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 30, 1996
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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 ____________
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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3,478,580 SHARES OF COMMON STOCK WERE OUTSTANDING AS OF AUGUST 8, 1996
1
AMERILINK CORPORATION
QUARTERLY REPORT FOR THE QUARTER ENDED JUNE 30, 1996
INDEX PAGE NO.
PART I: FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets as of March 31, 1996
and June 30, 1996 3
(Unaudited)
Consolidated Statements of Operations (Unaudited) for the
thirteen weeks ended July 2, 1995 and June 30, 1996 4
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited) for the thirteen weeks ended June 30, 1996 5
Consolidated Statements of Cash Flows (Unaudited) for the
thirteen weeks ended July 2, 1995 and June 30, 1996 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 10
PART II: OTHER INFORMATION
Items 1-6 11
Signatures 12
2
AMERILINK CORPORATION
CONSOLIDATED BALANCE SHEETS
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March 31, 1996 June 30, 1996
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 78,680 $ 139,390
Accounts receivable-trade, net of allowance for
doubtful accounts of $95,000 and $100,000 8,899,443 8,153,659
Work-in-process 2,902,617 4,350,169
Materials and supply inventories 1,710,084 2,058,154
Other receivables 221,659 179,081
Deferred tax benefit 127,286 127,286
Other 510,263 372,350
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Total current assets 14,450,032 15,380,089
Property and equipment - net 6,032,551 6,027,078
Deposits and other assets 71,217 116,969
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Total assets $ 20,553,800 $ 21,524,136
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 1,802,121 $ 2,239,771
Liability to subcontractors 1,083,186 1,235,959
Accrued compensation and related expenses 1,078,935 1,092,001
Accrued insurance 536,872 279,326
Other 160,952 167,768
Current maturities of long-term debt 720,000 609,190
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Total current liabilities 5,382,066 5,624,015
Long-term debt, less current maturities 5,843,227 6,350,000
Deferred income taxes 117,839 117,839
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Total liabilities 11,343,132 12,091,854
Shareholders' equity:
Preferred stock, without par; 1,000,000 shares
authorized; none issued or outstanding ---- ----
Common stock, without par; 10,000,000 shares
authorized; 3,478,580 shares issued
and outstanding 8,061,395 8,061,395
Retained earnings 1,149,273 1,370,887
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Total shareholders' equity 9,210,668 9,432,282
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Total liabilities and shareholders' equity $ 20,553,800 $ 21,524,136
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See notes to financial statements.
3
AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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Thirteen Weeks Ended
July 2, 1995 June 30, 1996
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Revenues $ 11,043,877 $ 13,521,020
Cost of sales 7,859,200 9,021,244
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Gross profit 3,184,677 4,499,776
Selling, general and administrative expenses 3,430,620 4,004,152
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Income (loss) from operations (245,943) 495,624
Interest expense (99,842) (127,632)
Other income 1,496 622
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Income (loss) before income taxes (344,289) 368,614
Income tax provision (benefit) (138,000) 147,000
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Net income (loss) $ (206,289) $ 221,614
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Net income (loss) per common share $ (0.06) $ 0.06
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Weighted average common shares
outstanding 3,622,659 3,639,952
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See notes to financial statements.
4
AMERILINK CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THIRTEEN WEEKS ENDED JUNE 30, 1996
(UNAUDITED)
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Number Common Retained
of Shares Stock Earnings Total
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Balance at March 31, 1996 3,478,580 $ 8,061,395 $ 1,149,273 $ 9,210,668
Net income ------ ------ 221,614 221,614
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Balance at June 30, 1996 3,478,580 $ 8,061,395 $ 1,370,887 $ 9,432,282
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See notes to financial statements
5
AMERILINK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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Thirteen Weeks Ended
July 2, 1995 June 30, 1996
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OPERATING ACTIVITIES
Net income (loss) $ (206,289) $ 221,614
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 439,230 534,322
Net gain on disposal of fixed assets (175) (4,745)
Changes in operating assets and liabilities:
Accounts receivable and work-in-process (222,661) (701,768)
Materials and supply inventories (235,982) (348,070)
Other receivables (14,916) 42,578
Other current assets (293,962) 137,913
Trade accounts payable 494,531 437,650
Liability to subcontractors 34,855 152,773
Accrued compensation and related expenses (72,115) 13,066
Accrued insurance (162,826) (257,546)
Other current liabilities 1,618 6,816
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Net cash provided by (used) in operating activities (238,692) 234,603
INVESTING ACTIVITIES
Purchase of property and equipment (1,158,831) (609,169)
Proceeds from sale of property and equipment 6,787 85,065
Deposits and other assets 215,230 (45,752)
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Net cash used in investing activities (936,814) (569,856)
FINANCING ACTIVITIES
Principal payments on long-term debt (3,205,000) (4,430,000)
Proceeds from borrowings on long-term debt 4,425,000 4,825,963
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Net cash provided by financing activities 1,220,000 395,963
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Increase in cash and cash equivalents 44,494 60,710
Cash and cash equivalents at beginning of period 71,944 78,680
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Cash and cash equivalents at end of period $ 116,438 $ 139,390
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SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 100,653 $ 129,633
Income taxes paid $ 57,703 $ 41,605
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See notes to financial statements.
6
AMERILINK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
AmeriLink Corporation (the "Company") is a nationwide provider of
cabling systems for the transmission of video, voice and data. The Company
provides these services on a national basis predominantly to cable television
multiple system operators. The Company also offers its services to other
providers of telecommunications services, including: traditional telephone
service providers, including local exchange carriers ("LEC") and long
distance carriers; competitive access providers ("CAPS"); Direct Broadcast
Satellite ("DBS") providers; and users of Local Area Network ("LAN")
systems. The Company's cabling services include the designing, constructing,
installing and maintaining of fiber optic, copper and coaxial cabling
systems. The Company provides these services predominately through the use
of independent contractors via its national network of regional and satellite
field offices.
These financial statements include the accounts of both AmeriLink
Corporation (the holding company) and its wholly owned subsidiary AmeriLink
Corp. (the operating company). Prior to consummation of the Company's
initial public offering in August, 1994, the business of the Company was
conducted solely under AmeriLink Corp. In conjunction with the public
offering, the shareholders of AmeriLink Corp. received 13,500 shares of
AmeriLink Corporation stock for each share of AmeriLink Corp. stock held. As
a result of the recapitalization, AmeriLink Corporation is the sole
shareholder of AmeriLink Corp.
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 31,
1996 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 30,
1996 are not necessarily indicative of the results to be expected for the
full year.
2. NET INCOME (LOSS) PER SHARE
Net Income (loss) per share is calculated by dividing net income
(loss) 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. The shares have been restated to give
effect to the recapitalization discussed in Note 1.
3. NOTES PAYABLE AND LONG-TERM DEBT
Under its existing credit agreement with its commercial bank, the
Company has a $10,000,000 unsecured revolving credit note and an unsecured
term note. The interest rate on the revolving credit note is prime minus 1%
and interest is payable monthly. The revolving credit note matures September
30, 1997 and includes a commitment fee of 1/4% on any unused portion of the
note. Borrowings under the revolving credit note were $6,350,000 at June 30,
1996.
The unsecured term note in the amount of $1,629,190 matures May 31,
1997. Interest is payable monthly at the rate of prime. The balance of the
unsecured term note at June 30, 1996 was $609,190.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISONS OF THIRTEEN WEEKS ENDED JULY 2, 1995 AND JUNE 30, 1996
REVENUES
Total revenues for the first quarter of fiscal 1997 were $13,521,020
compared to $11,043,877 for the first quarter of fiscal 1996, an increase of
approximately $2.5 million or 22%.
Approximately $1.9 million and $0.4 million of the total $2.5
million increase in revenues is the result of growth in both local area
network cabling and direct broadcast satellite services, respectively. This
growth is due to increased marketing efforts for such services. Total
residential and commercial premises wiring revenues (non-construction cabling
services) for the first quarter of fiscal 1997 were approximately $10.2
million, an increase of 33% compared to the first quarter of fiscal 1996.
The Company's revenues during the first quarter of fiscal 1996 were
lower than anticipated. The Company believes that capital spending by its cable
television customers during the first quarter of 1996 was slow due to a number
of factors, among them: (1) uncertainty regarding the pending federal
telecommunications legislation (2) the personal communications services ("PCS")
auctions which resulted in additional large capital commitments by cable MSOs
and a reprioritization of capital budgets, and (3) continued consolidation
within the cable industry, which focused cable operators on administrative and
operational details associated with their acquisitions.
GROSS PROFIT
Gross profit was $4,499,776, or 33.3% of revenues, for the first
quarter of fiscal 1997, as compared to $3,184,677, or 28.8% of revenues, for the
first quarter of fiscal 1996.
The increase in gross profit as a percentage of revenue is mainly due
to operating losses, due primarily to high production costs and vehicle and
equipment costs, incurred on a large construction project during the first
quarter of fiscal 1996. The Company's cost structure anticipated more work
orders and higher project revenues from this contract than were actually
realized.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $4,004,152, or 29.6%
of revenues for the first quarter of fiscal 1997, as compared to $3,430,620, or
31.1% of revenues, for the first quarter of fiscal 1996.
The dollar increase in selling, general and administrative expenses is
primarily due to additional employee wages needed to support increased revenues.
However, selling, general and administrative expenses decreased as a percentage
of revenues in the current quarter over the same period a year ago. This can be
attributed to lower than anticipated revenues during the first quarter of fiscal
1996 as a result of decreased spending by the Company's cable television
customers. This reduction in revenues along with a cost structure expecting
higher revenues increased selling, general and administrative expenses as a
percentage of revenues during the first quarter of fiscal 1996.
8
INTEREST EXPENSE
Interest expense was $127,632, or 0.9% of revenues for the first
quarter of fiscal 1997, as compared to $99,842 or 0.9% of revenues for the first
quarter of fiscal 1996.
The dollar increase in interest expense is primarily due to increased
borrowings to finance accounts receivable and work-in-process.
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 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 June 30, 1996
totaled $12,503,828, as compared to $10,854,937 at July 2, 1995, an increase of
$1,648,891 or 15%. This increase is attributed to a general increase in
revenues and level of operations. Although there is no assurance that the
Company will be able to collect all or any part of these unsecured receivable,
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 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.
CURRENT CREDIT ARRANGEMENTS. Under its existing credit agreement
with its commercial bank, the Company has a $10,000,000 unsecured revolving
credit note and an unsecured term note. The interest rate on the revolving
credit note is prime minus 1% and interest is payable monthly. The revolving
credit note matures September 30, 1997 and includes a commitment fee of 1/4% on
any unused portion of the note. Borrowings under the revolving credit note were
$6,350,000 at June 30, 1996.
The unsecured term note in the amount of $1,629,190 matures May 31, 1997.
Interest is payable monthly at the rate of prime. The balance of the unsecured
term note at June 30, 1996 was $609,190.
CASH FLOW FROM OPERATING ACTIVITIES. For the first quarter of fiscal
1997, net cash provided by operating activities totaled $234,603. This is
principally the result of net income combined with the noncash expense of
depreciation and amortization exceeding the net increases in accounts receivable
and work-in-process that were not offset by corresponding increases in accounts
payable and liabilities to subcontractors. The increase in accounts receivable
and work-in-process resulted from increases in the Company's level of
operations. 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.
9
CASH FLOW FROM INVESTING ACTIVITIES. For the first quarter of fiscal
1997, net cash used in investing activities totaled $569,856. This was due to
the purchase of property and equipment that totaled $609,169 for the quarter.
The level of capital expenditures is dependent largely upon the level of
construction services that the Company performs. The Company uses heavy
machinery, specialized trucks, and other construction equipment to perform its
construction services. The Company replaces existing equipment as necessary,
and replaces rented equipment with purchased equipment if economically feasible.
SEASONALITY AND VARIABILITY IN QUARTERLY RESULTS
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, CAPs, 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, the Company's operations historically have been influenced by the
budget cycles of the Company's customers and by the impact of weather
conditions. Most of the Company's 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. Weather can affect the amount of construction cabling services
provided by the Company since they are performed outdoors. Weather can also
impact the Company's non-construction cabling services due to the limited and
lost production associated with poor driving conditions and generally difficult
working environments. Additionally, the construction of new and the rebuilding
of existing aerial and underground cable systems is dependent on the cable
television and the telephone industries' demands, which may fluctuate on a
seasonal basis.
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.
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 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, the risk of changing market conditions and
customer purchase authorizations, competitive and regulatory risks associated
with the telecommunications industry, and other risks described in the Company's
Securities and Exchange Commission filings.
10
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) Exhibit 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 June 30, 1996.
11
SIGNATURES
Pursuant to the requirements of 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)
August 12, 1996 By: /s/ Larry R. Linhart
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(Date) Larry R. Linhart
Chief Executive Officer
President
August 12, 1996 By: /s/ James W. Brittan
- -------------------- --------------------------------------
(Date) James W. Brittan
Vice President of Finance
(Principal Financial and Accounting
Officer)
12