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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1994 Commission file number 0-16151/2-66729
COMDATA HOLDINGS CORPORATION/COMDATA NETWORK, INC.
(Exact name of registrant as specified in its charter)
DELAWARE/MARYLAND 13-3396750/62-0813252
- ---------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5301 Maryland Way Brentwood, Tennessee 37027
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (615) 370-7000
N/A
- -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether each 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 (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X No
----- -----
As of May 4, 1994, there were outstanding 14,757,931 shares of Common
Stock of Comdata Holdings Corporation, and 1,000 shares of Comdata
Network, Inc.
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PART I
Item 1. Financial Statements
Comdata Holdings Corporation and Subsidiary
Consolidated Balance Sheets (Unaudited)
March 31, December 31,
1994 1993
--------- ------------
(In thousands, except share data)
ASSETS
------
Current assets:
Cash and cash equivalents $ 12,889 $ 13,332
Accounts receivable, less allowance for
doubtful accounts $5,745, 1994;
$6,087, 1993 126,763 107,555
Prepaid expenses and other 1,943 2,226
-------- --------
Total current assets 141,595 123,113
Property and equipment, net of
accumulated depreciation 9,924 9,616
Cost in excess of fair value of net
assets acquired, net 79,823 79,618
Other assets, net 14,261 13,824
-------- --------
$245,603 $226,171
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Drafts payable $ 6,188 $ 8,211
Settlements payable 74,698 65,897
Accounts payable 10,014 10,410
Other accrued liabilities 26,877 17,312
Customer security deposits 6,326 6,632
Current maturities of long-term debt 686 702
-------- --------
Total current liabilities 124,789 109,164
Deferred credit 5,529 6,125
Long-term debt, net of current maturities 229,717 230,208
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 5,000,000 shares:
Series A, issued and outstanding 666,087
shares and 645,902 shares, respectively;
stated at liquidation preference,
$25 per share plus accrued dividends 16,739 16,232
Series B, issued and outstanding 562,033
shares, stated at liquidation preference,
$100 per share plus accrued dividends 65,710 63,713
Series C, issued and outstanding 250,500
shares, stated at liquidation preference,
$100 per share plus accrued dividends 29,151 28,285
Common stock, par value $.01 per
share; authorized 100,000,000 shares;
issued and outstanding 14,753,597
and 14,721,929 shares, respectively 147 147
Paid-in capital 102,154 101,885
Accumulated deficit (328,333) (329,588)
-------- --------
Total stockholders' equity (deficit) (114,432) (119,326)
-------- --------
$245,603 $226,171
======== ========
See notes to consolidated financial statements.
2
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COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
-------------------------
1994 1993
---------- ----------
(In thousands, except per share data)
REVENUE (net of amounts paid to a
related party, $0 in 1994;
$250,000 in 1993) $ 57,390 $ 49,023
-------- --------
OPERATING COSTS:
Salaries and employee benefits 14,381 12,972
Agent commissions 9,281 6,165
Telecommunications (including
amounts paid to a related
party, $3,747 in 1994;
$2,174 in 1993) 6,275 6,287
Depreciation and amortization 1,783 3,572
Other operating costs 12,452 10,032
-------- --------
Total operating costs 44,172 39,028
-------- --------
Income before interest and taxes 13,218 9,995
Interest expense (7,672) (7,652)
Interest income 4 19
-------- --------
Income before income taxes 5,550 2,362
Income tax expense (877) (55)
-------- --------
Net income 4,673 2,307
Preferred stock dividend
requirement, payable in shares
of stock or accreting to
liquidation preference (3,371) (2,988)
-------- --------
Net income (loss) for common stock $ 1,302 $ (681)
EARNINGS PER SHARE:
Net income $ 0.32 $ 0.16
Preferred stock dividend requirement (0.23) (0.21)
-------- --------
Net income (loss) per common share $ 0.09 $ (0.05)
Weighted average common shares
outstanding 14,728 14,376
See notes to consolidated financial statements.
3
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COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
1994 1993
-------- --------
(In thousands)
Cash flows from operating activities:
Net income $ 4,673 $ 2,307
-------- --------
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 1,783 3,572
Amortization of debt issuance costs and discount 723 692
Provision for losses on accounts receivable 1,267 1,403
Amortization of deferred credit (596) (726)
Deferred tax benefit (680) -
-------- --------
Total adjustments before changes in
assets and liabilities 2,497 4,941
-------- --------
Change in assets and liabilities, net of effects
from purchase business combinations:
Accounts receivable (20,423) (10,484)
Prepaid expenses and other 283 1
Drafts and settlements payable 6,778 (5,003)
Other accrued liabilities 8,627 4,607
Other 7 (89)
-------- ---------
Total changes in assets and liabilities net of
effects from purchase business combinations (4,728) (10,968)
-------- --------
Net cash provided by (used for) operating activities 2,442 (3,720)
-------- --------
Cash flows from investing activities:
Capital expenditures (1,339) (433)
Payment for purchase business combinations,
net of cash acquired (586) -
Additions to other assets (388) -
-------- --------
Net cash used for investing activities (2,313) (433)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 194 50
Net borrowings (payments) of revolving credit loans (613) 1,145
Principal payments on long-term
debt and capital leases (41) (169)
Payment of debt issuance costs (112) (213)
-------- --------
Net cash provided by (used for) investing activities (572) 813
-------- --------
Net decrease in cash & short-term investments (443) (3,340)
Cash & cash equivalents, beginning of period 13,332 15,716
-------- --------
Cash & cash equivalents, end of period $ 12,889 $ 12,376
======== ========
See notes to consolidated financial statements.
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COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The accompanying financial statements include the accounts of Comdata
Holdings Corporation ("Comdata", or the "Company") and its wholly-owned
subsidiary, Comdata Network, Inc. ("Network"). Comdata has no operations
except for its ownership of Network. Network is the obligor for all of the
debt instruments included in the accompanying consolidated balance sheet.
The accompanying unaudited financial statements include all
adjustments (which are of a normal recurring nature) that are, in the opinion
of management, necessary for a fair statement of the results for the interim
period presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to SEC rules and
regulations. The statements should be read in conjunction with the Summary of
Significant Accounting Policies and Notes to Consolidated Financial Statements
included in the Company's annual report for the year ended December 31, 1993.
Because of seasonal and other factors, the earnings for the three
month periods ended March 31, 1994 and 1993 should not be taken as an
indication of earnings for all or any part of the balance of the year.
2. On April 6, 1994, Network acquired the net assets of a business
engaged in providing gaming cash advance services. The purchase price
consisted of $3.0 million in cash paid at closing, and up to an additional $.9
million depending upon the future results of the acquired operations. The
acquisition will be accounted for as a purchase, and the results of operations
of the acquired business will be included in the consolidated financial
statements from the effective date of the acquisition. The purchase price will
be allocated to the net assets acquired based on their fair values. The prior
results of operations of the acquired business are not material to these of the
Company.
Item 2. Management's Discussion and Analysis of Financial Condition & Results
of Operations.
The Company's services may be separated into the following groups:
funds transfer and related services for the trucking industry; cash advance
services in the gaming industry; and retail check payment services. The
following table sets forth revenues in each of these areas for the three months
ended March 31, 1994 and 1993.
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1994 1993
---- ----
(In thousands)
Transportation services
Funds transfer services $20,219 $17,126
Permit services 7,042 5,868
Telecommunications services 4,374 4,122
Other 2,356 1,485
------- -------
33,991 28,601
Gaming services 20,604 17,404
Retail services 2,795 3,018
------- -------
Total revenue $57,390 $49,023
======= =======
The Company's operating costs, as a percentage of revenue, for such
periods were as follows:
1994 1993
---- ----
Revenue 100.00% 100.00%
------ ------
Salaries and employee benefits 25.06 26.46
Agent commissions 16.17 12.58
Telecommunications 10.93 12.82
Depreciation and amortization 3.11 7.29
Other operating costs 21.70 20.46
------ ------
Total operating costs 76.97 79.61
------ ------
Income before interest and taxes 23.03% 20.39%
====== ======
RESULTS OF OPERATIONS
Revenue increased from $49.0 million in the first quarter of 1993 to
$57.4 million in the first quarter of 1994, an increase of $8.4 million, or
17.1%. Transportation services revenue increased by $5.4 million, or 18.8%,
during the first quarter. Within transportation services, the largest revenue
growth came from funds transfer services, which increased by $3.1 million, or
18.1%. In December 1993, Network acquired Saunders, Inc. ("Saunders"), a
supplier of fuel purchase, funds transfer, fuel tax, licensing and permit
services to the trucking industry. This acquisition accounted for $1.5 million
of the revenue growth in funds transfer services, with the remainder of the
growth due to an increase in the number of transactions.
Permit services revenue increased from $5.9 million in the first
quarter of 1993 to $7.0 million in the first quarter of 1994, an increase of
$1.1 million, or 20.0%. This increase is primarily due to the acquisition of
Saunders.
Telecommunications services revenue increased by $0.3 million, or
6.1%, compared to the first quarter of 1993, primarily due to new business
added during 1993.
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Revenue from other transportation services increased by $0.9 million,
or 58.6%. The acquisition of Saunders increased these revenues by
approximately $0.3 million. Revenues from software sales, a service added
during 1993, contributed an additional $0.2 million during 1994.
Gaming services revenue increased during the first quarter of 1994 by
$3.2 million, or 18.4%, primarily due to increases in the number of
transactions at gaming establishments. Growth in gaming at nontraditional
locations, such as riverboats and Indian reservations, has helped increase
these transactions. These increases have offset the effects of a reduction in
revenue from nongaming locations resulting from MasterCard and VISA regulations
limiting the Company's ability to do business in nongaming locations. Revenues
from nongaming locations were approximately $0.6 million lower during the first
quarter of 1994.
Revenue from retail services decreased by $0.2 million, or 7.4%,
during the first quarter. During 1993, the Company was notified that it would
lose its largest retail customer. There will be approximately $2.0 million in
annual revenue which will have to be replaced, or total revenue in retail will
decline. The decline in retail revenue during the first quarter is the result
of the loss of this customer.
Salaries and employee benefits increased by $1.4 million, or 10.9%,
during the first quarter, primarily due to a $1.2 million increase resulting
from the Saunders acquisition. Sales commissions increased by approximately
$0.2 million as a result of the revenue increases in transportation and gaming
services.
Agent commissions increased from $6.2 million during the first
quarter of 1993 to $9.3 million during the first quarter of 1994, an increase
of $3.1 million, or 50.5%. These commissions are paid to locations offering
gaming cash advance services. This increase was the result of increases in the
number of gaming transactions, as discussed above, and increases in the rates
paid for these commissions, in response to competitive pressures.
Telecommunications expense was approximately $6.3 million in both the
first quarter of 1993 and 1994, in spite of a 6.1% increase in
telecommunications services revenue. Rate reductions negotiated at the end of
1993 offset the increases from increased transactions to keep this cost
approximately equal to 1993 amounts.
Depreciation and amortization expense decreased from $3.6 million in
the first quarter of 1993 to $1.8 million in the first quarter of 1994, due to
lower amortization charges for goodwill and other intangible assets that were
written off at the end of 1993. As discussed in the consolidated financial
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statements for 1993 and the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, the Company wrote off approximately $230 million in
goodwill and other intangibles related to its transportation and retail
division based on its assessment of the future operations of the related
divisions. The effect of this write-off in 1993 was to reduce amortization
charges in the first quarter by approximately $2.0 million.
Other operating costs increased from $10.0 million in the first
quarter of 1993 to $12.5 million in the first quarter of 1994, an increase of
$2.5 million, or 24.1%. During the first quarter of 1994, the Company incurred
expenses of approximately $1.2 million with a consulting firm to assist it in
evaluating the efficiency of its work force and procedures. Future reductions
in salaries and benefits are expected as a result of workforce reductions that
have been recommended by this evaluation. The remaining increase in other
operating costs is primarily related to the acquisition of Saunders.
Interest expense, net of interest income, was $7.6 million in the
first quarter of 1993, and $7.7 million in the first quarter of 1994. Interest
on borrowings for the Saunders acquisition have offset interest savings
resulting from reductions in debt from operating cash flows.
Income tax expense increased approximately $0.8 million during the
first quarter of 1994, compared to the same period in 1993. The Company's
net operating loss carryforwards, which totaled approximately $12 million at
December 31, 1993, are expected to be fully utilized during 1994, resulting in
an increase in income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Network's Revolving Credit Facility provides for revolving credit
loans and letters of credit aggregating up to $50.0 million, with a $25.0
million sublimit for letters of credit. In December 1994, the total amount of
the Revolving Credit Facility will be reduced by $12.5 million to $37.5
million. As of March 31, 1994, there were outstanding loans under the
Revolving Credit Facility of $12.4 million and letters of credit totalling
$13.7 million. Network is not required to make any scheduled principal
repayments on its senior bank debt or subordinated debt until December 1995,
when the Revolving Credit Facility terminates. In June 1995, Network is
required to repay a $5.7 million note. In addition, $6.2 million of 11% Junior
Subordinated Notes mature in October 1997. Scheduled payments on Network's
12.5% Senior Notes begin in 1998.
Network's obligations under the Revolving Credit Facility are secured
by substantially all the assets of Network and its subsidiaries, are guaranteed
by Comdata and bear interest at prime plus 1.75% or an adjusted Eurodollar rate
plus 3%. The amount of credit available under this arrangement is subject to
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limitations based on the amount and nature of outstanding receivables.
The Revolving Credit Facility has provisions that require Network to
maintain and transfer excess cash balances, as defined, into bank accounts
managed by the lenders. Such lenders have certain discretionary rights to
apply such cash balances against Network's outstanding loan amounts. At March
31, 1994, Network had $14.3 million in these accounts. Network, on a daily
basis, monitors its cash position and makes transfers and other transactions
necessary to comply with these provisions of the Revolving Credit Facility.
Subject to certain exceptions, the Revolving Credit Facility requires
prepayment of indebtedness outstanding under the facility with the entire net
cash proceeds received by the Network or its subsidiaries from asset sales over
a certain minimum amount, 50% of the net cash proceeds received by Comdata or
Network from permitted issuances of debt or equity and any excess cash flow of
Network and its subsidiaries on a consolidated basis. The amount of the
Revolving Credit Facility is permanently reduced by an amount equal to such
mandatory prepayments.
The Revolving Credit Facility and the indentures governing the
Senior Notes and Senior Subordinated Debentures contain certain covenants that
limit or prohibit, among other things, Comdata's ability to incur additional
indebtedness, to pay dividends or make other distributions, to engage in
certain transactions with affiliates, to issue or sell stock of subsidiaries to
third parties, to repay certain indebtedness prior to its stated maturity, to
create liens, to sell assets, to make certain capital expenditures, to enter
into a transaction that would result in a change of control, to incur certain
subordinated debt and to merge or consolidate with or to acquire any other
business. In addition, the Revolving Credit Facility requires the Company to
maintain certain specified financial ratios. As of March 31, 1994, the Company
was required to maintain a tangible net worth deficit of less than $203.2
million, an interest coverage ratio in excess of 1.65 to 1, a current ratio in
excess of 0.89 to 1, and a debt to net worth ratio not to exceed 2.50 to 1, all
as defined. As of March 31, 1994, the Company was in compliance with all
covenants and ratios, and its actual measures under these financial ratio
covenants were as follows: tangible net worth deficit, $194.9 million;
interest coverage ratio, 1.88 to 1; current ratio, 1.03 to 1; debt to net worth
ratio, 1.99 to 1.
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Working Capital
The Company's principal uses of funds for the next several years will
be for working capital, for debt service and for capital expenditures
consisting of routine replacements of field computer equipment and back office
equipment. New services offered by the Company will require additional
investments in working capital to fund growth in accounts receivable. From
time to time, the Company evaluates the desirability of repurchasing its Senior
Notes. The Revolving Credit Facility has been amended to allow the purchase of
up to $15 million of Senior Notes. Management believes that funds generated
from operations and borrowed under the Revolving Credit Facility should
provide sufficient cash to meet the Company's anticipated liquidity needs
during the next 24 months, even with the reduction in December 1994 of the
total amount of the Revolving Credit Facility by $12.5 million.
Accounts Receivable
In accordance with the Company's revenue recognition policy, revenue
from the Company's funds transfer, regulatory permit and gaming cash advance
services consists of the transaction fees charged to customers and does not
include the cost of goods or services provided by the Company (e.g., fuel
purchased, permit provided or cash advanced). The Company's accounts
receivable include both the cost of the goods and services provided and the
transaction fees, and drafts and settlements payable include the amount due to
the issuing agent for the cost of the goods and services. Accounts receivable,
net, increased by $19.2 million, or 17.9%, between the end of 1993 and March
31, 1994. Total revenue increased by 17.1% during the three months ended March
31, 1994, as compared to the same period in the prior year. For the three
months ended March 31, 1993 and 1994, the average days in accounts receivable
outstanding, calculated based on the average accounts receivable outstanding
for such period, was approximately 6.0 and 6.1 days, respectively. Because the
Company does not recognize the entire amount of accounts receivable for settled
transactions as revenue, management believes that the average days in accounts
receivable are appropriately measured by the amounts transferred through its
cash advance system.
Cash Flow
Comdata's principal source of internal liquidity has historically
been its cash flow from operations. In 1994, operating activities provided
$2.4 million. In 1993, operating activities used $3.7 million of cash,
primarily due to increases in accounts receivable.
Net cash used for investing activities in 1994 and 1993 was $2.3
million and $0.4 million, respectively. These amounts
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primarily represent payment for purchase business combinations, capital
expenditures and additions to other assets.
Financing activities used $0.6 million of cash in 1994, and provided
$0.8 million of cash in 1993, primarily consisting of net borrowings or
payments under Revolving Credit Facility.
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PART II
Item 1. Legal Proceedings
Please refer to the Company's Annual Report on Form 10-K for a
discussion of legal proceedings.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMDATA HOLDINGS CORPORATION
----------------------------
May 11, 1994 /S/ Dennis R. Hanson
- -------------------------- ----------------------------------
On behalf of the registrant
and as Executive Vice President
and Chief Financial Officer
May 11, 1994 /S/ L. Glynn Riddle, Jr.
- -------------------------- ----------------------------------
On behalf of the registrant
and as Senior Vice President
and Controller
COMDATA NETWORK, INC.
---------------------
May 11, 1994 /S/ Dennis R. Hanson
- -------------------------- ----------------------------------
On behalf of the registrant
and as Executive Vice President
and Chief Financial Officer
May 11, 1994 /S/ L. Glynn Riddle, Jr.
- -------------------------- ----------------------------------
On behalf of the registrant
and as Senior Vice President
and Controller
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