<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 28, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-24334
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AMERILINK CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-1409345
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(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1900 E. Dublin-Granville Road, Columbus, Ohio 43229
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(Address of principal executive offices, including zip code)
(614) 895-1313
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has 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
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4,205,580 shares of common stock were outstanding as of November 3, 1997
1
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AmeriLink Corporation
QUARTERLY REPORT FOR THE QUARTER ENDED SEPTEMBER 28, 1997
Index Page No.
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PART I: FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets as of March 30, 1997 and
September 28, 1997 (Unaudited) 3
Consolidated Statements of Income (Unaudited) for the
twenty-six weeks ended September 29, 1996 and
September 28, 1997 4
Consolidated Statements of Income (Unaudited) for the
thirteen weeks ended September 29, 1996 and
September 28, 1997 5
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited) for the twenty-six weeks ended
September 28, 1997 6
Consolidated Statements of Cash Flows (Unaudited) for the
twenty-six weeks ended September 29, 1996 and
September 28, 1997 7
Notes to Consolidated Financial Statements (Unaudited) 8-9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-14
PART II: OTHER INFORMATION
Items 1-6 14-15
Signatures 16
2
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AMERILINK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
March 30, 1997 September 28, 1997
- ------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 120,395 $ 88,524
Accounts receivable-trade, net of allowance for
doubtful accounts of $171,000 and $270,000 13,558,789 14,383,018
Work-in-process 4,294,802 5,731,672
Materials and supply inventories 1,509,840 1,722,858
Other receivables 308,217 217,598
Deferred income taxes 142,593 142,593
Other 153,125 184,302
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Total current assets 20,087,761 22,470,565
Property and equipment - net 5,928,062 7,507,885
Deposits and other assets 183,578 187,164
Deferred income taxes 11,710 11,710
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Total assets $26,211,111 $30,177,324
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,318,675 $ 3,279,865
Liability to subcontractors 1,960,754 3,188,532
Accrued compensation and related expenses 1,435,672 2,243,247
Accrued insurance 368,257 438,547
Income taxes 173,270 44,102
Other 82,881 112,686
Current maturities of long-term debt 69,190 --
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Total current liabilities 6,408,699 9,306,979
Long-term debt, less current maturities 9,000,000 7,250,000
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Total liabilities 15,408,699 16,556,979
Shareholders' equity:
Preferred stock, without par; 1,000,000 shares
authorized; none issued or outstanding -- --
Common stock, without par; 10,000,000 shares
authorized; 3,481,580 in 1997 and 3,525,580
in 1998 shares issued and outstanding 8,084,645 8,509,913
Retained earnings 2,717,767 5,110,432
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Total shareholders' equity 10,802,412 13,620,345
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Total liabilities and shareholders' equity $26,211,111 $30,177,324
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</TABLE>
See notes to financial statements.
3
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AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
- --------------------------------------------------------------------------------
Twenty-six Weeks Ended
September 29, 1996 September 28, 1997
- --------------------------------------------------------------------------------
Revenues $29,183,984 $43,368,194
Cost of sales 19,503,376 26,728,259
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Gross profit 9,680,608 16,639,935
Selling, general and administrative expenses 8,522,845 12,342,181
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Income from operations 1,157,763 4,297,754
Interest expense (278,706) (296,089)
Other income 3,828 --
----------- -----------
Income before income taxes 882,885 4,001,665
Provision for income taxes 353,000 1,609,000
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Net income $ 529,885 $ 2,392,665
----------- -----------
----------- -----------
Net income per common share $ 0.15 $ 0.64
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----------- -----------
Weighted average common shares outstanding 3,615,755 3,757,411
- --------------------------------------------------------------------------------
See notes to financial statements.
4
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AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Thirteen Weeks Ended
September 29, 1996 September 28, 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $15,662,964 $21,717,124
Cost of sales 10,482,132 13,379,231
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Gross profit 5,180,832 8,337,893
Selling, general and administrative expenses 4,518,693 6,206,018
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Income from operations 662,139 2,131,875
Interest expense (151,074) (131,038)
Other income 3,206 --
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Income before income taxes 514,271 2,000,837
Provision for income taxes 206,000 789,000
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Net income $ 308,271 $ 1,211,837
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----------- -----------
Net income per common share $ 0.09 $ 0.31
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Weighted average common shares outstanding 3,591,558 3,918,794
- ----------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
5
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AMERILINK CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE TWENTY-SIX WEEKS ENDED SEPTEMBER 28, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Number Common Retained
of Shares Stock Earnings Total
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at March 30, 1997 3,481,580 $8,084,645 $2,717,767 $10,802,412
Net income -- -- 2,392,665 2,392,665
Exercise of stock options 44,000 192,000 -- 192,000
Tax benefit associated with
exercise of stock options -- 233,268 -- 233,268
--------- ---------- ---------- -----------
Balance at September 28, 1997 3,525,580 $8,509,913 $5,110,432 $13,620,345
--------- ---------- ---------- -----------
--------- ---------- ---------- -----------
- -----------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
6
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AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Twenty-six Weeks Ended
September 29, 1996 September 28, 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 529,885 $ 2,392,665
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,055,297 1,384,077
Net loss (gain) on disposal of fixed assets (36,355) 4,082
Changes in operating assets and liabilities:
Accounts receivable and work-in-process (3,741,877) (2,261,099)
Materials and supply inventories (177,897) (213,018)
Other receivables (233,952) 90,619
Other current assets (99,551) (31,177)
Trade accounts payable 561,580 961,191
Liability to subcontractors 246,376 1,227,778
Accrued compensation and related expenses 13,956 807,575
Accrued insurance (152,219) 70,290
Income taxes 266,915 (129,168)
Other current liabilities 5,920 29,805
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Net cash provided by (used in) operating activities (1,761,922) 4,333,620
INVESTING ACTIVITIES
Purchase of property and equipment (1,315,765) (3,214,082)
Proceeds from sale of property and equipment 471,049 246,099
Deposits and other assets (101,135) (3,586)
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Net cash used in investing activities (945,851) (2,971,569)
FINANCING ACTIVITIES
Principal payments on long-term debt (8,310,000) (15,719,190)
Proceeds from borrowings on long-term debt 11,050,963 13,900,000
Exercise of stock options -- 192,000
Tax benefit associated with exercise of stock options -- 233,268
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Net cash provided by (used in) financing activities 2,740,963 (1,393,922)
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Increase (decrease) in cash and cash equivalents 33,190 (31,871)
Cash and cash equivalents at beginning of period 78,680 120,395
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Cash and cash equivalents at end of period $ 111,870 $ 88,524
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----------- -----------
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 284,130 $ 253,878
Income taxes paid $ 86,465 $ 1,296,922
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
7
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AMERILINK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
AmeriLink Corporation (the "Company") is a nationwide provider to the
telecommunications industry of cabling services for the transmission of
video, voice and data. The Company designs, constructs, installs and
maintains fiber optic, coaxial and twisted-pair copper cabling systems for
telephone service providers, including regional Bell operating companies
("RBOCs"), traditional local exchange carriers ("LECs"), competitive local
exchange carriers ("CLECs") and long distance carriers acting as CLECs
(collectively, "Telcos"); major cable television multiple system operators
("MSOs"); systems integrators and users of local area network ("LAN") systems;
and direct broadcast satellite ("DBS") providers. The Company, which
conducts business under the trade name "NaCom," currently markets and
provides its services through a national network of 18 regional offices and
11 satellite offices which in fiscal 1997 served customers in 44 states.
These financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
These financial statements should be read in conjunction with the March 30,
1997 audited financial statements of AmeriLink Corporation contained in its
Annual Report to Shareholders.
The financial information included herein reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for interim
periods. The results of operations for the twenty-six weeks ended September
28, 1997 are not necessarily indicative of the results to be expected for the
full year.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which is effective for both interim
and annual periods ending after December 15, 1997. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded. The Company does not believe the adoption of the standard
will have a significant effect on previous reported earnings per share.
RECLASSIFICATIONS
Certain reclassifications have been made to the fiscal 1997 consolidated
financial statements to conform to the fiscal 1998 presentation.
2. NET INCOME PER SHARE
Net income per share is calculated by dividing net income by the
weighted average shares outstanding for the period presented, including, when
their effect is dilutive, common stock equivalents consisting of shares
subject to stock options.
8
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3. NOTES PAYABLE AND LONG-TERM DEBT
Under a loan agreement with its commercial bank that was amended
September 27, 1996, the Company has a $12,000,000 unsecured revolving credit
note which matures September 30, 1998. Interest on the note is prime minus
1% and is payable monthly, and there is a commitment fee of 1/4% on any
unused portion of the note. Borrowings under the revolving credit note were
$7,250,000 at September 28, 1997.
4. STOCK OFFERING
On October 23, 1997, the Company's registration statement for a public
offering was declared effective by the Securities and Exchange Commission and
the Company issued 600,000 new shares of its common stock. The net proceeds
from the offering were $14,175,000 before deducting related expenses
estimated to be approximately $350,000. The Company used part of the
proceeds to pay in full the outstanding balance of its unsecured revolving
credit note with its commercial bank.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995
The Company cautions that any forward-looking statements (as such term
is defined in the Private Securities Litigation Act of 1995) contained in
this Report, including, but not limited to, statements concerning the
adequacy of the Company's cost structure, collectibility of its accounts
receivable and adequacy of its capital resources, or made by management of
the Company involve risks and uncertainties, and are subject to change based
on various important factors. These important factors include, among others,
competitive and regulatory risks associated with the telecommunications
industry, the risk of changing market conditions and customer purchase
authorizations which may be influenced by budget cycles of the Company's
customers, consolidation within the telecommunications industry, and the
success of various technologies and business strategies employed by the
Company's customers, and other risks described in the Company's Securities
and Exchange Commission filings, including, but not limited to, the factors
described under the caption "Variability in Quarterly Results and
Seasonality" below.
RESULTS OF OPERATIONS
Revenue is generated from cabling projects performed via work orders
issued under master contracts. Contract costs may vary depending upon the
contract volume, the level of productivity, competitive factors in the local
market, and other items. Cost of sales includes subcontractor production
costs, materials not supplied by the customer, vehicle and machinery
expenses, and business insurance related costs. Selling, general and
administrative expenses consist primarily of field employee wages and payroll
costs. The Company believes that its selling, general and administrative
cost structure is maintained at levels necessary to adequately support both
anticipated near term revenue levels and projected longer term revenue
levels. These anticipated revenue levels and associated cost structures may
vary among the Company's regional field offices and geographic market areas.
COMPARISONS OF TWENTY-SIX WEEKS ENDED SEPTEMBER 29, 1996 AND SEPTEMBER 28, 1997
REVENUES
Total revenues for the first six months of fiscal 1998 were $43,368,194
compared to $29,183,984 for the first six months of fiscal 1997, an increase
of 48.6%.
9
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Total residential and commercial premises wiring revenues for the first
six months of fiscal 1998 increased 61.5% to approximately $38.2 million
(approximately 88% of total Company revenues) compared to approximately $23.7
million (approximately 81% of total Company revenues) in the comparable
period in fiscal 1997. Premises wiring services to telephone companies for
video systems increased to approximately $15.6 million in the first six
months of fiscal 1998 versus approximately $1.4 million in the prior year
period. Of the total $15.6 million of revenues to telephone companies for
video systems in fiscal 1998, approximately $8.4 million (approximately 19%
of total Company revenues) was generated from work orders issued under
contracts with GTE Media Ventures, a division of GTE.
Outside plant construction revenues for the first six months of fiscal
1998 declined to approximately $5.2 million from approximately $5.5 million
in fiscal 1997, reflecting management's strategy to increase its emphasis on
premises wiring services.
GROSS PROFIT
Gross profit for the first six months of fiscal 1998 was $16,639,935 or
38.4% of revenues, as compared to $9,680,608, or 33.2% of revenues, the first
six months of fiscal 1997. The increase in gross margin is due primarily to
a decrease in cabling materials expense (included in cost of sales) as a
percent of total Company revenues. The majority of the Company's commercial
network cabling contracts are turnkey contracts, in which the Company
provides both the labor and materials necessary for the network installation.
These cabling materials, which are billed at near cost, comprised
approximately 8% of total Company revenues in the first six months of fiscal
1998 versus approximately 17% in the comparable period in fiscal 1997. The
percentage decline in cabling materials is primarily due to an increase in
labor only revenues derived from telephone companies. The increase in gross
margin is also a result of subcontractor production costs, which decreased as
a percent of labor cabling revenues in the first six months of fiscal 1998
compared to fiscal 1997. Contract and project subcontractor costs are
dependent upon a number of factors, including pricing for the Company's
services, the level of productivity, competitive factors in the local market,
and other items. The Company's overall operating results for the first six
months of fiscal 1997 were negatively impacted by operating losses of
approximately $370,000 as a result of the Company's decision to close its San
Diego regional office and the completion of remaining outside plant
construction projects there.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general, and administrative expenses for the first six months
of fiscal 1998 were $12,342,181 or 28.5% of revenues as compared to
$8,522,845 or 29.2% of revenues for fiscal 1997.
The Company's selling, general and administrative cost structure, which
consists primarily of field employee wages and payroll costs, is maintained
at levels necessary to adequately support both anticipated near term revenues
and projected longer term revenues. These anticipated revenue levels and
associated cost structures may vary among the Company's regional field
offices and geographic market areas. The dollar increase in selling,
general, and administrative expenses for the first six months of fiscal 1998
is primarily due to increased employee wages and associated costs incurred to
support both current period revenues and anticipated future revenues.
INTEREST EXPENSE
Interest expense was $296,089 or 0.7% of revenues for the first six
months of fiscal 1998 as compared to $278,706 or 1.0% of revenues for the
first six months of fiscal 1997. The dollar increase in interest expense is
primarily due to increased borrowings to finance accounts receivable and
work-in-process.
10
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COMPARISONS OF THIRTEEN WEEKS ENDED SEPTEMBER 29, 1996 AND SEPTEMBER 28, 1997
REVENUES
Total revenues for the second quarter of fiscal 1998 were $21,717,124
compared to $15,662,964 for the second quarter of fiscal 1997, an increase of
38.7%.
Revenues derived from residential and commercial premises wiring
activities increased by 46.5% to a record $19.6 million in the second quarter
of fiscal 1998, versus approximately $13.4 million in the prior year period.
These revenues accounted for 90.5% of the Company's total revenues for the
most recent quarter, versus 85.6% a year earlier, consistent with the
Company's announced strategy to focus efforts on premises wiring activities.
Premises wiring revenues derived from Telcos that are building or
expanding video systems increased to approximately $7.4 million
(approximately 34% of total Company revenues) in the second quarter of fiscal
1998 compared to approximately $0.8 million (approximately 5% of total
Company revenues) in the second quarter of fiscal 1997. Of the total $7.4
million of revenues to Telcos for video systems, approximately $4.6 million
or 21.3% of total Company revenues was generated from work orders issued
under contracts with GTE Media Ventures, a division of GTE. The Company
believes that as a result of the Telecommunications Act, certain Telcos have
increased their capital expenditures for video systems, and the Company has
aggressively marketed its services to these companies.
In early fiscal 1998, the Company began providing residential voice and
data cabling services to telephone companies (currently MCI Communications
Corporation and US West, Inc.) as part of its overall strategy of expanding
the cabling services it performs for Telcos, and diversifying the cabling
services it performs. Premises wiring revenues from telephone companies for
voice and data services in the second quarter of fiscal 1998 were
approximately $0.8 million.
GROSS PROFIT
Gross profit for the second quarter of fiscal 1998 was $8,337,893, or
38.4% of revenues, as compared to $5,180,832, or 33.1% of revenues, the
second quarter of fiscal 1997. The increase in gross margin is due primarily
to a decrease in cabling materials expense (included in cost of sales) as a
percent of total Company revenues. The majority of the Company's commercial
network cabling contracts are turnkey contracts, in which the Company
provides both the labor and materials necessary for the network installation.
These cabling materials, which are billed at near cost, comprised
approximately 8% of total Company revenues in the second quarter of fiscal
1998 versus approximately 19% in the comparable period in fiscal 1997. The
percentage decline in cabling materials is primarily due to strong second
quarter fiscal 1998 labor only revenues derived from Telcos. The increase in
gross margin is also a result of subcontractor production costs, which
decreased as a percent of labor cabling revenues in the second quarter of
fiscal 1998 compared to the second quarter of fiscal 1997. Contract and
project subcontractor costs are dependent upon a number of factors, including
pricing for the Company's services, the level of productivity, competitive
factors in the local market, and other items. The Company's overall
operating results for the second quarter of fiscal 1997 were negatively
impacted by operating losses of approximately $200,000 as a result of the
Company's decision to close its San Diego regional office and the completion
of remaining outside plant construction projects there.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general, and administrative expenses for the second quarter of
fiscal 1998 were $6,206,018 or 28.6% of revenues as compared to $4,518,693 or
28.8% of revenues for fiscal 1997.
The Company's selling, general and administrative cost structure, which
consists primarily of field employee wages and payroll costs, is maintained
at levels necessary to adequately support both anticipated near term revenues
and projected longer term revenues. These anticipated revenue levels and
associated cost
11
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structures may vary among the Company's regional field offices and geographic
market areas. The dollar increase in selling, general, and administrative
expenses for the second quarter of fiscal 1998 is primarily due to increased
employee wages and associated costs incurred to support both current period
revenues and anticipated future revenues.
INTEREST EXPENSE
Interest expense was $131,038 or 0.6% of revenues for the second quarter
of fiscal 1998 as compared to $151,074 or 1.0% of revenues for the second
quarter of fiscal 1997. The dollar decrease in interest expense is primarily
due to decreased borrowings to finance accounts receivable and
work-in-process as a result of an increase in net cash provided by the
Company's operating activities.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Historically, the Company's principal sources of liquidity
have come from operating cash flow and credit arrangements. The Company's
primary requirements for working capital are to finance accounts receivable,
work-in-process and capital expenditures. Pursuant to a typical
construction, MDU (multiple dwelling unit), or LAN cabling contract, work
performed by the Company is generally not billed to a customer until various
stages in a project are complete or until the entire project is complete.
Because the Company pays its suppliers and subcontractors on a current basis,
to the extent that trade payables exceed customer accounts paid at any given
time, the Company draws on its revolving credit note to finance its
work-in-process until project work is billed to and paid by the customer.
Combined accounts receivable and work-in-process at September 28, 1997
totaled $20,114,690 compared to $17,853,591 at March 30, 1997, an increase of
$2,261,099 or 12.7%. This increase is due primarily to the record level of
revenues that the Company recorded during the first six months of fiscal 1998
which ended September 28, 1997. The Company anticipates that it will
continue to receive collections of its accounts receivable in the ordinary
course of business in sufficient amounts to permit it to comply with all
covenants and terms of its revolving credit note. There is no assurance,
however, that the Company will be able to collect all or substantially all of
its accounts receivable outstanding at any time, although the Company
believes it has adequately provided for potential losses through its
allowance for doubtful accounts. The Company's failure to collect
substantially all of its accounts receivable and work-in-process would have
an adverse impact on its working capital and could adversely affect its
results of operations.
Capital requirements are dependent upon a number of factors, including
the Company's revenues, level of operations, and the type of contracts and
work that the Company performs. Due to the fact that the Company generally
has no extended commitments from its customers, it is difficult to forecast
longer term revenues and associated capital expenditure and operating cash
requirements.
The Company reviews credit arrangements with its commercial bank
annually. As of September 28, 1997, the Company had available $4,750,000
under its revolving credit note versus $3,000,000 available at March 30,
1997, an increase of $1,750,000 in available funds. The Company does not
anticipate difficulties in obtaining additional credit from its commercial
bank should the need arise.
On October 23, 1997, the Company completed a public offering in which it
issued 600,000 additional shares. The net proceeds from the offering were
$14,175,000 before deducting related expenses estimated to be approximately
$350,000. Proceeds from the offering were used to pay in full the
outstanding balance of its revolving credit note.
Management believes that current and possible additional credit from its
commercial bank, cash flow from operations, and funds which may be obtained
from the issuance of common stock should provide sufficient capital to meet
the reasonably foreseeable business needs of the Company.
12
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CURRENT CREDIT ARRANGEMENTS. Under a loan agreement with its
commercial bank that was amended September 27, 1996, the Company has a
$12,000,000 unsecured revolving credit note which matures September 30, 1998.
Interest on the note is prime minus 1% and is payable monthly, and there is a
commitment fee of 1/4% on any unused portion of the note. Borrowings under
the revolving credit note were $7,250,000 at September 28, 1997.
The loan agreement limits the Company's ability to create or incur liens
on its assets, to incur additional indebtedness, to guarantee the
indebtedness of others and to make loans or advances. Additionally, the
agreement restricts the Company from entering into merger or acquisition
transactions or transactions involving the sale of substantially all of its
assets without the prior consent of the bank. The loan agreement also
requires the Company to meet certain financial tests.
CASH FLOW FROM OPERATING ACTIVITIES. For the first six months of
fiscal 1998, net cash provided by operating activities was $4,333,620. This
was due primarily to the Company's net income, depreciation and amortization,
and accrued compensation and related expenses which combined totaled
$4,584,317. These items were somewhat negated by increases in accounts
receivable and work-in-process that were not offset by corresponding
increases in trade accounts payable and liabilities to subcontractors. The
Company is limited in its ability to offset increases in accounts receivable
and work-in-process through increases in accounts payable or liabilities to
subcontractors.
CASH FLOW FROM INVESTING ACTIVITIES. Net cash used in investing
activities for the first six months of fiscal 1998 totaled $2,971,569 versus
$945,851 for the corresponding period last year. Cash used in investing
activities is primarily a result of the purchase of property and equipment,
which totaled $3,214,082 (7.4% of revenues) for the fiscal 1998 first six
months versus $1,315,765 (4.5% of revenues) for the comparable period last
year. The increase in property and equipment as a percentage of sales is
primarily the result of vehicles which were purchased during the second
quarter for new projects.
VARIABILITY IN QUARTERLY RESULTS AND SEASONALITY
The Company's quarterly revenues and associated operating results have
in the past, and may in the future, vary depending upon a number of factors.
The Company has no long-term contractual commitments to provide its services.
The contractual commitments which do exist generally can be terminated on 30
days' notice. These contractual commitments do not involve a firm backlog of
committed work because the nature of the Company's contracts with MSOs,
Telcos and DBS providers produce daily work orders only on a
project-by-project basis which must be funded by an approved purchase order.
In addition, network cabling services are generally nonrecurring in nature
and are contracted on a project-by-project basis. Therefore, the amount of
work performed at any given time and the general mix of customers for which
work is being performed can vary significantly. Consolidation within the
telecommunications industry may also delay or depress capital spending, as
companies assess their new business plans and strategies and focus on
administrative and operational issues associated with their acquisitions or
alliances. The Company's operations historically have also been influenced
by the budget cycles of the Company' s customers. Many of the Company's MSO
customers utilize a calendar year budget cycle, funded with quarterly
purchase authorizations, which in certain fiscal years has resulted in a lack
of availability of funds in the Company's third fiscal quarter and has
delayed work authorizations in the Company's fourth fiscal quarter.
Telecommunications providers are also subject to actual and potential local,
state, and federal regulations that influence the availability of work for
which the Company may compete. For example, the Company believes that
uncertainty regarding pending federal telecommunications legislation
decreased capital spending by many of its customers during the 1996 fiscal
year. Weather may affect operating results due to the fact that construction
cabling services are performed outdoors. Weather can also impact the
Company's premises wiring cable services due to the limited and lost
production associated with poor driving conditions and generally difficult
working environments. Operating results may also be affected by the capital
spending patterns of the Company's customers and the success of various
technologies and business strategies employed by them. In fiscal 1997, the
Company recorded approximately $10.3 million (or 16.4% of total revenues for
the year), and for the first six months of fiscal 1998, the Company recorded
approximately $15.6 million (or 36% of total revenues for the period) in
revenues from Telcos, that are building or expanding video systems. Of the
total $15.6 million of revenues
13
<PAGE>
from Telcos, approximately $8.4 million (or 19% of total Company revenues)
was generated from work orders issued under contracts with GTE Media
Ventures, a part of GTE Corporation. The amount of future capital allocated
by these companies to their video programs is largely contingent upon the
financial success of these programs. The Company's operating profitability
and capacity to increase revenues is also largely dependent upon its ability
to locate and attract qualified field managers, project managers, and
technical production personnel. Other factors that may affect the Company's
operating results include the size and timing of significant projects, and
the gain or loss of a significant contract or customer.
INFLATION
Historically, inflation has not been a significant factor to the Company
as labor is the primary cost of operations and its contracts are typically
short-term in nature. On an ongoing basis, the Company attempts to minimize
any effects of inflation on its operating results by controlling operating
costs and, whenever possible, seeking to insure that selling prices reflect
increases in costs due to inflation.
ENVIRONMENTAL MATTERS
The Company anticipates that its compliance with various laws and
regulations relating to the protection of the environment will not have a
material effect on its capital expenditures, future earnings or competitive
position.
AMERILINK CORPORATION
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS. NOT APPLICABLE
Item 2. CHANGE IN SECURITIES. NOT APPLICABLE
Item 3. DEFAULTS UPON SENIOR SECURITIES. NOT APPLICABLE
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On August 19, 1997, the Company held its Annual Meeting of
Shareholders. The only matter submitted to the vote of shareholders was
the election of three directors, each to serve until the 1999 Annual
Meeting of Shareholders. The following table provides the number of votes
cast for and withheld as to the election of directors.
Name of Nominee For Withheld
--------------- --- --------
Larry R. Linhart 3,429,333 4,312
Robert L. Powelson 3,429,333 4,312
Richard W. Rubenstein 3,429,333 4,312
Item 5. OTHER INFORMATION. NOT APPLICABLE
14
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule filed herewith
as part of this report on Form 10-Q.
(b) No reports on Form 8-K have been filed
during the quarter ended September 28, 1997.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERILINK CORPORATION
(Registrant)
Date: November 5, 1997 By: /s/ Larry R. Linhart
--------------------------------
Larry R. Linhart
Chief Executive Officer
President
Date: November 5, 1997 By: /s/ James W. Brittan
--------------------------------
James W. Brittan
Vice President of Finance
(Principal Financial and Accounting
Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 28, 1997 AND STATEMENT OF INCOME FOR THE TWENTY-SIX WEEKS
ENDED SEPTEMBER 28, 1997 OF AMERILINK CORPORATION AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-29-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> SEP-28-1997
<CASH> 88,524
<SECURITIES> 0
<RECEIVABLES> 14,653,018
<ALLOWANCES> 270,000
<INVENTORY> 1,722,858
<CURRENT-ASSETS> 22,470,565
<PP&E> 7,507,885<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 30,177,324
<CURRENT-LIABILITIES> 9,306,979
<BONDS> 7,250,000
0
0
<COMMON> 8,509,913
<OTHER-SE> 5,110,432
<TOTAL-LIABILITY-AND-EQUITY> 30,177,324
<SALES> 43,368,194
<TOTAL-REVENUES> 43,368,194
<CGS> 26,728,259
<TOTAL-COSTS> 39,070,440
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296,089
<INCOME-PRETAX> 4,001,665
<INCOME-TAX> 1,609,000
<INCOME-CONTINUING> 2,392,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,392,665
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
<FN>
Property, plant and equipment is reported net of accumulated depreciation on the
Consolidated Balance Sheet.
</FN>
</TABLE>
