UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ -------------------
Commission file number 1-13806
TRANSMEDIA NETWORK INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 84-6028875
------------------------------ -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11900 BISCAYNE BOULEVARD, MIAMI, FLORIDA 33181
---------------------------------------------------
(Address of principal executive offices) (zip code)
305-892-3300
-------------------------------
(Registrant's telephone number,
including area code)
Indicate by (X) 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 [ ]
The number of shares outstanding of the issuer's Common Stock, $.02 par value,
as of January 31, 1998: 10,359,956
<PAGE>
INDEX
TRANSMEDIA NETWORK INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Financial Statements:
Consolidated Balance Sheets -- 3
December 31, 1997 (unaudited)
and September 30, 1997 (audited)
Consolidated Statements of Income 4
Three months ended December 31,
1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows-- 5-6
Three months ended December 31,
1997 and 1996 (unaudited)
Notes to Unaudited Consolidated 7-8
Financial Statements
Item 2. Management's Discussion and Analysis 9-10
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION 10
SIGNATURE 11
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and September 30, 1997
(in thousands)
ASSETS
DECEMBER 31, *SEPTEMBER 30,
1997 1997
----------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,120 $ 7,223
Restricted cash 2,207 2,166
Accounts receivable, net 2,236 2,260
Rights-to-receive, net
Unrestricted 5,830 5,110
Securitized and owned by Trust 35,503 35,245
Prepaid expenses and other current assets 3,542 2,279
------- -------
Total current assets 51,438 54,283
Securities available for sale, at fair value 2,075 1,988
Equipment held for sale or lease, net 952 981
Property and equipment, net 7,302 7,275
Other assets 1,591 1,375
Restricted deposits and investments 1,980 1,980
Excess of cost over net assets acquired and other
intangible assets 5,483 4,803
------- -------
Total assets $70,821 $72,685
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - rights-to-receive $ 4,825 $ 4,768
Accounts payable - reimbursable tax and tips 208 410
Accounts payable - other 2,966 2,996
Accrued expenses 693 791
Deferred membership fee income 2,879 3,256
------- -------
Total current liabilities 11,571 12,221
Secured non-recourse notes payable 33,000 33,000
Other long-term liabilities 2,193 2,160
------- -------
Total liabilities 46,764 47,381
------- -------
Commitments
Stockholders' equity:
Preferred stock -- --
Common stock 207 204
Additional paid-in capital 11,639 10,635
Unrealized gain on securities available for sale, net 1,112 1,059
Retained earnings 11,099 13,406
------- -------
Total stockholders' equity 24,057 25,304
------- -------
Total liabilities and stockholders' equity $70,821 $72,685
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
* The balance sheet at September 30, 1997 is derived from the registrant's
audited consolidated financial statements.
3
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three months ended December 31, 1997 and 1996
(unaudited)
(in thousands, except income per share)
THREE MONTHS ENDED
DECEMBER 31,
---------------------
1997 1996
-------- --------
Operating revenue:
Sales of rights-to-receive:
Owned by Company $ 609 $ 19,123
Owned by Trust 22,427 3,558
-------- --------
Gross dining sales 23,036 22,681
Cost of sales 12,991 12,976
Cardmember discounts 5,172 5,234
-------- --------
Net revenue from rights-to-receive 4,873 4,471
Membership and renewal fee income 2,030 1,943
Franchise fee income 333 460
Commission income 94 103
Processing income 347 --
-------- --------
Total operating revenues 7,677 6,977
-------- --------
Operating expenses:
Selling, general and administrative 6,339 5,541
expenses
Cardmember acquisition expenses 1,049 1,440
Amended compensation agreements(note 3) 3,081 --
-------- --------
Total operating expenses 10,469 6,981
-------- --------
Operating loss (2,792) (4)
Other income (expense):
Interest and other income 131 51
Interest expense and financing cost (734) (377)
-------- --------
Loss before income taxes (3,395) (330)
Income tax benefit (1,290) (126)
-------- --------
Net loss $ (2,105) $ (204)
======== ========
Operating income (loss) per common and common
equivalent share:
Basic and Diluted $ (.27) $ .00
======== ========
Net loss per common and common equivalent share:
Basic and Diluted $ (.21) $ (.02)
======== ========
Weighted average number of common and common
equivalent shares outstanding:
Basic 10,238 10,127
======== ========
Diluted 10,266 10,222
======== ========
See accompanying notes to consolidated financial statements.
4
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended December 31, 1997 and 1996
(unaudited)
(in thousands)
1997 1996
------- -------
Cash flows from operating activities:
Net loss $(2,105) (204)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 796 476
Amortization of deferred financing cost 71 5
Provision for rights-to-receive 760 739
Deferred income taxes (320) --
Changes in assets and liabilities:
Accounts receivable 24 (2,054)
Rights-to-receive (1,486) 1,604
Prepaid expenses and other current 17 132
assets
Other assets (347) (356)
Accounts payable - Rights-to-receive 58 (2,132)
Accounts payable - other (232) (90)
Income taxes receivable (961) --
Accrued expenses (99) (75)
Deferred membership fee income (377) (557)
------- -------
Net cash used in operating
activities (4,201) (2,511)
------- -------
Cash flow from investing activities:
Additions to property and equipment (659) (886)
Increase in restricted deposits and
investments -- (990)
------- --------
Net cash used in investing
activities (659) (1,876)
------- -------
Cash flows from financing activities:
Proceeds from issuance of secured
non-recourse notes -- 31,978
Net repayments on revolving line of credit -- (15,000)
Increase in restricted cash (41) (2,583)
Dividends paid (202) (201)
------- -------
Net cash (used in) provided by
financing activities (243) 14,194
------- -------
5
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
1997 1996
------- -------
Net increase (decrease) in cash $(5,103) 9,807
Cash and cash equivalents:
Beginning of year 7,223 3,603
------- -------
End of year $ 2,120 13,410
======= =======
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest $ 660 432
======= =======
Income taxes $ (7) 374
======= =======
Supplemental schedule of noncash and investing
activities:
Noncash investing and financing activities:
The acquisition of the rights to receive and
cancellation of the franchise of East
America Trading Company, for 170,000 shares
of common stock, was recorded during the
first quarter as follows:
Fair value of assets acquired:
Rights-to-receive $ 267
Excess of cost over
net assets acquired 740
-------
Equity 1,007
=======
See accompanying notes to consolidated financial statements.
6
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(1) BASIS OF PRESENTATION
The balance sheet as of September 30, 1997 was derived from the
registrant's audited consolidated financial statements.
The information presented in each of the included unaudited consolidated
financial statements, in the opinion of management, reflects all
adjustments necessary to a fair statement of the results for all interim
periods. The results for the three month period ended December 31, 1997
are not necessarily indicative of the results to be expected for the full
year.
The consolidated financial statements, as presented, are in summarized
form, and footnote disclosures normally included in financial statements
presented in accordance with generally accepted accounting principles,
have been condensed or omitted. Complete disclosures for the year ended
September 30, 1997 are presented in the Company's Form 10-K filing which
includes audited consolidated financial statements.
Cost of sales is composed of the cost of rights-to-receive sold, provision
for rights-to-receive losses and processing fees.
Certain prior year amounts have been reclassified to conform with the
current presentation.
(2) PROPOSED INVESTMENT BY EQUITY GROUP INVESTMENT, INC.
On November 7, 1997, the Company entered into an agreement to sell 2.5
million newly-issued common shares and non-transferable warrants to
purchase an additional 1.2 million common shares for a total of $10,625 to
affiliates of Equity Group Investments, Inc., a privately held investment
company. The non-transferable warrants will have a term of five years; one
third of the warrants will be exercisable at $6.00 per share, another
third will be exercisable at $7.00 per share and the third and final will
be exercisable at $8.00 per share. As part of this strategic investment,
Equity Group will nominate two candidates for the Board of Directors who
will join three of the Company's existing directors and two new
independent directors. The shareholder vote to ratify the proposed
investment is scheduled for early March 1998.
(3) AMENDED COMPENSATION AGREEMENTS
On December 29, 1997, the Company and Melvin Chasen, Chairman of the
Board, Chief Executive Officer and President agreed to amend his
employment agreement and to terminate his consulting agreement. As part of
this agreement, Mr. Chasen agreed to a five year non-compete and
confidentiality agreement with the Company and relinquished his right to
receive $1 million in the event of the sale of a control block of stock,
as described in Note 2 above. Pursuant to this agreement, the Company made
a cash payment of $2.75 million to Mr. Chasen and recognized a one-time
pre-tax charge of $3.1 million in the quarter ended December 31, 1997.
7
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(4) PURCHASE OF FRANCHISE
On December 4, 1997, in exchange for 170,000 shares of Transmedia Network
common stock, the Company acquired all the rights-to-receive of East
America Trading Company, its franchisee in the Carolinas and Georgia. As
part of the agreement the Company assumed operational control of the sales
territories and terminated the franchise agreement. The excess fair value
of the stock exchanged over the value of rights-to-receive was recorded as
excess of cost over net assets acquired.
(5) LINE OF CREDIT
On November 6, 1997, the Company obtained a line of credit with a bank for
$10 million to be used principally to finance the purchase of
rights-to-receive. This line of credit is unsecured and may be drawn down
based on an advance rate calculated as a percentage of unrestricted
rights-to-receive. The line of credit matures on February 1, 1999 and
bears interest at the prime rate with a LIBOR option. To date the Company
has not utilized the credit facility.
(6) LITIGATION
In December 1996, the Company terminated its license agreement (the
"Agreement") with Sports & Leisure Inc. ("S&L"). In February 1997, S&L
commenced an action against the Company in the 11th Judicial Circuit, Dade
County, Florida, alleging that the Company improperly terminated the S&L
license agreement and seeking money damages. The Company has
counterclaimed against S&L for breach of the Agreement and intends to
pursue the action vigorously. Management does not expect the outcome of
this case to adversely impact the financial position, cash flows or
operating results of the Company.
(7) LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Basic loss per share was based on the weighted average number of common
and common equivalent shares outstanding during the period presented.
Equivalent shares consist of those shares issuable upon the assumed
exercise price of stock options and warrants calculated under the treasury
stock method, based on average stock market prices in the periods.
Diluted loss per share was computed using the weighted average number of
common and common equivalent shares outstanding in the periods, assuming
exercise of options and warrants calculated under the treasury stock
method, based on average stock market prices at the end of the periods.
8
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(A) RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1997
AND 1996
Sales of rights-to-receive for the three month period ended December 31,
1997 were $23,036, which represented an increase of 1.6% over the
comparable periods in the prior year, principally resulting from an
increase in cardmembers and the purchase of the Company's California
franchise on January 2, 1997. If the $2,398 of sales recorded in
California in the three-month period ended December 31, 1997, subsequent
to the franchised territory's repurchase by the Company on January 2, 1997
were not included, the three-month period ended December 31, 1997 would
have had a decrease of 9.0% in sales. Sales volume in the New York and
South Florida markets, two of the Company's largest and most competitive,
declined compared to related fiscal 1997 periods.
Cardmember discounts as a percentage of sales were 22.5% in the current
three-month period compared to 23.0 % in the prior year period reflecting
the continued growth in spending by the 20% discount no-fee membership
category.
Provision for rights-to-receive losses, which are included in cost of
sales, amounted to $760 for the three -month period ended December 31,
1997, compared to $739 in the prior year period. Processing fees based on
transactions processed, declined as a percentage of gross dining sales to
3.6% from 4.2% in the prior year reflecting economies of scale associated
with higher volume, an increasing number of point-of-sale transactions and
the Company's quality initiatives.
Continuing franchise fee income decreased by $127 or 27.6% in the
three-month period ended December 31,1997, compared with the prior year
period because of the repurchase of the formerly franchised California
territory on January 2, 1997. On a same franchise basis, franchisee fee
income increased $63 over the prior period.
Processing income relates to the Company's full service electronic
processing initiative and comprises the sale or lease of point-of-sale
terminals to merchants, principally restaurants, as well as fees received
for serving as the merchants' processor for all of their credit card
transactions.
Selling, general and administrative expenses for the three months ended
December 31, 1997 increased by $ 798 or 14.4%, compared with the prior
year period. As a percentage of gross dining usage, selling general and
administrative expenses were 27.5% this quarter compared to 24.4% in the
same quarter last year. The principal components of the increase included
salaries $407, depreciation $316 and office related expenses of $217
offset by decreases in postage and mailing of $151.
In the three-month period ended December 31, 1997, cardmember acquisition
expenses were reduced to $1,049 versus $1,440 in the prior year's
comparable period. Included in cardmember acquisition expenses was the
amortization of previously capitalized advertising costs amounting to $141
in the fiscal 1998 period versus $269 in the fiscal 1997 comparable
period. Costs capitalized in the 1998 period were $98 versus $241 in 1997.
The amended employment agreement and termination of the consulting
agreement of the Chief Executive Officer resulted in a one time $3,081
charge in the current quarter. Components
9
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
included a lump-sum cash payment of $2,750, cancellation of indebtedness
of $135, and health insurance for the remainder of his life. (Note 2). The
after tax impact of the charge was approximately $1.9 million.
Interest and other expense increased to $603 in the 1998 three-month
period from $326 in the comparable 1997 period as a result of the higher
level of outstanding debt associated with the securitization of
rights-to-receive on December 24, 1996.
Loss before income tax benefit was $ 3,395 in the three months ended
December 31, 1997, compared with loss before income taxes of $330 in the
1997 comparable period.
Net loss for the three months ended December 31, 1997 was $2,105 or 21
cents per share, compared with a net loss of $204 or 2 cents per share in
the prior year comparable period.
(B) LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents amounted to $2,120 at December 31,
1997. The Company believes that cash on hand, plus cash generated from
operations and the line of credit, as described below, will satisfy the
Company's cash requirements for the 1998 fiscal year.
On November 6, 1997, the Company obtained a new line of credit with a bank
for $10 million to be used principally to finance the purchase of
rights-to-receive. This line of credit is unsecured and may be drawn down
based on an advance rate calculated as a percentage of unrestricted
rights-to-receive. The line of credit matures on February 1, 1999 and
bears interest at the prime rate with a LIBOR option. There is presently
nothing outstanding under the line.
PART II - OTHER INFORMATION
Items 1, 2, 3, 4 and 5
Items 1, 2, 3, 4 and 5 of Part II are either inapplicable or are answered in the
negative and are omitted pursuant to the instructions to Part II.
Item 6
Exhibits and reports on Form 8K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8K
A form 8K dated November 6, 1997 was filed with the Securities
and Exchange Commission regarding an agreement to sell 2.5
million newly issued shares and non-transferable warrants to
purchase an additional 1.2 million common shares for a total
of $10,625 to affiliates of Equity Group Investments, Inc., a
privately held investment company.
10
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
A form 8K dated December 29, 1997 was filed with the
Securities and Exchange Commission regarding an agreement to
amend the Employment Agreement and to terminate the Consulting
Agreement of the Chairman of the Board, Chief Executive
Officer and President, Melvin Chasen.
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.
TRANSMEDIA NETWORK INC.
(Registrant)
February 13 , 1998 /s/STEPHEN E. LERCH
---------------------
Stephen E. Lerch
Executive Vice President
and Chief Financial Officer
11
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,327
<SECURITIES> 0
<RECEIVABLES> 2,236
<ALLOWANCES> 0
<INVENTORY> 41,333
<CURRENT-ASSETS> 51,438
<PP&E> 11,897
<DEPRECIATION> 4,595
<TOTAL-ASSETS> 70,821
<CURRENT-LIABILITIES> 11,571
<BONDS> 0
0
0
<COMMON> 207
<OTHER-SE> 23,850
<TOTAL-LIABILITY-AND-EQUITY> 70,821
<SALES> 23,036
<TOTAL-REVENUES> 7,677
<CGS> 0
<TOTAL-COSTS> 10,469
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 734
<INCOME-PRETAX> (3,395)
<INCOME-TAX> 1,290
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,105)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
