<PAGE>
UNITED STATES
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 JUNE 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _______________ to ________________
Commission file number 0-24334
AMERILINK CORPORATION
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(Exact name of registrant as specified in its charter)
OHIO 31-1409345
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1900 E. DUBLIN-GRANVILLE ROAD, COLUMBUS, OHIO 43229
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(614) 895-1313
----------------
(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 .
-------- --------
4,258,344 shares of Common Stock were outstanding as of August 7, 1998
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<PAGE>
AMERILINK CORPORATION
QUARTERLY REPORT FOR THE QUARTER ENDED JUNE 28, 1998
<TABLE>
<CAPTION>
Index Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets as of March 29, 1998,
and June 28, 1998 (Unaudited) 3
Consolidated Statements of Income (Unaudited) for the
thirteen weeks ended June 29, 1997, and June 28, 1998 4
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited) for the thirteen weeks ended June 28, 1998 5
Consolidated Statements of Cash Flows (Unaudited) for the
thirteen weeks ended June 29, 1997, and June 28, 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
Item 3. Quantitative and Qualitative Disclosure about Market Risk. 14
PART II - OTHER INFORMATION
Items 1 through 6 15
Signatures 16
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
AMERILINK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 29, June 28,
1998 1998
---------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,723,230 $ 10,512,654
Accounts receivable-trade, net of allowance for doubtful
accounts of $234,000 in 1998 and $269,000 in 1999 13,884,731 11,635,181
Work-in-process 5,690,546 6,219,368
Materials and supply inventories 1,655,809 1,689,526
Other receivables 229,702 219,159
Deferred income taxes 458,584 458,584
Other 114,895 157,909
---------------- ------------------
Total current assets 30,757,497 30,892,381
Property and equipment - net 7,585,118 6,992,323
Deposits and other assets 185,291 198,878
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Total assets $ 38,527,906 $ 38,083,582
---------------- ------------------
---------------- ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,658,091 $ 2,308,626
Liability to subcontractors 1,886,173 1,718,251
Accrued compensation and related expenses 1,845,507 1,428,104
Accrued insurance 509,965 423,165
Other 307,579 439,508
---------------- ------------------
Total current liabilities 7,207,315 6,317,654
Shareholders' equity:
Preferred stock, without par; 1,000,000 shares authorized;
none issued or outstanding ---- ----
Common stock, without par; 10,000,000 shares authorized;
4,255,930 and 4,258,344 shares issued and outstanding
at March 29, 1998, and June 28, 1998 24,017,256 24,018,379
Retained earnings 7,303,335 7,747,549
---------------- ------------------
Total shareholders' equity 31,320,591 31,765,928
---------------- ------------------
Total liabilities and shareholders' equity $ 38,527,906 $ 38,083,582
---------------- ------------------
---------------- ------------------
</TABLE>
See notes to consolidated financial statements
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<PAGE>
AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Thirteen Weeks Ended
<TABLE>
<CAPTION>
June 29, June 28,
1997 1998
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<S> <C> <C>
Revenues $ 21,651,070 $ 16,649,227
Cost of sales 13,349,028 10,167,502
---------------- ------------------
Gross profit 8,302,042 6,481,725
Selling, general and administrative expenses 6,136,163 5,895,538
---------------- ------------------
Income from operations 2,165,879 586,187
Interest income (expense) (165,051) 131,027
---------------- ------------------
Income before income taxes 2,000,828 717,214
Provision for income taxes 820,000 273,000
---------------- ------------------
Net income $ 1,180,828 $ 444,214
---------------- ------------------
---------------- ------------------
Earnings per share:
Basic $ 0.34 $ 0.10
Diluted $ 0.33 $ 0.10
Weighted average shares:
Basic 3,481,580 4,257,097
Diluted 3,596,027 4,435,735
</TABLE>
See notes to consolidated financial statements
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<PAGE>
AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Retained
Shares Amount Earnings Total
----------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Balance at March 29, 1998 4,255,930 $ 24,017,256 $ 7,303,335 $ 31,320,591
Net income ---- ---- 444,214 444,214
Issuance of restricted stock, net of
deferred compensation expense 2,414 ---- ---- ----
Amortization of deferred
compensation expense ---- 1,123 ---- 1,123
----------- --------------- ---------------- ----------------
Balance at June 28, 1998 4,258,344 $ 24,018,379 $ 7,747,549 $ 31,765,928
----------- --------------- ---------------- ----------------
----------- --------------- ---------------- ----------------
</TABLE>
See notes to consolidated financial statements
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<PAGE>
AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Thirteen Weeks Ended
<TABLE>
<CAPTION>
JUNE 29, JUNE 28,
1997 1998
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,180,828 $ 444,214
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 651,147 734,838
Net loss (gain) on disposal of fixed assets 3,120 (18,595)
Changes in operating assets and liabilities:
Accounts receivable and work-in-process (1,493,064) 1,720,729
Materials and supply inventories 164,495 (33,717)
Other receivables 56,275 10,543
Other assets (36,127) (43,014)
Trade accounts payable 98,107 (349,465)
Liability to subcontractors 408,632 (167,922)
Accrued compensation and related expenses 367,556 (417,403)
Accrued insurance 61,637 (86,800)
Other liabilities 666,923 131,929
----------------- -----------------
Net cash provided by operating activities 2,129,529 1,925,337
INVESTING ACTIVITIES
Purchase of property and equipment (1,004,126) (187,993)
Proceeds from sale of property and equipment 166,565 65,667
Deposits and other assets 7,889 (13,587)
----------------- -----------------
Net cash used in investing activities (829,672) (135,913)
FINANCING ACTIVITIES
Principal payments on long-term debt (8,394,190) ----
Proceeds from borrowings on long-term debt 7,075,000 ----
----------------- -----------------
Net cash used in financing activities (1,319,190) ----
----------------- -----------------
Increase (Decrease) in cash and cash equivalents (19,333) 1,789,424
Cash and cash equivalents at beginning of period 120,395 8,723,230
----------------- -----------------
Cash and cash equivalents at end of period $ 101,062 $ 10,512,654
----------------- -----------------
----------------- -----------------
Supplemental cash flow disclosures:
Interest paid $ 166,454 $ ----
Income taxes paid $ 210,188 $ 92,172
</TABLE>
See notes to consolidated financial statements
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<PAGE>
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") designs,
constructs, installs and maintains fiber optic, coaxial and twisted-pair
copper cabling systems for the transmission of video, voice and data. The
Company's cabling services include the drops and cable feeds to, and wiring
of, residences, multiple dwelling units and commercial buildings and the
construction of aerial and underground distribution plant. The Company offers
these services on a national basis to providers of telecommunications
services, including: major cable television multiple system operators (MSOs);
traditional telephone service providers, including local exchange carriers
(LECs) and long distance carriers; competitive local exchange carriers
(CLECs); Direct Broadcast Satellite (DBS) providers; system integrators and
users of local area network (LAN) and wide-area network (WAN) systems; and
other businesses providing specific or bundled telecommunications services.
The Company's services are provided predominately through the use of
independent contractors via its national network of regional and satellite
field offices. The Company's corporate headquarters are located in Columbus,
Ohio, and, as of June 28, 1998, the Company had 18 regional field offices
that service the following metropolitan areas: Atlanta, Chicago, Cincinnati,
Cleveland, Columbus, Detroit, Houston, Indianapolis, Los Angeles, Louisville,
New York, Omaha, Phoenix, Richmond, San Antonio, San Francisco, St. Louis and
Tampa Bay.
INTERIM FINANCIAL STATEMENTS: 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 29,
1998, 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 thirteen weeks ended June
28, 1998, are not necessarily indicative of the results to be expected for the
full year.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management believes those estimates and assumptions utilized
in preparing the financial statements are reasonable. Actual results could
differ from those estimates. Estimates used in the Company's consolidated
financial statements include, but are not limited to, revenue recognition of
work-in-process, the allowance for doubtful accounts, self-insured claims
liabilities, the valuation of deferred tax assets, depreciation and amortization
and the estimated lives of assets.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS: In February 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standard
(SFAS) No. 132, "Employer's Disclosures About Pensions and Other Postretirement
Plans" which standardizes pension disclosures. Management believes SFAS No 132
will not have an impact on the Company's financial position, results of
operations or earnings per share.
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<PAGE>
AMERILINK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
RECLASSIFICATIONS: Certain reclassifications have been made to the fiscal 1998
consolidated financial statements to conform to the fiscal 1999 presentation.
2. COMMON STOCK AND EARNINGS PER SHARE ("EPS")
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders 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. The following table sets forth
the calculation of basic and diluted earnings per share for the period ended
June 29, 1997, and June 28, 1998.
<TABLE>
<CAPTION>
JUNE 29, JUNE 28,
1997 1998
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<S> <C> <C>
BASIC EPS:
Net income $ 1,180,828 $ 444,214
Weighted average common shares outstanding 3,481,580 4,257,097
--------------- ----------------
Basic EPS $ 0.34 $ 0.10
--------------- ----------------
--------------- ----------------
DILUTED EPS:
Net income $ 1,180,828 $ 444,214
Weighted average common shares outstanding 3,481,580 4,257,097
Dilutive stock options 114,447 178,638
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Total shares and dilutive potential shares 3,596,027 4,435,735
--------------- ----------------
Diluted EPS $ 0.33 $ 0.10
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</TABLE>
Some options were outstanding during the periods presented but were not included
in the computation of diluted earnings per share because the average market
price of the Company's common stock during the period was greater than the
exercise price of the options and, therefore, were antidilutive.
3. RESTRICTED STOCK AWARD
In May 1998, the Company awarded 2,414 common shares subject to certain
restrictions, including annual vesting of one-third of the shares on the
anniversary of the award for the next three years. Deferred compensation in the
amount of $40,435 has been recorded on the balance sheet as a component of
common stock in shareholders' equity and is being amortized, accordingly, over
three years.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
This Quarterly Report, including Management's Discussion and Analysis of
Financial Condition and Results of Operations, contains various forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) which, in addition to assuming a continuation of the degree and
timing of customer utilization and rate of renewals of contracts with the
Company at historic levels, are subject to a number of known and unknown risks.
Certain statements, such as statements regarding the Company's future growth and
profitability, are forward-looking. These statements are based on the Company's
current expectations and are subject to a number of risks and uncertainties that
could cause actual results in the future to differ significantly from results
expressed or implied in any forward-looking statements included in this
Quarterly Report . These risks and uncertainties include, but are not limited
to, the Company's relationship with key customers, implementation of the
Company's growth strategy, seasonality, changing market conditions and customer
purchase authorizations, competitive and regulatory risks associated with the
telecommunications industry, new products and technological changes and other
risks detailed in the Company's periodic report filings with the Securities and
Exchange Commission including, but not limited to, the factors described under
the caption "Variability in Quarterly Results and Seasonality" below.
OVERVIEW
The telecommunications industry has been undergoing rapid change due to
deregulation, the introduction of new technologies and mergers and consolidation
among major telecommunications companies. The Telecommunications Act of 1996
(the "Act") created incentives for providers of video, voice and data
communications to upgrade their network infrastructures by opening previously
protected markets to competition. Since the passage of the Act, the Federal
Communications Commission (FCC) and the federal courts, as well as various state
governments and agencies, have initiated efforts to define and establish rules
for implementation of the Act. Although implementation and the intended increase
in competition has begun, there have been a number of delays and continuing
uncertainties. The Company believes that there has been far more consolidation
in the telecommunications industry than the direct competition originally
intended or envisioned. Companies appear to be following a belief that size and
scale is the best strategy for long-term, facilities-based telecommunications
competition. Overall, the Company believes that the impact of the Act in
increasing competition in the U.S. telecommunications industry could take a
number of years to fully develop, and that due to the current regulatory
environment and financial and economic opportunities, competition will evolve
initially in the business and commercial sector rather than in the residential
consumer market. However, the Company also believes the competition that will
ultimately develop as a result of the Act will have a favorable impact on the
Company and that the current telecommunications market still offers many
premises wiring cabling opportunities. Continuing developments in multimedia
applications are bringing new entrants to the telecommunications market.
Competitive carriers are challenging incumbent telecommunications providers in
certain market areas by offering individual or bundled video, voice and data
services to residential and commercial customers. Internet service providers and
cable television, entertainment and data transmission companies are also all
potential customers for video, voice and data communications over broad
bandwidth cable systems.
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<PAGE>
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.
COMPARISONS OF THIRTEEN WEEKS ENDED JUNE 29, 1997 AND JUNE 28, 1998
REVENUES
Total revenues for the first quarter of fiscal 1999 were $16,649,227
compared to $21,651,070 for the first quarter of fiscal 1998, a decrease of
23.1%.
Revenues derived from residential and commercial premises wiring activities
decreased 18.8% to $15.1 million in the first quarter of fiscal 1999, versus
approximately $18.6 million in the prior year period. Such revenues accounted
for 91% of the Company's total revenues for the most recent quarter, versus 86%
in the prior year period. Premises wiring revenues from telephone companies for
video communication services decreased to approximately $3.1 million (18.7% of
total Company revenues) from $8.3 million (38.2% of total Company revenues) in
the first quarter of last year. Revenues from telephone companies for video
communication services have declined sequentially in each of the last four
fiscal quarters. This sequential decline in revenues is due to a number of
factors, including: (1) a decision by SBC Communications, Inc. to halt
construction of a cable project in California in June 1997; this project
produced approximately $1.1 million of revenues in the Company's fiscal 1998
first quarter, (2) a shift from higher revenue generating underground cabling
work orders to lower revenue aerial installation work orders in GTE Media
Ventures franchise areas in California, (3) an increase in competition from
other cabling service providers for available Telco work in certain market
areas, (4) an apparent reassessment by Telcos with regard to their video
strategies of pursuing less costly wireless cable systems (DBS and MMDS systems)
in lieu of their current and more costly hybrid fiber-coaxial hardwire systems
and (5) a slowdown in the buildout rate of video networks in their current
franchise areas. The amount of future capital allocated by these companies to
their video programs is largely contingent upon the financial success of these
programs, possible new technical developments and overall strategic decisions by
the companies regarding video services. In addition, consolidation within the
telecommunications industry may also delay or depress capital spending among
Telcos as companies assess their new business plans and strategies and focus on
administrative and operational issues associated with their acquisitions or
alliances.
Commercial network cabling revenues for the three months ended June
28,1998, increased 20% to approximately $3.5 million (21.1% of total revenues)
versus $2.9 million (13.4% of total revenues) in the first quarter of fiscal
1998. Sales for the quarter ended June 28, 1998, also included premises wiring
revenues from cable television multiple system operators of approximately $6.7
million (40.4% of total revenues) versus approximately $6.1 million (28.1% of
total revenues) in the corresponding period last year.
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<PAGE>
GROSS PROFIT
Gross profit for the first quarter of fiscal 1999 was $6,481,725, or 38.9%
of revenues, as compared to $8,302,042, or 38.3% of revenues, in the first
quarter of fiscal 1998.
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 first quarter of fiscal 1999 compared to the corresponding
period last year. 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 profitability in the first quarter of fiscal 1999 was negatively
impacted by the decision to terminate a contract in Phoenix, Arizona, with a
Telco in May 1998. Individual project work orders related to this contract
generated approximately $0.6 million in revenues and an operating loss of
approximately $0.2 million in the fiscal 1999 first quarter. Work under this
contract was substantially complete as of June 28, 1998.
SELLING, GENERAL AND ADMINISTRATIVE
The Company's selling, general and administrative cost structure 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 Company is reluctant to significantly
reduce its cost structure during periods of reduced spending by its customers
and believes that a certain expense level is necessary to adequately support
longer term revenue growth and quality customer service. Selling, general and
administrative expenses for the first three months of fiscal 1999 were
$5,895,538 (35.4% of revenues), as compared to $6,136,163 (28.3% of revenues) in
the prior year period, a decrease of $240,625 or 3.9%. The increase in selling,
general and administrative expenses as a percentage of revenues is a result of a
decline in revenues in the first quarter of fiscal 1999, which decreased
approximately $5.0 million, or 23.1%, from the comparable first quarter of
fiscal 1998.
INTEREST INCOME AND EXPENSE
Interest income was $131,027 for the three months ended June 28, 1998, as
compared to net interest expense of $165,051 for the first quarter of fiscal
1998. In October 1997 the Company used part of the proceeds received from a
public stock offering to pay in full its outstanding bank debt of approximately
$6.8 million. The balance of the proceeds are being invested in short-term
investment grade securities.
PROVISION FOR INCOME TAXES
The Company's effective tax rate was 38.1% versus 40.9% for the comparable
quarter in fiscal 1998, a decrease of 2.8%. This decrease is primarily the
result of a lower anticipated effective state tax rate in fiscal 1999.
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<PAGE>
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, 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.
In October 1997 the Company completed a public offering in which it issued
600,000 new shares of common stock. 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 June 28, 1998, totaled
$17.9 million compared to $19.6 million at March 29, 1998, a decrease of
approximately $1.7 million, or 8.7%. This decrease is due to the decline in
revenues in the first quarter of fiscal 1999 ($16.6 million) as compared to
fourth quarter fiscal 1998 revenues ($19.5 million). The Company anticipates
that it will continue to receive collections of its accounts receivable in the
ordinary course of business. 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. Management
believes that current cash reserves, cash flow from operations, possible credit
from its commercial bank 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.
CURRENT CREDIT ARRANGEMENTS. On March 26, 1998, the Company received a
commitment from its new commercial bank for a two-year $10.0 million unsecured
revolving credit note and terminated its prior credit agreement. Terms of the
new credit agreement have not been finalized. There were no borrowings
outstanding under the new credit commitment at June 28, 1998.
CASH FLOW FROM OPERATING ACTIVITIES. For the first three months of fiscal
1999, net cash provided by operating activities was approximately $1.9 million.
This was due primarily to the Company's net income, depreciation and
amortization and the collection of accounts receivable. These items were
somewhat negated by decreases in trade accounts payable, accrued compensation
and liabilities to subcontractors.
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<PAGE>
CASH FLOW FROM INVESTING ACTIVITIES. Net cash used in investing activities
for the first three months of fiscal 1999 totaled $136,913 versus $829,672 for
the corresponding period last year. Cash used in investing activities is
primarily a result of the purchase of property and equipment, which totaled
approximately $188,000 (1.1% of revenues) for the fiscal 1999 first quarter
versus $1,004,126 (4.6% of revenues) for the comparable period last year. The
decreased capital expenditures in the first quarter of fiscal 1999 is primarily
due to fewer new project start-ups and less outside plant construction activity
(approximately $3.1 million in revenues in the first quarter of fiscal 1998
versus approximately $1.5 million in the first quarter of fiscal 1999).
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, DBS
providers and other telecommunications providers produces 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 early part of the calendar year (the Company's fourth and
first fiscal quarters). 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. 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 soft ground which may prevent underground premises
installations, the burying of cable drops and increased restoration costs.
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. For example, in fiscal 1998 the Company recorded
approximately $25.9 million in revenues (30.2% of total revenues for the year)
from Telcos that were building or expanding video systems. Revenues from Telcos
for video systems have declined sequentially in each of the last four quarters,
from approximately $8.3 million in the first quarter of fiscal 1998 to
approximately $3.1 million in the first quarter of fiscal 1999. The amount of
future capital allocated by these companies to their video programs is largely
contingent upon the financial success of these programs, possible new technical
developments and overall strategic decisions by the companies regarding video
services. 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.
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<PAGE>
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.
YEAR 2000
The Year 2000 problem arises from the fact that due to early limitations on
memory and disk storage many computer programs indicate the year by only two
digits, rather than four. This limitation can cause programs that perform
arithmetic operations, comparisons or sorting of data fields to yield incorrect
results when working outside the year range of 1900-1999. This could cause
computer applications to fail or to create erroneous results unless corrective
measures are taken. Incomplete or untimely resolution of the Year 2000 issue
could have a material adverse impact on the Company's business, operations or
financial condition in the future. The Company has been assessing the impact
that the Year 2000 issue will have on its computer systems, including both
hardware and software. In response to these assessments, which are ongoing, the
Company has developed and is implementing a plan to develop solutions to those
systems found to have date-related deficiencies. The Company is also surveying
its bank and critical suppliers to determine the status of their Year 2000
compliance programs. Based upon current available information, the Company
believes that Year 2000 compliance should be completed by March 1999. Assuming
that project plans can be implemented as planned, the Company believes future
costs relating to the Year 2000 issue, which will be expensed as incurred, will
not have a material adverse impact on the Company's business, operations or
financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's exposure to market risk through derivative financial
instruments and other financial instruments, such as investments in short-term
marketable securities and long-term debt, is not material.
-14-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
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
----------- ------------
11 Statement re computation of per share earnings. All
information required by Exhibit 11 is presented herewith
on Page 8 under Note 2 to the Company's consolidated
financial statements
27 Financial Data Schedule filed herewith on Page 17 as
part of this report on Form 10-Q.
(b) No reports on Form 8-K have been filed during the quarter ended
June 28, 1998.
-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: August 7, 1998 By: /s/ Larry R. Linhart
--------------------------------------------
Larry R. Linhart
Chairman, President and Chief Executive Officer
Date: August 7, 1998 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
CONSOLIDATED BALANCE SHEET AS OF JUNE 28, 1998, AND THE STATEMENT OF INCOME FOR
THE THIRTEEN WEEKS ENDED JUNE 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> JUN-28-1998
<CASH> 10,513
<SECURITIES> 0
<RECEIVABLES> 11,854
<ALLOWANCES> 269
<INVENTORY> 1,690
<CURRENT-ASSETS> 30,892
<PP&E> 6,992<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 38,084
<CURRENT-LIABILITIES> 6,318
<BONDS> 0
0
0
<COMMON> 24,018
<OTHER-SE> 7,748
<TOTAL-LIABILITY-AND-EQUITY> 38,084
<SALES> 16,649
<TOTAL-REVENUES> 16,649
<CGS> 10,168
<TOTAL-COSTS> 16,063
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 35
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 717
<INCOME-TAX> 273
<INCOME-CONTINUING> 444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 444
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
<FN>
<F1>PROPERTY, PLANT AND EQUIPMENT IS REPORTED NET OF ACCUMULATED DEPRECIATION
ON THE CONSOLIDATED BALANCE SHEET
</FN>
</TABLE>
