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 JUNE 30, 1998
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 84-602887
(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 August 14, 1998: 12,879,456
<PAGE>
I N D E X
TRANSMEDIA NETWORK INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements:
Consolidated Balance Sheets -- 3
June 30, 1998 (unaudited)
and September 30, 1997 (audited)
Consolidated Statements of Income 4,5
And Comprehensive Income
Three and nine months ended June 30,
1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows-- 6,7
Nine months ended June 30,
1998 and 1997 (unaudited)
Notes to Unaudited Consolidated 8-10
Financial Statements
Item 2. Management's Discussion and Analysis 10-12
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION 13
SIGNATURE 13
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1998 and September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
ASSETS JUNE 30, *SEPTEMBER 30,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,339 $ 7,223
Restricted cash 2,428 2,166
Accounts receivable, net 2,636 2,260
Rights-to-receive, net
Unrestricted 6,839 5,110
Securitized and owned by Trust 35,011 35,245
Prepaid expenses and other current assets 3,091 2,279
------------- -------------
Total current assets 57,344 54,283
Securities available for sale, at fair value 2,834 1,988
Equipment held for sale or lease, net 1,079 981
Property and equipment, net 6,924 7,275
Other assets 1,859 1,375
Restricted deposits and investments 1,980 1,980
Excess of cost over net assets acquired and other intangible assets 5,317 4,803
------------- -------------
Total assets $ 77,337 $ 72,685
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - rights-to-receive $ 2,779 $ 4,768
Accounts payable - other 3,276 3,406
Accrued expenses 641 791
Deferred membership fee income 2,288 3,256
------------- -------------
Total current liabilities 8,984 12,221
Secured non-recourse notes payable 33,000 33,000
Other long-term liabilities 1,926 2,160
------------- -------------
Total liabilities 43,910 47,381
------------- -------------
Commitments
Stockholders' equity:
Preferred stock - -
Common stock 257 204
Additional paid-in capital 21,473 10,635
Accumulated other comprehensive income 1,584 1,059
Retained earnings 10,113 13,406
------------- -------------
Total stockholders' equity 33,427 25,304
------------- -------------
Total liabilities and stockholders' equity $ 77,337 $ 72,685
============= =============
</TABLE>
See accompanying notes to unaudited 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 AND COMPREHENSIVE INCOME
Three months and nine months ended June 30, 1998 and 1997
(unaudited)
(in thousands, except income per share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
JUNE 30, JUNE 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue:
Sales of rights-to-receive:
Owned by Company 1,656 522 3,289 22,309
Owned by Trust 22,005 25,118 68,169 52,485
------ ------ --------- ----------
Gross dining sales 23,661 25,640 71,458 74,794
Cost of sales 13,414 14,433 40,584 42,819
Cardmember discounts 5,341 5,797 16,010 17,087
------ ------ --------- ----------
Net revenue from rights-to-receive 4,906 5,410 14,864 14,888
Membership and renewal fee income 1,780 1,878 5,602 5,676
Franchise fee income 312 312 921 1,088
Commission income 134 102 347 310
Processing income 424 - 1,163 -
------ ------ --------- ----------
Total operating revenues 7,556 7,702 22,897 21,962
------ ------ --------- ----------
Operating expenses:
Selling, general and administrative 6,580 6,469 19,502 18,488
Cardmember acquisition and promotion 1,221 1,115 3,516 3,631
Amended compensation agreements (note3) - - 3,081 -
------ ------ --------- ----------
Total operating expenses 7,801 7,584 26,099 22,119
------ ------ --------- ----------
Operating income (loss) (245) 118 (3,202) (157)
Other income (expense):
Initial license and franchise fees, net 740 740
Interest and other income 182 172 444 375
Interest expense and financing cost (746) (734) (2,237) (1,937)
------ ------ --------- ----------
Income (loss) before income taxes (809) 296 (4,995) (979)
Income tax expense (benefit) (307) 112 (1,898) (372)
------ ------ --------- ----------
Net income (loss) (502) 184 (3,097) (607)
------ ------ --------- ----------
(Continued)
</TABLE>
4
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME, CONTINUED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Other comprehensive income:
Unrealized gain(loss) on available-
for-sale securities 576 316 847 (521)
Tax effect of unrealized gain(loss) (219) (120) (322) 198
Comprehensive income (loss) $ (145) 380 (2,572) (930)
-===== --==== ======= ======
Operating income (loss) per common and common
equivalent share:
Basic and Diluted $ (.02) .01 (.28) (.02)
-===== --==== ======= ======
Net income (loss) per common and common
equivalent share:
Basic and Diluted $ (.04) .02 (.27) (.06)
-===== --==== ======= ======
Weighted average number of common and common
equivalent shares outstanding:
Basic 12,867 10,190 11,402 10,158
====== ====== ======= ======
Diluted 13,007 10,222 11,469 10,158
====== ====== ======= ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended June 30, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,097) (607)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 2,424 1,687
Amortization of deferred financing cost 210 -
Provision for rights-to-receive losses 2,808 2,948
Deferred income taxes (597) -
Changes in assets and liabilities:
Accounts receivable (376) 31
Rights-to-receive (6,041) (5,151)
Prepaid expenses and other current assets (349) (1,100)
Other assets (1,097) (102)
Accounts payable - other 72 (48)
Income taxes receivable (625) -
Accrued expenses (150) (6)
Deferred membership fee income (968) (1,490)
-------- --------
Net cash used in operating activities (7,786) (3,870)
-------- --------
Cash flows from investing activities:
Additions to property and equipment (1,517) (2,698)
Excess of cost over net assets acquired and
intangible assets - (5,017)
Increase in restricted deposits and investments - (990)
-------- --------
Net cash used in investing activities (1,517) (8,705)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of secured
non-recourse notes - 31,978
Net repayments on revolving line of credit - (15,000)
Net proceeds from issuance of common stock 9,854 -
Increase in restricted cash (262) (3,035)
Conversion of warrants and options for
common stock, net of tax benefits 29 153
Dividends paid (202) (403)
-------- --------
Net cash provided by financing activities 9,419 13,693
-------- --------
(Continued)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net increase in cash $ 116 1,118
Cash and cash equivalents:
Beginning of year 7,223 3,603
-------- -------
End of year $ 7,339 4,721
======== =======
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 1,741 1,472
======== =======
Income taxes $ (297) 995
======== =======
</TABLE>
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 American Trading Company, for 170,000 shares of
common stock, was recorded during the first quarter of fiscal year 1998
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 unaudited consolidated financial statements.
7
<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 the unaudited consolidated financial
statements, in the opinion of management, reflects all adjustments
necessary for a fair statement of the results for all interim periods.
The results for the three and nine-month periods 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 Transmedia Network
Inc and subsidiaries' (the "Company") 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) INVESTMENT BY EQUITY GROUP INVESTMENTS, INC.
On March 4, 1998, the Company sold 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. Net
proceeds amounted to $9,825 after transaction costs. The
non-transferable warrants have a term of five years; one third of the
warrants are exercisable at $6.00 per share, another third are
exercisable at $7.00 per share and the final third are exercisable at
$8.00 per share. As part of this strategic investment, Equity Group
nominated and the stockholders elected two candidates to the Board of
Directors who joined three of the Company's existing directors and two
new independent directors.
(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.
8
<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 American 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
The Company maintains 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. At June 30, 1998, no amounts are
outstanding under the line of credit.
(6) LITIGATION
In December 1996, the Company terminated its license 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 license 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 income or loss per share was based on the weighted average number
of common shares outstanding during the period presented.
Diluted income or 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.
9
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(8) SUBSEQUENT EVENTS
On July 16, 1998, the Company entered into a purchase agreement with
Texas Restaurant Card, Inc, a franchisee of the Company. Under the
terms of the agreement, the Company reacquired for cash the right to
operate its business in Dallas/Forth Worth along with the
rights-to-receive for this territory. Additionally, the Company has
established the option to reacquire the remaining three developed
territories, Houston, Austin and San Antonio at some point over the
next two and a half years. The purchase price was $1.8 million of which
approximately $1.4 million represented the excess of cost over net
assets acquired.
On August 6, 1998 the Company signed a letter of intent to acquire
certain assets of The Reunion Group, Inc., a direct response marketing
company specializing in fee-based credit card enhancement programs. The
acquisition, which is subject to execution of a definitive purchase
agreement, will be made with 950,000 shares of the company's stock and
the assumption of certain liabilities. The Reunion Group presently has
approximately 300,000 enrolled members.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN THOUSANDS)
(A) RESULTS OF OPERATIONS - COMPARISON OF THREE AND NINE MONTHS ENDED JUNE
30, 1998 AND 1997
Sales of rights-to-receive for the three and nine-month periods ended
June 30, 1998 were $23,661 and $71,458, which represented a decrease of
7.8% and 4.5% over the comparable periods in the prior year,
principally resulting from a decrease in sales volume in the New York
and South Florida markets, two of the Company's largest and most
competitive territories.
At June 30, 1998, the average rights-to-receive balance for
participating Company restaurants was $6,255 versus $8,198 at September
30, 1997. Months on hand of rights-to-receive at June 30, 1998 were
9.8 compared to 8.8 in the prior year, primarily due to a lower level
of sales and a planned increase in rights-to-receive in certain
markets.
Cardmember discounts as a percentage of gross dining sales were 22.6%
and 22.4% in the current three and nine-month periods compared to 22.6%
and 22.9% in the prior year periods reflecting cardmember spend
continuing to split almost equally between the 25% fee membership and
the 20% discount no-fee membership categories.
Provision for rights-to-receive losses, which are included in cost of
sales, amounted to $896 and $2,808 for the three and nine-month periods
ended June 30, 1998, compared to $826 and $2,948 in the prior year
periods. Processing fees based on transactions processed declined to
3.07% as a percentage of gross dining sales for the three and
nine-months ending June 30, 1998 from
10
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
3.09% and 3.21% for the same periods in the prior year reflecting
further economies of scale associated with an increased volume of
point-of-sale transactions.
Membership and renewal fee income for the three and nine-month periods
ending June 30, 1998 were $1,780 and $5,602 compared to $1,878 and
$5,676 for the comparable prior year periods. Fee income is recognized
over a twelve-month period beginning in the month the fee is received.
Continuing franchise fee income decreased by $43 and $310 in the three
and nine-month periods ended June 30,1998, compared with the prior year
primarily reflecting the repurchase of the formerly franchised
California territory on January 2, 1997, and the Carolinas/Georgia
territories on December 4, 1997.
Processing income comprises the sale or lease of point-of-sale
terminals to merchants, principally restaurants, as well as income
received for serving as the merchants' processor for all of their
credit card transactions, net of interchange fees.
Selling, general and administrative expenses for the three and
nine-months ended June 30, 1998 increased by $111 and $1,014 or 1.7%
and 5.5%, compared with the prior year periods. As a percentage of
gross dining usage, selling general and administrative expenses were
27.8% this quarter compared to 25.2% in the same quarter last year as a
result of the lower sales volume. Component changes between the
quarters ending June 30, 1998 and 1997 were immaterial. For the nine
months ended June 30, 1998, the increase in selling, general and
administrative expenses over the comparable prior year period relates
to personnel increases primarily in the call center, marketing and
merchant support services areas and depreciation.
In the three and nine-month periods ended June 30, 1998, cardmember
acquisition expenses were $1,221 and $3,516 versus $1,115 and $3,631 in
the prior year's comparable periods. Included in cardmember acquisition
expenses was the amortization of previously capitalized
advertising costs amounting to $140 and $371 in the fiscal 1998 periods
versus $133 and $554 in the fiscal 1997 comparable periods. Costs
capitalized in the 1998 periods were $66 and $399 versus $21 and $357
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 first quarter of 1998. Components included a lump-sum
cash payment of $2,750, cancellation of indebtedness of $135, and
health insurance for the remainder of his life (Note 3). The after tax
impact of the charge was approximately $1.9 million.
Interest and other expense was $564 in the 1998 three-month period and
$1,793 in the 1998 nine-month period compared with net other income of
$178 and expense of $822 in the comparable 1997 periods.
11
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Loss before income tax benefit was $809 and $4,995 in the three and
nine-months periods ended June 30, 1998, compared with income before
income taxes of $296 and loss before income taxes of $979 in the 1997
comparable periods.
Net loss for the three and nine-months periods ended June 30, 1998 were
$502 or 4 cents per share and $3,097 or 27 cents per share, compared
with a net income of $184 or 2 cents per share and a net loss of $607
or 6 cents per share in the prior year comparable periods.
(B) LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents amounted to $7,339 at June 30,
1998. The Company believes that cash on hand, plus cash generated from
operations and the line of credit, as described below, will be
sufficient to fund the Company's normal 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. No
amounts are presently outstanding under the line
On July 16, 1998, the Company entered into a purchase agreement with
Texas Restaurant Card, Inc, a franchisee of the Company. Under the
terms of the agreement, the Company reacquired for cash the right to
operate its business in Dallas/Fort Worth along with the
rights-to-receive for this territory. The purchase price was $1.8
million of which approximately $1.4 million represented the excess of
cost over net assets acquired.
On August 6, 1998 the Company signed a letter of intent to acquire
certain assets of The Reunion Group, Inc., a direct response marketing
company specializing in fee-based credit card enhancement programs.
The acquisition, which is subject to execution of a definitive purchase
agreement, will be made with 950,000 shares of the company's stock
and the assumption of certain liabilities.
(C) YEAR 2000 COMPUTER COMPLIANCE
The Company is in the process of completing an assessment of its Year
2000 issue. All software development and installation effected in the
past year is already in compliance. For those systems and software not
compliant, the Company is working with an outside vendor to ensure
compliance prior to April 1999. In the unlikely event such compliance
is not possible, the Company will consider replacing non-compliant
software. Cost to be incurred in order for the Company to be year 2000
compliant are not expected to have a material effect on the Company's
financial position or results of operations.
12
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
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
None
(b) Reports on Form 8K
None
S I G N A T U R E S
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)
August 14, 1998 /S/STEPHEN E. LERCH
----------------------------------
Stephen E. Lerch
Executive Vice President
and Chief Financial Officer
13
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996
<PERIOD-START> OCT-01-1997 OCT-01-1996
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 7,339 4,721
<SECURITIES> 0 0
<RECEIVABLES> 2,636 2,585
<ALLOWANCES> 0 0
<INVENTORY> 41,850 38,953
<CURRENT-ASSETS> 57,344 52,323
<PP&E> 14,299 11,458
<DEPRECIATION> (6,296) (3,665)
<TOTAL-ASSETS> 77,327 69,773
<CURRENT-LIABILITIES> 8,984 7,659
<BONDS> 0 0
257 204
0 0
<COMMON> 0 0
<OTHER-SE> 33,170 24,569
<TOTAL-LIABILITY-AND-EQUITY> 77,337 69,773
<SALES> 71,458 74,794
<TOTAL-REVENUES> 22,897 21,962
<CGS> 0 0
<TOTAL-COSTS> 26,099 22,119
<OTHER-EXPENSES> 0 740
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,793) (1,562)
<INCOME-PRETAX> (4,995) (979)
<INCOME-TAX> (1,898) (372)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,097) (607)
<EPS-PRIMARY> (0.28) (0.06)
<EPS-DILUTED> (0.28) (0.06)
</TABLE>
