<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM _____ TO
_____.
Comdata Holdings Corporation Comdata Network, Inc.
Commission file number: 0-16151 Commission file number: 2-66729
COMDATA HOLDINGS CORPORATION
COMDATA NETWORK, INC.
(Exact name of each registrant as specified in its charter)
Comdata Holdings Corporation Comdata Holdings Corporation
Delaware 13-3396750
Comdata Network, Inc. Comdata Network, Inc.
Maryland 62-0813252
(State or other jurisdiction of (I.R.S. Employer Identification Nos.)
incorporation or organization)
5301 Maryland Way
Brentwood, Tennessee 37027
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (615) 370-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value, of
Comdata Holdings Corporation
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. X Yes No
--- ---
The aggregate market value of the voting stock held by non-affiliates
of Comdata Holdings Corporation was $83,000,000 as of March 4, 1994, based upon
the closing price of such stock as reported in the National Market System of
the National Association of Securities Dealers Automated Quotations System
("NASDAQ") on that day.
As of March 4, 1994, there were outstanding 14,726,929 shares of
Common Stock of Comdata Holdings Corporation. As of such date, 1,000 shares of
Common Stock of Comdata Network, Inc. were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
None
<PAGE> 2
The Registrant hereby amends the following items and financial statements of
its annual report on Form 10-K for the fiscal year ended December 31, 1993 as
follows:
Comdata Holdings Corporation
Comdata Network, Inc.
FORM 10-K/A
For Year Ended December 31, 1993
Index
Page No.
Part I
Item 8. Financial Statements 34
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 84
Exhibit 18 Accountants Letter on Change in Accounting
<PAGE> 3
PART I
ITEM 1. BUSINESS
OVERVIEW AND COMPANY STRATEGY
Comdata Holdings Corporation ("Holdings") was incorporated in the
State of Delaware in March 1987 for the purpose of acquiring, in a leveraged
acquisition, Comdata Network, Inc. ("Comdata" or the "Company"), a Maryland
corporation organized in 1969. Holdings acquired the outstanding capital stock
of Comdata in a merger transaction on September 9, 1987, and Holdings'
investment in Comdata and Comdata's subsidiaries represents Holdings' only
material asset.
Comdata is a leading provider of value-added payment and information
services to the transportation, gaming and retail industries. By means of its
proprietary computerized telecommunications network, in 1993, the Company
processed approximately 31.2 million funds transfer transactions for the
transportation industry and approximately 5.6 million cash advance transactions
at gaming locations and transferred in excess of $7.2 billion over its network.
The Company believes that a substantial portion of its revenue in 1993 was
generated from markets in which the Company is the leading provider.
Comdata is a leading provider of funds transfer and regulatory permit
services to the trucking industry. Comdata's funds transfer services are
available at numerous truck stops and other locations. Other trucking company
services include debit card issuance and authorization, in-truck driver
communications, telephone services and backhaul information, all of which make
use of the information processing or telecommunications capabilities of the
Company's network.
Comdata is also a leading provider of cash advance services to the
gaming industry. Comdata uses its network to provide a system by which
individuals may use MasterCard, Visa and Discover credit cards to obtain cash
in casinos, racetracks and other gaming locations. These services are
currently available in a majority of the casinos in Las Vegas, Reno, Lake
Tahoe, Nevada, and Atlantic City, New Jersey, and in many other locations,
including riverboat casinos.
Comdata also provides check authorization and guarantee services to
grocery stores and other retailers in several states. In addition, Comdata
provides retailers with collection services for returned checks.
Comdata's operating strategy is to increase revenue and operating
profits from its core business by emphasizing recurring revenues, maintaining
its historically low capital requirements and using its competitive advantages
in size, technological
1
<PAGE> 4
capability and diverse product lines to provide better service to its customers
and to increase its overall customer base. This strategy has various
components, including internal growth through expansion of its existing
customer base with existing products, development of new services for existing
and adjacent market segments, marketing of integrated services to new and
existing customers and development of strategic agreements and partnerships to
better provide superior services at lower costs.
In addition to expanding its operations by using its network to
develop new services for its customer base, Comdata has acquired other
companies engaged in similar activities. These acquisitions, as well as
internally generated growth, have resulted in an increase in revenue from
$103.1 million in 1987 to $212.3 million in 1993. Since September 1987,
Comdata has acquired 9 different businesses, ranging in size from $0.8 million
to $57.6 million in annual revenue at the time of acquisition. Considering the
Company's leadership status in transportation and gaming, there may not
be as many opportunities to grow future revenues from acquisitions as there
have been in the past.
The acquisition by the Company in 1988 of American Facsimile Systems,
Inc. ("AFSI"), a leading provider of specialized transportation permits,
enabled Comdata to consolidate its original permit services with those of AFSI
and to become a leading provider of these services. Since the AFSI
acquisition, Comdata has acquired several smaller, regional permit companies
with aggregate annual revenues of approximately $5.0 million. In June 1989,
Comdata significantly expanded its cash advance services for the trucking and
gaming industries by acquiring Fundsnet, Inc. ("Fundsnet") and the CashChek
International Division ("Cashchek") and the Financial and Communication
Services Division ("FCS") of First Data Resources, Inc. ("First Data").
On December 7, 1993, the Company acquired Saunders, Inc. ("Saunders"),
based in Birmingham, Alabama, for approximately $9.4 million. Saunders
revenues for the year ended December 31, 1993 were $12.1 million. Saunders is
a leading supplier of fuel tax, licensing and permit services to the trucking
industry. Through its wholly owned subsidiary, Cash Control Corporation,
Saunders also provides fuel purchase card and funds transfer services to
trucking companies and marketing services to truckstops. The Company believes
that the acquisition of Saunders will enable Comdata to increase its customer
base in transportation services and to achieve certain efficiencies by
eliminating duplicative overhead. In addition, Saunders provides several
services that Comdata currently contracts out, such as driver breakdown
services and road assistance programs. In addition, on February 23, 1994, the
Company acquired a software developer with applications for the transportation
industry. The purchase price was approximately $0.5 million, with contingent
2
<PAGE> 5
payments of up to $8.8 million over the next three years, based upon the
earnings of the acquired operation.
Over the past few years, the Company has entered into strategic
agreements with the following major providers of communications services and
equipment: American Telephone & Telegraph ("AT&T"), Advanced
Telecommunications Corporation ("ATC"), a wholly owned subsidiary of LDDS
Communications, Inc. ("LDDS"), and Integrated Systems Solutions Corporation
("ISSC"), a subsidiary of International Business Machines Corporation ("IBM").
These agreements have enabled the Company to become a value-added reseller of
communications services and equipment and to outsource substantially all its
internal data processing functions. Pursuant to certain of these agreements,
ATC invested $14.0 million in the Company in 1991, and ISSC made a $15.0
million payment to the Company in 1991.
TRANSPORTATION SERVICES
Comdata is a leading provider of funds transfer and regulatory permit
services to the trucking industry. Comdata also offers fuel purchase programs,
backhaul information, in-truck communications services and telecommunications
services to over 15,000 trucking companies. Revenue generated from the
Company's transportation services represented 58.7% of total revenue in 1993.
FUNDS TRANSFER SERVICES
Comdata currently has funds transfer agreements with more than 12,000
trucking companies, ranging in size from those with several thousand trucks to
those with fewer than five trucks. The majority of Comdata's trucking company
customers are common carriers (which account for 80% of all diesel fuel
transactions at truck stops), as opposed to private fleets. Many common
carriers do not employ their drivers, but instead contract with individual
owner-operators. Such owner-operators usually settle their expenses with the
common carrier after the completion of each trip. The Company's services are
useful in that they provide an accounting to the trucking company of trip
expenses normally within 24 hours after the completion of a given trip. The
Company's services are also particularly useful to its common carrier customers
because they enable the common carrier to maintain greater control over
expenditures by independent owner-operators, as well as their employees.
Funds transfer services provided to the trucking industry, including
fuel purchase programs, accounted for $71.7 million, or 33.7%, of the Company's
total revenue in 1993. In 1993, Comdata processed approximately 31.2 million
funds transfer transactions for the trucking industry and as part of such
transactions transferred approximately $5.2 billion over its network.
3
<PAGE> 6
THE BASIC FUNDS TRANSFER SYSTEM. The Company's funds transfer system
is designed to enable truck drivers to obtain funding for purchases at truck
stops and other locations en route to their destination. The system is also
designed to enable Comdata's trucking company customers to maintain control
over cash disbursements made to either their independent owner-operators or
their employees. The basic funds transfer system operates through the use of
an instrument known as a Comchek(R), which is a draft payable through a Comdata
bank account. The Company maintains a national network of 24-hour independent
service centers ("Service Centers"). Most Service Centers have point-of-sale
devices and other computer equipment to facilitate communication with the
Company's database and operations centers. Currently, there are approximately
8,000 truck stops that serve as Service Centers for the Company.
The Service Centers at which the Company's services are offered are
affiliated with Comdata only as the Company's agent pursuant to a Service
Center Agreement. The Service Centers are not required to act for Comdata
exclusively, and typically offer the funds transfer services of other
companies. Generally, either Comdata or the agents may terminate the
relationship on notice of 30 days or less, but Comdata has not experienced a
material number of terminations.
When a truck driver makes a request at a Service Center for a funds
transfer, Comdata verifies that the driver's company has established sufficient
credit. Upon presentation of valid identification, the Service Center obtains
an authorization number from Comdata and issues a Comchek draft. The Service
Center then deposits the Comchek draft in its bank account. The trucking
company remits to the Company the amount of the draft plus the service fee by
wire transfer or check, typically within six days. In most instances, the
Comchek draft clears the disbursing bank three days before payment is received
by the Company from its customers.
AUTOMATION OF FUNDS TRANSFER OPERATIONS. The Company has
substantially automated its basic funds transfer system by improving its
computer software and by installing magnetic stripe readers, printers and
modems in Service Center locations. Over 83% of Comdata's transportation
services funds transfer transactions are now fully automated, which has
significantly enhanced efficiency by eliminating the need for operator
involvement and by reducing the amount of time necessary to complete
transactions. In addition, Comdata maintains a 24-hour call center in its
Brentwood offices to handle transactions that require operator assistance.
FUEL PURCHASE SERVICES. The Company uses its proprietary network to
provide a sophisticated service that allows transportation customers to
purchase fuel and other services with an identification card. Fuel purchase
transactions are similar
4
<PAGE> 7
to ordinary credit card transactions; however, they allow the trucking company
customer greater control over its expenses by setting limits on the use of the
identification cards and by designating locations where the cards may be used
and the frequency with which they may be used. Some trucking companies also
have access to their transaction information on the Company's computer system
and may therefore promptly obtain information on recent transactions by their
independent owner-operators or employees. In 1993 revenue generated from fuel
purchase transactions were $36.3 million, or 17.1%, of the Company's total
revenue.
PERMIT SERVICES
Comdata, through its Transceiver(R) unit, offers value-added services
to trucking company customers by determining the permits needed for a designated
trip, truck and load, purchasing those permits on behalf of the customer and
electronically transmitting them to a convenient Service Center or truckstop
where they can be picked up by the truck driver. In many instances, a trucking
company customer will order permits directly from the issuing authority, and
Comdata will deliver these permits by facsimile machine to their designated
location. In addition to charging its customers for the costs imposed by the
state authority, Comdata receives a fee for each permit delivered on behalf of
a customer. Trucking companies may purchase permits directly from a state, but
it may be difficult for the company to deliver the permits to the driver. In
addition to providing permits to trucking companies, Comdata also provides
certain regulatory compliance services, such as auditing of driver logs and
reporting of fuel taxes. Permit transfer fees were approximately $25.5 million
in 1993, or 12.0% of the Company's total revenue.
OTHER SERVICES TO THE TRUCKING INDUSTRY
Telephone Services. Comdata offers long distance telephone services
to its trucking industry customers through the Directed Phone Card(TM), a
proprietary service that offers significant advantages over traditional
telephone credit card services. The Directed Phone Card is an identification
card that can be used as a telephone credit card, as well as a fuel purchase
card. The card enables Comdata's trucking company customers to maintain
greater control over the billable telephone use of their drivers by allowing
the trucking company to determine which locations the driver may call and to
preprogram those numbers into Comdata's voice response unit. The trucking
company can also limit the availability of the service to an independent driver
by dollar amount or number of calls. In this way, the trucking company has
complete control over the use of the service by the driver. In 1993, Comdata's
revenue from this telephone service was $5.3 million, or 2.5%, of the Company's
total revenue.
5
<PAGE> 8
IN-TRUCK COMMUNICATIONS. Comdata provides an in-truck driver
communications and vehicle tracking system known as DriverLink/24(R) pursuant to
an agreement with Motorola entered into in November 1990. Building on
Motorola's driver communications product marketed as CoveragePLUS(TM),
DriverLink/24(R) allows trucking company dispatchers and drivers to
communicate with each other 24 hours a day, seven days a week by calling the
Comdata communications center. This program was introduced in 1991 and
generated $4.1 million, or 1.9%, of the Company's total revenue in 1993,
including a $1.7 million one-time fee received as compensation for termination
of this service.
In November 1993, Motorola announced that it had agreed to sell its
CoveragePLUS communications business to QUALCOMM Incorporate ("Qualcomm"). The
Company is currently exploring alternatives to the continuation of this
service, but there can be no assurances that this product line will continue.
TELECOMMUNICATIONS SERVICES. In June 1989, Comdata entered into an
agreement with AT&T pursuant to which Comdata receives favorable rates from
AT&T based on volume of business. As part of the agreement, AT&T approved
Comdata as a value-added reseller of AT&T's communication services, allowing
Comdata to pass along its volume discount to other companies that cannot
qualify for these low rates.
In addition to AT&T communication services, Comdata offers for resale
long distance telecommunications provided by ATC, pursuant to a resale
agreement entered into in October 1991. As a result of the agreement, ATC
became the primary supplier of long distance telecommunications services to
Comdata, although AT&T continues to provide certain other telecommunication
services. In a related transaction, ATC purchased an aggregate 560,000 shares
of the Company's Series A Convertible Preferred Stock for a purchase price of
$25 per share. In 1993, revenue from telecommunications services was $13.0
million, or 6.1% of the Company's total revenue.
DIRECT BILLING. During the first quarter of 1992, Comdata began
offering truck stops a new service known as TransLink(TM) by which Comdata
provides direct billing and accounts receivable management services to trucking
companies and other businesses. In February 1992, the Board of Directors of
the National Association of Truck Stop Operators ("NATSO") decided to offer
this service to its members. As part of the TransLink program, Comdata assumes
the collection risk for direct-bill accounts receivable, thereby relieving the
truck stop of the risk and financial impact of uncollected accounts. Comdata's
fees for such services are intended to compensate it for assuming the risks of
collection and for providing the working capital needed to maintain such
accounts. The Company is still refining the
6
<PAGE> 9
TransLink(TM) program and it has not yet generated significant revenue.
BACKHAUL INFORMATION SERVICES. LoadMatcher(TM) is a computerized
shipment interchange system designed by Comdata to reduce empty backhauls by
making specific shipment information available to trucking company customers,
enabling them to match available shipments with available cargo space on a
nationwide basis. By use of this system, trucking companies are able to reduce
significantly the labor, communications, fuel and other expenses caused by
empty backhauls. This program generated $3.2 million in revenue, or
approximately 1.5%, of the Company's total revenue in 1993.
GAMING SERVICES
Comdata is a leading provider of cash advance services to the gaming
industry. The Company processed over 5.6 million funds transfer transactions
aggregating approximately $2.0 billion in gaming and other funds transfer
locations in 1993. These services accounted for $75.9 million, or 35.8%, of
the Company's total revenue in 1993.
CASH ADVANCE SERVICES
Comdata's network enables individuals to use MasterCard, Visa or
Discover credit cards to obtain cash at Comchek(R) Service Centers in gaming and
certain other locations. These cash advance services are essentially the same
as the funds transfer services provided to the trucking industry. In a typical
cash advance transaction, the amount of the Comchek(R), along with Comdata's
service fee, is charged to the individual's MasterCard, Visa or Discover
account. Upon authorization by the Company, the Service Center issues the
Comchek(R) draft, which is subsequently encashed. Comdata pays a commission to
the casino, racetrack or similar service center for each transaction.
Comdata's cash advance services are currently available in a majority of
casinos in Las Vegas, Reno and Lake Tahoe, Nevada, and Atlantic City, New
Jersey, and many other gaming locations, including riverboat casinos.
Comdata's ability to expand its cash advance services to nongaming
locations may be limited because of certain operating policies adopted by
MasterCard International Inc. ("MasterCard") and Visa USA, Inc. ("Visa") that
would prohibit use of MasterCard and Visa credit cards to obtain cash advances
from Comdata at nongaming locations. However, in October 1992, the Company and
MasterCard reached an agreement which permitted the Company to continue to
honor MasterCard credit cards and account numbers in providing cash advance
services at trucking locations and gaming locations, but which prohibited the
Company from honoring MasterCard credit cards for cash advance services at all
other
7
<PAGE> 10
types of locations after March 31, 1993 (subject to any prior contractual
commitments extending beyond that date). On December 2, 1993, Visa informed
the Company that it will permit the Company to continue to honor Visa credit
cards for cash advance services at gaming establishments and, for emergency
fund purposes, at truck stops and check cashing outlets. The Company may not
introduce cash advance services that accept such credit cards at other types of
locations and must discontinue such services at all existing non-approved
locations by March 1, 1996.
Cash advance transactions involving MasterCard or Visa credit cards
that occurred at the locations discontinued or to be discontinued accounted for
approximately 3.0% of the Company's revenue in each of 1991 and 1992 and
approximately 1.8% of the Company's revenue in 1993. The Company's cash
advance services are also subject to policies and regulations adopted from time
to time by such credit card association, which could have an adverse effect on
the Company.
RELATIONSHIP WITH PLAYERS INTERNATIONAL. In August 1991, Comdata
entered into an agreement with PCI, Inc., a subsidiary of Players
International, Inc., a leading provider of promotional and marketing services
to the gaming industry, pursuant to which PCI assumed responsibility for the
sales, marketing and field operations aspects of Comdata's cash advance
services in gaming facilities. Under the terms of the agreement, certain
employees of Comdata who had previously performed the duties assumed by PCI
became employees of PCI. As of January 1, 1993, Comdata reassumed
responsibility for the sales, marketing and field operations previously
outsourced to PCI, although PCI continues to provide certain sales and
marketing consulting services in connection with the Company's gaming cash
advance services. PCI is subject to a noncompete agreement in favor of the
Company which expires on December 31, 1998. While the outsourcing arrangement
with PCI was beneficial to the Company, management believes that the assumption
by Comdata of responsibility for the operations previously outsourced to PCI
will improve the effectiveness of this part of Comdata's business and that the
incremental cost of operations reassumed by Comdata plus the amortization of
expense attributable to the noncompete agreement will be entirely offset by the
reduction in fees payable to PCI.
RETAIL SERVICES
Comdata provides check acceptance, guarantee and collection services
through its retail services division to approximately 580 customers, primarily
supermarkets and other multi-lane retailers, in the metropolitan areas of
Atlanta, Georgia and St. Louis, Missouri, as well as throughout California and,
to a limited degree, in other parts of the United States.
The check acceptance service is based on data files containing
information with respect to individuals check writing history. In check
authorization transactions, if Comdata
8
<PAGE> 11
approves a check after review of its data file, the retailer bears the risk of
nonpayment of such check. In check guarantee transactions, Comdata bears the
risk of nonpayment of a check that it approves. Less than 8% of the checks
that Comdata processes are guaranteed transactions. The check authorization
and guarantee services reduce or eliminate the risk of loss to the retailer
from accepting bad checks, and save labor costs otherwise incurred in accepting
checks and collecting bad checks. This results in improved customer service
through faster check approval and greater customer convenience. Comdata
derives its revenue from fees charged to retailers for check transactions and
check collection services and fees paid by consumers for returned checks.
Revenue generated by Comdata's retail services was $11.7 million in
1993 or 5.5% of Comdata's total revenue.
CUSTOMERS
The Company provides transportation, cash advance and retail services
to over 25,000 customers nationwide. During 1993, no single customer accounted
for more than 1.1% of the Company's total revenue, although two retail services
customers accounted for 37% of retail services revenue during 1993. During
1993, the Company lost two large customers, one in its transportation division
and one in its retail division, as noted in Management's Discussion and
Analysis of Financial Condition and Results of Operations.
OPERATIONS
Comdata's principal communications center for its funds transfer
business is located in its corporate headquarters in Brentwood, Tennessee. The
communications system is made up of a network of long distance telephone lines,
as well as a number of dedicated telephone circuits terminating in Comdata's
operations facility. This communications system is controlled by AT&T's
Definity(TM) Communications System and utilizes an AT&T System 85
Communications System as a back-up. The processing of transactions is
controlled by three mainframe computer processors. The mainframe computer
processors are connected to approximately 525 Company-owned personal computers
installed in customer locations and approximately 750 terminals located in
Comdata's headquarters. Comdata also has other communications centers located
in Brea, California, Dallas, Texas and Atlanta, Georgia. The Company maintains
offices in 30 locations nationwide and in Canada.
The application software systems used by Comdata for funds transfer
and permit services are unique to the Comdata system and have been developed
internally by its staff.
The Company is highly dependent upon the proper functioning of its
telecommunications and computer equipment. The Company is
9
<PAGE> 12
also dependent on ATC, AT&T and other public telephone networks. Pursuant to
its agreement with ATC, ATC is Comdata's primary supplier of telecommunications
services. In the event ATC's services are not available for any reason, the
Company believes that it would be able to obtain similar services from AT&T.
While management strives to provide reasonable back-up provisions, there can be
no assurance that certain events, some of which are beyond the reasonable
control of Comdata, will not materially disrupt Comdata's business. Comdata
has never experienced any service disruptions that have had a significant
effect on its operations.
SYSTEMS OPERATIONS SERVICES
In September 1991, Comdata entered into a ten-year Agreement for
Systems Operations Services (the "Operations Services Agreement") with ISSC, a
subsidiary of IBM. Under the Operations Services Agreement, ISSC provides
substantially all the Company's internal data processing functions. In
connection with the Operations Services Agreement, ISSC paid $15.0 million cash
to Comdata and assumed certain lease obligations in order to acquire certain
computer equipment, to obtain access to the Company's software, to acquire the
right to extend employment to certain Comdata employees, to obtain access to
and use of the Company's facilities and to reimburse certain transition
expenses to be incurred by the Company. As a result of ISSC assuming
responsibility for these functions, including the related personnel and
operating costs, the Company has experienced improved effectiveness of its data
processing operations and technology improvements without any significant
increase in cost.
CUSTOMER CREDIT
It is the Company's general policy that trucking companies and other
money transfer customers must establish credit before they may use the Company's
services. The Company may require letters of credit or surety bonds and
generally will not authorize services if the aggregate service cost exceeds the
amount of the security or internally established credit limits.
COMPETITION
GENERAL. The Company competes directly with several companies that
offer similar products and services. In addition, Comdata competes with some
of its Service Centers (such as truckstops) and retail customers (such as
grocery stores) that offer similar products and services. The Company believes
that its competitive strengths include (i) its ability to provide services at a
large number of locations in the continental United States and Canada and (ii)
its ability to offer a variety of services, frequently tailored to an
individual customer's needs.
FUNDS TRANSFER. The principal competitive factors that are relevant
to the funds transfer industry are marketing efforts,
10
<PAGE> 13
pricing, computer systems and reliability, the provision of new techniques in
basic funds transfer services, reduction of the time required to effect
transactions and payment and security terms of customer agreements. The major
credit card companies and vendors of traveler's checks are also competitors of
Comdata in that they make cash available to holders of their cards and checks
on a nationwide basis. In terms of its fuel purchase program, Comdata competes
with several credit and debit card services, some of which are larger and have
greater resources than the Company. Certain of Comdata's competitors also
operate or franchise nationwide truckstop chains. Industry trends of
consolidation among trucking companies and truckstops could also affect the
Company.
The Company believes that at least eight companies offer funds
transfer services to the trucking industry. These competitors are smaller than
Comdata, although at least two are owned by companies significantly larger than
Comdata. One of the Company's competitors, Cummins Cash and Information
Services, was acquired by Electronic Data Systems, Inc. in 1992. In addition,
truckstops may negotiate directly with trucking companies for a direct billing
relationship.
The Company is a leading provider of cash advance services to the
gaming industry. At least one provider of cash advance services with
substantial financial resources competes with the Company in some gaming
establishments and the Company faces competition from certain large gaming
establishments themselves. The Company also faces competition from automated
teller machines that participate in national networks and from at least one
other national funds transfer company.
PERMIT SERVICES. In the business of transmitting special regulatory
permits, there is at least one other nationwide company and several regional
companies providing permit services similar to those provided by Comdata.
Competition in this market is influenced by price, the expertise of personnel
and the ease with which permits may be ordered and received.
RETAIL SERVICES. Comdata's check acceptance and collection services
have a number of regional and national competitors. Comdata believes that at
least three national companies, Telecredit, Inc. (a subsidiary of EquiFax), JBS
(a subsidiary of National Processing Company) and TeleCheck (a subsidiary of
First Financial Management Company), have larger retail customer lists,
although these three companies are not usually direct competitors in serving
grocery stores. Competition for this business is dependent upon pricing,
marketing efforts, computer and systems reliability and the amount and quality
of information with respect to check writers. Comdata operates in St. Louis,
California and Atlanta and is not a national operator with this business line.
11
<PAGE> 14
REGULATION
Many of the states in which the Company operates require persons
engaged in the business of selling or issuing payment instruments (such as the
Company's Comchek(R) instrument) or in the business of transmitting funds to
obtain a license from the appropriate state agency. In certain states, the
Company is required to post bonds or other collateral to secure the Company's
obligations to its customers in those states. Some state agencies have the
authority to deny licenses to, or revoke the license of, financially weak
companies. For its cash advance services in Atlantic City, New Jersey casinos,
the Company is required to hold a Casino Service Industry License issued by the
State of New Jersey Casino Control Commission. The Company believes that it is
currently in compliance in all material respects with the regulatory
requirements applicable to its business. The failure to comply with the
requirements of any particular state could have a material adverse effect on
the Company's business in that state.
SECURITY
Comdata maintains a system of internal control procedures relating to
its electronic data processing operations in order to reduce the possibility of
fraudulent conduct by its employees and the users of its services. Losses
resulting from fraud have never been material to Holdings financial results.
EMPLOYEES
As of December 31, 1993, the Company employed 1,818 persons, of whom
846 were located in Brentwood, Tennessee, with the remainder located
principally in Dallas, Texas, Atlanta, Georgia, Brea, California, Birmingham,
Alabama, Newberry, South Carolina, Toronto, Canada and Montreal, Canada. None
of the Company's employees is covered by a collective bargaining agreement.
The Company believes that its relations with its employees are good.
TRADEMARKS
Certain of the Company's products and services are marketed under
federally registered trademarks, including Comchek(R), Express Comchek(R),
Cashex(R), Instacom(R), Quik Cash(R) and Super Driver(R).
SEASONALITY
Due to several factors affecting the transportation and gaming
industries, the fourth quarter historically has a lower level of transactions
than the first three quarters of the year for these businesses. These seasonal
factors are primarily due to transportation and consumer gaming spending habits
during the holiday season. These effects have been lessened by growth in
12
<PAGE> 15
other services in 1993 and 1992. See Note 14 of Notes to Consolidated
Financial Statements for a summary of quarterly information.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Brentwood,
Tennessee, and are leased for a term of twelve years that commenced on January
1, 1990. The lease may be extended, at the Company's option, for two
additional five-year periods. The Company also has the option to purchase the
headquarters during the fifth, seventh, tenth and twelfth years of the lease.
In addition to its corporate headquarters, the Company leases 28 other
properties for operational and sales offices.
ITEM 3. LEGAL PROCEEDINGS
Holdings, Comdata, certain former directors of Comdata and Alex. Brown
& Sons Incorporated ("Alex. Brown") are parties to a lawsuit currently pending
in the United States District Court for the Southern District of New York
brought by Alex Eisenberg, a former stockholder of Comdata. Filed in May 1991,
the complaint, which purports to be a class action on behalf of all former
Comdata stockholders except the defendants, alleges causes of action against
the individual defendants, who as directors of Comdata approved the acquisition
of Comdata by Comdata Holdings Corporation in September 1987, for breach of
fiduciary duties in approving the acquisition. The complaint also alleges
negligence and breach of contract by Alex. Brown in its role as financial
advisor to the Board of Comdata at the time of the acquisition.
Pursuant to Comdata's indemnification obligations, the individual
defendants and Alex. Brown have been dismissed from the action, and Holdings
and Comdata have assumed the defense of the claims in respect of such
defendants.
In September 1992, the Court entered an order dismissing the class
action allegations relating to the former directors of Comdata. The order also
dismissed all allegations that Alex. Brown had aided and abetted the alleged
breaches of fiduciary duties of the former directors. The order permitted the
plaintiff to pursue his individual claims against the former directors, as well
as his individual claims and the class claims against Alex. Brown in its role
as a financial advisor. No class has been certified in this litigation.
Prior to the end of 1993, counsel for Eisenberg and Comdata reached
agreement upon the settlement of the matter without material liability to the
defendants, subject to court approval and certain other procedures, which are
pending.
Comdata and certain unrelated financial institutions are parties to
two lawsuits filed in the Circuit Court of Cook County, Illinois and captioned,
respectively, Anthony Cie, et.
13
<PAGE> 16
al. vs. Comdata Network, Inc. et. al.; and James C. Giannotti, et. al. vs.
Comdata Network, Inc. et. al. The lawsuits allege that credit card cash
advances obtained by the plaintiffs at gaming facilities are debts which are
null and void as violative of an Illinois statute declaring loans made for
purposes of illegal gambling as void and unenforceable. Comdata and the
financial institution defendants prevailed at the trial court level on motions
to dismiss.
The plaintiffs have appealed the trial court rulings to the Illinois
Appellate Court. Oral argument is currently expected to be scheduled for the
summer of 1994.
On February 5, 1992, Comdata filed a complaint in the United States
District Court for the Middle District of Tennessee, charging that Synapsis
Corporation, Ltd. ("Synapsis") and its owner, William S. Akel ("Akel"),
conspired with a computer programmer employed by Comdata to steal a proprietary
and confidential list for resale. The complaint alleges violations of the
Racketeer Influenced and Corrupt Organizations Act (RICO) and the conversion of
Comdata's list from its internal computer files. On July 7, 1992, Synapsis
filed an action against Comdata, Players International, Inc. and PCI, Inc. in
the United States District Court for the Central District of California. The
complaint alleged violations of Sections 1 and 2 of the Sherman Act, unfair
competition and invasion of privacy by Comdata and Players in connection with
the cash advance service offered by Comdata in various gaming establishments.
Pursuant to settlement agreements entered into by the parties, both
lawsuits were dismissed during 1993.
Cashex, Inc., a subsidiary of Comdata, was a party to a lawsuit
brought in the United States District Court for the Southern District of New
York by Caldor, Inc. The complaint, filed in May 1992, sought approximately
$850,000 in damages, plus interest, for what was alleged to have been breach of
contract relating to a services agreement between Caldor, Inc., a retailer, and
Cashex, Inc. pursuant to which Cashex rendered check authorization and
guarantee services for Caldor stores. Caldor claimed that Cashex misgraded
approximately 5,000 consumer checks as non-guaranteed items when, in fact, such
checks should have been graded as guaranteed and, thus, paid by Cashex.
Settlement of the matter was agreed upon, and the lawsuit was
dismissed during 1993.
Comdata is a defendant in certain other pending litigation arising in
the course of its business. While the final outcome of these lawsuits cannot
be predicted with certainty, it is the opinion of Management, after consulting
with its legal counsel, that any ultimate liability would not materially affect
the consolidated financial position of Holdings.
14
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 25, 1993, Holdings' Board of Directors approved an amendment
to Holdings' Certificate of Incorporation to effect a reverse stock split of
Holdings' issued and outstanding Common Stock on the basis of one new share for
each three shares outstanding (the "Reverse Split"). In conjunction with the
Reverse Split, the Board also voted to amend the Certificate of Incorporation
to reduce the number of authorized shares of Common Stock from 200,000,000
shares to 100,000,000 shares and to reduce the number of shares reserved for
issuance under Holdings' Stock Option and Restricted Stock Purchase Plan from
6,000,000 to 2,000,000 shares.
The amendments described above were adopted by the written consent of
stockholders owning a majority of Holdings' issued and outstanding Common
Stock, Series B Convertible Preferred Stock and Series C Convertible Preferred
Stock, such written consent being dated and effective as of October 25, 1993.
Notice of such stockholder action was sent to all other Holdings stockholders
of record.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTER
Holdings Common Stock is traded on the over-the-counter market and
quoted on the NASDAQ National Market System under the symbol CMDT. The
following table sets forth the high and low last reported sales prices of the
Common Stock quoted on the NASDAQ National Market System for the periods
indicated (as adjusted for a 1-for-3 reverse stock split, effective on November
16, 1993).
HIGH LOW
---- ---
1992
First quarter . . . . . . . . . . . . $12.375 $9.375
Second quarter . . . . . . . . . . . . 11.625 9.000
Third quarter . . . . . . . . . . . . 10.125 4.500
Fourth quarter . . . . . . . . . . . . 9.000 5.250
1993
First quarter . . . . . . . . . . . . 7.875 5.250
Second quarter . . . . . . . . . . . . 7.875 5.438
Third quarter . . . . . . . . . . . . 10.500 6.375
Fourth quarter . . . . . . . . . . . . 14.625 7.250
As of March 4, 1994 there were 448 holders of record of Holdings'
Common Stock.
15
<PAGE> 18
Holdings anticipates that it will retain all of its earnings for the
development and expansion of its business and repayment of debt, and therefore
does not anticipate paying dividends on its Common Stock in the foreseeable
future. To date, Holdings has not paid any dividends on its Common Stock.
Comdata's Revolving Credit Facility and the indentures governing its
subordinated debt (all of which are guaranteed by Holdings) limit the amount of
dividends that Comdata may pay to Holdings and that Holdings may pay to its
stockholders. In addition, the Common Stock ranks junior as to the payment of
dividends to the Series A, Series B and Series C Convertible Preferred Stock.
All dividends on Holdings' preferred stock have been paid in shares of common
stock, additional shares of preferred stock, or have accreted to liquidation
value.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
for Holdings for the periods ended December 31, 1993, 1992, 1991, 1990, and
1989.
The selected consolidated financial data presented below have been
extracted or derived from, and should be read in conjunction with, the audited
consolidated financial statements of Holdings and the related notes thereto and
with Management's Discussion and Analysis of Results of Operations and
Financial Condition included elsewhere in this Annual Report. Such
consolidated financial statements were audited by Arthur Andersen & Co.,
independent public accountants, and the report of Arthur Andersen & Co. with
respect to such consolidated financial statements for 1993, 1992, and 1991 is
included elsewhere in this Annual Report.
16
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(In thousands, except percentages and ratios)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $ 212,316 $ 193,072 $ 184,468 $ 189,755 $ 158,974
Operating costs other than
depreciation and amortization 153,883 139,768 141,738 138,734 113,364
--------- --------- --------- --------- ---------
EBITDA (earnings before interest, taxes,
depreciation and amortization 58,433 53,304 42,730 51,021 45,610
Depreciation and amortization 14,778 13,813 15,298 51,081 22,401
Goodwill and other intangibles
write-off(a) 230,257(a) - - - -
--------- --------- --------- --------- ---------
Income (loss) before interest, taxes
and extraordinary item (186,602) 39,491 27,432 (60) 23,209
Interest expense, net (30,268) (37,078) (38,807) (40,773) (37,754)
--------- --------- --------- --------- ---------
Income (loss) before taxes and
extraordinary item (216,870) 2,413 (11,375) (40,833) (14,545)
Income tax benefit (expense) (235) - 850 - 2,833
--------- --------- --------- --------- ---------
Net income (loss) before
extraordinary item (217,105) 2,413 (10,525) (40,833) (11,712)
Extraordinary Item(b) - (20,503)(b) - - -
--------- --------- --------- --------- ---------
Net income (loss) (217,105) (18,090) (10,525) (40,833) (11,712)
Preferred dividend requirement (12,583) (1,430) (329) - -
--------- --------- --------- --------- ---------
Net income (loss) to common
stockholders $(229,688) $ (19,520) $ (10,854) $ (40,833) $ (11,712)
========= ========= ========= ========= =========
Earning per share-
Net income (loss) before
extraordinary item $ (15.03) $ 0.17 $ (0.75) $ (3.00) $ (1.04)
Extraordinary item - (1.44) - - -
--------- --------- --------- --------- ---------
Net income (loss) (15.03) (1.27) (0.75) (3.00) (1.04)
Preferred stock dividend requirement (0.87) (0.10) (0.02) - -
--------- --------- --------- --------- ---------
Net income (loss) per common share $ (15.90) $ (1.37) $ (0.77) $ (3.00) $ (1.04)
========= ========= ========= ========= =========
Weighted average common shares 14,447 14,282 14,147 13,597 11,286
========= ========= ========= ========= =========
Balance Sheet Data (at end of year):
Working capital (deficit) $ 13,949 $ 2,768 $ (11,352) $ (20,875) $ (19,781)
Total assets 226,171 433,732 429,054 478,128 567,544
Total intangible assets 93,005 321,143 322,462 330,022 388,043
Long-term debt, net 230,208 224,753 272,782 290,761 317,002
Total liabilities 345,497 337,352 395,706 448,494 534,343
Total stockholders' equity (deficit) (119,326) 96,380 33,348 29,634 33,201
Tangible net worth (deficit) (212,393) (224,763) (289,114) (300,388) (354,482)
</TABLE>
17
<PAGE> 20
SELECTED FINANCIAL DATA - CONTINUED
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
(In thousands, except percentages and ratios)
<S> <C> <C> <C> <C> <C>
Other data:
Income (loss) before interest,
taxes, and extraordinary item as
a percentage of revenue (87.9%) 20.5% 14.9% 0.0% 14.6%
Interest expense, net, as a
percentage of revenue 14.3% 19.2% 21.0% 21.5% 23.7%
Capital expenditures $ 5,954 $ 2,794 $ 4,965 $ 5,982 $ 8,314
Number of employees at year end 1,818 1,668 1,696 1,938 1,898
</TABLE>
(a) During 1993, the Company wrote off the net carrying amount related to
goodwill and other intangible assets of its transportation and retail
business operations based on an assessment of the recoverability of
these amounts through future operations of these businesses.
(b) Extraordinary item consists of the premiums paid on the debt retired
and the unamortized discount and related debt issuance costs incurred
in connection with the December, 1992 Recapitalization.
18
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's services may be separated into the following principal
groups: transportation services consisting of funds transfer and related
services for the trucking industry; gaming services consisting primarily of
cash advance services to casinos and other legalized gaming establishments; and
retail services consisting primarily of check payment services. The following
table sets forth revenue in each of these areas for the periods presented.
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---- ---- ----
Transportation services: (in thousands)
Funds transfer services $ 71,655 $ 67,979 $ 67,206
Permit services 25,485 24,474 23,207
Telecommunication services 18,283 12,336 13,180
Other services 9,281 5,357 3,842
-------- -------- --------
Total 124,704 110,146 107,435
Gaming services 75,927 71,042 65,980
Retail services 11,685 11,884 11,053
-------- -------- --------
Total revenue $212,316 $193,072 $184,468
======== ======== ========
The Company's operating costs, and such costs as a percentage of revenue,
its income (loss) before interest, taxes and extraordinary item, and its
interest expense for such periods were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
1993 1992 1991
----------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . . $ 212,316 100.0% $193,072 100.0% $184,468 100.0%
--------- ------ -------- ------ -------- ------
Salaries and employee
benefits . . . . . . . . . . . . 53,241 25.1 49,606 25.7 50,999 27.7
Agent commissions . . . . . . . . . 30,252 14.2 23,988 12.4 25,666 13.9
Telecommunications . . . . . . . . 26,424 12.4 21,140 11.0 22,033 11.9
Depreciation and
amortization . . . . . . . . . . 14,778 7.0 13,813 7.1 15,298 8.3
Write-off of goodwill
and other intangibles . . . . . . 230,257 108.5 - - - -
Other operating costs . . . . . . . 43,966 20.7 45,034 23.3 43,040 23.3
--------- ----- -------- ----- -------- -----
Total operating costs . . . . . . . 398,918 187.9 153,581 79.5 157,036 85.1
--------- ----- -------- ----- -------- -----
Income (loss) before
interest, taxes and
extraordinary item . . . . . . . $(186,602) $ 39,491 $ 27,432
========= ======== ========
Interest expense . . . . . . . . . $ 30,303 $ 37,154 $ 39,088
========= ======== ========
</TABLE>
19
<PAGE> 22
The Company is a leading provider of funds transfer and regulatory
permit services to the trucking industry, and in 1993 these services and
certain others provided to trucking companies accounted for 58.7% of the
Company's revenue. The Company's results of operations in this service area
are, therefore, highly dependent upon the level of activity in the trucking
industry, which, in turn, is affected by general economic conditions as well as
competition, the availability of acquisition candidates, and the growth of
additional products and services. The Company is also a leading provider of
cash advance services to the gaming industry. In 1993, gaming services
accounted for 35.8% of the Company's revenue. Demand for the Company's cash
advance services is affected by the overall level of gaming activities, by
competition for customers by resorts and other gaming locations and by
competition from other providers of such services.
Comdata's practice has been to examine cash flows, or EBITDA (earnings
before interest, taxes, depreciation and amortization) to determine goodwill
realization on its retail, transportation and gaming business operations
individually. In the fourth quarter of 1993, the Company determined that the
goodwill and other intangibles for the retail division were impaired. After
further consideration, the Company determined that it should evaluate the
realization of its transportation division goodwill utilizing projected net
income of the division versus EBITDA. The Company now believes that the net
income approach is a preferable measurement indicator of the fair value of the
transportation and consumer goodwill. This test reflected an impairment of the
transportation goodwill and other intangibles.
The cost of capital increased significantly for Comdata in 1993,
making it appropriate for the Company to consider financing costs when
examining the impairment, or realizability, of its goodwill and related
intangibles. All of the long term debt was issued in connection with business
acquisitions that generated the goodwill. The Company is likely to be
significantly leveraged for the foreseeable future and the leverage cannot be
separated from the goodwill realization. Also, because the Company's current
and anticipated tax paying obligations are prior to goodwill amortization, the
Company has also concluded that it is preferable to include income tax expenses
when examining goodwill impairment and recoverability.
The projections of net income for the transportation and retail
business units were made for a period of five years, and compared to the
amounts of amortization expense that would be recorded during those periods.
Revenues were projected to increase at the same rates as noted during the past
five years adjusted for the effects of acquisitions, and expense increases were
forecasted accordingly. Goodwill has been assigned to each business unit based
on specific identification of businesses acquired, where possible, or on
relative share of revenues as projected at the time of acquisition, for
transactions where more
20
<PAGE> 23
than one business was acquired. Interest costs were allocated based on the
level of capital used, including the allocated goodwill, reduced by cash flows
subsequently generated by the acquired businesses. The Company's projections
reflected a net loss prior to goodwill amortization in the retail business and
in the transportation business. The Company is not aware of any factors that
would suggest an improvement from the trend of the five year forecast in the
foreseeable future. Because of the results of these projections, the Company
has concluded that there was an impairment of goodwill and other intangible
assets in the transportation and retail businesses, and a charge of $230.3
million was recorded in the fourth quarter of 1993 to write-off the remaining
unamortized goodwill and intangible assets related to these businesses.
Before the write-off of goodwill in 1993, the Company would have
experienced its sixth consecutive year of losses for common shareholders, were
it not for a nonrecurring fee income of $1.7 million. The increase in pre-tax
income before the write-off of goodwill is due more to lower interest charges
than it is to increases in operating income. Cumulative losses since the
Company's inception are approximately $91,000,000, before the write-off of
goodwill in the fourth quarter of 1993. In the fourth quarter of 1993, the
Company was not able to complete a secondary stock offering which would have
significantly reduced its cost of capital, including interest expense and
preferred dividends.
RESULTS OF OPERATIONS
1993 VERSUS 1992
Revenue increased from $193.1 million in 1992 to $212.3 million, an
increase of $19.2 million, or 10.0%. Transportation services revenue increased
by $14.6 million, or 13.2% during 1993. Within transportation services, the
largest revenue growth came from telecommunications services, which increased
by $5.9 million, or 48.2%. Revenue growth in telecommunications services was
primarily attributable to a shift in sales responsibility for
telecommunications services from a small dedicated sales force to the Company's
larger general sales force. There are no assurances that the growth rate can
continue given competition for this business. Funds transfer revenue increased
by $3.7 million, or 5.4%, during 1993, primarily as a result of an increase in
the number of transactions. The effect of the increase in transactions was
partially offset by a decrease in average transaction fees. The decrease in
transaction fees resulted primarily from the shift in 1992 in the Company's
customer base from smaller trucking companies to larger ones, which often
qualify for volume discounts. Larger trucking companies also account for more
direct billing transactions, which have a lower fee because the Company is not
required to fund such transactions. Transaction fees are also subject to
reductions due to competitive pressures. Considering the industry
21
<PAGE> 24
consolidation of truckstops and trucking companies, there could be further
decreases in revenue per transaction, as these consolidated groups have more
purchasing power.
Increased competition was experienced in this sector, as a result of
the acquisition of one of the Company's competitors, CCIS, by EDS during the
fourth quarter of 1992. EDS has the resources necessary to compete effectively
in the transportation business. In 1994, the Company will be losing one of its
largest transportation customers to EDS, resulting in a loss of over $750,000
annually in revenue.
Permit services revenues increased from $24.5 million in 1992 to $25.5
million in 1993, an increase of $1.0 million or 4.1%. However, several changes
in state regulations governing the issuance of temporary trip and fuel permits
have been enacted recently that are expected to reduce the number of such
permits issued in the future.
Revenue from other transportation services in 1993 includes a one-time
fee of $1.7 million, received as compensation from a vendor following its
decision to discontinue its support of the DriverLink/24(R) in-cab
communication system. This service generated revenue of $2.4 million in 1993,
exclusive of this one-time fee. This service was launched to attempt to
increase the customer base and depth of service to the trucking industry. The
Company is currently exploring alternatives to the continuation of this
service, but there are no assurances that this product line will continue.
Gaming services revenue increased during 1993 by $4.9 million, or
6.9%. Increases in the number of transactions at gaming establishments
increased revenue before the merchant discounts assessed by the businesses that
process MasterCard and Visa transactions for the Company, but increases in such
merchant discounts offset a portion of the revenue increases. In October 1992
and April 1993, substantial increases in merchant discounts were instituted.
As a result of these increases, merchant discounts for 1993 were $3.2 million
higher than they would have been under the discounts in effect prior to such
increases. The MasterCard and Visa credit card associations have not announced
any additional increases in merchant discounts for 1994, although such
discounts have increased from time to time in the past and the Company is
unable to predict what pricing action the credit card associations may take in
the future. Such merchant discounts are treated as a reduction in revenue in
the Company's financial statements.
Comdata's network enables individuals to use certain credit cards to
obtain cash at the Company's service centers in gaming and certain other
locations. Comdata's ability to expand its cash advance services to nongaming
locations is limited by operating policies adopted by the credit card
associations. Cash advance transactions involving such credit card
associations that
22
<PAGE> 25
occurred at the locations discontinued or to be discontinued under such
policies accounted for approximately 3.0% of the Company's revenue in each of
1991 and 1992 and approximately 1.8% of the Company's revenue in 1993. The
Company's cash advance services are also subject to policies and regulations
adopted from time to time by such credit card associations, which could have an
adverse effect on the Company. See "Business - Gaming Services - Cash Advance
Services."
Revenue from retail services was approximately the same in 1993 as
compared to 1992. Recently, the Company was notified it will lose its largest
retail customer. After a transition period, there will be approximately $2.0
million in annual revenue which will have to be replaced, or total revenue in
retail will decline. New management was put in place at the beginning of 1993,
and charged with the responsibility of improving the financial results of this
product line. The Company has concluded that recent developments related to
the acceptance and use of debit and credit cards at supermarkets could
adversely affect its check authorization business.
Salaries and employee benefits increased from $49.6 million for 1992
to $53.2 million for 1993, an increase of $3.6 million, or 7.3%. During 1991,
an agreement was executed with PCI, Inc. ("PCI"), a subsidiary of Players
International, Inc. ("Players"), for the outsourcing of certain of Comdata's
sales, marketing and field support operations related to its cash advance
services in gaming facilities. The outsourcing of these operations to PCI
resulted in a reduction in the number of employees and in related salaries and
employee benefits. Effective January 1, 1993, the Company resumed
responsibility for certain sales and marketing functions that had been
outsourced by PCI, although PCI continues to provide certain sales and
marketing consulting services in connection with the Company's gaming cash
advance services. PCI continues to be subject to a noncompete agreement in
favor of the Company which expires on December 31, 1998. While the outsourcing
arrangement with PCI was beneficial to the Company, management believes that
the resumption by Comdata of responsibility for the operations previously
outsourced to PCI will improve the effectiveness of this part of the Company's
business. The resumption of these operations resulted in an increase in salary
and employee benefits expense of approximately $3.1 million for 1993, but also
resulted in a reduction of approximately $5.3 million in fees paid to PCI. The
fees paid to PCI were included in "Other Operating Costs" in 1992. Wage and
salary increases granted during the past twelve months account for the majority
of the remaining increase in this expense category.
Agent commissions increased from $24.0 million for 1992 to $30.3
million for 1993, an increase of $6.3 million, or 26.1%. These commissions are
paid to locations offering gaming cash advance services. In the 1993 period,
transactions increased at gaming locations, where agent commissions expense is
higher,
23
<PAGE> 26
compared to nongaming locations. In addition, the rates paid to certain
casinos were increased in response to competitive pressures. The trend of
increased transactions at gaming locations relative to nongaming locations is
primarily due to the Company's limited ability to expand its operations in
nongaming locations as a result of the Visa and MasterCard policies described
above and is expected to continue. As noted above, gaming revenue, after
deducting merchant discounts, increased by $4.9 million during this period,
while merchant discounts increased by $3.2 million. Without such merchant
discount price increases, gaming revenues would have more than offset the $6.3
million increase in agent commissions. Due to competitive pressures, there are
no assurances that agent commissions will not increase in the future at a
faster rate than growth in related revenue.
Telecommunications expense increased from $21.1 million for 1992 to
$26.4 million for 1993, an increase of $5.3 million, or 25.0% primarily due to
the 48.2% increase in telecommunications services revenue.
Depreciation and amortization expense increased from $13.8 million for
1992 to $14.8 million for 1993, an increase of $1.0 million, or 7.0%, primarily
due to the amortization of amounts recorded pursuant to the noncompete
agreement executed with PCI at the end of 1992 and to property additions.
Other operating costs decreased from $45.0 million for 1992 to $44.0
million for 1993, a decrease of $1.0 million, or 2.4%. The revision of the
outsourcing agreement with PCI eliminated $5.3 million of related expenses
during 1993. However, there have been increases in sales-related travel and
training costs (approximately $0.9 million) and increases in legal costs
(approximately $1.0 million), resulting from the fees paid in connection with
the antitrust suit brought by the Synapsis Corporation Ltd. against the Company
and Players, that have offset the reductions in expense attributable to the
termination of the PCI agreement. In addition, amortization related to a
deferred credit was $0.9 million less during 1993 than in 1992, and the Company
paid $0.7 million to a consulting firm to assist it in evaluating the
efficiency of its work force and procedures.
Interest expense decreased from $37.2 for 1992 to $30.3 million for
1993, a decrease of $6.9 million, or 18.4%, and preferred dividends were $11.2
million higher during 1993, as a result of the recapitalization the Company
completed in 1992. Dividends on preferred stock are payable in additional
shares of preferred stock with respect to Series A Convertible Preferred Stock,
or accrete to liquidation preference with respect to Series B and C Convertible
Preferred Stock, and in all cases do not require a cash payment.
The Company's effective tax rate is less than the statutory tax rate
because of the utilization of net operating loss
24
<PAGE> 27
carryforwards ("NOLs"). The Company had NOLs of approximately $12.0 million at
the end of 1993, which, if unused, will expire from 2005 to 2007. Because of
the utilization of the majority of such NOL's during 1993, the Company will
incur a much greater liability for income taxes in future periods.
1992 VERSUS 1991
Revenue increased from $184.5 million in 1991 to $193.1 million in
1992, an increase of $8.6 million, or 4.7%. Gaming cash advance revenue
increased from $66.0 million to $71.0 million, an increase of $5.0 million, or
7.6%, primarily as a result of increased transaction rates, as well as revenue
from new gaming establishments. The Company believes that new gaming
establishments will continue to provide a source of transaction growth, but is
unable to predict whether it will be able to continue to implement transaction
rate increases. Revenue related to transportation services increased $2.7
million, or 2.5%, in 1992. Revenue from funds transfer services was $0.8
million higher in 1992 compared to 1991. The number of transactions for these
services was higher during 1992, primarily due to an increased number of new
customers, but the effect of the increased number of transactions was partially
offset by decreases in average transaction fees. This decrease resulted in
part from a shift in the Company's customer base from smaller trucking
companies to larger ones, which often qualify for discounts. Larger trucking
companies also account for more direct billing transactions, which have a lower
fee because the Company is not required to fund such transactions. The Company
believes this trend is partially attributable to the effect of recent economic
conditions on smaller trucking companies. Any change in this trend will depend
on the state of the general economy. Permit services revenue increased
approximately $1.3 million, primarily due to acquisitions made in December
1991. Telecommunications revenue decreased due to limited new sales resources
being allocated to this product line. Other transaction services revenue
increased in 1992 as a result of revenue from Comdata's in-truck communication
service, DriverLink/24(R) , which began operations in the fourth quarter of
1991. Revenues from retail services increased due to the addition of new
customer contracts in this business.
In 1992, total operating costs decreased $3.5 million compared to the
$157.0 million expensed in 1991. All categories of costs were lower except
other operating expenses, which rose 4.6% in 1992. The Company's focus on
increasing efficiency, and the benefit of outsourcing agreements enabled the
lowering of total costs.
Salaries and employee benefits decreased from $51.0 million in 1991 to
$49.6 million in 1992, a decrease of $1.4 million, or 2.7%. During 1991,
agreements were entered into with ISSC for the outsourcing of Comdata's
internal data processing function and with PCI for the outsourcing of certain
Comdata sales,
25
<PAGE> 28
marketing and field support operations related to its cash advance services in
gaming facilities. The outsourcing of these operations resulted in a reduction
in the number of employees and in related salaries and employee benefits.
Agent commissions decreased from $25.7 million in 1991 to $24.0
million in 1992, a decrease of $1.7 million, or 6.6%. Agent commissions are
paid to locations offering gaming cash advance services, and the decrease is
due to a change in the mix of transactions from the major gaming centers in
Nevada and Atlantic City, New Jersey to gaming centers in other areas of the
United States where agent commission rates are lower. The Company believes
that the growth in cash advance services at gaming locations outside Nevada and
New Jersey will tend to lower agent commissions in those areas, but total agent
commission expenses will also be affected by the overall level of gaming
transactions.
Depreciation and amortization decreased from $15.3 million in 1991 to
$13.8 million in 1992, a decrease of $1.5 million, or 9.8%. This was primarily
a result of the elimination of depreciation on equipment sold to ISSC in
connection with the outsourcing of data processing services.
Other expenses increased from $43.0 million in 1991 to $45.0 million
in 1992, an increase of $2.0 million, or 4.7%. During 1992, Comdata incurred
$8.7 million in expenses under its agreement with ISSC for data processing
services, compared to $2.8 million in 1991. During 1992, expenses incurred
with PCI for sales, marketing and field support services for cash advance
services in gaming facilities were $5.3 million, compared to $1.8 million in
1991. The agreements with ISSC and PCI became effective in September 1991.
The revenue and cost benefits of these services, including a reduction in the
number of employees and in related salaries and employee benefits, a decrease
in depreciation expense for equipment transferred to ISSC and a reduction in
interest expense resulting from the application of proceeds from ISSC to reduce
debt and the assumption by ISSC of certain financing leases, offset
substantially all of the increase in other expenses attributable to the ISSC
and PCI fees. As discussed below, the fourth quarter of 1991 included expenses
totalling $5.8 million for recruiting and relocation, additional bad debt
provisions, legal fees and product development expenses. These expenses were
much lower in 1992, offsetting the increases in fees related to outsourcing
agreements.
Interest expense decreased from $39.1 million in 1991 to $37.2 million
in 1992, a decrease of $1.9 million, or 4.9%. During 1991, the Company raised
cash through the issuance of Series A Convertible Preferred Stock, and received
a payment of $15.0 million in connection with the outsourcing of its internal
data processing operations. These proceeds, together with cash generated by
operations, were used to reduce borrowings during the third quarter of 1991.
These reductions, together with lower
26
<PAGE> 29
prevailing interest rates, resulted in a reduction in interest expense.
During 1992, the Company's recorded $20.5 million as an extraordinary
loss on debt retirement in connection with the recapitalization that occurred
on December 29, 1992. This charge consists principally of the redemption
premiums and unamortized discount and debt issuance cost on the debt retired.
LIQUIDITY AND CAPITAL RESOURCES
RECAPITALIZATION
On December 29, 1992, Holdings and Comdata successfully completed a
recapitalization consisting of the replacement of Comdata's then existing bank
facility with the Revolving Credit Facility and the underwritten public
offering of $130.0 million principal amount of Comdata's 12.5% Senior Notes due
1999 and $75.0 million principal amount of its 13.25% Senior Subordinated
Debentures due 2002. In addition, Holdings raised equity by selling, for cash,
$25.0 million of Series C Convertible Preferred Stock and by issuing $53.0
million of Series B Convertible Preferred Stock in exchange for $52.0 million
principal amount of Comdata's then outstanding 11% Junior Subordinated Notes,
representing an exchange price equal to 102% of the principal amount of such
Notes.
As part of the recapitalization, Comdata redeemed $127.0 million
principal amount of its then outstanding 13.5% Senior Subordinated Discount
Notes due 1995 and $50.0 million principal amount of its then outstanding
13.75% Subordinated Debentures due 1997, at prices of 104% and 106% of the
principal amount, respectively, plus accrued and unpaid interest to the date of
redemption.
Comdata'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 December 31, 1993, there were outstanding loans under the Revolving
Credit Facility of $13.0 million and letters of credit totalling $13.5 million.
As a result of the recapitalization, Comdata 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, Comdata 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 Comdata's 12.5% Senior Notes begin in 1998.
Comdata's obligations under the Revolving Credit Facility are secured
by substantially all the assets of the Company and its subsidiaries, are
guaranteed by Holdings and bear interest at
27
<PAGE> 30
prime plus 1.75% or an adjusted Eurodollar rate plus 3%. The amount of credit
available under this arrangement is subject to limitations based on the amount
and nature of outstanding receivables.
The Revolving Credit Facility has provisions that require the Company
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 Comdata's outstanding loan amounts. At
December 31, 1993, the Company had $12.4 million in these accounts. Comdata,
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 Company or its subsidiaries from asset sales over
a certain minimum amount, 50% of the net cash proceeds received by Holdings or
the Company from permitted issuances of debt or equity and any excess cash flow
of the Company 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, Holding'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 December 31, 1993, the
Company was required to maintain a tangible net worth deficit of less than
$207.7 million, an interest coverage ratio in excess of 1.55 to 1, a current
ratio is excess of 0.85 to 1, and a debt to net worth ratio not to exceed 2.60
to 1, all as defined. As of December 31, 1993, 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, $199.4 million;
interest coverage ratio, 1.83 to 1; current ratio, 1.01 to 1; debt to net worth
ratio, 2.08 to 1.
WORKING CAPITAL
The Company's principal uses of funds for the next several years will
be for working capital, for debt service and for
28
<PAGE> 31
capital expenditures consisting of routine replacements of field computer
equipment and back office equipment, which expenditures are expected to be $4.5
million in 1994. New services offered by the Company will require additional
investments in working capital to fund growth in accounts receivable.
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 $18.7 million, or 21.0%, between the end of 1992 and December
31, 1993. Total revenue increased by 10.0% during the year ended December 31,
1993, as compared to the prior year. The volume of business conducted by the
Company during the last week of 1993 was greater than during the same period of
1992, and resulted in an increase in accounts receivable of approximately $11.0
million. The remaining portion of the increase in accounts receivable is
primarily attributable to the Saunders acquisition, which added approximately
$4.2 million to accounts receivable. For the years ended December 31, 1993 and
1992, the average days in accounts receivable outstanding, calculated based on
the average accounts receivable outstanding for such period, was approximately
6.2 and 5.8 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 1993 and 1991, operating activities provided
cash of $10.3 million and $48.4 million, respectively. In 1993, operations
included a non-cash charge of $230 million for the write-off of goodwill and
other intangibles. In 1992, however, operating activities used $9.5 million of
cash primarily due to increases in accounts receivable.
Net cash used for investing activities in 1993, 1992 and 1991 was
$15.4 million, $1.2 million and $6.7 million, respectively. These amounts
primarily represent payment for
29
<PAGE> 32
purchase business combinations, capital expenditures and additions to other
assets.
Net cash provided by financing activities for 1993 and 1992 was $2.7
million and $1.9 million, respectively, primarily consisting of net borrowings
under revolving credit agreements, and the effects of the refinancing
transactions at the end of 1992. In 1991, financing activities used $41.3
million, principally for payments on revolving credit loans.
NET TAX OPERATING LOSS CARRYFORWARDS
Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company has a net operating loss carryforward for income tax
purposes of approximately $12 million at December 31, 1993, which if unused,
will expire from 2005 to 2007.
CERTAIN ACCOUNTING POLICIES
The Company's funds transfer services for the trucking and gaming
industries require the Company to account for millions of transactions each
year. In 1993 the Company processed approximately 31.2 million transportation
funds transfer transactions and approximately 5.6 million cash advance
transactions at gaming locations and transferred in excess of $7.2 billion over
its network. In less than 0.15% of the total dollar amount of transactions,
the Company is unable to immediately settle such transactions. This may result
from a variety of reasons, including the Company's inability to match customer
remittances with specific transactions, the disproportionate cost of resolving
relatively small dollar credit balances and the failure of drafts and
settlements to clear in the normal course of the Company's business. As a
result of these circumstances, at any point in time the Company will have
unapplied cash balances that are carried as credits to accounts receivable or
as unsettled drafts payable. These balances will generally fluctuate with
transaction volumes. If the Company does not settle such transactions within a
period of twelve months, it is the Company's current policy to take the full
amount of the unsettled transactions into revenue.
In 1991, the Company recognized $10.5 million of unsettled
transactions as revenue and $1.9 million as a credit to its bad debt allowance,
thereby reducing bad debt expense. In 1992 and 1993, the Company recognized
$10.8 million and $9.2 million, respectively, of unsettled transactions as
revenue. The classification of amounts from unsettled transactions as revenue
or as a credit to expense does not affect the calculation of net income. In
addition, the change in classification does not have any effect on net cash
provided by or used for operating activities as presented on the Company's
statements of cash flows. The Company believes that its revenue recognition
policy
30
<PAGE> 33
for unsettled transactions is in accordance with generally accepted accounting
principles.
The Company believes that the twelve-month delay in recognizing such
revenue affords sufficient time to determine whether customers have valid
claims to such funds, and the Company has experienced insignificant claims for
unsettled funds after such twelve-month period. However, the Company may have,
as a result of its inability to settle definitively all transfer transactions,
contingent liabilities for unapplied cash balances. In certain cases, the
Company may have in its possession unclaimed or abandoned funds that may be
payable to governmental authorities under state escheatment laws. Because of
the Company's inability to settle all funds transfer transactions, the
magnitude of such unclaimed funds cannot be determined. Based on its past
experience, the Company does not believe that escheatment laws create material
liabilities for the Company, although no assurances can be given that such
liabilities will not be asserted in the future.
In 1992, the Company engaged Benton International, Inc. ("Benton"), a
management consulting firm in the financial and payment systems industry, to
review the Company's systems and procedures for handling funds transfer
transactions. A March 1992 study prepared by Benton for the Company
recommended a series of steps to improve the Company's transaction processing
abilities. The Company's management has reviewed the recommendations and
expects that most of such recommendations will be implemented over the next
several years and that, as a result, unsettled transactions will decrease as a
percentage of total transactions. The Company anticipates that the cost of
implementing the Benton recommendations, primarily the cost of computer
hardware and software, should be offset by increased employee efficiencies.
The implementation of the recommendations should also increase the capacity of
the Company's network and increase customer responsiveness.
NEW ACCOUNTING PRONOUNCEMENTS
In 1993, Holdings adopted the provisions of SFAS No. 112, "Employers'
Accounting for Postemployment Benefits - An Amendment of SFAS Nos. 5 and 43."
The adoption of this pronouncement does not have a significant effect on the
Company's financial statements. The Company's historical accounting policies
were consistent with the provisions of SFAS No. 112.
Holdings does not provide the benefits addressed by SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements and Supplementary Data listed in the
accompanying Index to Consolidated Financial Statements
31
<PAGE> 34
and Schedules which appears on page 33 of this Annual Report. Information
required by other schedules called for under Regulation S- X is either not
applicable or is included in the consolidated financial statements or the notes
thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
32
<PAGE> 35
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Consolidated Balance Sheets as of December 31, 1993 and
1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Statements of Operations for the years ended
December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . 37
Consolidated Statements of Cash Flows for the years
ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Schedule II - Amounts Receivable from Related Parties,
Underwriters, Promoters and Employees other than
Related Parties for the years ended December 31, 1993,
1992, and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Schedule V - Property and Equipment for the years ended
December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Schedule VI - Accumulated Depreciation of Property and
Equipment for the years ended December 31, 1993,
1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Schedule VIII - Valuation and Qualifying Accounts for
the years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . 59
Schedule X - Supplementary Income Statement Information
for the years ended December 31, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . 60
</TABLE>
33
<PAGE> 36
ARTHUR ANDERSEN & CO.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Comdata Holdings Corporation:
We have audited the accompanying consolidated balance sheets of Comdata
Holdings Corporation (a Delaware corporation) and subsidiary as of December 31,
1993 and 1992, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1993. These financial statements and the schedules referred
to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial position of Comdata Holdings
Corporation and subsidiary as of December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 7 to the consolidated financial statements, effective
January 1, 1992, the Company changed its method of accounting for income taxes.
As discussed in Note 1 to the consolidated financial statements, effective
December 31, 1993, the Company changed its method of evaluating the impairment
of its goodwill and related intangibles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in
the index to consolidated financial statements and schedules are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not a required part of the basic financial statements. These schedules
have been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Nashville, Tennessee
February 25, 1994
34
<PAGE> 37
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
December 31,
-------------------
1993 1992
---- ----
ASSETS (In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,332 $ 15,716
Accounts receivable, less allowance for
doubtful accounts of $6,087,000 in 1993;
$5,839,000 in 1992 107,555 88,920
Prepaid expenses and other 2,226 1,703
-------- --------
Total current assets 123,113 106,339
Property and equipment: -------- --------
Buildings and improvements 2,460 2,087
Equipment 24,916 18,204
-------- --------
27,376 20,291
Less accumulated depreciation (17,760) (14,420)
-------- --------
9,616 5,871
Cost in excess of fair value of net -------- --------
assets acquired, net 79,618 304,506
Other assets, net 13,824 17,016
-------- --------
$226,171 $433,732
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Drafts payable $ 8,211 $ 6,753
Settlements payable 65,897 63,017
Accounts payable 10,410 10,421
Other accrued liabilities 17,312 15,921
Customer security deposits 6,632 5,413
Current maturities of long-term debt 702 2,046
-------- --------
Total current liabilities 109,164 103,571
-------- --------
Deferred credit 6,125 9,028
-------- --------
Long-term debt, net of current maturities 230,208 224,753
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share,
authorized 5,000,000 shares:
Series A, issued and outstanding 645,902
shares, 1993; 560,000 shares, 1992; stated at
liquidation preference, $25 per share plus
accrued dividends 16,232 14,354
Series B, issued and outstanding 562,033
shares, 1993; 572,226 shares, 1992;
stated at liquidation preference,
$100 per share plus accrued dividends 63,713 57,367
Series C, issued and outstanding 250,500
shares, stated at liquidation preference,
$100 per share plus accrued dividends 28,285 25,076
Common stock, par value $.01 per share,
authorized 100,000,000 shares; issued
and outstanding 14,721,929 shares,
1993; 14,375,057 shares, 1992 147 144
Paid-in capital 101,885 99,307
Accumulated deficit (329,588) (99,868)
-------- --------
Total stockholders' equity (deficit) (119,326) 96,380
-------- --------
$226,171 $433,732
</TABLE> ======== ========
See notes to consolidated financial statements.
35
<PAGE> 38
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
1993 1992 1991
---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C>
REVENUE (net of amounts paid to a
related party, $346 in 1993;
$397 in 1992) $212,316 $193,072 $184,468
-------- -------- --------
OPERATING COSTS:
Salaries and employee benefits 53,241 49,606 50,999
Agent commissions 30,252 23,988 25,666
Telecommunications (including amounts
paid to a related party, $11,211
in 1993; $7,673 in 1992; $456 in 1991) 26,424 21,140 22,033
Depreciation and amortization 14,778 13,813 15,298
Write-off of goodwill and other intangibles 230,257 - -
Other operating costs 43,966 45,034 43,040
--------- -------- --------
Total operating costs 398,918 153,581 157,036
--------- -------- --------
Income (loss) before interest, taxes
and extraordinary item (186,602) 39,491 27,432
Interest expense (30,303) (37,154) (39,088)
Interest income 35 76 281
--------- -------- --------
Income (loss) before income taxes,
extraordinary item and preferred
stock dividend requirement (216,870) 2,413 (11,375)
Income tax benefit (expense) (235) - 850
--------- -------- --------
Net income (loss) before
extraordinary item (217,105) 2,413 (10,525)
Extraordinary item: loss on
debt retirement - (20,503) -
--------- -------- --------
Net loss before preferred stock
dividend requirement (217,105) (18,090) (10,525)
Preferred stock dividend requirement,
payable in shares of stock or accreting
to liquidation preference (12,583) (1,430) (329)
--------- -------- --------
Net loss for common stock $(229,688) $(19,520) $(10,854)
========= ======== ========
EARNINGS PER SHARE:
Net income (loss) before extraordinary item
and preferred stock dividend requirement $ (15.03) $ 0.17 $ (0.75)
Extraordinary item - (1.44) -
--------- -------- --------
Net loss before preferred stock
dividend requirement (15.03) (1.27) (0.75)
Preferred stock dividend requirement (0.87) (0.10) (0.02)
--------- -------- --------
Net loss per common share $ (15.90) $ (1.37) $ (0.77)
========= ======== ========
Weighted average common shares outstanding 14,447 14,282 14,147
========= ======== ========
</TABLE>
See notes to consolidated financial statements.
36
<PAGE> 39
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
PREFERRED STOCK
--------------------------------
SERIES A SERIES B SERIES C COMMON STOCK PAID-IN ACCUMULATED
----------------
AMOUNT AMOUNT AMOUNT SHARES AMOUNT CAPITAL DEFICIT
------ ------ ------ ------ ------ ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990 $ - $ - $ - 14,126 $ 142 $ 96,674 $(67,182)
Issuance of preferred stock 14,000 - - - - - (28)
Preferred stock dividend
accretion - - - - - - (329)
Stock issued in acquisitions - - - 10 - 69 -
Stock options exercised - - - 30 - 209 -
Vesting of nonqualified
stock options - - - - - 318 -
Net loss - - - - - - (10,525)
------- ------- ------- ------ ------- -------- ---------
Balance, December 31, 1991 14,000 0 0 14,166 142 97,270 (78,064)
Issuance of preferred stock - 57,223 25,050 - - - (2,253)
Preferred stock dividend
accretion 354 144 26 - - - (1,430)
Payment of preferred stock
dividend - - - 136 1 1,234 -
Stock options exercised - - - 73 1 461 -
Vesting of nonqualified
stock options - - - - - 342 -
Foreign currency translation
adjustment - - - - - - (31)
Net loss - - - - - - (18,090)
------- ------- ------- ------ ------- -------- ---------
Balance, December 31, 1992 14,354 57,367 25,076 14,375 144 99,307 (99,868)
Preferred stock dividend accretion 1,878 7,496 3,209 - - - (12,583)
Preferred stock conversion - (1,150) - 192 2 1,148 -
Stock options excercised - - - 86 1 572 -
Stock issued in acquisitions - - - 69 - 525 -
Vesting of nonqualified
stock options - - - - - 333 -
Foreign currency translation
adjustment - - - - - - (32)
Net loss - - - - - - (217,105)
------- ------- ------- ------ ------- -------- ---------
Balance, December 31, 1993 $16,232 $63,713 $28,285 14,722 $ 147 $101,885 $(329,588)
======= ======= ======= ====== ======= ======== =========
</TABLE>
See notes to consolidated financial statements.
37
<PAGE> 40
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
1993 1992 1991
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) before extraordinary item $(217,105) $ 2,413 $ (10,525)
--------- --------- ---------
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation, amortization and write-off
of goodwill and other intangibles 245,035 13,813 15,298
Amortization of debt discount and issuance costs 2,844 2,855 13,090
Provision for losses on accounts receivable 5,055 6,004 8,600
Proceeds from Systems Operations
Services Agreement - - 15,000
Amortization of deferred credit (2,903) (3,754) (1,269)
--------- --------- ---------
Total adjustments before changes in
assets and liabilities 250,031 18,918 50,719
--------- --------- ---------
Change in assets and liabilities, net of
effects from purchase business combinations:
Accounts receivable (18,075) (23,907) 27,514
Prepaid expenses and other (362) 236 1,976
Drafts and settlements payable (4,644) 5,437 (18,198)
Other accrued liabilities 148 (12,565) (2,781)
Other 268 (44) (321)
--------- --------- ---------
Total changes in assets and liabilities, net of
effects from purchase business combinations (22,665) (30,843) 8,190
--------- --------- ---------
Net cash provided by (used for)
operating activities 10,261 (9,512) 48,384
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (5,954) (2,794) (4,965)
Additions to other assets (2,005) - -
Payment for purchase business combinations,
net of cash acquired (7,486) - (2,067)
Proceeds from sale of property held
for resale and other assets 69 1,607 360
--------- --------- ---------
Net cash used for investing activities (15,376) (1,187) (6,672)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 573 462 209
Proceeds from issuance of preferred stock, net - 22,797 13,972
Net borrowing (payments) on revolving credit loans 5,708 (26,700) (53,000)
Principal payments on long-term debt and
capital leases (2,945) (2,214) (3,061)
Borrowings of long-term debt and capital leases - 188 532
Payment on subordinated debt - (177,000) -
Proceeds from subordinated debt - 205,000 -
Payment of debt retirement expenses - (9,649) -
Payment of debt issuance costs (605) (10,940) -
--------- --------- ---------
Net cash provided by (used for) financing activities 2,731 1,944 (41,348)
--------- --------- ---------
Net increase (decrease) in cash and equivalents (2,384) (8,755) 364
Cash and equivalents, beginning of period 15,716 24,471 24,107
--------- --------- ---------
Cash and equivalents, end of period $ 13,332 $ 15,716 $ 24,471
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
38
<PAGE> 41
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES:
Principle of Consolidation-
The consolidated financial statements include the accounts of Comdata
Holdings Corporation ("Holdings" or the "Company") and its wholly owned
subsidiary, Comdata Network, Inc. ("Network"). Unless the context otherwise
requires, references to "Holdings" or the "Company" include Comdata Holdings
Corporation, Comdata Network, Inc. and its subsidiaries. Holdings' investment
in Network represents Holdings' only material asset, and Holdings has no
operations except for its ownership of the capital stock of Network. All
significant intercompany transactions and accounts have been eliminated.
Cash and Short Term Investments-
Cash is generally held in banking institution accounts. These
accounts are insured up to the maximum amount allowed by law.
For purposes of the statement of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
Accounts Receivable-
The majority of the Company's receivables are due from customers in
the trucking industry located throughout the United States and Canada.
Receivables from certain customers are secured by cash deposits, bonds, and
letters of credit. The Company continuously monitors the creditworthiness of
its customers.
Property and Equipment-
Property and equipment are stated at cost. Depreciation is provided
on a straight-line basis over the estimated useful lives of the related assets.
The cost of assets retired or otherwise disposed of and the related accumulated
depreciation are removed from the accounts, and the gain or loss is reflected
in the statement of operations.
Cost in Excess of Fair Value of Net Assets Acquired-
The excess of cost over the fair value of net assets acquired
(goodwill) is being amortized on a straight-line basis over forty years. Prior
to the fourth quarter of 1993, the Company evaluated, on a continual basis, the
realizability of goodwill using measurements of earnings before interest,
taxes, depreciation and amortization, as well as operating cash flow for the
respective acquired operations. In addition, the Company
39
<PAGE> 42
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
considered the effects of external changes to the Company's business
environment, including competitive pressures, market erosion and technological
and regulatory changes.
In the fourth quarter of 1993, management evaluated the realizability
of its retail goodwill and determined that this operation's goodwill was
impaired. After evaluation of the 1993 events described below, the Company
determined that the projected net income of each major business unit of the
Company was a preferable measurement of impairment of its goodwill and related
intangibles. Management believes that measurements based on net income are
relevant measures because they include the significant costs of interest and
income taxes, which were not included in the method previously used. Financing
costs changed significantly after the Company's refinancing transaction at the
end of 1992, and the impact of income taxes on the Company's operations are
expected to increase as the Company's tax payments will be prior to goodwill
amortization. Based on the cost of the Company's recent refinancing and
inability to complete a secondary offering in December 1993, it is also
believed that such measures are a preferable measurement indicator of fair
value and more relevant to the users of the financial statements. In applying
the test, the Company determined that substantially all of its goodwill related
to the transportation business was impaired. The Company wrote-off the
remaining balance of goodwill and certain other long-lived intangible assets of
its retail and substantially all of its goodwill and intangibles for the
transportation businesses in the fourth quarter of 1993. See Note 2.
Other Assets-
Debt issuance costs are amortized over the term of the related debt
agreement. Noncompete agreements are amortized over the life of the agreement.
As discussed above and in Notes 2 and 5, the Company wrote-off intangible
assets with a net book value of $1,648,000 in 1993.
Revenue Recognition-
Revenue from the Company's funds transfer, regulatory permit and
gaming cash advance services consists of the transaction fees charged to
customers. Such revenue does not include the cost of goods and services
provided by the Company (e.g., fuel purchased, permit provided or face amount
of the Comchek(R) purchased and cashed.) However, the Company must pay the
issuing agent (e.g., truck stop, casino or state agency) for the full cost of
the goods and services provided and accordingly, bills the customer for such
cost as well as the transaction fee. As a result, the Company's accounts
receivable include both the cost of the goods and services provided and the
transaction fees. The Company's drafts and settlements payable includes the
amount due to the
40
<PAGE> 43
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
issuing agent for the cost of the goods and services. Revenue is recognized
for the amount of the transaction fee at the time the goods and services are
provided. In a small proportion of the Company's funds transfer transactions,
some customer transactions may not be settled, or drafts and settlements
payable cleared in the normal course of business. If such balances cannot be
settled within a period of twelve months, such amounts are recorded as revenue.
The Company believes that its revenue recognition policy for unsettled
transactions is in accordance with generally accepted accounting principles.
The delay in the recognition of such revenue is appropriate to permit
sufficient time to determine whether balances exist in favor of customers.
Unsettled credits and drafts that are outstanding for a period of twelve months
are recorded as revenue based on the Company's belief that such amounts are
earned revenue for goods and services rendered.
Disclosure of Fair Value of Financial Instruments-
The carrying amounts of cash and cash equivalents approximate fair
value because of the short-term nature of these items. Based on the current
market rates offered for the Company's publically-traded indebtedness, the fair
value of the Company's long- term debt exceeded the carrying amount by
approximately $23,000,000 at December 31, 1993. At December 31, 1992, the
carrying amount of the Company's long-term debt approximated fair market value
because substantially all the Company's debt was refinanced on December 29,
1992.
Reclassifications-
Certain reclassifications have been made to the 1992 consolidated
financial statements to conform to the 1993 presentation.
(2) GOODWILL AND RELATED INTANGIBLES:
As discussed in Note 1, the Company has evaluated the recoverability
of goodwill as of the end of fourth quarter of 1993. In evaluating goodwill,
management projected the net income of its product lines over the next five
years, and compared these projections to the amortization of goodwill to be
recorded during those periods. For purposes of these projections, goodwill was
identified with specific acquired product lines where possible, and was
allocated between units based on projections of revenues (at similar margins)
made at the time of related acquisitions where more than one product line was
acquired. Interest costs were allocated between units based on the level of
capital used in acquisitions, reduced by the cash flows subsequently generated
by the acquired units, reflective of the net assets of the product lines.
Revenues were projected to grow at the rates noted during the past five years,
adjusted for
41
<PAGE> 44
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
effects of acquisitions and other known industry trends, with corresponding
inflationary and other increases in operating expenses.
The Company's projections reflected a net loss prior to goodwill
amortization in the retail business and in the transportation business, after
interest costs and income taxes. The Company is not aware of any factors that
would suggest an improvement from the trend of the five year forecast in the
foreseeable future. Because of the results of these projections, the Company
has concluded that substantially all of its retail and transportation goodwill
is not recoverable in the future. Accordingly, a charge of $230,257,000 was
recorded in the fourth quarter of 1993 to write-off substantially all of the
remaining balance of goodwill and other long-lived intangible assets of these
units. This charge removes all the intangible assets related to these
businesses from the consolidated balance sheet, except for goodwill related to
an acquisition made in December 1993, which operation is expected to produce
sufficient net income to recover its related goodwill, and certain purchased
software of the retail unit which is being introduced during 1994.
The Company also has goodwill related to its gaming division that is
not impaired based on the realization tests. The Company will continuously
monitor the recoverability of gaming division goodwill.
(3) RECAPITALIZATION AND LOSS ON DEBT RETIREMENT:
On December 29, 1992, the Company completed a recapitalization
consisting of the replacement of its existing bank facility with a new
$50,000,000 senior secured revolving credit facility and the underwritten
public offering of $130,000,000 principal amount of 12.5% Senior Notes due 1999
and $75,000,000 principal amount of 13.25% Senior Subordinated Debentures due
2002. In addition, the Company raised equity by selling $25,000,000 of a new
Series C Convertible Preferred Stock, and by issuing $53,041,000 of Series B
Convertible Preferred Stock in a noncash exchange for $52,001,000 of
outstanding 11% Junior Subordinated Notes, representing an exchange price equal
to 102% of the principal amount.
As part of the recapitalization plan, the Company also called for the
redemption of $127,000,000 principal amount of its outstanding 13.5% Senior
Subordinated Discount Notes due 1995 and $50,000,000 principal amount of its
13.75% Subordinated Debentures due 1997. Funds sufficient to retire the debt
were placed into escrow on December 29, 1992, and the debt has been removed
from the accompanying consolidated balance sheet. The
42
<PAGE> 45
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
redemption took place January 29, 1993 at prices of 104% and 106%,
respectively, plus accrued and unpaid interest to the date of redemption.
As a result of this transaction, the Company has reported an
extraordinary loss on debt retirement of $20,503,000 in 1992, consisting
principally of the premiums paid on the debt retired and unamortized discount
and debt issuance costs related to this debt.
Unaudited pro forma results of operations for the years ended December
31, 1992 and 1991 are presented below, giving effect to the recapitalization
transactions. The pro forma effects are presented as if the recapitalization
transactions had taken place at the beginning of 1991.
<TABLE>
<CAPTION>
Pro Forma As Adjusted
Years Ended December 31,
------------------------
1992 1991
---- ----
(unaudited)
<S> <C> <C>
Revenues $193,072 $184,468
Costs and expenses 153,581 157,036
-------- --------
Income before interest and taxes 39,491 27,432
Interest expense, net (30,679) (31,710)
-------- --------
Income (loss) before income taxes 8,812 (4,278)
Income tax benefit (provision) (128) 708
-------- --------
Net income (loss) 8,684 (3,570)
Preferred dividend requirement (14,176) (12,542)
-------- --------
Net loss for common stock $ (5,492) $(16,112)
======== ========
Net loss per common share $ (0.38) $ (1.14)
======== ========
Weighted average common
shares outstanding 14,282 14,147
======== ========
</TABLE>
The pro forma financial information does not purport to be indicative
of the results that would actually have been obtained had the recapitalization
transactions been completed for the periods presented or that may be obtained
in the future.
(4) BUSINESS COMBINATIONS:
In January 1991, the Company purchased the net assets of a business
engaged in the distribution of audio tapes marketed to truck drivers, in
exchange for approximately 10,000 shares of common stock.
In December 1991, the Company completed the purchase of territorial
rights from two businesses and the stock of three other businesses engaged in
permit transmission services for an
43
<PAGE> 46
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
aggregate purchase price of approximately $1,735,000 in cash and $2,353,000 in
deferred payments and notes payable, including payments for noncompete
agreements from the sellers. In 1993, common stock of the Company with a
market value of approximately $525,000 was issued to certain sellers, pursuant
to contingent payment provisions of the purchase agreement.
In December 1993, the Company purchased the outstanding stock of a
company engaged in funds transfer and permit services in the transportation
industry for a purchase price of approximately $8,393,000 in cash and
$1,000,000 in notes payable, including payments made to retire outstanding
indebtedness of the acquired company.
In February 1994, the Company acquired the net assets of a business
that develops computer software for the transportation industry. The purchase
price was $500,000, plus contingent payments of up to $8,800,000 to be made
over the next three years based on the earnings of the acquired business before
interest, taxes, depreciation and amortization expenses.
These acquisitions were accounted for as purchases, and the results of
operations of the acquired businesses are included in the consolidated
financial statements from the effective date of the acquisitions. The
aggregate purchase price has been allocated to the net assets acquired based on
their fair values. The prior results of operations of the acquired businesses
are not material to those of the Company.
(5) OTHER ASSETS:
Other assets consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Noncompete agreements, net $ 2,255 $ 4,152
Debt issuance costs, net 9,342 10,924
Other noncurrent assets, net 2,227 1,940
------ -------
$13,824 $17,016
======= =======
</TABLE>
In 1992, as more fully described in Note 3, the Company wrote-off
$3,245,000 of its debt issuance costs and incurred $10,941,000 of new debt
issuance costs related to its recapitalization.
In 1993, as more fully described in Note 2, the Company wrote-off
intangible assets with a net book value of $1,648,000 pursuant to an evaluation
of the recoverability of such assets through future operations. These amounts
consisted principally of noncompete agreements and customer contracts in the
transportation services business.
44
<PAGE> 47
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(6) LONG-TERM DEBT:
Long-term debt at December 31, 1993 and 1992 consists of the following
(in thousands):
<TABLE>
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Revolving Credit Loan $ 13,008 $ 7,300
12.5% Senior Notes due 1999 130,000 130,000
13.25% Senior Subordinated
Debentures due 2002 75,000 75,000
11% Junior Subordinated Notes, net of
unamortized discount of $552,000 and
$660,000, respectively, effective
interest rate of 14.2%, due 1997 5,684 5,576
Noninterest bearing note payable, due
June 30, 1995, interest imputed at 10%,
net of unamortized discount of $758,000
and $1,210,000, respectively 4,972 4,520
Other notes payable, interest at rates
from 7.5% to 12.5%, payable through 2001 2,246 4,403
-------- --------
230,910 226,799
Less - current maturities (702) (2,046)
-------- --------
$230,208 $224,753
======== ========
</TABLE>
The aggregate principal maturities of long-term debt are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ------
<S> <C>
1994 $ 702
1995 18,182
1996 637
1997 5,808
1998 134
Thereafter 205,447
-------
$230,910
========
</TABLE>
As discussed in Note 3, the Company completed a recapitalization on
December 29, 1992, pursuant to which its previously existing revolving credit
agreement was retired, its 13.5% Senior Subordinated Discount Notes and 13.75%
Subordinated Debentures were redeemed, and a portion of its 11% Junior
Subordinated Notes were exchanged for Series B Convertible Preferred stock.
45
<PAGE> 48
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Funds sufficient to retire the 13.5% Senior Subordinated Discount
Notes and 13.75% Subordinated Debentures and pay all call premiums and accrued
interest through the redemption date, January 29, 1993, were placed into escrow
with the respective trustees. Accordingly, such escrowed amounts and debt have
been removed from the accompanying consolidated balance sheet at December 31,
1992.
The Company's new Revolving Credit Agreement provides for revolving
credit loans and letters of credit aggregating up to $50 million, with a $25
million sublimit for letters of credit. The total amount of the Revolving
Credit Facility will be reduced by $12.5 million on December 29, 1994, and will
expire on December 29, 1995. The Company's obligations under the Revolving
Credit Facility are secured by substantially all the assets of the Company and
its subsidiaries, 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 limitations based on the amount and nature of outstanding
receivables. As of December 31, 1993, outstanding letters of credit totaled
$13,547,000.
The 12.5% Senior Notes (the "Notes") in the principal amount of
$130,000,000 were issued on December 29, 1992. The Senior Notes are
obligations of Network on a senior unsecured basis, and are guaranteed on a
senior unsecured basis by Holdings. Interest will accrue from the date of
issuance, and is payable semi-annually on each June 15 and December 15,
beginning June 15, 1993. The Notes mature December 15, 1999, and a mandatory
sinking fund payment calculated to retire 50% of the Notes plus accrued
interest is required on December 15, 1998. The Notes are redeemable at any
time on or after December 15, 1997, at the option of the Company, in whole or
in part, at a redemption price of 101.786% of principal amount plus accrued
interest, declining to 100% of principal amount plus accrued interest on
December 15, 1998.
The 13.25% Senior Subordinated Debentures (the "Debentures") in the
principal amount of $75,000,000 were issued on December 29, 1992. The
Debentures are obligations of Network on a subordinated basis, and are
guaranteed on a senior subordinated basis by Holdings. Interest will accrue
from the date of issuance, and is payable semi-annually on each June 15 and
December 15, beginning June 15, 1993. The Debentures mature December 15, 2002,
and a mandatory sinking fund payment calculated to retire 50% of the Debentures
plus accrued interest is required on December 15, 2001. The Debentures are
redeemable at any time on or after December 15, 1997 at an initial redemption
price of 106.625% of principal amount plus accrued interest, declining each
year to par plus accrued interest on December 15, 2001.
46
<PAGE> 49
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The 11% Junior Subordinated Notes (the "Junior Notes") were issued in
1987 at a discount of $10,389,000, resulting in an effective interest rate of
14.2%. In June and December of 1992, Junior Notes in the principal amount of
$56,101,000 were exchanged for $57,223,000 of Series B Convertible Preferred
Stock. The Junior Notes are obligations of Network on a junior subordinated
basis and are guaranteed on a junior subordinated basis by Holdings. Interest
on the Junior Notes is payable at 11% semi-annually on April 15 and October 15,
although under certain limited circumstances, deferred interest notes may be
issued in lieu of interest payments. The Junior Notes are due in 1997, but the
maturity of all or part of the Junior Notes may be extended by Network until
October 15, 1998 under certain circumstances. Interest during the extended
period will be 12.5% per annum. The Junior Notes may be redeemed at the
Company's option, in whole or in part, at any time at a redemption price of
105% of principal amount through October 14, 1993 and declining each year
thereafter to 101% of principal amount on October 15, 1996, subject to certain
limitations.
The terms of the Company's debt agreements contain certain financial
covenants, including, among other items: (i) the maintenance of certain
financial ratios and compliance with certain financial calculations and
limitations; (ii) prohibition of the payment of cash dividends and the
incurrence of additional indebtedness and liens; (iii) restrictions on mergers,
acquisitions, and investments; and (iv) limits on capital expenditures.
Substantially all assets of the Company are pledged as collateral on the
indebtedness outstanding under the Revolving Credit Agreement. As of December
31, 1993, the Company was in compliance with all covenants.
The Revolving Credit Agreement has provisions which require the
Company 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 the Company's outstanding loan
amounts. At December 31, 1993, the Company had $12,387,000 in these accounts.
The Company, on a daily basis, monitors its cash position and makes transfers
and other transactions necessary to comply with these provisions of the
Revolving Credit Agreement.
Cash interest paid during the years ended December 31, 1993, 1992, and
1991 was $26,511,000, $46,089,000, and $22,021,000, respectively. Interest
payments in 1992 included $11,930,000 paid early due to the retirement of debt.
(7) INCOME TAXES:
Effective January 1, 1992, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company had net
47
<PAGE> 50
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
operating loss carryforwards for financial reporting and income tax purposes of
approximately $25 million and $14 million, respectively, at December 31, 1991.
As a result, no adjustment for the cumulative effect of this accounting change
was required. However, since the accounting treatment for presenting
extraordinary losses and net operating losses under Statement 109 differs from
the Company's previous accounting method, the effect of the adoption is to
increase the amount of net income before extraordinary item by $.31 per share,
increase the amount of the extraordinary loss per common share by the same
amount, with no effect on net income per common share.
The provision (benefit) for income taxes is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Current $ 235 $ - $ (850)
Deferred - - -
------- ------- -------
$ 235 $ - $ (850)
======= ======= =======
</TABLE>
In connection with the acquisition of Fundsnet, Inc., in June 1989,
the Company recorded an income tax liability of $1,000,000 for potential
assessments pursuant to Internal Revenue Service examinations that were in
process at the time of the acquisition. This amount represented the Company's
maximum potential liability under the terms of the purchase agreement. In
August 1991, these examinations were completed, and no additional tax liability
was assessed. Accordingly, an income tax benefit of $1,000,000 was recorded in
1991. This benefit was partially offset by a tax provision of $150,000,
resulting in a net tax benefit of $850,000 in 1991. In 1992, no taxable income
was generated.
The effective income tax rate as determined from the consolidated
statements of operations differs from the Federal income tax statutory rate due
to the following:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Federal income tax statutory rate (34.0%) 34.0% (34.0%)
Extraordinary loss on debt retirement - (187.0%) -
Amortization and write-off of cost in
excess of net assets acquired 37.3% 131.2% 27.6%
Examination adjustment - - (8.8%)
Net operating loss adjustment (3.3%) 20.3% 5.4%
State income taxes and other 0.1% 1.5% 2.3%
----- ------ -----
0.1% - (7.5%)
====== ====== =====
</TABLE>
At December 31, 1993, the Company had available net operating loss
carryforwards for income tax purposes of
48
<PAGE> 51
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
approximately $12,000,000. These carryforwards, if unused, will expire from
2005 to 2007.
At December 31, 1993, the Company has recognized a deferred tax
benefit of approximately $6,000,000, and a corresponding amount has been
reserved due to the uncertainty of realization. This amount is primarily
related to tax net operating loss carryforwards and expenses deducted for
financial reporting purposes not yet deducted for tax purposes.
No income taxes were paid during 1992 or 1991. During 1993, income
tax payments were $80,000.
(8) STOCK OPTION PLAN:
The Company has an employee stock option plan that provides for the
granting of incentive stock options and nonqualified stock options. Up to
2,000,000 shares of common stock may be issued under this plan, and options
granted vest ratably over a five year period from the date of grant. On August
3, 1993, the Company's Board of Directors approved the granting of a total of
619,166 stock options under the employee stock option plan at a price of $8.25,
the last sale price of the Company's common stock on that date. These options
were issued in exchange for a like number of options originally issued at
prices ranging from $9.00 to $18.39. At December 31, 1993, there were options
for 1,624,000 shares outstanding at option prices of $6.00 to $15.00 per share.
As of such date, options for 762,000 shares were exercisable at $6.00 to $15.00
per share. During 1993, 1992, and 1991, options were exercised for 85,000,
73,000 and 30,000 shares, respectively, at prices from $6.00 to $10.125 per
share, and options were canceled for 70,000, 184,000, and 195,000 shares,
respectively, at prices from $6.00 to $15.00 per share.
As of December 31, 1993 and 1992, unearned compensation related to
nonqualified stock options was $451,000 and $785,000, respectively. In 1993,
1992, and 1991, $333,000, $342,000 and $318,000, respectively, was charged to
expense and credited to paid-in capital for amounts earned through vesting of
nonqualified stock options.
(9) COMMITMENTS:
The Company leases office space, computer equipment, and other
equipment under noncancelable operating leases expiring through 2001. Future
minimum rental commitments required under operating leases having initial or
remaining noncancelable lease terms in excess of one year as of December 31,
1993 are as follows: 1994 - $3,598,000; 1995 - $2,435,000; 1996 - $2,038,000;
1997 - $1,942,000; 1998 - $1,930,000; thereafter, $6,042,000.
49
<PAGE> 52
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Rental expense charged to operations under operating lease
arrangements was $4,362,000, $5,580,000, and $5,574,000, for the years ended
December 31, 1993, 1992, and 1991, respectively.
In 1991, the Company entered into a Sales, Marketing and Operations
Agreement with PCI, Inc. ("PCI"), a wholly owned subsidiary of Players
International, Inc., under which PCI provided all sales, marketing, and field
support services for the Company's cash advance services in the gaming
industry. Under the terms of this agreement, PCI was entitled to monthly
service fees and additional payments to the extent PCI was able to increase
revenues or profitability at the gaming cash advance locations. During 1992
and 1991, the Company recognized expenses of $5,310,000 and $1,785,000,
respectively, under this agreement.
In December 1992, the Company and PCI modified this agreement to
provide that, as of January 1993, the Company resumed responsibility for these
sales, marketing, and field support operations. PCI continues to provide sales
and marketing consulting services, and is subject to a noncompete agreement
through December 1998. As compensation for these services and the agreement
not to compete, the Company granted certain concessions or made payments to PCI
totalling $992,000, and agreed to make payments totalling $500,000 per year
through the end of 1996. During 1993, the Company paid the remaining balance
due under this obligation at a discounted amount. The total of the concessions
and payments together with the net present value of the payments to be made
through 1996, have been recorded as a noncompete agreement in the accompanying
consolidated balance sheet, and is being amortized over the remaining term of
the noncompete agreement.
In September 1991, the Company entered into a Telecommunications
Services Agreement (the "Telecommunications Agreement") with Advanced
Telecommunications Corporation ("ATC"). Pursuant to the Telecommunications
Agreement, ATC became the Company's primary provider of long distance telephone
services through January 1999. The Telecommunications Agreement requires the
Company to purchase a minimum of $7,750,000 of long distance services from ATC
each year. Early termination of the Telecommunications Agreement by the
Company for convenience and without cause requires the payment of substantial
termination payments.
During 1993, the Company entered into an agreement with AT&T pursuant
to which it received certain promotional credits against telecommunications
expense totalling approximately $1,423,000, in exchange for a commitment to
purchase a minimum of $7,650,000 of long distance services from AT&T annually
over a three-year period. The credits received are being recorded as a
reduction of telecommunications expense over the term of the agreement.
50
<PAGE> 53
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(10) CONTINGENCIES:
The Company, Network, certain former directors of Network, and Alex.
Brown & Sons Incorporated ("Alex. Brown") were initially named as parties in a
lawsuit brought by Alex Eisenberg, a former stockholder of Network. The
complaint seeks $29.1 million in damages, and alleges breach of fiduciary
duties by the individual defendants in approving the acquisition of Network by
the Company in September 1987. The complaint also alleges negligence and
breach of contract by Alex. Brown in its role as financial advisor to the Board
of Network at the time of the acquisition. The individual defendants and Alex.
Brown were entitled to be indemnified by the Company for any liabilities under
the lawsuit and the expenses of defending the action. Pursuant to the
Company's indemnification obligations, the individual defendants and Alex.
Brown were dismissed from the action and the Company and Network have assumed
the defense of the claims in respect of such defendants. On September 24,
1992, the Court entered an order dismissing the class action allegations
relating to the former directors of Network. The order also dismissed all
allegations that Alex. Brown had aided and abetted the alleged breaches of
fiduciary duties of the former directors. The order permits the plaintiff to
pursue his individual claims against the former directors, as well as his
individual claims and the class claims against Alex. Brown in its role as a
financial advisor. Prior to the end of 1993, counsel for Eisenberg and Network
reached agreement upon the settlement of this matter, subject to court approval
and certain other procedures, which are pending.
Network and certain unrelated financial institutions are parties to
two lawsuits that allege that credit card cash advances obtained by the
plaintiffs at gaming facilities are debts which are null and void as violative
of an Illinois statute declaring loans made for purposes of illegal gambling as
void and unenforceable. Network and the financial institution defendants
prevailed at the trial court level on motions to dismiss.
The plaintiffs have appealed the trial court rulings to the Illinois
Appellate Court. Oral argument is currently expected to be scheduled for the
summer of 1994.
On February 5, 1992, Network filed a complaint charging that Synapsis
Corporation, Ltd. ("Synapsis") and its owner, William S. Akel, conspired with a
computer programmer employed by Network to steal a proprietary and confidential
list for resale. The complaint alleges violations of the Racketeer Influenced
and Corrupt Organizations Act (RICO) and the conversion of Network's list from
its internal computer files. On July 7, 1992, Synapsis filed an action against
Network, Players International, Inc. and PCI, Inc. in the United States
District Court for the Central District of California. The complaint alleged
violations of
51
<PAGE> 54
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Sections 1 and 2 of the Sherman Act, unfair competition and invasion of privacy
by Network and Players in connection with the cash advance service offered by
Network in various gaming establishments.
Pursuant to settlement agreements entered into by the parties, both
lawsuits were dismissed during 1993.
A subsidiary of Network was a party to a lawsuit filed in May
1992, that sought approximately $850,000 in damages, plus interest, for what
was alleged to have been breach of contract relating to a services agreement
pursuant to which the subsidiary rendered check authorization and guarantee
services. Settlement of the matter was agreed upon, and the lawsuit was
dismissed during 1993.
The Company is a defendant in certain other pending litigation arising
in the course of its business. While the final outcome of these lawsuits
cannot be predicted with certainty, it is the opinion of Management, after
consulting with its legal counsel, that any ultimate liability would not
materially affect the consolidated financial position of the Company.
(11) DEFERRED CREDIT AND SYSTEMS OPERATIONS SERVICES AGREEMENT:
In September 1991, the Company entered into an Agreement for Systems
Operations Services (the "Services Agreement") with Integrated Systems
Solutions Corporation ("ISSC"), a wholly-owned subsidiary of IBM. Under the
Services Agreement, ISSC will provide substantially all data processing
functions to the Company for a term of ten years through August 2001, providing
enhanced capabilities for systems and product development.
In connection with the Services Agreement, ISSC paid $15,000,000 in
cash to the Company and assumed certain lease obligations in order to acquire
certain computer equipment, to obtain access to the Company's software, to
acquire the right to extend employment to certain employees of the Company, to
obtain access to and use of the Company's facilities, and to reimburse certain
transition expenses to be incurred by the Company. This $15,000,000, net of
approximately $694,000 of net assets sold to ISSC, has been recorded as a
deferred credit in the accompanying consolidated balance sheet, and will be
amortized during the term of the Services Agreement.
The amount of expense recorded pursuant to this Services Agreement,
net of the amortization of the deferred credit, was $10,031,000, $8,669,000,
and $2,826,000 in 1993, 1992, and 1991 respectively. Because ISSC has assumed
responsibility for this function including the related personnel and operating
costs, the Company has experienced improved effectiveness and technology
52
<PAGE> 55
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
improvements without any significant increase in cost. The Services Agreement
currently provides for monthly payments of $1,060,000 through August 2001.
Annual payments are subject to adjustment for changes in the level of defined
services and inflation. Cancellation of the Services Agreement requires
payment of a substantial termination fee.
(12) STOCK SPLIT:
On October 25, 1993, the Company approved a 1 for 3 reverse split of
its Common Stock, effective on November 16, 1993. All share and per share data
set forth in these consolidated financial statements and related notes have
been adjusted to reflect the reverse stock split.
(13) PREFERRED STOCK:
The Company has authorized 5,000,000 shares of preferred stock. Of
these shares, 1,325,498 have been designated as Series A Convertible Preferred
Stock, 572,226 shares have been designated as Series B Convertible Preferred
Stock, and 250,500 shares have been designated as Series C Convertible
Preferred Stock.
In 1991, 560,000 Series A shares were issued to ATC at $25 per share,
resulting in proceeds of approximately $14,000,000. Dividends on these shares
accrued at a rate of 8.5% of the outstanding liquidation value until the terms
of the Series A shares were modified as described below. During 1992,
dividends on Series A shares were paid by issuing shares of the Company's
common stock.
The outstanding Series B and Series C shares were issued during 1992
in connection with the recapitalization described in Note 3. Upon completion
of this recapitalization, dividends on the Series A shares accrue at a rate of
12.5% of the outstanding liquidation value, and may be paid in cash or
additional Series A shares. Dividends on the Series B and Series C shares
accrue at rates of 12.5% and 12.25%, respectively, of the outstanding
liquidation value, and are payable in cash as declared by the Board of
Directors. Dividends on Series B and Series C shares not paid in cash
accumulate, and increase the liquidation value of the outstanding shares upon
which such dividends are calculated. The terms of the Company's debt
agreements and indentures contain provisions which limit the Company's ability
to pay cash dividends.
The Series A shares are convertible into the Company's common stock at
a price of $10.74 per share. Series B and Series C shares are convertible at
$6.00 per share. These rates are subject to adjustment if new common shares
are issued at prices below either the existing conversion prices or the market
price
53
<PAGE> 56
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
of the common stock, as defined. Series A Preferred stock is redeemable at its
liquidation value, at the Company's option, if the Company's common stock
reaches an average market price, as defined, of $18.75 per share. The Company
may elect to force conversion of Preferred Stock at the conversion rate if the
Company's common stock reaches a volume-weighted average trading price, as
defined, greater than $19.50 per share or the Company completes a placement of
common stock that meets certain requirements. There are no mandatory
redemption provisions.
During 1993, 10,193 Series B shares with a liquidation value of
$1,150,000 were converted into 191,692 shares of Common Stock.
(14) QUARTERLY SUMMARY (UNAUDITED):
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1993
<S> <C> <C> <C> <C>
Revenue $49,023 $52,001 $55,961 $ 55,331
Income (loss) before
interest and taxes 9,995 10,601 11,927 (219,125)(a)
Net income (loss)
for common stock (681) (91) 992 (229,908)(a)
Net income (loss) per
common share $ (0.05) $ - $ 0.07 $ (15.84)(b)
</TABLE>
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH
----- ------ ----- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1992
<S> <C> <C> <C> <C>
Revenue $47,122 $47,790 $50,310 $ 47,850
Income before
interest, taxes and
extraordinary item 7,851 10,078 11,478 10,084
Net income (loss)
for common stock (1,598) 349 1,794 (20,065)(c)
Net income (loss) per
common share $ (0.11) $ 0.02 $ 0.12 $ (1.40)
</TABLE>
- --------------------
(a) The loss in the fourth quarter of 1993 is due to the write-off of
$230,257,000 of goodwill and other intangibles. See Note 2 for a
discussion of this write-off.
54
<PAGE> 57
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(b) The sum of the quarterly amounts for net income (loss) per common
share does not equal the annual amount of net loss per common share
due to the timing of common share issuances and quarterly net income
or loss results.
(c) The loss in the fourth quarter of 1992 is due to the extraordinary
loss on debt retirement of $20,503,000. See Note 3 for a discussion
of this transaction.
(15) RELATED PARTY TRANSACTIONS:
As described in Note 9, the Company has entered into a
Telecommunications Agreement with ATC, the owner of all the outstanding shares
of Series A Preferred Stock. During 1993, 1992, and 1991, the Company incurred
expenses of $11,211,000, $7,673,000, and $456,000, respectively, related to the
Telecommunications Agreement.
On June 30, 1992, the assets of the Citicorp Establishment Services
division, which provided services to Network with regard to the settlement of
MasterCard and Visa transactions until May 1993, were acquired by Card
Establishment Services, Inc. ("CES"), an affiliate of a significant
stockholder of the Company. During 1993 and 1992, Network incurred charges
from CES of approximately $346,000 and $397,000, respectively, with such
charges being reported as a reduction of the related revenue earned by Network.
In August 1992, the Company entered into an agreement with Welsh,
Carson, Anderson & Stowe IV ("WCAS IV"), a major stockholder, pursuant to which
WCAS IV agreed to guarantee a letter of credit on behalf of Network in the
amount of $8.6 million. The letter of credit was issued in favor of an
insurance company that had previously issued bonds required by certain state
regulatory authorities to support Network's funds transfer business in those
states. Network agreed to pay a fee of 2% per year of the amount outstanding
under this letter of credit to an affiliate of WCAS IV for arranging the letter
of credit. During 1992, the Company incurred expenses of $66,000 pursuant to
this fee. This arrangement was terminated on December 29, 1992, pursuant to
the recapitalization described in Note 3.
During 1993, the Company purchased data processing equipment and
computer software at a cost of approximately $3,326,000 from an affiliate of a
significant stockholder of the Company on an arm's length basis.
55
<PAGE> 58
Schedule II
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
-------------------------------------------
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES, UNDERWRITERS,
--------------------------------------------------------------------
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
---------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------- ------------ ------------ --------------------------- --------------------------
Deductions
--------------------------- Balance at End of
Balance Period
at Beginning Amounts Amounts --------------------------
Name of Debtor of Period Additions Collected | Written Off Current | Not Current
- ---------------- ------------ ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
1993 -
None
$ - $ - $ - $ - $ - $ -
============ ============ ============ ============ ============ ============
1992 -
Edward A. Barbieri $ - $ 292,000 $ 292,000 $ - $ - $ -
============ ============ ============ ============ ============ ============
1991 -
None
$ - $ - $ - $ - $ - $ -
============ ============ ============ ============ ============ ============
</TABLE>
56
<PAGE> 59
Schedule V
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
-------------------------------------------
SCHEDULE V - PROPERTY AND EQUIPMENT
-----------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ------------ ------------ ------------ ------------ ------------- ------------
Balance At Balance At
Beginning Of Other Changes End Of
Description Period Additions Retirements Add (Deduct) Period
- ------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
1993 -
Buildings and
improvements $ 2,087,000 $ 82,000 $ - $ 291,000 $ 2,460,000
Equipment 18,204,000 5,872,000 164,000 1,004,000 24,916,000
----------- ----------- ----------- ----------- -----------
$20,291,000 $ 5,954,000 $ 164,000 $ 1,295,000(1) $27,376,000
=========== =========== =========== =========== ===========
1992 -
Buildings and
improvements $ 3,333,000 $ 494,000 $ 1,740,000 $ - $ 2,087,000
Equipment 15,966,000 2,300,000 62,000 - 18,204,000
----------- ----------- ----------- ----------- -----------
$19,299,000 $ 2,794,000 $ 1,802,000 $ - $20,291,000
=========== =========== =========== =========== ===========
1991 -
Buildings and
improvements $ 1,780,000 $ 1,634,000 $ 81,000 $ - $ 3,333,000
Equipment 21,322,000 4,156,000 9,512,000(2) - 15,966,000
----------- ----------- ----------- ----------- -----------
$23,102,000 $ 5,790,000 $ 9,593,000 $ - $19,299,000
=========== =========== =========== =========== ===========
</TABLE>
(1) Represents the amount recorded for property in connection with the
acquisition of Saunders, Inc.
(2) Refer to Note 10 to the consolidated financial statements for discussion
regarding the agreement with ISSC. As part of this agreement, equipment
with costs of $9,220,000 and accumulated depreciation of $4,665,000 were
sold to ISSC and are included in this amount.
57
<PAGE> 60
Schedule VI
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
-------------------------------------------
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT
----------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ------------ ------------ ------------ ------------ ------------- ------------
Balance At Additions Balance At
Beginning Of Charged to Costs Other Changes End Of
Description Period And Expenses Retirements Add (Deduct) Period
- ------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
1993 -
Buildings and
improvements $ 750,000 $ 214,000 $ - $ - $ 964,000
Equipment 13,670,000 3,221,000 95,000 - 16,796,000
----------- ----------- ----------- ----------- -----------
$14,420,000 $ 3,435,000 $ 95,000 $ - $17,760,000
=========== =========== =========== =========== ===========
1992 -
Buildings and
improvements $ 520,000 $ 322,000 $ 92,000 $ - $ 750,000
Equipment 11,147,000 2,547,000 24,000 - 13,670,000
----------- ----------- ----------- ----------- -----------
$11,667,000 $ 2,869,000 $ 116,000 $ - $14,420,000
=========== =========== =========== =========== ===========
1991 -
Buildings and
improvements $ 317,000 $ 193,000 $ 87,000 $ 97,000(2) $ 520,000
Equipment 12,368,000 3,650,000 4,774,000(1) (97,000) 11,147,000
----------- ----------- ----------- ----------- -----------
$12,685,000 $ 3,843,000 $ 4,861,000 $ - $11,667,000
=========== =========== =========== =========== ===========
</TABLE>
(1) Refer to Note 10 to the consolidated financial statements for discussion
regarding the agreement with ISSC. As part of this agreement, equipment
with costs of $9,220,000 and accumulated depreciation of $4,665,000 were
sold to ISSC and are included in this amount.
(2) Represents reclassification of beginning balances.
58
<PAGE> 61
Schedule VIII
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
-------------------------------------------
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
-------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------ ------------ -------------------------- ------------- ------------
Additions Uncollectible
Balance At Charged To Charged To Accounts Balance At
Beginning Of Costs And Other Deducted From End Of
Description Period Expenses Accounts the Reserve Period
- ------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
1993 -
Allowance for
doubtful accounts $ 5,839,000 $ 5,055,000 $ 337,000(1) $ 5,144,000 $ 6,087,000
=========== =========== =========== =========== ===========
1992 -
Allowance for
doubtful accounts $ 9,753,000 $ 6,004,000 $ - $ 9,918,000 $ 5,839,000
=========== =========== =========== =========== ===========
1991 -
Allowance for
doubtful accounts $11,532,000 $ 8,600,000 $ 50,000(1) $10,429,000 $ 9,753,000
=========== =========== =========== =========== ===========
</TABLE>
(1) Represents amounts recorded for allowance for doubtful accounts in
connection with acquisitions.
59
<PAGE> 62
Schedule X
COMDATA HOLDINGS CORPORATION AND SUBSIDIARY
-------------------------------------------
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
-------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
-----------------------------------------------------
<TABLE>
<CAPTION>
Charges to Costs
and Expenses
----------------
<S> <C>
Year ended December 31, 1993:
Depreciation and amortization:
Depreciation of fixed assets $ 3,435,000
Amortization of costs in excess of
fair value of net assets acquired 9,342,000
Amortization of noncompete agreements 1,257,000
Amortization of deferred costs 744,000
Amortization of debt discount and debt issuance costs 2,844,000
-----------
$17,622,000 (1)
===========
Year ended December 31, 1992:
Depreciation and amortization:
Depreciation of fixed assets $ 2,869,000
Amortization of costs in excess of
fair value of net assets acquired 9,308,000
Amortization of noncompete agreements 873,000
Amortization of deferred costs 763,000
Amortization of debt discount and debt issuance costs 2,855,000 (2)
-----------
$16,668,000
===========
Year ended December 31, 1991:
Depreciation and amortization:
Depreciation of fixed assets $ 3,843,000
Amortization of costs in excess of
fair value of net assets acquired 9,219,000
Amortization of noncompete agreements 821,000
Amortization of deferred costs 1,415,000
Amortization of debt discount and debt issuance costs 13,090,000
-----------
$28,388,000
===========
</TABLE>
(1) Amount does not include $230,257,000 of expenses related to the write-off
of goodwill and other intangible assets. See Note 2 to the consolidated
financial statements for a description of this item.
(2) Amount does not include $9,012,000 of amortization of debt discount and
debt issuance costs included in the extraordinary item. See Note 3 to
the consolidated financial statements for a description of the
extraordinary item.
60
<PAGE> 63
PART III
---------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as to the directors
and executive officers of Holdings:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
George L. McTavish.... 52 Chairman and Chief Executive
Officer, Director
Edward A. Barbieri.... 52 President and Chief Operating
Officer, Director
Dennis R. Hanson...... 47 Executive Vice President and
Chief Financial Officer,
Director
Henry P. Cincere...... 43 Senior Vice President
Michael Czwornog ..... 41 Senior Vice President
Charles P. Harris..... 48 Senior Vice President
Peter D. Voysey....... 48 Vice President, General
Counsel and Secretary
Bruce K. Anderson..... 54 Director
Patrick J. Welsh...... 50 Director
Dana J. O'Brien....... 38 Director
Louis P. Buglioli..... 44 Director
Stephen E. Raville.... 46 Director
Phyllis Haberman...... 45 Director
</TABLE>
- -------------------
Holdings' executive officers and directors also serve as executive
officers and directors, respectively, of the Company. All executive officers
serve at the discretion of the Board of Directors. All directors hold office
until the next annual meeting of stockholders and until their successors have
been elected and qualified. The By-laws of Holdings provide that two members
of the Board of Directors must be persons other than members of management or
an affiliate or associate (as defined) of Holdings.
BIOGRAPHIES
George L. McTavish was elected to the Board of Directors of Holdings
in November 1987. From November 1987 through March 1992, he served as
President and Chief Executive Officer of Holdings and as Chief Executive
Officer of the Company. In March 1992, Mr. McTavish was elected to the office
of Chairman of the Board of Directors of each of the Company and Holdings.
From September 1984 to July 1987, Mr. McTavish was Chairman and Chief Executive
Officer of Hogan Systems, Inc., a provider of computer software products to the
banking industry based in Dallas, Texas.
61
<PAGE> 64
Prior thereto, Mr. McTavish was Executive Vice President and Chief Operating
Officer of SEI Corporation, also a provider of computer software products to
the banking industry, based in Wayne, Pennsylvania.
Edward A. Barbieri was elected President and Chief Operating Officer
of the Company and Holdings in March 1992. Prior to joining the Company, Mr.
Barbieri held various positions with TRW, Inc. ("TRW") from 1977, and most
recently served as Vice President and General Manager of TRW's National
Accounts Division, Information Systems and Services. Mr. Barbieri was elected
to the Board of Directors of the Company and of Holdings in June 1992.
Dennis R. Hanson was elected Executive Vice President and Chief
Financial Officer of the Company and Holdings in March 1992. Before joining
Comdata, Mr. Hanson held various positions with NationsBank (formerly
C&S/Sovran Corporation) in Norfolk, Virginia, or its predecessors, from 1981,
most recently as Group Executive Vice President. Mr. Hanson was elected to the
Board of Directors of the Company and of Holdings in June 1992.
Henry P. Cincere was named a Senior Vice President of Holdings in
February 1991. Prior thereto, he served as a Vice President Holdings beginning
in June 1989. Mr. Cincere has been employed by Comdata since March 1984 and
has served in various other positions including President of the Network
Services Division since January 1993, in which capacity he continues to serve,
and President of the Transportation Services Division from February 1991 to
January 1993. Prior to joining the Company, Mr. Cincere was General Manager of
Triangle Fleet Service, Inc., as subsidiary of North American Van Lines, Inc.,
from March 1983 until March 1984.
Peter D. Voysey was elected Vice President, General Counsel and
Secretary of Holdings and the Company in May 1992. Mr. Voysey was most
recently General Counsel and Corporate Secretary for Citicorp Services Inc., a
Citicorp affiliate engaged in worldwide funds transfer and payments systems.
Prior to joining Citicorp in 1980, Mr. Voysey served as Group Legal Counsel for
Emhart Corporation from 1976 to 1980, and as an Associate for Winston & Strawn
from 1971 to 1976.
Bruce K. Anderson, who was Chairman of the Board of Directors of the
Company since it was acquired by Holdings in March 1987 through March 1992, has
been a general partner of the sole general partner of Welsh, Carson, Anderson &
Stowe IV, a New York limited partnership ("WCAS IV"), since it was formed in
1985 and of the sole general partner of WCAS Venture Partners, a New York
limited partnership ("Venture Partners"), since it was formed in 1986 and of
the sole general partner of WCAS Capital Partners, L.P., a Delaware limited
partnership ("Capital Partners"), since it was formed in 1987. WCAS IV,
Venture Partners and Capital Partners are major stockholders of the
62
<PAGE> 65
Company and are investment partnerships engaged in venture capital and
leveraged buyout investing. Mr. Anderson has been a general partner of the
sole general partners of associated limited partnerships since 1979. Mr.
Anderson is also General Partner of the sole general partner of WCAS V, WCAS VI
and WCAS Information Partners. Prior to 1979, Mr. Anderson was Executive Vice
President and a director of Automatic Data Processing, Inc., a data processing
company. Mr. Anderson also serves as director of The Continuum Company, Inc.,
FIserv, Inc., Genicom Corporation, Broadway & Seymour, Inc., American
Residential Mortgage Corp. and several privately-held companies.
Patrick J. Welsh, who has been a Director of the Company since it was
acquired by Holdings in March 1987, has been a general partner of the sole
general partner of each of WCAS IV, Venture Partners and Capital Partners since
their formation. Mr. Welsh has been a general partner of the sole general
partner of associated limited partnerships since 1979. Prior to 1979, Mr.
Welsh was President and a director of Citicorp Venture Capital, Ltd., an
affiliate of Citicorp engaged in venture capital investing. Mr. Welsh serves
as a director of The Continuum Company, Inc., Syntellect, Inc., Pharmaceutical
Marketing Services Inc. and several privately-held companies.
Dana J. O'Brien was elected to the Board of Directors of Holdings and
the Company in April 1990. He is Vice President of Prudential Equity
Investors, Inc.("PVP"), an investment firm engaged in venture capital and
leveraged buyout investing. He has been employed by PVP or its affiliates
since 1982. Prior thereto, he was employed in the National Banking Division of
Morgan Guaranty Trust Company. Mr. O'Brien was nominated to serve on the Board
of Directors of the Company and Network by PVP. Subject to certain conditions,
the Company has agreed to use its best efforts to nominate and use its best
efforts to cause to be elected to the Boards of Directors of the Company and
Network one individual nominated by PVP. Mr. O'Brien also serves as a Director
of several privately held companies.
Louis P. Buglioli was elected to the Board of Directors of Holdings
and the Company in June 1991. Mr. Buglioli has been President of Benton
International, Inc., a management consulting firm in the financial and payment
systems industry, since 1986. From 1983 to 1985, he was President and Chief
Operating Officer and a director of Telecredit, Inc., a company engaged
primarily in the third-party processing of credit card, check authorization and
point-of-sale debit card transactions. Prior thereto, he served as Senior Vice
President of Crocker National Bank.
Stephen E. Raville was elected to the Board of Directors of Holdings
and the Company in September 1991. Mr. Raville is President of First
Southeastern Corp. in Atlanta, Georgia. From 1985 until December 1992, he was
Chairman and Chief Executive Officer of ATC. Mr. Raville has also served as a
director of ATC, First Union National Bank of Georgia and Wellington Leisure
63
<PAGE> 66
Products, Inc. Mr. Raville's election as a director of the Company occurred
when ATC purchased shares of Preferred Stock of Holdings and entered into a
Telecommunications Services Agreement with the Company, pursuant to which ATC
provides long distance telecommunications services.
Phyllis Haberman was elected a Director of Holdings in January 1993.
Ms. Haberman is Vice President of Charterhouse Group International, Inc.
("Charterhouse"), a privately owned investment banking firm making equity
investments in a broad range of U.S. companies. Ms. Haberman joined
Charterhouse in September 1985 and was promoted to her present position in
August 1988. Ms. Haberman also serves as a director of Wundies Industries,
Inc. Ms. Haberman was nominated to serve on the Board of Directors of Holdings
by Charterhouse. Subject to certain conditions, Holdings has agreed to
nominate and use its best efforts to cause to be elected to the Board of
Directors one individual nominated by Charterhouse.
Michael Czwornog was named Senior Vice President and General Manager
of Network's Retail Services Division in January 1993, and was elected a Senior
Vice President of the Company in June 1993. From September 1990 to September
1992, Mr. Czwornog was employed by TeleCheck Services, Inc., a leading national
provider of check guarantee and collection services, most recently as President
and Chief Executive Officer. TeleCheck was previously a wholly-owned
subsidiary of McDonnell Douglas Corporation, where Mr. Czwornog had been
employed since 1980.
Charles P. Harris joined the Company in January 1992 as Senior Vice
President of Sales for Network's Transportation Services Division. He was
named Senior Vice President and General Manager of the Transportation Services
Division in January 1993 and was elected a Senior Vice President of the Company
in June 1993. Prior to joining Comdata, Mr. Harris was employed by Diebold
Incorporated for 17 years, most recently as Corporate Vice President, United
States Sales Group.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Table summarizes the compensation paid or accrued by the
Company during the three years ended December 31, 1993 to those persons who, as
of December 31, 1993, were the Company's Chief Executive Officer and the four
most highly compensated Executive Officers other than the Chief Executive
Officer (such five officers, collectively, the "Named Executive Officers").
64
<PAGE> 67
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
- ------------------------------------------------- -------------
NAME AND ALL OTHER
PRINCIPAL SALARY BONUS OPTIONS (18) COMPENSATION
POSITION YEAR ($) ($) (#) ($)
- -------- ---- ------ ----- -------- ------------
<S> <C> <C> <C> <C> <C>
George L. McTavish 1993 $325,000 - 94,667 (15) $ 4,814 (1)
Chairman and Chief 1992 325,000 $95,566 - 3,985 (2)
Executive Officer, 1991 275,000 - - (3)
Director
Edward A. Barbieri 1993 254,687 - 87,334 (13) 5,294 (4)
President and Chief 1992 194,231 74,125 133,333 100,750 (5)
Operating Officer, 1991 (6) - - -
Director
Dennis R. Hanson 1993 203,750 - 53,000 (14) 11,097 (7)
Executive Vice 1992 151,538 51,875 100,000 55,720 (8)
President and Chief 1991 (6) - - -
Financial Officer,
Director
Henry P. Cincere 1993 167,785 - 21,668 (16) 3,215 (9)
Senior Vice 1992 165,000 54,331 - 2,736 (10)
President 1991 148,625 - 16,667 (3)
Charles P. Harris 1993 132,000 - 33,834 (17) 35,052 (11)
Senior Vice 1992 120,000 18,000 - 40,382 (12)
President 1991 - - 16,667 -
</TABLE>
(1) Amount includes $3,086 for contributions by the Company to a 401(K)
plan and $1,728 for term life insurance premiums paid by the Company.
(2) Amount includes $2,257 for contributions by the Company to a 401(k)
plan and $1,728 for term life insurance premiums paid by the Company.
(3) Other compensation is not required to be disclosed for this period.
(4) Amount includes $3,566 for contributions by the Company to a 401(K)
plan and $1,728 for term life insurance premiums paid by the Company.
(5) Amount includes $78,534 of relocation cost reimbursements, $20,920 of
reimbursement for related income taxes, and $1,296 for term life
insurance premiums paid by the Company.
(6) This executive was not employed by the Company prior to 1992.
(7) Amount includes $6,701 of relocation cost reimbursements, $803 of
reimbursement for related income taxes, $2,549 for contributions by
the Company to a 401(K) plan, and $1,044 for term life insurance
premiums paid by the Company.
(8) Amount includes $42,565 of relocation cost reimbursements, $12,372 of
reimbursement for related income taxes, and $783 for term life
insurance premiums paid by the Company.
65
<PAGE> 68
(9) Amount includes $2,632 for contributions by the Company to a 401(K)
plan and $583 for term life insurance premiums paid by the Company.
(10) Amount includes $2,175 for contributions by the Company to a 401(k)
plan $561 for term life insurance premiums paid by the Company.
(11) Amount includes $25,008 of relocation cost reimbursements, $6,724 of
reimbursement for related income taxes, $2,575 for contributions by
the Company to a 401(K) plan, and $745 for term life insurance
premiums paid by the Company
(12) Amount includes $29,114 of relocation cost reimbursements, $10,607 of
reimbursement for related income taxes, and $661 for term insurance
premiums paid by the Company.
(13) Amounts granted in 1993 include the repricing of 83,334 options
previously granted
(14) Amounts granted in 1993 include the repricing of 50,000 options
previously granted
(15) Amounts granted in 1993 include the repricing of 66,667 options
previously granted.
(16) Amounts granted in 1993 include the repricing of 16,668 options
previously granted.
(17) Amounts granted in 1993 include the repricing of 16,667 options
previously granted.
(18) Amounts with respect to options have been adjusted to reflect a
1-for-3 reverse split effective November 16, 1993.
OPTION GRANTS
Shown below is information concerning stock option grants to the Named
Executive Officers who were granted stock options during the 1993 Fiscal Year.
66
<PAGE> 69
OPTIONS GRANTED IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
VALUE OF ASSUMED ANNUAL
RATES OF STOCK PRICE
INDIVIDUAL GRANTS APPRECIATED FOR OPTION TERM
- -------------------------------------------------------------------------------------------- ---------------------------
% OF TOTAL MARKET
OPTIONS EXERCISE PRICE
OPTIONS GRANTED TO OR BASE ON DATE
GRANTED EMPLOYEES IN PRICE OF GRANT EXPIRATION
NAME (1) (#) 1993 ($/SHARE) ($/SHARE) DATE 5% ($) 10% ($)
---- ------- ------------ --------- --------- ----------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
George L. McTavish 66,667 (2) 7.8% $8.25 $8.25 July 26, 1999 $187,334 $ 424,669
28,000 (3) 3.3% 8.25 8.25 August 3, 2003 145,320 368,200
Edward A. Barbieri 83,334 (2) 9.7% 8.25 8.25 March 23, 2002 415,837 1,045,842
4,000 (3) 0.5% 8.25 8.25 August 3, 2003 20,760 52,600
Dennis R. Hanson 50,000 (2) 5.8% 8.25 8.25 March 30, 2002 249,500 627,500
3,000 (3) 0.4% 8.25 8.25 August 3, 2003 15,570 39,450
Henry P. Cincere 8,334 (2) 1.0% 8.25 8.25 February 26, 2001 30,836 73,089
8,334 (2) 1.0% 8.25 8.25 January 1, 2001 29,919 70,422
5,000 (3) 0.6% 8.25 8.25 August 3, 2003 25,950 65,750
Charles P. Harris 17,167 (3) 2.0% 8.25 8.25 August 3, 2003 89,097 225,746
16,667 (2) 1.9% 8.25 8.25 December 19, 2001 68,668 165,837
</TABLE>
(1) All share and price data has been adjusted to reflect a 1 for 3 reverse
stock split effective November 16, 1993.
(2) Represents options repriced on August 3, 1993.
(3) Represents options granted on August 3, 1993 and vest over a five year
period at the rate of 20% per year.
67
<PAGE> 70
OPTION EXERCISES AND FISCAL YEAR-END VALUE
Shown below is information with respect to exercises by the Named
Executive Officers during the 1993 Fiscal Year of options to purchase common
stock pursuant to Holdings' stock option plans and information with respect to
unexercised options to purchase common stock held by the Named Executive
Officers as of the end of the 1993 Fiscal Year.
AGGREGATED OPTION EXERCISES IN 1993
AND YEAR END OPTION VALUES
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS IN-THE-MONEY
AT OPTIONS AT
SHARES DECEMBER 31, DECEMBER 31,
ACQUIRED 1993 1993
ON VALUE
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
---- -------- -------- ------------- -------------
George L. McTavish - - 160,001 $266,668
68,000 -
Edward A. Barbieri - - 18,334 20,000
119,000 80,000
Dennis R. Hanson - - 15,000 20,000
88,000 80,000
Henry P. Cincere - - 30,001 53,334
18,334 -
Charles P. Harris - - 1,667 -
32,167 -
Holdings has not awarded stock appreciation rights to any employee and
has no long term incentive plans, as that term is defined in SEC regulations.
Holdings has a stock option plan. The Company presently has no defined benefit
or actuarial plans covering any employees of the Company.
In August 1993, Holdings' Board of Directors approved a repricing of
stock options issued to employees under Holdings Stock Option Plan. The
following table summarizes this repricing with respect to options held by the
named executives. All such information has been adjusted to reflect a 1 for 3
reverse stock split effective November 16, 1993.
68
<PAGE> 71
TEN YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
Market Length of
Number Price of Exercise Orginial
of Stock at Price at New Option Term
Options Time of Time of Exercise Remaining at
Name Date Repriced Repricing Repricing Price Date of Repricing
- ------------------ -------------- -------- --------- --------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C>
George L. McTavish August 3, 1993 66,667 $8.25 $12.00 $8.25 6 Years
Edward A. Barbieri August 3, 1993 83,334 8.25 10.50 8.25 9.7 Years
Dennis R. Hanson August 3, 1993 50,000 8.25 11.25 8.25 9.7 Years
Henry P. Cincere August 3, 1993 8,334 8.25 10.50 8.25 7.6 Years
8,334 8.25 10.13 8.25 7.4 Years
Charles P. Harris August 3, 1993 16,667 8.25 9.19 8.25 8.3 Years
</TABLE>
69
<PAGE> 72
COMPENSATION OF DIRECTORS
Each director who is also an officer of Holdings receives no
additional compensation for service on the Board or on any committee of the
Board. Directors who are not also officers of Holdings receive an annual
retainer of $10,000, payable quarterly, in addition to $1,000 plus expenses for
each meeting of the Board which they attend.
EMPLOYMENT CONTRACTS
The Company has letter agreements providing severance arrangements for
Messrs. Barbieri and Hanson. Under each agreement, involuntary termination of
the employee without cause or elimination of the employee's position will
result in the employee's right to receive his normal base salary for one year,
plus one month's pay for each full year of completed service by the employee.
In addition, the above severance arrangement also applies to the employee if
the employee is forced to resign as a result of actions taken by the Company
which constitute good cause on employee's part for this termination, i.e., a
significant reduction in salary or a significant reduction in responsibilities.
The agreements do not define what is "cause for termination," "significant
reduction in salary" or a "significant reduction in responsibilities."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1993 the Board's Compensation Committee was composed of Patrick
J. Welsh, Bruce K. Anderson and George L. McTavish. Mr. Anderson is a former
Chairman of the Board, and Mr. McTavish is the current Chairman and Chief
Executive Officer of Holdings. Messrs. Welsh and Anderson are general partners
of the sole general partner of each of WCAS IV, Venture Partners and Capital
Partners, which are collectively the largest stockholder of Holdings. WCAS IV,
Venture Partners and Capital Partners are affiliates of WCAS.
- ----------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
All outstanding shares of the capital stock of the Company are held by
Holdings. The following table sets forth as of March 15, 1994 certain
information with respect to the shares of Common Stock of Holdings beneficially
owned by stockholders known to Holdings to own beneficially more than 5% of the
shares of such class and the shares of Common Stock beneficially owned by the
Company's directors and Named Executive Officers and by all of its executive
officers and directors as a group. The shares listed below and the percentage
of ownership for each person named below have been calculated assuming that all
outstanding shares of Preferred Stock have been converted into shares of
70
<PAGE> 73
Common Stock and that all presently exercisable options and options that will
become exercisable within 60 days from the date hereof, that have been issued
pursuant to the Comdata Holdings Corporation Restricted Stock purchase Plan,
have been exercised.
71
<PAGE> 74
<TABLE>
<CAPTION>
Shares of
Common Stock
Name and Address of Beneficially Percent
Beneficial Owners (a) Owned of Class
- ------------------- ------------ --------
<S> <C> <C>
Welsh, Carson, Anderson & 2,889,840 (c) 9.0%
Stowe IV (b)
One World Financial Center
200 Liberty Street, Suite 3601
New York, New York 10281
WCAS Venture Partners (b) 75,000 .2%
One World Financial Center
200 Liberty Street, Suite 3601
New York, New York 10281
WCAS Capital Partners, L.P. (b) 5,655,127 (d) 17.7%
One World Financial Center
200 Liberty Street, Suite 10281
New York, new York 10281
New York Life Insurance Company 2,530,958 (e) 7.9%
51 Madison Avenue, Room 203
New York, New York 10010
New York Life Insurance and 2,530,958 (f) 7.9%
Annuity Corporation
51 Madison Avenue, Room 203
New York, New York 10010
Northwestern Mutual Life 2,274,450 (g) 7.1%
Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Prudential Venture 1,500,905 (h) 4.7%
Partners II (i)
717 Fifth Avenue
New York, New York 10022
Advanced Telecommunications 1,822,020 (i)(j) 5.7%
Corporation
945 East Paces Ferry Road,
Suite 2100
Atlanta, Georgia 30326
Charterhouse Equity Partners, L.P. 3,848,966 (k) 12.0%
535 Madison Avenue
New York, New York 10022
Bruce K. Anderson (b) 8,668,209 (c)(d)(l) 27.1%
Patrick J. Welsh (b) 8,668,209 (c)(d)(m) 27.1%
Dana J. O'Brien (n) 1,500,905 (n) 4.7%
</TABLE>
72
<PAGE> 75
<TABLE>
<CAPTION>
Shares of
Common Stock
Name and Address of Beneficially Percent
Beneficial Owners (a) Owned of Class
- ------------------- ------------ --------
<S> <C> <C>
George L. McTavish 283,334 0.9%
Edward A. Barbieri 28,334 0.1%
Dennis R. Hanson 25,000 0.1%
Henry P. Cincere 30,840 0.1%
Charles P. Harris 1,667 *
Michael Czwornog 5,334 *
Peter D. Voysey 4,666 *
Louis P. Buglioli - -
Stephen E. Raville - -
Phyllis Haberman (o) 3,848,966 (k) 12.0%
All directors and executive
officers as a group
(13 persons) (p) 475,659 1.5%
</TABLE>
- ----------------
* Less than 0.1%
(a) Except as otherwise noted below, the persons named in the table have
sole voting powers and investment power with respect to all shares set
forth in the table.
(b) WCAS IV, Venture Partners and Capital Partners are affiliates of WCAS.
Messrs. Anderson and Welsh, directors of Holdings, may be deemed to
own beneficially the shares of Common Stock owned by WCAS IV, Venture
Partners and Capital Partners because they are general partners of the
sole general partner of each of WCAS IV, Venture Partners and Capital
Partners. The shares listed opposite the names of Messrs. Anderson
and Welsh include shares owned or, upon conversion of shares of
Preferred Stock, will be owned, by WCAS IV, Venture Partners and
Capital Partners, respectively.
(c) Includes the shares of Common Stock issuable upon conversion of the
12,525 shares of Series C Convertible Preferred Stock owned by WCAS IV
and accrued dividends thereon through March 15, 1994.
(d) Includes the shares of Common Stock issuable upon conversion of the
254,999 shares of Series B Convertible Preferred Stock owned by
Capital Partners and accrued dividends thereon through March 15, 1994.
73
<PAGE> 76
(e) Includes the shares of Common Stock issuable upon conversion of the
96,901 shares of Series B Convertible Preferred Stock owned by New
York Life Insurance Company and accrued dividends thereon through
March 15, 1994. New York Life Insurance Company controls New York
Life Insurance and Annuity Corporation and may be deemed to own
beneficially the securities held by it.
(f) Includes the shares of Common Stock issuable upon conversion of the
96,901 shares of Series B Convertible Preferred Stock owned by New
York Life Insurance and Annuity Corporation and accrued dividends
thereon through March 15, 1994.
(g) Includes the shares of Common Stock issuable upon conversion of the
103,024 shares of Series B Convertible Preferred Stock owned by
Northwestern Mutual Life Insurance Company and accrued dividends
thereon through March 15, 1994.
(h) Includes the shares of Common Stock issuable upon conversion of the
20,200 shares of Series C Convertible Preferred Stock owned by PVP and
accrued dividends thereon through March 15, 1994.
(i) Includes the shares of Common Stock issuable upon conversion of the
666,086 shares of Series A Convertible Preferred Stock owned by ATC as
of March 15, 1994
(j) Includes the shares of Common Stock issuable upon conversion of the
7,500 shares of Series C Convertible Preferred Stock owned by ATC and
accrued dividends thereon through March 15, 1994.
(k) Includes the shares of Common Stock issuable upon conversion of the
199,462 shares of Series C Convertible Preferred Stock owned by
Charterhouse and accrued dividends thereon through March 15, 1994.
(l) Includes the shares of Common Stock issuable upon conversion of the
2,500 shares of Series C Convertible Preferred Stock owned by Mr.
Anderson and accrued dividends thereon through March 15, 1994.
(m) Includes the shares of Common Stock issuable upon conversion of the
2,500 shares of Series C Convertible Preferred Stock owned by Mr.
Welsh and accrued dividends thereon through March 15, 1994.
(n) Mr. O'Brien may be deemed to own beneficially the shares of Common
Stock owned by or issuable to PVP because he is a Vice President of
the sole general partner of PVP. The shares listed opposite Mr.
O'Brien's name are owned by or issuable to PVP.
(o) Ms. Haberman may be deemed to own beneficially the shares of Common
Stock issuable to Charterhouse, because Ms. Haberman is a Vice
President of Charterhouse.
(p) The shares beneficially owned by WCAS IV, Venture Partners, Capital
Partners, PVP and Charterhouse, which are deemed to be beneficially
owned by Messrs. Anderson, Welsh, O'Brien, and Ms. Haberman,
respectively, are not included in shares owned by all directors and
executive officers as a group.
74
<PAGE> 77
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS
In March 1990, Holdings sold 148,148 shares of Common Stock to WCAS IV
and 1,111,111 shares to Common Stock to PVP, pursuant to the Common Stock
Purchase Agreement dated as of March 9, 1990 (the "Common Stock Purchase
Agreement"). Messrs. Anderson and Welsh, who are directors of Holdings, are
general partners of the sole general partner of WCAS IV. WCAS IV, Venture
Partners and Capital Partners are affiliates of WCAS and are engaged in venture
capital investing and acquisitions. WCAS IV, Venture Partners, Capital
Partners and certain general partners of WCAS are collectively the largest
stockholder of Holdings, beneficially owning 27.1% of the outstanding shares of
Common Stock on a fully diluted basis.
Pursuant to the Common Stock Purchase Agreement and subject to certain
conditions, Holdings has agreed to use its best efforts to nominate and to
cause to be elected to the Board of Directors of Holdings one individual
nominated by PVP. WCAS IV and Capital Partners have agreed, under certain
conditions, to vote their respective shares of Common Stock to cause such
nominee to be so elected. Mr. O'Brien is the nominee of PVP to the Board of
Directors of the Company.
In connection with the Acquisition, the Company issued a total of
$62.3 million of Junior Notes, of which $25.0 million was issued to Capital
Partners. In June 1992, Capital Partners exchanged $4.1 million aggregate
principal amount of Junior Notes, with a book value of approximately $3.5
million net of related discount and issuance costs, for 140,000 shares of
Series B Preferred Stock, having a stated price and liquidation value of $3.5
million. The remaining $20.9 million aggregate principal amount of Junior
Notes held by Capital Partners was exchanged pursuant to the recapitalization
of the Company on December 29, 1992, and the terms of the Series B Preferred
Stock issued to Capital Partners in June 1992 was modified to reflect the terms
negotiated with the other holders of the Junior Notes, including the issuance
of additional shares to reflect an exchange price of 102% of the principal
amount originally held.
Also in connection with the recapitalization, WCAS IV and PVP
purchased an aggregate 50,500 shares of Series C Preferred Stock.
In September and October 1991, ATC purchased an aggregate 560,000
shares of Series A Preferred Stock at a price per share of $25 or an aggregate
purchase price of $14.0 million. Concurrently with the purchase of the Series
A Preferred Stock by ATC, Comdata entered into a Services Agreement with ATC
pursuant to which ATC provides long distance telecommunications services to the
Company and its affiliates. This agreement expires on January 22, 1999 and
provides that the Company will purchase a
75
<PAGE> 78
minimum $7.75 million of service for each year after the first year. This
agreement also provided that the Company pay a monthly service fee equal to
$34,000 through December 1992.
Commencing in the fourth quarter of 1991, Benton International, Inc.
("Benton") has rendered certain consulting services to the Company. The
Company had paid approximately 508,000 to Benton in connection with such
services. Louis P. Buglioli, a director of the Company and Holdings, is
President of Benton.
In August 1992, the Company entered into an agreement with WCAS IV,
pursuant to which WCAS IV agreed to guarantee a letter of credit on behalf of
Comdata in the amount of $8.7 million. The letter of credit was issued in favor
of an insurance company that had previously issued bonds required by certain
state regulatory authorities to support the Company's funds transfer business
in those states. Comdata agreed to pay a fee of 2% per year of the amount
outstanding under this letter of credit to an affiliate of WCAS IV for
arranging the letter of credit. During 1992, $66,000 in such fees were
incurred. The letter of credit guaranteed by WCAS IV was replaced by a letter
of credit issued under the new revolving credit facility upon completion of the
recapitalization in December 1992.
On June 30, 1992, the assets of the Citicorp Establishment Services
division, which provided services to the Company with regard to settlement of
MasterCard and Visa transactions until May 1993, were acquired by Card
Establishment Services, Inc. ("CES"), an affiliate of WCAS and PVP. During
1993 and the last six months of 1992, the Company paid CES approximately
$346,000 and $397,000, respectively, for these services, with such charges
being reported as a reduction of the related revenue earned by the Company.
During 1993, the Company purchase data processing equipment and
computer software at a cost of approximately $3.3 million from Broadway &
Seymour, Inc., an affiliate of WCAS IV.
The transactions described above with PVP, ATC, and CES were
negotiated on an arm's-length basis at a time when such parties were not
affiliated with the Company. In the judgement of the Company's Board of
Directors, the terms of the other transactions described above are fair and
reasonable and are not less favorable to the Company than those that could have
been obtained from independent third parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------
(a) 1. Financial Statements
76
<PAGE> 79
The following consolidated financial statements of Comdata Holdings
Corporation and Comdata Network, Inc. are included herein:
Report of Arthur Andersen & Co., Independent Public Accountants
Consolidated Balance Sheets - as of December 31, 1993 and 1992
Consolidated Statements of Operation - for the years ended December 31,
1993, 1992 and 1991
Consolidated Statements of Stockholders' Equity - for the years ended
December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows - for the years ended December
31, 1993, 1992 and 1991
Notes to Consolidated financial statements
(a) 2. Financial Statement Schedules
The following consolidated financial statement schedules are included
herein:
Schedule II - Amounts Receivable from Related Parties, Underwriters,
Promoters and Employees other than Related Parties
Schedule V - Property and Equipment
Schedule VI - Accumulated Depreciation of Property and Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule X - Supplementary Income Statement Information
Schedules not listed above have been omitted because they are not
required, inapplicable or the required information has been given in the
financial statements or notes thereto.
(a) 3. Exhibits
The following exhibits are included herein or incorporated by
reference as indicated. Exhibit numbers refer to Item 601 of Regulation S-K.
77
<PAGE> 80
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Incorporation of Comdata
Holdings Corporation (incorporated by reference to Exhibit 3.1
to Registration Statement No. 33-14332).
3.2 By-laws of Comdata Holdings Corporation
(incorporated by reference to Exhibit 3.2 to Registration
Statement No. 33-14332).
3.3 Articles of Incorporation of Comdata Network,
Inc. (incorporated by reference to Exhibit 3.3 to registrants'
Annual Report on Form 10-K for fiscal year 1987).
3.4 By-laws of Comdata Network, Inc. (incorporated
by reference to Exhibit 3.4 to registrants' Annual Report on
Form 10-K for fiscal 1987).
3.5 Certificate of Amendment to Certificate of
Incorporation of Comdata Holdings Corporation (incorporated by
reference to Exhibit 3.5 to Registration Statement No. 33-37172).
3.6 Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock of Comdata
Holdings Corporation (incorporated by reference to Exhibit 3.6
to registrants' Annual Report on Form 10-K for fiscal year 1991).
3.7 Certificate of Designations, Preferences and
Rights of Series B Convertible Preferred Stock of Comdata
Holdings Corporation (incorporated by reference to Exhibit 1 to
registrants' Report on Form 8-K filed July 6, 1992).
3.8 Certificate of Amendment to Certificate of
Incorporation of Comdata Holdings Corporation filed with the
Secretary of State of Delaware on July 21, 1992 (incorporated by
reference to Exhibit 3.8 to Registration Statement No. 33-52018).
3.9 Certificate of Amendment to Certificate of
Designations, Preferences and Rights of Series B Convertible
Preferred Stock of Comdata Holdings Corporation filed with the
Secretary of State of Delaware on August 14, 1992 (incorporated
by reference to Exhibit 3.9 to Registration Statement
No. 33-52018).
78
<PAGE> 81
3.10 Form of Amended and Restated Certificate of
Designations, Preferences and Rights of Series A,
Series B and Series C Convertible Preferred Stock of Comdata
Holdings Corporation (incorporated by reference to Exhibit 3.10
to Registration Statement No. 33-52018).
4.1 Indenture dated December 29, 1992 among Comdata
Network, Inc., Comdata Holdings Corporation and IBJ Schroder
Bank & Trust Company, as Trustee, relating to the 12 1/2% Senior
Notes due 1999 (incorporated by reference to Exhibit 4.1 to
Registrants' Annual Report on Form 10-K for fiscal year 1992).
4.2 Indenture dated December 29, 1992 among Comdata
Network, Inc., Comdata Holdings Corporation and Fidelity Bank,
National Association, as Trustee, relating to the 13 1/4% Senior
Subordinated Debentures due 2002 (incorporated by reference to
Exhibit 4.2 to Registrants' Annual Report on Form 10-K for
fiscal year 1992).
4.3 Indenture, dated as of September 1, 1987, among
CMD Subsidiary Corporation, Comdata Holdings Corporation and
Commerce Union Bank, as Trustee, relating to the 13 1/2% Senior
Subordinated Discount Notes due 1995 assumed by Comdata Network,
Inc. (incorporated by reference to Exhibit 4.1 to Registration
Statement No. 33-16103).
4.4 First Supplemental Indenture to the Indenture,
dated as of September 1, 1987, between Comdata Network, Inc. and
Commerce Union Bank, as Trustee (incorporated by reference to
Exhibit 4.3 to Registration Statement No. 33-16103).
4.5 Indenture, dated as of September 1, 1987, among
CMD Subsidiary Corporation, Comdata Holdings Corporation and
Third National Bank in Nashville, as Trustee, relating to the
13 3/4% Subordinated Debentures due 1997 assumed by Comdata
Network, Inc. (incorporated by reference to Exhibit 4.2 to
Registration Statement No. 33-16103).
4.6 First Supplemental Indenture to the Indenture,
dated as of September 1, 1987, between Comdata Network, Inc. and
Third National Bank in Nashville, as Trustee (incorporated by
reference to Exhibit 4.4 to Registration Statement No. 33-16103).
4.7 Indenture, dated as of September 1, 1987, among
CMD Subsidiary Corporation, Comdata Holdings Corporation and
United States Trust Company of New York, as Trustee, relating to
the 11% Junior Subordinated Extendible Notes due 1997
79
<PAGE> 82
assumed by Comdata Network, Inc. (incorporated by reference to
Exhibit 4.1 to Registration Statement No. 33-14332).
9 Letter, dated March 9, 1990, from Welsh,
Carson, Anderson & Stowe IV and WCAS Capital Partners to certain
purchasers under the Common Stock Purchase Agreement referred to
in Exhibit 10.12 (incorporated by reference to Exhibit 9 to
Registration Statement No. 33-37172).
10.1 Amended and Restated Common Stock and Note
Purchase Agreement dated as of May 6, 1987 among Comdata
Holdings Corporation, CMD Subsidiary Corporation and Welsh,
Carson, Anderson & Stowe IV, as amended (incorporated by
reference to Exhibit 10.1 to Registration Statement No. 33-14332).
10.2 Registration Rights Agreement dated March 23,
1987 between Welsh, Carson, Anderson & Stowe IV and CMD
Subsidiary Corporation (incorporated by reference to Exhibit
10.2 to Registration Statement No. 33-14332).
10.3 Form of Subscription Agreement (incorporated by
reference to Exhibit 1 to Amendment No. 1 to Registration
Statement No. 33-14332).
10.4 Revolving Credit Agreement dated as of
September 4, 1987, as amended, among CMD Subsidiary Corporation,
Comdata Holdings Corporation, The First National Bank of Boston,
First American National Bank of Nashville, The Citizens Fidelity
Bank & Trust Company, as banks, and The First National Bank of
Boston and First American National Bank of Nashville, as
co-agents (incorporated by reference to Exhibit 10.4 to
registrants' Annual Report on Form 10-K for fiscal year 1987).
10.5 Agreement, dated September 11, 1989, between
Comdata Network, Inc. and Citicorp Credit Services, Inc.
(incorporated by reference to Exhibit 10(a) to the registrants'
Annual Report on Form 10-K for fiscal year 1989).
10.6 Purchase Agreement for two mainframe computer
processors between Comdata Network, Inc. and National Advance
Systems Corporation, dated May 21, 1985 (incorporated by
reference to Exhibit 10(c) to the registrants' Annual Report on
Form 10-K for fiscal year 1985).
80
<PAGE> 83
10.7 Lease Agreement for computer hardware and
software between Comdata Network, Inc. and Pan American Systems,
Inc. (incorporated by reference to Exhibit 10(f) to the
registrants' Annual Report on Form 10-K for fiscal year 1985).
10.8 Comdata Holdings Corporation Stock Option and
Restricted Stock Purchase Plan (incorporated by reference to
Exhibit 10.8 to registrants' Registration Statement No. 33-30618).
10.9 Lease Agreement dated November 29, 1988, as
amended, by and between Comdata Network, Inc. and Eakin & Smith,
Inc. (incorporated by reference to Exhibit 10.9 to registrants'
Annual Report on Form 10-K for fiscal year 1988).
10.10 Purchase Agreement, dated as of June 30, 1989,
by and between Comdata Network, Inc. and First Data Resources,
Inc. (incorporated by reference to Exhibit 1 to registrants'
Report on Form 8-K filed July 14, 1989).
10.11 Common Stock Purchase Agreement, dated as of
March 9, 1990, among Comdata Holdings Corporation and the
several purchasers named in Schedule 1 thereto (incorporated by
reference to Exhibit 1 to registrants' Report on Form 8-K filed
March 16, 1990).
10.12 Registration Rights Agreement, dated as of
March 9, 1990, among Comdata Holdings Corporation and the
purchasers named in Schedule I to the Common Stock Purchase
Agreement referred to in Exhibit 10.12 (incorporated by
reference to Exhibit 2 to registrants' Report on Form 8-K filed
March 16, 1990).
10.13 Amendment No. 1, dated as of June 30, 1990, to
the Noncompete Agreement, dated as of June 30, 1989, among
Comdata Network, Inc., First Data Resources, Inc. and American
Express Information Services Company (incorporated by reference
to Exhibit 1 to registrants' Report on Form 8-K filed July 12,
1990).
10.14 First Amendment, dated as of June 29, 1990, to
the Subordination Agreement, dated as of June 30, 1989, among
the first National Bank of Boston, as agent for itself and
certain other financial institutions. First Data Resources,
81
<PAGE> 84
Inc., American Express Information Services Company, Comdata
Network, Inc., CDN Services, Inc., and Comdata Subsidiary
Corp. (incorporated by reference to Exhibit 3 to registrants'
Report on Form 8-K filed July 12, 1990).
10.15 Sales, Marketing and Operations Agreement,
dated as of July 1, 1991, between PCI, Inc. and Comdata Network,
Inc. (incorporated by reference to Exhibit 10.18 to registrants'
Annual Report on Form 10-K for fiscal year 1991).
10.16 Telecommunications Services Agreement dated as
of August 30, 1991, between Advanced Telecommunications
Corporation and Comdata Network, Inc. (incorporated by reference
to Exhibit 10.20 to registrants' Annual Report on Form 10-K for
fiscal year 1991).
10.17 Preferred Stock Purchase Agreement, dated as of
September 6, 1991, between Comdata Holdings Corporation and
Advanced Telecommunications Corporation (incorporated by
reference to Exhibit 1 to registrants' Report on Form 8-K filed
November 1, 1991).
10.18 Registration Rights Agreement, dated as of
September 6, 1991, between Comdata Holdings Corporation and
Advanced Telecommunications Corporation (incorporated by
reference to Exhibit 2 to registrants' Report on Form 8-K filed
November 1, 1991).
10.19 Agreement for Systems Operations Services,
dated as of September 6, 1991, between Comdata Network, Inc. and
Integrated Systems Solution Corporation
(incorporated by reference to Exhibit 10.23 to registrants'
Annual Report on Form 10-K for fiscal year 1991).
10.20 Stock Purchase Agreement, dated as of December
30, 1991, among Larry Babins, Paul St. Pierre, Comdata Holdings
Corporation, and Comdata Network, Inc. (incorporated by
reference to Exhibit 10.24 to registrants' Annual Report on Form
10-K for fiscal year 1991).
10.21 Stock Purchase Agreement, dated as of December
30, 1991, among Marlene St. Pierre, Chantal St. Pierre, Jennifer
St. Pierre, Janice Babins, and The Babins Family Trust
(incorporated by reference to Exhibit 10.25 to registrants'
82
<PAGE> 85
Annual Report on Form 10-K for fiscal year 1991).
10.22 Series B Preferred Stock Purchase Agreement,
dated as of June 30, 1992, between Comdata Holdings Corporation
and WCAS Capital Partners, L.P. (incorporated by reference to
Exhibit 1 to registrants' Report on Form 8-K filed July 6, 1992).
10.23 Registration Rights Agreement dated as of June
30, 1992, between Comdata Holdings Corporation and WCAS Capital
Partners, L.P. (incorporated by reference to Exhibit 2 to
registrants' Report on Form 8-K filed July 6, 1992).
10.24 Letter Agreement, dated August 14, 1992, among
Welsh, Carson, Anderson & Stowe IV, Comdata Holdings Corporation
and Comdata Network, Inc (incorporated by reference to Exhibit
10.31 to Registration Statement No. 33-52018).
10.25 Registration Rights Agreement, dated August 14,
1992, among Comdata Holdings Corporation, WCAS Capital Partners,
L.P. and Welsh, Carson, Anderson & Stowe IV (incorporated by
reference to Exhibit 10.25 to Registration Statement No.
33-52018).
10.26 Letter Agreement, dated August 14, 1992, among
Comdata Holdings Corporation, Comdata Network, Inc. and WCA
Management Corporation (incorporated by reference to Exhibit
10.26 to Registration Statement No. 33-52018).
10.27 Subscription and Exchange Agreement, dated as
of December 29, 1992, among Comdata Holdings Corporation,
Comdata Network, Inc. and the several persons named in Annex I
thereto (incorporated by reference to Exhibit 3 to Registrants'
Report on Form 8-K filed January 13, 1993).
10.28 Preferred Stock Purchase Agreement, dated as of
December 29, 1992, among Comdata Holdings Corporation and the
Purchasers listed on Schedule I thereto (incorporated by
reference to Exhibit 2 to Registrants' Report on Form 8-K filed
January 13, 1993).
10.29 Registration Rights Agreement, dated as of
December 29, 1992, among Comdata Holdings Corporation and each
of the persons named on Annex A thereto (incorporated by
reference to
83
<PAGE> 86
Exhibit 4 to Registrants' Report on Form 8-K filed January 13,
1993).
10.30 Credit Agreement, dated as of December 29,
1992, among Comdata Network, Inc., the financial institution's
signatory thereto, BT Commercial Corporation and Banque Indosuez,
New York Branch, as Agents and Bankers Trust Company, as Issuing
Bank (incorporated by reference to Exhibit 1 to Registrant's
Report on Form 8-K filed January 13, 1993).
10.31 Agreement, dated as of December 8, 1992,
between PCI, Inc. and Comdata Network, Inc (incorporated by
reference to Exhibit 10.31 to Registration Statement No.
33-52018).
10.32 Form of letter agreement from WCAS Capital
Partners, L.P. and Welsh, Carson, Anderson & Stowe IV to each of
the parties listed on Annex I thereto (incorporated by reference
to Exhibit 10.32 to Registration Statement No. 33-52018).
10.33* Stock Purchase Agreement, dated as of November 11, 1993, between
the Shareholders of Saunders, Inc. and Comdata Holdings
Corporation.
10.34 Assignment of Stock Purchase Agreement (Exhibit 10.33), dated as
of November 11, 1993, by Comdata Holdings Corporation to Comdata
Network, Inc.
10.35* Asset Purchase Agreement, dated as of February 23, 1994, among
RoTec - The Routing Technology Company, as Seller; Ronald J.
Dombrowski, Korf E. Penzien, David J. Ross, Steven T. Brown,
Ebrahim Airana, as Partners; and Comdata Network, Inc., as Buyer.
10.36* Comdata Holdings Corporation Stock Option and Restricted Stock
Purchase Plan, As Amended 10/25/93.
18 Accountants Letter on change in accounting.
21* List of Subsidiaries of Comdata Holdings Corporation and Comdata
Network, Inc.
23* Consent of independent public accountants.
(b) Reports on Form 8-K filed during the last quarter of the fiscal
year ended December 31, 1993:
None.
* Previously Filed
84
<PAGE> 87
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, each Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMDATA HOLDINGS CORPORATION
By /s/ George L. McTavish
------------------------------------
Chairman and Chief Executive Officer
Date: March 30, 1994
COMDATA NETWORK, INC.
By /s/ George L. McTavish
------------------------------------
Chairman and Chief Executive Officer
Date: March 30, 1994
85
<PAGE> 88
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of each Registrant and in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
Chairman, Chief March 30, 1994
- -------------------------- Executive Officer, and
George L. McTavish Director (Principal
Executive Officer)
President, Chief March 30, 1994
- -------------------------- Operating Officer and
Edward A. Barbieri Director
Executive Vice President, March 30, 1994
- -------------------------- Chief Financial Officer
Dennis R. Hanson and Director (Principal
Financial and Accounting
Officer)
- -------------------------- Director March 30, 1994
Bruce K. Anderson
- -------------------------- Director March 30, 1994
Patrick J. Welsh
- -------------------------- Director March 30, 1994
Dana J. O'Brien
- -------------------------- Director March 30, 1994
Louis P. Buglioli
- -------------------------- Director March 30, 1994
Stephen E. Raville
- -------------------------- Director March 30, 1994
Phyllis Haberman
</TABLE>
86
<PAGE> 1
EXHIBIT 18
ARTHUR
ANDERSEN
Arthur Andersen & Co. SC
February 25, 1994 Arthur Andersen & Co.
Comdata Holdings Corporation Suite 100
5301 Maryland Way 424 Church Street
Brentwood, Tennessee 37027 Nashville, Tn 37219-3302
615 726-6000
Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
As of December 31, 1993, the Company changed its methodology for the evaluation
of the excess of costs over the fair value of net assets acquired ("goodwill")
from a measurement based on earnings before interest, taxes, depreciation and
amortization, as well as operating cash flow for the respective acquired
operations to a measurement based on the net income of each major business
unit. According to the management of the Company, this change was made
because, among other things, management believes that measurements based on net
income are more relevant measures because they include the significant costs of
interest and income taxes, which were not included in the method previously
used. Financing costs changed significantly after the Company's refinancing
transaction at the end of 1992, and the impact of income taxes on the Company's
operations are expected to increase as the Company's tax payments will be prior
to goodwill amortization. Based on the cost of the Company's recent
refinancing and inability to complete a secondary offering in December 1993,
management believes that net income is a preferable measurement indicator of
the underlying value of the Company's goodwill and other intangibles and is
more relevant to the users of the financial statements.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we
have reviewed the pertinent factors, including those related to financial
reporting, in this particular case on a subjective basis and our opinion stated
below is based on our determination made in this manner.
<PAGE> 2
Comdata Holdings Corportion
Page 2
February 25, 1994
We are of the opinion that the Company's change in method of accounting is to
an acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under
the circumstances in this particular case. In arriving at this opinion, we
have relied on the business judgment and business planning of your management.
Very truly yours,
ARTHUR ANDERSEN & CO.
