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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 December 28, 1997
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
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(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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4,226,280 shares of common stock were outstanding as of February 5, 1998
1
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AMERILINK CORPORATION
QUARTERLY REPORT FOR THE QUARTER ENDED DECEMBER 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
December 28, 1997 (Unaudited) 3
Consolidated Statements of Income (Unaudited) for the
thirty-nine weeks ended December 29, 1996 and
December 28, 1997 4
Consolidated Statements of Income (Unaudited) for the
thirteen weeks ended December 29, 1996 and
December 28, 1997 5
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited) for the thirty-nine weeks ended December 28, 1997 6
Consolidated Statements of Cash Flows (Unaudited ) for the
thirty-nine weeks ended December 29, 1996 and
December 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 10 - 15
PART II: OTHER INFORMATION
Items 1-6 15
Signatures 16
2
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AMERILINK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
March 30, 1997 December 28, 1997
- ------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 120,395 $ 6,008,250
Accounts receivable-trade, net of
allowance for doubtful
accounts of $171,000 and $170,000 13,558,789 14,318,981
Work-in-process 4,294,802 7,253,635
Materials and supply inventories 1,509,840 1,634,222
Other receivables 308,217 262,480
Deferred income taxes 142,593 142,593
Other 153,125 321,538
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Total current assets 20,087,761 29,941,699
Property and equipment - net 5,928,062 7,717,636
Deposits and other assets 183,578 217,327
Deferred income taxes 11,710 11,710
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Total assets $26,211,111 $37,888,372
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,318,675 $ 2,908,401
Liability to subcontractors 1,960,754 2,209,117
Accrued compensation and related 1,435,672 2,099,164
expenses
Accrued insurance 368,257 437,506
Income taxes 173,270 --
Other 82,881 157,619
Current maturities of long-term debt 69,190 --
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Total current liabilities 6,408,699 7,811,807
Long-term debt, less current maturities 9,000,000 --
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Total liabilities 15,408,699 7,811,807
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 4,226,280 in 1998 shares
issued and outstanding 8,084,645 23,577,295
Retained earnings 2,717,767 6,499,270
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Total shareholders' equity 10,802,412 30,076,565
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Total liabilities and shareholders'
equity $26,211,111 $37,888,372
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</TABLE>
See notes to financial statements.
3
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AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Thirty-nine Weeks Ended
December 29, 1996 December 28, 1997
- -------------------------------------------------------------------------
<S> <C> <C>
Revenues $45,915,307 $66,103,957
Cost of sales 30,384,268 40,672,955
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Gross profit 15,531,039 25,431,002
Selling, general and administrative
expenses 13,364,015 18,819,377
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Income from operations 2,167,024 6,611,625
Interest expense (461,106) (288,122)
Other income 7,019 --
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Income before income taxes 1,712,937 6,323,503
Provision for income taxes 685,000 2,542,000
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Net income $ 1,027,937 $ 3,781,503
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Net income per common share
Basic $ 0.30 $ 1.03
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Diluted $ 0.29 $ 0.95
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----------- -----------
Weighted average common shares
outstanding
Basic 3,478,580 3,661,240
Diluted 3,591,514 3,970,443
- -------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
4
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AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Thirteen Weeks Ended
December 29, 1996 December 28, 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $16,731,323 $22,735,763
Cost of sales 10,880,892 13,944,696
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Gross profit 5,850,431 8,791,067
Selling, general and administrative expenses 4,841,170 6,477,196
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Income from operations 1,009,261 2,313,871
Interest income (expense) (182,400) 7,967
Other income 3,191 --
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Income before income taxes 830,052 2,321,838
Provision for income taxes 332,000 933,000
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Net income $ 498,052 $1,388,838
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Net income per common share
Basic $ 0.14 $ 0.35
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Diluted $ 0.14 $ 0.32
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Weighted average common shares outstanding
Basic 3,478,580 3,992,126
Diluted 3,543,033 4,396,509
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</TABLE>
See notes to financial statements.
5
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AMERILINK CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THIRTY-NINE WEEKS ENDED DECEMBER 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 -- -- 3,781,503 3,781,503
Net proceeds from sale of
common stock, less issuance
expenses of $279,443 600,000 13,895,557 -- 13,895,557
Exercise of stock options 144,700 617,325 -- 617,325
Tax benefit associated with
exercise of stock options -- 979,768 -- 979,768
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Balance at December 28, 1997 4,226,280 $23,577,295 $6,499,270 $30,076,565
---------- ----------- ---------- -----------
---------- ----------- ---------- -----------
- ------------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
6
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AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Thirty-nine Weeks Ended
December 29, 1996 December 28, 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,027,935 $ 3,781,503
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,597,738 2,196,165
Net gain on disposal of fixed assets (26,143) (15,887)
Changes in operating assets and liabilities:
Accounts receivable and work-in-process (5,483,402) (3,719,024)
Materials and supply inventories 271,029 (124,382)
Other receivables (47,273) 45,737
Other current assets (9,717) 28,863
Trade accounts payable 214,272 589,726
Liability to subcontractors 332,178 248,363
Accrued compensation and related expenses 188,214 663,492
Accrued insurance (190,282) 69,249
Income taxes 365,068 (370,546)
Other current liabilities (2,388) 74,738
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Net cash provided by (used in) operating activities (1,762,771) 3,467,997
INVESTING ACTIVITIES
Purchase of property and equipment (1,947,346) (4,255,613)
Proceeds from sale of property and equipment 617,118 285,760
Deposits and other assets (100,138) (33,749)
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Net cash used in investing activities (1,430,366) (4,003,602)
FINANCING ACTIVITIES
Principal payments on long-term debt (12,745,000) (25,794,190)
Proceeds from borrowings on long-term debt 16,005,963 16,725,000
Proceeds from issuance of common stock -- 13,895,557
Exercise of stock options -- 617,325
Tax benefit associated with
exercise of stock options -- 979,768
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Net cash provided by financing activities 3,260,963 6,423,460
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Increase in cash and cash equivalents 67,826 5,887,855
Cash and cash equivalents at beginning of period 78,680 120,395
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Cash and cash equivalents at end of period $ 146,506 $ 6,008,250
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------------ ------------
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 465,223 $ 347,281
Income taxes paid $ 294,932 $ 1,891,724
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</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 thirty-nine weeks ended December
28, 1997 are not necessarily indicative of the results to be expected for the
full year.
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
The Company adopted Statement of Financial Accounting Standards No. 128.
"Earnings per Share," which modifies the calculation of earnings per share
("EPS"). The Standard replaces the previous presentation of primary and
fully diluted EPS to basic and diluted EPS. Basic EPS excludes dilution and
is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
EPS includes the dilution of common stock equivalents consisting of shares
subject to stock options. All prior periods presented have been restated to
reflect this adoption.
8
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2. NET INCOME PER SHARE (CON'T)
(In thousands - except per share data)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Thirteen weeks ended Thirty-nine weeks ended
Dec. 29, 1996 Dec. 28, 1997 Dec. 29, 1996 Dec. 28, 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic:
Net income $ 498 $ 1,389 $ 1,028 $ 3,782
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Weighted average common
shares outstanding 3,479 3,992 3,479 3,661
------ ------- ------- -------
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Net income per share $ 0.14 $ 0.35 $ 0.30 $ 1.03
------ ------- ------- -------
------ ------- ------- -------
Diluted:
Net income $ 498 $ 1,389 $ 1,028 $ 3,782
------ ------- ------- -------
------ ------- ------- -------
Weighted average common
shares outstanding 3,479 3,992 3,479 3,661
Common stock equivalents 64 405 113 309
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Total shares 3,543 4,397 3,592 3,970
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------ ------- ------- -------
Net income per share $ 0.14 $ 0.32 $ 0.29 $ 0.95
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</TABLE>
3. NOTES PAYABLE AND LONG-TERM DEBT
Under a loan agreement with its commercial bank that was amended November
17, 1997, 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. There is no commitment fee on any unused portion of the note
and there were no borrowings outstanding as of December 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 totaling
$279,443. The Company used part of the proceeds to pay in full the
outstanding balance of its unsecured revolving credit note with its
commercial bank.
9
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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 it's 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 THIRTY-NINE WEEKS ENDED DECEMBER 29, 1996 AND DECEMBER 28, 1997
REVENUES
Total revenues for the first nine months of fiscal 1998 were
$66,103,957 compared to $45,915,307 for the first nine months of fiscal 1997,
an increase of 44%.
Total residential and commercial premises wiring revenues for the
first nine months of fiscal 1998 increased 53.5% to approximately $59.0
million (approximately 89% of total Company revenues) compared to
approximately $38.4 million (approximately 84% of total Company revenues) in
the comparable period in fiscal 1997. Premises wiring services to telephone
companies for video systems increased to approximately $21.7 million in the
first nine months of fiscal 1998 versus approximately $4.9 million in the
prior year period. Of the total $21.7 million of revenues to telephone
companies for video systems in fiscal 1998, approximately $12.0 million
(approximately 18% of total Company revenues) was generated from work orders
issues under contracts with GTE Media Ventures, a division of GTE. 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 for the first nine months of fiscal 1998 were approximately
$2.1 million.
10
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GROSS PROFIT
Gross profit for the first nine months of fiscal 1998 was
$25,431,002 or 38.5% of revenues, as compared to $15,531,039, or 33.8% of
revenues, the first nine 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 nine
months of fiscal 1998 versus approximately 15% 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 nine
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 nine
months of fiscal 1998 were $18,819,377 or 28.5% of revenues as compared to
$13,364,015 or 29.1% 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 nine 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 $343,534 or 0.5% of revenues for the first
nine months of fiscal 1998 as compared to $461,106 or 1.0% for the first nine
months of fiscal 1997. On October 23, 1997, the Company used proceeds
received from a public stock offering to pay in full the outstanding balance
of its revolving credit note of approximately $6.8 million. The balance of
the proceeds will be used for general corporate purposes, including working
capital, expansion of sales and marketing activities, opening new field
offices and possible acquisitions of businesses, services or technology
complimentary to the Company's business. Pending such uses, the proceeds
are being invested in short-term investment grade securities. Interest
income generated from these investments totaled $55,412 for the period ended
December 28, 1997.
COMPARISONS OF THIRTEEN WEEKS ENDED DECEMBER 29, 1996 AND DECEMBER 28, 1997
REVENUES
Total revenues for the third quarter of fiscal 1998 were
$22,735,763 compared to $16,731,323 for the third quarter of fiscal 1997, an
increase of 35.9%.
Revenues derived from residential and commercial premises wiring
activities increased by 41% to a record $20.8 million in the third quarter of
fiscal 1998, versus approximately $14.7 million in the prior year period.
Premises wiring revenues derived from Telcos that are building or expanding
video systems increased
11
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to approximately $6.1 million (approximately 27% of total Company revenues)
in the third quarter of fiscal 1998 compared to approximately $3.5 million
(approximately 21% of total Company revenues) in the third quarter of fiscal
1997. Of the total $6.1 million of revenues to Telcos for video systems,
approximately $3.6 million or 15.9% 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.
Premises wiring revenues derived from telephone service providers for
residential voice and data cabling services for the third quarter of fiscal
1998 were approximately $1.2 million, whereas, the Company was not serving
this market in fiscal 1997. Revenues for the third quarter of fiscal 1998
also included approximately $7.4 million in premises wiring revenues from
cable television multiple system operators, which represents a record for the
Company and an increase of approximately $1.1 million from the comparable
quarter in fiscal 1997.
GROSS PROFIT
Gross profit for the third quarter of fiscal 1998 was $8,791,067 or
38.7% of revenues, as compared to $5,850,431, or 35.0% of revenues, the third
quarter of fiscal 1997. The increase in gross margin is due primarily to a
decrease in subcontractor production costs, which decreased as a percent of
labor cabling revenues in the third quarter of fiscal 1998 compared to the
third 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 increase in gross margin is also a result of 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 9%
of total Company revenues in the third quarter of fiscal 1998 versus
approximately 11% in the comparable period in fiscal 1997. The percentage
decline in cabling materials is primarily due to strong third quarter fiscal
1998 labor only revenues derived from Telcos.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general, and administrative expenses for the third quarter
of fiscal 1998 were $6,477,196 or 28.5% of revenues as compared to $4,841,170
or 28.9% 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 third 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 $47,445 or 0.2% of revenues for the third
quarter of fiscal 1998 as compared to $182,400 or 1.1% for the third quarter
of fiscal 1997. On October 23, 1997, the Company used proceeds received from
a public stock offering to pay in full the outstanding balance of its
revolving credit note of approximately $6.8 million. The balance of the
proceeds will be used for general corporate purposes, including working
capital, expansion of sales and marketing activities, opening new field
offices and possible acquisitions of businesses, services or technology
complimentary to the Company's business. Pending such uses, the proceeds are
being invested in short-term investment grade securities. Interest income
generated from these investments totaled $55,412 for the period ended
December 28, 1997.
12
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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 would draw on its revolving credit note to finance its
work-in-process until project work is billed to and paid by the customer. 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 of $279,443. The Company paid
in full the outstanding balance of its revolving credit note of approximately
$6.8 million and will use the balance of the proceeds for general corporate
purposes, including working capital, expansion of sales and marketing
activities, openings of new field offices and possible acquisitions of
businesses, services or technology complimentary to the Company's business.
Pending such uses, the proceeds are being invested in short-term investment
grade securities.
Combined accounts receivable and work-in-process at December 28,
1997 totaled $21,572,616 compared to $17,853,591 at March 30, 1997, an
increase of $3,719,025 or 20.8%. This increase is due primarily to the
record level of revenues that the Company recorded during the first nine
months of fiscal 1998 which ended December 28, 1997. The Company anticipates
that it will continue to receive collections of its accounts receivable in
the ordinary course of business; however, there is no assurance that the
Company will be able to collect all or substantially all of its accounts
receivable outstanding at any time. 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.
Management believes that current cash and cash equivalents, current
and possible additional credit from its commercial bank, cash to be generated
from future operations, and funds which may be obtained from the issuance of
common stock should provide sufficient capital to meet the reasonable
foreseeable business needs of the Company.
CURRENT CREDIT ARRANGEMENTS. Under a loan agreement with its
commercial bank that was amended November 17, 1997, 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. There is no
commitment fee on any unused portion of the note and there were no borrowings
under the revolving credit note at December 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 nine months of
fiscal 1998, net cash provided by operating activities was $3,467,997. This
was due primarily to the Company's net income, depreciation and amortization,
and accrued compensation and related expenses which combined totaled
$6,641,160. 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
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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 nine months of fiscal 1998 totaled $4,003,602 versus
$1,430,366 for the corresponding period last year. Cash used in investing
activities is primarily a result of the purchase of property and equipment,
which totaled $4,255,613 (6.4% of revenues) for the fiscal 1998 first nine
months versus $1,947,346 (4.2% of revenues) for the comparable period last
year. The increase in property and equipment as a percentage of sales for
fiscal 1998 is primarily the result of vehicles which were purchased 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.
Telecommunication 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 cabling 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 by 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 nine months of fiscal 1998, the Company recorded
approximately $21.7 million (or 33% of total revenues for the period) in
revenues from Telcos, that are building or expanding video systems. Of the
total $21.7 million of revenues from Telcos, approximately $12.0 million (or
18% of total Company revenues) was generated from work orders issued under
contacts 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.
14
<PAGE>
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.
NOT APPLICABLE
Item 5. OTHER INFORMATION. NOT APPLICABLE
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description
----------- -----------
4.5 Bank Loan Agreement Amendment
dated November 17, 1997 between
AmeriLink Corp. and Bank One,
Columbus, N.A.
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 December 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: February 9, 1998 By: /s/Larry R. Linhart
------------------------
Larry R. Linhart
Chief Executive Officer
President
Date: February 9, 1998 By: /s/James W. Brittan
------------------------------------
James W. Brittan
Vice President of Finance
(Principal Financial and Accounting
Officer)
16
<PAGE>
THIRD AMENDMENT TO LOAN AGREEMENT
This Amendment ("Amendment") is made as of the 17 day of NOVEMBER, 1997, by
and between AMERILINK CORP. AND AMERILINK CORPORATION, (hereafter referred to as
"Borrowers") and Bank One, NA (the "Bank").
WHEREAS, the Borrowers and the Bank entered into a Business Loan
Agreement/Credit Agreement dated DECEMBER 29, 1994, as amended SEPTEMBER 29,
1995 AND SEPTEMBER 27, 1996 (the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement as set
forth below:
NOW, THEREFORE, the parties hereto agree as follows:
1. Capitalized terms not defined herein shall have the meaning ascribed
in the Credit Agreement.
2. Subsection 1.2.5 - The Section bearing the heading FACILITY FEE of
the Credit Agreement is hereby deleted in its entirety.
3. The Borrowers represent and warrant that (a) the representations
and warranties contained in the Credit Agreement are true and correct in all
material respects as of the date of this Amendment, (b) no condition, act or
event which could constitute an Event of Default under the Credit Agreement
exists, and (c) no condition, event, act or omission has occurred, which,
with the giving of notice or passage of time, would constitute an Event of
Default under the Credit Agreement.
4. The Borrowers agree to pay all fees and out-of-pocket disbursements
incurred by the Bank in connection with this Amendment, including legal fees
incurred by the Bank in the preparation, consummation, administration and
enforcement of this Amendment.
5. This Amendment shall become effective only after it is fully
executed by the Borrowers and the Bank.
Except as amended by this Amendment, the Credit Agreement shall remain in
full force and effect in accordance with its terms.
6. This Amendment is a modification only and not a novation. Except
for the above-quoted modification(s), the Credit Agreement, any agreement or
security document, and all the terms and conditions thereof, shall be and
remain in full force and effect with the changes herein deemed to be
incorporated therein. This Amendment is to be considered attached to the
Credit Agreement and made a part thereof. This Amendment shall not release
or affect the liability of any guarantor, surety or endorser of the Credit
Agreement or release any owner of collateral securing the Credit Agreement.
The validity, priority and enforceability of the Credit Agreement shall not
be impaired hereby. To the extent that any provision of this Amendment
conflicts with any term or condition set forth in the Credit Agreement, or
any agreement or security document executed in conjunction therewith, the
provisions of this Amendment shall supersede and control. Borrowers
acknowledge that as of the date of this Amendment it has no offsets with
respect to all amounts owed by Borrowers to Bank and Borrowers waive and
release all claims which they may have against Bank arising under the Credit
Agreement on or prior to the date of this Amendment.
1. The Borrowers acknowledge and agree that this Amendment is limited
to the terms outlined above, and shall not be construed as an amendment of
any other terms or provisions of the Credit Agreement; The Borrowers hereby
specifically ratify and affirm the terms and provisions of the Credit
Agreement. Borrowers release Bank from any and all claims which may have
arisen, known or unknown, in connection with the Credit Agreement on or prior
to the date hereof. This Amendment shall not establish a course of dealing
or be construed as evidence of any willingness on the Bank's part to grant
other or future amendments, should any be requested.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
day and year first above written.
BANK ONE, NA BORROWERS:
AMERILINK CORP.
By ________________________ By: _____________________________
Lynda Schockman Larry R. Linhart
Title: Assistant Vice President Title: President
AMERILINK CORPORATION
By: _____________________________
Larry R. Linhart
Title: President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 28, 1997 AND STATEMENT OF INCOME FOR THE THIRTY-NINE WEEKS
ENDED DECEMBER 28, 1997 OF AMERILINK CORPORATION AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-29-1998
<PERIOD-START> MAR-31-1997
<PERIOD-END> DEC-28-1997
<CASH> 6,008,250
<SECURITIES> 0
<RECEIVABLES> 14,488,981
<ALLOWANCES> 170,000
<INVENTORY> 1,634,222
<CURRENT-ASSETS> 29,941,699
<PP&E> 7,717,636 <F1>
<DEPRECIATION> 0 <F1>
<TOTAL-ASSETS> 37,888,372
<CURRENT-LIABILITIES> 7,811,807
<BONDS> 0
0
0
<COMMON> 23,577,295
<OTHER-SE> 6,499,270
<TOTAL-LIABILITY-AND-EQUITY> 37,888,372
<SALES> 66,103,957
<TOTAL-REVENUES> 66,103,957
<CGS> 40,672,955
<TOTAL-COSTS> 59,492,332
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 288,122
<INCOME-PRETAX> 6,323,503
<INCOME-TAX> 2,542,000
<INCOME-CONTINUING> 3,781,503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,781,503
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 0.95
<FN>
<F1> Property plant and equipment is reported net of
accumulated depreciation on the Consolidated
Balance Sheet.
</FN>
</TABLE>
