SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual Report Pursuant to Section 13 OR 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended September 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
TRANSMEDIA NETWORK INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-6028875
-------- ----------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
11900 Biscayne Boulevard, North Miami, Florida 33181
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 305-892-3300
------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, par value $.02 per share New York Stock Exchange
--------------------------------------
Preferred Stock, par value $.10 per share New York Stock Exchange
-----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
---------------------
None
Indicate by check mark 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE>
Based on the closing sale price of December 26, 2000, the aggregate market value
of voting stock held by non-affiliates of the Registrant was approximately
$31,300,000.
Number of shares outstanding of Registrant's Common Stock, as of December 26,
2000: 16,200,000.
DOCUMENTS INCORPORATED BY REFERENCE.
Parts of the Proxy Statement for Registrant's 2001 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year ended September 30, 2000 are
incorporated by reference into Part III of this Form 10-K.
2
<PAGE>
PART I
------
We have made, and continue to make, various forward-looking statements with
respect to our financial position, business strategy, projected costs, projected
savings and plans and objectives of management. Such forward-looking statements
are identified by the use of forward-looking words or phrases such as
"anticipates," "intends," "expects," "plans," "believes," "estimates," or words
or phrases of similar import. Although we believe that our expectations are
based on reasonable assumptions within the bounds of our knowledge, investors
and prospective investors are cautioned that such statements are only
projections and that actual events or results may differ materially from those
expressed in any such forwarding looking statements. Our actual consolidated
quarterly or annual operating results have been affected in the past, or could
be affected in the future, by factors, including, without limitation, general
economic, business and market conditions; relationships with credit card issuers
and other marketing partners; regulations affecting the use of credit card
files; extreme weather conditions; participating restaurants' continued
acceptance of discount dining programs and the availability of other alternative
sources of capital to them.
Item 1. Business
-----------------
Corporate Structure
-------------------
Transmedia Network Inc., and its subsidiaries administer dining reward programs
which offer savings to our members on dining as well as lodging, travel, retail
and catalog merchandise and long distance telephone calls. We commenced
operations in 1984 and were reincorporated as a Delaware corporation in 1987,
and our principal office is located at 11900 Biscayne Boulevard, North Miami,
Florida 33181. Our principal telephone number (305) 892-3300. Currently, we have
the following principal operating subsidiaries:
IDine Restaurant Group Inc., formerly Transmedia Restaurant Company Inc., is
responsible for obtaining agreements with and servicing restaurants and other
service establishments such as hotels, resort destinations and retailers where
members may receive rewards.
Transmedia Service Company Inc., is responsible for (i) soliciting and servicing
all members in the United States, and (ii) providing support services to iDine
Restaurant Group Inc. RTR Funding LLC. A wholly-owned subsidiary of Transmedia
Service Company, Inc., was established as a special purpose corporation for
purposes of the securitization of cash advances to merchants referred to as
rights-to-receive. In previous years, these functions were performed by TNI
Funding I, Inc., but as of December 30, 1999, such functions have been assumed
by RTR Funding LLC.
TMNI International Incorporated, licensed the Transmedia Card, service marks,
proprietary software and know-how outside the United States.
iDine.com, Inc., was established in November 1999 and commenced operation in
April 2000 and is responsible for providing restaurant operators with the
capability of using the Internet to provide "real time" yield management tools
such as variable promotions, dining incentives and off peak pricing to fill
empty seats and generate incremental business.
Description of Rights to Receive and Registered Card
----------------------------------------------------
Our primary business is the administration of dining rewards programs. We
accomplish this through the acquisition of Rights to receive from participating
merchants which are then sold for cash to our members. Rights to receive are
rights to receive goods and services, principally food and beverage, which are
acquired and purchased from participating restaurants for an amount typically
equal to approximately 50% of the retail value of the food and beverage credits.
Alternatively, we may acquire such Rights to receive either by facilitating the
merchant's purchase of other goods and services or providing advertising and
media placement services to the participating establishments. Approximately 95%
of Rights to receive are purchased for cash. The typical discount to the menu
price of 50% has
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merchant appeal due to the fact that the cost of food and beverages at most fine
dining establishments is 30-40% of the retail value. Thus, the restaurant makes
a wholesale profit in advance in exchange for up front cash and filling tables
in the future that may otherwise go empty. We typically purchase food and
beverage credits that are anticipated to be utilized by our members in a period
of no more than six to nine months from the date of purchase; however, it is not
always possible for us to predict with accuracy the amount of time in which such
credits will be consumed due to seasonality or the opening of new market areas.
The Registered Card Program, obtained through the acquisition of Dining A La
Card (the "Registered Card Program") in June 1999, and subsequently enhanced by
us, has been adopted to replace the private label program. Members enrolled in
the program simply register a valid major credit card with us and then present
their registered credit card while dining at a participating restaurant. We
employ an independent third party aggregator to mitigate any issues around
privacy or confidentiality of data. Based on our agreements with various
processors throughout the country, the aggregator receives data for all the
credit card transactions at participating merchants. On a daily basis, a
complete detail of all registered credit card numbers is transmitted
electronically to the aggregator of these transactions. The transactions are
then matched to a file containing the members' registered card. These matched
transactions are transmitted electronically to us and qualified via business
rules as to whether they are eligible for a rebate. Qualified transactions are
then used to provide member savings or alternate currency benefits, as well as
to invoice and collect from merchants, principally via an electronic debit to
their bank account.
The savings are delivered to the members in the form of a direct credit on their
credit card statement, cash rebate or mileage credit program. The credit
ordinarily provides members the equivalent to 20% of their total spend with
participating merchants. Alternatively, members can elect to receive rebates in
the form of frequent flyer miles with major airlines, such as United, American,
TWA, US Airways, Delta, Continental, British Airways, Northwest and America
West.
Recent Developments in our Business
-----------------------------------
In June 1999, we acquired from SignatureCard, Inc. ("SignatureCard"), a
subsidiary of Montgomery Ward & Co., Incorporated, assets related to a
membership discount dining program that SignatureCard operated under the Dining
A La Card ("DALC") trade name and service name.
DALC had competed directly with us since 1995. The assets acquired in the
acquisition included various intellectual property rights and computer software,
membership and merchant data, Rights to receive, and most significantly, a
registered card platform. We simultaneously entered into a service agreement
with SignatureCard pursuant to which we obtained access to their sponsor
relationships with the nation's leading airlines. SignatureCard receives a
portion of the fees and profits derived from members initially acquired from
SignatureCard or subsequently generated through their efforts. The operations of
DALC were consolidated with ours, and integration was completed in November of
1999.
On December 28, 2000, we reached an agreement with GE Financial Assurance
("GEFA"), the successor parent of SignatureCard, Inc., to extinguish all
remaining obligations associated with the DALC acquisition, to eliminate
SignatureCard, Inc's. exclusivity rights in dealing with the airline frequent
flyer member files and to execute a contract to fully resolve and terminate the
relationship. In consideration for the above, the Company will pay GEFA $3.8
million in cash and will honor their right to put 400,000 shares held by GEFA as
part of the acquisition consideration, at a value of $8 per share. Additionally,
the Company has agreed to assume SignatureCard, Inc's., minimum miles purchase
obligation with one of the major airline which will be determined as of March
31, 2001. If we are unable to renegotiate or defer the obligation at that date,
the Company estimates that it may have to acquire approximately $2 million of
frequent flyer miles to be held for future awards.
We estimate that our member base and network of participating restaurants has
changed to approximately 3,100,000 and 7,000, respectively, from our previous
base of 1,200,000 members and 7,300 restaurant merchants prior to the
acquisition. We operate in over 50 major market areas.
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<PAGE>
Following the acquisition, we converted our method of doing business from the
legacy private label Transmedia Card program to the Registered Card program.
This conversion was completed in August 2000. In order to capitalize on this
significant change in our business, we conducted numerous customer research
surveys and decided to re-brand the dining program under the name iDine. In
contrast to the Transmedia Card, which was a private label charge card linked
electronically to a member's bank credit card of choice, a registered card is a
major credit card that has been registered with iDine by the holder. Members can
make discounted purchases with one of their existing "registered" credit cards
so that the discount is "blind" to both merchant and guests. Thus, the iDine
program allows members to accumulate savings by using conventional charge cards,
such as MasterCard, Visa, American Express and Discover. We believe that the
registered card concept has broader consumer and restaurant appeal due to its
more discrete nature.
In connection with our conversion to the iDine registered card format, we have
launched an e-commerce initiative through our wholly owned subsidiary iDine.com.
The on-line revenue management product, accessed through the iDine website,
allows restaurants to create special time and date specific incentives and
promotions in order to drive incremental traffic through the restaurant during
slow periods. Consumers have their choice of receiving benefits in either points
or cash and may convert the points into complimentary dining or frequent flyer
miles. The website also allows for national restaurant listings and access to
reviews. Specifically, the web site contains Zagat restaurant listings and
review content provided under our agreement with Zagat. Another popular member
enhancement is the member's review feature. We accept restaurant reviews from
members and post the suitable ones. The real business driver on the web site,
however, is the revenue management program whereby restaurants have the ability
to establish dining deals online (e.g., 10% discount on Tuesday nights) which
may be accepted by a member.
To provide us with sufficient funds to launch our new revenue management
product, we raised $10 million in equity capital through a private placement.
The testing of the product is expected to be completed in December 2000, and
rollout will commence on a national basis shortly thereafter. The revenue
management product is intended to increase the number of participating
restaurants, provide a retention incentive for existing restaurants and increase
overall restaurant dining sales.
In the past, we have derived income from franchising and licensing the
Transmedia Card tradename and servicemark, and related proprietary rights and
know-how within and outside the United States. We have also received revenue
from licensing the Transmedia Card. In recent years, we started systematically
reacquiring the franchise sales territories to obtain greater control over our
national presence and growth plans. In June 2000, we completed the reacquisition
of the last of our previously franchised territories. In addition to reacquiring
all its previously franchised territories, in April 2000, we terminated, by
mutual consent, the license agreements with Transmedia Asia Pacific, Inc. and
Transmedia Europe. Following a brief transition period, Transmedia Asia Pacific,
Inc. and Transmedia Europe, Inc. have ceased using the Transmedia brand name for
their respective discount programs.
Member and Merchant Programs
----------------------------
Member Programs
Our members have a choice of programs, including (1) a program which offers a
20% savings at participating establishments on food, beverage, tax, and tip, for
which there is a $49 annual fee and (2) a program which offers mileage credits
with participating airlines of ten miles for each dollar spent on food and
beverage at participating establishments for no annual fee.
We recently introduced a no fee program where benefits and rewards are not
provided until the member reaches a certain level of qualified spending each
year. The typical usage requirements range from cumulative rewards of $40.00 to
$50.00, and the net effect is essentially that by the time the member receives a
benefit, we (by not providing a benefit for the first few dines) have
effectively received a fee.
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Typically, iDine registered cardmembers can choose (or members through an
airline program) to earn ten miles for each dollar spent per dine. This type of
arrangement is advantageous for airlines as they view miles acquired for use as
rewards or rebates to be equivalent to prepaid ticket. We are able to purchase
mileage from the airlines on an as needed basis at favorable rates.
Additionally, the contracts with the airlines provide that additional members
can be added at virtually no cost. We have effectively reduced the cost of the
20% cash rebate discount to approximately 16-17% if airline miles are elected to
be received in lieu of cash.
Merchant Programs
Fixed Incentive Plans
o Cash Advance Plan - Under this plan, the merchant receives cash in advance
for food and beverage, credits typically in the ratio of 1:2. For the
Registered Card Program, gross dining sales are recognized as the portion
of the total ticket recovered from the merchant, typically 80%. The 20%
left with the merchant is to provide the merchant with liquidity for items
such as sales tax and tips.
o Arrears Plan - Under this plan, the merchant receives no cash in advance;
however, meals are discounted at a lower rate. The merchant is still listed
in our directory of participating merchants similar to the standard plan.
When a member visits the merchant, we may receive only 30% to 35% of the
transaction from the merchant. The gross margin on these transactions is
the residual amount after the member receives their 20% discount. While a
lower margin than cash advance plans there is very little risk and we do
not have a cost of receivables or capital for those merchants.
Variable Incentive Plans
o The Revenue Management Plan - This plan provides the merchant with the
ability to direct when they wish to offer incentive dining. The merchant
posts a certain reward (i.e., percentage discount) tied to day of the week
or time of day, or both. The reward is communicated to members via the
iDine website, or as planned for future, through wireless devices such as
palm pilots. The member either goes to the advertised restaurant or, for
certain "exclusives", selects the reward and then makes a reservation to
dine. We receive a portion of the transaction, the merchant gets direct
incremental business when they want it, and the member receives a reward.
Multi-Unit Plan - The multi-unit (or chain) restaurant plan specifically
addresses peak versus off-peak demand issues. Accordingly, we have in place
and are testing with certain merchants, a Sunday through Thursday plan
designed to drive incremental traffic at times when the multi-unit
restaurants' capacity is underutilized. We typically take a percentage of
all such transactions and the member gets a similar reward.
Participating Members and Merchants
As of September 30, 2000, we had about 7,000 merchants available to our members.
As of that date the membership in various programs was about 3,150,000.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Restaurants
Total 7,000 7,200* 7,300 7,100 7,000
Cardmembers
Total 3,150,000 2,700,000 1,200,000 1,300,000 900,000
---------------------------------------------------------------------------------------------------------
</TABLE>
* Actual unique restaurants are disclosed in table; total restaurants listed
in the directories for both programs was 9,500, which includes dual
participants of 2,300.
The majority of all restaurants listed in the quarterly directories published by
us typically renew their contracts after the initial Rights to receives are
used. At the second renewal, we retain approximately 70% to 80% of those
restaurants continuing in business. After the second renewal, however, attrition
tends to increase because the restaurants, with our help, have either become
successful and no longer
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require our financial and marketing resources, or we choose not to renew them.
Offsetting this decrease are new restaurants that choose to participate as old
ones leave the program, and restaurants that were formerly on the program that
re-sign as they further expand and/or desire the program's benefits again. This
provides us with a continuous flow of restaurant prospects. Moreover, the
recently developed e-commerce enabled revenue management program is expected to
be helpful in restaurant retention efforts by inducing merchants to remain in
the program, and also to attract restaurants that previously had chosen not to
participate with a fixed incentive plan. We believe that in no area where we
operate are we close to restaurant or member saturation. The increase in
membership during fiscal 1999 was mainly due to the addition of 1,700,000
members with the acquisition of DALC. During fiscal 1999-2000, the integration
of DALC and subsequent conversion to the registered card platform had the effect
of slightly lowering the number of restaurants participating in our programs.
Limited resources were focused on converting valuable restaurants over to the
Registered Card Program instead of acquiring new restaurants. Some of the
restaurants were uncomfortable converting to a program in which the "discount
diner" is imperceptible from the rest of the population. More significantly,
there were restaurants in both portfolios that were not economically viable for
us, and the conversion process served to flush these restaurants out. With the
conversion process completed, our sales force was mandated to focus on enrolling
new restaurants. Further, we are aggressively pursuing the multi-units or chain
restaurants that, prior to the conversion and instituting the variable incentive
program, had previously been outside of our scope of potential merchants.
Marketing
---------
With the completion of the conversion, we are now aggressively pursuing our
large partner marketing strategy. The recently announced ValueVision ("VVTV")
home shopping network alliance is an example of distribution of the dining
program membership as a loyalty product through large traffic groups, in the
VVTV Television case, 34.2 million households. Another example are the airlines
relationships, which we recently expanded with the announcement of the America
West FlightFund Dining program to join American Advantage Dining, United Mileage
Plus Dining, Delta Skymiles Dining and the recently kicked off USAirways
Dividend Miles Dining. We operate nine airline dining reward programs that offer
an alternative currency, frequent flyer miles. Enrollment and fulfillment costs
are significantly reduced, the effective cost of the reward to members, when
compared to a cash rebate, is lowered and the demographic profile of the
members, principally business travelers and vacationers, is desirable. We are in
negotiations with a number of other large partners and most of the proposed
alliances follow a variation of the above partnerships (i.e., large enrollment
potential), enabled through the registered card format, at very low or no cost
of acquisition and servicing, often coupled with a cost effective alternative
currency that is used as the reward to the prospective members.
Another key marketing initiative that is now possible through the registered
card format is the corporate expense management program. Participating companies
enroll their corporate card accounts with us on a no fee basis where a benefit
is not provided until the member reaches a certain level of qualified spending.
After reaching such level, the participating company receives a monthly check
for the aggregate benefits earned by their employees when dining out for
business and travel. Communicating restaurant information to corporate card
employees is most commonly done through a regular content transmission to the
corporation's Intranet site.
As we expand both our demographic and geographic footprint, we have developed
alternative value propositions that appeal to the multi-unit restaurant
industry. The multi-unit casual dining market tends to be a lower margin, lower
average ticket business; however, there is still the need to fill empty seats
and drive traffic in off-peak time frames. We are presently in discussions with
a number of multi-unit operators to provide either the traditional cash advance,
unrestricted seven day a week offers, or Sunday to Thursday marketing only
offer.
With the conversion process and the launch of the on-line business now complete,
we are now focused on growth in revenue and taking advantage of the scale
inherent in our business. From the restaurant perspective, we continue to
develop alternative offers to meet off-peak or real time needs of the restaurant
operators, all of which are geared to retaining restaurants in the program. This
goal is accomplished by
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providing a suite of marketing propositions that meet the needs of growing and
expanding restaurants as well as the mature, successful ones and include both
fine dining and casual dining. From a member growth standpoint, the registered
card appeals to large partners, and coupled with our technology competency and
dominant market position, sets the stage for significantly increasing the size
of the membership. Our challenge will continue to be the effective management of
the delicate balance between the restaurants and members in each market.
Dependence on marketing partners
--------------------------------
In connection with our acquisition of DALC, we entered into a Service
Collaboration Agreement with SignatureCard, under which SignatureCard will
generate members by relying on its long-standing marketing partner arrangements
with the airlines for the mutual benefit of SignatureCard (now GE Financial
Assurance Partners Marketing Group) and us. Furthermore, our relationship with
SignatureCard precludes us from directly forming marketing relationships with
airlines, but rather we must work through them for enrollment and stimulation
initiatives. Sales generated from airline members were approximately $71.5
million and $9 million for the years ended September 30, 2000 and 1999,
respectively.
Competition
-----------
The discount dining business remains competitive and we compete for both members
and participating merchants, such as restaurants, hotels and other applicable
service establishments. We also anticipate growing competition from various new
economy e-commerce ventures. Competitors include discount programs offered by
major credit card companies, other companies that offer different kinds of
discount marketing programs and numerous small companies which offer services
which may compete with the services offered or to be offered by us. Certain of
our competitors may have substantially greater financial resources and expend
considerably larger sums than we do for new product development and marketing.
Further, we must compete with many larger and better-established companies for
the hiring and retaining of qualified marketing personnel. We believe that the
unique features of our programs: (1) can be used by members at participating
establishments with very few restrictions; (2) the programs provide substantial
savings without the need for a member to present discount coupons or a separate
card when paying for a meal; and (3) participating establishments are provided
with cash in advance of customer charges contribute to our competitiveness and
allow us to offer better value and service to its members and merchants.
Employees
---------
As of September 30, 2000, we had 218 full-time employees, including 14 employees
specifically hired to initiate the iDine revenue management concept. We believe
that our relationships with our employees are good. None of our employees are
represented by a labor union.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Position Age
---- -------- ---
<S> <C> <C>
Gene M. Henderson Director, President and Chief Executive 53
Officer
Stephen E. Lerch Executive Vice President and 46
Chief Financial Officer
James M. Callaghan Vice President; President of Transmedia 61
Restaurant
Company Inc.
Paul A. Ficalora Executive Vice President 49
of Transmedia Restaurant
Company Inc.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Gregory Borges Treasurer 64
Kathryn Ferara Secretary and Vice President of Operations 44
</TABLE>
Gene M. Henderson, President and Chief Executive Officer - Mr. Henderson became
President and Chief Executive Officer in October, 1998. From March, 1997 to
June, 1998, Mr. Henderson was President and CEO of DIMAC Marketing in St. Louis.
From 1977 to 1997, Mr. Henderson was employed at Epsilon Data Management of
Burlington, Massachusetts, ultimately becoming its Chief Operating Officer. From
1990 to 1998, Epsilon was a wholly owned subsidiary of American Express Company.
Mr. Henderson has a MBA from the University of Chicago.
Mr. Lerch was elected Executive Vice President and Chief Financial Officer of
the Company, as well as Vice President of TMNI International Incorporated,
Transmedia Restaurant Company Inc. and Transmedia Service Company Inc,
subsidiaries, in 1997. Previously, Mr. Lerch was a Partner at Coopers and
Lybrand LLP (now PriceWaterhouse Coopers), where he worked from 1978 to 1997.
Mr. Callaghan was elected Vice President of the Company and President of
Transmedia Restaurant Company Inc., a subsidiary, in 1994. He was also a
director of the Company from 1991 to 1998. Mr. Callaghan joined the Company in
1989 and served as its Executive Vice President, Vice President, Sales and
Marketing and Treasurer.
Mr. Ficalora was elected Executive Vice President of the Restaurant Company in
1994, having served as Vice President, Operations of the Company from 1992 until
1994, and Director of Franchise Sales from 1991 to 1992.
Mr. Borges was elected Treasurer of the Company in 1992. He joined the Company
in 1985 as Controller.
Mrs. Ferara was elected Secretary of the Company in 1992. She joined the Company
in 1989 as Office Manager and Assistant Secretary.
Item 2. Properties
--------------------
The principal leased properties of Transmedia and its subsidiaries are set forth
in the following table
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Location Monthly Rent Terms of Lease Square Footage
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Miami - call center, processing, and $ 33,865
executive office, Two leases expiring 02/28/02 18,040
------------------------------------------------------------------------------------------------------------------
New York - Sales 16,654 05/01/96 - 11/30/01 5,710
------------------------------------------------------------------------------------------------------------------
Chicago - Email Server and sales Office 6,431 04/15/00 - 01/21/01 2,756
------------------------------------------------------------------------------------------------------------------
Chicago - Sales 3,908 08/01/98 - 07/31/04 1,876
------------------------------------------------------------------------------------------------------------------
Boston - Sales 4,527 09/01/00 - 08/31/03 1,550
------------------------------------------------------------------------------------------------------------------
Los Angeles - Sales 3,913 02/01/98 - 02/28/01 1,665
------------------------------------------------------------------------------------------------------------------
San Francisco - Sales 3,687 05/15/98 - 05/14/03 1,254
------------------------------------------------------------------------------------------------------------------
Philadelphia - Sales 2,449 10/01/98 - 09/30/03 1,641
------------------------------------------------------------------------------------------------------------------
Dallas - Sales 2,158 11/01/98 - 10/31/03 1,355
------------------------------------------------------------------------------------------------------------------
Potomac, MD - Sales 3,646 02/01/99 - 12/31/00 1,923
------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
Item 3. Legal Proceedings
---------------------------
We are involved in various legal proceedings. While it is not currently possible
to predict or determine the outcome of these proceedings, it is the opinion of
our management that the outcome will not have a material adverse effect on our
financial position or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
--------------------------------------------------------------
A Special Meeting was held on August 17, 2000, so that the our stockholders
could consider and act upon certain matters that require their approval to
enable us to raise additional capital through a private placement sale of our
common stock and warrants to the purchasers. At the Special Meeting, our
stockholders were asked to approve the issuance and sale of 1,287,480 shares of
our common stock and five-year warrants to purchase 2,574,960 shares of our
common stock.
At the close of business on June 19, 2000, the record date for the determination
of the stockholders entitled to vote at the Special Meeting, there were
outstanding 18,686,370 shares of voting stock. At the Special Meeting, the
holders of 11,304,967 shares of voting stock were represented in person or
proxy. The vote was as follows:
For Against Abstain
--- ------- -------
11,014,451 264,506 26,010
PART II
-------
Item 5. Market for our Common Stock and Related Shareholder Matters
--------------------------------------------------------------------
Our Common Stock is traded on the New York Stock Exchange under the symbol
"TMN". The following table sets forth the high, low and closing bid prices of
our Common Stock for our two most recent fiscal years.
<TABLE>
<CAPTION>
Quarter Ended Low High Close
------------- --- ---- -----
<S> <C> <C> <C>
December 31, 1998 $ 1.938 $ 4.625 $2.125
March 31, 1999 2.375 5.125 3.875
June 30, 1999 3.000 4.188 3.938
September 30, 1999 2.688 4.375 3.000
December 31, 1999 2.125 2.938 2.500
March 31, 2000 4.563 5.313 5.000
June 30, 2000 2.938 5.000 4.250
September 30, 2000 3.313 4.375 3.750
</TABLE>
No dividends have been paid on our Common Stock for the last two most recent
fiscal years. The payment of dividends to holders of common stock, if any, in
the future, will depend upon, among other things, our earnings and financial
requirements, as well as general business conditions.
Our Series A preferred stock is traded on the New York Stock Exchange under the
symbol "TMN pfA". Holders of our Series A convertible preferred stock are
entitled to receive dividends at the rate of $0.29 per share per annum, at least
$0.145 of which is payable in quarterly installments in arrears on the first
business day of January, April, July and October. Annual dividends in the amount
of $0.145 per share are not payable currently but can be deferred, accrue and be
payable upon a conversion or redemption of the Series A preferred shares or
liquidation, dissolution or winding up of Transmedia. We, however, may choose to
pay any or all deferred dividends currently. Dividends will accrue from and
including the issue date to and including the date on which the preferred shares
are redeemed or converted or on which the liquidation preference is paid. To the
extent not paid, current dividends and deferred dividends will be
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<PAGE>
cumulative. The Series A preferred shares will be entitled to receive cash
dividends on an as-converted basis equal to the Common Stock, if dividends are
paid on Common Stock. At September 30, 2000, the conversion rate of the
preferred shares was one preferred share for 1.0539 common shares. Dividends on
our Series A preferred shares for the last two most recent fiscal years are as
follows:
(in dollars)
Quarter Ended Cash Accrued
------------- ---- -------
December 31, 1998 $ -- $ --
March 31, 1999 -- --
June 30, 1999 -- --
September 30, 1999 -- --
December 31, 1999 0.021 0.021
March 31, 2000 0.036 0.036
June 30, 2000 0.036 0.036
September 30, 2000 $ 0.036 $ 0.036
The aggregate number of holders of record of our common stock and Series A
preferred stock on December 26, 2000 was approximately 392and 24, respectively.
On August 5, 1999, the New York Stock Exchange notified us of the pending
adoption of amendments to its continued listing criteria and of our
noncompliance with the new standards. In accordance with the requirements of the
notification, we submitted to the Exchange our plan to come into compliance with
the new criteria. On September 16, 1999, we were advised by the Exchange that
our plan had been accepted and that it will continue to be listed on the
Exchange. Our performance relative to the plan of compliance is subject to
monitoring by the Exchange through September 30, 2001.
Recent Sales of Unregistered Securities
(1) On April 28, 2000, we issued 904,303 shares of common stock to investors,
for $4.56 per share and 1,808,606 warrants exercisable for common stock, half of
which were sold at $5.93 per share and half at $7.30 per share.
(2) On August 21, 2000, we issued 629,944 shares of common stock to investors,
for $4.56 per share and 1,259,888 warrants exercisable for common stock, half of
which were sold at $5.93 per share and half at $7.30 per share.
(3) On August 21, 2000, we issued 657,536 shares of common stock to certain
directors, executive officers and to an investor, for $4.56 per share, and
1,315,072 warrants exercisable for common stock, half of which were sold at
$5.93 per share and half at $7.30 per share.
(4) On June 29, 2000, we issued 352,423 shares of common stock to investors, for
$4.26 per share.
(5) On June 29, 2000, we issued two convertible notes in the principal amounts
of $1.0 million each, respectively, convertible into an aggregate of 469,897
shares of common stock at a conversion price of $4.26 per share.
The sale of these securities were deemed to be exempt from registration under
the Securities Act of 1933 in reliance on Section 4(2) of the Securities Act of
1933, as transactions by an issuer not involving a public offering.
11
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
(thousands except per share data)
---------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Registered card sales (Page 4) $ 103,950 $ 25,942 $ -- $ -- $ --
Private label sales (Page 4) 76,677 94,530 95,549 101,301 90,076
--------- --------- --------- --------- ---------
Total dining sales 180,627 120,472 95,549 101,301 90,076
Net revenues from rights-to-receive 36,356 23,882 19,659 21,232 19,504
Membership and renewal fee income 8,444 8,281 7,321 7,251 6,646
Franchise fee income 568 1,073 1,249 1,438 1,839
Other income 990 1,552 1,912 1,023 497
Total operating revenues 46,358 34,788 30,141 30,944 28,486
Total operating expenses 46,831 40,782 37,606 30,246 23,729
Operating income (loss) (473) (5,994) (7,465) 698 4,757
Other expense (5,682) (2,404) (2,971) (1,382) (650)
Income (loss) before taxes and
extraordinary item (6,155) (8,398) (10,436) (684) 4,107
Extraordinary item, loss on early
extinquishment of debt, net of tax (1,623) -- -- -- --
Net income (loss) $ (7,778) $ (10,398) $ (7,836) $ (424) $ 2,546
========= ========= ========= ========= =========
Income (loss) before taxes and
extraordinary items (per share) (.51) (.80) (.67) (.04) .25
Extraordinary item, loss on early
extinquishment of debt, (per share) (.12) -- -- -- --
Net income (loss)per share
Basic and diluted (.63) (.80) (.67) (.04) .25
Weighted average number of common and
common equivalent shares outstanding:
Basic and diluted 14,149 13,043 11,773 10,166 10,299
Balance Sheet Data:
Total assets $ 121,581 119,710 74,425 72,685 54,514
Long-term debt:
Recourse -- 10,000 -- -- 15,000
Non-recourse -- 33,000 33,000 33,000 --
Redeemable preferred shares 10,000 -- -- -- --
Stockholders' equity 20,806 18,113 27,734 25,304 25,753
Debt to total assets -- 36% 44% 45% 28%
Earnings to fixed charges 17% -109% -245% 73% 582%
Cash dividends per common share $ 0.00 0.00 0.02 0.02 0.04
</TABLE>
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Dollars in thousands)
Results of Operations (2000 versus 1999)
----------------------------------------
Gross dining sales for the fiscal year ended September 30, 2000 increased 49.9%
to $180,627 as compared to $120,472 for the year ended September 30, 1999,
primarily reflecting a full twelve months of registered card dining sales
associated with the acquisition of Dining A La Card ("DALC") which occurred on
June 30, 1999. Registered card sales for the fiscal year ended September 30,
2000 and 1999 associated with the acquisition were $85,174 and $25,942,
respectively. Fiscal 1999 results reflect three months of registered card sales
associated with the acquisition.
In March 2000, we initiated a plan to convert our private label membership and
restaurant base to the registered card platform. With the registered card
program, members enrolled in the program simply register a valid major credit
card with us, and then present their registered card while dining at a
participating restaurant. Based on our agreements with various processors
throughout the country, an aggregator receives data for all the credit card
transactions for participating merchants. On a daily basis, a complete detail of
all registered credit card numbers is transmitted electronically to the
aggregator of these transactions. These transactions are then matched to the
current registered card file. These matched transactions are transmitted
electronically to us and qualified via business rules as to whether they are
eligible for a rebate. Qualified transactions are then used to provide member
savings or alternate currency benefits, as well as to invoice and collect from
merchants, principally via an electronic debit to their bank account. This
conversion was completed in August 2000. Registered card sales associated with
converted private label members were $18,776 for the fiscal year ended September
30, 2000.
Actual sales for our private label program decreased 18.9% to $76,677 compared
to $94,530 for the year ended September 30, 1999. As more and more private label
members start using their registered credit card instead of the private label
card, private label sales should continue to decline, with a somewhat
corresponding increase in the registered card program.
Our member acquisition strategy has undergone certain revisions that are
reflected in a changing member profile. Leveraging a dominant national position
in the fine dining rewards space along with the recent conversion to universal
use of the registered card, we have focused on large partner marketing
opportunities. Expansion of the airline frequent flyer base of members, the
recent launch of the "expense management program" that involves registering
corporate credit cards and rebating discounts back to the participating company
and alliances with other reward programs, are examples of this strategy.
Characteristic of these partnerships is either a lower member acquisition cost,
an alternative currency to cash rewards that have a positive margin implication,
or a lower cost of servicing. We believe that this strategy provides excellent
opportunities with increased scale and is very focused on expansion of the
member base and the incremental sales volume that it should provide.
Registered card membership at September 30, 2000 and 1999 was approximately
3,150,000 and 1,700,000, respectively. Of these members, 1,100,000 were
non-airline members of which 370,000 were corporate card members and 280,000
from alliances with other rewards partners. Airline members, which accounted for
approximately 73% of total membership and approximately 69% of registered sales,
do not pay membership fees and typically receive rebates in the form of frequent
flyer miles.
At September 30, 2000, the combined average Rights to receive balance per
participating merchant were approximately $10 and $8 at September 30, 2000 and
1999, respectively. The Rights to receive turnover for the combined portfolio
for fiscal 2000 is 1.09 or 10.99 months on hand compared to1.16 or 10.36 months
on hand, in the prior year. The addition of restaurants for the revenue
management program will help to reduce the outstanding Rights to receive. With
the revenue management plan, the merchant posts a certain reward (i.e.,
percentage discount) tied to day of the week or time of day, or both. The reward
is communicated to members via the iDine website, or potentially through
wireless devices such as palm pilots. Via an overt act such as "clicking," the
member selects the reward and then makes a reservation to
13
<PAGE>
dine. We receive a portion of the transaction, the merchant gets direct
incremental business, and the member receives a reward. There is no cash
advanced to restaurants participating in this program, and the sales generated
from these restaurants will help to reduce months on hand.
A combined directory of restaurants participating in the two dining programs
branded iDine is issued quarterly. The quarterly directory listed about 7,000
unique restaurants available to members.
Cost of sales increased to 58.3% of gross dining sales up slightly from 58.2% a
year earlier. The increase in cost of sales is directly related to the addition
of the acquired DALC registered card portfolio which was traditionally offered
to merchants at an advance rate less than our customary private label rate of
2:1, and therefore, results in a somewhat higher cost of sales than the private
label portfolio. The acquisition was completed in June 1999, and therefore the
results of fiscal 1999 reflect only three months with this portfolio versus the
full twelve months reflected in fiscal 2000. The increase would have been
greater, if not for the fact that the majority of those contracts renewed by us
were converted to the 2:1 rate during fiscal 2000. 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 Rights to receive losses, which are included
in cost of sales, increased to $7,391 or 4.1% of gross sales in 2000, compared
to $4,088 or 3.4% in the prior year period due to the additional allowance
recorded for collection from registered card merchants. With the registered card
programs, we collect payment for qualified dines from the merchant, while with
the private label program, we collected directly from the members (i.e., we
processed the receipts through the members electronically linked credit card
accounts, and the full amount of the funds billed to the credit card is remitted
directly to us). Processing fees based on transactions processed, and included
in cost of sales, increased as a percentage of gross dining sales from 2.9% for
fiscal 1999 to 3.0% for fiscal 2000.
Member discounts as a percentage of sales decreased slightly from to 22.0% in
1999 to 21.6% in 2000. The majority of the registered card members are enrolled
in the airline program and earn ten miles for each dollar spent at participating
merchants. We purchase airline mileage from the airlines on an as needed basis
at a contractual rate that allows us to effectively reduce the cost of the
member rebate in the airline program to less than that of the conventional 20%
cash rebates. Fiscal 2000 reflects twelve months of registered card usage versus
only three months in fiscal 1999.
Membership and renewal fee income increased to $8,444, of which $1,654 was
initial fee income in 2000, compared to $8,281, of which $3,387 was initial fee
income in 1999. The increase in renewal fees is mainly as a result of a full
year's renewal fees on the members acquired through the purchase of DALC.
Renewal fees recognized for these members during the year ended September 30,
2000 were $1,088 versus $53 for the same period in the prior year. The decreased
initial fee income is reflective of the change in our marketing strategy in fall
of 1999. Marketing of the fee-based private label membership was reduced
significantly due to changes in the regulatory environment regarding direct
marketing solicitations. Our marketing strategy has shifted to focus mainly on
marketing to key partner affinity programs. One such program is our corporate
card program, where in lieu of a membership fee, the first of approximately two
hundred and fifty dollars of spend is not qualified for member discounts.
Participating companies enroll their corporate card accounts with us and after
the required spend the participating company receives a monthly check for the
aggregate benefits earned by their employees when dining out. Communicating
restaurant information to corporate card employees is most commonly done through
a regular content transmission to the corporation's Intranet site. With the
conversion now complete, we anticipate that a number of significant additional
corporate programs will come on-line next year. Our strategy is also to continue
to enroll members of the airline mileage programs for which there is very little
acquisition cost and the rebate percentage tends to be lower and also to
commence marketing a fee-based registered card. Fee income is recognized over a
twelve-month period beginning in the month the fee is received. Cardholder
membership fees are cancelable and refunded to members, if requested, on a pro
rata basis based on the remaining portion of the membership.
14
<PAGE>
Continuing franchise fee and royalty income decreased for the year ended
September 30, 2000 to $568 from $1,073 in the prior year. In June 2000, we
completed the reacquisition of the last of our franchises. As such, any further
franchise royalty fees have ceased at that date.
Although overall selling, general and administrative expenses increased $5,631
or 26.0% over the prior year, as a percentage of gross sales, selling, general
and administrative expense decreased from 18.0% for fiscal 1999 to 15.1% for
fiscal 2000. There are two main factors contributing to the increased dollar
amount of expenses during fiscal 2000. First, we launched our e-commerce dining
venture, iDine.com in April 2000. Expenses recognized in fiscal 2000 associated
with iDine.com was approximately $3,501, and related to business plan
development, business concept definition and testing, deal support during
venture capital negotiations, project management, and support costs. Second,
other significant component increases for the year ended September 30, 2000
(exclusive of iDine.com) were sales commissions of $1,451 associated mainly with
special incentive commissions paid for the conversion of restaurants from the
private label program to the registered card platform, printing and postage of
$959 mostly related to the mailing of member correspondence related the
conversion from the private label program to the universal registered card
program, depreciation and amortization of $407, rent and other expenses of $246
associated with the increased corporate office space and other expenses through
the DALC integration transition period which was completed at the end of the
first quarter, and other expenses of $212 which mainly related to Private
Label/Registered Card conversion programming. Offsetting these increases during
the year ending September 30, 2000, was a decline in professional fees of $344
and telephone expense of $377 during the prior year.
Salaries and benefits increased $2,858 or 29.1% over the prior year. Of this
increase in salaries and benefits, $615 related to employees hired to support
iDine.com. Also, in the earlier part of the year, there were salaries and
benefits paid to the DALC employees during the integration. These amounts were
substantially cut back after January 1, 2000, and now reflect only a few
permanent employees required to support the addition of the registered card
programs, primarily relating to information technology, sales and customer
service.
In 2000, member acquisition expenses were $6,875 versus $6,447 in 1999, an
increase of $428. Included in member acquisition expenses is the amortization of
deferred acquisition costs, which amounted to $1,654 in 2000 and $3,335 in 1999.
We previously used various direct (one-on-one) marketing techniques at different
levels of cost to solicit new members. Consumer privacy regulations adopted in
1999 required us to change certain methods of solicitations that had resulted in
favorable response rates. Costs capitalized in 2000 and 1999 were $153 and
$4,184, respectively. Included in member acquisition expenses was approximately
$1,836 relating to the write down of our inventory of plastic cards as well as
fees for artwork used to make the Transmedia private label card. The conversion
to the registered card program rendered the inventory of plastic card obsolete.
The cost of the plastic cards was amortized over the estimated conversion period
of nine months which ended September 30, 2000. Prospective members continue to
be solicited through direct mail on a greatly reduced basis, and also through
the use of affinity and loyalty programs with major credit card issuers and
corporations. Third party and strategic marketing partners are compensated
through a commission on fees received, and to a lesser degree, on an activation
basis or through wholesaling of the fee based card. The mix of solicitation
programs used has a direct correlation to the overall acquisition cost per
member and the spending profile of members acquired.
In order to avoid prolonged litigation, we settled the outstanding lawsuit with
our former licensee, Sports & Leisure, Inc., in November of 1999. Under the
terms of the settlement, Sports & Leisure, Inc. received $2,100 in cash and
280,000 shares of common stock for a total of $2,835. Based on the fair value of
the common stock included in the settlement and net of reserve amounts
previously provided by us in the first quarter of 1999, a charge of $1,835 was
recognized in the fourth fiscal quarter of 1999.
Other expense, net of income in 2000 amounted to $5,682 versus $2,404 in 1999,
an increase of $3,278. The principal reasons for the change was a decrease of
$1,109 of realized gain on sale of securities available for sale coupled with an
increase in interest expense and financing costs in 2000, as
15
<PAGE>
a result of having one full year of additional borrowings, in part, used for the
purchase of the DALC Rights to receive.
Earnings before taxes amounted to a loss of $6,155 in 2000 compared with loss of
$8,398 in 1999. A net operating loss carryforward of $17,791 was available at
the year ended September 30, 2000. The net deferred tax asset, principally
related to the net operating loss carryforward remains fully reserved. The
effective tax rate for fiscal 2000 was 38%.
On December 30, 1999, we entered into an $80,000 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
$65,000 based on a similar borrowing base formula used in the bridge loan, were
utilized to terminate and payoff $33,000 non-recourse notes from the 1996
securitization and $27,000 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. At September 30, 2000, the balance outstanding under the
new revolving securitization was $59,625.
Net loss was $7,778 or $.63 per share in 2000, versus net loss of $10,398 or
$.80 per share in 1999.
Results of Operations (1999 versus 1998)
----------------------------------------
Gross dining sales for the fiscal year ended September 30, 1999 increased 26.1%
to $120,472 as compared to $95,549 for the year ended September 30, 1998,
primarily reflecting the registered card dining sales associated with the
acquisition of DALC. Sales for the registered card program from June 30, 1999,
the date of acquisition, through September 30, 1999 were $25,942. Actual sales
for our private label program decreased 1.1% to $94,530 compared to $95,549 for
the year ended September 30, 1998. We continue to experience a decline in
private label sales in our largest and most established market of New York.
Sales for New York decreased 8.6% to $38,211 as compared to $41,788 for the year
ended September 30, 1998. Other noticeable declines occurred in Boston and
Philadelphia that decreased 16% and 9%, respectively. During 1999, our private
label program experienced a higher average monthly spend per cardmember and a
higher overall utilization by the cardmember base. However, part of this
increased utilization is a function of a forced reduction in inactive
cardmembers and a corresponding lower member base in the denominator. The
overall private label cardmember base has been reduced when compared to the
prior year, and the average number of monthly active accounts decreased from 112
thousand in 1998 to 107 thousand in 1999. Offsetting the sales territories
showing decreases were continued higher sales volumes in Chicago, Indiana,
Wisconsin, Denver, and Phoenix. Additionally, sales for the reacquired franchise
territories of Carolinas, Georgia and Dallas/Ft. Worth (which were reacquired in
1998), and the more recently reacquired Houston territory amounted to
approximately $4,610 for the year ended September 30, 1999, compared to $1,474
in 1998.
Private-label cardmember accounts decreased 16.9% to 690,000 for the year and
total cardmembers at September 30, 1999 were approximately 1,000,000 or 1.45
cardmembers per account. The net decrease in accounts in fiscal 1999 is
primarily due to our continued policy of proactively eliminating inactive no-fee
accounts while marketing extensively the fee-paying membership that tends to
have higher activity.
Registered card membership at September 30, 1999 was approximately 1,700,000. Of
these members, 663,000 were non-airline members. Airline members, which
accounted for approximately 61% of total registered card membership and
approximately 68% of registered card sales, do not pay membership fees and
typically receive rebates in the form of frequent flyer miles.
The total merchants available to members of the private label and registered
card programs were 6,400 and 4,180 at September 30, 1999, respectively. Of the
6,400 merchants available to the members of the private label program, 5,800 are
merchants in Company-owned sales territories. There are no franchise territories
associated with the registered card program. Due to duplication of merchants in
both programs, the total Company-owned merchants listed in both directories at
September 30, 1999, were approximately 9,500.
16
<PAGE>
At September 30, 1999, the average Rights to receive balance per participating
merchant in the private label program was $6.9 versus $7.7 at September 30,
1998. With the inclusion of the registered card program, the combined average
Rights to receive balance per participating merchant was $8.0 at September 30,
1999. Rights-to-Receive turnover for the private label program for fiscal 1999
was 1.2, or 10.0 months on hand, compared to 1.2, or 9.9 months on hand, in the
prior year. With the inclusion of the DALC portfolio, the Rights to receive
turnover for the combined portfolio is 1.16 or 10.36 months on hand.
Cost of sales increased to 58.2% of gross dining sales from 57.0% a year
earlier. 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 our customary 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 Rights -to receive losses on the private label
program, which are included in cost of sales, decreased to $3,308 or 3.5% of
gross sales in 1999, compared to $3,822 or 4.0% in the prior year period. The
provision for losses recorded for the registered card program amounted to $780
or 3% of gross sales in 1999. Processing fees based on transactions processed
remained constant as a percentage of private label gross dining sales at 3.2%
for 1999 and 1998.
Member discounts as a percentage of sales decreased slightly from 22.4% in 1998
to 22.0% in 1999. While the effective rate of discount on private label sales
increased from 22.4% to 22.9%, reflecting more usage by fee-paying, 25% discount
members, the overall decrease is a result of the inclusion of the registered
card portfolio during the last quarter of 1999. The majority of the registered
card members are enrolled in the airline program and earn ten miles for each
dollar spent at participating merchants. We purchase airline mileage from the
airlines on an as needed basis at a contractual rate that allows us to
effectively reduce the cost of the member rebate in the airline program to less
than that of the 20% cash rebates.
Membership and renewal fee income increased to $8,281, of which $3,387 was
initial fee income in 1999, compared to $7,321, of which $701 was initial fee
income in 1998. The increased initial fee income is reflective of our continued
marketing of the 25% savings fee card with the private label program. Renewal
fee income relating to the registered card program was $53. Our strategy is to
continue to enroll members of the airline mileage programs for which there is
very little acquisition cost and the rebate percentage tends to be lower and
also to commence marketing a fee-based registered card. Fee income is recognized
over a twelve-month period beginning in the month the fee is received.
Cardholder membership fees are cancelable and refunded to members, if requested,
on a prorata basis based on the remaining portion of the membership.
Continuing franchise fee and royalty income decreased to $1,073 from $1,249.
This decrease resulted primarily from the purchase of the Houston franchise
territory in 1999.
Processing income relates to our 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.
Overall selling, general and administrative expenses increased $3,068 or 16.4%
over the prior year, mainly as a result of additional costs associated with
maintaining separate infrastructures to support both programs during the period
of transition. Many of these additional costs will be eliminated when the
integration is completed and both dining programs are processed and supported on
one platform. The integration of the registered card program was completed in
November 1999. At that time substantially all operations in Chicago ceased and
the transition agreement with SignatureCard was terminated.
17
<PAGE>
As a percentage of gross dining sales, selling general and administrative
expenses were 18.0% in 1999 compared to 19.5% in 1998. However, this expense
increased overall by $3,068 from $18,607 to $21,675. The principal components of
the increase include sales commission and related expenses ($3,245 in 1999
versus $2,818 in 1998), depreciation and amortization, principally on the
software development costs ($3,462 in 1999 versus $3,194 in 1998), professional
fees, mainly legal fees ($2,460 in 1999 versus $2,253 in 1998), rent and other
office expenses ($1,819 in 1999 versus $1,530 in 1998), telephone ($1,504 in
1999 versus $1,063 in 1998) and software development and maintenance, inclusive
of Y2K charges ($1,800 in 1999 versus $653 in 1998).
Salaries and benefits increased $1,636 or 20.0% over the prior year. With the
acquisition of DALC, we employed 48 of the former SignatureCard employees for
the expected transition period. In addition, we contracted with SignatureCard
for customer service, information technology and facilities services. At
September 30, 1999, there were 26 former SignatureCard employees still on the
payroll. With the completion of the integration of SignatureCard in November
1999, five of those employees remained of which only one will be permanent and
all services under the transition agreement were terminated. We have added
twelve new employees in the corporate headquarters to information technology,
contract administration and the call center.
In 1999, member acquisition expenses were $6,447 versus $5,097 in 1998. Included
in member acquisition expenses is the amortization of deferred acquisitions
costs, which amounted to $3,335 in 1999 and $701 in 1998. Costs capitalized in
1999 and 1998 were $4,184 and $1,184, respectively. We used various techniques
at different levels of cost to solicit new members. Consumer privacy regulations
adopted in 1999 required us to change certain methods of solicitations that had
resulted in favorable response rates. Prospective cardmembers continue to be
solicited through direct mail and the use of affinity and loyalty programs with
major credit card issuers and corporations. Third party and strategic marketing
partners are compensated through a commission on fees received and to a lesser
degree, on an activation basis or through wholesaling of the fee based savings
card. The mix of solicitation programs used has a direct correlation to the
overall acquisition cost per member and the spending profile of members
acquired. We seek to employ the most cost-effective means of acquiring active
and frequent users of the card and typically uses solicitation methods whereby
the fees earned substantially offset the cost of acquisition.
In order to avoid prolonged litigation, we settled the outstanding lawsuit with
our former licensee, Sports & Leisure, Inc., in November of 1999. Under the
terms of the settlement, Sports & Leisure, Inc. will receive $2,100 in cash and
280,000 shares of common stock for a total of $2,835. Based on the fair value of
the common stock included in the settlement and net of reserve amounts
previously provided by us in the first quarter of 1999, a charge of $1,835 has
been recognized in the fourth fiscal quarter of 1999.
The amended employment agreement and termination of the consulting agreement of
the former Chief Executive Officer resulted in a one-time charge of $3,081 in
1998. Components included in the charge were a lump-sum cash payment of $2,750,
cancellation of indebtedness of $135, and health insurance for the remainder of
his life. The after tax impact of the charge was approximately $1,900. Also, we
recorded a charge of $463 in fiscal 1998 relating to the remaining outstanding
obligation under consulting agreements with former employees that we have
determined to no longer require nor intend to utilize.
We recognized an asset impairment loss of $2,169 ($.18 per share) in 1998. The
continued lag in dining sales in California, reacquired from a former franchisee
in January 1997, indicated that the projected undiscounted cash flows from this
former franchise were less than the carrying value of the excess of cost over
net assets acquired. Additional investments in both merchants and new card
members as well as expansion into new markets in reacquired franchise territory
were required to generate sales sufficient to realize the value of the
intangible asset.
Operating loss in 1999 was $5,994 compared to $7,465 in 1998.
Other income, net of expense in 1999 was a net expense amounting to $2,404
versus $2,971 in 1998, a decrease of $567. The principal reasons for the change
included $1,149 of realized gain on sale of
18
<PAGE>
securities available for sale which is offset by additional interest expense and
financing costs in 1999, as a result of the additional $39,000 of term loans, in
part, used to purchase the DALC Rights to receive.
Earnings before taxes amounted to a loss of $8,398 in 1999 compared with loss of
$10,436 in 1998. Due to our continued losses, an additional valuation reserve of
$2,000 has been applied to the net deferred tax asset for fiscal 1999. At
September 30, 1999, the net deferred tax asset, principally related to net
operating loss carryforward amount to $2,000 has been fully reserved. The
effective tax rate for fiscal 1999 was 24% and reflects the valuation reserve of
$2,000 applied to the net deferred tax asset.
Net loss was $10,398 or $.80 per share in 1999, versus net loss of $7,836 or
$.67 per share in 1998.
Liquidity and Capital Resources
-------------------------------
Our working capital decreased to $17,216 at September 30, 2000 from $49,398 at
September 30, 1999. This resulted principally from the classification of the new
securitization as a current liability, recognizing that the liquidity faacility
that accompanies the securitization is renewable annually.
Rights Offering
---------------
On November 9, 1999, we completed a Rights Offering to existing shareholders
resulting in the issuance of 4,149,378 convertible, redeemable preferred shares.
The preferred stock has 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 our 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, we may commence redemption of the preferred shares on the fifth
anniversary of the Rights Offering.
The proceeds from the stock issuance of $10,000 were used to retire the $10,000
bridge loan obtained from GAMI Investment Inc., an affiliate of our largest
shareholder, Samstock, L.L.C. Pursuant to its subscription privileges and as a
standby purchaser for any unsubscribed shares, Equity Group Investments LLC
("EGI"), an affiliate of Samstock, L.L.C, 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 was increased
by one as EGI chose to exercise that right.
Securitization of Rights to Receive
-----------------------------------
On December 30, 1999, the Company entered into an $80,000 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 $65,000 based on a borrowing base formula, were utilized
to terminate and payoff $33,000 in non-recourse notes from a previous
securitization and $27,000 then outstanding under a bridge loan used in the
acquisition of Dining a La Card ("DALC") (see note 7 for additional
information). Additionally, the Company was required to pay a termination
payment of approximately $1,100 to the noteholders and non-recourse partners in
the prior securitization.
Borrowing capacity under the facility is recalculated weekly based on a formula
driven advance rate applied to the current balance of Rights to receive that are
eligible to be securitized. The advance rate is determined based on recent sales
trends and months on hand of Rights to receive. Capacity at September 30, 2000
was $60,663 and the outstanding borrowings at that date were $59,625. The
facility provides various restrictive covenants regarding collateral
eligibility, concentration limitations and also requires the Company to maintain
net worth of at least $24,000.
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
19
<PAGE>
paper dealer fees and commissions incurred or to be incurred in connection with
such sale. At September 30, 2000, the effective interest rate for the new
facility was 8.9% per annum.
The conduit requires that a liquidity facility be provided by an A1/P1 rated
financial institution in the amount equal to 102% of the securitization amount.
This liquidity facility must be renewed annually. Our primary bank, the Chase
Manhattan Bank, provided the liquidity facility in the initial year and has
indicated a desire to syndicate all or a portion of the liquidity facility, or
altenatively, bring in a co-purchaser conduit for a percentage of the
securitization. On December 27, 2000, the credit agreements were amended to
provide an extension of the initial term for 90 days to March 28, 2001 to
complete the syndication and to reduce the securitization amount to $60 million.
In the event that syndication is not completed by that date, another extension
may be granted, an alternative asset backed financing vehicle may be established
or the outstanding borrowings under the securitization may be converted to a
term loan.
We previously financed its Rights to receive under a revolving securitization
originated in 1996 (the 1996 facility). Under this facility, $33,000 of fixed
rate securities were issued in a previous private placement to various third
party investors. The private placement certificates had a five-year term before
amortization of principal and had an interest rate of 7.4%.
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
=======
Compared to prior year, our inventory of Rights to receive, net of allowance,
decreased by $8,080 to a total of $68,374 at September 30, 2000. During
1999-2000, the integration of DALC and the subsequent conversion to the
registered card platform had the effect of lowering the restaurant count as
there were a number of overlapping restaurants, and some other restaurants which
did not participate under the Registered Card Program. In many instances the
Rights to receive purchased by us are secured by the furniture, fixtures and
kitchen equipment of the related restaurants as filed pursuant to the Uniform
Commercial Code as adopted by each state. We also attempt to obtain personal
guarantees from the restaurant owners.
Analysis of Rights to Receive
<TABLE>
<CAPTION>
2000 1999 1998
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rights to receive, beginning of year $ 76,454 $ 42,347 $ 40,355
---------------------------------------------------------------------------------------------------
Acquisition of Registered Card
Rights -to receive in DALC transaction, net -- 40,782 --
---------------------------------------------------------------------------------------------------
Purchase of Rights to receive 95,564 60,053 53,625
---------------------------------------------------------------------------------------------------
Write-offs of Rights to receive (9,518) (3,871) (3,550)
---------- --------- ---------
162,500 139,311 90,430
---------------------------------------------------------------------------------------------------
Cost of Rights to receive, included in cost of sales
94,126 62,857 48,083
---------------------------------------------------------------------------------------------------
Rights to receive, end of year $ 68,374 $ 76,454 $ 42,347
========= ========= =========
</TABLE>
We believe that continued increase in the number of restaurants that participate
in the registered card dining programs is essential to attract and retain
members. We strive to constantly manage the dynamics of each market by balancing
the Rights -to receive acquired to the cardmember demand. This balance is
critical to achieving the participating restaurants objectives of incremental
business and yield
20
<PAGE>
management and the members desire for an adequate amount of desirable dining
establishments. Management believes that the purchase of Rights to receive can
be funded generally from cash generated from operations, and from funds made
available through the securitization. Also, new programs such as the revenue
management does not require any cash outlay.
Private Placement
-----------------
We launched our new Internet dining venture during the second half of the year.
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 may also allow for on-line reservations, features
national restaurant listings and access to reviews. 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 financed by corporate capital and
through a $10,000 private placement. In the first tranche of the private
placement which closed on May 1, 2000, we issued 904,303 shares of our common
stock at $4.5625 and warrants to purchase an additional 1,808,606 shares of our
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. we received proceeds from
the share issuance in the amount of $4,126. The second tranche has the same
price per share of common stock and exercise prices for the warrants as the
first tranche. The second tranche which closed on August 21, 2000, consisted of
the sale of an aggregate of 1,287,480 common shares, accompanied by 2,574,960
warrants. We received proceeds from this share issuance in the amount of $5,874.
Funds obtained from the private placement has been earmarked by the Board
principally for development of the e-commerce venture. At September 30, 2000,
cash earmarked by the Board for the operating expenses of iDine.com was $6,617.
Operating results for the year ended September 30, 2000 were materially impacted
by the new on-line business which is presently in the start-up and development
phases. Included in operating expenses is $4,591 associated with the e-commerce
initiative. Additionally, $1,836 of website development costs have been
capitalized.
General
-------
Capital expenditures by us over the past three fiscal years was $9,208 of which
$5,036 related to fiscal 2000. The main reason for the increase in capital
expenditure during this fiscal year was the launching of the e-commerce
initiative and consisted mainly of website development, computer hardware and
software supporting the technology necessary to support the operation of the
dining programs, the Member Service Center and the integration of the registered
card platform.
We believe that cash on hand at September 30, 2000, together with cash generated
from operations and available under the securitization facility will satisfy our
normal operating capital needs during the 2001 fiscal year.
SFAS No. 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax asset will not be realized. A valuation allowance was previously provided
for the net deferred tax assets as of September 30, 2000, due to our recurring
losses. The valuation allowance at September 30, 2000 and 1999 was $8,859 and
$6,005, respectively. The net deferred tax asset relates primarily to net
operating loss carryforwards which are available through 2020 and amount to
$17,791 at September 30, 2000.
Operating activities during fiscal 2000 resulted in net cash provided of
$10,398. However, further expansion into new markets and planned increases in
existing markets could reverse this trend depending
21
<PAGE>
on the rate of growth management deems appropriate. As described in the above
paragraph, funds generated from operations, as well as capacity under the
securitization, should be sufficient to fund such growth over the next twelve
months.
Cash used in investing activities was $8,980 in the fiscal year ended September
30, 2000, compared with $38,148 and $3,624 used in 1999 and 1998, respectively.
Cash utilized in investing activities were due primarily to the reacquisition of
former franchises as well as the development and acquisition of computer
hardware and software necessary for the e-commerce operation. Management
believes that cash to be used in investing activities associated with capital
expenditures in the fiscal year ended September 30, 2001 will be approximately
$3,500.
Cash flows provided by financing activities were $9,457 for the fiscal year
ended September 30, 2000, compared with cash flows provided by financing
activities of $39,098 in 1999 and $8,353 in 1998. In 2000, the principal source
of cash flow was $9,700 from the Rights offering, $9,865 from issuance of common
stock and warrants and $58,555 from the revolving securitization previously
mentioned. Cash flows used in financing activities during fiscal 2000 were to
pay off short term borrowings of $29,000 from The Chase Manhattan Bank and
$10,000 from GAMI Investments, Inc., used to finance the purchase of DALC, as
well as $33,000 used in the early extinguishment of the 1996 facility and payoff
of the related non-recourse notes. In 1999, the principal source of cash flow
was proceeds from short term borrowing of $29,000 from The Chase Manhattan Bank
and $10,000 from GAMI Investments, Inc., used to finance the purchase of DALC.
In 1998, the principal source of cash flow was from the issuance of common stock
in connection with the investment by the EGI.
On August 5, 1999, the New York Stock Exchange notified us of the pending
adoption of amendments to its continued listing criteria and of our
noncompliance with the new standards. In accordance with the requirements of the
notification, we submitted to the Exchange our plan to come into compliance with
the new criteria. On September 16, 1999, we were advised by the Exchange that
our plan had been accepted and that we will continue to be listed on the
Exchange. Our performance relative to the plan of compliance is subject to
monitoring by the Exchange through September 30, 2001. The private placement
that was completed in August 2000 for $10,000 and the rights offering that
closed on November 9, 1999, and resulted in the issuance of $10,000 in Series A
convertible preferred stock are intended, in part, to position us to come into
compliance with these standards. We commenced trading of its Series A
convertible preferred stock on the Exchange on that date under the symbol "TMN
pfA".
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are 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. On December 30, 1999, we entered into the $80,000 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 interest rate applicable
to this 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. As of September 30, 2000, we had $59,625 outstanding under this
securitization. The commercial paper and the interest payment are subject to
interest rate risk. If market interest rates were to increase immediately and
uniformly by 100 basis points at September 30, 2000, the interest payments would
increase by approximately $596. 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.
Our total investments at September 30, 2000 and 1999 were $1,246 and $631,
respectively, and consisted of equity securities.
22
<PAGE>
Item 8. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report F - 1
Financial Statements:
Consolidated Balance Sheets, F - 2
September 30, 2000 and 1999
Consolidated Statements of Income F - 3, 4
and Comprehensive Income/(Loss)
for each of the years in the three-year
period ended September 30, 2000
Consolidated Statements of Shareholders' F - 5
Equity for each of the years in the three-year
period ended September 30, 2000
Consolidated Statements of Cash Flows F - 6, 7, 8
for each of the years in the three-year
period ended September 30, 2000
Notes to Consolidated Financial Statements F - 9 - 31
Schedule II - Valuation and Qualifying Accounts F - 32
23
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Financial Statements
September 30, 2000 and 1999
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors and
Shareholders
Transmedia Network Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Transmedia
Network Inc. and subsidiaries (the "Company") as of September 30, 2000 and 1999,
and the related consolidated statements of operations, and comprehensive loss,
shareholders' equity and cash flows for each of the years in the three-year
period ended September 30, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Transmedia Network Inc. and subsidiaries as of September 30, 2000 and 1999, and
the results of their operations and their cash flows for each of the years in
the three-year period ended September 30, 2000, in conformity with generally
accepted accounting principles in the United States of America.
/s/ KPMG LLP
November 20, 2000, except as to paragraph
4 of Note 5 and Note 21, which are
as of December 28, 2000
F-1
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2000 and 1999
(in thousands, except per share data)
<TABLE>
<CAPTION>
Assets 2000 1999
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 19,818 $ 8,943
Restricted cash - 3,726
Accounts receivable, net 9,135 8,107
Rights-to-receive, net
Unrestricted 68,374 41,833
Securitized and owned by Trust - 34,621
Prepaid expenses and other current assets 2,883 5,259
--------- ---------
Total current assets 100,210 102,489
Securities available for sale, at fair value 1,246 631
Equipment held for sale or lease, net 94 702
Property and equipment, net 8,484 6,413
Other assets 1,008 2,583
Restricted deposits and investments 90 2,070
Excess of cost over net assets acquired and other intangible assets 10,449 4,822
--------- ---------
Total assets $ 121,581 $ 119,710
--------- ---------
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Short term borrowing - bank $ - $ 29,000
Secured non-recourse revolving debt 59,625 -
Accounts payable - rights-to-receive 7,443 6,691
Accounts payable - trade 10,317 8,376
Accrued expenses and other 2,601 5,174
Deferred membership fee income 3,008 3,850
--------- ---------
Total current liabilities 82,994 53,091
Secured non-recourse notes payable - 33,000
Term loan - affiliate - 10,000
Other long-term liabilities 4,581 3,170
--------- ---------
Total liabilities 87,575 99,261
--------- ---------
Guaranteed value of puts 3,200 2,336
Shareholders' equity :
Preferred stock - Series A, senior convertible redeemable, par value
$0.10 per share (10,000 shares authorized; 4,149 and 0 shares issued 415 -
and outstanding in 2000 and 1999, respectively)
Common stock, par value $0.02 per share (70,000 shares authorized; 16,200
and 13,376 shares issued and outstanding in 2000 and 1999,
respectively) 316 264
Additional paid-in capital 43,129 22,661
Cumulative other comprehensive income 833 218
Retained deficit (13,887) (5,030)
--------- ---------
Total shareholders' equity 30,806 18,113
--------- ---------
Total liabilities and shareholders' equity $ 121,581 $ 119,710
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
For each of the years in the three-year period ended September 30, 2000
(in thousands, except income per share)
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Operating revenue:
Sales of rights-to-receive:
Registered card sales $ 103,950 $ 25,942 $ -
Private label sales 76,677 94,530 95,549
--------- --------- ---------
Gross dining sales 180,627 120,472 95,549
Cost of sales 105,239 70,110 54,446
Member discounts 39,032 26,480 21,444
--------- --------- ---------
Net revenue from rights-to-receive 36,356 23,882 19,659
Membership and renewal fee income 8,444 8,281 7,321
Franchise fee income 568 1,073 1,249
Commission income 75 150 369
Processing income 915 1,402 1,543
--------- --------- ---------
Total operating revenues 46,358 34,788 30,141
--------- --------- ---------
Operating expenses:
Selling, general and administrative expenses 27,273 21,675 18,607
Salaries and benefits 12,683 9,825 8,189
Member and merchant marketing expenses 6,875 6,447 5,097
Settlement of licensee litigation - 2,835 -
Amended compensation agreements - - 3,544
Asset impairment loss - - 2,169
--------- --------- ---------
Total operating expenses 46,831 40,782 37,606
--------- --------- ---------
Operating loss (473) (5,994) (7,465)
Other income (expense):
Realized gains on sale of securities available for
sale 40 1,149 200
Interest and other income 575 468 560
Initial franchise fee and license fee income, net - - (710)
Interest expense and financing cost (6,297) (4,021) (3,021)
--------- --------- ---------
Loss before income taxes and
extraordinary item (6,155) (8,398) (10,436)
Income tax provision (benefit) - 2,000 (2,600)
--------- --------- ---------
Loss before extraordinary item $ (6,155) $ (10,398) $ (7,836)
--------- --------- ---------
</TABLE>
Continued
F-3
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss, Continued
For each of the years in the three-year period ended September 30, 2000
(in thousands, except income per share)
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Loss before extraordinary item $ (6,155) $(10,398) $ (7,836)
-------- -------- --------
Extraordinary item, loss on early extinguishment of debt,
net of tax (1,623) - -
-------- -------- --------
Net loss (7,778) (10,398) (7,836)
-------- -------- --------
Other comprehensive loss
Unrealized holding gain (loss) on securities
available -for-sale 636 78 (607)
Beginning unrealized loss for all securities sold (21) (562) (114)
Tax effect of unrealized gain (loss) - 90 274
-------- -------- --------
Comprehensive loss $ (7,163) $(10,792) $ (8,283)
-------- -------- --------
Net loss per common and common equivalent share:
Basic and diluted:
Loss before extraordinary item (.51) (.80) (.67)
Extraordinary item loss on early extinguishment
of debt, (.12) - -
Net loss $ (.63) $ (.80) $ (.67)
-------- -------- --------
Weighted average number of common and common
equivalent shares outstanding:
Basic and diluted 14,149 13,043 11,773
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For each of the years in the three-year period ended September 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Preferred Stock Common stock Cumulative
----------------- ------------------ Additional other Retained
Number Number paid-in comprehensive (deficit)
of shares Amount of shares Amount capital income earnings Total
--------- ------ --------- ------ ------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1997 - - 10,190 $ 204 $ 10,635 $ 1,059 $ 13,406 $ 25,304
Net loss - - - - - - (7,836) (7,836)
Issuance of common stock - - 2,674 53 10,797 - - 10,850
Exercise of stock options - - 12 1 54 - - 55
Income tax benefit related to
stock option plan - - - - 10 - - 10
Dividend - - - - - - (202) (202)
Cumulative other comprehensive loss, net - - - - - (447) - (447)
---------------- ------------------ -----------------------------------------
Balance, September 30, 1998 - - 12,876 258 21,496 612 5,368 27,734
Net loss - - - - - - (10,398) (10,398)
Issuance of common stock - - 500 10 2,025 - - 2,035
Net put options activity - - - (4) (860) - - (864)
Cumulative other comprehensive loss, net - - - - - (394) - (394)
---------------- ------------------ -----------------------------------------
Balance, September 30, 1999 - - 13,376 264 22,661 218 (5,030) 18,113
Net loss - - - - - - (7,778) (7,778)
Issuance of common stock - - 2,824 56 12,044 - - 12,100
Issuance of preferred stock 4,149 415 - - 9,284 - - 9,699
Net put options activity - - - (4) (860) - - (864)
Preferred dividend - - - - - - (1,079) (1,079)
Cumulative other comprehensive income,
net - - - - - 615 - 615
---------------- ------------------ -----------------------------------------
Balance, September 30, 2000 4,149 $ 415 16,200 $ 316 $ 43,129 $ 833 $(13,887) $ 30,806
================ ================== ==========================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For each of the years in the three-year period ended September 30, 2000
(in thousands)
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (7,778) $(10,398) $ (7,836)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 4,067 3,444 5,346
Amortization of deferred financing cost 1,113 354 278
Provision for losses on rights-to-receive 7,391 4,606 3,822
Gain on sale of investments (40) (1,149) (200)
Loss on disposal of fixed assets 8 - -
Deferred income taxes - 2,000 (1,980)
Changes in assets and liabilities:
Accounts receivable (1,029) (5,545) 199
Rights-to-receive 3,849 4,706 (5,882)
Prepaid expenses and other current assets 2,870 (3,766) (457)
Other assets 1,490 (1,411) (373)
Accounts payable 1,158 5,022 554
Income taxes receivable(payable) (37) 1,259 (378)
Accrued expenses and other (1,821) 2,982 249
Deferred membership fee income (843) 1,257 (662)
------ -------- ------
Net cash provided by (used in) operating
activities 10,398 3,361 (7,320)
------ -------- ------
Cash flow from investing activities:
Acquisition of Dining a la Card - (36,453) -
Additions to property and equipment (5,036) (2,106) (2,066)
Acquisition of franchises (6,929) (648) (1,758)
Proceeds from sale of fixed assets 12 - -
Proceeds from sale of securities available for sale 40 1,149 200
Decrease (increase) in restricted deposits and investments 2,933 (90) -
------ -------- ------
Net cash used in investing activities (8,980) (38,148) (3,624)
------ -------- ------
Cash flows from financing activities:
Repayment of non-recourse notes (33,000) - -
Proceeds from (repayment of) short term borrowings - bank (29,000) 29,000 -
Proceeds from (repayment of) term loan - affiliate (10,000) 10,000 -
Net proceeds from revolving securitization 58,555 - -
Net proceeds from rights offering 9,700 - -
Net proceeds from issuance of common stock 9,865 306 9,854
Decrease (increase) in restricted cash 3,726 (208) (1,364)
Conversion of warrants and options for common stock, net of
tax benefits - - 65
Dividends paid (389) - (202)
------ -------- ------
Net cash provided by financing activities $ 9,457 $ 39,098 $ 8,353
------ ------- ------
</TABLE>
F-6
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Net increase (decrease) in cash $10,875 $(4,311) $(2,591)
Cash and cash equivalents:
Beginning of year 8,943 4,632 7,223
------- ------- -------
End of year $19,818 $ 8,943 $ 4,632
------- ------- -------
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest $ 3,916 $ 2,873 $ 2,454
------- ------- -------
Income taxes $ 37 $(1,259) $ 23
------- ------- -------
Dividends $ 389 $ -- $ 202
------- ------- -------
</TABLE>
Supplemental schedule of noncash investing and financing activities:
Noncash investing and financing activities:
At September 30, 2000, 1999 and 1998, the Company adjusted its available
for sale investment portfolio to fair value resulting in a net
increase (decrease) to shareholders' equity of $615, ($394) and
($447), net of deferred income taxes.
There was $690 dividend payable outstanding as of September 30, 2000.
There was no dividend payable outstanding as of September 30, 1999
and 1998.
Theacquisition 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 2,750
Cash payments outstanding 250
-----
Liabilities assumed $ 368
=====
F-7
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
The acquisition of the Washington, D.C. franchisee was recorded during the
third quarter of fiscal year 2000 as follows (see Note 4):
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 4):
Fair value of assets acquired:
Excess of cost over net assets acquired $ 25
------
Less: Cash payments outstanding $ 25
======
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(1) Description of Business and Summary of Significant Accounting Policies
(a) Description of Business
Transmedia Network Inc. and subsidiaries (the "Company")
operates in one business segment and owns and markets discount
dining rewards programs which offer savings to the Company's
members on dining as well as lodging, travel, retail catalogues
and long distance telephone calls. Our primary business is the
administration of dining rewards programs. We accomplish this
through the acquisition of Rights to receive from participating
merchants which are then sold for cash to our members. These
Rights -to receive are primarily purchased by the Company for
cash but may also be acquired in exchange for services. The
Company's e-commerce services, launched in August 2000, uses the
Internet to provide restaurant operators time and date specific
revenue management tools to drive incremental traffic during off
peak times and generate incremental business.
We estimate that our member base and network of participating
restaurants has changed to approximately 3,150,000 and 7,000,
respectively, from our previous base of 1,200,000 members and
7,300 restaurant merchants prior to the acquisition (see Note
7). We operate in 50 major market areas.
The Company's corporate structure consists of four wholly-owned
subsidiaries: Transmedia Restaurant Company Inc., recently
renamed iDine Restaurant Group Inc., functions as the sales
organization and is responsible for merchant acquisition and
relationship management; TMNI International Incorporated, which
is responsible for all foreign licensing; Transmedia Service
Company Inc., which is responsible for all card member-related
facets of the business, including the card member service
center, and support services to iDine Restaurant Group Inc.;
iDine.com, Inc., incorporated in November 1999, which provides
restaurant operators with the capability of using the Internet
to provide revenue management tools such as variable promotions,
dining incentives and off-peak pricing to fill empty seats and
generate incremental business; and RTR Funding I, Inc., which
was also established in 1999 as a special purpose corporation as
part of the current securitization discussed in Note 5 is a
wholly-owned subsidiary of Transmedia Service Company, Inc. In
April 2000, the Company terminated, by mutual consent, the
license agreements with Transmedia Asia Pacific, Inc. and
Transmedia Europe, thereby reacquiring all rights to market the
Transmedia brand name abroad. The accompanying consolidated
financial statements include the accounts of the Company and its
subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
(b) Cash and Cash Equivalents
Cash and cash equivalents are financial instruments with
original maturities, at the date of purchase, of three months or
less.
(c) Rights-to-Receive
Rights to receive are composed primarily of food and beverage
credits acquired from restaurants. Rights to receive are stated
at the gross amount of the commitment to the establishment.
Accounts payable-rights-to-receive represent the unfunded
portion of the total commitments. Cost is determined by the
first-in, first-out method. The Company reviews the
realizability of the Rights to receive on a periodic basis and
provides for anticipated losses on Rights to receive from
restaurants that have ceased operations or whose credits are not
utilized by members. These losses are offset by recoveries from
restaurants previously written off.
F-9
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(d) Securities Available for Sale
All of the Company's investments are available to be sold in
response to the Company's liquidity needs and asset-liability
management strategies, among other reasons. Investments
available-for-sale on the balance sheet are stated at fair
market value. Unrealized gains and losses are excluded from
earnings and are reported in a separate component of
shareholders' equity (cumulative other comprehensive income),
net of related deferred income taxes.
A decline in the fair market value of an available-for-sale
security below cost that is deemed other than temporary results
in a charge to income, resulting in the establishment of a new
cost basis for the security. All declines in fair market values
of the Company's investment securities in 2000 and 1999 were
deemed to be temporary.
Dividends are recognized when earned. Realized gains and losses
are included in earnings and are derived using the
specific-identification method for determining the cost of
securities sold.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation on property and equipment is
calculated on the straight-line method over an estimated useful
life of three to five years. Amortization of leasehold
improvements is calculated over the shorter of the lease term or
estimated useful life of the asset.
Equipment held for sale or lease consists primarily of
electronic terminals used for credit card processing and is
stated at lower of cost or fair value. Depreciation is
calculated on a straight-line basis over a three-year life.
(f) Software Development Costs
The Company developed and/or purchased certain website software
applications and hardware that give rise to the Company's
e-commerce services tailored to this targeted market. In
accordance with Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." , the Company has capitalized
certain internal use software and website development costs
totaling $1,836 during the year ended September 30, 2000. The
amortization of these costs is calculated on a straight-line
basis over a three-year life. During the year ended September
30, 2000, the amortization of these capitalized costs totaled
$220. Certain software development costs are capitalized when
incurred. Amortization starts when the product is available for
general release to members. All other website construction and
expansion expenditures are charged to expense in the period
incurred.
(g) Excess of Cost Over Net Assets Acquired
Excess of cost over net assets acquired has resulted primarily
from the acquisition of franchise territories (see note 4) and
is amortized on a straight line basis over the expected periods
to be benefited, generally 20 years. The Company's accounting
policy regarding the assessment of the recoverability of
intangibles is to review the carrying value of goodwill and
other intangibles if the facts and circumstances suggest that
they may be impaired. The Company assesses the recoverability of
intangible assets by determining whether the amortization of the
goodwill balance over its remaining life can be recovered
through estimated undiscounted future operating cash flows of
the acquired operation. The amount of goodwill impairment, if
any, is measured based on projected discounted future operating
cash flows using a discount rate reflecting the
F-10
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved.
(h) Revenue Recognition
Gross dining sales represent the cash received from a merchant
when members dine at establishments in the program
The Registered Card Program, obtained through the acquisition of
Dining A La Card (the "Registered Card Program") in June 1999,
and subsequently enhanced by us, has been adopted to replace the
private label program. Members enrolled in the program simply
register a valid major credit card with us and then present
their registered credit card while dining at a participating
restaurant. We employ an independent third party aggregator to
mitigate any issues around privacy or confidentially of data.
Based on our agreements with various processors throughout the
country, the aggregator receives data for all the credit card
transactions at participating merchants. On a daily basis, a
complete detail of all registered credit card numbers is
transmitted electronically to the aggregator of these
transactions. The transactions are then matched to the current
registered card file. These matched transactions are transmitted
electronically to us and qualified via business rules as to
whether they are eligible for a rebate. Once the transaction has
been qualified, the portion of the transaction that the company
will receive in cash is recognized as a sale. These qualified
transactions are then used to provide member savings or
alternate currency benefits, as well as to invoice and collect
from merchants, principally via an electronic debit to their
bank account.
The Transmedia Card, the Company's proprietary private label
charge card, was selectively issued to applicants who are
determined to be creditworthy by virtue of their having a
current, valid MasterCard, Visa, Discover or American Express
credit card. When cardmembers present the Transmedia Card, they
sign for the goods or services rendered, as well as for the
taxes and tips, as they would with any other charge card. The
Company, upon obtaining the receipt (directly or via electronic
point of sale transmission) from the appropriate establishment,
recognizes the sale and, gives the establishment credit against
Rights to Receive which are owned by the Company. Simultaneously
the Company (i) processes the receipt through the cardmember's
electronically linked MasterCard, Visa, Discover or American
Express card account, which remits to the Company the full
amount of the bill, and (ii) either credits the cardmember's
MasterCard, Visa, Discover or American Express account the
appropriate discount or the cardmember's airline account the
appropriate mileage. Taxes and tips are remitted back to the
various establishments.
Initial membership and renewal fees are billed in advance and
recognized on a straight-line basis over twelve months, which
represents the membership period. Membership fees are cancelable
and are refunded to members, if requested, on a prorata basis
based on the remaining portion of the membership period.
Continuing franchise fee revenue represents royalties calculated
as a percentage of the franchisees' sales and is recognized when
earned. Initial franchise fees and license fees are recognized
when material services or conditions relating to the sale of the
franchise have been substantially performed.
Commission income represents income earned on discounted
products and services provided by third parties to the Company's
members. Such discounted products and services consist of retail
catalogues, phone cards and travel services.
Processing income represents the net fees charged to restaurants
when the Company serves as merchant of record for processing all
other non-Transmedia point of sale transactions. Processing
income is recognized when earned.
F-11
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(i) Deferred Acquisition Costs
Certain costs of acquiring members are deferred and amortized,
on a straight-line basis over the membership period, usually
twelve months. The acquisition costs capitalized as assets by
the Company represent initial fee-paying member acquisition
costs resulting from direct-response campaign costs that are
recorded as incurred. Campaign costs include incremental direct
costs of direct-response advertising, such as printing of
brochures, campaign applications and mailing. Such costs are
deferred only to the extent of initial membership fees generated
by the campaign.
Acquisition expenses represent the cost of acquiring members and
restaurants and consist primarily of direct-response advertising
costs incurred in excess of fees received and amortization of
previously deferred costs and costs associated with soliciting
no-fee members.
(j) Cost of Sales and Member Discounts
Cost of sales is composed of the cost of Rights-to-receive sold,
related processing fees and provision for rights-to-receive
losses.
Member discount represents the cost of the specific discount
earned by members whenever they use the program.
(k) Income Taxes
Income taxes are accounted for using the asset and liability
method. Deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply in the year in which those temporary
differences are expected to be recovered or rates settled. The
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date. A valuation allowance is established when
necessary to reduce deferred tax assets to the amounts expected
to be realized.
(l) Stock Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, establishes a
fair-value method of accounting for stock options and similar
equity instruments. The fair-value method requires compensation
costs to be measured at the grant date based on the value of the
award and recognized over the service period. SFAS No. 123
allows companies to either account for stock-based compensation
to employees under the provisions of SFAS No. 123, or under the
intrinsic-value based method of accounting prescribed by the
Accounting Principles Board (APB) Opinion No 25 and its related
interpretative releases. The Company has elected to account for
the stock-based compensation to employees in accordance with the
provisions of APB Opinion No. 25, and provide the pro forma
disclosures required under SFAS No. 123.
(m) Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of
The Company reviews, as circumstances dictate, the carrying
amount of our long-lived assets. The purpose of these reviews is
to determine whether the carrying amounts are recoverable.
F-12
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
Recoverability of assets to be held and used is determined by
comparing the projected undiscounted net cash flows of the
long-lived assets against their respective carrying amounts. The
amount of impairment, if any, is measured based on the excess of
the carrying value over the fair value. Assets to be disposed of
are reported at the lower of the stated amount or fair value
less costs of disposal.
(n) Segment Information
SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information establishes standards for the manner in
which public companies report information about operating
segments in annual and interim financial statements. It also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. The method for
determining what information to report is based on the
management organizes the operating segments within the Company
for making operating decisions and assessing financial
performance. The Company's chief operating decision-maker is
considered to be the chief executive officer (CEO). The CEO
reviews financial information presented on a consolidated basis
for purposes of making operating decisions and assessing
financial performance. The consolidated financial information is
identical to the information presented in the accompanying
consolidated statements of operations. Therefore, the Company
has determined that it operated in a single operating segment,
specifically, the providing of rewards to its members.
(o) Basic and Diluted Net Loss per Share
Basic and diluted net loss per share was computed by dividing
net loss applicable to common stockholders by the
weighted-average number of shares of common stock outstanding
for each period presented. Potentially dilutive securities were
not considered for each of the years in the three year period
ended September 30, 2000 since their effect would be
antidilutive.
(p) Comprehensive Income and Loss
Comprehensive income and loss presents a measure of all changes
in shareholders' equity except for changes in equity resulting
from transactions with shareholders in their capacity as
shareholders. The Company's other comprehensive loss presently
consists of net unrealized holding (losses) gains on investments
available for sale.
(q) Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 requires companies to recognize all derivative
contracts as either assets or liabilities on the balance sheet
and to measure them at fair market value. If certain conditions
are met, a derivative may specifically be designated as a hedge,
the objective of which is to match the timing of gain or loss
recognition of: (i) the changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk; or
(ii) the earnings effect of the hedged transaction. For a
derivative not designated as a hedging instrument, the gain or
loss is recognized as income in the period of change. SFAS 133,
as amended by SFAS 137 and SFAS 138, is effective for all fiscal
year quarters of fiscal years beginning after June 15, 2000. The
Company does not expect SFAS 133 to have a material effect on
its consolidated financial position or results of operations.
In March 2000, the FASB issued FASB Interpretation (FIN) No. 44,
Accounting for Certain Transactions Involving Stock
Compensation. FIN No. 44 further defines the accounting
consequence of various modifications to the terms of a
previously fixed stock option or award
F-13
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
under APB Opinion No. 25. FIN No. 44 becomes effective on July
1, 2000, but certain conclusions in FIN No. 44 cover specific
events that occur after December 15, 1998 or January 12, 2000.
FIN No. 44 will not have a material effect on the Company's
consolidated financial position or results of operations.
In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition in Financial Statements, which provides guidance on
the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB No. 101 outlines
the basic criteria that must be met to recognize revenue and
provides guidance for disclosures related to revenue recognition
policies. The impact of SAB No. 101 will not have a material
effect on the Company's consolidated financial position or
results of operations.
(r) Reclassification
Certain prior year amounts have been reclassified to conform to
the 2000 presentation.
(s) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates. The principal estimates used by the Company
relate to the provision for rights to receive losses and the
valuation allowance for net deferred tax assets.
(2) Internet Dining Venture
The Company launched its new Internet dining venture in April 2000.
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 variable 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 rewards 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 financed by corporate
capital and through a $10,000 private placement. In the first tranche
of the private placement which closed on May 1, 2000, the Company
issued 904,303 shares of its common stock at $4.5625 per share and
warrants to purchase an additional 1,808,606 shares of its common
stock, half of which have a per share 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 second tranche has the same price per share of common stock
and exercise prices for the warrants as the first tranche. The second
tranche, which closed on August 21, 2000, consisted of the sale of an
aggregate of 1,287,480 common shares, accompanied by 2,574,960
warrants. The Company received proceeds from this share issuance in the
amount of $5,874. Funds obtained from the private placement have been
earmarked by the Board for development of the e-commerce venture. At
September 30, 2000 cash remaining from the private placement was
$6,617.
F-14
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
Operating results for the year ended September 30, 2000 were materially
impacted by the new on-line product which is presently in the start-up
and development phases. Included in operating expenses is approximately
$4,591 associated with the e-commerce initiative. Additionally, $1,836
of development expenditure has been capitalized.
(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
acquisition of Dining a La Card and subsequently enhanced by the
Company, 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
substantially phased out.
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
traditional fee-based, cash reward dining program that gives members
unrestricted access to the entire restaurant portfolio. The iDine
no-fee program 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 both the iDine Prime and
iDine programs will be the on-line offering of variable incentives and
promotions at selected restaurants as discussed in Note 2 above.
(4) Franchise and License Agreements
The Company, as franchiser, had previously entered into various
ten-year franchising agreements to assist in its national expansion
through the years 1990 to 1995. In accordance with these agreements,
franchisees were granted a territory with a defined minimum of
full-service restaurants that accept certain major credit cards. The
Company provided marketing, advertising, training and other
administrative support. The franchisees were responsible for soliciting
restaurants and cardholders, advancing consideration to the restaurants
to obtain rights-to-receive food and beverage credits, and maintaining
adequate insurance. In consideration for granting the franchises, the
franchisees paid the Company initial franchise fees and an initial fee
to the Company's advertising and development fund.
The Company ceased franchising in 1995, and in 1997, the Board
authorized a systematic reacquisition of the franchise territories. In
fiscal 1998, the Company determined that lagging performance in the
reacquired West Coast sales territories indicated that the undiscounted
cash flows from this former franchise would be less than the carrying
value of the long-lived assets related to the franchise. Accordingly,
the Company recognized an asset impairment loss of $2,169 ($.18 per
share) for the difference between the carrying value of the related
excess of cost over net assets acquired and the fair value of the asset
based on discounted estimated future cash flows.
On December 4, 1997, the Company acquired all the Rights-to-receive of
East America Trading Company, its franchisee in the Carolinas and
Georgia, and terminated and canceled the franchise agreement in
exchange for 170,000 shares of Transmedia Network stock. On July 15,
1998, and February 10, 1999, respectively, the Company acquired all the
Rights-to-receive, and the right to conduct business, in the
Dallas/Fort Worth and Houston sales territories from its franchisee,
the Texas Restaurant Card, Inc ("TRC"). The aggregate purchase price
was approximately $2,406 of which $1,653 represented the cost of the
franchise, which has been recorded as the excess of cost over net
assets acquired is being amortized on a straight-line basis over twenty
years
F-15
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
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, 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 is being
amortized on a straight-line basis over twenty years. With the
acquisition of these sales territories, the Company completed the
reacquisition of all of the sales territories of TRC, and the right to
conduct business in Texas and 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 the Company since the
date of acquisition. The fair market value of the assets acquired was
$3,368 and liabilities assumed totaled $368 The excess of cost over net
assets acquired is being amortized on a straight-line basis over twenty
years. 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 was paid on July 31, 2000;
and the final payment is due March 31, 2001.
On June 29, 2000, the Company acquired the net assets of its
Washington, D.C. 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, two
subordinated convertible promissory notes totaling $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. The excess of cost over net
assets acquired is being amortized on a straight-line basis over twenty
years. Assets acquired included Rights to receive and other
miscellaneous items. The terms of the two $1,000 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%; and (3) notes may be converted to
common shares by noteholder upon ten 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.
In addition to acquiring all former franchises, 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. Following a brief
transition period, Transmedia Asia Pacific, Inc. and Transmedia Europe,
Inc. ceased using the Transmedia brand name for their discount
programs.
(5) Securitization of Rights to Receive
On December 30, 1999, the Company entered into an $80,000 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 $65,000 based on a
borrowing base formula, were utilized to terminate and payoff $33,000
in non-recourse notes from a previous securitization and $27,000 then
outstanding under a bridge loan used in the acquisition of Dining a La
Card ("DALC") (see note 7 for
F-16
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
additional information). Additionally, the Company was required to pay
a termination payment of approximately $1,100 to the noteholders and
non-recourse partners in the prior securitization.
Borrowing capacity under the facility is recalculated weekly based on a
formula driven advance rate applied to the current balance of Rights to
receive that are eligible to be securitized. The advance rate is
determined based on recent sales trends and months on hand of Rights to
receive. Capacity at September 30, 2000 was $60,663 and the outstanding
borrowings at that date were $59,625. The facility provides various
restrictive covenants regarding collateral eligibility, concentration
limitations and also requires the Company to maintain net worth of at
least $24,000. At September 30, 2000 the Company was in compliance with
the covenants.
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 September 30, 2000, the effective
interest rate for the new facility was 8.9% per annum.
The conduit requires that a liquidity facility be provided by an A1/P1
rated financial institution in the amount equal to 102% of the
securitization amount. This liquidity facility must be renewed
annually. The Company's primary bank, the Chase Manhattan Bank,
provided the liquidity facility in the initial year and have indicated
a desire to syndicate all or a portion of the liquidity facility, or
alternatively, bring in a co-purchaser conduit for a percentage of the
securitization. On December 27, 2000, the credit agreements were
amended to provide an extension of the initial term for 90 days to
March 28, 2001 to complete the syndication and reduced the amount of
the securitization to $60 million. In the event that syndication is not
completed by that date, another extension may be granted, an
alternative asset backed financing vehicle may be established or the
outstanding borrowings under the securitization may be converted to a
term loan.
The Company previously financed its Rights to receive under a revolving
securitization originated in 1996 (the 1996 facility). Under this
facility, $33,000 of fixed rate securities were issued in a previous
private placement to various third party investors. The private
placement certificates had a five-year term before amortization of
principal and had an interest rate of 7.4%.
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
=======
(6) 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. During
fiscal year 2000, the Company declared dividends in the amount of $533.
Each preferred share may be
F-17
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
converted into common stock at the option of the holder at any time.
The initial rate of conversion was 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 September 30, 2000, the
conversion rate of the preferred shares was one preferred share for
1.0539 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"), 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.
(7) 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 that 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.
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 the Company 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 recorded at September 30, 2000, is $3,200. 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. (See Note 2)
In connection with the acquisition of Dining A La Card, the Company
entered into a Services Collaboration Agreement with SignatureCard.
Under this agreement, SignatureCard will continue to provide dining
members from its airline frequent flyer partner programs and other
marketing programs. It will also share, for 12.5 years, certain profits
the Company derives from SignatureCard-generated members as well as a
portion of the membership fee revenues generated from fee paying
members acquired in this transaction or subsequently through
SignatureCard's efforts. (See Note 2)
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 EGI (which was drawn down
in full).
The Chase facility was paid off on December 30, 1999 with the proceeds
of the $80,000 securitization (Note 5). Financing fees of $1,100 were
also paid.
F-18
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
The GAMI facility was a term loan made through an affiliate of EGI in
the amount of $10,000 and was unsecured and subordinated to the Chase
facility. Interest accrued on the principal amount outstanding was at
the prime rate (as announced from time to time by Chase) plus 4%,
payable monthly in arrears.
The agreement with GAMI required the Company to conduct a rights
offering of rights to purchase a new series of preferred stock to be
offered to each existing stockholder of record on a pro rata basis. The
proceeds of the rights offering were earmarked to repay all outstanding
amounts under this loan.
In connection with the rights offering, EGI, through its affiliate and
the Company's largest stockholder, Samstock L.L.C., agreed to act as a
standby purchaser whereby, after exercising its initial rights and any
additional subscription privileges, would purchase any shares not
otherwise subscribed for by other stockholders. The rights offering
closed on November 9, 1999, and $10,000 of convertible preferred stock
was issued (see Note 6). The proceeds were used to retire the GAMI
obligation.
The terms of this loan also required the Company to pay GAMI, at
closing, a cash fee of $500, which was reimbursable to the Company upon
the consummation of the rights offering and the issuance to Samstock
L.L.C. of warrants to purchase one million shares of the Company's
common stock in consideration of providing the loan and if it acted as
a standby purchaser in connection with the rights offering.
In connection with this acquisition, the Company paid a fee for
transaction advisory services to EGI, which is included in the cost of
the acquired assets, of $386.
(8) Investments by Equity Group Investments, Inc.
On March 3, 1998, the Company sold 2.5 million new-issued common shares
and non-transferable warrants to purchase an additional 1.2 million
common shares for a total of $10,625 to affiliates of EGI, a privately
held investment company. Net proceeds amounted to $9,825 after
transaction costs. The non-transferable warrants have a term of five
years; one third of the warrants are exercisable at $6.00 per share,
another third are exercisable at $7.00 per share and the final third
are exercisable at $8.00 per share. As part of this strategic
investment, EGI nominated and the stockholders elected two candidates
to the Board of Directors who joined three of the Company's existing
directors and two new independent directors.
As more fully described in Notes 6 and 7, EGI invested an additional
$6,846 in November, 1999, as a result of a Standby Purchase Agreement
which they provided to support the Company's $10,000 rights offering
and eventual issuance of convertible preferred stock. As consideration
for the standby note agreement, EGI received one million warrants,
exercisable over a five-year period, at a price of $2.48.
As more fully described in Note 2, EGI also invested an additional
$1,850 in August 2000.
(9) Amended Compensation Agreements
On December 29, 1997, the Company and Melvin Chasen, former Chairman of
the Board, Chief Executive Officer and President, agreed to amend his
employment agreement and to terminate his consulting agreement. As part
of the agreement, Mr. Chasen agreed to a five-year non-compete and
confidentiality agreement with the Company and relinquished his right
to receive $1,000 in the event of the sale of a control block of stock,
as described in Note 8 above. Pursuant to this agreement, the Company
made cash payment of $2,750 to Mr. Chasen and recognized a one-time
pre-tax charge of $3,081 in the quarter ending December 31, 1997.
During 1998, the Company entered into consulting agreements with
certain former senior management personnel. These agreements required
these personnel to perform services at the Company's request for a
period not to exceed more than one year. The Company determined that it
no longer requires, nor
F-19
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
intended to utilize the service of these individuals, and recorded a
charge of $463 relating to the remaining outstanding obligation under
the consulting agreements for the year ended September 30, 1998.
(10) Securities Available for Sale
Securities available for sale consist of marketable equitable
securities that are recorded at fair value and have an aggregate cost
basis of $280 as of September 30, 2000, 1999 and 1998. Gross unrealized
gains were $833, $545, and $1,030 and gross unrealized losses were $0,
$194, and $43 as of September 30, 2000, 1999 and 1998, respectively.
Realized gains were $40, $1,149 and $200 for the years ended September
30, 2000, 1999 and 1998, respectively. Deferred income taxes associated
with the net unrealized gains were $367, $134, and $375 at September
30, 2000, 1999 and 1998, respectively.
(11) Equipment held for Sale or Lease
Equipment held for sale and lease consists primarily of electronic
terminals used for credit card processing. The cost of the terminals on
hand is determined on a first in, first out basis. The amount presented
on the balance sheet represents the net book value of terminals of
$1,648 and $972 on terminals under lease at September 30, 2000 and
1999, respectively.
(12) Property and Equipment
Property and equipment consist of the following:
September 30,
--------------------------
2000 1999
Furniture and fixtures $ 612 674
Office equipment 13,838 12,136
Website hardware and software 1,476 --
applications
Leased equipment 174 174
Leasehold improvements 227 129
------ ------
16,327 13,113
Less accumulated depreciation and
amortization (7,843) (6,700)
------ ------
$ 8,484 6,413
====== ======
Depreciation and amortization expense for the years ended September 30,
2000, 1999 and 1998 was $3,445, $2,859, and $2,711, respectively.
(13) Fair Values of Financial Instruments
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties. The fair value of cash and cash equivalents, restricted cash,
accounts receivable, Rights-to-receive, accounts payable, accrued
expenses and notes payable approximate the carrying amounts at
September 30, 2000 and 1999 due to the short maturity of these
instruments. The fair value of the Rights-to-receive approximates the
carrying value due to their short-term nature. The fair value of the
securities available for sale is based upon quoted market prices for
these or similar instruments.
F-20
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(14) Stock Option Plans
In March 1996, the 1996 Long-Term Incentive Plan (the "1996 Plan") was
approved for adoption by the Company's stockholders as a successor plan
to the 1987 Stock Option and Rights Plan . The 1996 Plan was amended
August 5, 1998 to allow for non-employee directors to choose to take
directors fees in either cash or a current or deferred stock award. In
addition, the amount of shares available for grant under the 1996 Plan
was increased to 1,505,966. On March 1, 2000 the Plan was amended again
to increase the number of shares of common stock available for grant
under the Plan to 2,505,966. Under the 1996 Plan, the Company may grant
awards, which may include stock options, stock appreciation rights,
restricted stock, deferred stock, stock granted as a bonus or in lieu
of other awards, dividend equivalents and other stock based awards to
directors, officers and other key employees and consultants of the
Company. Stock options granted under the 1996 Plan may not include more
than 505,966 incentive stock options for federal income tax purposes.
The exercise price under an incentive stock option to a person owning
stock representing more than 10 percent of the common stock must equal
at least 110 percent of the fair market value at the date of grant.
Options are exercisable beginning not less than one year after date of
grant. All options expire either five or ten years from the date of
grant and each becomes exercisable in installments of 25 percent of the
underlying shares for each year the option is outstanding, commencing
on the first anniversary of the date of grant.
At September 30, 2000 and 1999, there were 614,616 and 443,716 shares
available for grant under the 1996 Stock Plan, respectively. The per
share weighted average fair value of stock options granted during 2000,
1999 and 1998 was approximately $2.71, $2.70 and $4.95, respectively,
on the date of grant using the Black-Scholes option-pricing model with
the following assumption: 2000-expected no dividend yield, risk-free
interest rate or 6.75%, volatility of 0.7553, and expected lives
ranging from five to ten years; 1999-expected no dividend yield,
risk-free interest rate or 6.25%, volatility of 1.0774 and expected
lives ranging from five to ten years; 1998-expected no dividend yield,
risk-free interest rate or 5.25%, and expected lives ranging from five
to ten years.
The Company has elected to continue to comply with APB No.25 to account
for stock options and accordingly, no compensation expense has been
recognized in the financial statements. Had the Company determined
compensation expense based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net income would have
been reduced to the pro forma amounts indicated below:
2000 1999 1998
---- ---- ----
Net Income
As reported $(7,778) $(10,398) $ (7,836)
Pro forma (8,761) (12,581) (8,919)
Net Income per Common and Common
Equivalent Share
As reported (.63) (.80) (.67)
Pro forma (.70) (.96) (.76)
F-21
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
The full impact of the calculation of compensation expense for stock
options under SFAS No. 123 is not reflected in the pro forma net income
amounts presented above because compensation expense is reflected over
the option's vesting period which could be up to five years.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Incentive Stock Options Nonqualified Options
--------------------------- -----------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Balance at September 30, 1997 709,968 $ 8.54 247,500 $ 6.02
---------- ------- -------- --------
Granted 364,500 5.16 - -
Exercised (23,250) 4.38 - -
Cancellations (279,550) 9.72 (112,500) 7.44
---------- ------- -------- --------
Balance at September 30, 1998 771,668 6.57 135,000 4.83
---------- ------- -------- --------
Granted 570,000 2.49 - -
Exercised - - - -
Cancellations (80,575) 12.52 (135,000) 4.83
---------- ------- -------- --------
Balance at September 30, 1999 1,261,093 4.34 - -
---------- ------- -------- --------
Granted 971,600 3.89 - -
Exercised - - - -
Cancellations (155,000) 4.01 - -
---------- ------- -------- --------
Balance at September 30, 2000 2,077,693 $ 4.16 $ - -
========== ======= ======== ========
</TABLE>
At September 30, 2000, the range of weighted average exercise prices
and remaining contractual life of outstanding options was $2.00 to
$15.00 and 3.27 to 9.75 years, respectively. At September 30, 1999, the
range of weighted average exercise prices and remaining contractual
life of outstanding options was $2.0 to $15.00 and 2.75 to 10 years,
respectively. At September 30, 1998, the range of weighted average
exercise prices and remaining contractual life of outstanding options
was $4.38 to $15.00 and 1 to 10 years, respectively.
At September 30, 2000, 1999 and 1998, the number of options exercisable
were 1,105,343, 901,593 and 630,918, respectively, and the
weighted-average exercise price of those options was $4.77, $5.30, and
6.99, respectively.
F-22
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(15) Income Taxes
The tax effects of the temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at
September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Reserve for rights-to-receive losses $ 2,890 $ 694
Lawsuit settlement -- 1,077
Travel programs and reserve for frequent flyer miles
obligation 61 37
Charitable contributions 59 58
Net operating loss carryforward 6,760 4,577
Intangible assets 703 758
Other 195 156
------ -----
Gross deferred tax assets 10,668 7,357
Less valuation allowance (8,859) (6,005)
------ -----
Deferred tax assets 1,809 1,352
------ -----
Deferred tax liabilities:
Unrealized gain on securities available for sale 367 134
Deferred acquisition costs 1,082 551
Property and equipment 360 667
------ -----
Deferred tax liabilities 1,809 1,352
------ -----
Net deferred tax asset $ - $ -
====== =====
</TABLE>
SFAS No. 109 requires that deferred tax assets be reduced by a
valuation allowance if it is more likely than not that some portion or
all of the deferred tax asset will not be realized. A valuation
allowance was recorded for the full amount of the net deferred tax
assets as of September 30, 2000 and 1999, due to the Company's
recurring losses. The valuation allowance at September 30, 2000 and
1999 was $8,859 and $6,005, respectively. Of the net increase in the
valuation allowance for the year ended September 30, 2000, a decrease
of $233, which was attributed to unrealized gains, was allocated to
shareholders equity. The change in deferred tax liability related to
securities available for sale was an increase of $233, and a decrease
of ($241) during 2000 and 1999, respectively.
A net operating loss carryforward of $17,791 was available at the year
ended September 30, 2000. The loss will expire through the year 2020.
F-23
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
Income tax provision (benefit) for the years ended September 30, 2000,
1999 and 1998 is as follows:
2000 1999 1998
---- ---- ----
Current
U.S. federal $ - - (587)
State and local - - (33)
------ ------ ------
Total Current $ - - (620)
====== ====== ======
Deferred
U.S. federal $ - 1,240 (1,774)
State and local - 760 (206)
------ ------ ------
Total Deferred $ - 2,000 1,980
====== ====== ======
Reconciliation of the statutory federal income tax rate and the
Company's effective rate for the years ended September 30, 2000, 1999
and 1998, is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------------------- ----------------------- ---------------------
% of pretax % of pretax % of pretax
Amount earnings Amount earnings Amount earnings
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Federal tax rate $ (2,643) 34.0 $ (2,855) 34.0 $ (3,548) 34.0
State and local taxes,
net of federal
income tax benefit (307) 4.0 (336) 4.0 (417) 4.0
Valuation allowance
change 3,087 (39.8) 5,033 (59.9) 972 (9.3)
Other (137) 1.8 158 (1.9) 393 (3.8)
--------- ---- ------------ ---- ------------ ----
Total $ - - $ 2,000 23.8% $ (2,600) 24.9%
========= ==== ============ ==== ============ ====
</TABLE>
(16) Leases
The Company leases certain equipment and office space under long-term
lease agreements.
Future minimum lease payments under noncancelable operating leases as
of September 30, 2000 are as follows:
Year ending
September 30, Amount
2001 $ 959
2002 475
2003 187
2004 44
Total minimum lease payments $ 1,665
=========
Rent expense charged to operations was $1,028, $794, and $710 for the
years ended September 30, 2000, 1999 and 1998, respectively.
F-24
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(17) Related Party Transactions
The Company has a management agreement with EGI, an affiliate of
Samstock, its largest stockholder, in which EGI provides investment
advisory and other managerial services to the Company. During the year
ended September 30, 2000 and 1999, the Company paid approximately $256
and $250 to EGI for these services. There was no such expense in fiscal
1998.
(18) Commitments
In October 1998, the Company amended its employment agreement with the
president of its wholly-owned subsidiary, Transmedia Restaurant
Company. The agreement provides for salary at an annual rate of $335
through September 30, 2001, plus eligibility for a bonus up to 50% of
his salary.
The Company has an ongoing Service Collaboration Agreement with
SignatureCard as a result of the DALC acquisition. In exchange for
providing the Company with members, either through their own marketing
efforts or their agreements with the airlines, SignatureCard is
entitled to receive a profit participation, if applicable, based on
dining sales generated by those members, as well as a percentage of the
fees received from those members. For the year ending September 30,
2000 and 1999, SignatureCard received approximately $2,817 and $106 in
fees, respectively.
(19) Business and Credit Concentrations
At September 30, 2000 and 1999, members enrolled in the airline
programs represent approximately 73% and 38% of the Company's total
membership.
(20) Litigation
In December 1996, the Company terminated its license agreement with
Sports & Leisure Inc. ("S&L"). In February 1997, S&L commenced an
action against the Company in the 11th Judicial Circuit, Dade County,
Florida, alleging that the Company improperly terminated the S&L
license agreement and seeking money damages. In the quarter ended
December 31, 1998, a reserve of $1,000 was established and recorded in
selling, general and administrative expenses to cover management's
estimate of the potential cost and expenses of this litigation and
other legal matters. 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, Inc. 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.
The Company is involved in various legal proceedings. While it is not
currently possible to predict or determine the outcome of these
proceedings, it is the opinion of management that the outcome will not
have a material adverse effect on the Company's financial position or
liquidity.
(21) Subsequent Event
On December 28, 2000, the Company reached an agreement with GE
Financial Assurance ("GEFA"), the successor parent of SignatureCard,
Inc., to extinguish all remaining obligations associated with the DALC
acquisition, to eliminate SignatureCard, Inc's., exclusivity rights in
dealing with the airline frequent flyer member files and to execute a
contract to fully resolve and terminate the relationship. In
F-25
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
consideration for the above, the Company will pay GEFA $3,800 in cash
and will honor their right to put 400,000 shares held by GEFA as part
of the acquisition consideration, at a value of $8 per share.
Additionally, the Company has agreed to assume SignatureCard, Inc.,
minimum miles purchase obligation with one of the major airline's which
will be determined as of March 31, 2001. If unable to renegotiate or
defer the obligation at that date, the Company estimates that it may
have to acquire approximately $2,000 of frequent flyer miles to be held
for future awards.
(22) Selected Quarterly Financial Data (Unaudited)
(a) Selected quarterly financial data is as follows:
<TABLE>
<CAPTION>
Three months ended Year ended
--------------------------------------------------------- ---------------
September 30, June 30, March 31, December 31, September 30,
2000 2000 2000 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross dining sales: $ 43,289 45,183 45,383 180,627 46,772
Operating revenue: 11,651 11,583 11,778 11,346 46,358
Operating income (loss): (933) (2,737) 1,851 1,346 (473)
Net income: (2,357) (4,117) 437 (1,741) (7,778)
Basic and Diluted
earnings earnings (0.17) (0.31) (0.01) (0.14) (0.63)
per share
</TABLE>
<TABLE>
<CAPTION>
Three months ended
----------------------------------------------------------
Year ended Year ended
September 30, June 30, March 31, December 31, September 30, September 30,
1999 1999 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross dining sales: $ 23,893 24,205 22,756 120,472 95,549 49,618
Operating revenue: 12,584 7,679 7,599 6,926 34,788 30,141
Operating income: (1,498) (1,410) (1,307) (1,779) (5,994) (7,465)
Net Income: (5,109) (2,065) (1,871) (1,353) (10,398) (7,836)
Basic and diluted
earnings per share: (.39) (.16) (.14) (.11) (.80) (.67)
</TABLE>
F-26
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(b) UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
On June 30, 1999 the Company acquired most of the assets and operations related
to a membership discount dining program SignatureCard operated under the Dining
A La Card trade name and service mark. Accordingly, the Company's Consolidated
Statements of Operations for the year ended September 30, 1998 reflects the
operations of Transmedia only. Unaudited Pro forma Consolidated Statements of
Operations have been provided herein to report the results of operations for the
years ended September 30, 1998 and for comparative purposes, the nine-month
period ending September 30, 1999 as though the companies had combined at the
beginning of the periods being reported. The pro forma consolidated results do
not purport to be indicative of results that would have occurred had the
acquisition been in effect for the periods presented, nor do they purport to be
indicative of the results that will be obtained in the future.
F-27
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
Transmedia Network, Inc and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations
for the Year Ended September 30, 1998
(Amounts in thousands)
<TABLE>
<CAPTION>
Historicals Pro Forma Pro Forma
TMN DALC(A) Adjustments Combined
--- ------- ----------- --------
<S> <C> <C> <C> <C>
Operating revenue:
Gross dining sales 95,549 120,512 - 216,061
Cost of sales 54,446 98,964(B) (8,000)(I) 145,410
Cardmember discounts 21,444 24,262 45,706
------ ------ ------ ------
Net revenues from rights-to-receive 19,659 (2,714) 8,000 24,945
Other income 10,482 10,629 (7,110)(C) 14,001
------ ------ ------ ------
Total operating revenues 30,141 7,915 890 38,946
------ ------ ------ ------
Operating expenses:
Selling, general & administrative expenses 26,796 22,281 (10,873)(H) 38,204
Cardmember acquisition and promotion 5,097 32,927 (21,069)(D) 16,955
Amended compensation agreements 3,544 - 3,544
Assets impairment loss 2,169 - 2,169
------ ------ ------ ------
Total operating expenses 37,606 55,208 (31,942) 60,872
Operating income (loss) (7,465) (47,293) 32,832 (21,926)
Other income (expenses) (2,971) - (3,617)(E) (6,588)
------ ------ ------ ------
Income (loss) before taxes (10,436) (47,293) 29,215 (28,514)
Income tax provision (benefit) (2,600) (7,806) (F) (10,835)
Income tax valuation allowance (F) 10,835
Loss before equity loss and accounting (7,836) (39,487) 29,215 (28,514)
change
Equity in loss of Cardplus Japan - (220) 220(G) -
Cumulative effect of accounting change - (2,105) 2,105(J) -
------ ------ ------ ------
Net income (loss) (7,836) (41,812) 31,540 (28,514)
====== ====== ====== ======
Operating income (loss) per common and common
equivalent share:
Basic and Diluted (0.63) - (1.80)
====== ====== ====== ======
Net income (loss) per common and common
equivalent share:
Basic and Diluted (0.67) - (2.33)
====== ====== ====== ======
Weighted average number of common and common
equivalent shares outstanding:
Basic 11,773 400 12,173
====== ====== ====== ======
Diluted 11,825 400 12,225
====== ====== ====== ======
</TABLE>
See notes to unaudited pro forma consolidated financial information
F-28
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
Transmedia Network, Inc and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations
for the nine month period ending September 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
Historicals Pro Forma Pro Forma
TMN (K) DALC (K) Adjustments Combined
------- -------- ----------- --------
<S> <C> <C> <C> <C>
Operating revenue:
Gross dining sales 97,716 61,384 - 159,100
Cost of sales 57,051 39,099(L) 96,150
Cardmember discounts 21,284 13,195 34,479
------ ------ ------ ------
Net revenues from rights-to-receive 19,381 9,090 - 28,471
Other income 8,481 4,378 (2,933)(M) 9,926
------ ------ ------ ------
Total operating revenues 27,862 13,468 (2,933) 38,397
------ ------ ------ ------
Operating expenses:
Selling, general & administrative expenses 26,811 10,008 (5,437)(R) 31,382
Cardmember acquisition and promotion 5,266 8,890 (2,690)(N) 11,466
------ ------ ------ ------
Total operating expenses 32,077 18,898 (8,127) 42,848
Operating income(loss) (4,215) (5,430) 5,193 (4,452)
Other income (expenses): (2,830) - (1,888)(O) (4,718)
------ ------ ------ ------
Income (loss) before taxes (7,045) (5,430) 3,305 (9,170)
Income tax provision (benefit) (3,484)(P) (3,484)
Income tax valuation allowance 2,000 3,484 (P) 5,484
Loss before equity loss and gain (9,045) (5,430) 3,305 (11,169)
on sale of dining assets
Gain on sale of dining assets 2,089 (2,089)(S) -
Equity in loss of Cardplus Japan (212) 212 (Q) -
------ ------ ------ ------
Net income (loss) (9,045) (3,553) 1,428 (11,169)
====== ====== ====== ======
Operating loss per common and common
equivalent share:
Basic and Diluted (0.32) - (0.34)
====== ====== ====== ======
Net loss per common and common
equivalent share:
Basic and Diluted (0.69) - (0.85)
====== ====== ====== ======
Weighted average number of common and common
equivalent shares outstanding:
Basic 13,043 13,043
====== ====== ====== ======
Diluted 13,157 13,157
====== ====== ====== ======
</TABLE>
See notes to unaudited pro forma consolidated financial information
F-29
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
1. SIGNIFICANT ACCOUNTING POLICIES
There are currently no material differences in the significant accounting
policies of Transmedia Network, Inc. and Dining A La Card ("the Companies")
therefore, no consideration has been given to conforming the Companies'
significant accounting policies in this pro forma presentation. The Companies do
not expect to have material changes to current accounting policies in connection
with the transaction.
2. RECLASSIFICATIONS
Certain reclassifications have been made to the historical statement of
operations of Dining A La Card to conform to the presentation used by Transmedia
Network Inc. These reclassification relates to the presentation of rights to
receive losses and cost of sales.
3. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS FOR THE TWELVE
MONTHS ENDING SEPTEMBER 30, 1998
(A) Dining A La Card statement of operations is for the twelve-month period
ending December 31, 1998 while Transmedia's statement of operations is for
the twelve-month period ending September 30, 1998.
(B) Dining A La Card rights-to-receive losses of $25,962 have been reclassified
to cost of sales to conform with Transmedia's presentation.
(C) In accordance with the Marketing Collaboration Agreement between Transmedia
and Signature, SignatureCard will receive 67% of all membership dues
collected from Dining A La Card members.
(D) To remove marketing amortization, since under the Marketing Collaboration
Agreement, SignatureCard will provide Dining A La Card members to
Transmedia at no cost.
(E) To record the amortization of deferred financing cost of $567 over the
estimated six-month life of the GAMI loan, plus record interest expense on
the outstanding debt.
(F) To adjust the income tax benefit using Transmedia's statutory rate for 1998
of 38%, and record an income tax valuation allowance required by SFAS No.
109.
(G) To eliminate Dining A La Card's equity loss in CardPlus Japan since
Transmedia did not purchase those assets.
(H) To remove Dining A La Card's internal interest expense included in general
and administrative and a portion of the general and administrative expenses
allocated from Signature, which was eliminated as part of the acquisition.
(I) To remove one time write-down of Dining A La Card's RTR portfolio of
approximately $8,000 and bring to fair value.
(J) Remove cumulative effect of accounting change
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS FOR THE NINE
MONTHS ENDING SEPTEMBER 30, 1999
(K) Dining A La Card interim statement of operations is for the six-month
period ending June 30, 1999. A statement of operations for the nine-month
period ending June 30, 1999 for Dining A La Card is not available and
therefore not presented. Dining A La Card operations from June 30, 1999 to
September 30, 1999 are included in Transmedia's operations. For
comparability purposes, Transmedia derived its statement of operations for
the nine-month period ending September 30, 1999 by removing the operations
for the three months ending December 31, 1998 from the operation for the
twelve-months ending
F-30
<PAGE>
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
September 30, 1999. For the period excluded, Transmedia's reported gross
dining sales of $22,756 and a net loss of $1,353, which were reported in
the 10-Q for that period and are incorporated herein by reference.
(L) Dining A La Card rights-to-receive losses of $2,749 have been reclassified
to cost of sales to conform with Transmedia's presentation.
(M) In accordance with the Marketing Collaboration Agreement between Transmedia
and SignatureCard, SignatureCard will receive 67% of all membership dues
collected from Dining A La Card members.
(N) To remove marketing amortization, since under the Marketing Collaboration
Agreement, SignatureCard will provide Dining A La Card members to
Transmedia at no cost.
(O) To record the amortization of deferred financing cost of $567 over the
estimated six-month life of the GAMI loan, plus record interest expense on
the outstanding debt.
(P) To adjust the income tax benefit using Transmedia's statutory rate for 1999
of 38%, and record an income tax valuation allowance required by SFAS No.
109.
(Q) To eliminate Dining A La Card's equity loss in Cardplus Japan since
Transmedia did not purchase those assets.
(R) To remove Dining A La Card's internal interest expense included in general
and administrative and a portion of the general and administrative expenses
allocated from SignatureCard, which were eliminated as part of the
acquisition.
(S) To remove gain on sale of dining assets which resulted from Transmedia's
purchase of Dining A La Card.
F-31
<PAGE>
TRANSMEDIA NETWORK INC.
Schedule II-Valuation and Qualifying Accounts
For each of the years in the three-years ended September 30, 2000
(in thousands)
<TABLE>
<CAPTION>
Balance, Charged Balance,
beginning to Acquisition end of
of year expenses Write-offs Of DALC year
------- -------- ---------- ------- ----
<S> <C> <C> <C> <C> <C>
Accounts receivable:
Year ended September 30, 2000:
Allowance for doubtful accounts $ 15 338 (338) - 15
======== ===== ====== ====== ======
Year ended September 30, 1999
Allowance for doubtful accounts $ 15 514 (514) - 15
======== ===== ====== ====== ======
Year ended September 30, 1998:
Allowance for doubtful accounts $ 15 497 (497) - 15
======== ===== ====== ====== ======
Rights to receive:
Year ended September 30, 2000
Allowance for doubtful accounts $ 14,872 7,391 (9,518) - 12,745
======== ===== ====== ====== ======
Year ended September 30, 1999:
Allowance for doubtful accounts $ 1,037 4,088 (2,772) 12,519 14,872
======== ===== ====== ====== ======
Year ended September 30, 1998:
Allowance for doubtful accounts $ 765 3,822 (3,550) - 1,037
======== ===== ====== ====== ======
</TABLE>
F-32
<PAGE>
Item 9. Changes and Disagreements with Accountants on Accounting and Financial
--------------------------------------------------------------------------------
Disclosure
----------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information called for by Item 10 is set forth under the heading
"Executive Officers of the Registrant" in Part I hereof and in
"Election of Directors" in our 2001 Proxy Statement, which is
incorporated herein by this reference.
Item 11. Executive Compensation
Information called for by Item 11 is set forth under the heading
"Executive Compensation" in our 2001 Proxy Statement, which is
incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information called for by Item 12 is set forth under the heading
"Security Ownership of Certain Beneficial Owners and Management" in our
2001 Proxy Statement, which is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions
Information called for by Item 13 is set forth under the heading
"Certain Relationships and Related Transactions" in our 2001 Proxy
Statement, which is incorporated herein by this reference.
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
The following documents are being filed as part of this Report:
(a)(1) Financial Statements:
Transmedia Network Inc.
See "Index to Financial Statements" contained in Part II,
Item 8.
(a)(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
(a)(3) The following exhibits are filed as part of this report as
required by item 601 of Regulation S-K. The Exhibits
designated with an asterisk are management contracts and
compensatory plans and arrangements required to be filed as
Exhibits to this report.
<TABLE>
<CAPTION>
Designation Description
----------- -----------
<S> <C>
3.1 Certificate of Incorporation of Transmedia Network Inc., as amended. (b)
3.2 Certificate of Amendment to the Certificate of Incorporation of Transmedia Network Inc. (d)
24
<PAGE>
3.3 Certificate of Amendment to the Certificate of Incorporation of Transmedia Network Inc., as filed with
the Delaware Secretary of State on March 22,1994.(a)
3.4 Certificate of Amendment to the Certificate of Incorporation of Transmedia Network Inc., -as filed with
the Delaware Secretary of State on March 3, 1998.(i)
3.5 Certificate of Amendment of the Certificate of Incorporation of Transmedia Network Inc., as filed with
the Delaware Secretary of State on November 9, 1999.(k)
3.6 Cetificate of Designations relating to the Series A convertible redeemable Preferred Stock, as filed with
the Delaware Secretary of State on November 9, 1999.(k)
3.7 By-Laws of Transmedia Network Inc., as amended and restated as of March 3, 1998.(i)
4.2 Form of Series A convertible redeemable Preferred Stock certificate.(k)
4.3 Form of Rights Agreement between Transmedia Network Inc. and American Stock Transfer & Trust Company, as
subscription agent. (k)
4.4 Second Amended and Restated Investment Agreement, dated as of June 30, 1999, among Transmedia Network
Inc., Samstock, L.L.C., EGI-Transmedia Investors, L.L.C., and, with respect to Section 5 of the
Agreement only, Robert M. Steiner, as trustee under declaration of trust dated March 9, 1983, as
amended, establishing the Robert M. Steiner Revocable Trust.(k)
4.5 Investment Agreement, dated as of April 28, 2000, by and among Transmedia Network Inc., Minotaur
Partners II, L.P., Value Vision International Inc., Dominic Mangone and Raymond Bank.
4.6 Co-Sale and Voting Agreement, dated as of April 28, 2000, by and among Transmedia Network Inc.,
Samstock, L.L.C., Minotaur Partners II, L.P., Value Vision International Inc., Dominic Mangone and
Raymond Bank.
4.7 Investment Agreement, dated as of April 28, 2000, by and among Transmedia Network Inc., Gene M.
Henderson, Herbert M. Gardner, James M. Callaghan, Gregory J. Robitaille, John A. Ward, George S.
Weidemann, Christine M. Donohoo, Frank F. Schmeyer, Elliot Merberg, Gerald Fleischman, Samstock, L.L.C.
and Thomas J. Litle.
4.8 Co-Sale and Voting Agreement, dated as of April 28, 2000, by and among Transmedia Network Inc., Gene M.
Henderson, Herbert M. Gardner, James M. Callaghan, Gregory J. Robitaille, John A. Ward, George S.
Weidemann, Christine M. Donohoo, Frank F. Schmeyer, Elliot Merberg, Gerald Fleischman, Samstock, L.L.C.
and Thomas J. Litle.
10.1 Purchase Agreement, dated as of December 15, 1997, between Transmedia Network Inc. East American Trading
Company.(l)
10.2 Purchase Agreement, dated as of June 29, 2000, by and among Transmedia Network Inc., Spectrum Partners,
Inc., Potomac Dining Limited Partnership, Gustavo L. Bessalel, Thomas E. Gorman and Francis Rothgeb.(m)
10.3 Form of Subordinated Convertible Notes, dated June 30, 2000.(m)
10.4 Stock Purchase and Sale Agreement, dated as of April 28, 2000, by and among Minotaur Partners II, L.P.,
Value Vision International Inc., Dominic Mangone and Raymond Bank.(m)
25
<PAGE>
10.5 Form of Warrant to Purchase Shares of Common Stock of Transmedia Network Inc.(m)
10.6 Stock Purchase and Sale Agreement, dated as of April 28, 2000, by and among Gene M. Henderson, Herbert
M. Gardner, James M. Callaghan, Gregory J. Robitaille, John A. Ward, George S. Weidemann, Christine M.
Donohoo, Frank F. Schmeyer, Elliot Merberg, Gerald Fleischman, Samstock, L.L.C. and Thomas J. Litle.(m)
10.7 Form of Warrant to Purchase Shares of Common Stock of Transmedia Network Inc.(m)
10.8 Asset Purchase Agreement, dated as of March 17, 1999, between Transmedia Network Inc. and SignatureCard,
Inc., as amended by Amendment No. 1 thereto dated as of April 15, 1999 and Amendment No. 2 thereto
dated as of May 31, 1999.(j)
10.9 Option Agreement, dated as of June 30, 1999, between Transmedia Network Inc. and SignatureCard, Inc. (j)
10.10 Services Collaboration Agreement, dated as of June 30, 1999, between Transmedia Network Inc. and
SignatureCard, Inc.(j)
10.11 Credit Agreement, dated as of June 30, 1999, between Transmedia Network Inc. and The Chase Manhattan
Bank.(j)
10.12 Security Agreement, dated as of June 30, 1999, between Transmedia Network Inc. and The Chase Manhattan
Bank. (j)
10.13 Pledge Agreement, dated as of June 30, 1999, between Transmedia Network Inc. and The Chase Manhattan
Bank. (j)
10.14 Credit Agreement, dated as of June 30, 1999, between GAMI Investments, Inc., Transmedia Network Inc.,
Transmedia Restaurant Company Inc., Transmedia Service Company Inc. and TMNI International
Incorporated.(j)
10.15 1987 Stock Option and Rights Plan, as amended. (a)
10.16 Form of Stock Option Agreement (as modified) between Transmedia Network Inc. and certain Directors.(g)
10.17* Second Restated and Amended Employment Agreement, dated as of October 1, 1998, between Transmedia
Network Inc. and James Callaghan. (k)
10.18 Master License Agreement, dated December 14, 1992, between Transmedia Network Inc. and Conestoga
Partners, Inc.(d)
10.19 First Amendment to Master License Agreement dated April 12, 1993, between Transmedia Network Inc. and
Conestoga Partners, Inc. (e)
10.20 Second Amendment to Master License Agreement -- Assignment and Assumption Agreement dated August 11,
1993 among Transmedia Network Inc., TMNI International Incorporated and Transmedia Europe, Inc.(e)
10.21 Master License Agreement Amendment No. 3 dated November 22, 1993 between TMNI International Incorporated
and Transmedia Europe, Inc.(e)
26
<PAGE>
10.22 Master License Agreement, dated March 21, 1994, between TMNI International Incorporated and Conestoga
Partners II, Inc. licensing rights in the Asia Pacific region. (a)
10.23 Stock Purchase and Sale Agreement, dated as of November 6, 1997, among Transmedia Network Inc.,
Samstock, L.L.C., and Transmedia Investors, L.L.C. (h)
10.24 Form of Warrant to purchase Common Stock of Transmedia Network Inc.(i)
10.25 Amended and Restated Agreement Among Stockholders Agreement, dated as of March 3, 1998, among Transmedia
Network Inc., Samstock, L.L.C., EGI-Transmedia Investors, L.L.C., Melvin Chasen, Iris Chasen and
Halmstock Limited Partnership. (i)
10.26 Stockholders Agreement, dated as of March 3, 1998, among Transmedia Network Inc., EGI-Transmedia
Investors, L.L.C., Samstock, L.L.C. and Melvin Chasen and Halmstock Limited Partnership. (i)
10.27 Security Agreement, dated as of December 1, 1996, among TNI Funding Company I, L.L.C. as Issuer, The
Chase Manhattan Bank as Trustee and as Collateral Agent, TNI Funding I, Inc., as Seller and Transmedia
Network Inc., as Servicer. (g)
10.28 Purchase Agreement, dated as of December 1, 1996, among Transmedia Network Inc., Transmedia Restaurant
Company Inc., Transmedia Service Company Inc. and TNI Funding I, Inc., as Purchaser.(g)
10.29 Purchase and Servicing Agreement, dated as of December 1, 1996, among TNI Funding Company I, L.L.C., as
Issuer, TNI Funding I, Inc. as Seller, Transmedia Network Inc., as Servicer, Frank Felix Associates,
Ltd., as Back-up Servicer and The Chase Manhattan Bank, as Trustee.(g)
10.30 Indenture, dated as of December 1, 1996, between TNI Funding Company I, L.L.C., as Issuer and The Chase
Manhattan Bank, as Trustee.(g)
10.31* Letter of Agreement, dated January 29, 1997, between Transmedia Network Inc. and Stephen E. Lerch. (g)
10.32 Transmedia Network Inc. 1996 Long-Term Incentive Plan (including Amendments through August 5, 1998).(b)
10.33* Employment Agreement, dated as of October 14, 1998, between Transmedia Network Inc. and Gene M.
Henderson.(k)
10.34 Standby Purchase Agreement, dated as of June 30, 1999, between Transmedia Network Inc. and Samstock,
L.L.C. including standby agreement warrant.(k)
10.35* Employment Agreement, dated as of January 5, 1999, between Transmedia Network Inc., and Christine
Donohoo.(k)
12 Statement regarding calculation of earnings to fixed charges.
21 Subsidiaries of Transmedia Network Inc.
27
<PAGE>
24 Power of Attorney (included in the signature page hereto).
27 Financial Data Schedule
</TABLE>
Legend:
(a) Filed as an exhibit to Transmedia's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994 and incorporated
by reference.
(b) Filed as an exhibit to Transmedia's Annual Report on Form 10-K
for the fiscal year ended September 30, 1998, and incorporated
by reference thereto.
(c) Filed as an exhibit to the Post Effective Amendment to the
Registration Statement on Form S-1 (Registration No. 33-5036),
and incorporated by reference thereto.
(d) Filed as an exhibit to Transmedia's Annual Report on Form 10-K
for the fiscal year ended September 30, 1992, and incorporated
by reference thereto.
(e) Filed as an exhibit to Transmedia's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993, and incorporated
by reference thereto.
(f) Filed as an exhibit to Transmedia's Annual Report on Form 10-K
for the fiscal year ended September 30, 1996, and incorporated
by reference thereto.
(g) Filed as an exhibit to Transmedia's Annual Report on Form
10-K/A for the fiscal year ended September 30, 1997, and
incorporated by reference thereto.
(h) Filed as an exhibit to Transmedia's Current Report on Form 8-K
dated as of November 6, 1997, and incorporated by reference
thereto.
(i) Filed as an exhibit to Transmedia's Current Report on Form 8-K
filed on March 17, 1998.
(j) Filed as an exhibit to Transmedia's Current Report on Form 8-K
filed on July 14, 1999, and incorporated by reference thereto.
(k) Filed as an exhibit to Transmedia's Registration Statement in
Form S-2 (registration no. 333-84947), and incorporated by
reference thereto.
(l) Filed as an exhibit to the registration statement on Form S-3
(registration no. 333-53147), and incorporated by reference
thereto.
(m) Filed as an exhibit to the registration statement on Form S-3
(registration no. 333-49366), and incorporated by reference
thereto.
(b) We did not file any Form 8-K Current Reports during the fourth quarter of
the fiscal year ended September 30, 1999.
(c) Exhibits:
See paragraph (a) (3) above for items filed as exhibits to this Annual
Report on Form 10-K as required by Item 601 of Regulation S-K.
(d) Financial Statement Schedules:
See paragraphs (a)(1) and (a)(2) above for financial statement schedules
and supplemental financial statements filed as part of this Annual Report on
Form 10-K.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 29th day of
December, 2000.
TRANSMEDIA NETWORK INC.
By: /s/Gene M. Henderson
----------------------------
Name: Gene M. Henderson
Title: President and Chief Executive Officer
Power Of Attorney
Each person whose signature appears below hereby authorizes and constitutes Gene
M. Henderson and Stephen E. Lerch, and each of them singly, his true and lawful
attorney-in-fact with full power of substitution and resubstitution, for him or
her and in his or her name, place and stead, in any and all capacities to sign
and file any and all amendments to this report with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, and he or she as the case may be hereby ratifies and confirms all
that said attorney-in-fact or any of them, or their substitutes, may lawfully do
or cause to be done virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Registrant, Transmedia Network Inc., in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Capacity In
Signature Which Signed Date
--------- ------------ ----
<S> <C> <C>
/s/ Sheli Z. Rosenberg Chairperson of the Board December 29, 2000
----------------------
Sheli Z. Rosenberg
/s/ Gene M. Henderson Director, December 29, 2000
---------------------
Gene M. Henderson President and
Chief Executive Officer
(Principal Executive Officer)
/s/ Stephen E. Lerch Executive Vice President December 29, 2000
-------------------- and Chief Financial Officer
Stephen E. Lerch (Principal Financial and
Accounting Officer)
/s/ William A. Lederer Director December 29, 2000
--------------------------
William A. Lederer
/s/ Herbert M. Gardner Director December 29, 2000
----------------------
Herbert M. Gardner
/s/ John A. Ward III Director December 29, 2000
--------------------
John A. Ward III
</TABLE>
29
<PAGE>
EXHIBIT INDEX
DESIGNATION DESCRIPTION
----------- -----------
4.5 Investment Agreement, dated as of April 28, 2000, by and among
Transmedia Network Inc., Minotaur Partners II, L.P., Value Vision
International Inc., Dominic Mangone and Raymond Bank.(r)
4.6 Co-Sale and Voting Agreement, dated as of April 28, 2000, by and among
Transmedia Network Inc., Samstock, L.L.C., Minotaur Partners II, L.P.,
Value Vision International Inc., Dominic Mangone and Raymond Bank.
4.7 Investment Agreement, dated as of April 28, 2000, by and among
Transmedia Network Inc., Gene M. Henderson, Herbert M. Gardner, James
M. Callaghan, Gregory J. Robitaille, John A. Ward, George S. Weidemann,
Christine M. Donohoo, Frank F. Schmeyer, Elliot Merberg, Gerald
Fleischman, Samstock, L.L.C. and Thomas J. Litle.
4.8 Co-Sale and Voting Agreement, dated as of April 28, 2000, by and among
Transmedia Network Inc., Gene M. Henderson, Herbert M. Gardner, James
M. Callaghan, Gregory J. Robitaille, John A. Ward, George S. Weidemann,
Christine M. Donohoo, Frank F. Schmeyer, Elliot Merberg, Gerald
Fleischman, Samstock, L.L.C. and Thomas J. Litle.
12 Statement regarding calculation of earnings to fixed charges.
21 Subsidiaries of Transmedia Network Inc.
27 Financial Data Schedule
