<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE PERIOD ENDED JUNE 30, 1997
Commission File Number 0-22334
LODGENET ENTERTAINMENT CORPORATION
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 46-0371161
------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
808 WEST AVENUE NORTH, SIOUX FALLS, SOUTH DAKOTA 57104
--------------------------------------------------------------------------
(Address of Principal Executive Offices) (ZIP code)
(605) 330-1330
-------------------------------
(Registrant's telephone number,
including area code)
(not applicable)
-------------------------------------------------
(Former name, former address and
former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
At August 4, 1997, there were 11,217,201 shares outstanding of the
Registrant's common stock, $0.01 par value.
THIS REPORT CONTAINS A TOTAL OF 20 PAGES, EXCLUDING EXHIBITS. THE EXHIBIT
INDEX APPEARS ON PAGE 19.
<PAGE>
LODGENET ENTERTAINMENT CORPORATION
FORM 10-Q
INDEX
<TABLE>
Page
No.
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1 -- Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997 (Unaudited)......3
Consolidated Statements of Operations (Unaudited) for
the Three and Six Months Ended June 30, 1996 and 1997................................4
Consolidated Statements of Cash Flows (Unaudited) for
the Six Months Ended June 30, 1996 and 1997..........................................5
Notes to Consolidated Financial Statements..............................................6
Item 2 -- Management's Discussion and Analysis of the Results of Operations...............8
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings..............................................................19
Item 2 -- Changes in Securities..........................................................19
Item 3 -- Defaults Upon Senior Securities................................................19
Item 4 -- Submission of Matters to a Vote of Security Holders............................19
Item 5 -- Other Information..............................................................19
Item 6 -- Exhibits and Reports on Form 8-K...............................................19
SIGNATURES...............................................................................20
</TABLE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS -- CERTAIN STATEMENTS IN
THIS QUARTERLY REPORT ON FORM 10-Q CONSTITUTE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. WHEN USED IN THIS QUARTERLY
REPORT, THE WORDS "EXPECTS," "ANTICIPATES," "ESTIMATES," "BELIEVES," "NO
ASSURANCE," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, WHICH MAY CAUSE THE COMPANY'S
ACTUAL PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. IN ADDITION TO THE RISKS AND UNCERTAINTIES
DISCUSSED IN THIS QUARTERLY REPORT, SUCH FACTORS INCLUDE, AMONG OTHERS, THE
FOLLOWING: THE IMPACT OF COMPETITION AND CHANGES TO THE COMPETITIVE
ENVIRONMENT FOR THE COMPANY'S PRODUCTS AND SERVICES, CHANGES IN TECHNOLOGY,
RELIANCE ON STRATEGIC PARTNERS, UNCERTAINTY OF LITIGATION, CHANGES IN
GOVERNMENT REGULATION AND OTHER FACTORS DETAILED, FROM TIME TO TIME, IN THE
COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS QUARTERLY
REPORT. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO
RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH
REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH
ANY SUCH STATEMENT IS BASED.
_______
As used herein (unless the context otherwise requires) "LodgeNet", "the
Company" and/or "the Registrant" means LodgeNet Entertainment Corporation and
its majority-owned subsidiaries.
2
<PAGE>
PART I -- FINANCIAL INFORMATION
LODGENET ENTERTAINMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
December 31, June 30,
1996 1997
----------- -----------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 86,177 $ 34,436
Accounts receivable, net of allowance for
doubtful accounts 18,428 21,470
Prepaid expenses and other 1,935 6,481
-------- --------
Total current assets 106,540 62,387
Property and equipment, net 164,157 193,616
Debt issuance costs, net of accumulated amortization 8,509 8,238
Other assets, net 562 4,558
-------- --------
$279,768 $268,799
-------- --------
-------- --------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 16,775 $ 15,649
Current portion of long-term debt 425 567
Accrued expenses 4,596 5,912
-------- --------
21,796 22,128
Deferred revenue 2,956 3,750
Long-term debt 179,233 179,454
Minority interest in consolidated subsidiary 231 155
-------- --------
Total liabilities 204,216 205,487
-------- --------
Stockholders' equity:
Common stock, $0.01 par value, 20 million shares
authorized; 11,125,369 shares outstanding at
December 31, 1996 and 11,213,437 shares
outstanding at June 30, 1997 111 112
Additional paid-in capital 120,539 120,669
Accumulated deficit (45,098) (57,469)
-------- --------
Total stockholders' equity 75,552 63,312
-------- --------
$279,768 $268,799
-------- --------
-------- --------
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
LODGENET ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts, except per share amounts, in thousands)
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1996 1997 1996 1997
------- ------- ------- --------
<S> <C> <C> <C> <C>
Revenue:
Guest Pay $19,979 $28,119 $37,561 $ 53,686
Free-to-guest 2,046 2,105 4,191 4,271
Other 1,081 2,908 1,722 4,831
------- ------- ------- --------
Total revenue 23,106 33,132 43,474 62,788
------- ------- ------- --------
Direct costs:
Guest Pay 7,921 10,604 14,760 20,330
Free-to-guest 1,581 1,628 3,265 3,363
Other 824 2,106 1,415 3,462
------- ------- ------- --------
Total direct costs 10,326 14,338 19,440 27,155
------- ------- ------- --------
Gross profit 12,780 18,794 24,034 35,633
------- ------- ------- --------
Operating expenses:
Guest Pay operations 3,575 5,006 6,738 9,699
Selling, general and administrative 3,363 4,727 6,212 9,783
Depreciation and amortization 7,157 10,495 13,330 20,190
------- ------- ------- --------
Total operating expenses 14,095 20,228 26,280 39,672
------- ------- ------- --------
Operating loss (1,315) (1,434) (2,246) (4,039)
Interest expense, net 2,078 4,302 4,000 8,366
------- ------- ------- --------
Loss before income taxes (3,393) (5,736) (6,246) (12,405)
Provision for income taxes 2 20 22 30
------- ------- ------- --------
Net loss $(3,395) $(5,756) $(6,268) $(12,435)
------- ------- ------- --------
------- ------- ------- --------
Net loss per common share $ (0.38) $ (0.51) $ (0.77) $ (1.10)
------- ------- ------- --------
------- ------- ------- --------
Weighted average shares 8,856 11,262 8,131 11,263
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
LODGENET ENTERTAINMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands)
Six Months Ended
June 30,
----------------------
1996 1997
-------- --------
Operating activities:
Net loss $ (6,268) $(12,435)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 13,330 20,190
Minority interest - (76)
Change in current assets and liabilities:
Accounts receivable (3,876) (2,990)
Prepaid expenses and other (709) (4,546)
Accounts payable 2,011 (1,239)
Accrued expenses and deferred revenue 1,882 2,110
Other - (150)
-------- --------
Net cash provided by operating activities 6,370 864
-------- --------
Investing activities:
Property and equipment additions (41,743) (48,417)
Purchase of Cable TV operation - (4,562)
-------- --------
(41,743) (52,979)
-------- --------
Financing activities:
Proceeds from long-term debt 650 509
Debt issuance costs (1,169) -
Repayments of long-term debt (48) (254)
Borrowings under revolving credit facility 25,858 -
Repayments of revolving credit facility (25,858) -
Proceeds from issuance of common stock 44,635 -
Stock option activity 36 131
-------- --------
Net cash provided by financing activities 44,104 386
-------- --------
Effect of exchange rates on cash 1 (12)
-------- --------
Increase (decrease) in cash and cash equivalents 8,732 (51,741)
Cash and equivalents at beginning of period 2,252 86,177
-------- --------
Cash and equivalents at end of period $ 10,984 $ 34,436
-------- --------
-------- --------
Supplemental cash flow information:
Cash paid for interest $ 3,464 $ 8,088
-------- --------
-------- --------
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
LODGENET ENTERTAINMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Basis of Presentation
The accompanying consolidated financial statements as of June 30, 1997,
and for the three and six month periods ended June 30, 1996 and 1997, have
been prepared by LodgeNet Entertainment Corporation (the "Company"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"). The information furnished in the accompanying
consolidated financial statements reflects all adjustments, consisting only
of normal recurring adjustments, which, in the opinion of management, are
necessary for a fair presentation of such financial statements.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to the rules
and regulations of the Commission. Although the Company believes that the
disclosures are adequate to make the information presented herein not
misleading, it is recommended that these unaudited consolidated financial
statements be read in conjunction with the more detailed information
contained in the Company's Annual Report on Form 10-K for 1996, as filed with
the Commission. The results of operations for the three and six month
periods ended June 30, 1997 are not necessarily indicative of the results of
operations for the full year.
The consolidated financial statements include the accounts of LodgeNet
Entertainment Corporation and its majority-owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
Note 2 -- Property and Equipment, net
Property and equipment was comprised as follows at (in thousands of
dollars):
December 31, June 30,
1996 1997
-------- --------
Land, building and equipment $ 15,914 $ 19,614
Free-to-guest equipment 7,369 9,277
Cable television equipment 5,291 7,458
Guest Pay systems:
Installed 173,607 197,822
System components 23,290 30,819
Software costs 6,266 6,963
Building construction in progress 2,528 8,373
-------- --------
234,265 280,326
Less-depreciation and amortization (70,108) (86,710)
-------- --------
Property and equipment, net $164,157 $193,616
-------- --------
-------- --------
Note 3 -- Net Loss Per Common Share
The net loss per common share was computed using the weighted average
number of shares outstanding and, where applicable, outstanding warrants and
options.
6
<PAGE>
Note 4 -- Effect of Recently Issued Accounting Pronouncements
During March 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share", which requires the disclosure of basic earnings per share and diluted
earnings per share. The Company will adopt SFAS 128 at the end of 1997 and
anticipates that it will have no effect on previously reported earnings per
share.
Note 5 -- Reclassifications
Certain amounts have been reclassified to conform to the 1997
presentation. Such reclassifications had no effect on previously reported
results of operations or stockholders' equity.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
LODGING INDUSTRY SERVICES
Guest Pay Services -- The growth that the Company has experienced has
principally resulted from its rapid expansion of guest pay-per-view services,
which the Company began installing in 1986. In May 1992, the Company
introduced and began installing its on-demand Guest Pay service. It has been
the Company's experience that rooms featuring the "on-demand" Guest Pay service
generate significantly more revenue and gross profit per room than comparable
rooms having only the scheduled format.
The Company's Guest Pay revenues depend on a number of factors, including
the number of rooms equipped with the Company's systems, Guest Pay buy rates,
hotel occupancy rates, the popularity, selection and pricing of the Company's
program offerings and the length of time programming is available to the
Company prior to its release to the home video and cable television markets.
The primary costs of providing Guest Pay services are (i) license fees paid to
studios for non-exclusive distribution rights to recently-released major motion
pictures, (ii) nominal one-time license fees paid for independent films, which
are duplicated by the Company for distribution to its operating sites, (iii)
license fees for video games and other services and (iv) the commission
retained by the hotel. Guest Pay operating expenses include costs of system
maintenance and support, in-room marketing, video tape duplication and
distribution, data retrieval, insurance and personal property taxes.
The Company also provides video games and interactive multimedia
entertainment and information services through its Guest Pay systems. Services
include folio review, video check-out, in-room printers and guest satisfaction
surveys. In 1993 the Company entered into a seven-year non-exclusive license
agreement with Nintendo of America to provide hotels with a network-based Super
Nintendo-Registered Trademark- video game playing system.
Free-to-guest Services -- In addition to Guest Pay services, the Company
provides cable television programming for which the hotel, rather than its
guests, pays the charges. Free-to-guest services include the satellite
delivery of various programming channels through a satellite earth station,
which generally is owned or leased by the hotel. For free-to-guest services
the hotel pays the Company a fixed monthly charge per room for each programming
channel provided. The Company obtains its free-to-guest programming pursuant
to multi-year agreements and pays a fixed monthly fee per room. Such fixed
monthly fees vary from time to time, depending on incentive programs that may
be provided by the programming networks.
RESIDENTIAL INDUSTRY SERVICES
In January 1996, the Company formed ResNet Communications, Inc. ("ResNet")
for the purpose of extending the Company's proprietary B-LANsm system
architecture and operational expertise into the Multi-family Residential Unit
("MDU") market. In October 1996, TCI Satellite, an affiliate of TCI, agreed to
invest up to $40 million in ResNet in exchange for up to a 36.99% interest in
ResNet and agreed to provide ResNet with long-term access to DBS signals for
the MDU market on a nationwide basis. The Company believes that the MDU
business has financial and technological requirements similar to those of the
Company's lodging industry business. ResNet began installations of its first
systems during the quarter ended September 30, 1996. During the quarter ended
March 31, 1997, ResNet purchased, for approximately $4.6 million, the assets
and contracts of a private cable television operation with approximately 11,000
passings in the Detroit metropolitan area. The results of ResNet's operations
during the three months ended June 30, 1997 were not material to the Company's
consolidated results of operations.
8
<PAGE>
LODGING ROOM BASE
During the three months ended June 30, 1997, the Company installed 32,531
new Guest Pay rooms, equipped 35,433 rooms with its Nintendo game system, and
installed 11,823 free-to-guest rooms. From June 30, 1996 through June 30,
1997, the Company has installed 129,604 new Guest Pay rooms, equipped 150,811
rooms with its Nintendo game system, and installed 46,277 free-to-guest rooms;
representing increases of 38.6%, 61.9% and 17.4%, respectively, in its
installed room bases. The Company's base of installed rooms was comprised as
follows at June 30:
1996 1997
---------------- ----------------
Rooms % Rooms %
------- ----- ------- -----
Guest Pay rooms:
Scheduled 51,521 15.4% 34,383 7.4%
On-demand 284,102 84.6% 430,844 92.6%
------- ----- ------- -----
335,623 100.0% 465,227 100.0%
------- ----- ------- -----
------- ----- ------- -----
Nintendo game system rooms 243,658 394,469
------- -------
------- -------
Free-to-guest rooms 266,150 312,427
------- -------
------- -------
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1997
Revenue Analysis
The Company's total revenue for the second quarter of 1997 increased
43.4%, or $10.0 million, in comparison to the second quarter of 1996. The
following table sets forth the components of the Company's revenue for the
quarter ending June 30 (dollar amounts in thousands):
1996 1997
------------------ ------------------
Percent of Percent of
Total Total
Amount Revenues Amount Revenues
------- ---------- ------- ----------
Guest Pay $19,979 86.5% $28,119 84.9%
Free-to-guest 2,046 8.9% 2,105 6.4%
Other 1,081 4.7% 2,908 8.8%
------- ----- ------- -----
Total revenue $23,106 100.0% $33,132 100.0%
------- ----- ------- -----
------- ----- ------- -----
Guest Pay Revenue -- Guest Pay revenues increased 40.7%, or $8.1 million,
in the second quarter of 1997 in comparison to the same quarter of 1996. This
increase was primarily the result of a 42.2% increase in the average number of
installed Guest Pay rooms, which offset a slight decline in average monthly
revenue per room. The following table sets forth information in regard to
average monthly revenue per installed Guest Pay room for the quarter ending
June 30:
1996 1997
------ ------
Average monthly revenue per room:
Movie revenue $18.47 $17.89
Video game/information service 2.80 3.17
------ ------
Total per Guest Pay room $21.27 $21.06
------ ------
------ ------
9
<PAGE>
Average movie revenue per room, for all Guest Pay rooms, was impacted by
lower average buy rates and lower hotel occupancy rates, and partially offset
by the effect of higher average movie prices; all in comparison to the year
earlier period. The comparative decrease in buy rates is attributed to a
relatively less popular selection of newly-released major motion pictures in
the current quarter as compared to the year earlier period. The slight
increase in average movie price is due to price increases in certain Guest
Pay rooms; the Company's movie prices are generally $7.95 or $8.95.
Average video game and information service revenue per room increased
primarily as a result of the increase in the average number of rooms with
video game services installed. On a per-room basis, average monthly video
game revenues were $2.20 and $2.19 during the quarters ended June 30, 1997
and 1996, respectively. The Company had installed its video game service in
394,469 and 243,658 Guest Pay rooms as of June 30, 1997 and 1996,
respectively.
Free-to-guest Revenue -- Free-to-guest revenues increased 2.9%, or
$59,000, in the second quarter of 1997 as compared to the same quarter of
1996. The comparative increase in revenues resulted from the 17.4% increase
in the number of installed free-to-guest rooms since June 30, 1996, which
offset lower average revenue per room. The Company had 312,427 and 266,150
free-to-guest rooms installed at June 30, 1997 and 1996, respectively.
Other Revenue -- Revenue from other sources, such as the sale of
televisions, system equipment, service parts and labor, and miscellaneous
free-to-guest programming materials, increased by $1.8 million or 169%, in
the second quarter of 1997 as compared to the same quarter of 1996. The
increase was attributable to increased sales of system equipment, increased
service-related revenues, increased television sales and cable television
service revenues.
Expense Analysis
Direct Costs -- The following table sets forth information in regard to
the Company's direct costs and gross profit margin for the quarter ending
June 30 (dollar amounts in thousands):
1996 1997
------- -------
Direct costs:
Guest Pay $ 7,921 $10,604
Free-to-guest 1,581 1,628
Other revenue 824 2,106
------- -------
Total direct costs $10,326 $14,338
------- -------
------- -------
Gross profit margin:
Guest Pay 60.4% 62.3%
Free-to-guest 22.7% 22.7%
Other revenue 23.8% 27.6%
Overall (composite) 55.3% 56.7%
Guest Pay direct costs increased 33.9%, or $2.7 million, in the second
quarter of 1997 as compared to the year earlier quarter. Since Guest Pay
direct costs (primarily studio license fees, video game license fees and the
commission retained by the hotel) are primarily based on related revenue,
such direct costs tend to vary more or less directly with revenue. As a
percentage of revenue, such costs decreased from 39.6% in the second quarter
of 1996 to 37.7% in the current quarter. The relative decrease in Guest Pay
direct costs (as a percentage of revenue) reflects lower movie-related costs
due to proportionately less revenue from newly-released motion pictures,
partially offset by the cost-related effect of increased video game revenue
(which generally has a higher direct cost on a percentage of revenue basis
than movies) in the Guest Pay revenue mix.
Free-to-guest direct costs increased 3.0% or $47,000 in the second
quarter of 1997 as compared to the year earlier quarter. As a percentage of
free-to-guest revenue, free-to-guest direct costs were 77.3% in the second
quarter of each of 1997 and 1996.
10
<PAGE>
Direct costs associated with other revenue increased 156% to $2.1
million in the second quarter of 1997 from $824,000 in the year earlier
quarter. As a percentage of related revenues, such direct costs decreased to
72.4% of other revenue in the current quarter versus 76.2% in the second
quarter of 1996, primarily reflecting the effect of the increased equipment
sales and cable television service revenues discussed above.
The Company's overall gross profit increased 47.1%, or $6.0 million, to
$18.8 million in the second quarter of 1997 on a 43.4% increase in revenues
in comparison to the same period in the prior year. The Company's overall
gross profit margin was 56.7% in the current quarter, as compared to the year
earlier 55.3%.
Operating Expenses -- The following table sets forth information in
regard to the Company's operating expenses for the quarter ending June 30
(dollar amounts in thousands):
1996 1997
------------------ --------------------
Percent of Percent of
Total Total
Amount Revenues Amount Revenues
------- ---------- ------- ----------
Guest Pay operations $ 3,575 15.5% $ 5,006 15.1%
Selling, general and administrative 3,363 14.6% 4,727 14.3%
Depreciation and amortization 7,157 31.0% 10,495 31.7%
------- ---- ------- ----
Total operating expenses $14,095 61.0% $20,228 61.1%
------- ---- ------- ----
------- ---- ------- ----
Guest Pay operations expense increased 40.0%, or $1.4 million, from $3.6
million in the comparable quarter of the previous year. This increase is
primarily attributable to the 42.2% increase in the average number of
installed Guest Pay rooms in the current period as compared to the year
earlier quarter. Per average installed Guest Pay room, such expenses averaged
$3.52 per month in the current quarter as compared to $3.81 per month in the
same quarter of 1996. The comparative decrease on a per-room basis was
primarily the result of lower service and support expenses.
Selling, general and administrative expenses increased 40.1%, or $1.4
million, from $3.4 million in the second quarter of 1996. The increase
reflects the effects of increased litigation-related expenses, an increase
in the number of development and administrative personnel and increased
facilities-related expenses. As a percentage of revenue, such expenses were
14.3% in the current quarter as compared to 14.6% in the year earlier quarter.
Depreciation and amortization expenses increased 46.6% to $10.5 million
in the second quarter of 1997 from $7.2 million in the year earlier quarter.
This increase is directly attributable to the increases in the number of
installed Guest Pay and game service equipped rooms previously discussed,
associated software and other capitalized costs such as service vans,
equipment and computers that are related to the increased number of rooms in
service since the year-earlier quarter.
Operating Loss -- The Company's operating loss, as a result of the
factors previously discussed, was $(1.4) million in the current quarter as
compared to $(1.3) million in the same quarter of 1996.
Interest Expense -- Interest expense, net of interest income, increased
to $4.3 million in the current quarter from $2.1 million in the comparable
quarter of 1996 due to increases in long-term debt to fund the Company's
continuing expansion of its business. Long-term debt increased from $63.3
million at June 30, 1996 to $180.0 million at June 30, 1997. Average
principal amount of long-term debt (excluding amounts under the revolving
facility) outstanding, during the quarter ended June 30, 1997, was
approximately $180 million (at an average interest rate of approximately
10.5%) as compared to an average principal amount outstanding of
approximately $73 million (at an average interest rate of approximately
10.6%) during the comparable period of 1996.
Net Loss -- For the reasons previously discussed, the Company's net loss
increased to $(5.8) million in the second quarter of 1997 from a net loss of
$(3.4) million in the same quarter a year earlier.
EBITDA -- As a result of increasing revenues from Guest Pay services, and
the other factors previously discussed, EBITDA (defined as "earnings before
interest, income taxes, depreciation and amortization") increased 55.1% to $9.1
million in the second quarter of 1997 as compared to $5.8 million in the second
quarter of 1996.
11
<PAGE>
EBITDA as a percentage of total revenues was 27.3% in the current quarter as
compared to 25.3% in the same quarter of 1996. EBITDA is included herein
because it is a widely accepted financial indicator used by certain investors
and financial analysts to assess and compare companies on the basis of
operating performance. EBITDA is not intended to represent an alternative to
net income (as determined in accordance with generally accepted accounting
principles) as a measure of performance, but management believes that it does
provide an important additional perspective on the Company's operating
results and the Company's ability to service its long-term debt and to fund
the Company's continuing growth.
12
<PAGE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
Revenue Analysis
The Company's total revenue for the first six months of 1997 increased
44.4%, or $19.3 million, in comparison to the same period in 1996. The
following table sets forth the components of the Company's revenue for the six
months ended June 30 (dollar amounts in thousands):
1996 1997
------------------- -------------------
Percent of Percent of
Total Total
Amount Revenues Amount Revenues
------- ---------- ------- ----------
Guest Pay $37,561 86.4% $53,686 85.5%
Free-to-guest 4,191 9.6% 4,271 6.8%
Other 1,722 4.0% 4,831 7.7%
------- ----- ------- -----
Total revenue $43,474 100.0% $62,788 100.0%
------- ----- ------- -----
------- ----- ------- -----
Guest Pay Revenue -- Guest Pay revenues increased 42.9%, or $16.1
million, in the first six months of 1997 in comparison to the same period of
1996. This increase was primarily the result of a 44.7% increase in the
average number of installed Guest Pay rooms, which offset a slight decline in
average monthly revenue per room. The following table sets forth information
in regard to average monthly revenue per installed Guest Pay room for the six
months ended June 30:
1996 1997
------ ------
Average monthly revenue per room:
Movie revenue $18.49 $17.77
Video game/information service 2.64 3.11
------ ------
Total per Guest Pay room $21.13 $20.88
------ ------
------ ------
Average movie revenue per room, for all Guest Pay rooms, was impacted by
lower average buy rates and lower hotel occupancy rates, and partially offset
by the effect of higher average movie prices. The comparative decrease in buy
rates is attributed to a relatively less popular selection of newly-released
major motion pictures in the current period as compared to a year earlier.
The slight increase in average movie price is due to price increases in
certain Guest Pay rooms; the Company's movie prices are generally $7.95 or
$8.95.
Average video game and information service revenue per room increased
primarily as a result of the increase in the average number of rooms with
video game services installed. On a per-room basis, average monthly video
game revenues were $2.17 and $2.04 during the six months ended June 30, 1997
and 1996, respectively. The Company had installed its video game service in
394,469 and 243,658 Guest Pay rooms as of June 30, 1997 and 1996,
respectively.
Free-to-guest Revenue -- Free-to-guest revenues increased 1.9%, or
$80,000, in the first six months of 1997 as compared to the same period of
1996. The comparative increase in revenues resulted from the 14.7% increase
in the number of installed free-to-guest rooms since June 30, 1996, which
offset lower average revenue per room. The Company had 312,427 and 266,150
free-to-guest rooms installed at June 30, 1997 and 1996, respectively.
Other Revenue -- Revenue from other sources, such as the sale of
televisions, system equipment, service parts and labor, and miscellaneous
free-to-guest programming materials, increased by $3.1 million or 181%, in
the first six months of 1997 as compared to the same period of 1996. The
increase was attributable to increased sales of
13
<PAGE>
system equipment, increased service-related revenues, increased television
sales and cable television service revenues.
Expense Analysis
Direct Costs -- The following table sets forth information in regard to
the Company's direct costs and gross profit margin for the six months ended
June 30 (dollar amounts in thousands):
1996 1997
------- -------
Direct costs:
Guest Pay $14,760 $20,330
Free-to-guest 3,265 3,363
Other revenue 1,415 3,462
------- -------
Total direct costs $19,440 $27,155
------- -------
------- -------
Gross profit margin:
Guest Pay 60.7% 62.1%
Free-to-guest 22.1% 21.3%
Other revenue 17.8% 28.3%
Overall (composite) 55.3% 56.8%
Guest Pay direct costs increased 37.7%, or $5.6 million, in the first
six months of 1997 as compared to the same period of 1996. Since Guest Pay
direct costs (primarily studio license fees, video game license fees and the
commission retained by the hotel) are primarily based on related revenue,
such direct costs tend to vary more or less directly with revenue. As a
percentage of revenue, such costs decreased from 39.3% in the first six
months of 1996 to 37.9% in the current period. The relative decrease in
Guest Pay direct costs (as a percentage of revenue) reflects lower
movie-related costs due to proportionately less revenue from newly-released
motion pictures, partially offset by the cost-related effect of increased
video game revenue (which generally has a higher direct cost on a percentage
of revenue basis than movies) in the Guest Pay revenue mix.
Free-to-guest direct costs increased 3.0% or $98,000 in the first six
months of 1997 as compared to the same period of 1996. As a percentage of
free-to-guest revenue, free-to-guest direct costs increased to 78.7% from
77.9% in the year-earlier period. The relative increase in free-to-guest
direct costs (as a percentage of revenue) resulted from higher costs for both
premium and non-premium programming in 1997, and to a lesser extent to a
slightly higher proportion of non-premium programming in the mix of
programming services delivered.
Direct costs associated with other revenue increased 145% to $3.5
million in the first six months of 1997 from $1.4 million in the year earlier
period. As a percentage of related revenues, such direct costs decreased to
71.7% of other revenue in the current six month period versus 82.2% in the
first six months of 1996, primarily reflecting the effect of the increased
equipment sales and cable television service revenues discussed above.
The Company's overall gross profit increased 48.3%, or $11.6 million, to
$35.6 million in the first six months of 1997 on a 44.4% increase in revenues
in comparison to the same period in the prior year. The Company's overall
gross profit margin was 56.8% in the current six month period, as compared to
the year earlier 55.3%.
Operating Expenses -- The following table sets forth information in
regard to the Company's operating expenses for the six months ended June 30
(dollar amounts in thousands):
14
<PAGE>
1996 1997
------------------ --------------------
Percent of Percent of
Total Total
Amount Revenues Amount Revenues
------- ---------- ------- ----------
Guest Pay operations $ 6,738 15.5% $ 9,699 15.4%
Selling, general and administrative 6,212 14.3% 9,783 15.6%
Depreciation and amortization 13,330 30.7% 20,190 32.2%
------- ---- ------- ----
Total operating expenses $26,280 60.4% $39,672 63.2%
------- ---- ------- ----
------- ---- ------- ----
Guest Pay operations expense increased 40.0%, or $1.4 million, from $3.6
million in the comparable quarter of the previous year. This increase is
primarily attributable to the 47.4% increase in the average number of
installed Guest Pay rooms in the current period as compared to the year
earlier quarter. Per average installed Guest Pay room, such expenses averaged
$3.65 per month in the current quarter as compared to $3.79 per month in the
same quarter of 1996. The comparative decrease on a per-room basis was
primarily the result of lower service and support expenses.
Selling, general and administrative expenses increased 57.5%, or $3.6
million, from $6.2 million in the first half of 1996. The increase reflects
the effects of substantially increased litigation-related expenses ($1.4
million during the first half of 1997 as compared to $.3 million during the
first half of 1996), an increase in the number of development and
administrative personnel and increased facilities-related expenses. As a
percentage of revenue, such expenses were 15.6% in the current six month
period as compared to 14.3% in the year earlier period.
Depreciation and amortization expenses increased 51.5% to $20.2 million
in the first half of 1997 from $13.3 million in the year earlier period.
This increase is directly attributable to the increases in the number of
installed Guest Pay and game service equipped rooms previously discussed,
associated software and other capitalized costs such as service vans,
equipment and computers that are related to the increased number of rooms in
service since the year-earlier quarter.
Operating Loss -- The Company's operating loss, as a result of the
factors previously discussed, was $(4.0) million in the current six month
period as compared to $(2.2) million in the same period of 1996.
Interest Expense -- Interest expense, net of interest income, increased
to $8.4 million in the current half year from $4.0 million in the comparable
period of 1996 due to increases in long-term debt to fund the Company's
continuing expansion of its business. Long-term debt increased from $63.3
million at June 30, 1996 to $180.0 million at June 30, 1997. Average
principal amount of long-term debt outstanding during the six months ended
June 30, 1997, was approximately $180 million (at an average interest rate of
approximately 10.5%) as compared to an average principal amount outstanding
of approximately $71 million (at an average interest rate of approximately
10.6%) during the comparable period of 1996.
Net Loss -- For the reasons previously discussed, the Company's net loss
increased to $(12.4) million in the first half of 1997 from a net loss of
$(6.3) million in the same period a year earlier.
EBITDA -- As a result of increasing revenues from Guest Pay services,
and the other factors previously discussed, EBITDA increased 45.9% (on a
44.4% increase in revenues) to $16.2 million in the first half of 1997 as
compared to $11.1 million in the first half of 1996. EBITDA as a percentage
of total revenues was 25.7% in the current period as compared to 25.5% in the
same period of 1996.
SEASONALITY
The Company's operating results from its lodging activities are subject
to fluctuation depending upon hotel occupancy rates and buy rates, among
other factors. Typically, occupancy rates are higher during the second and
third calendar quarters than in the first and fourth quarters due to seasonal
travel patterns.
15
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
On September 15, 1994, the Company issued $28 million principal amount
of 9.95% Senior Notes to three insurance companies in a private placement. On
April 13, 1995, concurrently with certain amendments to the Note Purchase
Agreement, the Company issued $5 million principal amount of 10.35% Senior
Notes under such agreement in a private placement to certain holders of the
9.95% Senior Notes. As part of the transaction in which the Company issued
its 10.25% Senior Notes (discussed further below) the Company redeemed the
9.95% and 10.35% Senior Notes in their entirety, which represented a use of
proceeds of approximately $28.9 million in principal amount, plus accrued
interest, and a make-whole premium of approximately $2.8 million.
On August 9, 1995, the Company issued $20 million principal amount of
its 11.5% Senior Subordinated Notes due July 15, 2005 (the 11.5% Senior
Notes) to three insurance companies in a private placement. On October 4,
1995, the Company issued an additional $10 million principal amount of such
11.5% Senior Notes to the same purchasers and under identical terms and
conditions. In connection with the issuance of its 10.25% Senior Notes, the
Company and the holders of the 11.5% Senior Notes amended the terms of the
11.5% Senior Notes to provide that such notes rank PARI PASSU with, and to
have substantially the same covenants as, the 10.25% Senior Notes. The 11.5%
Senior Notes are unsecured and bear interest at the fixed rate of 11.5%,
payable semi-annually. Mandatory annual principal payments of $6 million
commence July 15, 2001.
Net proceeds of the August 9, 1995 issue of the 11.5% Senior Notes, net
of original issue discount and issuance-related expenses, were approximately
$18.1 million, and were used to (i) repay $10.0 million outstanding under the
Company's then existing revolving facility and (ii) provide funding for
capital expenditures to expand the Company's guest pay services business. The
net proceeds from the October 4, 1995 issue of the 11.5% Senior Notes, net
of original issue discount and issuance-related expenses, were approximately
$9.2 million and provided additional capital to fund the expansion of the
Company's guest pay services business.
In connection with the December 19, 1996 issuance of its 10.25% Senior
Notes, the Company repaid all of the outstanding borrowing under its then
bank credit facility, approximately $20.4 million, and amended and restated
such facility. The amended and restated bank credit facility (the 1997
Facility) provides for total lending commitments of $100.0 million (which can
be increased to $175.0 million with the consent of NatWest Bank) and contains
certain covenants, including the maintenance of certain financial ratios,
limitations on the incurrence of additional indebtedness, limitations on the
incurrence of certain liens, limitations on certain payments or distributions
in respect of the common stock and provisions for acceleration of principal
repayment in certain circumstances. The Company was in compliance with all
such covenants as of June 30, 1997. The 1997 Facility is secured by (i) a
first priority security interest in all of the Company's and certain of its
subsidiaries' tangible and intangible assets and (ii) a guarantee by ResNet
of all amounts advanced to it by the Company. Amounts borrowed under the
1997 Facility bear interest at either (i) LIBOR plus from 1.25% to 2.00% or
(ii) the greater of (a) the NatWest Bank prime rate plus from .25% to 1.00%
or (b) the federal funds rate plus from .75% to 1.50%, depending on the
Company's total leverage, as defined in the agreement. The banks' commitment
under the 1997 Facility is subject to a scheduled reduction of 15% beginning
in December 1998 and annually thereafter as follows: December 1999 -- 20%;
December 2000 -- 20%; December 2001 -- 20%; and December 2002 -- 25%.
On May 23, 1996, the Company sold 3,680,000 shares of the Company's
Common Stock for net proceeds of approximately $44.6 million. Such proceeds
were used to repay approximately $25.9 million of borrowings then outstanding
under the Existing Credit Facility, and to provide working capital for the
continuing expansion of the Company's lodging and residential business.
On October 21, 1996, the Company and ResNet entered into agreements with
TCI Satellite pursuant to which TCI Satellite acquired a 4.99% equity
interest in ResNet for a purchase price of $5.4 million in cash (the "Stock
Payment") and agreed to provide ResNet with long-term access to a DBS signal
on a nationwide basis. In addition, TCI Satellite agreed to advance up to
$34.6 million to ResNet during the five years ending October 21, 2001, under
a convertible note agreement (the "TCI Convertible Note") to purchase DBS
equipment. The TCI Convertible Note is subject to mandatory conversion into a
maximum 32.0% equity interest in ResNet at such time as conversion is not
restricted by FCC regulations. The TCI Convertible Note is unsecured, payable
solely in shares of ResNet's common stock, non-recourse to the Company, and
subordinated to all present and future borrowings by ResNet including any
borrowings from the Company by ResNet. Interest accrues (generally at TCI's
average
16
<PAGE>
borrowing rate) on amounts outstanding under the TCI Convertible Note, but
such interest is not payable in cash (and does not increase the equity
interest into which the TCI Convertible Note will be converted).
On December 19, 1996, the Company issued $150 million, principal amount,
of unsecured 10.25% Senior Notes (the Notes) in a private offering in
accordance with Rule 144A of The Securities Act of 1933, as amended (the
Securities Act). The proceeds of the Notes, which were issued at par, after
placement fees and offering expenses, were approximately $143.2 million.
Approximately $31.7 million of such proceeds was used to redeem the
outstanding principal amounts of the 9.95% and 10.35% Senior Notes and to
prepay all outstanding amounts under the Company's then revolving credit
facility, both as previously discussed. The remaining proceeds,
approximately $91.1 million, were invested in highly liquid, interest-bearing
securities pending their use for funding capital expenditures to expand the
Company's lodging and residential businesses. On April 11, 1997, the Company
filed a registration statement to effect an offer to exchange the Notes for
identical Notes registered under the Securities Act of 1933, as amended.
The Company has incurred operating and net losses due in large part to
the depreciation, amortization and interest expenses related to the capital
required to expand its lodging and residential businesses. The growth of the
Company's business requires substantial indebtedness to finance expansion of
its lodging and multi-family residential businesses. The Company expects that
losses will increase as the Company implements its expansion strategy.
Historically, cash flow from operations has not been sufficient to fund the
cost of expanding the Company's business and to service existing
indebtedness. Capital expenditures were approximately $53 million during the
first six months of 1997, and net cash provided by operating activities was
approximately $.9 million.
Depending on the rate of growth of its lodging and residential
businesses and other factors, the Company expects to incur capital
expenditures of between approximately $35 to $45 million during the remainder
of 1997 and anticipates capital expenditures of between approximately $75 to
$90 million for 1998, and substantial amounts thereafter. The actual amount
and timing of the Company's capital expenditures in these periods will vary
(and such variations could be material) depending upon the number of new
contracts for services entered into by the Company, the costs of
installations and other factors; however, this is a forward-looking statement
and there can be no assurance in this regard. In addition, the 1997 Facility
limits the amount of the Company's annual capital expenditures to a certain
base amount plus the amounts of certain additional financing.
The Company believes that the net proceeds from the 10.25% Senior Notes,
the funds to be provided by TCI Satellite, its operating cash flows and
borrowings permitted under the 1997 Facility will be sufficient to fund the
Company's cash requirements for 12 to 18 months; however, this is a
forward-looking statement and there can be no assurance in this regard.
After such time, the Company may incur additional amounts of indebtedness.
If the Company's plans or assumptions change, if its assumptions prove to be
inaccurate or if the Company experiences unanticipated costs or competitive
pressures, the Company may be required to seek additional capital sooner than
currently anticipated. There can be no assurance that the Company will be
able to obtain financing, or, if such financing is available, that the
Company will be able to obtain it on acceptable terms. Failure to obtain
additional financing, if needed, could result in the delay or abandonment of
some or all of the Company's expansion plans.
EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During March 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings
per Share", which requires the disclosure of basic earnings per share and
diluted earnings per share. The Company will adopt SFAS 128 at the end of
1997 and anticipates that it will have no effect on previously reported
earnings per share.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS -- CERTAIN STATEMENTS IN
THIS QUARTERLY REPORT ON FORM 10-Q CONSTITUTE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. WHEN USED IN THIS QUARTERLY
REPORT, THE WORDS "EXPECTS," "ANTICIPATES," "ESTIMATES," "BELIEVES," "NO
ASSURANCE," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, WHICH MAY CAUSE THE COMPANY'S
ACTUAL PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. IN
17
<PAGE>
ADDITION TO THE RISKS AND UNCERTAINTIES DISCUSSED IN THIS QUARTERLY REPORT,
SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: THE IMPACT OF COMPETITION
AND CHANGES TO THE COMPETITIVE ENVIRONMENT FOR THE COMPANY'S PRODUCTS AND
SERVICES, CHANGES IN TECHNOLOGY, RELIANCE ON STRATEGIC PARTNERS, UNCERTAINTY
OF LITIGATION, CHANGES IN GOVERNMENT REGULATION AND OTHER FACTORS DETAILED,
FROM TIME TO TIME, IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF
THIS QUARTERLY REPORT. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR
UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE
COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS,
CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.
18
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
On February 16, 1995, On Command Video Corporation filed a lawsuit in
Federal District Court for the Northern District of California asserting
patent infringement by the Company relating to its on-demand video system.
The complaint requests an unspecified amount of damages and injunctive
relief. The Company filed an answer and counterclaim to the lawsuit on April
17, 1995, denying the claims, asserting affirmative defenses and asserting a
counterclaim for declaratory relief. The Company is currently engaged in
litigation with respect to this matter however, as of August 11, 1997 no
trial date is scheduled. Based on the advice of special patent counsel and
technical experts retained by the Company, as well as the Company's
independent analysis, the Company believes that the claims of infringement
are unfounded. The Company has and will continue to vigorously defend itself
in this matter. Patent litigation is especially complex, both as to factual
allegations and the legal interpretation of patent claims, which makes such
lawsuits difficult to assess with certainty. While the Company and its patent
counsel believe the Company has a number of defenses available, which, if
properly considered, would eliminate or minimize any liability for the
Company, an unexpected unfavorable resolution, depending on the amount and
timing, could adversely affect the Company. Although the outcome of any
litigation cannot be predicted with certainty, the Company believes that the
ultimate disposition of this matter will not have a material adverse effect
on the Company's business or financial condition.
From time to time, the Company is subject to other litigation arising in
the course of its business. As of the date hereof, in the opinion of
management, the resolution of such other litigation will not have a material
adverse effect upon the Company's business or financial condition.
ITEM 2 -- CHANGES IN SECURITIES
Not applicable.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5 -- OTHER INFORMATION
Not applicable.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS:
Exhibit 11.1 -- Statement Regarding Computation of Net Loss Per
Common Share.
B. REPORTS ON FORM 8-K:
The Company filed no Reports on Form 8 - K during the three months
ended June 30, 1997.
19
<PAGE>
LODGENET ENTERTAINMENT CORPORATION
FORM 10-Q
SIGNATURES
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.
LODGENET ENTERTAINMENT CORPORATION
----------------------------------
(Registrant)
Date: August 11, 1997 / S / TIM C. FLYNN
-------------------------------------
Tim C. Flynn
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 1997 / S / JEFFREY T. WEISNER
--------------------------------------------
Jeffrey T. Weisner
Vice President - Finance
(Principal Financial and Accounting Officer)
20
<PAGE>
EXHIBIT 11.1
June 30, 1997
LODGENET ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Statement Regarding Computation of Net Loss Per Share
of Common Stock (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- --------------------------
1996 1997 1996 1997
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Net loss (in thousands) $ (3,395) $ (5,756) $ (6,268) $ (12,435)
---------- ----------- ---------- ------------
---------- ----------- ---------- ------------
Weighted average shares:
Average shares outstanding 8,801,485 11,213,437 8,077,939 11,211,292
Assumed additional shares (1) 54,357 48,663 53,342 52,063
---------- ----------- ---------- ------------
Weighted average common shares 8,855,842 11,262,100 8,131,281 11,263,355
---------- ----------- ---------- ------------
---------- ----------- ---------- ------------
Net loss per common share $ (0.38) $ (0.51) $ 0.77) $ (1.10)
---------- ----------- ---------- ------------
---------- ----------- ---------- ------------
</TABLE>
- -----------
(1) Represents the effect of the assumed exercise of stock options issued
during the twelve months preceding the Company's initial public offering.
The exercise of other options and warrants has not been assumed because their
effect would be anti-dilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 34,436
<SECURITIES> 0
<RECEIVABLES> 22,470
<ALLOWANCES> (1,000)
<INVENTORY> 0
<CURRENT-ASSETS> 62,387
<PP&E> 280,326
<DEPRECIATION> (86,710)
<TOTAL-ASSETS> 268,799
<CURRENT-LIABILITIES> 22,128
<BONDS> 179,454
0
0
<COMMON> 112
<OTHER-SE> 63,200
<TOTAL-LIABILITY-AND-EQUITY> 268,799
<SALES> 62,788
<TOTAL-REVENUES> 62,788
<CGS> 27,155
<TOTAL-COSTS> 39,672
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,366
<INCOME-PRETAX> (12,405)
<INCOME-TAX> 30
<INCOME-CONTINUING> (12,435)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,435)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> 0
</TABLE>
