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, 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 February 8, 2000: 13,632,709
<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
December 31, 1999 (unaudited)
and September 30, 1999 (audited)
Consolidated Statements of Income 4-5
And Comprehensive Income
Three months ended December 31,
1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows-- 6-7
Three months ended December 31,
1999 and 1998 (unaudited)
Notes to Unaudited Consolidated 8-11
Financial Statements
Item 2. Management's Discussion and Analysis 12-14
of Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 15
PART II. OTHER INFORMATION 15-16
- --------------------------
SIGNATURE 16
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and September 30, 1999
(in thousands except per share data)
<TABLE>
<CAPTION>
ASSETS December 31, *September 30,
------ 1999 1999
--------- ---------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,313 $ 8,943
Restricted cash -- 3,726
Accounts receivable, net 12,142 8,107
Rights-to-receive, net
Unrestricted -- 41,833
Securitized 76,410 34,621
Prepaid expenses and other current assets 4,905 5,259
--------- ---------
Total current assets 102,770 102,489
Securities available for sale, at fair value 1,517 631
Equipment held for sale or lease, net 681 702
Property and equipment, net 6,384 6,413
Other assets 1,786 2,583
Restricted deposits and investments 90 2,070
Excess of cost over net assets acquired and other intangible assets 5,529 4,822
--------- ---------
Total assets $ 118,757 $ 119,710
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowing - bank $ -- $ 29,000
Secured non-recourse revolving debt 65,000 --
Accounts payable - rights-to-receive 8,132 6,691
Accounts payable - trade 7,357 8,376
Accrued expenses and other 2,146 5,174
Deferred membership fee income 4,064 3,850
--------- ---------
Total current liabilities 86,699 53,091
Secured non-recourse notes payable -- 33,000
Term loan - affiliate -- 10,000
Other long-term liabilities 2,544 3,170
--------- ---------
Total liabilities 89,244 99,261
--------- ---------
Guaranteed value of put warrants 3,200 2,336
Stockholders' equity:
Preferred stock, par value $0.10 per share ( 1,000 shares
authorized; none issued and outstanding ) -- --
Preferred stock - Series A, par value $0.10 per share (10,000 shares
authorized; 4,149 and 0 shares issued and outstanding as of
December 31, 1999 and September 30, 1999, respectively) 415 --
Common stock, par value $0.02 per share (20,000 shares authorized;
13,656 and 13,376 shares issued and outstanding as of December
31, 1999 and September 30, 1999, respectively) 265 264
Additional paid-in capital 31,815 22,661
Accumulated other comprehensive income 767 218
Retained earnings (6,948) (5,030)
--------- ---------
Total stockholders' equity 26,314 18,113
--------- ---------
Total liabilities and stockholders' equity $ 118,757 $ 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 OPERATIONS AND COMPREHENSIVE LOSS
Three months ended December 31, 1999 and 1998
(unaudited)
(in thousands, except loss per share)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Operating revenue:
Sales of rights-to-receive:
Owned by Company $ 25,494 $ 2,445
Owned by Trust 19,889 20,311
-------- --------
Gross dining sales 45,383 22,756
Cost of sales 27,199 13,059
Cardmember discounts 9,618 5,196
-------- --------
Net revenue from rights-to-receive 8,566 4,501
Membership and renewal fee income 2,257 1,750
Franchise fee income 228 259
Commission income 34 40
Processing income 261 376
-------- --------
Total operating revenues 11,346 6,926
-------- --------
Operating expenses:
Selling, general and administrative 4,281 4,680
Salaries and benefits 2,869 1,952
Cardmember acquisition and promotion 1,544 1,181
Printing and postage 1,306 892
-------- --------
Total operating expenses 10,000 8,705
-------- --------
Operating income (loss) 1,346 (1,779)
Other income (expense):
Realized gains on sale of securities available
for sale -- 1,042
Interest and other income 126 125
Interest expense and financing cost (1,590) (741)
-------- --------
Loss before income taxes and extraordinary item (118) (1,353)
Income tax provision/benefit -- --
-------- --------
Loss before extraordinary item $ (118) $ (1,353)
(Continued)
</TABLE>
4
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS, CONTINUED
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Loss before extraordinary item $ (118) $ (1,353)
Extraordinary item, net of tax (1,623) --
-------- --------
Net loss $ (1,741) $ (1,353)
======== ========
Other comprehensive income:
Unrealized holding gain on securities available-
for-sale held at end of period 927 (282)
Beginning unrealized gain for all securities sold (21) 497
Tax effect of unrealized gain (357) (81)
-------- --------
Comprehensive loss $ (1,192) $ (1,219)
======== ========
Net loss per share of common stock:
Basic:
Loss before extraordinary items $ (0.02) $ (0.11)
Extraordinary loss (0.12) --
-------- --------
Net loss $ (0.14) $ (0.11)
======== ========
Diluted:
Loss before extraordinary items $ (0.02) $ (0.11)
Extraordinary loss (0.12) --
-------- --------
Net loss $ (0.14) $ (0.11)
======== ========
Weighted average number of common and common equivalent
shares outstanding:
Basic 13,398 12,876
======== ========
Diluted 13,398 12,876
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Three months ended December 31, 1999 and 1998
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,741) $ (1,353)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 953 841
Amortization of deferred financing cost 1,813 67
Provision for merchant losses 1,822 910
Gain on sale of investments -- (1,042)
Changes in assets and liabilities:
Accounts receivable (4,035) 15
Rights-to-receive (238) 85
Prepaid expenses and other current assets 350 (1,647)
Other assets (91) (120)
Accounts payable (954) 1,278
Income taxes (174) 254
Accrued expenses and other (2,300) 1,230
Deferred membership fee income 214 1,442
-------- --------
Net cash (used in) provided by operating
activities (4,381) 1,960
-------- --------
Cash flows from investing activities:
Acquisition of San Antonio/Austin franchise (950) --
Additions to property and equipment (671) (616)
Decrease in restricted deposits and investments 1,016 --
Proceeds from sale of investments available
for sale -- 1,042
-------- --------
Net cash (used in) provided by investing
activities (605) 426
-------- --------
Cash flows from financing activities:
Net proceeds from revolving securitization 63,930 --
Net proceeds from rights offering 9,700 --
Repayment of secured non-recourse notes (33,000) --
Repayment of short term loan - bank (29,000) --
Repayment of term loan affiliate (10,000) --
Decrease (increase) in restricted cash 3,726 (986)
-------- --------
Net cash provided by (used in) financing
activities 5,356 (986)
-------- --------
</TABLE>
6
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Net increase in cash $ 370 $ 1,400
Cash and cash equivalents:
Beginning of year 8,943 4,632
------- -------
End of year $ 9,313 $ 6,032
======= =======
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 1,264 $ 614
======= =======
Income taxes $ (2) $ (254)
======= =======
</TABLE>
Supplemental schedule of noncash investing and financing activities: Noncash
investing and financing activities:
Under the terms of a settlement agreement with its former licensee, the
Company issued 280,000 shares of common stock, valued at $735, during
the first quarter of fiscal 2000.
The acquisition of the San Antonio/Austin franchisee was recorded during
the first quarter of fiscal year 2000 as follows (see Note 5):
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
================
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE DATA)
(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 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 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 merchant losses and transaction 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, of 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
accordingly, the results of operations of the acquired company have
been included in the consolidated results of Transmedia Network Inc.,
since the effective date of acquisition. 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 which amounted to $3,200
has been accreted over the six-month waiting period and the full
liability is recorded at December 31, 1999. 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.
In connection with the acquisition of Dining A La Card ("DALC"), the
Company entered into a Services Collaboration Agreement with
SignatureCard. Under this agreement, SignatureCard
8
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE DATA)
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.
To finance the acquisition, the Company obtained a $35,000 senior
secured revolving bridge loan facility from The Chase Manhattan Bank
(from which $29,000 was drawn down at closing) and a $10,000 term loan
from GAMI Investments, Inc., an affiliate of Equity Group Investments
LLC, an affiliate of the Company's largest stockholder ("EGI") which
was drawn down in full. As more fully disclosed in notes 3 and 4, both
of the aforementioned obligations were paid off in the first quarter of
fiscal 2000.
In connection with this acquisition, the Company paid a fee for
transaction advisory services to EGI that is included in the cost of
the acquired assets, of $386.
(3) 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 similar borrowing base formula as used in the bridge
loan obtained for the DALC acquisition at June 30, 1999, were utilized
to terminate and payoff $33 million in non-recourse notes from the 1996
securitization and the $27 million then outstanding under the bridge
loan. 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 will be 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 December 30, 1999 the effective rate of interest for
the new facility was 6.8% 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
=========
9
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE DATA)
(4) 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
December 31, 1999, the Company paid cash dividends in the amount of
$88. 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 could be 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
December 31, 1999, the conversion rate of the preferred shares was 1
preferred share for 1.00882 common shares.
The proceeds from the stock issuance of $10,000 were used to retire the
$10,000 term loan obtained from GAMI Investment Inc. used primarily for
the DALC acquisition. Pursuant to its subscription privileges and as a
Standby Purchaser for any unsubscribed shares, EGI acquired 2.84
million of the preferred shares. The additional investment provides EGI
with the right to designate an additional member to the Board of
Directors. The size of the Board will increase by one if EGI chooses to
exercise that right.
(5) PURCHASE OF FRANCHISES
On December 16, 1999, the Company acquired all the Rights-to-Receive,
and the right to conduct business of 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 reacquired 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.
(6) 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.
10
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
For the three-month ended
12/31/99 12/31/98
---------- ----------
<S> <C> <C>
Net loss applicable to common stockholders
(Basic and Diluted) (1,917) (1,353)
========== ==========
Weighted average shares outstanding (Basic and Diluted)
13,398 12,876
========== ==========
BASIC EPS
Loss before extraordinary item $ (0.02) $ (0.11)
Extraordinary item (0.12) --
Net loss (0.14) (0.11)
DILUTED EPS
Loss before extraordinary item $ (0.02) $ (0.11)
Extraordinary item (0.12) --
Net loss (0.14) (0.11)
</TABLE>
The diluted share base for the three months ended December 31, 1999
excludes 3,067 incremental shares related to warrants issued to EGI,
48,775 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 as a result
of the Company's loss before extraordinary item in the first quarter of
fiscal 2000.
11
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE DATA)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(A) RESULTS OF OPERATIONS - COMPARISON OF THREE MONTHS ENDED DECEMBER 31,
1999 AND 1998
Sales of rights-to-receive for the three-months ended December 31, 1999
increased $22,627 or 99.4% to $45,383 compared to $22,756 for the
three-month period ended December 31, 1998, primarily reflecting the
registered card sales associated with the acquisition of DALC. DALC was
acquired June 30, 1999, and therefore, its results are not included in
the three-month period ended December 31, 1998. Actual sales for the
Transmedia private-label program decreased 3.3% to $22,011 compared to
$22,756 for the three-month period ended December 31, 1998. Sales for
the registered card program for the three-months ended December 31,
1999 were $23,372.
Included in the $22,011 of private-label sales is $185 of sales
relating to the Houston and San Antonio/Austin territories that were
reacquired in February and December 1999, respectively. On a same
territory basis, sales decreased 4.1% when comparing the three-month
period ended December 31, 1999, to the same period in the prior year.
The Company experienced decreased private label sales volume in some of
its larger markets such as New York, Boston, Detroit, Chicago and parts
of California. Partially offsetting these decreases were higher sales
volumes in other markets such as Phoenix, Wisconsin, South Florida and
Dallas along with the additional sales from the recently acquired
territories of Houston, San Antonio and Austin.
Private-label cardmember discounts as a percentage of gross dining
sales were 22.9% for the three-months ended December 31, 1998 compared
to 22.8% in the prior year's period. With the inclusion of the
registered-card program, the member discounts fall to 21.2% for the
three-month period ended December 31, 1999, reflecting the lower
effective discount rate of the registered-card program. The majority of
the registered-card members are enrolled in the airlines program and
earns 10 miles for each dollar spent at participating merchants. 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 20% cash rebates.
Cost of sales increased to 59.9% of gross dining sales for the
three-months ended December 31, 1999, up from 57.4% for the prior
year's period. 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
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 converted to the 2:1 proposition. 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. The provision for merchant losses on
the private label program, which are included in cost of sales, were
$770 or 3.5% of gross sales for the three-months ended December 31,
1999, compared to $910 or 4% in the prior year's comparable period. The
provision for merchant losses recorded for the registered card program
amounted to $1,052 or 4.5% of registered card dining sales for the
three-months ended December 31, 1999. Processing fees based on private
label dining transactions processed for the three-months ended December
31, 1999, increased slightly as a percentage of related gross dining
sales to 3.3% compared to 3.2% for the three-months ended December 31,
1998.
12
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE DATA)
Membership and renewal fee income for the three-month period ending
December 31, 1999 was $2,257 versus $1,750 for the comparable prior
year's period, of which $808 and $550 were initial fee income,
respectively. With the exclusion of the recently acquired registered
card program, membership and renewal fee income was $2,087 for the
three-month period ending December 31, 1999. Fee income for the
registered card program solely relates to the Company's one-third share
of the fee paying members acquired from DALC. Marketing of the
Transmedia private label card will continue on a lesser scale as the
Company prepares the transition of this membership base to a registered
card platform. The Company will continue to emphasize the enrollment of
members in the airlines mileage programs which do not require a fee as
well as begin implementing a corporate card program. 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 $31 to $228 in the
three-months ended December 31, 1999, compared with $259 in the prior
year's period. The decrease is primarily attributable to the repurchase
of the formerly franchised Houston territory in February 1999 along
with the San Antonio and Austin territories in December 1999.
Commission income represents fees collected from third party marketing
partners mainly involved in direct marketing transactions.
Processing income relates to the Company's full service electronic
processing services and comprises the sale or lease of point-of-sale
terminals to merchants, principally restaurants, as well as fees
received for serving as the merchants' processor for all of their
credit card transactions.
Selling, general and administrative expenses for the three-months ended
December 31, 1999 decreased by $399 or 8.5% compared with the prior
year's periods. This decrease is mainly due to the recording of a
$1,000 legal reserve in the first fiscal quarter of last year for the
litigation associated with a former licensee which ultimately settled
in November 1999. This decrease is offset by increases in software and
development charges of $195, sales commission and expense of $181, rent
and office expense of $159, and depreciation and amortization of $111.
However, as a percentage of gross dining usage, selling, general and
administrative expenses decreased to 9.4% this quarter compared to
16.2% in the same quarter last year (exclusive of the legal reserve of
$1,000) demonstrating the Company's ability to integrate, by
mid-November 1999, all of the registered card programs' systems and
business processes into the Company's existing sales, technology and
administrative infrastructure.
Salaries and benefits increased $917 to $2,869 for the three-months
ended December 31, 1999 compared to $1,952 for the same period in the
prior year. This increase is due to the addition of twenty-one net new
employees mainly in customer service, sales, accounting and information
technology, as well as the addition of one corporate officer. Included
in the new employee group are twelve employees relating to the newly
acquired registered card program.
In the three-month period ended December 31, 1999, cardmember
acquisition and promotion expenses increased $363 to $1,544 from $1,181
in the prior year's comparable period. Included in cardmember
acquisition expenses was the amortization of previously capitalized
advertising costs amounting to $785 in the fiscal 2000 period versus
$543 in the comparable fiscal 1999 period reflecting the impact of a
much higher level of fee paying member solicitations through the first
three quarters of fiscal 1999. Due to the Company's decision in the
latter part of fiscal
13
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE DATA)
1999 to begin planning for the conversion of the private label program
and its merchants and members to the registered card platform,
solicitation of private label members was curtailed. As a result costs
capitalized in the fiscal 2000 period were only $54 versus $1,802 in
1999.
Printing and postage increased $414 to $1,306 for the three-months
ended December 31, 1999 compared to $892 for the three-months ended
December 31, 1998 mainly reflecting the costs associated with the
registered card directories. The Company has completed the
rationalization of the directory publication process for both dining
programs using a centralized publishing house and has capitalized on
efficiencies in the production process. This will result in lower
overall units cost for the published restaurant directories.
Interest and financing cost increased $849 to $1,590 for the
three-month period ended December 31, 1999 compared to $741 for the
same period in the prior year as a result of the additional debt taken
on by the Company to finance the acquisition of DALC. At current levels
of market interest rates, the new securitization, which closed on
December 30, 1999, is expected to reduce the overall financing cost in
subsequent quarters.
Loss before income tax and extraordinary item was $118 for the
three-month period ended December 31, 1999, compared with loss before
income taxes of $1,353 in the 1998 comparable period. A valuation
allowance for the full amount of the first quarter fiscal 2000 tax
benefit was recorded.
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 program. 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 the 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 months period ended December 31, 1999 was $1,741
or 14 cents per share compared with a net loss of $1,353 or 11 cents
per share in the prior year's comparable period.
(B) LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents amounted to $9,313 at December
31, 1999. The Company believes that cash on hand, together with cash
generated from operations, cash previously restricted and available
under the new securitization facility, will be sufficient to fund the
Company's normal cash requirements for the 2000 fiscal year.
Cash requirements for the second fiscal quarter may also include the
initial funding of certain development costs associated with the
Company's e-commerce initiative. The Company's intention is to raise
additional capital for the funding of this project through a private
placement of either debt or securities.
The Company completed a Rights Offering in November 1999, resulting in
the issuance of 4,149,378 convertible, redeemable preferred shares. The
preferred shares were issued at a value of $2.41 and increased
stockholders equity by $10 million.
14
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE DATA)
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 December 31, 1999 and 1998 were $1,517 and $1,052,
respectively, and consisted of equity securities.
PART II - OTHER INFORMATION
Items 1, 2, 3, 4, and 5
Items 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 1
Legal Proceedings
On November 19, 1999, the Company, in an effort to avoid prolonged
litigation, settled the outstanding lawsuit with its former licensee.
Under the terms of the settlement S&L will receive $2.1 million in cash
and 280,000 shares of common stock for a total of approximately $2,835
or 22 cents per share. The impact of the settlement based on the fair
value of the common stock and net of the $1,000 reserve amount
previously provided by the Company in the first quarter of fiscal 1999,
is approximately $1.835 million and has been recognized in the fourth
quarter ended September 30, 1999. At December 30, 1999, the Company
paid the final installment of the cash settlement in the amount of
$1,500 and recorded the shares issued to S&L.
Item 2
Changes in securities and Use of Proceeds
(a) Issuance or Modification of Securities
On November 9, 1999, the Company completed its Rights Offering to
existing shareholders resulting in the issuance of 4,149,378
convertible, redeemable Series A 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.
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 could be higher to the extent of
accrued but unpaid dividends. If not previously converted, the Company
may commence redemption of the preferred shares on the third
anniversary of the rights offering. At December 31, 1999, the
conversion rate of the preferred shares was 1 preferred share to
1.00882 common shares.
15
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
(AMOUNTS IN THOUSANDS EXCEPT FOR SHARE DATA)
The proceeds from the stock issuance of $10,000 were used to retire the
$10,000 bridge loan obtained from GAMI Investment. Pursuant to its
subscription privileges and as a Standby Purchaser for any unsubscribed
shares, EGI acquired 2.84 million of the preferred shares.
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 14, 2000 /s/ Stephen E. Lerch
------------------------------
Stephen E. Lerch
Executive Vice President
and Chief Financial Officer
16
<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-01-1999 OCT-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 9,313 8,943
<SECURITIES> 1,517 631
<RECEIVABLES> 12,142 8,107
<ALLOWANCES> 0 0
<INVENTORY> 76,410 76,454
<CURRENT-ASSETS> 102,770 102,489
<PP&E> 13,734 13,114
<DEPRECIATION> (7,350) (6,701)
<TOTAL-ASSETS> 118,757 119,710
<CURRENT-LIABILITIES> 86,699 53,091
<BONDS> 0 0
265 264
0 0
<COMMON> 415 0
<OTHER-SE> 25,634 17,849
<TOTAL-LIABILITY-AND-EQUITY> 118,757 119,710
<SALES> 45,383 22,756
<TOTAL-REVENUES> 11,346 6,926
<CGS> 0 0
<TOTAL-COSTS> 10,000 8,705
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,464) (616)
<INCOME-PRETAX> (118) (1,353)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> (1,623) 0
<CHANGES> 0 0
<NET-INCOME> (1,741) (1,353)
<EPS-BASIC> (0.14) (0.11)
<EPS-DILUTED> (0.14) (0.11)
</TABLE>
