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, 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 84-6028875
------------------------------- ------------------
(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 February 9, 1999: 12,947,854
<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
December 31, 1998 (unaudited)
and September 30, 1998 (audited)
Consolidated Statements of Income 4,5
And Comprehensive Income
Three months ended December 31,
1998 and 1997 (unaudited)
Consolidated Statements of Cash Flows-- 6,7
Three months ended December 31,
1998 and 1997 (unaudited)
Notes to Unaudited Consolidated 8-9
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>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and September 30, 1998
(in thousands)
ASSETS December 31, *September 30,
1998 1998
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,032 $ 4,632
Restricted cash 4,503 3,518
Accounts receivable, net 2,046 2,061
Rights-to-receive, net
Unrestricted 6,618 7,909
Securitized and owned by Trust 34,035 34,438
Prepaid expenses and other current assets 6,459 5,067
------- -----
Total current assets 59,693 57,625
Securities available for sale, at fair value 1,052 1,267
Equipment held for sale or lease, net 962 988
Property and equipment, net 6,932 6,832
Other assets 1,088 1,142
Restricted deposits and investments 1,980 1,980
Excess of cost over net assets acquired and other intangible assets 4,519 4,591
------- -----
Total assets $ 76,226 $ 74,425
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - rights-to-receive $ 3,483 $ 4,181
Accounts payable - trade 4,626 3,348
Accrued expenses and other 2,735 1,507
Deferred membership fee income 4,036 2,594
------- -------
Total current liabilities 14,880 11,630
Secured non-recourse notes payable 33,000 33,000
Other long-term liabilities 2,099 2,061
------- -----
Total liabilities 49,979 46,691
------ ------
Commitments
Stockholders' equity:
Preferred stock - -
Common stock 258 258
Additional paid-in capital 21,496 21,496
Accumulated other comprehensive income 478 612
Retained earnings 4,015 5,368
----- -----
Total stockholders' equity 26,247 27,734
------ ------
Total liabilities and stockholders' equity $ 76,226 $ 74,425
====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
* The balance sheet at September 30, 1998 is derived from the registrant's
audited consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three months ended December 31, 1998 and 1997
(unaudited)
(in thousands, except loss per share)
1998 1997
---- ----
<S> <C> <C>
Operating revenue:
Sales of rights-to-receive:
Owned by Company $ 2,445 $ 609
Owned by Trust 20,311 22,427
------ ------
Gross dining sales 22,756 23,036
Cost of sales 13,059 12,991
Cardmember discounts 5,196 5,172
------ ------
Net revenue from rights-to-receive 4,501 4,873
Membership and renewal fee income 1,750 2,030
Franchise fee income 259 333
Commission income 40 94
Processing income 376 347
------ ------
Total operating revenues 6,926 7,677
------ ------
Operating expenses:
Selling, general and administrative 7,524 6,339
Cardmember acquisition and promotion 1,181 1,049
Amended compensation agreements (note 3) - 3,081
------ ------
Total operating expenses 8,705 10,469
------ ------
Operating loss (1,779) (2,792)
Other income (expense):
Realized gains on sale of securities available
for sale 1,042 -
Interest and other income 125 131
Interest expense and financing cost (741) (734)
------- -------
Loss before income taxes (1,353) (3,395)
Income tax benefit - (1,290)
------ -------
Net loss $ (1,353) (2,105)
====== =======
(Continued)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME, CONTINUED
1998 1997
---- ----
<S> <C> <C>
Net loss $ (1,353) (2,105)
======== ========
Other comprehensive income:
Unrealized holding gain on securities available-
for-sale held at end of period 282 1,059
Beginning unrealized gain for all securities sold (497) -
Tax effect of unrealized gain 81 (402)
Comprehensive loss $ (1,219) (1,448)
======== ========
Operating loss per common and common
equivalent share:
Basic and Diluted $ (.06) (.27)
===== =====
Net loss per common and common equivalent share:
Basic and Diluted $ (.11) (.21)
===== =====
Weighted average number of common and common equivalent
shares outstanding:
Basic 12,876 10,238
====== ======
Diluted 12,876 10,266
====== ======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended December 31, 1998 and 1997
(unaudited)
(in thousands)
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,353) (2,105)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 841 796
Amortization of deferred financing cost 67 71
Provision for rights-to-receive losses 910 760
Gain on sale of investments (1,042)
Deferred income taxes - (320)
Changes in assets and liabilities:
Accounts receivable 15 24
Rights-to-receive 85 (1,428)
Prepaid expenses and other current assets (1,647) 17
Other assets (120) (347)
Accounts payable 1,278 (232)
Income taxes receivable 254 (961)
Accrued expenses and other 1,230 (99)
Deferred membership fee income 1,442 (377)
------- -------
Net cash provided by (used in)
operating activities 1,960 (4,201)
------- -------
Cash flows from investing activities:
Additions to property and equipment (616) (659)
Proceeds from sale of investments available
for sale 1,042 -
------- -------
Net cash provided by (used in) invest-
ing activities 426 (659)
------- -------
Cash flows from financing activities:
Increase in restricted cash (986) (41)
Dividends paid - (202)
------- -------
Net cash used in financing activities (986) (243)
------- -------
(Continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
1998 1997
---- ----
<S> <C> <C>
Net increase (decrease) in cash $ 1,400 (5,103)
Cash and cash equivalents:
Beginning of year 4,632 7,223
------ -------
End of year $ 6,032 2,120
====== =======
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 614 660
======= ========
Income taxes $ (254) ( 7)
======= =========
</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, 1998 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-month period ended December 31, 1998 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, 1998 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) 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.
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. Mr. Chasen continues to
serve on the Board of Directors.
(3) PURCHASE OF FRANCHISES
On December 4, 1997, the Company acquired all the rights-to-receive of
East America Trading Company, its franchisee in the Carolinas and
Georgia, and terminated and canceled the franchise agreement in exchange
for 170,000 shares of Transmedia Network stock. The Company assumed
operational control of these sales territories and has an option to
acquire the remaining territories in the franchise.
8
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
On July 15, 1998, the Company acquired, for approximately $1,758, all
the rights to receive and the right to conduct business in the
Dallas/Ft. Worth territory from its franchise, the Texas Restaurant Card
Inc. ("TRC"). In addition, the Company has the option to reacquire the
remaining territories in Texas at a predetermined formula through July
2000. In February of 1999, the Company exercised its right to purchase
the Houston territory for approximately $648.
(4) 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. At
December 31, 1998, no amounts are outstanding under the line of credit.
This line of credit is unsecured, may be drawn down based on an advance
rate calculated as a percentage of unrestricted rights-to-receive and
bears interest at the prime rate with a LIBOR option. Negotiations are
presently underway with the bank for renewal of the line.
(5) 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. In the quarter ended December 31, 1998,
additional reserves were established and recorded in selling, general
and administrative expenses to cover management's estimate of the
potential cost and expenses of this litigation and other legal matters.
While management cannot predict the outcome of this litigation at this
time, it does not expect such outcome to adversely impact the financial
position or cash flows of the Company; however, in the event of an
unanticipated adverse final determination, the Company's net income for
the relevant period could be materially affected.
(6) LOSS PER COMMON AND COMMON EQUIVALENT SHARE
Basic loss per share was based on the weighted average number of common
shares outstanding during the period presented.
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.
9
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(A) RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED DECEMBER 31,
1998 AND 1997
Sales of rights-to-receive for the three-months ended December 31, 1998
decreased 1.2% to $22,756 compared to $23,036 for the three-month period
ending December 31, 1997. Included in the $22,756 is $886 of sales
relating to the Carolina/Georgia area and Dallas/Ft.Worth territories
which were reacquired in December 1997 and July 1998, respectively. On a
same territory basis sales decreased 5.1%. In spite of recent gains in
new fee paying cardmembers, attrition in the card file, both in total
and active accounts, resulted in lower average active cardmembers for
the quarter compared to the prior year. Partially offsetting this
decrease however, was somewhat higher utilization by current members
(i.e. the percentage of active users to total accounts), as well as a
slight increase in spend per active member. Sales volume in the New York
metropolitan area, the Company's largest and most competitive market,
declined 7% or $731, compared to the same period in the prior year.
Noticeable declines also occurred in Philadelphia and Boston. Offsetting
these decreases were higher sales volumes in other markets such as
Chicago, Wisconsin, Detroit, Indiana, Denver and Phoenix.
Cardmember discounts as a percentage of gross dining sales was 22.8% for
the three-months ended December 31, 1998 compared to 22.5% in the prior
year's period reflecting the Company's new focus on marketing the 25%
savings fee card.
Provision for rights-to-receive losses, which are included in cost of
sales, amounted to $910 for the three-month period ended December 31,
1998, compared to $760 in the prior year's period. Processing fees based
on transactions processed for the three-months ended December 31, 1998
declined as a percentage of gross dining sales to 3.2% compared to 3.6%
in the prior year's period reflecting economies of scale associated with
higher volume, an increasing number of point-of-sale transactions and
the Company's quality initiatives.
Membership and renewal fee income for the three-month period ending
December 31, 1998 was $1,750 versus $2,030 for the comparable prior
year's period. The recent card marketing initiatives to solicit new fee
paying members had a positive impact on cash flow during the quarter but
the income is deferred and recognized over a twelve-month period.
Offsetting these gains were a drop in renewal income compared to the
prior period. Cardholder membership fees are cancelable and refunded to
cardmembers, if requested, on a prorata basis based on the remaining
portion of the membership.
Continuing franchise fee income decreased by $74 to $259 in the
three-months ended December 31, 1998, compared with $333 in the prior
year's period primarily reflecting the repurchase of the formerly
franchised Carolinas and Georgia territory in December 1997 along with
the Dallas/Ft Worth territory in July 1998.
10
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
Commission income represents fees collected from third party marketing
partners mainly involved in direct marketing transactions.
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-months ended
December 31, 1998 increased by $1,185 or 18.7% compared with the prior
year's period. As a percentage of gross dining usage, selling, general
and administrative expenses were 33.1% this quarter compared to 27.5% in
the same quarter last year as a result of the lower sales volume. The
principal components of the increase included professional fees and the
establishment of additional legal reserves for potential costs of
litigation aggregating $1,271, telephone expenses of $68 associated with
the new marketing campaigns, and depreciation and amortization of $43
offset by decreases in salaries $87 and printing and postage of $263.
In the three-month period ended December 31, 1998, cardmember
acquisition and promotion expenses increased $132 to $1,181 from $1,049
in the prior year's comparable period. Included in cardmember
acquisition expenses was the amortization of previously capitalized
advertising costs amounting to $543 in the fiscal 1999 periods versus
$141 in the fiscal 1998 comparable period. Costs capitalized in the 1999
period were $1,802 versus $98 in 1998 with corresponding increases
occurring in deferred membership fee income. Activity in card
acquisition and promotion reflect recent initiatives to aggressively
market a fee based product.
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 and his spouses' life (Note 2). The
after tax impact of the charge was approximately $1,900.
Interest and financing cost for the three-month period ended December
31, 1998 remained relatively constant when compared to the same period
in the prior year.
Loss before income tax was $1,353 for the three-month period ended
December 31, 1998, compared with loss before income taxes of $3,395 in
the 1997 comparable period. A valuation allowance for the full amount of
the first quarter 1999 tax benefit was recorded.
Net loss for the three-months period ended December 31, 1998 was $1,353
or 11 cents per share compared with a net loss of $2,105 or 21 cents per
share in the prior year's comparable period.
11
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(B) LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents amounted to $6,032 at December
31, 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 1999
fiscal year.
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. At
December 31, 1998, no amounts are outstanding under the line of credit.
This line of credit is unsecured, may be drawn down based on an advance
rate calculated as a percentage of unrestricted rights-to-receive and
bears interest at the prime rate with a LIBOR option. Negotiations are
presently underway with the bank for renewal of the line.
(C) YEAR 2000 COMPUTER COMPLIANCE
In 1998, the Company initiated a plan ("Plan") to identify, assess, and
remediate "Year 2000" issues within each of its computer programs and
certain equipment which contain micro-processors. The Plan is addressing
the issue of computer programs and embedded computer chips being unable
to distinguish between the year 1900 and 2000, if a program or chip uses
only two digits rather than four to define the applicable year. The
Company has divided the Plan into six major phases-assessment, planning,
validation, conversion, implementation and testing. After completing the
assessment and planning phase late this year, the Company hired an
independent consulting firm to validate the Plan. All software
development and installation effected in the past year is already in
compliance. The Company is working with an outside vendor on the
conversion, implementation and testing phases. Systems which have been
determined not to be Year 2000 compliant are being either replaced or
reprogrammed, and thereafter tested for Year 2000 compliance. The Plan
anticipates that by June 1999 the conversion, implementation and testing
phases will be completed. The current budget for the total cost of
remediation (including replacement software and hardware) and testing,
as set forth in the Plan, is $500.
The Company has identified and contacted critical suppliers and
customers whose computerized systems interface with the Company's
systems, regarding their plans and progress in addressing their Year
2000 issues. The Company has received varying information from such
third parties on the state of compliance or expected compliance.
Contingency plans are being developed in the event that any critical
supplier or customer is not compliant.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Company's operations, liquidity and financial conditions. Due to the
12
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
general uncertainty inherent in the Year 2000 problem, resulting in part
from the uncertainty of the Year 2000 readiness of third-party suppliers
and customers, the Company is unable to determine at this time whether
the consequences of Year 2000 failures will have a material impact on
the Company's operations, liquidity or financial conditions.
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
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)
February 12, 1999 /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> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 6,032 2,120
<SECURITIES> 0 0
<RECEIVABLES> 2,046 2,236
<ALLOWANCES> 0 0
<INVENTORY> 40,653 41,333
<CURRENT-ASSETS> 59,693 51,438
<PP&E> 13,513 11,897
<DEPRECIATION> (6,581) (4,595)
<TOTAL-ASSETS> 76,226 70,821
<CURRENT-LIABILITIES> 14,880 11,571
<BONDS> 0 0
0 0
0 0
<COMMON> 258 258
<OTHER-SE> 25,989 23,850
<TOTAL-LIABILITY-AND-EQUITY> 76,226 70,821
<SALES> 22,756 23,036
<TOTAL-REVENUES> 6,926 7,677
<CGS> 0 0
<TOTAL-COSTS> 8,705 10,469
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (741) (734)
<INCOME-PRETAX> (1,353) (3,395)
<INCOME-TAX> 0 (1,290)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,353) (2,105)
<EPS-PRIMARY> (0.11) (0.21)
<EPS-DILUTED> (0.11) (0.21)
</TABLE>
