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 MARCH 31, 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.
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(Exact name of Registrant as specified in its charter)
DELAWARE 84-6028875
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11900 BISCAYNE BOULEVARD, MIAMI, FLORIDA 33181
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(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 May 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
March 31, 2000 (unaudited)
and September 30, 1999 (audited)
Consolidated Statements of Income 4-5
And Comprehensive Income
Three and six months ended March 31,
2000 and 1999 (unaudited)
Consolidated Statements of Cash Flows-- 6-7
Six months ended March 31,
2000 and 1999 (unaudited)
Notes to Unaudited Consolidated 8-10
Financial Statements
Item 2. Management's Discussion and Analysis 11-14
of Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 14
PART II. OTHER INFORMATION 14-16
- --------------------------
SIGNATURE 16
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and September 30, 1999
(in thousands except per share data)
<TABLE>
<CAPTION>
ASSETS March 31, *September 30,
------ 2000 1999
---- ----
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,569 $ 8,943
Restricted cash - 3,726
Accounts receivable, net 9,170 8,107
Rights-to-receive, net
Unrestricted - 41,833
Securitized 75,045 34,621
Prepaid expenses and other current assets 4,560 5,259
--------- -------
Total current assets 100,344 102,489
Securities available for sale, at fair value 2,266 631
Equipment held for sale or lease, net 530 702
Property and equipment, net 6,193 6,413
Other assets 1,620 2,583
Restricted deposits and investments 90 2,070
Excess of cost over net assets acquired and other intangible assets 7,442 4,822
------- -------
Total assets $ 118,485 $ 119,710
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowing - bank $ - $ 29,000
Secured non-recourse revolving debt 62,121 -
Accounts payable - rights-to-receive 8,824 6,691
Accounts payable - trade 9,419 8,376
Accrued expenses and other 1,711 5,174
Deferred membership fee income 3,520 3,850
------- -------
Total current liabilities 85,595 53,091
Secured non-recourse notes payable - 33,000
Term loan - affiliate - 10,000
Other long-term liabilities 2,775 3,170
------- -------
Total liabilities 88,370 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 March
31, 2000 and September 30, 1999, respectively) 415 -
Common stock, par value $0.02 per share (70,000 shares authorized;
13,656 and 13,376 shares issued and outstanding as of March 31,
2000 and September 30, 1999, respectively) 263 264
Additional paid-in capital 31,815 22,661
Accumulated other comprehensive income 1,232 218
Retained earnings (6,810) (5,030)
---------- ---------
Total stockholders' equity 26,915 18,113
-------- -------
Total liabilities and stockholders' equity $ 118,485 $ 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 six months ended March 31, 2000 and 1999
(unaudited)
(in thousands, except income per share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
MARCH 31, MARCH 31,
--------- ---------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenue:
Sales of rights-to-receive:
Private label 21,968 24,205 43,979 46,961
Registered card 23,215 - 46,587 -
------ ------ ------ ------
Gross dining sales 45,183 24,205 90,566 46,961
Cost of sales 26,332 13,635 53,531 26,694
Member discounts 9,685 5,619 19,303 10,815
------ ------ ------ ------
Net revenue from rights-to-receive 9,166 4,951 17,732 9,452
Membership and renewal fee income 2,117 1,980 4,374 3,730
Franchise fee income 202 259 430 518
Commission income 15 31 49 71
Processing income 278 378 539 754
------ ------ ------ ------
Total operating revenues 11,778 7,599 23,124 14,525
------ ------ ------ ------
Operating expenses:
Selling, general and administrative 4,487 4,257 8,768 9,110
Salaries and benefits 3,024 2,223 5,893 4,175
Member acquisition and promotion 1,631 1,586 3,175 2,767
Printing and postage 785 840 2,091 1,559
------ ------ ------ ------
Total operating expenses 9,927 8,906 19,927 17,611
------ ------ ------ ------
Operating income (loss) 1,851 (1,307) 3,197 (3,086)
Other income (expense):
Realized gain on sale of securities available
for sale 40 77 40 1,119
Interest and other income 89 96 215 220
Interest expense and financing cost (1,543) (737) (3,133) (1,478)
------ ------ ------ ------
Income (loss) before income taxes
and extraordinary item 437 (1,871) 319 (3,225)
Income tax (benefit) - - - -
------ ------ ------ ------
Income (loss) before extraordinary
item 437 (1,871) 319 (3,225)
------ ------ ------ ------
(Continued)
</TABLE>
4
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME, CONTINUED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
MARCH 31, MARCH 31,
--------- ---------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item 437 (1,871) 319 (3,225)
Extraordinary item, net of tax - - (1,623) -
---- ------ ------ ------
Net income (loss) 437 (1,871) (1,304) (3,225)
---- ------ ------ ------
Other comprehensive income, net of tax:
Unrealized holding gain on securities
available-for-sale held at end of period 729 285 1,656 (32)
Beginning unrealized gain for securities sold - 79 (21) 543
Tax effect of unrealized gain (264) (138) (621) (194)
---- ------ ------ ------
Comprehensive income (loss) $ 902 (1,645) (290) (2,908)
==== ====== ====== ======
Net income (loss) per share of common stock:
Basic and diluted:
Income (loss) before extraordinary item 0.01 (0.14) (0.01) (0.25)
==== ====== ====== ======
Extraordinary loss 0.00 0.00 (0.12) 0.00
==== ====== ====== ======
Net income (loss) $ 0.01 (0.14) (0.13) (0.25)
==== ====== ====== ======
Weighted average number of common and
common equivalent shares outstanding:
Basic and diluted: 13,633 12,959 13,514 12,917
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended March 31, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
-----------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,304) (3,225)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization 1,914 1,703
Amortization of deferred financing cost 933 135
Provision for rights-to-receive losses 3,301 1,878
Gain on sale of securities available for sale (40) (1,119)
Changes in assets and liabilities:
Accounts receivable (1,063) (467)
Rights-to-receive 1,316 (1,023)
Prepaid expenses and other current assets 696 (1,820)
Other assets 968 (228)
Accounts payable (191) (160)
Income taxes receivable (474) 253
Accrued expenses (2,738) 684
Deferred membership fee income (330) 1,111
------- --------
Net cash provided by (used in) operating
activities 2,988 (2,278)
------- --------
Cash flows from investing activities:
Additions to property and equipment (1,192) (1,111)
Acquisition of franchises (2,650) -
Excess of cost over net assets acquired and
intangible assets - (536)
Proceeds from sale of securities available for sale 40 1,119
Change in capital lease obligation - 158
Decrease (increase) in restricted deposits and
investments 963 (53)
------- --------
Net cash used in investing activities (2,839) (423)
------- --------
Cash flows from financing activities:
Issuance of common stock - 306
Net proceeds from revolving securitization 61,052 -
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 in restricted cash 3,725 341
------- --------
Net cash provided by financing activities 2,477 647
------- --------
</TABLE>
6
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Six months ended March 31, 2000 and 1999
(in thousands)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net increase (decrease) in cash $ 2,626 (2,054)
Cash and cash equivalents:
Beginning of year 8,943 4,632
------- --------
End of year $ 11,569 2,578
======= ========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 2,200 1,023
======= ========
Income taxes $ (1) (254)
======= ========
</TABLE>
Supplemental schedule of noncash and investing 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 4):
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 4):
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
======
See accompanying notes to unaudited consolidated financial statements.
7
<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 six-month
periods ended March 31, 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) SECURITIZATION OF RIGHTS TO RECEIVE
On June 30, 1999, the Company concluded the acquisition from
SignatureCard, Inc. ("SignatureCard"), of assets related to a
membership discount dining program SignatureCard operated under the
Dining A La Card ("DALC") 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.
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.
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, 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 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
8
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
such sale. At March 31, 2000, the effective rate of interest for the
new facility was 6.87% 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
======
(3) 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 and March 31, 2000, the Company paid cash dividends
in the amount of $88 and $150, 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 March 31, 2000, the conversion
rate of the preferred shares was 1 preferred share for 1.02386 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.
(4) PURCHASE OF FRANCHISES
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 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.
On March 31, 2000, the Company acquired all the outstanding shares of
its New Jersey franchisee, 47K Corp, for $3,000 payable over three
installments. The purchase method of accounting for business
combinations was used. Since the effective date of the acquisition was
9
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
March 31, 2000, the results of the operation of the acquired company
have not been included in the consolidated results of Transmedia
Network, Inc., for the three and six-month period ended March 31, 2000.
The fair market value of the assets acquired, was $3,368 and
liabilities assumed totaled $368. The excess of cost over net assets of
$2,002 will be amortized over twenty years on a straight-line basis.
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 will be due 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
interest. This move is in keeping with the strategy of reacquiring all
franchises and licenses, and removes any limitations from the Company
offering dining rewards programs outside the United States. Following a
brief transition period, Transmedia Asia Pacific, Inc. and Transmedia
Europe, Inc. will cease using the Transmedia brand name for their
discount programs.
At March 31, 2000, the Company has reacquired all but two of its
franchisees and all license agreements to use The Transmedia Card name.
(5) INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Basic income or loss per share was based on the weighted average number
of common shares outstanding during the period presented.
Diluted income and 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 six months ended March 31,
2000 excludes 280,122 and 275,447 incremental shares related to
warrants issued to EGI, 406,100 and 208,738 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.
(6) SUBSEQUENT EVENTS
On May 2, 2000, the Company launched its new Internet dining venture,
iDine.com. In the first tranche of the private placement used to
finance this venture, 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 $4,125. The Company intends to raise approximately $5,875
through a second private placement which will be subject to near-term
shareholder approval.
10
<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 SIX MONTHS ENDED
MARCH 31, 2000 AND 1999
Sales of rights-to-receive for the three and six-month periods ended
March 31, 2000 were $45,183 and $90,566, respectively, which
represented an increase of 86.7% and 92.9%, respectively, over the
comparable periods in the prior year, reflecting the registered card
sales associated with the acquisition of 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 six-month periods ended
March 31, 1999. Sales for the Transmedia private-label program were
$21,968 and $43,979, respectively, for the three and six-month periods
ended March 31, 2000, a decrease of 9.2% and 6.3%, respectively, when
compared to the same periods in the prior year. This decline resulted
primarily from the Company's decision to reduce the marketing efforts
associated with obtaining new enrollments in the private label program
and focus on building the registered card platform as its future sole
dining program. Registered card sales for the three and six-month
periods ended March 31, 2000 were $23,215 and $46,587, respectively.
The acquisition of DALC not only provided the Company with an
established dining program with members and restaurants, but also
enabled the Company to expand the technology and the card processing
capabilities of the "registered card platform". This technology
essentially allows members to receive their dining "benefit" when
simply presenting to the restaurants any American Express/registered
trademark/, Visa/registered trademark/, MasterCard/registered
trademark/ or Discover/registered trademark/ card they register in the
program. With this technology in hand, the Company has embarked on
transitioning its traditional Transmedia private-label membership over
to the registered card platform ("the Transmedia Registered Card"). In
mid-March 2000, the Company enrolled approximately 500,000 of its
private label members to the Transmedia Registered Card, thereby
allowing them to obtain dining benefits at those restaurants currently
participating in the Company's existing registered card program. These
members receive a 20% percent discount on the full dining ticket. This
marks an important step in the Company's move away from the private
label program to sole use of the registered card and resulted in
approximately $836 of additional registered card sales for the three
and six-months ended March 31, 2000. Continued implementation of this
strategy should result, during the transition period, in lower private
label sales and higher registered card sales.
Private-label member discounts as a percentage of sales were 22.9% in
the current three and six-month periods, respectively, compared to
23.2% and 23.0% in the prior year periods. With the inclusion of the
registered card programs, the member discounts fall to 21.4% and 21.3%
for the three and six-month periods ended March 31, 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 20% cash rebates.
11
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Cost of sales increased to 58.3% and 59.1% of gross dining sales for
the three and six-months ended March 31, 2000, respectively, up from
56.3% and 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 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 $549 and 1,319 for the three and
six-months ended March 31, 2000, respectively, compared to $734 and
$1,644 in the prior year's comparable period. As a percentage of
private-label sales, merchant losses on the private-label program were
2.5% and 3.0% for the three and six-months ended March 31, 2000,
respectively, versus 3.0% and 3.5%, respectively for the same periods
in the prior year. The provision for merchant losses recorded for the
registered card program amounted to $930 and $1,982 for the three and
six-months ended March 31, 2000. As a percentage of registered-card
sales, merchant losses on the registered-card program were 4.0% and
4.25% for the three and six-months ended March 31, 2000, respectively.
Processing fees was 3.0% based on private label dining transactions
processed for the three and six-months ended March 31, 2000, compared
to 3.6 % and 3.0% for the three and six-months ended March 31, 1999,
respectively.
Membership and renewal fee income for the three and six-month periods
ended March 31, 2000 were $2,117 and $4,374, respectively, compared to
$1,980 and $3,730, respectively, 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 fee were $1,850 and
$3,937, respectively, for the three and six-month periods ending March
31, 2000. Fee income is recognized over a twelve-month period beginning
in the month the fee is received.
Continuing franchise fee income decreased by $57 and $88 in the three
and six-month periods ended March 31, 2000, compared with the prior
year primarily reflecting the Company's continued strategy of
repurchasing formerly franchised territories.
Commission income for the three and six-month periods ending March 31,
2000 were $15 and $49, respectively, compared to $31 and $71,
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.
With the exclusion of a one-time legal reserve recorded in the first
quarter of fiscal 1999, selling, general and administrative expenses
for the three and six-months ended March 31, 2000 increased by $230 and
$658 or 5.4% and 8.1%, respectively, compared with the prior year
periods. As a percentage of gross dining usage, selling general and
administrative expenses were 9.9 % for the three and six-month periods
ended March 31, 2000, down from 17.6% and 17.2%, respectively, for the
same periods last year as a result of the integration of the
registered-card program into the Company's existing sales, technology
and administrative infrastructure.
12
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Salaries and benefits increased $801 and $1,718, respectively, when
comparing the three and six-month period ended March 31, 2000 with the
same periods in the prior year. The increase is mainly due to adding a
few employees to support the addition of the registered card programs,
and primarily relates to information technology, sales and customer
service.
In the three and six-month periods ended March 31, 2000, cardmember
acquisition expenses were $1,631 and $3,175, respectively, versus
$1,586 and $2,767, respectively, in the prior year's comparable
periods. Included in cardmember acquisition expenses was the
amortization of previously capitalized advertising costs amounting to
$431 and $1,216 in the fiscal 2000 periods versus $866 and $1,409 in
the fiscal 1999 comparable periods. Costs capitalized in the 2000
periods were $61 and $115 versus $805 and $2,607 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.
The Company anticipates the conversion to be completed by the latter
part of fiscal 2000 and has commenced sending communications to its
private label members informing themof the impending changes.
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 loyalty 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 partner programs. The Company believes that on a going
forward basis, the incremental cost of solicitation and promotion may
be substantially offset by the initial fee income and that future
renewal income may have a positive contribution towards profitability.
Additionally, the Company's experience is that members who pay a fee
tend to spend at a higher rate.
Printing and postage decreased $55 to $785 when comparing the
three-month period ending March 31, 2000 to the same period in the
prior year, but increased by $532 to $2,091 when comparing the
six-month period ending March 31, 2000 to the same period in the prior
year. The six-month increase reflects the initial costs of operating
the two separate platforms associated with the registered-card and the
private label card, while the three-month decrease demonstrates the
successful integration of the two platforms and the related economies
of scales associated with the printing of directories.
Interest and other expense was $1,543 in the 2000 three-month period
and $3,133 in the fiscal 2000 six-month period compared with $737 and
$1,478, respectively, in the comparable 1999 periods. The increase is
attributable to the additional debt taken on by the Company to finance
the acquisition of DALC.
Income before income taxes and extraordinary item was $437 and $319 for
the three and six-month periods ended March 31, 2000, compared with
loss before income taxes and extraordinary item of $1,871 and $3,225 in
the 1999 comparable period.
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 the bridge loan.
The
13
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
early extinguishment of the 7.4% notes resulted in an extraordinary
charge of $1,623 or 12 cents per share
The Company had net income of $437 or 1 cent per share for the three
months period and a loss of $1,304 or 13 cents per share for the
six-month period ended March 31, 2000, versus a net loss of $1,871 or
14 cents per share and a net loss of $3,225 or 25 cents per share,
respectively, in the prior year comparable periods.
(B) LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents amounted to $11,569 at March
31, 2000. 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.
The Company launched its new Internet dining venture, iDine.com during
the third fiscal quarter of 2000. The initial funding for the venture
will come principally from a group of Chicago based investors. The
Company will issue common stock shares and warrants through a private
placement in two tranches aggregating $10,000. The second tranche,
estimated at approximately $5,875 will be subject to near-term
shareholder approval. Cash requirements for this venture through the
2000 fiscal year is expected to be approximately $9,000 and will mainly
be used for site development and construction, salaries and related
operating expenses, and capital expenditure.
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 March 31, 2000 and 1999 were $2,266 and $688,
respectively, and consisted of equity securities.
PART II - OTHER INFORMATION
Items 1, 2, 3, and 5
Items 1, 2, 3, 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 4
Submission of matters to a vote of security holders
(a) Meeting
Annual meeting of stockholders was held on March 1, 2000
(b) Election of Directors
Proxies for the meeting were solicited pursuant to
Regulation 14 under the Act and all nominees were
elected.
14
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
(c) Matters voted upon
(i) The election of six directors.
<TABLE>
<S> <C> <C>
Rod F. Dammeyer COMMON STOCK PREFERRED STOCK
------------ ---------------
For 11,664,212 3,999,247
Withheld/Against 606,527 862
Exceptions/Abstain -- --
---------- -----------------
Total Shares voted 12,270,739 4,000,109
Broker no vote 1,361,970 149,269
Total shares eligible to vote 13,632,709 4,149,378
========== ================
Herbert M. Gardner COMMON STOCK PREFERRED STOCK
------------ ---------------
For 11,608,087 3,999,247
Withheld/Against 662,652 862
Exceptions/Abstain -- --
---------- ---------------
Total Shares voted 12,270,739 4,000,109
Broker no vote 1,361,970 149,269
Total shares eligible to vote 13,632,709 4,149,378
========== ===============
F. Philip Handy COMMON STOCK PREFERRED STOCK
------------ ---------------
For 11,225,907 3,798,044
Withheld/Against 1,044,832 207,065
Exceptions/Abstain -- --
---------- ---------------
Total Shares voted 12,270,739 4,005,109
Broker no vote 1,361,970 144,269
Total shares eligible to vote 13,632,709 4,149,378
========== ===============
Gene M. Henderson COMMON STOCK PREFERRED STOCK
------------ ---------------
For 11,664,212 3,999,247
Withheld/Against 606,527 862
Exceptions/Abstain -- --
---------- ---------------
Total Shares voted 12,270,739 4,000,109
Broker no vote 1,361,970 149,269
Total shares eligible to vote 13,632,709 4,149,378
========== ===============
George S. Wiedeman COMMON STOCK PREFERRED STOCK
------------ ---------------
For 11,664,212 3,999,247
Withheld/Against 606,527 862
Exceptions/Abstain -- --
---------- ---------------
Total Shares voted 12,270,739 4,000,109
Broker no vote 1,361,970 149,269
Total shares eligible to vote 13,632,709 4,149,378
========== ===============
</TABLE>
15
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
<TABLE>
<S> <C> <C>
Lester Wunderman COMMON STOCK PREFERRED STOCK
------------ ---------------
For 11,661,875 3,999,122
Withheld/Against 608,864 987
Exceptions/Abstain -- --
---------- ---------------
Total Shares voted 12,270,739 4,000,109
Broker no vote 1,361,970 149,269
Total shares eligible to vote 13,632,709 4,149,378
========== ===============
</TABLE>
(d) Settlement terms
None
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)
May 15, 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> MAR-31-2000 MAR-31-1999
<CASH> 11,569 8,943
<SECURITIES> 2,266 631
<RECEIVABLES> 9,170 8,107
<ALLOWANCES> 0 0
<INVENTORY> 75,045 76,454
<CURRENT-ASSETS> 100,344 102,489
<PP&E> 14,255 13,114
<DEPRECIATION> (8,062) (6,701)
<TOTAL-ASSETS> 118,485 119,710
<CURRENT-LIABILITIES> 85,595 53,091
<BONDS> 0 0
0 0
0 0
<COMMON> 263 264
<OTHER-SE> 26,652 17,849
<TOTAL-LIABILITY-AND-EQUITY> 118,485 119,710
<SALES> 45,183 24,205
<TOTAL-REVENUES> 11,778 7,599
<CGS> 0 0
<TOTAL-COSTS> 9,927 8,906
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,543) (564)
<INCOME-PRETAX> 437 (1,871)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 437 (1,871)
<EPS-BASIC> 0.01 (0.10)
<EPS-DILUTED> 0.01 (0.14)
</TABLE>
