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, 1998
Commission File Number 0-15405
DATA TRANSMISSION NETWORK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 47-0669375
(State of Incorporation) (I.R.S. Employer ID Number)
9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114
- ------------------------------------------------ ----------
(Address of principal executive office) (Zip Code)
(402) 390-2328
(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
Number of shares of common stock outstanding as of November 11, 1998
...11,507,637.
1
<PAGE>
CONSOLIDATED BALANCE SHEETS
Data Transmission Network Corporation
As of September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
Unaudited 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
<S> <C> <C>
Cash $ -- $ 837,170
Accounts receivable, net of allowance for
doubtful accounts of $1,000,000 and $810,000 10,894,123 7,629,296
Inventory (note 5) 4,437,064 --
Prepaid expenses 1,765,397 825,577
Deferred commission expense 2,585,548 3,302,972
-----------------------------------------
Total Current Assets 19,682,132 12,595,015
Property and Equipment
Equipment Used By Subscribers 241,141,768 224,620,148
Equipment and Leasehold Improvements 35,643,554 23,155,237
-----------------------------------------
276,785,322 247,775,385
Less: Accumulated Depreciation 165,389,227 135,265,090
-----------------------------------------
Net Property and Equipment 111,396,095 112,510,295
Intangible Assets from Acquisitions, net of accumulated
amortization of $15,255,096 and $9,728,684 (note 4) 55,128,614 34,764,802
Other Assets 4,474,754 2,560,786
-----------------------------------------
$190,681,595 $162,430,898
- -----------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 7,497,310 $ 6,985,053
Accrued expenses 10,197,859 5,319,506
Current portion of long-term debt (note 6) 21,873,333 21,810,833
-----------------------------------------
Total Current Liabilities 39,568,502 34,115,392
Long-Term Debt (note 6) 93,015,414 58,248,540
Subordinated Long-Term Notes, net of unamortized
discount of $0 and $357,170 (note 7) -- 14,642,830
Equipment Deposits 548,224 484,017
Unearned Revenue 25,396,666 22,743,946
Stockholders' Equity
Common stock, par value $.001 authorized
20,000,000 shares, issued 11,505,510 and 11,148,052 11,505 11,148
Paid-in capital 34,338,971 31,326,683
Retained earnings (deficit) (2,197,687) 858,342
-----------------------------------------
Total Stockholders' Equity 32,152,789 32,196,173
-----------------------------------------
$190,681,595 $162,430,898
- -----------------------------------------------------------------------------------------------------------------
See notes to interim financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
Data Transmission Network Corporation
Quarter and nine months ended September 30, 1998 and 1997
Quarter Ended Nine Months Ended
Unaudited 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------
Revenues
<S> <C> <C> <C> <C>
Subscription $30,915,513 $26,082,083 $87,352,087 $74,257,907
Equipment Sales 3,182,376 -- 3,182,376 --
Additional services 1,758,971 1,683,839 5,340,487 4,981,457
Communication services 2,577,992 2,590,236 7,948,806 7,373,070
Advertising 603,771 781,950 2,475,331 2,893,565
Service initiation fees 694,917 1,078,130 2,657,082 3,568,399
---------------------------------------------------------------------------
Total Revenue 39,733,540 32,216,238 108,956,169 93,074,398
---------------------------------------------------------------------------
Expenses
Selling, general
and administrative 19,400,145 15,948,660 53,983,355 45,435,826
Cost of equipment sales 2,477,646 -- 2,477,646 --
Sales commissions 2,827,486 2,496,743 8,300,840 7,217,865
Depreciation and amortization 12,904,025 10,656,758 35,599,623 31,327,819
Non-recurring satellite costs -- -- 5,800,000 --
---------------------------------------------------------------------------
Total Expense 37,609,302 29,102,161 106,161,464 83,981,510
---------------------------------------------------------------------------
Operating Income 2,124,238 3,114,077 2,794,705 9,092,888
Interest expense 2,297,570 2,229,420 6,129,644 6,949,110
Other income, net 189,203 6,643 247,412 71,202
---------------------------------------------------------------------------
Income (Loss) Before Income Taxes
and Extraordinary Item 15,871 891,300 (3,087,527) 2,214,980
Income tax provision (benefit) 5,884 319,500 (1,108,378) 796,000
---------------------------------------------------------------------------
Income (Loss) Before
Extraordinary Item 9,987 571,800 (1,979,149) 1,418,980
Extraordinary Item, net of tax (7) -- (1,076,880) --
---------------------------------------------------------------------------
Net Income (Loss) $ 9,987 $ 571,800 $(3,056,029) $ 1,418,980
- -------------------------------------------------------------------------------------------------------------------
Basic Income (Loss) Per Share
Income (loss) before
Extraordinary Item $ -- $ 0.05 $ (0.18) $ 0.13
Extraordinary Item -- -- (0.09) --
- -------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ -- $ 0.05 $ (0.27) $ 0.13
- -------------------------------------------------------------------------------------------------------------------
Diluted Income (Loss) Per Share
Income (loss) before
Extraordinary Item $ -- $ 0.05 $ (0.18) $ 0.12
Extraordinary Item -- -- (0.09) --
- -------------------------------------------------------------------------------------------------------------------
Net Income (loss) $ -- $ 0.05 $ (0.27) $ 0.12
- -------------------------------------------------------------------------------------------------------------------
Basic Shares Outstanding 11,406,837 11,115,532 11,308,925 11,086,773
- -------------------------------------------------------------------------------------------------------------------
Diluted Shares Outstanding 12,265,219 12,132,803 11,308,925 12,072,045
- -------------------------------------------------------------------------------------------------------------------
See note to interim financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Data Transmission Network Corporation
Nine months ended September 30, 1998 and 1997
Unaudited 1998 1997
- ----------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
<S> <C> <C>
Net income (loss) $ (3,056,029) $ 1,418,980
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 35,599,623 31,327,819
Amortization of debt issue costs and discount 592,251 110,909
Deferred income taxes (1,164,049) 710,500
Change in assets and liabilities:
Accounts receivable (1,271,026) (981,924)
Inventory 702,618 --
Prepaid expenses (448,538) (444,606)
Deferred commission expense 724,429 (352,865)
Accounts payable (932,060) 1,531,125
Accrued expenses 1,203,727 (415,492)
Equipment deposits (648,281) (25,512)
Unearned revenue 2,462,720 3,416,542
------------------------------------------
Net Cash Provided by Operating Activities 33,765,385 36,295,476
Cash Flows From Investing Activities
Capital expenditures
Equipment used by subscribers (17,028,323) (15,821,232)
Equipment and leasehold improvements (6,573,292) (2,371,040)
Acquisitions (28,170,659) (5,361,289)
------------------------------------------
Net Cash Used by Investing Activities (51,772,274) (23,553,561)
Cash Flows from Financing Activities
Proceeds
Revolving Credit Line 38,000,000 2,000,000
Term Notes 16,000,000 --
Exercise of stock options 2,568,645 909,643
Payments
Term Notes (24,398,926) (16,118,542)
Subordinated Notes (15,000,000) --
------------------------------------------
Net Cash Provided (Used) by Financing Activities 17,169,719 (13,208,899)
------------------------------------------
Net Decrease in Cash (837,170) (466,984)
Cash at Beginning of Period 837,170 708,053
------------------------------------------
Cash at End of Period $ -- $ 241,069
- -----------------------------------------------------------------------------------------------------------------
See notes to interim financial statements.
</TABLE>
4
<PAGE>
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 1997 Annual Report, this report was
incorporated by reference in Form 10-K for the fiscal period ended December 31,
1997. The results of operations for the quarter and nine months ended September
30, 1998 and 1997 are not necessarily indicative of the results to be expected
for the full year. All financial statements are prepared on a consolidated basis
to include the Company's wholly owned subsidiaries of Kavouras Inc., National
Datamax, Inc. and DTN Market Communications Group, Inc.
2. EARNINGS PER SHARE
Earnings per share is calculated based on the Financial Accounting
Standards Board (FASB) Statement No. 128 which requires dual presentation of
Basic and Diluted earnings per share. Basic earnings per share data are based on
the weighted average outstanding common shares during the period. Diluted
earnings per share data are based on the weighted average outstanding common
shares and the effect of all dilutive potential common shares, including stock
options. All prior periods earnings per share data have been restated in
accordance with FASB No. 128.
3. ACCOUNTING PRONOUNCEMENT
Effective January 1, 1998, the Company adopted the provisions of SFAS
No. 130 "Reporting of Comprehensive Income." SFAS No. 130 establishes standards
for the display of comprehensive income and its components in a full set of
financial statements. Comprehensive income includes all changes in equity during
a period except those resulting from the issuance of shares of stock and
distributions to stockholders. There were no differences between net income and
comprehensive income during the quarter and nine months ended September 30, 1998
and 1997.
In June 1997, the FASB issued statement No. 131, "Disclosure about
segments of an Enterprise and Related Information." FASB No. 131 establishes
standards for the way public enterprises report information about operating
segments. The Company will adopt the disclosure requirements of this statement
in their 1998 annual report on Form 10K.
4. ACQUISITIONS
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. In January,
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 in March 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 this cost using the
straight-line method over three to eight years. The MCG acquisition included the
preferred rights to distribute relevant Reuters real-time news and information
to the commodities, energy and metals markets.
5
<PAGE>
The Network, Inc.
In July of 1997, the Company acquired the assets of The Network, Inc.,
an electronic cotton trading network service. The Company agreed to pay
$1,000,000 cash over five years. The Company paid $200,000 in cash in 1997 and
will pay $200,000 cash on each of the next four anniversary dates. The Company
has the option to terminate the agreement at any time and cease all payments and
return the assets to the owner. The Company is capitalizing the $200,000
payments when made as an intangible asset (goodwill) and amortizing this cost
using the straight-line method over 12 months. In effect, if all payments are
made, the Company is amortizing the $1,000,000 purchase price over five years.
Arkansas Farm Bureau Acres Service
In October of 1997, the Company agreed to acquire the approximately 700
subscribers on the ACRES platform from the Arkansas Farm Bureau (AFB). The
Company agreed to pay $600 for each subscriber that converts to a DTN service.
The Company believes the majority will convert to a DTN service. In addition,
the Company will pay the AFB a $6 monthly residual for the lesser of the life of
the subscriber or ten years for those subscribers converting to a DTN service.
The Company has capitalized $363,950 as an intangible asset (goodwill) and is
amortizing this cost using the straight-line method over eight years.
Market Information of Colorado, Inc.
In February of 1998, DTN acquired 100 subscribers receiving real-time
commodities and futures information from Market Information of Colorado, Inc.
(MIC) for $135,000 cash. The Company to date has capitalized $133,205 as an
intangible asset (goodwill) and is amortizing this cost using the straight-line
method over eight years.
CDS Group, Inc.
In March of 1998, DTN acquired CDS Group, Inc. (CDS) for $250,000 cash
and the assumption of certain liabilities. CDS is engaged in the business of
marketing software for tracking bales of cotton for businesses in the cotton
industry. This acquisition complements the acquisition of The Network, Inc.
(discussed above), an electronic cotton trading network. The Company has
capitalized $313,000 as an intangible asset (goodwill) and is amortizing this
cost using the straight-line method over five years.
SmartServ Online, Inc.
In April of 1998, DTN signed an agreement to acquire exclusive rights
to market the Internet based financial services information products of
SmartServ Online, their internet information distribution technology, and their
subscribers for $850,000 cash. These services include: SmartServ Pro, now DTN
IQ, a real-time, tick-by-tick stock quote and news service, and TradeNet and
BrokerNet, real-time trading and account information services for the brokerage
industry. This agreement transfers the 850 subscribers currently using SmartServ
Online to DTN. All new subscribers to these services will be DTN customers and
DTN will pay SmartServ Online, Inc. an ongoing royalty based on revenues. The
Company has capitalized $850,000 as an intangible asset (goodwill) and is
amortizing this cost using the straight-line method over five years.
National Datamax, Inc.
In June of 1998, DTN signed an agreement to acquire 100% of the capital
stock outstanding of National Datamax, a software development and information
services firm specializing in integrated systems for the financial services
industry. DTN has agreed to pay $3,000,000 cash, assume the assets and
liabilities of National Datamax, Inc., plus pay an earn-out based upon revenue
growth from quarter ending December 31, 1997, through quarter ending June 30,
1999. National Datamax is a wholly owned subsidiary of DTN and operates out of
California. The Company has capitalized $3,224,000 as an intangible asset
(goodwill) and is amortizing this cost using the straight-line method over three
to five years.
Kavouras, Inc.
In July of 1998, DTN signed an agreement to acquire 100% of the capital
stock outstanding in Kavouras Inc. Kavouras is engaged in the development,
design, manufacture, marketing and service of meteorological equipment and
provides meteorological data services to government, aviation, commercial
broadcast and other industries, including DTN. The Company agreed to assume the
assets and liabilities of Kavouras, Inc. and pay $22,650,000 cash of which,
$20,650,000 was paid at closing. The remaining $2,000,000 cash will be paid out
in equal $500,000 payments over the next four anniversary dates of closing.
Kavouras is a wholly owned subsidiary of DTN and operates out of Minnesota under
6
<PAGE>
the name DTN Kavouras Weather Services. The Company has capitalized $17,688,749
as an intangible asset and is amortizing this cost using the straight-line
method over five to ten years.
In a related transaction, in April of 1998, Kavouras signed a License
Agreement with Earthwatch Communication, Inc.'s for the exclusive rights to use,
market, license and sell the Licensed Products of U.S. Patent No. 5,379,215,
"Method for Creating a 3D Image of Terrain and Associated Weather." In
conjunction with the acquisition agreement, an Assignment Agreement was signed
on March 30, 1998, between Kavouras and the Company to assign this License to
DTN Market Communications Group, Inc., a wholly owned subsidiary of the Company.
As a result of this assignment, the Company paid $3,000,000 cash for the License
Agreement with Earthwatch, which is being capitalized as goodwill and amortized
using the straight-line method over ten years.
Pro Forma Financial Information
The following unaudited pro forma financial information reflects the
consolidated results of operations of the Company for the nine months ended
September 30, 1998 and 1997 as though the Kavouras acquisition had occurred on
January 1, 1997. This information has been prepared for comparative purposes
only and does not necessarily represent actual operating results that may be
achieved in the future or that would have occurred had the acquisitions been
consummated on January 1, 1997.
<TABLE>
<CAPTION>
Pro Forma
September 30, 1998 September 30, 1997
----------------------------------------------------------------
<S> <C> <C>
Revenues $116,752,958 $106,601,813
Net Income (Loss) $ (4,490,419) $ 342,119
Income (Loss) Per Share:
Basic $ (0.40) $ 0.03
Diluted $ (0.40) $ 0.03
----------------------------------------------------------------
</TABLE>
5. INVENTORIES
<TABLE>
<CAPTION>
The major classes of inventory are as follows:
September 30, 1998
--------------------------------------------
<S> <C>
Raw Materials $ 3,861,759
Work-in-Process $ 383,925
Finished Goods $ 191,380
------------
$ 4,437,064
--------------------------------------------
</TABLE>
6. LONG-TERM DEBT AND LOAN AGREEMENTS
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
Revolving Credit Agreement
<S> <C> <C>
Revolving Credit Line $ 42,500,000 $ 4,500,000
Term notes 38,041,665 35,151,040
Term Credit Agreement
Term notes 34,347,082 40,408,333
----------- -----------
Total Loan Agreements 114,888,747 80,059,373
------------ -----------
Less current portion 21,873,333 21,810,833
------------ -----------
Total Long-Term Debt $ 93,015,414 $58,248,540
------------ -----------
</TABLE>
7
<PAGE>
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, 2000 unless extended, provides for a total commitment of
up to $65,000,000 in new borrowings. As of September 30, 1998, $42,500,000 of
the total commitment had been borrowed, with the remaining $22,500,000 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 and the ratio of the Company's
total borrowings to operating cash flow ("the Leverage Ratio") does not exceed
thirty-six. As of September 30, 1998, based on current operating cash flow, the
Company would be able to borrow the entire amount of the remaining $22,500,000
commitment available.
In addition to the restrictions mentioned above with respect to
advances, total debt outstanding is limited to forty-eight time's 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, 2000. The minimum
stockholders equity required to be maintained is $24,618,040 as of December 31,
1997. The Company is required to maintain 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 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> <C>
greater than 42 .250% .375% 2.25%
greater than 36 and less than = 42 .500% .250% 2.25%
greater than 30 and less than = 36 .750% .250% 2.00%
greater than 24 and less than = 30 1.000% .250% 2.00%
greater than 18 and less than = 24 1.250% .125% 1.75%
less than = 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, 1998, 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 3/8% over the Revolving Credit Rate in effect on the
date of notice (as defined) 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. Through a refinancing of Senior Subordinated Notes, as of
March 17, 1998, the Company converted $16,000,000 of revolving credit to term
notes accruing interest at the rate of 7.50% (see footnote 6). As of September
30, 1998, $42,500,000 of the total borrowings outstanding had not been converted
to term loans. As of September 30, 1998, $38,041,665 of term loans was
outstanding with monthly installments due up through 2001 having interest rates
ranging from 7.50% 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, 1998 the commitment fee was 1/8% on all unused revolving credit
commitment. In the event the "Leverage Ratio" exceeds 36, 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.
8
<PAGE>
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. As of
September 30, 1998, the principal balance was $34,347,082 with $17,983,874
accruing at a variable interest rate of NY prime rate less one-half of one
percent, or 7.75% and the remaining $16,363,208 accruing at fixed interest rates
ranging from 8.25% to 8.36%.
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.
Substantially all of the Company's assets are pledged as collateral
under the Company's long-term debt and loan agreements.
7. 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 was subordinated in right of payment
to all current and future senior debt. Interest on the subordinated debt was
paid quarterly, with principal due in five equal annual installments beginning
on June 30, 2000. The Company had 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 was
required.
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.
On March 17, 1998, the Company refinanced its Senior Subordinated Notes
with 7.50% Senior converted notes with fixed principal payments plus interest.
The Company recorded an extraordinary loss for the pre-payment penalty of
$1,125,000 or 7.5% of the principal balance of $15,000,000 to retire the
Subordinated Notes early. In addition, $579,340 of debt issuance and discount
costs related to the senior subordinated notes were also recorded as an
extraordinary loss in the first quarter of 1998.
9
<PAGE>
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 50% of the Company's total assets. The
Company has also made significant investments during 1997 and the first nine
months of 1998 to acquire subscribers and businesses that fit into its business
model. The net intangible assets (goodwill) resulting from these acquisitions is
29% of the Company's total assets. The acquisitions of subscribers and
businesses are expected to enhance the long-term operating performance and
financial condition of the Company. The investments in acquisitions have
required the Company to increase long-term debt. The Company's overall financing
strategy is simple, use long-term debt financing versus equity, whenever
possible, to prevent the dilution of shareholder value.
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities for the first nine months of
1998 was $33.8 million compared to $36.3 million for the same period in 1997.
This decrease of $2.5 million was primarily the result of the $2.0 million
decrease in operating cash flow (operating income before depreciation and
amortization expense), known in the industry as EBITDA, the $1.1 million
extraordinary item, net of tax, due to early extinguishment of subordinated debt
and $1.0 million from the change in assets and liabilities. These decreases are
offset by the $0.8 million reduction in interest expense and a $0.9 million
federal income tax refund received from prior amended returns.
NET CASH USED BY INVESTING ACTIVITIES
Net cash used by investing activities for the first nine months of 1998
was $51.8 million compared to $23.6 million for the same period in 1997. This
increase was primarily the result of the Company's acquisitions closed during
the first nine months of 1998, and increased purchases for information
distribution software and equipment.
As it relates to the Company's investing activities, the Company had
$19.9 million and $26.1 million of negative working capital at September 30,
1998 and 1997, respectively. This increase in working capital is primarily due
to the $4.4 million of inventory added as a result of the Kavouras acquisition.
The increase was also created by the growth in accounts receivable brought on by
a growing subscriber base, a bigger mix of customers now invoicing on an annual
basis compared to quarterly, as was previously the standard and the acquisition
of Kavouras. This increase was slightly offset by the increase in accrued
expenses due mostly to the liabilities associated with the acquisitions.
In keeping with the Company's growth strategy of developing services
for niche markets plus acquisitions that fit into their business model and/or
competitive strategies, DTN has closed on several acquisitions during the first
nine months of 1998. The Company paid $28.2 million on these acquisitions
compared to $5.4 million during the same period in 1997. Among these
acquisitions (which are discussed in more detail in footnote 4 of the notes to
interim financial statements) are SmartServ Online, Inc. and National Datamax,
Inc., both of which provide services for the financial services industry, and
Kavouras, Inc. which provides weather-related services to government, aviation,
commercial broadcast and other industries.
Currently, all these acquisitions have been financed by utilizing the
Company's revolving credit line, which provides for a total commitment of up to
$65,000,000 in new borrowings (see footnote 6 of the notes to interim financial
statements).
10
<PAGE>
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
Net cash provided by financing activities was $17.2 million for the
first nine months of 1998. Net cash used by financing activities was $13.2
million for the same period of 1997. The increase in net cash provided by
financing activities is primarily attributed to proceeds from the Revolving
Credit Line for acquisitions closed during the first nine months of 1998.
Further analysis shows that excluding the increase of $22.8 million of
acquisitions and the unusual, non-recurring expense of $5.8 million related to
the Galaxy IV satellite outage incurred in the first nine months of 1998, cash
flows from financing activities would have been a use of funds of $11.4 million
compared to $13.2 for the same period of 1997.
FACTORS THAT MAY AFFECT FUTURE RESULTS
COMPETITION: The Company operates in a highly competitive environment,
competing with information and communication services utilizing various types of
electronic media, including satellite delivery, TV Cable delivery, the Internet,
electronic bulletin boards, television, radio, cellular, and telephone
communications. In addition to the various electronic publishers, the Company
competes with print media and "old information gathering habits." Many of the
Company's actual and potential competitors have substantially greater resources
than the Company.
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,
equipment and the business applications these systems and equipment are designed
to provide at a competitive price.
YEAR 2000: The Company is actively engaged in a comprehensive review of
its computer systems to identify the systems that could be affected by the Year
2000 Issue. The Company is addressing the following critical issues related to
the Company's state of readiness, cost of addressing Year 2000 issues, risks of
Year 2000 issues, and contingency plans:
State of Readiness
- - Service delivery - System failure that could result in an interruption of
service delivery (i.e. data transmission).
- - Customer Service - System failure that could result in an interruption of
customer service (i.e. phone support, ability to ship equipment, add/change
services, etc.).
- - Cash flow - System failure that could result in an interruption of cash
flow (i.e. invoices, cash application).
- - Physical environment - Environmental control failure that would inhibit the
use of the Company's facilities (i.e. heating, air conditioning, etc.).
The Company has made progress in its efforts to address the Year 2000
issue and ensure its systems and data will be functional beyond 1999. The
following phases, which to some extent are being conducted concurrently, are on
schedule to be completed by the listed completion dates.
- - Inventory - Conduct an inventory of all custom developed and vendor
supplied software and internally and externally used files. Estimated
completion date is December 31, 1998.
11
<PAGE>
- - Assess Business Impact - Define business impact if a specific system were
to fail due to incorrect date processing past 2000. Estimated completion
date is December 31, 1998.
- - Test - Conduct detailed Y2K testing and produce standardized `evidence' of
Y2K compliance. Estimated completion date is June 30, 1999.
- - Manage Subsequent Changes - All system modifications made subsequent to Y2K
testing that are date related will be regression tested and documented.
Estimated completion date is December 31, 1999.
Cost of Addressing Year 2000 Issues
The Company plans to complete all system modifications required to
resolve Y2K issues using existing internal resources and does not expect the
cost of making the necessary changes to be significant.
Risks of Year 2000 Issues and Contingency Plan
The Company expects its Year 2000 conversion project to be completed on
a timely basis, however, failure to do so or failure on the part of third
parties with whom the Company does business could materially impact operations
and financial results. The most likely worst case scenario would result in the
Company's customers receiving inaccurate data. The Company is working with our
various vendors to verify Year 2000 compliance, and if necessary, securing
alternate sources of service or products if compliance is not obtained.
12
<PAGE>
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 similar
because DTN makes an initial investment of variable marketing costs to obtain
new subscribers (generally a one year subscription agreement) and the Company
makes a capital expenditure to provide the subscriber with the necessary
equipment to receive the Company's services.
In addition, DTN has a level of fixed costs, such as FM and Ku
satellite leases, certain news and weather, quotes, information providers and
administrative expenses, not directly affected by the number of subscribers
receiving the Company's services.
DTN's operating cash flow (operating income before depreciation and
amortization expense), known in the industry as EBITDA, is a key indicator
monitored by DTN management. Growth in operating cash flow results from a
growing base of subscribers, as well as, increased revenues on a per subscriber
basis covering the Company's fixed expenses. Operating cash flow is affected by
the Company's research and development activities.
Operating Cash Flow:
Operating cash flow (EBITDA) for the third quarter of 1998 grew 9% to
$15.0 million compared to $13.8 million for the same period of 1997. Operating
cash flow for the nine months ended September 30, 1998 decreased 5% to $38.4
million compared to $40.4 million for the same period of 1997. Excluding the
unusual non-recurring costs of $5.8 million related to the second quarter Galaxy
IV (as discussed below) satellite outage, operating cash flow for the first nine
months of 1998 rose 9% to $44.2 million compared to $40.4 million for the same
period of 1997.
Operating cash flow margin (EBITDA margin) for the third quarter of
1998 was 37.8% compared to 42.8% for the third quarter of 1997. Operating cash
flow margin for the first nine months of 1998 was 35.2% compared to 43.4% for
1997. Excluding the unusual non-recurring costs of $5.8 million related to
Galaxy IV, operating cash flow margin for the first nine months of 1998 was
40.6% compared to 43.4% for 1997.
Kavouras equipment sales have lower EBITDA margins than subscription
sales, and will tend to lower the Company's total operating cash flow margin. A
further analysis shows that excluding Kavouras operating results, operating cash
flow margin for the third quarter of 1998 was 42.3% compared with 42.8% for the
same period in 1997 and 41.3% for the second quarter of 1998 (excluding the
Galaxy IV costs).
Net Development Costs:
DTN accumulates research and development activities as "Net Development
Costs". The Company defines "Net Development Costs" 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. The Company includes new services in
the "Net Development Costs" classification until the service shows positive
operating cash flow prior to corporate allocations plus interest for the full
quarter. The service becomes a core service after reaching this level in the
developmental process. These costs increased 15% to $4.7 million during the
first nine months of 1998, compared to $4.1 million for the same period of 1997.
This increase was primarily the result of the costs added from the Kavouras
operations.
Non-recurring Satellite Costs (Galaxy IV):
On May 20, 1998, the Galaxy IV Satellite used by the Company to
transmit service to nearly all its subscribers, spun out of control, causing a
loss of service. By May 21, 1998, solutions were available for all subscribers,
13
<PAGE>
however, the impacts on DTN operations were significant. The costs related to
the failure of Galaxy IV includes telecommunications, labor, satellite costs and
customer communications and these unusual non-recurring costs are estimated to
be $5.8 million and were recorded in May of 1998. These costs are the Company's
estimate to convert subscribers to the new satellite and handle the large
customer service call volume, duplicate satellite charges and other service
costs related to this change.
Although the Company believes the estimate is reasonable based on all
available information, the impact of customer retention is more difficult to
quantify and actual costs may vary from the estimate. DTN management believes
the impact from this problem will not significantly impact the longer-term
growth prospects of the Company. The Galaxy IV failure had an impact on
subscription sales related to the months of May, June and July due to the
Company utilizing the sales force to adjust subscriber satellite dishes.
REVENUES
Total revenues for the third quarter of 1998 increased 23% to $39.7
million compared to $32.2 million for the third quarter of 1997. Total revenues
for the nine months ended September 30, 1998 increased 17% to $109.0 million
compared to $93.1 million for the same period of 1997.
The Company attributed the revenue increases for the third quarter of
1998 compared to the third quarter of 1997 primarily to revenue generated by
acquisitions. In addition, total subscribers at September, 30 1998 increased to
158,400 compared to 155,700 for 1997. Total revenues on a per subscriber per
month basis for the third quarter of 1998 were $83 compared to $69 for the third
quarter of 1997. For the nine months ended September 30, 1998 total revenues on
a per subscriber per month basis was $76 compared to $68 for the same period in
1997.
Subscriptions:
Subscription revenue for the third quarter of 1998 grew 19% to $30.9
million compared to $26.1 million for the third quarter of 1997. Subscription
revenue for the nine months ended September 30, 1998 increased 18% to $87.4
million compared to $74.3 million for the same period in 1997. The increase was
primarily due to increases in total subscribers, the ability to move subscribers
to higher priced services and acquisitions completed in the past 12 months. The
Company continues to add new subscribers at higher subscription rates.
Subscription revenue per subscriber, per month for all new subscription sales in
the third quarter of 1998 was $79 compared to $67 for the same period of 1997.
The increase in subscribers from new subscription sales and acquisitions
resulted in total subscription revenues on a per subscriber per month basis for
the third quarter of 1998, growing to $65 compared to $56 for the same period in
1997.
Equipment Sales:
The Company's July 1, 1998 acquisition of Kavouras, Inc., in
Minneapolis, added a new market niche for the Company, the manufacture and sale
of various meteorological equipment and radar systems. The Kavouras acquisition
added $3.2 million of meteorological equipment and radar sales for the third
quarter of 1998.
Additional Services:
Additional service revenue for the third quarter of 1998 increased 4%
to $1.8 million compared to $1.7 million for the third quarter of 1997.
Additional service revenue for the nine months ended September 30, 1998
increased 7% to $5.3 million compared to $5.0 million for the same period of
1997. The Company continues to expand the list of services available on an "a la
carte" basis. The Company believes weak agriculture markets have impacted the
growth in additional service revenues. Additional service revenue on a per
subscriber per month basis for the third quarter of 1998 was $3.68 compared to
$3.63 for the third quarter of 1997. For the nine months ended September 30,
1998, additional services revenue on a per subscriber per month basis was $3.71
compared to $3.63 for the same period of 1997.
14
<PAGE>
Communication Services:
Communications services revenue was flat at $2.6 million for both the
third quarters of 1998 and 1997. For the nine months ended September 30, 1998,
communication service revenue grew 8% to $7.9 million compared to $7.4 million
for the same period of 1997. This year-to-date growth is due to refiners
increasing message volume and other communications to wholesalers via DTNergy
Services. The addition of the DTN Cotton Network is also a contributing factor
to the year-to-date increase. Communication services revenue on a per subscriber
per month basis for the third quarter of 1998 was $5.39 compared to $5.58 for
the third quarter of 1997. For the nine months ended September 30, 1998,
communication services revenue on a per subscriber per month basis was $5.53
compared to $5.38 for the same period of 1997.
Advertising:
Advertising revenue fell 23% to $.6 million for the third quarter of
1998, compared to $.8 million for the third quarter of 1997. For the nine months
ended September 30, 1998, advertising revenue decreased 14% to $2.5 million
compared to $2.9 million for the same period of 1997. Advertising had a record
year in 1997 fueled by strong advertising related to new product introductions
by companies in the agriculture industry. The recent downturn in the agriculture
economy has negatively impacted the 1998 advertising revenues of the Company.
Advertising revenue on a per subscriber per month basis for the third quarter of
1998 was $1.26 compared to $1.68 for the third quarter of 1997. For the nine
months ended September 30, 1998, advertising revenue on a per subscriber per
month basis was $1.72 compared to $2.11 for the same period of 1997.
Service Initiation Fees:
Service initiation fees revenue for the third quarter of 1998 fell 36%
to $.7 million compared to $1.1 million for the third quarter of 1997. For the
nine months ended September 30, 1998, service initiation fees declined 26% to
$2.7 million compared to $3.6 million for the same period in 1997. This decline
is due to slower sales in the agricultural division, the direct result of the
weak agricultural markets, and the inability of the Company's sales force to
focus on new sales during the three months of the satellite crisis. Service
initiation fees revenue on a per subscriber per month basis for the third
quarter of 1998 was $1.45 compared to $2.32 for the third quarter of 1997. For
the nine months ended September 30, 1998, service initiation fees revenue on a
per subscriber per month basis was $1.85 compared to $2.60 for the same period
of 1997.
EXPENSES
Total expenses for the third quarter of 1998 increased 29% to $37.6
million compared to $29.1 million for the third quarter of 1997. For the nine
months ended September 30, 1998, total expenses increased 26% to $106.2 million
compared to $84.0 million for the same period of 1997. Excluding the unusual
non-recurring costs of $5.8 million related to Galaxy IV, total expenses for the
nine months ended September 30, 1998, increased 20% compared to the same period
in 1997. The increase in expenses, excluding the unusual non-recurring costs
related to the Galaxy IV, were related to the Company's growth in subscribers,
initiatives to expand sales and distribution efforts, operating expenses from
the Kavouras acquisition (including the $2.5 million of costs of equipment
sales) and the increase in amortization expense from these acquisitions.
Selling General & Administrative:
Selling, general and administrative expenses for the third quarter of
1998 grew 22% to $19.4 million compared to $15.9 million for the third quarter
of 1997. For the nine months ended September 30, 1998, selling, general and
administrative expenses increased 19% compared to the same period in 1997. These
expenses as a percentage of total revenues decreased to 49% for the third
quarter of 1998 compared to 50% for the third quarter of 1997 and 51% for the
second quarter of 1998. This trend shows the Company's ability to control
expenses while continue to focus on growing the Company.
Cost of Equipment Sales:
Cost of equipment sales expenses for the third quarter and nine months
ended September 30, 1998, was $2.5 million. These expenses were the direct
result of the Kavouras acquisition which brought a new market niche for the
15
<PAGE>
Company, the manufacture and sale of various meteorological equipment and radar
systems.
Sales Commissions:
Sales commissions for the third quarter of 1998 increased 13% to $2.8
million compared to $2.5 million for the third quarter of 1997. For the nine
months ended September 30, 1998, sales commissions increased 15% to $8.3 million
compared to $7.2 million for the same period in 1997. These expenses are
primarily the result of an expanded sales force. These expenses as a percentage
of total revenues decreased to 7% for the third quarter of 1998 compared to 8%
for the third quarter of 1997.
Depreciation and Amortization:
Depreciation and amortization expense for the third quarter of 1998
increased 21% to $12.9 million compared to $10.7 million for the third quarter
of 1997. For the nine months ended September 30, 1998, depreciation and
amortization expense increased 14% to $35.6 million compared to $31.3 million
for the same period of 1997. These increases are primarily due to the increase
in subscriber equipment for the added subscribers and the amortization related
to the intangible assets associated with the acquisitions. As a percentage of
total revenues, depreciation and amortization expense for the third quarter of
1998 decreased to 32% compared to 33% for the third quarter of 1997.
OPERATING INCOME
Operating income (EBIT) for the third quarter of 1998 decreased 32% to
$2.1 million compared to $3.1 million for the third quarter of 1997. Operating
income for the nine months ended September 30, 1998 was $2.8 million compared to
$9.1 million for the same period in 1997. Excluding the unusual non-recurring
costs of $5.8 million related to Galaxy IV, operating income for the first nine
months of 1998 was $8.6 million compared to $9.1 million for 1997. These
decreases in operating income are primarily related to the increase in
amortization expense related to the intangible assets from acquisitions.
Amortization expense related to acquisitions for the third quarter of 1998 was
$2.4 million compared to $1.5 million for the third quarter of 1997.
Amortization expense related to acquisitions for the nine months ended September
30, 1998 was $5.5 million compared to $4.3 million for the same period in 1997.
INTEREST EXPENSE
Interest expense for the third quarter of 1998 increased 3% to $2.3
million compared to $2.2 million for the third quarter of 1997. For the nine
months ended September 30, 1998, interest expense decreased 12% to $6.1 million
compared to $6.9 million for the same period of 1997. In the first quarter of
1998 the Company refinanced its 11.25% Senior Subordinated Notes down to 7.5%
Senior converted notes which has had a direct impact on interest expense in 1998
compared to 1997. As a percentage of total revenue, interest expense for the
third quarter of 1998 decreased to 6% compared to 7% for the third quarter of
1997.
OTHER INCOME, NET
For the third quarter of 1998, the Company received a federal income
tax refund from amended returns for prior years and as a result, recorded one
time interest income of $181,000 from those refunds.
INCOME TAX PROVISION (BENEFIT)
The Company's effective income tax rate was 37% for the third quarter
of 1998. The effective income tax rate was 36% for the third quarter of 1997 and
the first nine months of 1998 and 1997.
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM
Income before extraordinary item for third quarter of 1998 was $9,987
or less than $.01 per share on a diluted basis, compared to $571,800 or $.05 per
share on a diluted basis for the third quarter of 1997. The loss before
extraordinary item for the first nine months of 1998 was $2.0 million or $.18
per share on a diluted basis, compared to income of $1.4 million or $.12 per
share on a diluted basis for the same period of 1997. Excluding the unusual
16
<PAGE>
non-recurring cost of $5.8 million related to Galaxy IV, the income before
extraordinary item for the first nine months of 1998 was $1.7 million or $.14
per share on a diluted basis, compared to $1.4 million or $.12 per share on a
diluted basis for the same period of 1997.
EXTRAORDINARY ITEM, NET OF TAX
During the first quarter of 1998, the Company refinanced its 11.25%
Senior Subordinated Notes with 7.5% Senior Notes. With this refinancing, the
Company took a one-time charge of $1.1 million or ($.09) per share on a diluted
basis, net of tax, for pre-payment penalties and write-offs of unamortized debt
issuance and discount costs.
NET INCOME (LOSS)
Net income for the third quarter of 1998 was $9,987 or less than $.01
per share on a diluted basis, compared to $571,800 or $.05 per share on a
diluted basis for the third quarter of 1997. The net loss for the first nine
months of 1998 was $3.1 million or $.27 per share on a diluted basis, compared
to net income of $1.4 million or $.12 per share on a diluted basis. Excluding
the unusual non-recurring costs related to Galaxy IV, the net income for the
first nine months of 1998 was $1.7 million or $.14 per share on a diluted basis,
compared to $1.4 million or $.12 per share on a diluted basis for 1997.
17
<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 22, 1998 adjourned
to May 21, 1998.
(b) Directors Elected - Roger R. Brodersen, Scott Fleck, David K.
Karnes, J. Michael Parks, Jay E. Ricks, Greg T. Sloma and Roger
W. Wallace.
(c) Other Matters Voted Upon
- Ratification of the appointment of Deloitte and Touche LLP as
independent auditors for 1998, 9,723,223 votes for, 2,969
votes against and 7,230 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 news release on June 11, 1998 relating to new satellite
agreement and outage costs.
- Filed stock purchase agreement on July 15, 1998 relating to
the acquisition of Kavouras, Inc.
- Filed Form 8-K/A on September 11, 1998 to amend item 7(a) and
(b) of 8-K filed on July 15, 1998 relating to the acquisition
of Kavouras, Inc.
(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 its 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
VP, CFO, Secretary and Treasurer
Dated this 11th day of November, 1998.
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF INCOME PER SHARE
Data Transmission Network Corporation
Quarter and nine months ended September 30, 1998 and 1997
Quarter Ended Nine Months Ended
Unaudited 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income (Loss) Before Extraordinary Item $ 9,987 $ 571,800 $(1,979,149) $ 1,418,980
Extraordinary Item, net of tax -- -- (1,076,880) --
------------------------------------------------------------
Net Income (Loss) $ 9,987 $ 571,800 $(3,056,029) $ 1,418,980
- ----------------------------------------------------------------------------------------------------------------
Average shares outstanding (1) 11,406,837 11,115,532 11,308,925 11,086,773
Add shares applicable to stock options
& warrants 858,382 1,017,271 -- 985,272
------------------------------------------------------------
Total Shares (2) 12,265,219 12,132,803 11,308,925 12,072,045
- ----------------------------------------------------------------------------------------------------------------
Basic Income (Loss) Per Share
Income (loss) before Extraordinary Item $ -- $ 0.05 $ (0.18) $ 0.13
Extraordinary Item -- -- (0.09) --
- ----------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ -- $ 0.05 $ (0.27) $ 0.13
- ----------------------------------------------------------------------------------------------------------------
Diluted Income (Loss) Per Share
Income (loss) before Extraordinary Item $ -- $ 0.05 $ (0.18) $ 0.12
Extraordinary Item -- -- (0.09) --
- ----------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ -- $ 0.05 $ (0.27) $ 0.12
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Shares used in the Basic Earnings Per Share.
(2) Shares used in the Diluted Earnings Per Share.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 11,894,123
<ALLOWANCES> 1,000,000
<INVENTORY> 4,437,064
<CURRENT-ASSETS> 19,682,132
<PP&E> 276,785,322
<DEPRECIATION> 165,389,227
<TOTAL-ASSETS> 190,681,595
<CURRENT-LIABILITIES> 39,568,502
<BONDS> 93,015,414
0
0
<COMMON> 11,505
<OTHER-SE> 32,141,284
<TOTAL-LIABILITY-AND-EQUITY> 190,681,595
<SALES> 108,956,169
<TOTAL-REVENUES> 108,956,169
<CGS> 0
<TOTAL-COSTS> 106,161,464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,129,644
<INCOME-PRETAX> (3,087,527)
<INCOME-TAX> (1,108,378)
<INCOME-CONTINUING> (1,979,149)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,076,880)
<CHANGES> 0
<NET-INCOME> (3,056,029)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
