES. The following table summarizes ILLUMINET's services and the effect of
the Merger on ILLUMINET revenues:
Change
1997 1996 $ %
---- ---- --- ---
Billing-and-collection
services $ 5,107,064 $ 6,371,354 $(1,264,290) (20%)
Data base services 6,586,817 5,504,887 1,081,930 20%
Network usage measurement 2,548,200 521,632 2,026,568 389%
Other services 107,013 723,058 (616,045) (85%)
---------- ---------- ---------- ---
14,349,094 13,120,931 1,228,163 9%
---------- ---------- ---------- ---
Services acquired by Merger:
- ---------------------------
Intelligent network
services 20,486,351 15,799,884 4,686,467 30%
Wireless services 4,004,587 2,716,322 1,288,265 47%
---------- ---------- ---------- ---
24,490,938 18,516,206 5,974,732 32%
---------- ---------- ---------- ---
Pro forma revenue 38,840,032 31,637,137 7,202,895 23%
Financial statement
reporting adjustment
for operations prior
to the Merger - (3,809,227) 3,809,227 100%
---------- ---------- ---------- ---
Revenues per statements
of income $38,840,032 $27,827,910 $11,012,122 40%
========== ========== ========== ===
Billing-and-collection services revenues for 1997 decreased primarily as a
result of a $1,356,429, or 26%, decrease in clearinghouse product line revenues.
This decrease reflects a fourth quarter 1996 price decrease offset by a 9%
increase in messages processed from 49.7 million in 1996 to 54.3 million in
1997, due to the addition of a large customer in the second quarter of 1996.
Although clearinghouse volumes in 1997 are higher than in 1996, revenues are
expected to remain below 1996 levels due to the price decrease described above.
Data base services revenues increased, primarily reflecting an increase in
Calling Name Delivery ("CNAM") product line revenues. CNAM revenues increased
$1,057,765, or 271%, in 1997, reflecting growing market acceptance of the
service introduced in 1995. CNAM queries increased 147% from 81.6 million in
1996 to 201.5 million in 1997.
Network usage measurement revenues derived from the sale of ILLUMINET's SS7
network traffic tracking and measurement software products AMAT7(R)and
CDR7(R)increased in 1997 due to finalization of sales during the period. Network
usage measurement product sales have a long sales cycle with each individual
sale normally contributing significant revenue to the product line.
Other services revenues decreased primarily due to the termination of
ILLUMINET's contract to provide voice messaging services for the State of
Washington in September, 1996. Voice messaging contributed revenues of $548,520
for the 1996 period.
Intelligent network services revenues for 1997 increased primarily as a result
of a $2,979,560, or 90%, increase in trunk signaling and related service
revenues, reflecting new customer growth. Network connectivity product line
revenues increased $2,022,063, or 35%, from growth in chargeable customer links.
Offsetting the revenue growth in these product lines, LIDB switch and transport
revenues decreased $586,157, or 19%, in 1997 due to lower query volumes and
reduced prices brought on by competition.
Wireless services revenue increased primarily due to a $958,163, or 39%,
increase in 1997 in cellular switch and transport revenues. The increase
reflects customer growth and increased utilization of the network with message
volumes increasing 91% from 872.9 million for the 1996 period to 1,666.2 million
for the comparable 1997 period.
EXPENSES. The following table summarizes ILLUMINET's expenses and the effect of
the Merger on ILLUMINET expenses:
Change
1997 1996 $ %
---- ---- --- ---
Operating $ 9,221,910 $ 7,589,499 $ 1,632,411 22%
Selling, general
and administrative 7,211,516 6,998,285 213,231 3%
Depreciation and
amortization 4,656,918 4,816,765 (159,847) (3%)
Network operating 11,147,604 8,185,646 2,961,958 36%
Corporate realignment - 700,875 (700,875) (100%)
---------- ---------- ---------- ---
Pro forma expenses 32,237,948 28,291,070 3,946,878 14%
Financial statement
reporting adjustment
for operations prior
to the Merger - (3,698,680) 3,698,680 100%
---------- ---------- ---------- ---
Expenses per statements
of income $32,237,948 $24,592,390 $ 7,645,558 31%
========== ========== ========== ===
ILLUMINET's primary costs are network operating expenses, which are primarily
comprised of leased network connectivity charges incurred to establish and
maintain customer connectivity to the company's Signaling System 7 ("SS7")
network, followed by personnel costs, depreciation and amortization of hardware,
software and facilities assets, and software maintenance expenses.
Operating expenses increased in 1997 primarily to support the increased use and
expansion of Illuminet's SS7 network. The increase was comprised mainly of
higher personnel expenses related to new positions, and increased maintenance
costs for new hardware and software.
Selling, general and administrative expenses increased from 1996 levels due to
higher personnel expenses related to new positions, increased travel expenses,
and new marketing material costs related to increased sales and marketing
efforts.
Depreciation and amortization expenses were comparable for 1996 and 1997 but are
expected to increase with the placing into service of new network equipment.
Network operating expenses increased due to increased leased network
connectivity, link, and LATA access charges incurred to support increased use
and expansion of, and customer connectivity to, the SS7 network.
Corporate realignment expenses were comprised primarily of non-recurring
Merger-related severance expenses incurred in the first quarter of 1996.
INTEREST INCOME/INTEREST EXPENSE. Interest income increased by $119,730, or 36%,
from $331,399 for the 1996 period to $451,129 for the comparable 1997 period.
This increase resulted primarily from an increase in available cash balances
over the two periods resulting from the Merger.
On a pro forma basis, interest income increased by $102,325, or 29%, from
$348,804 for the 1996 period to $451,129 for the 1997 period.
Interest expense increased $240,301, or 26%, from $920,765 for the 1996 period
to $1,161,066 for the comparable 1997 period. The increase reflects two months
of combined interest expense resulting from the Merger and a higher aggregate
outstanding debt balance resulting from an additional loan for a total of
approximately $2.7 million obtained from Rural Telephone Finance Cooperative in
December, 1996.
On a pro forma basis, interest expense was comparable for the 1996 and 1997
periods.
INCOME TAXES. ILLUMINET has Federal income tax net operating loss carryforwards
available to offset future taxable income for Federal income tax purposes
totaling $20,964,492. These carryforwards expire in various amounts from 2006
through 2011. ILLUMINET's ability to utilize such net operating loss
carryforwards is dependent on ILLUMINET's ability to generate sufficient taxable
income from its operations. The current 1997 tax provision is comprised of
Federal alternative minimum taxes which cannot be completely offset by tax loss
carryforwards.
EARNINGS
ILLUMINET's net income increased $3,125,788, or 118%, from $2,646,154 for the
nine months ended September 30, 1996, to $5,771,942 for the comparable 1997
period. This increase primarily reflects an increase in network usage
measurement revenues, the effect of non-recurring corporate realignment costs
incurred during the 1996 period, and the impact of the post-Merger operational
efficiencies that have reduced costs as a percentage of revenues.
On a pro forma basis, ILLUMINET's net income increased $3,212,268, or 125%, from
$2,559,674 for the nine months ended September 30, 1996, to $5,771,942 for the
comparable 1997 period primarily resulting from positive revenue trends and the
completion of the Merger in 1996.
ILLUMINET believes that it will continue to have positive earnings in the future
through new product and customer diversification and expansion into related
telecommunications markets. ILLUMINET anticipates that increased expenditures in
the development of services and products will continue over the next several
years. While it is anticipated that the existing primary services and products
will continue to be profitable, overall profitability in the immediate future
could be negatively impacted by delays in obtaining new product revenues coupled
with related increases in new product start-up costs. A general downward
pressure on price caused by increased competition may also negatively impact
profitability.
Three Months Ended September 30, 1997 and 1996
REVENUES. The following table summarizes revenues for ILLUMINET's services:
Change
1997 1996 $ %
---- ---- --- ---
Billing-and-collection
services $ 1,477,697 $ 2,148,910 $(671,213) (31%)
Data base services 2,436,313 1,974,693 461,620 23%
Network usage measurement 851,495 521,632 329,863 63%
Other services 20,626 180,237 (159,611) (89%)
---------- ---------- --------- ---
4,786,131 4,825,472 (39,341) (1%)
---------- ---------- --------- ---
Services acquired by Merger:
- ---------------------------
Intelligent network
services 8,003,876 5,408,223 2,595,653 48%
Wireless services 1,664,934 1,230,641 434,293 35%
---------- ---------- --------- ---
9,668,810 6,638,864 3,029,946 46%
---------- ---------- --------- ---
Revenues per statements
of income $14,454,941 $11,464,336 $2,990,605 26%
========== ========== ========= ===
Billing-and-collection services revenues for 1997 decreased primarily as a
result of a $702,445, or 39%, decrease in clearinghouse product line revenues.
This decrease reflects a fourth quarter 1996 price decrease. Messages processed
were comparable for the two periods.
Data base services revenues increased, reflecting an increase in CNAM revenues.
CNAM revenues increased $484,707, or 241%, in 1997, reflecting growing market
acceptance of the service introduced in 1995. CNAM queries increased 134% from
34.1 million in 1996 to 79.7 million in 1997.
Network usage measurement revenues derived from the sale of ILLUMINET's SS7
network traffic tracking and measurement software products AMAT7(R)and
CDR7(R)increased in 1997 due to finalization of sales during the period. Network
usage measurement product sales have long sales cycle with each individual sale
normally contributing significant revenue to the product line.
Other services revenues decreased primarily due to the termination of
ILLUMINET's contract to provide voice messaging services for the State of
Washington in September, 1996. Voice messaging contributed revenues of $134,815
for the 1996 period.
Intelligent network services revenues for 1997 increased primarily as a result
of a $1,329,018, or 113%, increase in trunk signaling and related service
revenues, reflecting new customer growth. Network connectivity product line
revenues increased $1,472,171, or 78%, from growth in chargeable customer links.
Wireless services revenue increased primarily due to a $247,947, or 24%,
increase in 1997 in cellular switch and transport revenues. The increase
reflects customer growth and increased utilization of the network with message
volumes increasing 79% from 399.9 million for the 1996 period to 714.8 million
for the comparable 1997 period.
EXPENSES. The following table summarizes ILLUMINET's expenses:
Change
1997 1996 $ %
---- ---- --- ---
Operating $ 3,307,890 $2,600,475 $ 707,415 27%
Selling, general
and administrative 2,504,615 2,188,914 315,701 14%
Depreciation and
amortization 1,562,177 1,670,436 (108,259) (6%)
Network operating 4,361,778 2,625,708 1,736,070 66%
---------- --------- --------- ---
Expenses per statements
of income $11,736,460 $9,085,533 $2,650,927 29%
========== ========= ========= ===
Operating expenses increased primarily to support the increased use and
expansion of Illuminet's SS7 network. The increase was comprised of increased
personnel expenses related to new positions, and increased maintenance costs for
new hardware and software.
Selling, general and administrative expenses increased from 1996 levels due to
higher personnel expenses related to new positions, increased travel expenses,
and new marketing material costs related to increased sales and marketing
efforts.
Depreciation and amortization expenses were comparable for 1996 and 1997 but are
expected to increase with the placing into service of new network equipment.
Network operating expenses increased due to increased leased network
connectivity, link, and LATA access charges incurred to support increased use
and expansion of, and customer connectivity to, the SS7 network.
INTEREST INCOME/INTEREST EXPENSE. Interest income increased by $68,650, or 56%,
from $121,542 for the three months ended September 30, 1996, to $190,192 for the
comparable 1997 period. This increase resulted primarily from an increase in
available cash balances over the two periods resulting from the Merger.
Interest expense increased $37,548, or 10%, from $362,688 for the three months
ended September 30, 1996 to $400,236 for the 1997 period. The increase reflects
a higher aggregate outstanding debt balance resulting from an additional loan
for a total of approximately $2.7 million obtained from Rural Telephone Finance
Cooperative in December, 1996.
EARNINGS
ILLUMINET's net income increased $318,249, or 15%, from $2,137,657 for the three
months ended September 30, 1996, to $2,455,906 for the comparable 1997 period.
This increase primarily reflects an increase in network usage measurement
revenues, and the impact of the post-Merger operational efficiencies that have
reduced costs as a percentage of revenues.
FORWARD LOOKING INFORMATION
ILLUMINET is including the following cautionary statement to make applicable and
take advantage of the new "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 for any forward-looking statement made by or on
behalf of, ILLUMINET. The factors identified in this cautionary statement are
important factors (but not necessarily all of the important factors) that could
cause actual results to differ materially from those expressed in any
forward-looking statement made by, or on behalf of, ILLUMINET.
Where any such forward-looking statement includes a statement of the assumptions
or basis underlying such forward-looking statement, ILLUMINET cautions that,
while it believes such assumptions or basis to be reasonable and makes them in
good faith, assumed facts or basis almost always vary from actual results, and
the differences between assumed facts or basis and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, ILLUMINET, or its management, expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
Taking into account the foregoing, the following are identified as important
factors that could cause actual results to differ materially from those
expressed in any forward-looking statement made by, or on behalf of, ILLUMINET:
a) Future operating results will be affected by the costs of continuing to
develop and expand ILLUMINET's business which may be higher than ILLUMINET's
expectations, and ILLUMINET may be required to raise additional capital or to
borrow funds to complete such activities. There can be no assurance that
additional funding will be available if such funding requirements exceed
existing financing arrangements.
b) ILLUMINET's advanced data base, billing and collection, and network services
are offered directly by other companies or groups of companies, many of which
are significantly larger and better financed than ILLUMINET. Future operating
results will be affected by ILLUMINET's ability to adjust to competitive
pressures impacting ILLUMINET's market acceptance or prices.
c) Many of ILLUMINET's customers are regulated directly by the Federal
Communications Commission or other state public utility commissions. Changes in
regulations, or in interpretation of existing regulations, may affect
ILLUMINET's current or planned product and service offerings.
d) ILLUMINET's SS7 network traffic tracking and measurement software products
were developed under ILLUMINET's patents in the United States and Canada. Future
operating results are subject to unforeseen events such as the cost, or failure,
to defend the validity of such patents.
LIQUIDITY AND CAPITAL RESOURCES
ILLUMINET relies on a combination of cash generated from operations, debt and
equity to fund service development and expansion activities. Currently,
ILLUMINET's operating activities are generating positive cash flows. However, as
ILLUMINET broadens its services and products to those requiring larger
investments coupled with longer periods before subsequent revenues are
generated, ILLUMINET believes there may be increased pressure on cash generated
from operations. ILLUMINET anticipates continued high levels of investment in
the development of new services and products over the next several years as
ILLUMINET processes increased volumes relating to its network, data base, and
billing-and-collection services, and broadens its product base to keep pace with
changing markets and customer needs.
ILLUMINET's working capital (current assets minus current liabilities) was
$7,102,868 as of September 30, 1997. ILLUMINET's cash and cash equivalent
balances included $4,682,000 required as working capital to service ILLUMINET's
clearinghouse customers. Such funds are received and disbursed on a monthly
basis. The increase in working capital of $2,440,642 from $4,662,226 at
September 30, 1996, reflects the increase in accounts receivable from increased
revenue and ILLUMINET's growing volumes in the clearinghouse program, and
reductions in liabilities assumed in the Merger. These positive changes were
offset by increased payables related to ILLUMINET's growing clearinghouse
program, and the increased current portion of long-term debt. ILLUMINET believes
that its existing cash balances, funds generated from its operations and
borrowings available under its existing credit agreements will be sufficient to
meet existing capital expenditure and working capital needs for the immediate
future.
ILLUMINET's expenditures for property and equipment were $7,143,545 for the nine
months ended September 30, 1997. Expenditures for property and equipment were
primarily for network equipment.
At September 30, 1997, ILLUMINET had a secured line of credit expiring August,
2001, with RTFC that permits ILLUMINET to borrow up to $7,300,000, not to exceed
80% of accounts receivable. There were no borrowings against the line of credit
at September 30, 1997. Additionally at September 30, 1997, ILLUMINET had
$5,188,007 of unused loan facilities established or committed with RTFC,
maturing in the years 2000 and 2001.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 2: CHANGES IN SECURITIES
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED TO BE FILED BY ITEM 601
OF REGULATION S-B
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the three months ended
September 30, 1997.
<PAGE>
SIGNATURES
In accordance with requirements of the Exchange Act, the Registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
ILLUMINET HOLDINGS, INC.
Date: November 7, 1997 By: /s/ Daniel E. Weiss
-----------------------------------
Daniel E. Weiss, Vice President - Finance
and Treasurer
(Principal Accounting Officer)
EXHIBIT 11
ILLUMINET HOLDINGS, INC.
Computation of Earnings Per Share
Three Months Ended Nine months Ended
September 30, September 30,
1997 1996 1997 1996
----------------- -----------------
Primary:
Average common shares
outstanding 5,287,478 5,161,152 5,278,504 4,847,019
========= ========= ========= =========
Net income $2,455,906 $2,137,657 $5,771,942 $2,646,154
========= ======== ========= =========
Per share amount $ 0.46 $ 0.41 $ 1.09 $ 0.55
========= ======== ========= =========
Fully diluted:
Primary average common
shares outstanding 5,287,478 5,161,152 5,278,504 4,847,019
Assumed conversion of
ILLUMINET 7.5%
Debentures 882,853 941,990 901,775 739,060
Assumed conversion of
ILLUMINET Series A
Preferred Stock 219,262 22,770 222,519 17,784
--------- --------- --------- ---------
Totals 6,389,593 6,125,912 6,402,798 5,603,863
========= ========= ========= =========
Net income $2,455,906 $2,137,657 $5,771,942 $2,646,154
Add ILLUMINET 7.5%
Debenture interest,
net of federal
income tax effect 127,070 171,000 387,543 443,000
--------- --------- ---------- --------
Totals $2,582,976 $2,308,657 $6,159,485 $ 3,089,154
========= ========= ========= =========
Per share amount $ 0.40 $ 0.38 $ 0.96 $ 0.55
========= ========= ========= =========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ILLUMINET HOLDINGS, INC. AS OF SEPTEMBER
30, 1997, AND FOR THE THREE MONTHS THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001002119
<NAME> Illuminet Holdings, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 10,788,694
<SECURITIES> 0
<RECEIVABLES> 27,917,659
<ALLOWANCES> (839,000)
<INVENTORY> 0
<CURRENT-ASSETS> 39,229,640
<PP&E> 66,323,758
<DEPRECIATION> 31,139,237
<TOTAL-ASSETS> 78,869,047
<CURRENT-LIABILITIES> 32,126,772
<BONDS> 21,020,094
0
25
<COMMON> 53,300
<OTHER-SE> 27,937,614
<TOTAL-LIABILITY-AND-EQUITY> 78,869,047
<SALES> 0
<TOTAL-REVENUES> 38,840,032
<CGS> 0
<TOTAL-COSTS> 32,237,948
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (225,000)
<INTEREST-EXPENSE> 1,161,066
<INCOME-PRETAX> 5,892,147
<INCOME-TAX> 120,205
<INCOME-CONTINUING> 5,771,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,771,942
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 0.96
</TABLE>
