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, 1999
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 August 1, 1999: 13,352,709
<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, 1999 (unaudited)
and September 30, 1998 (audited)
Consolidated Statements of Income 4-5
And Comprehensive Income
Three and nine months ended June 30,
1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows-- 6-7
Nine months ended June 30,
1999 and 1998 (unaudited)
Notes to Unaudited Consolidated 8-12
Financial Statements
Item 2. Management's Discussion and Analysis 13-15
of Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 16
PART II. OTHER INFORMATION 16-17
- --------------------------
SIGNATURE 17
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1999 and September 30, 1998
(in thousands)
<TABLE>
<CAPTION>
ASSETS June 30, *September 30,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,226 $ 4,632
Restricted cash 2,811 3,518
Accounts receivable, net 2,554 2,061
Rights-to-receive, net
Unrestricted 46,880 7,909
Securitized and owned by Trust 35,508 34,438
Prepaid expenses and other current assets 6,424 5,067
------- -------
Total current assets 97,403 57,625
Securities available for sale, at fair value 896 1,267
Equipment held for sale or lease, net 804 988
Property and equipment, net 6,384 6,832
Other assets 1,636 1,142
Restricted deposits and investments 2,070 1,980
Excess of cost over net assets acquired and other intangible assets 4,901 4,591
------- -------
Total assets $ 114,094 $ 74,425
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowing - bank $ 29,000 $ -
Short term borrowing - affiliate 10,000 -
Accounts payable - rights-to-receive 3,956 4,181
Accounts payable - trade 4,258 3,348
Accrued expenses and other 2,973 1,507
Deferred membership fee income 3,146 2,594
------- -------
Total current liabilities 53,333 11,630
Secured non-recourse notes payable 33,000 33,000
Other long-term liabilities 2,041 2,061
------- -------
Total liabilities 88,374 46,691
------ ------
Guaranteed value of put warrants 1,471 -
Commitments - -
Stockholders' equity:
Common stock 268 258
Additional paid-in capital 23,521 21,496
Accumulated other comprehensive income 382 612
Retained earnings 78 5,368
------ -------
Total stockholders' equity 24,249 27,734
------ ------
Total liabilities and stockholders' equity $ 114,094 $ 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>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three months and nine months ended June 30, 1999 and 1998
(unaudited)
(in thousands, except income per share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
JUNE 30, JUNE 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue:
Sales of rights-to-receive:
Owned by Company $ 2,102 1,656 7,042 3,289
Owned by Trust 21,791 22,005 63,812 68,169
------ ------ --------- ---------
Gross dining sales 23,893 23,661 70,854 71,458
Cost of sales 13,580 13,414 40,274 40,584
Cardmember discounts 5,462 5,341 16,277 16,010
------ ------ ------- -------
Net revenue from rights-to-receive 4,851 4,906 14,303 14,864
Membership and renewal fee income 2,175 1,780 5,905 5,602
Franchise fee income 279 312 797 921
Commission income 43 134 114 347
Processing income 331 424 1,085 1,163
------- ------- --------- ---------
Total operating revenues 7,679 7,556 22,204 22,897
------ ------ ------- -------
Operating expenses:
Selling, general and administrative 7,454 6,580 22,298 19,502
Cardmember acquisition and promotion 1,635 1,221 4,402 3,516
Amended compensation agreements - - - 3,081
---------- ---------- ---------- ------
Total operating expenses 9,089 7,801 26,700 26,099
------ ------ ------- -------
Operating loss (1,410) (245) (4,496) (3,202)
Other income (expense):
Realized gain on sale of securities available
for sale - - 1,119 -
Interest and other income 80 182 301 444
Interest expense and financing cost (735) (746) (2,213) (2,237)
-------- -------- ------------ ------------
Loss before income taxes (2,065) (809) (5,289) (4,995)
Income tax benefit - (307) - (1,898)
------- ------ ------- ---------
Net loss $(2,065) (502) (5,289) (3,097)
------- ----- ------- -------
</TABLE>
(Continued)
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME, CONTINUED
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
JUNE 30, JUNE 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $ (2,065) (502) (5,289) (3,097)
------- ----- ------- -------
Other comprehensive income:
Unrealized gain on available-
for-sale securities 227 576 191 847
Beginning unrealized gain for securities
sold 18 - 558 -
Tax effect of unrealized gain (93) (219) (285) (322)
---- ----- ----- -----
Comprehensive loss $ (1,913) (145) (4,825) (2,572)
======== ====== ======== =======
Operating loss per common and common
equivalent share:
Basic and Diluted $ (.11) (.02) (.35) (.28)
====== ====== ====== =====
Net loss per common and common equivalent share:
Basic and Diluted $ (.16) (.04) (.41) (.27)
===== ===== ===== =====
Weighted average number of common and common
equivalent shares outstanding:
Basic 12,881 12,867 12,938 11,402
====== ====== ====== ======
Diluted 12,982 13,007 13,027 11,469
====== ====== ====== ======
</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, 1999 and 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
(UNAUDITED)
---------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,289) (3,097)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 2,568 2,424
Amortization of deferred financing cost 202 210
Provision for rights-to-receive losses 2,480 2,808
Gain on sale of securities available for sale (1,120) -
Deferred income taxes - (597)
Changesin assets and liabilities, net of acquisition
of Dining a la Card:
Accounts receivable (493) (376)
Rights-to-receive (1,963) (6,041)
Prepaid expenses and other current assets (2,933) (349)
Other assets (361) (1,097)
Accounts payable 677 72
Income taxes receivable 1,238 (625)
Accrued expenses 284 (150)
Deferred membership fee income 552 (968)
------- ---------
Net cash used in operating activities (4,158) (7,786)
-------- --------
Cash flows from investing activities:
Acquisition of Dining a la Card (36,453) -
Additions to property and equipment (1,478) (1,517)
Excess of cost over net assets acquired and
intangible assets (536) -
Proceeds from sale of securities available for sale 1,120 -
Increase in restricted deposits and investments 86 -
------- --------
Net cash used in investing activities (37,261) (1,517)
-------- ---------
Cash flows from financing activities:
Proceeds from short term borrowings 39,000 -
Net proceeds from issuance of common stock - 9,854
Decrease/(increase) in restricted cash 707 (262)
Conversion of warrants and options for
common stock, net of tax benefits 306 29
Dividends paid - (202)
-------- ---------
Net cash provided by financing activities 40,013 9,419
--------- --------
</TABLE>
(Continued)
6
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net decrease/(increase) in cash $ (1,406) 116
Cash and cash equivalents:
Beginning of year 4,632 7,223
-------- -------
End of year $ 3,226 7,339
======= =======
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 1,641 1,741
======== ========
Income taxes $ (1,238) (297)
======== =========
</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
========
The acquisition of Dining a la Card for $35,000, 400,000 shares of
common stock, with a put value of $8 per share, and options to purchase
400,000 shares of common stock, was recorded at the end of the third
quarter as follows:
Fair value of assets acquired:
Rights-to-receive 40,782
Other assets 231
Accrued expenses (663)
Stock options outstanding (697)
Guaranteed value of puts (1,471)
Common stock issued (1,729)
-------
Cash paid 36,453
=======
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(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 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, 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 to the
current presentation.
(2) ACQUISITION OF DINING A LA CARD
On June 30, 1999, the Company concluded the acquisition from
SignatureCard, Inc. ("SignatureCard"), a subsidiary of Montgomery Ward
& Co., Incorporated, assets related to a membership discount dining
program SignatureCard operated under the Dining A La Card trade name
and service mark. The assets acquired included various intellectual
property rights and computer software, membership and merchant data,
rights-to-receive, and, most significantly, a registered card platform,
among other things.
The acquisition was accounted for under the purchase method and the
results of operations of the acquired company were not included in the
consolidated results of Transmedia Network Inc., as the effective date
of acquisition was June 30, 1999, the end of this quarter. The purchase
price of $40,783 has been allocated, in its entirety, to the rights to
receive. As consideration for the assets, the Company (1) paid
SignatureCard $35,000 in cash at closing, (2) issued to SignatureCard
400,000 shares of the Company's common stock and (3) issued to
SignatureCard a three-year option to purchase an additional 400,000
shares of the Company's common stock at a price of $4.00 per share. The
options, which are included in the cost of the acquired assets, were
valued using the Black-Scholes model and assigned a value of $697. The
shares issued were valued at $4.32 per share using an average price
over the measurement period. Commencing December 31, 1999,
SignatureCard, at any time prior to June 30, 2002, may require the
Company to repurchase all or part of the 400,000 shares issued at the
closing at a price of $8.00 per share. The guaranteed value of the puts
recorded at June 30, 1999, is $1,471 and will be accreted over the
period from the date of issuance to the earliest settlement date
through periodic charges to retained earnings. In addition, during the
two-year period following the closing, the Company has agreed to share
with SignatureCard certain amounts recovered from rights to receive
acquired, but not funded at closing.
8
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
In connection with the acquisition of Dining A La Card, the Company
entered into a Services Collaboration Agreement with SignatureCard.
Under this agreement, SignatureCard will continue to provide dining
members from its airline frequent flyer partner programs and other
marketing programs. It will also share, for 12.5 years, certain profits
the Company derives from SignatureCard-generated members as well as a
portion of the membership fee revenues generated from fee paying
members acquired in this transaction or subsequently through
SignatureCard's efforts.
In connection with this acquisition, the Company paid a fee for
transaction advisory services to Equity Group Investments LLC, an
affiliate of the Company's largest stockholder ("EGI"), which is
included in the cost of the acquired assets, of $386.
To finance the acquisition, the Company obtained a $35 million senior
secured revolving bridge loan facility from The Chase Manhattan Bank
(from which $29 million was drawn down at closing) and a $10 million
term loan from GAMI Investments, Inc., an affiliate of EGI (which was
drawn down in full).
The Chase facility permits us to borrow up to an aggregate principal
amount equal to the lesser of (i) $35 million and (ii) the amount
available under a borrowing base formula based on the amount of Dining
A La Card receivables which meet certain eligibility criteria (which
was $35 million at the closing). The facility is secured by liens on
substantially all of the Company's assets (including those purchased
pursuant to the acquisition), other than those subject to an existing
securitization facility, as well as the stock of the three principal
subsidiaries: Transmedia Restaurant Company Inc., Transmedia Service
Company Inc., and TMNI International Incorporated. It is the Company's
intention to use the remaining proceeds of the facility in connection
with the ongoing Dining A La Card business.
Amounts drawn down under the facility accrue interest, at the Company's
election, at either (i) 0.25% plus the greater of (a) the prime rate
publicly announced by Chase in effect in New York, New York and (b) the
federal funds effective rate from time to time plus 1.5% or (ii) one
month LIBOR plus 1.25%, and mature on December 30, 1999 or upon the
earlier effectiveness of a securitization facility of the Dining A La
Card rights-to-receive. The effective rate of interest at June 30, 1999
was 8.08%. Interest is payable monthly in arrears. Any amounts overdue
under the facility accrue interest at the applicable rate plus 2%. The
agreement contains customary events of default, as well a cross default
to all other material indebtedness, including the Company's existing
securitization facility and the GAMI loan. The Company intends to
replace this bridge loan with a securitization facility of the Dining A
La Card rights-to-receive arranged through Chase. In connection with
this facility, the Company paid a $500 fee to Chase upon the closing
and is required to pay a monthly unused line fee equal to 0.375% of the
average unused amount.
The GAMI loan in the amount of $10 million is unsecured and
subordinated to the Chase facility. It binds Transmedia as well as its
three principal subsidiaries as borrowers. Interest accrues on the
principal amount outstanding at the prime rate (as announced from time
to time by Chase) plus 4%, and is payable monthly in arrears. Overdue
amounts bear interest at such prime rate plus 8%. The effective rate of
interest at June 30, 1999 was 11.75%.
9
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The terms of the GAMI agreement require the Company to conduct a rights
offering of rights to purchase a new series of preferred stock to be
offered to each existing stockholder of record on a pro rata basis. The
proceeds of the rights offering will be used to repay all outstanding
amounts under this loan.
In connection with the rights offering, EGI, through its affiliate and
the Company's largest stockholder, Samstock L.L.C., has agreed to act
as a standby purchaser whereby, after exercising its initial rights and
any additional subscription privileges, it will purchase any shares not
otherwise subscribed for by other stockholders. The GAMI loan matures
on December 30, 1999 or the earlier closing of such rights offering.
The failure to meet certain requirements relating to the rights
offering and the occurrence of an event of default under various
agreements relating to the rights offering or under the Chase facility
would constitute defaults under this facility, among other customary
events.
The terms of this loan required the Company to pay GAMI, at closing a
cash fee of $500, which is reimbursable to the Company upon the
consummation of the rights offering and the issuance to Samstock L.L.C.
of warrants to purchase 1,000,000 shares of the Company's common stock
in consideration of providing the loan and its obligation to act as a
standby purchaser in connection with the rights offering. If the rights
offering is not consummated or the warrants are not issued, the Company
is required to pay GAMI an additional $500 fee.
(3) EXISTING SECURITIZATION FACILITY WAIVER
As of April 30, 1999, the Company's stockholder equity was $23,583,
which was less than the $24 million minimum required under its existing
securitization facility. This default has been waived through December
31, 1999, as long as the Company's stockholders' equity remains above
$20 million. The waiver may terminate, however, (1) after October 31,
1999, if the rights offering to replace the GAMI bridge loan has not
yet been commenced or if the Company continues to fail to comply with
the stockholder equity requirements and, in each case, the rating of
the notes under the securitization facility is withdrawn or reduced,
and (2) at any time, if the indebtedness under the Chase or GAMI bridge
loans are accelerated. The Company believes the rights offering will
provide the additional equity needed to comply with the terms of the
securitization facility. If the Company is unable to satisfy this
requirement by December 31, 1999, or if the waiver is terminated, an
early amortization event under the facility will be declared, and our
financial condition would be materially adversely impacted. At June 30,
1999, the Company's stockholder equity was $24,249.
(4) 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 from the investment amounted to $9,825 after transaction cost.
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
10
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(5) AMENDED COMPENSATION AGREEMENTS
On December 29, 1997, the Company and Melvin Chasen, the former
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. Mr. Chasen continued to serve on the
Board of Directors through June 4, 1999.
(6) PURCHASE OF FRANCHISES
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 fair value of the stock exchanged over the value of
rights-to-receive was recorded as excess of cost over net assets
acquired.
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.
On February 10, 1999, the Company exercised its right to purchase the
Houston territory from TRC. The purchase price was approximately $648
of which $112 represented the cost of the franchise and $536 was
recorded as the excess of cost over net assets acquired. The Company
assumed operational control of the territory.
(7) 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 the outcome of this case to adversely
impact the financial position, cash flows or operating results 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.
11
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(8) 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 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 (if dilutive), based on average stock market prices at the
end of the periods.
(9) DEFERRED INCOME TAXES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates
when recording transactions resulting from business operations, based
on information currently available. One of the more significant
estimates required of company management is the estimate of future
taxable income used in the determination of the Company's deferred tax
position at each balance sheet date. Based upon current management
projections, management believes that it will return to profitability
by the end of calendar year 1999 and that the future taxable income for
the period through September 30, 2000, will be sufficient to make it
more likely than not that the recorded deferred tax asset of $1.6
million will be realizable.
As with any estimate, actual results may vary from such estimates and
the effects of such variances may be material.
12
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Some of the matters discussed in this quarterly report contain
forward-looking statements regarding the Company's future business
which are subject to certain risks and uncertainties, including
competitive pressures, adverse economic conditions and government
regulations. These issues, and other factors, which may be identified
from time to time in the Company's reports filed with the SEC, could
cause actual results to differ materially from those indicated in the
forward-looking statements.
(A) RESULTS OF OPERATIONS - COMPARISON OF THREE AND NINE MONTHS ENDED
JUNE 30, 1999 AND 1998
Sales of rights-to-receive for the three and nine-month periods ended
June 30, 1999 were $23,893 and $70,854, which is comparable with sales
for the same period in the prior year of $23,661 and $71,458,
respectively. Included in the 1999 sales are $1,284 and $3,352,
respectively, of sales relating to Carolinas/Georgia, Dallas/Ft. Worth
and Houston territories that were reacquired in December 1997, July
1998 and February 1999, respectively. On a same territory basis, sales
decreased $366 and $2,077 for the three and nine-month periods ended
June 30, 1999, respectively. New York, Boston, Philadelphia and South
Florida show decreased sales that were partially offset by higher sales
volume in North Florida, Detroit, Chicago, Indiana, and Wisconsin. The
acquired territories of Carolinas/Georgia, Dallas/Ft. Worth and Houston
continue to show steady growth during 1999.
Cardmember discounts as a percentage of gross dining sales were 22.9%
and 23.0% in the current three and nine-month periods compared to 22.6%
and 22.4% in the prior year periods reflecting the continued growth in
new membership and spending by the 25% fee membership category.
Provision for rights-to-receive losses, which are included in cost of
sales, amounted to $836 and $2,480 for the three and nine-month periods
ended June 30, 1999, compared to $896 and $2,808 in the prior year
periods. Processing fees based on transactions processed increased to
3.68% and 3.20% as a percentage of gross dining sales for the three and
nine-months ending June 30, 1999 from 3.07% for the same periods in the
prior year reflecting increased rates from third-party processors.
Membership and renewal fee income for the three and nine-month periods
ending June 30, 1999 were $2,175 and $5,905, respectively, compared
with 1,780 and 5,602 for the comparable prior year periods. This
represents an increase over prior year periods of 22.2% and 5.4%
reflecting the Company's more recent focus of working with financial
institution marketing partners to solicit fee paying member. It is the
Company's intention to continue to significantly increase solicitation
efforts through the end of the calendar year, and correspondingly,
continue to increase the fee paying member base. Fee income is
recognized over a twelve-month period beginning in the month the fee is
received.
Continuing franchise fee income decreased by $33 and $124 in the three
and nine-month periods ended June 30,1999, compared with the prior year
primarily reflecting the repurchase of the formerly franchised
territories.
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.
13
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative expenses for the three and
nine-months ended June 30, 1999 increased by $874 and $2,796 or 13.3%
and 14.3%, respectively, compared with the prior year periods. As a
percentage of gross dining usage, selling general and administrative
expenses were 31.2% this quarter compared to 27.8% in the same quarter
last year. Significant component increases for the three and nine
months ending June 30, 1999 were depreciation and amortization of $57
and $137, rent and other expenses of $97 and $102 associated with new
sales office, salaries and benefits of $338 and $297, other expenses
mainly Y2K programming and Dining A La Card integration programming of
$113 and $706, and professional fees and the establishment of
additional legal reserves of $164 and $1,558, respectively.
In the three and nine-month periods ended June 30, 1999, cardmember
acquisition expenses were $1,635 and $4,402 versus $1,221 and $3,516 in
the prior year's comparable periods. Included in cardmember acquisition
expenses was the amortization of previously capitalized advertising
costs amounting to $927 and $2,336 in the fiscal 1999 periods versus
$140 and $371 in the fiscal 1998 comparable periods. Costs capitalized
in the 1999 periods were $770 and $3,377 versus $66 and $399 in 1998.
The Company continues to implement its strategy of aggressively
marketing only fee-based memberships, and the testing of series of
offers and rollouts with large marketing partners, principally
financial institutions. The Company believes that on a going forward
basis, the incremental cost of solicitation and promotion will be
substantially offset by the initial fee income and that future renewal
income may have a positive contribution towards profitablity. The
Company has sent solicitation mailings with marketing partners of
approximately four million pieces during the three months ending June
30, 1999, and expects to mail an additional four million pieces in the
next fiscal quarter. These mailings are expected to yield an increase
in new membership ranging from 120,000 to 180,000 members, depending on
the final response rate.
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 4). The after tax
impact of the charge was approximately $1.9 million.
Interest and other expense was $735 and $2,213 for the three and nine
month periods ending June 30, 1999 which is comparable with the same
periods for the previous year of $746 and $2,237, respectively.
Net loss for the three and nine-months periods ended June 30, 1999 were
$2,065 or 16 cents per share and $5,289 or 41 cents per share, compared
with a net loss of $502 or 4 cents per share and $3,097 or 27 cents per
share in the prior year comparable periods.
(B) LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents amounted to $3,226 at June 30,
1999. The Company believes that cash on hand, plus cash generated from
operations and available through the revolving bridge loans, as
described below, will be sufficient to fund the Company's normal cash
requirements for the 1999 fiscal year. In connection with the
acquisition of Dining A La Card, the Company obtained a senior secured
revolving bridge loan from the Chase Manhattan Bank (note 2). The loan
permits the Company to borrow an amount equal to the lesser of (i) $35
14
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
million and (ii) the amount available under a borrowing base formula
based on the amount of Dining A La Card receivables which meet certain
eligibility criteria. At June 30, 1999, the amount of the eligible
receivables was $35 million and the amount drawn down by the Company
was $29 million. The Company does not anticipate the borrowing base
calculation of eligible rights to drop significantly below $35 million
and has the capital to increase the base of receivables if it chose to
do so.
In addition, while the Company expects to significantly increase its
marketing expenditures over the remainder of the fiscal year, recent
response rate results have indicated that the overall member
acquisition cost can be substantially funded by the initial fee income.
Furthermore, the Company believes that the rights to receive inventory
levels in the existing markets, currently averaging over nine months on
hand on an aggregate basis, are sufficient to absorb new member demand
over the remainder of the year. Restricted cash of $$2,811 is available
for the funding of eligible rights to receive.
(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 addressed
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 divided the Plan into six major phases: assessment,
planning, validation, conversion, implementation and testing. After
completing the assessment and planning phase in late last 1998, the
Company hired an independent consulting firm to validate the Plan. All
software development and installation effected during 1999 is currently
in compliance. The Company worked with an outside vendor on the
conversion, implementation and testing phases. Systems which were
determined not to be Year 2000 compliant have been either replaced or
reprogrammed, and thereafter tested for Year 2000 compliance. The
Company believes that at June 30, 1999 the conversion, implementation
and testing phases have been completed. The original budget for the
total cost of remediation (including replacement software and hardware)
and testing, as set forth in the Plan, was $500. The Company aggregate
spending on the Year 2000 remediation at June 30, 1999, which has been
expensed, was $542.
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 condition. Due to the
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.
15
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to various types of market risk, including
changes in interest rates. Market risk is the potential loss arising
from adverse changes in the market rates and prices, such as interest
rates. The Company does not enter into derivatives or other financial
instruments for trading of speculative purposes. The Company's total
investments at June 30, 1999 and 1998 was $896 and $2,834,
respectively, and consisted of equity securities.
PART II - OTHER INFORMATION
Items 1, 2, 3, 4, and 5
Items 1, 2, 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 3
Default upon senior securities
(a) Material default in indebtedness of registrant
At April 30, 1999, the Company was not in compliance
with a covenant relating to the secured non-recourse
note payable, the "Trust". This covenant requires
that the Company maintains a consolidated
stockholders' equity of at least $24 million. The
stockholders' equity of Transmedia and its
consolidated subsidiaries as reflected in the
unaudited internal consolidated financial statements
at April 30, 1999 was $23,583. Non compliance of this
covenant could result in an Optional Termination and
Early Amortization Event under the terms of the
Security Agreement. At June 30, 1999, the Company
obtained a Waiver of the Early Amortization Event
from all Noteholders of the Notes issued under the
Indenture, so long as the stockholders' equity of
Transmedia and its consolidated subsidiaries (as that
term is used under GAAP) is at least equal to
$20,000. This Waiver expires at the end of December
1999. At June 30, 1999, the stockholders' equity of
Transmedia and its consolidated subsidiaries is
$24,249.
Item 6
Exhibits and reports on Form 8K
(a) Exhibits
10.1 Asset Purchase Agreement, dated as of March
17, 1999, between Transmedia Network Inc.
and SignatureCard, Inc., as amended by
Amendment No. 1 thereto dated as of April
15, 1999 and Amendment No. 2 thereto dated
as of May 31, 1999.
10.2 Option Agreement, dated as of June 30, 1999,
between Transmedia Network Inc. and
SignatureCard, Inc.
16
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
10.3 Services Collaboration Agreement, dated as of
June 30, 1999, between Transmedia Network
Inc. and SignatureCard, Inc.
10.4 Credit Agreement, dated as of June 30, 1999,
between Transmedia Network Inc. and The Chase
Manhattan Bank.
10.5 Security Agreement, dated as of June 30,
1999, between Transmedia Network Inc. and The
Chase Manhattan Bank.
10.6 Pledge Agreement, dated as of June 30, 1999,
between Transmedia Network Inc. and The Chase
Manhattan Bank.
10.7 Credit Agreement, dated as of June 30, 1999,
between GAMI Investments, Inc., Transmedia
Network Inc., Transmedia Restaurant Company
Inc., Transmedia Service Company Inc. and
TMNI International Incorporated.
27 Financial Data Schedule.
(b) Reports on Form 8K
A Current Report on Form 8K dated July 14,
1999 was filed with the Securities and
Exchange Commission regarding the Company's
closing of an Asset Purchase Agreement with
SignatureCard, Inc. entered to on March 17,
1999. Transmedia purchased certain assets of
SignatureCard related to a membership
program operated under the Dining A La Card
trade name and service mark. The
consideration to include (i) cash, in an
amount equal to the cash funded by
SignatureCard for certain
"qualified"rights-to-receive at $35.0
million, (ii) 400,000 shares of Common
Stock, par value $.02 per share, of the
Company and (iii) options to purchase an
additional 400,000 shares of Common Stock of
the Company at any time during the
three-year period following the closing at
an exercise price of $4.00 per share.
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 13, 1999 /S/STEPHEN E. LERCH
------------------------------------
Stephen E. Lerch
Executive Vice President
and Chief Financial Officer
17
<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-30-1999 SEP-30-1998
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 3,226 4,632
<SECURITIES> 896 1,267
<RECEIVABLES> 2,554 2,061
<ALLOWANCES> 0 0
<INVENTORY> 82,388 42,347
<CURRENT-ASSETS> 97,403 57,625
<PP&E> 14,257 12,754
<DEPRECIATION> (7,873) (5,830)
<TOTAL-ASSETS> 114,094 74,425
<CURRENT-LIABILITIES> 53,333 11,630
<BONDS> 0 0
0 0
0 0
<COMMON> 268 258
<OTHER-SE> 23,981 27,476
<TOTAL-LIABILITY-AND-EQUITY> 114,094 74,425
<SALES> 70,854 71,458
<TOTAL-REVENUES> 22,204 22,897
<CGS> 0 0
<TOTAL-COSTS> (26,700) (26,099)
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (2,213) (2,237)
<INCOME-PRETAX> (5,289) (4,995)
<INCOME-TAX> 0 (1,898)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,289) (3,097)
<EPS-BASIC> (0.41) (0.27)
<EPS-DILUTED> (0.41) (0.27)
</TABLE>
