SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1997
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Commission File Number 0-15405
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Data Transmission Network Corporation
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(Exact name of registrant as specified in its charter)
Delaware 47-0669375
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(State of Incorporation) (I.R.S. Employer ID Number)
9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114
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(Address of principal executive office) (Zip Code)
(402) 390-2328
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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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Number of shares of common stock outstanding as of November 14,
1997...11,142,429.
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<TABLE>
<CAPTION>
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FINANCIAL STATEMENTS
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BALANCE SHEETS
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Unaudited September 30, 1997 December 31, 1996
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ASSETS
Current Assets
<S> <C> <C>
Cash $ 241,069 $ 708,053
Accounts receivable, net of allowance for
doubtful accounts of $520,000 8,332,783 9,653,766
Prepaid expenses 1,090,115 583,985
Deferred commission expense 3,255,368 2,807,330
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Total Current Assets 12,919,335 13,753,134
Property and Equipment
Equipment Used By Subscribers 220,161,403 203,310,661
Equipment and Leasehold Improvements 22,216,794 19,702,330
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242,378,197 223,012,991
Less: Accumulated Depreciation 125,794,785 98,564,288
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Net Property and Equipment 116,583,412 124,448,703
Intangible Assets From Acquisitions, net of accumulated
amortization of $8,153,175 and $3,871,956 36,761,641 36,517,799
Other Assets 2,248,251 3,010,126
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$ 168,512,639 $ 177,729,762
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 9,097,233 $ 7,485,517
Accrued expenses 6,659,143 5,923,628
Current portion of long-term debt 23,269,166 15,092,083
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Total Current Liabilities 39,025,542 28,501,228
Long-Term Debt 60,888,748 83,184,373
Subordinated Long-Term Notes, net of unamortized
discount of $377,015 and $436,550 14,622,985 14,563,450
Equipment Deposits 489,630 515,142
Unearned Revenue 22,866,822 22,675,280
Stockholders' Equity
Common stock, par value $.001, authorized
20,000,000 shares, issued 11,137,167 and 11,074,224 11,137 11,074
Paid-in capital 30,566,535 30,025,990
Retained earnings (deficit) 41,240 (1,404,602)
Treasury stock, at cost, 0 and 45,919 shares - (342,173)
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Total Stockholders' Equity 30,618,912 28,290,289
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$ 168,512,639 $ 177,729,762
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<FN>
See notes to interim financial statements.
2
</FN>
</TABLE>
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<TABLE>
<CAPTION>
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STATEMENTS OF OPERATIONS
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Quarter Ended Nine Months Ended
Unaudited Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
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REVENUES
<S> <C> <C> <C> <C>
Subscriptions $26,082,083 $20,976,953 $74,257,907 $53,297,242
Additional services 1,683,839 1,593,435 4,981,457 4,150,642
Communication services 2,590,236 2,294,722 7,373,070 6,439,859
Advertising 781,950 783,333 2,893,565 2,281,602
Service initiation fees 1,078,130 1,492,896 3,568,399 4,279,875
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32,216,238 27,141,339 93,074,398 70,449,220
EXPENSES
Selling, general
and administrative 15,948,660 12,918,466 45,435,826 35,847,027
Sales commissions 2,496,743 2,462,980 7,217,865 6,746,990
Depreciation and
amortization 10,656,758 9,611,390 31,327,819 23,541,237
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29,102,161 24,992,836 83,981,510 66,135,254
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OPERATING INCOME 3,114,077 2,148,503 9,092,888 4,313,966
Interest expense 2,229,420 2,498,561 6,949,110 5,974,028
Other income, net 6,643 21,555 71,202 72,222
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INCOME (LOSS) BEFORE
INCOME TAXES 891,300 (328,503) 2,214,980 (1,587,840)
Income tax provision(benefit) 319,500 (68,500) 796,000 (523,500)
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NET INCOME (LOSS) $ 571,800 $ (260,003) $ 1,418,980 $(1,064,340)
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EARNINGS (LOSS)
PER SHARE $ 0.05 $ (0.02) $ 0.12 $ (0.10)
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Weighted Average
Shares Outstanding 12,132,803 11,008,848 12,072,045 10,536,556
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<FN>
See notes to interim financial statements.
3
</FN>
</TABLE>
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<TABLE>
<CAPTION>
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STATEMENTS OF CASH FLOWS
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Nine Months Ended
Unaudited Sept. 30, 1997 Sept. 30, 1996
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Cash Flows From Operating Activities
<S> <C> <C>
Net income (loss) $ 1,418,980 $ (1,064,340)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 31,327,819 23,541,237
Amortization of debt issue costs and discount 110,909 102,725
Deferred income taxes 710,500 (537,000)
Change in assets and liabilities:
Accounts receivable (981,924) (139,625)
Prepaid expenses (444,606) (249,171)
Deferred commission expense (352,865) (402,829)
Deferred debt issuance costs - (112,078)
Accounts payable 1,531,125 (1,727,047)
Accrued expenses (415,492) 249,172
Equipment deposits (25,512) (18,098)
Unearned revenue 3,416,542 3,081,053
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Net Cash Provided By Operating Activities 36,295,476 22,723,999
Cash Flows From Investing Activities
Capital expenditures:
Equipment used by subscribers (15,821,232) (29,768,564)
Equipment and leasehold improvements (2,371,040) (2,548,234)
Acquisition of Subscribers (5,361,289) (65,745,794)
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Net Cash Used By Investing Activities (23,553,561) (98,062,592)
Cash Flows From Financing Activities
Proceeds (payments) from revolving credit agreement 2,000,000 18,250,000
Proceeds from long-term debt - 48,490,000
Principal payments on long-term debt (16,118,542) (7,135,415)
Proceeds from the exercise of stock options 909,643 672,097
Proceeds from the issuance of common stock - 15,010,000
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Net Cash Provided (Used) By Financing Activities (13,208,899) 75,286,682
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Net Decrease in Cash (466,984) (51,911)
Cash at Beginning of Period 708,053 780,018
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Cash at End of Period $ 241,069 $ 728,107
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<FN>
See notes to interim financial statements.
4
</FN>
</TABLE>
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NOTES TO INTERIM FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The information furnished herein relating to interim periods
has not been audited by independent Certified Public Accountants. The
interim financial information in this report reflects all adjustments
which are, in the opinion of management, necessary for a fair statement
of results for the interim periods presented in accordance with
generally accepted accounting principles. All such adjustments are of a
normal recurring nature. The accounting policies followed by the
Company, and additional footnotes, are set forth in the audited
financial statements included in the Company's 1996 Annual Report,
which report was incorporated by reference in Form 10-K for the fiscal
period ended December 31, 1996. The results of operations for the three
and nine months ended September 30, 1997 and 1996 are not necessarily
indicative of the results to be expected for the full year.
2. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is calculated on the basis of the
weighted average outstanding common shares and, when applicable, those
outstanding options and warrants that are dilutive. All share and per
share data, for all periods presented, have been adjusted to reflect a
three-for-one stock split effectuated on June 28, 1996, for shares of
record on June 14, 1996.
3. ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, Earnings Per Share which specifies the
computation, presentation and disclosure requirements for earnings per
share. The objective of the statement is to simplify the computation of
earnings per share. The impact on the Company's earning per share is
not materially different than earnings per share determined in
accordance with current guidance. SFAS No. 128 is applicable for fiscal
years ending after December 15, 1997.
4. ACQUISITIONS
BROADCAST PARTNERS
Effective May 3, 1996, the Company closed on an "Asset
Acquisition" of Broadcast Partners, an information provider primarily
in the agricultural industry. The Company acquired substantially all
the assets of Broadcast Partners for $63.5 million cash and the
assumption of certain liabilities of approximately $9.8 million. In the
acquisition, the Company received 39,000 agricultural subscribers. The
acquisition included approximately $38.2 million of equipment the
Company is depreciating using the straight-line method over five years.
In addition, an intangible asset (goodwill) of approximately $35
million was capitalized and the Company is amortizing using the
straight-line method over eight years.
5
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MARKET QUOTERS, NORTHERN DATA & MARKET COMMUNICATIONS GROUP
During the first quarter of 1997, the Company acquired 2,900
real-time commodity subscribers through two separate acquisitions.
Approximately 500 of the subscribers were acquired from Market Quoters
and Northern Data Services for $750,000 cash. The remaining 2,400
subscribers were acquired from Market Communications Group, LLC (MCG),
a joint venture between Reuters America Inc., and Farmland Industries,
Inc. The Company paid $3.6 million cash for the 2,400 subscribers,
certain assets and certain assumed liabilities. In total, approximately
$4.5 million was capitalized as intangible assets (goodwill) and the
Company is amortizing using the straight line method over eight years.
Also important with the MCG acquisition was the acquisition of the
exclussive rights to resell relevant Reuters real-time news and
information to the commodities, energy and metals markets.
5. LONG-TERM DEBT AND LOAN AGREEMENTS
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
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Revolving Credit Agreement
<S> <C> <C>
Revolving credit line $ 2,500,000 $38,500,000
Term notes 39,104,164 10,786,456
Term Credit Agreement
Term notes 42,428,750 48,490,000
Stock Repurchase Agreement
Term notes 125,000 500,000
Total Loan Agreements 84,157,914 98,276,456
Less current portion 23,269,166 15,092,083
Total Long-Term Debt $ 60,888,748 $83,184,373
</TABLE>
The Company has a revolving credit agreement, as amended, with a group
of banks (the "Revolving Credit Agreement"). The Revolving Credit Agreement,
which expires June 30, 1999 unless extended, provides for a total commitment of
up to $33,000,000 in new borrowings. As of September 30, 1997, $2,500,000 of the
total commitment had been borrowed, with the remaining $30,500,000 available to
the Company subject to certain restrictions as discussed below.
Additional borrowings under the Revolving Credit Agreement are
available to the Company, as long as at the time of the advance, no default
exists with any of the Company loan agreements or the subordinated notes
agreement (see Note 6), and total debt outstanding (including term notes
outstanding but excluding long-term subordinated debt) does not exceed
thirty-six times monthly operating cash flow (as defined). As of September 30,
1997 based on current operating cash flow,
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the Company would be able to borrow all of the remaining $30,500,000 commitment
available.
In addition to the restrictions mentioned above with respect to
advances, total debt outstanding (excluding long-term subordinated debt) is
limited to forty-eight times monthly operating cash flow. Additionally, total
debt outstanding (including subordinated debt) is limited to sixty times monthly
operating cash flow. The Company is also required to maintain total
stockholders' equity of at least $23,500,000 plus fifty percent (50%) of net
income (but not losses) at fiscal year end through June 30, 1999 and, a ratio of
quarterly operating cash flow to interest expense (as defined) of at least 2.25
to 1. The Company is permitted to pay cash dividends in any one year, which are,
in the aggregate, less than 25% of the Company's net operating profit after
taxes in the previous four quarters.
Interest on the outstanding borrowings (prior to when the borrowings
might be converted to term loans, as discussed below) is at a variable rate,
depending on the ratio of the Company's total borrowings (excluding long-term
subordinated debt) to operating cash flow (the "Leverage Ratio"). The following
table outlines the "Leverage Ratio", the applicable Margin, Unused Commitment
Fees and Fixed Note Margin to be discussed below.
<TABLE>
<CAPTION>
Leverage Ratio Margin Unused Commitment Fee Fixed Note Margin
<S> <C> <C> <C>
Greater than 42 .250% .375% 2.25%
Greater than 36 and less than or equal to 42 .500% .250% 2.25%
Greater than 30 and less than or equal to 36 .750% .250% 2.00%
Greater than 24 and less than or equal to 30 1.000% .250% 2.00%
Greater than 18 and less than or equal to 24 1.250% .125% 1.75%
Less than or equal to 18 1.375% .125% 1.75%
</TABLE>
The Revolving Credit Rate is the First National Bank of Omaha's
"National Base Rate", minus the applicable Margin. The base rate is adjusted
monthly, with the interest rate margin (as defined above) changed quarterly. As
of September 30, 1997, the Revolving Credit Rate is 7.25%.
The Company has the option to convert the outstanding revolving credit
borrowings to term loans at any time, payable in forty-eight equal principal
installments, plus interest. Interest on the converted term loans is at the
Company's option, a variable interest rate of 1/4% over the Revolving Credit
Rate or at a fixed rate of 1/2% over the Revolving Credit Rate or the applicable
Fixed Note Margin (based on the "Leverage Ratio") over the average of the 3 and
5 year U. S. treasury securities, as quoted in the prior month "Federal Reserve
Statistical Release", whichever is greater. As of September 30, 1997, $2,500,000
of the total borrowings outstanding had not been converted to term loans. As of
September 30, 1997, $39,104,164 of term loans were outstanding with monthly
installments due up through 2001 having interest rates ranging from 7.865% to
9.25%.
The Company pays a commitment fee of 1/8 - 3/8% on the unused portion of the
total revolving credit commitment based on the "Leverage Ratio". As of September
30, 1997 the
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commitment fee was 1/8% on all unused revolving credit commitment. Additionally,
if total borrowings (excluding long-term subordinated debt) exceed 36 times the
Operating Cash Flow (as defined), the Company will be required to pay a closing
fee of 1/2% on all new borrowings made after that point in time. In the event
the total borrowings exceed 36 times Operating Cash Flow, any term note accruing
interest at less than 7.5% is included in a "Trigger Event". The Company is
obligated to pay the holders of such term notes a fee of 0.375% of the
outstanding balance of the notes upon the occurrence of the Trigger Event and
like amounts on the six month anniversary and the twelve month anniversary of
the Trigger Event.
The Company has a Term Credit Agreement dated February 26, 1997, with a
group of banks providing for an aggregate principal amount of $48,490,000 to be
repaid in 72 equal principal installments beginning January 31, 1997. Effective
April 1, 1997, the variable interest rate on the remaining principal balance of
the original $25,400,000 is accruing at the NY Prime rate less one-half of one
percent, or 8.00%. Interest on the remainder is fixed, accruing at interest
rates ranging from 8.25% to 8.36%.
During 1992, the Company entered into a loan agreement and borrowed
$2,000,000 solely for the repurchase of the Company's outstanding common stock
(the "Stock Repurchase" Agreement). Currently, this commitment is being repaid
in equal quarterly principal payments, plus interest, due through December,
1997. As of September 30, 1997, the amounts borrowed under the Stock Repurchase
Agreement, are accruing interest at 7.69% and 8.00%.
Substantially all of the Company's assets are pledged as collateral
under the Company's long-term debt and loan agreements.
The revolving credit lines are classified as long-term debt since the
Company has the ability and the intent to maintain these obligations for longer
than one year.
6. SUBORDINATED LONG-TERM NOTES
On June 30, 1994, the Company sold to one investor $15,000,000 of its
11.25% subordinated long-term notes in a private placement transaction (the
"subordinated debt"). The subordinated debt is subordinated in right of payment
to all current and future senior debt. Interest on the subordinated debt is to
be paid quarterly, with principal due in five equal annual installments
beginning on June 30, 2000.
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The Company has the option to prepay the subordinated debt on any date
after June 30, 1997 at a premium beginning at 7.5% of the principal prepaid, and
decreasing by 1.5% per year until June 30, 2002 when no premium is required.
There are provisions for mandatory prepayment upon a change in ownership control
(as defined), at a premium beginning at 12.0% of the principal prepaid during
the period ended June 30, 1995 and decreasing by 1.5% per year until June 30,
2002 when no premium is required.
The subordinated debt agreement contains a cross-acceleration clause,
whereby the subordinated debt will become immediately due and payable upon a
payment default on the revolving and term credit agreements. Other subordinated
debt financial covenants and restrictions are generally less restrictive than
those of the other loan agreements.
The Company also issued a warrant to the investor to purchase 75,000
shares of the Company's $.001 par value common stock at $7.39 per share (as
adjusted after the three-for-one stock split) on or before June 30, 2004. In
connection with the issuance of the warrant to purchase common stock, the
Company recorded a $635,000 credit to additional paid in capital and a related
debt discount, which represents an estimate of the fair value of the warrant
issued.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
GENERAL OVERVIEW
The equipment used by subscribers is a large capital investment for the
Company. This equipment accounts for 64% of the Company's total assets. The
Company has also made significant investments during 1995, 1996 and the first
quarter of 1997 to acquire subscribers. The net intangible assets (goodwill)
resulting from the acquisition of subscribers is 22% of the Company's total
assets. The acquisitions of subscribers is expected to enhance the long-term
operating performance and financial condition of the Company. The investments in
subscriber equipment require the Company to increase long-term debt until cash
generated from operating activities is sufficient to support future investments.
The Company's strategy is to utilize long-term debt financing versus equity,
whenever possible, to prevent the dilution of shareholders value.
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities for the first nine months of
1997 was $36,295,476 compared to $22,723,999 for the same period in 1996. This
increase of $13,571,477 was primarily the result of the $12,565,504 increase in
operating cash flow plus the $2,045,891 of additional cash generated from the
change in assets and liabilities, offset by the $975,082 increase in interest
expense related to the Company's investing activities.
NET CASH USED BY INVESTING ACTIVITIES
Net cash used by investing activities for the first nine months of 1997
was $23,553,561 compared to $98,062,592 for the same period in 1996. This
decrease was primarily the result of the Company's acquisition of Broadcast
Partners in May of 1996. This decrease was also brought on by the Company's
ability to utilize a build-up of subscriber equipment inventory created at the
end of 1996, thus reducing the need for new purchases. This decrease was
slightly offset by the purchase of 2,900 subscribers through two separate
acquisitions in the first quarter of 1997.
During the first quarter of 1997, the Company acquired 2,900 real-time
commodity subscribers through two separate acquisitions. Approximately 500 of
the subscribers were acquired from Market Quoters and Northern Data Services for
$750,000 cash. The remaining 2,400 subscribers were acquired from Market
Communications Group, LLC (MCG), a joint venture between Reuters America Inc.,
and Farmland Industries, Inc. The Company paid $3.6 million cash for the 2,400
subscribers, certain assets and certain assumed associated liabilities. In
total, approximately $4.5 million was capitalized as intangible assets
(goodwill) and the Company is amortizing using the straight line method over
eight years. Also important with the MCG acquisition was the acquisition of the
exclussive rights to resell relevant Reuters real-time news and information to
the commodities, energy and metals markets.
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The Company had $26,106,207 of negative working capital compared to
$14,551,621 for the first nine months of 1997 and 1996, respectively. This
increase in working capital deficiency was primarily created by the growth in
the current portion of long-term debt of $9,999,583 resulting from the debt
related to subscriber acquisitions and the conversion of revolving debt to term
notes at the end of the first quarter.
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Net cash provided (used) by financing activities resulted in a use of
funds of $13,208,899 for the first nine months of 1997 and a source of funds of
$75,286,682 for the same period of 1996. For the first nine months of 1997, the
Company was able to pay down its debt by $16.1 million primarily due to the
excess cash generated by operating activities and the ability to use existing
inventory for its subscriber equipment needs. The source of funds needed for the
first nine months of 1996 was primarily the result of the Broadcast Partners
acquisition.
FACTORS THAT MAY AFFECT FUTURE RESULTS
INFLATION:
The Company believes that inflationary trends have a limited effect on
the business. However, since a large percentage of the Company's
subscribers and revenues are related to agricultural industries, the
general state of the agricultural economy may impact the Company's
business operations and financial condition.
INDEBTEDNESS:
The Company anticipates that internally generated cash flow and its
bank credit lines will be sufficient to fund operating activities,
capital expenditures and principal payments on long-term debt.
TECHNOLOGY:
Although the business of the Company is subject to the continuous
changes in technology, the Company is currently unaware of any new
technology which is likely to replace its present electronic delivery
systems and equipment at a competitive price.
RESULTS OF OPERATIONS
GENERAL OVERVIEW
The financial dynamics of the Company's business operations are similar
to businesses that sell monthly subscriptions such as electronic publications
and communications and cable TV companies. The financial dynamics are such that
the Company makes an initial investment of variable marketing costs to obtain
new subscribers and the Company makes a capital expenditure to provide the
subscriber with the necessary equipment to receive the Company's services.
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REVENUES
Total revenues for the third quarter and first nine months of 1997
increased 19% and 32% compared with the same periods of 1996. This increase was
attributed to an 8% growth in subscribers at the end of third quarter 1997 to
155,700 from 144,100 in 1996 and a 10% increase in total revenue per subscriber
per month from $63.28 for the third quarter of 1996 to $69.41 for the same
period of 1997.
Subscriptions:
Subscription revenue grew 24% for the third quarter of 1997 compared to
the same period of 1996. For the first nine months of 1997,
subscription revenue grew 39% over the first nine months of 1996. These
increases were mainly due to the increases in total subscribers, the
ability to move the subscribers to higher priced services and the
acquisitions mentioned above.
Additional Services:
Additional service revenue increased 6% and 20% during the third
quarter and first nine months of 1997 over the same periods in 1996.
These increases were the result of subscriber increases and an
expanding list of services available on an "a la carte" basis.
Communication Services:
Communication services revenue continued steady growth with a 13% and
14% increase during the third quarter and first nine months of 1997
compared to the same periods of 1996. This growth is primarily due to
refiners continuing to send more messages and other communications to
its wholesalers via the DTNergy services.
Advertising:
Advertising revenue leveled off for the third quarter of 1997 compared
to the third quarter of 1996. For the first nine months of 1997,
advertising revenue grew 27% over the same period of 1996 primarily due
to the larger subscriber base which advertisers find attractive,
especially in the agricultural industries.
Service Initiation Fees:
Service initiation fees revenue fell 28% and 17% for the third quarter
and first nine months of 1997 compared to the same periods of 1996. The
increased sales volume in these periods of 1997 over 1996, was offset
by the recognition of previously deferred revenues during early 1996.
These revenues were no longer deferred due to marketing costs exceeding
the initiation fees.
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EXPENSES
Total expenses increased 16% and 27% for the third quarter and first
nine months of 1997 compared to the same periods of 1996. The primary factor for
this increase was the higher depreciation and amortization costs brought on by
the subscriber acquisitions. In addition, expanding sales and distribution
support areas have contributed to these increases.
Selling, General & Administrative:
Selling, general and administrative expenses grew 23% during the third
quarter of 1997 over the same period in 1996. As a percentage of
revenue, these expenses were 50%, up from 48% one year earlier. On a
per subscriber per month basis, these costs were $34.36 and $30.12 for
the third quarter of 1997 and 1996 respectively. For the first nine
months of 1997, selling, general and administrative expenses grew 27%
over the same period of 1996.
Sales Commissions:
Sales commissions showed a slight increase for the third quarter of
1997 compared to the third quarter of 1996. For the first nine months
of 1997 over the same period of 1996, sales commissions grew 7%
primarily due to the increased sales activities while being offset by a
lower renegotiated DTNergy Commission agreement which is based on
DTNergy revenues. As a percentage of revenue for the third quarter of
1997, commission expense decreased to 8% compared to 9% one year
earlier.
Depreciation And Amortization:
Depreciation and amortization expense rose 11% and 33% for the third
quarter and first nine months of 1997 over the same periods of 1996.
These increases were primarily due to subscriber equipment and
intangible assets (goodwill) from the acquisitions and also by the
increase in total subscribers. As a percentage of revenue for the third
quarter of 1997, depreciation and amortization expense decreased to
33%, down from 35% for the same period of 1996.
Net Development Costs:
Net development costs are defined as 1) market research activities, 2)
the expenses of hardware and software engineering, research and
development, and 3) the negative operating cash flow (prior to
corporate allocations plus interest) of new services. These costs grew
3% during the first nine months of 1997 over the same period of 1996.
For the third quarter of 1997 compared to 1996 these costs grew 6%.
OPERATING CASH FLOW
Operating cash flow (operating income before depreciation and
amortization expense) grew 17% in the third quarter of 1997 compared to the
third quarter of 1996. For the first nine months of 1997, operating cash flow
grew 45% over the same period of 1996. These increases can be attributed to the
above mentioned growth in revenue and corresponding efficiencies gained in
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operating expenses. As a percentage of revenue, operating cash flow remained
level at 43% for the third quarter of 1997 and 1996. For the first nine months
of 1997, operating cash flow as a percentage of revenue increased to 43% up from
40% one year earlier. Operating cash flow as a percentage of revenue is one
measurement the Company uses to monitor its success.
INTEREST EXPENSE
Interest expense decreased by 11% for the third quarter of 1997 over
the third quarter of 1996. For the first nine months, interest expense grew 16%
from 1996 to 1997. This increase was primarily due to the $48.5 million of
borrowings needed for the acquisition in May of 1996 offset by slightly lower
interest rates.
NET INCOME (LOSS)
Net income for the third quarter of 1997 was $571,800 or $.05 per share
compared to a net loss of $260,003 or ($0.02) per share for the third quarter of
1996. For the nine months ended September 30, 1997, net income was $1,418,980 or
$.12 per share compared to a net loss of $1,064,340 or ($.10) per share in 1996.
These results were primarily due to increased revenues and improved efficiencies
throughout the Company.
INCOME TAX PROVISION (BENEFIT)
The Company's effective income tax rate was 36% for the third quarter
and first nine months of 1997 compared with 21% and 33% for the same period in
1996.
14
<PAGE>
FORM 10-Q
DATA TRANSMISSION NETWORK CORPORATION
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
----------------------------------------------------
(a) Date of Annual Meeting of Stockholders - April 23,
1997.
(b) Directors Elected - Roger R. Brodersen, Robert S.
Herman, David K. Karnes, J. Michael Parks, Jay E.
Ricks, Greg T. Sloma and Roger W. Wallace.
(c) Other Matters Voted Upon
- Proposal to amend the Company's Stock Option
Plan of 1989, 6,083,324 votes for, 1,136,353
votes against and 84,595 votes abstained.
- Ratification of the appointment of Deloitte
and Touche LLP as independent auditors for
1997, 9,732,690 votes for 6,270 votes
against and 19,852 votes abstained.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
---------------------------------
(a) Exhibits - 11 - Statement re computation of per share
earnings.
(b) Reports on Form 8-K
Filed a Shareholder Rights Plan on August 29, 1997.
(27) Financial Data Schedule (Required)
SIGNATURE
- ---------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on it's behalf by the
undersigned thereunto duly authorized.
DATA TRANSMISSION NETWORK CORPORATION
By /s/ Roger R. Brodersen
--------------------------------------------
Roger R. Brodersen
Chairman and CEO
By /s/ Greg T. Sloma
--------------------------------------------
Greg T. Sloma
President and Chief Operating Officer
By /s/ Brian L. Larson
--------------------------------------------
Brian L. Larson
V.P., CFO, Secretary and Treasurer
Dated this 14th day of November, 1997.
15
<PAGE>
FORM 10-Q
DATA TRANSMISSION NETWORK CORPORATION
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
----------------------------------------------------
(a) Date of Annual Meeting of Stockholders - April 23,
1997.
(b) Directors Elected - Roger R. Brodersen, Robert S.
Herman, David K. Karnes, J. Michael Parks, Jay E.
Ricks, Greg T. Sloma and Roger W. Wallace.
(c) Other Matters Voted Upon
- Proposal to amend the Company's Stock Option
Plan of 1989, 6,083,324 votes for, 1,136,353
votes against and 84,595 votes abstained.
- Ratification of the appointment of Deloitte
and Touche LLP as independent auditors for
1997, 9,732,690 votes for 6,270 votes
against and 19,852 votes abstained.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
---------------------------------
(a) Exhibits - 11 - Statement re computation of per share
earnings.
(b) Reports on Form 8-K
Filed a Shareholder Rights Plan on August 29, 1997.
(27) Financial Data Schedule (Required)
SIGNATURE
- ---------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on it's behalf by the
undersigned thereunto duly authorized.
DATA TRANSMISSION NETWORK CORPORATION
By
Roger R. Brodersen
--------------------------------------------
Chairman and CEO
By
Greg T. Sloma
--------------------------------------------
President and Chief Operating Officer
By
Brian L. Larson
--------------------------------------------
V.P., CFO, Secretary and Treasurer
Dated this 14th day of November, 1997.
15
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
- -------------------------------------------------------------------------------------------------------------------
COMPUTATION OF NET INCOME (LOSS) PER SHARE
- -------------------------------------------------------------------------------------------------------------------
Quarter Ended Nine Months Ended
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
- -------------------------------------------------------------------------------------------------------------------
Computation of income (loss)
per common and common
equivalent share:
<S> <C> <C> <C> <C>
Net income (loss) $ 571,800 $ (260,003) $1,418,980 $(1,064,340)
============ =========== ========== ============
Average shares outstanding 11,115,532 11,008,838 11,086,773 10,536,556
Add shares applicable to stock
options & warrants (1) 1,003,611 - 973,479 -
Add shares applicable to stock options & warrants prior to conversion, using
average market
price prior to conversion (1) 13,660 - 11,793 -
------------ ------------ ---------- ------------
Total Primary Shares 12,132,803 11,008,838 12,072,045 10,536,556
============ ============ ========== ===========
Additional dilutive stock options
using ending market price 12,115 - 56,865 -
Total Fully Dilutive Shares 12,144,918 11,008,838 12,128,910 10,536,556
============ ============ ========== ===========
Net income (loss) per common share:
Primary earnings per share (1) $ 0.05 $ (0.02) $ 0.12 $ (0.10)
============ ============ ========== ============
Fully Dilutive earnings
per share (1) $ 0.05 $ (0.02) $ 0.12 $ (0.10)
============ ============ ========== ============
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1) Shares applicable to warrants and stock options are included in the
calculation only when their impact is dilutive.
</FN>
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 241,069
<SECURITIES> 0
<RECEIVABLES> 8,852,783
<ALLOWANCES> 520,000
<INVENTORY> 0
<CURRENT-ASSETS> 12,919,335
<PP&E> 242,378,197
<DEPRECIATION> 125,794,785
<TOTAL-ASSETS> 168,512,639
<CURRENT-LIABILITIES> 39,025,542
<BONDS> 0
0
0
<COMMON> 11,137
<OTHER-SE> 30,607,775
<TOTAL-LIABILITY-AND-EQUITY> 168,512,639
<SALES> 93,074,398
<TOTAL-REVENUES> 93,074,398
<CGS> 0
<TOTAL-COSTS> 83,981,510
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,949,110
<INCOME-PRETAX> 2,214,980
<INCOME-TAX> 796,000
<INCOME-CONTINUING> 1,418,980
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,418,980
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
