<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995 Commission file number 0-16151/2-66729
------------------ ---------------
COMDATA HOLDINGS CORPORATION/COMDATA NETWORK, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE/MARYLAND 13-3396750/62-0813252
- -------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5301 Maryland Way Brentwood, Tennessee 37027
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (615) 370-7000
--------------------------
N/A
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether each registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X No .
---- ----
As of October 27, 1995 there were outstanding 35,858,828 shares of
Common Stock of Comdata Holdings Corporation, and 1,000 shares of
Comdata Network, Inc.
<PAGE> 2
PART I
Item 1. Financial Statements
Comdata Holdings Corporation and Subsidiary
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(In thousands, except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,896 $ 18,335
Accounts receivable, less allowance for doubtful accounts $5,194, 1995;
$5,614, 1994 161,500 147,940
Prepaid expenses and other 9,033 5,560
--------- ---------
Total current assets 194,429 171,835
Property and equipment, net of accumulated depreciation 12,809 11,848
Cost in excess of fair value of net assets acquired, net 93,909 81,017
Other assets, net 17,777 18,333
--------- ---------
$ 318,924 $ 283,033
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Drafts payable $ 12,020 $ 9,616
Settlements payable 104,196 102,511
Accounts payable 9,675 9,707
Other accrued liabilities 35,329 21,305
Customer security deposits 6,474 6,301
Current maturities of long-term debt 1,926 6,880
-------- ---------
Total current liabilities 169,620 156,320
Deferred credit 2,287 3,741
Long-term debt, net of current maturities 212,623 212,661
Stockholders' equity:
Preferred stock, par value $.01 per share, authorized 5,000,000 shares:
Series B, issued and outstanding 558,970 and 562,033 shares,
respectively, stated at liquidation preference, $100 per share
plus accrued dividends 78,596 72,058
Series C, issued and outstanding 247,975 and 250,500 shares,
respectively; stated at liquidation preference, $100 per share
plus accrued dividends 34,583 31,912
Common stock, par value $.01 per share; authorized 100,000,000 shares;
issued and outstanding 16,814,505 and 16,467,530 shares, respectively 168 165
Paid-in capital 123,829 120,607
Accumulated deficit (302,782) (314,431)
--------- ---------
Total stockholders' equity (deficit) (65,606) (89,689)
--------- ---------
$ 318,924 $ 283,033
========= =========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 3
Comdata Holdings Corporation And Subsidiary
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended September 30, 1995 and 1994
===============
<TABLE>
<CAPTION>
1995 1994
------- -------
(In thousands, except per share data)
<S> <C> <C>
REVENUE $ 72,793 $ 63,593
-------- --------
OPERATING COSTS:
Salaries and employee benefits 14,834 14,960
Agent commissions 15,520 12,096
Telecommunications (including amounts paid to a related party, $4,549 in
1995; $4,019 in 1994) 6,500 5,955
Depreciation and amortization 2,571 2,146
Other operating costs 13,620 11,285
-------- --------
Total operating costs 53,045 46,442
-------- --------
Income before interest and taxes 19,748 17,151
Interest expense (7,348) (7,680)
Interest income 25 1
-------- --------
Income before income taxes 12,425 9,472
Income tax expense (3,728) (797)
-------- --------
Net income 8,697 8,675
Preferred stock dividend requirement, payable in shares of stock or
accreting to liquidation preference (3,407) (2,948)
-------- --------
Net income for common stock $ 5,290 $ 5,727
EARNINGS PER SHARE:
Net income per common and dilutive common equivalent share $ 0.24 $ 0.26
Weighted average common and dilutive common equivalent shares outstanding 36,046 32,791
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
Comdata Holdings Corporation And Subsidiary
Consolidated Statements of Operations (Unaudited)
For the Nine Months Ended September 30, 1995 and 1994
================
<TABLE>
<CAPTION>
1995 1994
------- -------
(In thousands, except per share data)
<S> <C> <C>
REVENUE $204,297 $ 181,504
-------- ---------
OPERATING COSTS:
Salaries and employee benefits 43,852 44,289
Agent commissions 41,032 31,691
Telecommunications (including amounts paid to a related party, $13,506 in
1995; $12,021 in 1994) 19,513 18,649
Depreciation and amortization 7,323 6,139
Other operating costs 38,875 34,907
-------- ---------
Total operating costs 150,595 135,675
-------- ---------
Income before interest and taxes 53,702 45,829
Interest expense (22,253) (23,033)
Interest income 53 8
-------- ---------
Income before income taxes 31,502 22,804
Income tax expense (9,996) (2,598)
-------- ---------
Net income 21,506 20,206
Preferred stock dividend requirement, payable in shares of stock or
accreting to liquidation preference (9,938) (9,782)
-------- ---------
Net income for common stock $ 11,568 $ 10,424
EARNINGS PER SHARE:
Net income per common and dilutive common equivalent share $ 0.62 $ 0.63
Weighted average common and dilutive common equivalent shares outstanding 34,617 30,813
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
Comdata Holdings Corporation and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 1995 and 1994
=============
<TABLE>
<CAPTION>
1995 1994
-------- --------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,506 $ 20,206
-------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 7,322 6,139
Amortization of debt issuance costs and discount 1,683 2,197
Provision for losses on accounts receivable 4,765 3,943
Amortization of deferred credit (1,454) (1,788)
Deferred tax provision (benefit) 902 (1,968)
-------- --------
Total adjustments before changes in assets and liabilities 13,218 8,523
-------- --------
Change in assets and liabilities, net of effects from purchase
business combinations:
Accounts receivable (19,377) (31,848)
Prepaid expenses and other (1,744) 402
Drafts and settlements payable 4,089 14,992
Other accrued liabilities 12,239 10,996
Other 49 (9)
-------- --------
Total changes in assets and liabilities net of effects from purchase
combinations (4,744) (5,467)
-------- --------
Net cash provided by operating activities 29,980 23,262
-------- --------
Cash flows from investing activities:
Capital expenditures (5,477) (4,263)
Payment for purchase business combinations, net of cash acquired (12,480) (3,380)
Proceeds from sale of business, net of cash sold 2,983 -
Additions to other assets (3,160) (2,194)
-------- --------
Net cash used for investing activities (18,134) (9,837)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,718 512
Net payments of revolving credit loans (1,082) (12,843)
Principal payments on long-term debt and capital leases (6,101) (154)
Payment of debt issuance costs (820) (143)
-------- --------
Net cash used for investing activities (6,285) (12,628)
-------- --------
Net increase in cash and cash equivalents 5,561 797
Cash & cash equivalents, beginning of period 18,335 13,332
-------- --------
Cash & cash equivalents, end of period $ 23,896 $ 14,129
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
Comdata Holdings Corporation and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
1. The accompanying financial statements include the accounts of
Comdata Holdings Corporation ("Comdata", or the "Company") and its wholly-owned
subsidiary, Comdata Network, Inc. ("Network"). Comdata has no operations
except for its ownership of Network. Network is the obligor for all of the
debt instruments included in the accompanying consolidated balance sheet.
The accompanying unaudited financial statements include all
adjustments (which are of a normal recurring nature) that are, in the opinion
of management, necessary for a fair statement of the results for the interim
period presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to SEC rules and
regulations. The statements should be read in conjunction with the Summary of
Significant Accounting Policies and Notes to Consolidated Financial Statements
included in the Company's annual report for the year ended December 31, 1994.
Because of seasonal and other factors, the earnings for the
three- and nine-month periods ended September 30, 1995 and 1994 should not be
taken as an indication of earnings for all or any part of the balance of the
year.
2. In August 1995, the Company entered into a definitive
agreement to merge with Ceridian Corporation. Under the terms of the
agreement, Comdata's stockholders will receive 0.57 shares of Ceridian common
stock for each share of Comdata common stock. The transaction is expected to
be tax-free to Comdata's stockholders and to be accounted for on a
pooling-of-interests basis. Completion of the transaction is expected to occur
before the end of 1995 and is subject to a number of conditions, including the
approval of the stockholders of each company, no changes in the reported
ownership of Ceridian stock that would affect the continuing availability of
its net operating loss carryforwards, and certain regulatory matters.
The Company is comparing certain accounting policies with
Ceridian accounting policies, as well as evaluating other aspects of the
transaction. The Company expects to complete these evaluations during the
fourth quarter, after completion of the transaction. Any necessary accruals or
asset impairments as a result of these evaluations will be recorded during the
fourth quarter.
3. In February 1995, the Company sold the net assets of its
retail services division, which provides check authorization and collection
services. The consideration received was approximately $4,000,000, consisting
of $3,500,000 in cash and a $500,000
5
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promissory note, due in February 1996, subject to the resolution of certain
contingencies. The Asset Purchase Agreement provides for guarantees by Network
concerning the collectibility of receivables sold to the purchaser and the
revenues produced by certain customers. The Company does not expect a material
gain or loss to result from this transaction.
4. In March 1995, the Company completed an Amendment to its
Revolving Credit Agreement. The Amendment increased the commitment from $37.5
million to $75.0 million, extended the maturity from December 1995 to December
1997, and lowered the interest rate to prime plus 0.75% or an adjusted
Eurodollar rate plus 2.25%. Previously, the interest rate had been prime plus
1.75% or an adjusted Eurodollar rate plus 3%.
5. In March 1995, the Company purchased the stock of Trendar
Corporation ("Trendar"), which provides transaction processing services to the
transportation industry. The consideration was approximately $14.2 million,
consisting of $12.7 million in cash and a $1.5 million promissory note payable
in 1996. This acquisition has been accounted for as a purchase, and the
results of operations of the acquired business have been included in the
consolidated financial statements from the effective date of the acquisition.
The purchase price will be allocated to the net assets acquired based on their
fair values. The results of operations of the acquired business prior to the
date of the acquisition are not material to those of the Company.
6. On October 25, 1995, all of the Company's outstanding Series B
and Series C Preferred Stock was converted into approximately 19.0 million
shares of common stock. This conversion was made pursuant to the Company's
rights to force conversion as a result of the common stock having reached and
maintained for a stated time period certain specified trading price and volume
levels, as set forth in the Company's Certificate of Designations.
6
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7. The computation of earnings per share is presented below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Earnings
Net income for common stock $ 5,290 $ 5,727 $11,568 $10,424
Add dilutive effects of
preferred dividends 3,407 2,948 9,938 8,841
------- ------- ------- -------
Adjusted income applicable to
common stock $ 8,697 $ 8,675 $21,506 $19,265
======= ======= ======= =======
Shares
Weighted average common shares
outstanding 16,828 14,790 16,728 14,760
Issuance of stock under
dilutive options 922 99 654 98
Assumed conversion of
preferred stock 18,296 17,902 17,235 15,955
------- ------- ------- -------
Weighted average common and common
equivalent shares outstanding 36,046 32,791 34,617 30,813
======= ======= ======= =======
Net income per common and dilutive
common equivalent share $ 0.24 $ 0.26 $ 0.62 $ 0.63
======= ======= ======= =======
</TABLE>
The effects of assumed conversion of the Company's convertible
preferred stock into common stock, and the elimination of the related dividend
requirement, is considered in the computation of historical earnings per share
to the extent that conversion would have a dilutive impact on earnings per
share calculations. This determination is made on a period by period basis for
each series of preferred stock.
8. The Company had been in negotiations to acquire Fleetman, Inc.
("Fleetman"), a company that provides fuel management and maintenance services
to local fleets. However, the letter of intent related to these discussions
expired and negotiations have been terminated.
Item 2. Management's Discussion and Analysis of Financial Condition &
Results of Operations.
The Company's services may be separated into the following
groups: funds transfer and related services for the trucking industry; cash
advance services in the gaming industry; and retail check payment services.
The following table sets forth revenues in each of these areas for the
three-month and nine-month periods ended September 30, 1995 and 1994.
7
<PAGE> 9
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Transportation services
Funds transfer services $ 21,781 $ 20,601 $ 64,159 $ 61,395
Permit services 7,442 7,519 22,871 22,575
Telecommunication services 6,001 4,721 17,013 13,969
Other services 4,912 2,623 12,946 7,534
-------- -------- -------- --------
40,136 35,464 116,989 105,473
Consumer gaming services 32,657 25,899 86,387 68,696
Retail services - 2,230 921 7,335
-------- -------- -------- --------
Total revenue $ 72,793 $ 63,593 $204,297 $181,504
======== ======== ======== ========
</TABLE>
The Company's operating costs, as a percentage of revenue, for
such periods were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue 100.00% 100.00% 100.00% 100.00%
Salaries and employee benefits 20.38 23.52 21.47 24.40
Agent commissions 21.32 19.02 20.08 17.46
Telecommunications 8.93 9.36 9.55 10.28
Depreciation and amortization 3.53 3.38 3.58 3.38
Other operating costs 18.71 17.75 19.03 19.23
------ ------ ------ ------
Total operating costs 72.87 73.03 73.71 74.75
------ ------ ------ ------
Income before interest and taxes 27.13% 26.97% 26.29% 25.25%
====== ====== ====== =====
</TABLE>
RESULTS OF OPERATIONS
Revenue increased from $63.6 million in the third quarter of
1994 to $72.8 million in the third quarter of 1995, an increase of $9.2
million, or 14.5%. For the nine months ended September 30, 1995, revenue
increased from $181.5 million to $204.3 million, an increase of $22.8 million,
or 12.6%. Transportation services revenue increased by $4.7 million, or 13.2%,
during the third quarter, and by $11.5 million, or 10.9%, for the nine-month
period. Within transportation services, funds transfer revenue increased by
$1.2 million, or 5.7%, for the quarter, and by $2.8 million, or 4.5%, for the
nine months. Transaction volume for the Company's funds transfer services
increased by approximately 7% in the third quarter of 1995 and for the
nine-month period. Transaction volume increased at a faster
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<PAGE> 10
rate than revenue as a result of several factors, including price declines for
certain services, changes in the mix of services provided and continuing
consolidation in the trucking industry leading to more competitive pricing for
larger customers. The effect of these factors was significantly mitigated by
the recognition of revenue from unsettled transactions initiated in prior
periods.
Permit services revenue decreased from $7.5 million in the
third quarter of 1994 to $7.4 million in the third quarter of 1995, a decrease
of $0.1 million, or 1.0%. During the nine-month period, permit services
revenue increased from $22.6 million to $22.9 million, an increase of $0.3
million, or 1.3%.
Telecommunications services revenue increased approximately
$1.3 million, or 27.1%, in the third quarter of 1995, and increased by $3.0
million, or 21.8%, for the nine-month period. The Company has lowered the
selling price of certain of its telecommunications services, and as a result
has been able to increase the volume of business.
Revenue from other transportation services increased by $2.3
million, or 87.3%, during the third quarter, and increased by $5.4 million, or
71.8%, during the nine-month period. These increases are primarily due to the
acquisition of Trendar in March 1995, which increased revenue by $2.9 million
and $6.3 million for the three-month and nine-month periods, respectively.
Software sales resulted in revenue decreases of $0.7 million and $0.2 million,
respectively, for the three-month and nine-month periods of 1995, due to a
decline in the number of new sales contracts. Finally, the decision to
eliminate the Company's in-cab communications service decreased revenue by $0.3
million and $1.3 million for the three- and nine-month periods of 1995,
respectively.
Consumer and gaming services revenue increased during the
third quarter of 1995 by $6.8 million, or 26.1%, and by $17.7 million, or
25.8%, for the nine-month period. These increases were primarily due to
increases in the number of transactions at gaming establishments. Growth in
gaming at nontraditional locations, such as riverboats and Indian reservations,
has contributed significantly to the transaction growth.
Revenue from retail services decreased by $2.2 million during
the third quarter of 1995, and decreased by $6.4 million for the nine months.
In February 1995, the Company sold the net assets of its retail services
division. The consideration received was approximately $4.0 million,
consisting of $3.5 million in cash and a $0.5 million promissory note, due in
February 1996. The Asset Purchase Agreement provides for guarantees by Network
concerning the collectibility of receivables sold to the purchaser and the
revenues produced by certain customers. The Company does not expect a material
gain or loss to result from this transaction.
9
<PAGE> 11
Salaries and employee benefits decreased by $0.1 million and
$0.4 million for the three-month and nine-month periods ended September 30,
1995, decreases of 0.8% and 1.0%, respectively. The sale of the retail
services division reduced salaries and employee benefit costs by approximately
$1.3 million for the three-month period and $3.9 million for the nine-month
period. These decreases were partially offset by increases resulting from the
acquisition of Trendar in March 1995, which increased salaries and employee
benefit costs by $0.6 million and $1.6 million in the three-month and
nine-month periods, respectively.
Agent commissions increased from $12.1 million during the
third quarter of 1994 to $15.5 million during the third quarter of 1995, an
increase of $3.4 million, or 28.3%. During the nine-month period of 1995,
agent commissions increased from $31.7 million to $41.0 million, an increase of
$9.3 million, or 29.5%. These commissions are paid to locations offering
gaming cash advance services. This increase was primarily the result of
increases in the number of gaming transactions, as discussed above, and
increases in the rates paid to certain casinos in response to competitive
pressures.
Telecommunications expense increased by $0.5 million, or 9.2%,
during the three-month period, and by $0.9 million, or 4.6%, during the
nine-month period of 1995, primarily due to increases in related revenues and
transaction volumes. Rate reductions obtained from the Company's
telecommunications suppliers reduced the effects of these cost increases.
Depreciation and amortization expense increased from $2.1
million in the third quarter of 1994 to $2.6 million in the third quarter of
1995, an increase of $0.5 million, or 19.8%. For the nine-month period of
1995, these costs increased by $1.2 million, or 19.3%. These increases are
primarily due to the depreciation of the costs of imaging systems designed to
improve efficiencies in various aspects of the Company's back office operations
and amortization of goodwill related to the Trendar acquisition.
Other operating costs increased by approximately $2.3 and $4.0
million in the three-month and nine-month periods of 1995 respectively,
increases of 20.7% and 11.4%, respectively. The sale of the retail services
division reduced costs in this line item by approximately $1.2 million and $2.8
million for the three- and nine-month periods of 1995, respectively.
Offsetting these cost reductions were the acquisition of Trendar, which
increased other costs approximately $1.1 million and $2.3 million during the
three-month and nine-month periods, respectively. In addition, during the
three- and nine-month periods, there were increased costs for bad debt expense
of $1.1 million and $1.8 million, respectively. Bad debt expense has increased
primarily due to the
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<PAGE> 12
bankruptcy of certain customers in the transportation business. The remaining
cost increases are primarily due to costs of supporting revenue growth and new
products.
Interest expense decreased $0.3 million, or 4.3%, during the
three-month period, and decreased $0.8 million, or 3.4%, during the nine-month
period of 1995. The amendment of the Company's Revolving Credit Agreement had
the effect of decreasing interest costs by approximately $0.1 million and $0.4
million during the three-month and nine-month periods, respectively. In
addition, average borrowings under the Revolving Credit Agreement were lower
during 1995 as a result of repayment of indebtedness from operating cash flows
and the proceeds from the sale of the retail services division.
Income tax expense increased from $0.8 million in the third
quarter of 1994 to $3.7 million in the third quarter of 1995. For the
nine-month period, income tax expense increased from $2.6 million to $10.0
million. The effective tax rate as a percentage of pretax income increased
from 8.4% and 11.4% in the three- and nine-month periods of 1994 to 30.0% and
31.7% for the same periods in 1995. In 1994, the Company used most its tax
operating loss carryforwards, which reduced income tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Network's Revolving Credit Facility provides for revolving
credit loans and letters of credit aggregating up to $75.0 million, with a
$25.0 million sublimit for letters of credit. As of September 30, 1995, there
were no outstanding loans under the Revolving Credit Facility, and letters of
credit totaled $6.3 million. In October 1997, $6.2 million of Network's 11%
Junior Subordinated Notes mature. The Revolving Credit Agreement expires in
December 1997, and scheduled payments on Network's 12.5% Senior Notes begin in
1998.
Network's obligations under the Revolving Credit Facility are
secured by substantially all the assets of Network and its subsidiaries, are
guaranteed by Comdata and bear interest at prime plus 0.75% or an adjusted
Eurodollar rate plus 2.25%. 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
Network to maintain and transfer excess cash balances, as defined, into bank
accounts managed by the lenders. Such lenders have certain discretionary
rights to apply such cash balances against Network's outstanding loan amounts.
At September 30, 1995, Network had $22.3 million in these accounts. Network
monitors its cash position on a daily basis and makes transfers and other
transactions necessary to comply with these provisions of the Revolving Credit
Facility.
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<PAGE> 13
Subject to certain exceptions, the Revolving Credit Facility
requires prepayment of indebtedness outstanding under the facility with the
entire net cash proceeds received by Network or its subsidiaries from asset
sales over a certain minimum amount, 50% of the net cash proceeds received by
Comdata or Network from permitted issuances of debt or equity and any excess
cash flow of Network and its subsidiaries on a consolidated basis. The amount
of the Revolving Credit Facility is permanently reduced by an amount equal to
such mandatory prepayments.
The Revolving Credit Facility and the indentures governing the
Senior Notes and Debentures contain certain covenants that limit or prohibit,
among other things, Comdata's ability to incur additional indebtedness, to pay
dividends or make other distributions, to engage in certain transactions with
affiliates, to issue or sell stock of subsidiaries to third parties, to repay
certain indebtedness prior to its stated maturity, to create liens, to sell
assets, to make certain capital expenditures, to enter into a transaction that
would result in a change of control, to incur certain subordinated debt and to
merge or consolidate with or to acquire any other business. In addition, the
Revolving Credit Facility requires the Company to maintain certain specified
financial ratios. As of September 30, 1995, the Company was required to
maintain a tangible net worth deficit of less than $195.0 million, an interest
coverage ratio in excess of 2.25 to 1, a current ratio in excess of 0.95 to 1,
and indebtedness not to exceed $245.0 million, all as defined. As of September
30, 1995, 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, $181.3 million; interest coverage ratio, 2.60 to 1;
current ratio, 1.15 to 1; indebtedness, $214.5 million.
As contemplated by the agreement to merge with Ceridian,
Ceridian has requested that Network commence, prior to the effective time of
the merger, a tender offer (the "Debt Tender Offer") to purchase for cash all
$130 million in principal amount of Network's outstanding 12.5% Senior Notes
and all $75 million in principal amount of Network's outstanding 13.25% Senior
Subordinated Debentures. In connection therewith, Network will solicit
consents for certain proposed amendments and waivers to the related Indentures
to eliminate substantially all of the restrictive covenants in such Indentures.
The Debt Tender Offer is conditioned upon, among other things, the consummation
of the merger, receipt of the requisite consents with respect to the proposed
amendments and waivers and execution of the resulting Supplemental Indentures,
and the receipt by Network, pursuant to an intercompany loan from Ceridian, of
sufficient funds to pay the aggregate consideration for all securities validly
tendered pursuant to the Debt Tender Offer as well as related fees and
expenses. Ceridian also expects that, immediately after the effective time of
the merger, it will cause Network to call
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<PAGE> 14
for redemption of all the outstanding $6.2 million in principal of Network's
11% Junior Subordinated Notes, such redemption also to be financed by an
intercompany loan from Ceridian.
Ceridian expects to borrow the funds necessary to complete the
Debt Tender Offer and the redemption of the Junior Notes pursuant to a new
revolving credit facility that it expects to establish immediately following
the effective time of the merger. Concurrently with the establishment of the
new credit facility, Network's Revolving Credit Facility would be canceled.
Working Capital
The Company's principal uses of funds for the next several
years will be for working capital, for debt service and for capital
expenditures consisting of routine replacements of field computer equipment and
back office equipment. New services offered by the Company will require
additional investments in working capital to fund growth in accounts
receivable. 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. If the merger with Ceridian is
completed, it is anticipated that intercompany loans from Ceridian would
replace the Revolving Credit Facility.
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. For the three months
ended September 30, 1995, the average days in accounts receivable outstanding,
calculated based on the average accounts receivable outstanding for such
period, was approximately 5.9 days. 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.
13
<PAGE> 15
Cash Flow
Comdata's principal source of internal liquidity has
historically been its cash flow from operations. During the nine months ended
September 30, 1995 and 1994, operating activities provided $30.0 million and
$23.3 million, respectively. The consolidated statement of cash flows is
substantially affected by the particular day of the week on which the
accounting period ends, primarily because of the large volume of weekend
transactions in gaming services. In addition, the volume of funds transferred
by Comdata for its customers is very high relative to the average level of
accounts receivable. Finally, small changes in the timing of customer
remittances may have a relatively greater effect on the amounts of accounts
receivable.
Net cash used for investing activities in the nine-month
periods for 1995 and 1994 was $18.1 million and $9.8 million, respectively.
These amounts primarily represent payment for purchase business combinations,
capital expenditures and additions to other assets.
Financing activities used $6.3 million of cash in 1995 and
$12.6 million of cash in 1994, primarily consisting of net payments under the
Revolving Credit Facility.
PART II
Item 1. Legal Proceedings
The Company is a defendant in certain pending litigation
arising in the ordinary 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.
Comdata announced on October 20, 1995 that it had been
informed that Imperial Bank of Los Angeles, California, filed a lawsuit against
Comdata and Network in the United States District Court for the Central
District of California, alleging that certain business practices of Network in
providing cash advance services at legalized gaming establishments, truck stops
and check cashing establishments violated the federal antitrust laws.
Specifically, the lawsuit alleges that certain provisions of Comdata's
long-term contracts with its customers unlawfully excluded others from
providing competing services. The lawsuit seeks injunctive relief, money
damages, treble damages under the antitrust laws and attorneys fees and costs.
A similar lawsuit was filed on October 27, 1995 in the United States District
Court for the Northern District of California by Preferred Card Services, Inc.,
which is understood to be an independent marketing organization for Imperial
Bank. The result of any finding in favor of the plaintiff in each of these
lawsuits is not currently
14
<PAGE> 16
estimable. Comdata believes that it has not engaged in any illegal conduct and
intends to vigorously contest both of these lawsuits.
The trail judge in the litigation entitled Mary B. Middleton
- -vs- Comdata Network, Inc. et.al. pending in the United States District Court
For The Eastern District Of California entered an Order dated November 3, 1995
which: (i) denied Network's motion for summary judgment as to all causes of
action based upon the statute of limitations, but stated that there is an issue
of fact in this regard to be decided at trial; (ii) granted Network's motion
for summary judgment as to the first and second causes of action; and (iii)
granted the Plaintiff's motion for summary adjudication that Network is liable
for the alleged acts of its employees under the doctrine of respondeat
superior. The parties are presently engaged in voluntary mediation seeking to
settle this litigation. Network believes that the Court's ruling with respect
to respondeat superior is contrary to applicable law. If mediation is
unsuccessful, Network will seek to appeal the Court's ruling at the earliest
possible opportunity, and will continue to vigorously defend this litigation.
Item 2. Changes in Securities
On October 25, 1995, all of the Company's outstanding Series B
and Series C Preferred Stock was converted into 19.0 million shares of common
stock, as described in Note 6 to the Consolidated Financial Statements included
in this Form 10-Q.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 -- Financial Data Schedule (for SEC use only)
A Report on Form 8-K was filed with respect to the August 24,
1995 announcement of the proposed merger of the Company with Ceridian. Please
refer to Note 2 to the Consolidated Financial Statements included in this Form
10-Q for a description of this transaction.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
COMDATA HOLDINGS CORPORATION
----------------------------
November 13, 1995 /s/ Dennis R. Hanson
- --------------------------------------------------- -------------------------------
On behalf of the registrant
and as Executive Vice President
and Chief Financial Officer
November 13, 1995 /s/ L. Glynn Riddle, Jr.
- --------------------------------------------------- ------------------------------
On behalf of the registrant
and as Senior Vice President
and Controller
COMDATA NETWORK, INC.
---------------------
November 13, 1995 /s/ Dennis R. Hanson
- --------------------------------------------------- ------------------------------
On behalf of the registrant
and as Executive Vice President
and Chief Financial Officer
November 13, 1995 /s/ L. Glynn Riddle, Jr.
- --------------------------------------------------- ------------------------------
On behalf of the registrant
and as Senior Vice President
and Controller
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENT OF COMDATA HOLDINGS CORPORATION/COMDATA NETWORK, INC. FOR
THE PERIOD ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 23,896
<SECURITIES> 0
<RECEIVABLES> 166,694
<ALLOWANCES> 5,194
<INVENTORY> 0
<CURRENT-ASSETS> 194,429
<PP&E> 35,060
<DEPRECIATION> 22,251
<TOTAL-ASSETS> 318,924
<CURRENT-LIABILITIES> 169,620
<BONDS> 212,623
<COMMON> 168
0
113,179
<OTHER-SE> (178,953)
<TOTAL-LIABILITY-AND-EQUITY> 318,924
<SALES> 0
<TOTAL-REVENUES> 204,297
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 145,830
<LOSS-PROVISION> 4,765
<INTEREST-EXPENSE> 22,253
<INCOME-PRETAX> 31,502
<INCOME-TAX> 9,996
<INCOME-CONTINUING> 21,506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,506
<EPS-PRIMARY> .62
<EPS-DILUTED> .62
</TABLE>
