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, 2000
-----------------
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
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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 8, 2000: 14,536,992
<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, 2000 (unaudited)
and September 30, 1999 (audited)
Consolidated Statements of Income 4-5
And Comprehensive Income
Three and nine months ended June 30,
2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows-- 6-8
Nine months ended June 30,
2000 and 1999 (unaudited)
Notes to Unaudited Consolidated 9-12
Financial Statements
Item 2. Management's Discussion and Analysis 13-16
of Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 16
PART II. OTHER INFORMATION 17
--------------------------
SIGNATURE 17
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2000 and September 30, 1999
(in thousands except per share data)
<TABLE>
<CAPTION>
Assets June 30, *September 30,
-------- 2000 1999
----------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,050 $ 8,943
Restricted cash - 3,726
Accounts receivable, net 8,574 8,107
Rights-to-receive, net
Unrestricted - 41,833
Securitized 76,775 34,621
Prepaid expenses and other current assets 2,879 5,259
----------- -------------
Total current assets 100,278 102,489
Securities available for sale, at fair value 1,452 631
Equipment held for sale or lease, net 249 702
Property and equipment, net 8,316 6,413
Other assets 1,382 2,583
Restricted deposits and investments 90 2,070
Excess of cost over net assets acquired and other intangible assets 10,598 4,822
----------- -------------
Total assets $ 122,365 $ 119,710
=========== =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Short term borrowing - bank $ - $ 29,000
Secured non-recourse revolving debt 59,625 -
Accounts payable - rights-to-receive 10,722 6,691
Accounts payable - trade 11,136 8,376
Accrued expenses and other 2,622 5,174
Deferred membership fee income 2,991 3,850
----------- -------------
Total current liabilities 87,096 53,091
Secured non-recourse notes payable - 33,000
Term loan - affiliate - 10,000
Other long-term liabilities 4,450 3,170
----------- -------------
Total liabilities 91,546 99,261
----------- -------------
Guaranteed value of put warrants 3,200 2,336
Stockholders' equity:
Preferred stock - Series A, par value $0.10 per share (10,000 shares
authorized; 4,149 and 0 shares issued and outstanding as of June
30, 2000 and September 30, 1999, respectively) 415 -
Common stock, par value $0.02 per share (70,000 shares authorized;
14,537 and 13,376 shares issued and outstanding as of June 30,
2000 and September 30, 1999, respectively) 290 264
Additional paid-in capital 37,416 22,661
Accumulated other comprehensive income 727 218
Retained earnings (11,229) (5,030)
----------- -------------
Total stockholders' equity 27,619 18,113
----------- -------------
Total liabilities and stockholders' equity $ 122,365 $ 119,710
=========== =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
* The balance sheet at September 30, 1999 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, 2000 and 1999
(unaudited)
(in thousands, except income per share)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- ---------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
---------- --------- ---------- ----------
Operating revenue:
Sales of rights-to-receive:
Private label 19,681 23,893 63,660 70,854
Registered card 23,608 -- 70,195 --
---------- --------- ---------- ----------
Gross dining sales 43,289 23,893 133,855 70,854
Cost of sales 24,825 13,580 78,356 40,274
Member discounts 9,464 5,462 28,767 16,277
---------- --------- ---------- ----------
Net revenue from rights-to-receive 9,000 4,851 26,732 14,303
Membership and renewal fee income 2,232 2,175 6,606 5,905
Franchise fee income 138 279 568 797
Commission income 15 43 64 114
Processing income 198 331 737 1,085
---------- --------- ---------- ----------
Total operating revenues 11,583 7,679 34,707 22,204
---------- --------- ---------- ----------
Operating expenses:
Selling, general and administrative 8,244 4,219 17,012 13,156
Salaries and benefits 3,230 2,438 9,123 6,613
Member acquisition and promotion 1,613 1,635 4,788 4,402
Printing and postage 1,233 797 3,324 2,529
---------- --------- ---------- ----------
Total operating expenses 14,320 9,089 34,247 26,700
---------- --------- ---------- ----------
Operating income (loss) (2,737) (1,410) 460 (4,496)
Other income (expense):
Realized gain on sale of securities available
for sale -- -- 40 1,119
Interest and other income 153 80 368 301
Interest expense and financing cost (1,533) (735) (4,666) (2,213)
---------- --------- ---------- ----------
Loss before income taxes and
extraordinary item (4,117) (2,065) (3,798) (5,289)
Income tax (benefit) -- -- -- --
---------- --------- ---------- ----------
Loss before extraordinary item (4,117) (2,065) (3,798) (5,289)
---------- --------- ---------- ----------
</TABLE>
(Continued)
4
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income, Continued
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- ---------------------------
2000 1999 2000 1999
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Loss before extraordinary item (4,117) (2,065) (3,798) (5,289)
Extraordinary item, net of tax -- -- (1,623) --
---------- --------- ---------- ----------
Net loss (4,117) (2,065) (5,421) (5,289)
---------- --------- ---------- ----------
Other comprehensive income, net of tax:
Unrealized holding gain (loss) on securities
available-for-sale held at end of period
(814) 227 842 191
Beginning unrealized gain (loss) for
securities sold -- 18 (21) 558
Tax effect of unrealized gain 309 (93) (312) (285)
---------- --------- ---------- ----------
Comprehensive loss $ (4,622) (1,913) (4,912) (4,825)
---------- --------- ---------- ----------
Net loss per share of common stock:
Basic and diluted:
Loss before extraordinary item (0.31) (0.16) (0.33) (0.41)
---------- --------- ---------- ----------
Extraordinary loss 0.00 0.00 (0.12) 0.00
---------- --------- ---------- ----------
Net loss $ (0.31) (0.16) (0.45) (0.41)
---------- --------- ---------- ----------
Weighted average number of common and common
equivalent shares outstanding:
Basic: 14,159 12,881 13,729 12,938
Diluted: 18,737 12,982 18,209 13,027
</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, 2000 and 1999
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
(unaudited)
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,421) (5,289)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization 3,035 2,568
Amortization of deferred financing cost 738 202
Provision for rights-to-receive losses 4,895 2,480
Gain on sale of securities available for sale (40) (1,119)
Changes in assets and liabilities:
Accounts receivable (467) (493)
Rights-to-receive 1,222 (1,836)
Prepaid expenses and other current assets 2,408 (2,933)
Other assets 1,489 (348)
Accounts payable 3,074 649
Income taxes receivable (806) 1,238
Accrued expenses (1,346) 283
Deferred membership fee income (860) 552
------------ ------------
Net cash provided by (used in) operating activities 7,921 (4,046)
------------ ------------
Cash flows from investing activities:
Acquisition of Dining a la Card - (36,453)
Additions to property and equipment (4,120) (1,478)
Acquisition of franchises (4,076) (648)
Note payable - former franchises (3,325) -
Proceeds from sale of securities available for sale 40 1,120
Decrease in restricted deposits and investments 2,948 86
------------ ------------
Net cash used in investing activities (8,533) (37,373)
------------ ------------
Cash flows from financing activities:
Net proceeds from rights offering 9,700 -
Net proceeds from private placement 4,126 -
Net proceeds from revolving securitization 58,555 -
Dividends paid (388) -
Repayment of secured non-recourse notes (33,000) -
(Repayment of) proceeds from short term loan - bank (29,000) 29,000
(Repayment of) proceeds from short term loan - affiliate (10,000) 10,000
Decrease in restricted cash 3,726 707
Conversion of warrants and options for
common stock, net of tax benefits - 306
------------ ------------
Net cash provided by financing activities 3,719 40,013
------------ ------------
</TABLE>
6
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
(unaudited)
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net increase (decrease) in cash and cash
equivalents $ 3,107 (1,406)
Cash and cash equivalents:
Beginning of year 8,943 4,632
------------ ------------
End of year $ 12,050 3,226
============ ============
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 838 1,641
============ ============
Income taxes $ 31 (1,238)
============ ============
</TABLE>
Supplemental schedule of noncash and investing activities:
Noncash investing and financing activities:
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 of fiscal 1999 (see Note 4) 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
=========
The acquisition of the Houston franchisee was recorded during the second
quarter of fiscal year 1999 as follows (see Note 6):
Fair value of assets acquired:
Rights-to-receive $ 127
Other assets 13
Excess of cost over net assets acquired 536
---------
676
Less: Cash paid 648
---------
Liabilities assumed $ 28
=========
7
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
The acquisition of the San Antonio/Austin franchisee was recorded during
the first quarter of fiscal year 2000 as follows (see Note 6):
Fair value of assets acquired:
Rights-to-receive $ 200
Other assets 5
Excess of cost over net assets acquired 788
---------
993
Less: Cash paid 950
---------
Liabilities assumed $ 43
=========
The acquisition of the New Jersey franchisee was recorded during the second
quarter of fiscal year 2000 as follows (see Note 6):
Fair value of assets acquired:
Rights-to-receive $ 1,344
Other assets 22
Excess of cost over net assets acquired 2,002
---------
3,368
Less: Cash Paid 1,700
Cash payments outstanding 1,300
---------
Liabilities assumed $ 368
=========
The acquisition of the Washington, DC franchisee was recorded during the
third quarter of fiscal year 2000 as follows (see Note 6):
Fair value of assets acquired:
Rights-to-receive $ 1,661
Other assets 33
Excess of cost over net assets acquired 3,725
---------
5,419
Less: Cash Paid 1,426
Common shares issued 1,500
Note payable 2,000
---------
Liabilities assumed $ 493
=========
The acquisition of the Virginia franchisee was recorded during the third
quarter of fiscal year 2000 as follows (see Note 6):
Fair value of assets acquired:
Excess of cost over net assets acquired 25
---------
Less: Cash payments outstanding $ 25
=========
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands)
(1) Basis of Presentation
The balance sheet as of September 30, 1999 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 for a fair statement of the results
for all interim periods. The results for the three and nine-month
periods ended June 30, 2000 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, 1999 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) Internet Dining Venture
On May 2, 2000, the Company launched its new Internet dining venture.
Execution of the e-commerce initiative is through iDine.com, a newly
formed wholly owned subsidiary. The on-line product will allow
restaurateurs to create special incentives and promotions through the
iDine website on specific days of the week and/or times of the day in
order to drive incremental traffic when they need it most. Consumers
will have their choice of savings benefits in points or cash and may
convert the points into either complimentary dining or frequent flyer
miles. The website also allows for on-line reservations, national
restaurant listings and access to reviews and maps. The on-line
initiative is intended to broaden the amount and type of savings and
rewards offered to consumers as well as to expand the participating
restaurant base by providing restaurant operators with a full suite of
yield management products.
Development of the e-commerce product is being finance by corporate
capital and through a $10 million private placement. In the first
tranche of the private placement, the Company issued 904,303 shares of
its common stock at $4.5625 and warrants to purchase an additional
1,808,606 shares of its common stock, half of which have an exercise
price of $5.93 and the other half of $7.30. The warrants will expire on
April 28, 2005. The Company received proceeds from the share issuance
in the amount of $4,126. The Company intends to raise approximately
$5,874 through a second tranche which will be subject to near-term
shareholder approval at a special shareholders meeting scheduled for
August 17, 2000.
Operating results for the quarter ended June 30, 2000 were materially
empacted by the new on-line business which is presently in the start-up
and development phases. Included in operating expenses is approximately
$3,100 associated with the e-commerce initiative. Additionally,
approximately $1,400 of development expenditure has been capitalized.
9
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands)
(3) Conversion to Registered Card and Rebranding
Effective August 1, 2000, the Company completed its efforts to convert
its entire restaurant portfolio and membership base to the registered
card program. The registered card platform was acquired through the
Dining a La Card acquisition, and allows members to register a valid
credit card with the Company and then present the registered credit
card when dining at participating restaurants in order to access their
rewards and benefits. This is in contrast to the Company's traditional
methodology whereby a separate private label charge card, the
Transmedia Card, was selectively issued to members who then used it to
obtain a discount at participating restaurants. The private label
program is expected to be completely phased out by the end of the
calendar year.
In connection with the conversion and the launch of the on-line
business, the Company has decided to universally brand its dining
programs under the iDine name. iDine Prime will resemble the legacy fee
based, cash reward dining program that give members complete access to
the entire restaurant portfolio. iDine Choice is a no-fee program that
will provide varying levels of benefits, services and rewards and uses
alternative currencies for awarding benefits such as airline miles,
dining points, etc. Included in the Choice program will be the on-line
offering of variable incentives and promotions at selected restaurants
as discusses in Note 2 above.
(4) Securitization of Rights to Receive
On December 30, 1999, the Company entered into the $80 million
revolving securitization of the combined rights to receive of both the
private label and the registered card dining programs. The new
securitization was privately placed through an asset backed commercial
paper conduit. The proceeds drawn down at closing, approximately $65
million based on a borrowing base formula were utilized to terminate
and payoff $33 million in non-recourse notes from the 1996
securitization and $27 million then outstanding under a bridge loan
used in the acquisition of Dining a La Card ("DALC"). Additionally, the
Company was required to pay a termination payment of approximately $1.1
million to the noteholders and non-recourse partners in the 1996
securitization. The interest rate applicable to the new facility is the
rate equivalent to the rate (or if more than one rate, the weighted
average of the rates) at which commercial paper ("CP") having a term
equal to the related CP tranche period that may be sold by any
placement agent or commercial paper dealer selected by the conduit on
the first day of such CP tranche period, plus the amount of any
placement agent or commercial paper dealer fees and commissions
incurred or to be incurred in connection with such sale. At June 30,
2000, the effective interest rate for the new facility was 8.8% per
annum.
The early extinguishment of the 1996 facility and payoff of the related
non-recourse notes resulted in an extraordinary charge of $1,623 or
$0.12 per share consisting of the following:
Write-off of related unamortized financing costs $ 540
Termination payment to noteholder
and non-recourse partners 1,083
---------
Extraordinary charge before income tax benefit 1,623
Income tax benefit (412)
Related increase in income tax valuation allowance 412
---------
Net extraordinary charge $ 1,623
=========
10
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands)
(5) Rights Offering
On November 9, 1999, the Company completed a Rights Offering to
existing shareholders resulting in the issuance of 4,149,378
convertible, redeemable preferred shares. The preferred shares have a
dividend rate of 12%, of which 6% is payable in cash, quarterly in
arrears, and the remaining 6% accrues unless otherwise paid currently
at the Company's discretion, until conversion by the holder. At June
30, 2000, March 31, 2000 and December 31, 1999, the Company paid cash
dividends in the amount of $150, $150 and $88, respectively. Each
preferred share may be converted into common stock at the option of the
holder at any time. The initial rate of conversion is one to one.
Subsequent conversion rates are higher to the extent of the deferred
dividend accruing at 6% and any unpaid cash dividends. If not
previously converted, the Company may commence redemption of the
preferred shares on the third anniversary of the rights offering. At
June 30, 2000, the conversion rate of the preferred shares was 1
preferred share for 1.0389 common shares.
The proceeds from the stock issuance of $10,000 were used to retire a
$10,000 term loan obtained from an affiliate of the Company's largest
investor used primarily for the DALC acquisition. Pursuant to its
subscription privileges and as a Standby Purchaser for any unsubscribed
shares, Equity Group Investments, Inc. ("EGI"), also an affiliate of
the Company's largest investor, acquired 2.84 million of the preferred
shares. The additional investment provided EGI with the right to
designate an additional member to the Board of Directors. The size of
the Board was increased by this one member during the last quarter.
(6) Purchase of Franchises and Licenses
On December 16, 1999, the Company acquired all the rights-to-receive,
and the right to conduct business in the San Antonio and Austin sales
territories from its franchisee, Texas Restaurant Card, Inc. ("TRC").
The purchase price was $950 of which $788 represents the cost of the
franchises which has been recorded as the excess of cost over net
assets acquired. With the acquisition of these sales territories, the
Company has completed the reacquisition of all of the sales territories
of TRC, and the right to conduct business in Texas and has settled any
and all obligations under the franchise agreement, as amended.
On March 31, 2000, the Company acquired all the outstanding shares of
its New Jersey franchisee, 47K Corp, for $3,000 payable in three
installments. The purchase method of accounting for business
combinations was used. The operating results of the acquired company
have been included in the consolidated results of Transmedia Network,
Inc., since the date of acquisition. The fair market value of the
assets acquired was $3,368 and liabilities assumed totaled $368. Assets
acquired included rights to receive and other miscellaneous items. The
first payment of $1,700 was made at closing on March 31, 2000; the
second payment of $1,050 paid on July 31, 2000; and the final payment
is due March 31, 2001.
On April 11, 2000, the Company terminated, by mutual consent, the
license agreements with Transmedia Asia Pacific, Inc. and Transmedia
Europe, Inc. to operate the Transmedia dining card program in their
respective territories. As a result of these negotiations, the Company
forgave a $500 note and all accrued interest due from Transmedia Asia
Pacific, Inc., and Transmedia Europe, Inc. Due to the uncertainty
surrounding the resolution of this matter, the Company had previously
provided a reserve for the face value of the note and related accrued
11
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands)
interest. Following a brief transition period, Transmedia Asia Pacific,
Inc. and Transmedia Europe, Inc. will cease using the Transmedia brand
name for their discount programs.
On June 29, 2000, the Company acquired the net assets of its Washington
DC franchisee, Potomac Dining Ltd., for $4,926. The acquisition,
accounted for under the purchase method of accounting for business
combinations, was composed of a cash payment of $1,426, subordinated
convertible promissory notes of $2,000, and the issuance of 352,423
shares of the Company's common stock valued at $1,500. Accordingly, the
operating results have been included in the Company's consolidated
financial statements since the date of acquisition. The fair market
value of the assets acquired, was $5,419 and liabilities assumed
totaled $493. Assets acquired included rights to receive and other
miscellaneous items. The terms of the two $1 million convertible notes
are as follows: (1) maturity date of June 30, 2002 and 2003;
respectively (2) interest accrues on unpaid principal amount of the
notes at a rate equal to the prime rate plus 1%; (3) notes may be
converted to common shares by noteholder upon 10 business days prior
written notice to the Company (not less than $225 in principal per each
election to convert).
On June 30, 2000, the Company acquired all the assets of its Virginia
franchisee, Stoney Creek Dining, Inc., for a termination cash payment
of $25, which was paid on July 7, 2000. With the completion of this
acquisition, the Company has reacquired all franchises and licenses,
and removes any limitations from the Company offering dining rewards
programs within or outside the United States.
(7) 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 (if dilutive), based on average stock market prices for
the periods.
The diluted share base for the three and nine months ended June 30,
2000 excludes 231,500 and 170,309 incremental shares related to
warrants, 196,718 and 159,627 related to employee stock options and
4,149,378 of convertible preferred shares issued in the rights offering
on November 9, 1999. These shares are excluded due to their
anti-dilutive effect on the earnings per share calculation.
(8) Recently Issued Guidance
On March 31, 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44. Accounting for Certain Transactions Involving
Stock Compensation - An Interpretation of APB Opinion No. 25 (FIN 44).
This Interpretation provides guidance for issues that have arisen in
applying APB Opinion No. 25. Accounting for Stock Issued to Employees.
FIN 44 applies prospectively to new awards, exchanges of awards in a
business combination, modifications to outstanding awards, and changes
in grantee status that occur on or after July 1, 2000 - except for the
provisions related to repricings and the definition of an employee,
which apply to awards issued after December 15, 1998. The provisions
related to modifications to fixed stock issued awards to add a reload
feature are effective for awards modified after January 12, 2000.
Management is currently in the process of assessing the impact that
this Interpretation will have on the Company's results of operations
and its financial position.
12
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
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, 2000 and 1999
Sales of rights-to-receive for the three and nine-month periods ended
June 30, 2000 were $43,289 and $133,855, respectively, which represents
an increase of 81.2% and 88.9%, respectively, over the comparable
periods in the prior year, and mainly reflects the registered card
sales associated with the acquisition of Dining a La Card ("DALC").
DALC was acquired June 30, 1999, and therefore, there are no sales
relating to the registered card program included in the three-month and
nine-month periods ended June 30, 1999. Registered card sales for the
three and nine-month period ended June 30, 2000 were $23,608 and
$70,195, respectively. For the three months ended June 30, 2000,
registered card sales includes $3,583 in dining sales from private
label members converted to the registered card platform (see below).
The Company transferred all private-label members over to the
registered card on August 1, 2000.
Sales for the Transmedia private label program were $19,681 and $63,660
for the three and nine-month periods ended June 30, 2000, a decrease of
17.6% and 10.2% from the same periods of the prior year. Included in
fiscal 2000 private label sales are $767 and $1,376, respectively, of
sales related to the Houston, San Antonio/Austin, New Jersey and
Washington DC territories reacquired in February 1999, December 1999,
March 2000 and June 2000, respectively. On a same territory basis,
sales decreased $4,838 and $8,362, respectively, for the three and
nine-month periods ended June 30, 2000. The decrease in private label
sales is partly a function of a slowdown in the private label
restaurant signings, and an overall decrease in private label
restaurants, in the anticipation of the August 1, 2000 conversion to
sole use of the registered card. Additionally, the Company has made
available to its private label members, the ability to use their credit
card registered for the private label program at restaurants in the
registered card program. This resulted in an additional $3,583 and
$4,419, respectively, of registered card sales for the three and
nine-month periods ended June 30, 2000. As a result of the conversion
on August 1, 2000, registered card sales from the original private
label members should increase further with an offsetting decrease in
private label sales.
Private-label member discounts as a percentage of sales were 22.6% and
22.7%, respectively, for the current three and nine-month periods,
compared to 22.9% and 23.0% in the prior year periods. With the
inclusion of the registered card programs, the member discounts fall to
21.9% and 21.5% for the three and nine-month periods ended June 30,
2000, respectively. The majority of the registered-card members are
enrolled in the airline programs and earn 10 miles for each dollar
spent at a participating merchant. The Company purchases airline
mileage from the airlines on an as needed basis at a contractual rate
that allows the Company to effectively reduce the cost of the member
rebate in the airline program to less than that of the standard cash
rebate.
Cost of sales increased to 57.3% and 58.5% of gross dining sales for
the three and nine-months ended June 30, 2000, respectively, up from
56.8% for the same periods in the prior year. The increase in cost of
sales is directly related to the addition of the DALC registered card
portfolio which was traditionally offered to merchants at an advance
rate less than the customary
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AND SUBSIDIARIES
Transmedia private label rate of 2:1, and therefore, results in a
somewhat higher cost of sales than the private label portfolio. Since
the acquisition, however, all new restaurants signed on under the
registered card program, as well as the majority of those renewed, have
been advanced cash under the 2:1 proposition. The lowering of the cost
of sales as a percentage of sales for the three months versus the nine
months ended June 30, 2000 reflects this conversion. While this
initially results in a somewhat slower inventory turn, the individual
dining transactions are more profitable due to the corresponding
reduction in the cost of the rights to receive consumed.
Provision for rights-to-receive losses, which are included in cost of
sales, amounted to $1,594 and $4,895 for the three and nine-month
periods ended June 30, 2000, compared to $836 and $2,480 in the prior
year periods. As a percentage of sales, provision for rights to receive
losses were 3.7% for the three and nine-month period ended June 30,
2000, versus 3.5% for the comparable periods in the prior year.
Processing fees based on private label dining transactions processed
decreased to 3.0% and 3.1% as a percentage of gross dining sales for
the three and nine-months ending June 30, 2000, respectively, down from
3.7% and 3.2% for the same periods in the prior year. When combined
with the registered card program, processing fees for the three and
nine-month periods ended June 30, 2000, fell to 2.3% and 2.4%,
respectively, reflecting the lower rates received for the higher volume
of transactions.
Membership and renewal fee income for the three and nine-month periods
ending June 30, 2000 were $2,232 and $6,606, respectively, compared
with $2,175 and $5,905 for the comparable prior year periods. The
acquisition of DALC, and the inclusion of the Company's one-third share
of the fees paid by members of DALC, has resulted in an overall
increase in membership and renewal fee income. With the exclusion of
the registered card program, membership and renewal fees were $1,942
and $5,877, respectively, for the three and nine-month periods ending
June 30, 2000 which is comparable with the same periods of the prior
year. Fee income is recognized over a twelve-month period beginning in
the month the fee is received.
Continuing franchise fee income decreased by $141 and $229 in the three
and nine-month periods ended June 30, 2000, compared with the prior
year primarily reflecting the eventual repurchase of all formerly
franchised territories.
Commission income for the three and nine-month periods ending June 30,
2000 were $15 and $64, respectively, compared to $43 and $114,
respectively, for the comparable prior year periods. Commission income
represents fees collected from third party marketing partners.
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, 2000 increased by $4,025 and $3,856 or 95.4%
and 29.3%, respectively, compared with the prior year periods. As a
percentage of gross dining sales, selling general and administrative
expenses were 19.0% and 12.7% for the three and nine-month periods
ended June 30, 2000, compared to 17.7% and 18.6%, respectively. There
are two main factors contributing to the increase in expenses during
fiscal 2000, especially during the three-month period ended June 30,
2000. The Company recently launched its Internet dining venture,
iDine.com. Selling, general and administrative expenses related to
iDine.com during the last quarter were approximately $2,773 related to
business plan development, business concept definition and testing,
deal support during venture capitalist negotiations, and project
management. Significant component increases for the three and nine
months ending June 30, 2000 (exclusive of iDine.com) were sales
commission of $836 and $1,321 associated mainly with commissions paid
for the conversion of
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TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
restaurants from the private label to the registered card program,
depreciation and amortization of $162 and $377, rent and other expenses
of $52 and $286 associated with the increase corporate office space and
other expenses through the Dining A La Card integration which was
completed at the end of the first quarter, and Private Label/Registered
Card conversion programming of $115 and $257. Offsetting these
increases during the nine-month period ending June 30, 2000 was a
decline in professional fees and the establishment of additional legal
reserves of $1,184 during the prior year.
Salaries and benefits increased $792 and $2,510, respectively, when
comparing the three and nine-month period ended June 30, 2000 with the
same periods in the prior year. The increase for the most recent
quarter primarily relates to employees hired to support iDine.com and
amounted to $361. The increase in the nine-month period primarily
relates to the salaries and benefits paid to the DALC employees during
the integration. These amounts were substantially cut back after
January 1, 2000, and now reflects only a few permanent employees
required to support the addition of the registered card programs, and
primarily relates to information technology, sales and customer
service.
In the three and nine-month periods ended June 30, 2000, member
acquisition and promotion expenses were $1,613 and $4,788 versus $1,635
and $4,402 in the prior year's comparable periods. Included in member
acquisition expenses was the amortization of previously capitalized
advertising costs amounting to $358 and $1,574 in the fiscal 2000
periods versus $927 and $2,336 in the fiscal 1999 comparable periods.
Costs capitalized in the 2000 periods were $29 and $144 versus $770 and
$3,377 in 1999. The Company's conversion of private label members to
the registered-card program has resulted in reduced marketing
associated with the private-label card, but this was outweighed by the
continued member communications sent to its private label members
apprising them of the changes. The Company anticipates the conversion
to be completed by August 2000.
The Company's marketing strategy with the registered-card programs will
be significantly different. With its current registered-card program,
acquired through the acquisition of DALC, marketing will continue to be
heavily skewed towards partner programs such as the airline frequent
flyers, which enjoy higher renewal rates because the product is both
free and in a desirable currency, i.e. frequent flyer miles. These are
attractive to the Company because they typically involve either lower
service cost of members or favorable rates to acquire and deliver the
member benefit. However, with the conversion of the private-label
members over to the new Transmedia registered-card, the Company will
also aggressively market its Transmedia registered-card fee-based
memberships through distribution channels such as corporate cards and
other similar programs often using an "earn your fee" concept.
Printing and postage increased $436 and $795 for the three and
nine-month periods ending June 30, 2000 compared to the same period in
the prior year. This increase is mainly as a result of the increased
member communications sent by the Company to its members informing them
of the impending changes to the dining programs.
Interest and other expenses were $1,533 and $4,666 for the three and
nine-month periods ending June 30, 2000, respectively, compared to $735
and $2,213 for the same periods in the previous year, respectively. The
increase is attributable to the additional debt taken on by the Company
to finance the acquisition of DALC.
Loss before income taxes and extraordinary item was $4,117 and $3,798
for the three and nine-month periods ended June 31, 2000, compared with
loss before income taxes and extraordinary
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TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
item of $2,065 and $5,289 in the 1999 comparable period. Included in
the fiscal 2000 fiscal losses are losses attributed to the Company's
Internet startup venture, iDine.com, of $3,104.
On December 30, 1999, the Company entered into an $80 million revolving
securitization of the combined rights to receive of both the private
label and the registered-card dining programs. The securitization was
privately placed through an asset backed commercial paper conduit. The
proceeds drawn down at closing, approximately $65 million based on a
similar borrowing base formula used in the bridge loan, were utilized
to terminate and payoff $33 million non recourse notes from the 1996
securitization and the $27 million outstanding under a bridge loan. The
early extinguishment of the 7.4% notes resulted in an extraordinary
charge of $1,623 or 12 cents per share.
Net loss for the three and nine-month periods ended June 30, 2000 were
$4,117 or 31 cents per share and $5,421 or 45 cents per share, compared
with a net loss of $2,065 or 16 cents per share and $5,289 or 41 cents
per share in the prior year comparable periods. Including in the net
loss for the three and nine-month periods ended June 30, 2000 are
charges of approximately $3,104 (or 22 cents per share) associated with
the pre-launch of startup and development activities of the Company's
new Internet dining venture, iDine.com.
(b) Liquidity and Capital Resources
The Company's cash and cash equivalents amounted to $12,050 at June 30,
2000. The Company believes that cash on hand, together with cash
generated from operations, cash previously restricted and amounts
available under the new securitization facility will be sufficient to
fund the Company's normal cash requirements for the 2000 fiscal year.
The Company launched its new Internet dining venture, iDine.com and is
substantially financing the initiative through a $10 million private
placement. In the first tranche of the private placement, the Company
received $4,126 in cash proceeds from issuing 904,303 shares of its
common stock at $4.5625 and warrants to purchase an additional
1,808,606 shares of its common stock, half of which have an exercise
price of $5.93 and the other half of $7.30. The warrants will expire on
April 28, 2005. The Board specifically earmarked cash raised through
these private placements for costs associated with iDine.com.
Initially, the second tranche of the private placement is subject to
shareholders approval and is expected to close in August and provide
additional proceeds of $5,874. Cash requirements for this venture
through the 2000 fiscal year is expected to amount to approximately
$9,000 and will mainly be used for site development and construction,
salaries, marketing and related operating expenses.
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. Our exposure to market risk for changes in interest rates is
limited to the exposure related to our debt instruments used to finance
the purchase of rights to receive which are tied to market rates. We do
not plan to use derivative financial instruments in our investment
portfolio. We plan to ensure the safety and preservation of our
invested principal funds by limiting default risks, market risk and
reinvestment risk. We plan to invest in high-credit quality securities.
The Company's total investments at June 30, 2000 and September 30, 1999
were $1,452 and $631, respectively, and consisted of equity securities.
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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, 2000 /s/Stephen E. Lerch
----------------------------
Stephen E. Lerch
Executive Vice President
and Chief Financial Officer
17