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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual Report Pursuant to Section 13 OR 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended September 30, 2001
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OR
[_] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from____________ to______
Commission file number 1-13806
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TRANSMEDIA NETWORK INC.
-----------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 84-6028875
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
11900 Biscayne Boulevard, North Miami, Florida 33181
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 305-892-3300
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
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on which registered
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Common Stock, par value $.02 per share American Stock Exchange, Philadelphia
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Stock Exchange
Preferred Stock, par value $.10 per share Philadelphia Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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None
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
Based on the closing sale price of December 26, 2001, the aggregate market value
of voting stock held by non-affiliates of the Registrant was approximately
$46,016,324.
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Number of shares outstanding of Registrant's Common Stock, as of December 21,
2001: 15,781,175
DOCUMENTS INCORPORATED BY REFERENCE.
Parts of the Proxy Statement for Registrant's 2001 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission not later
than 120 days after the end of the fiscal year ended September 30, 2001 are
incorporated by reference into Part III of this Form 10-K.
2
PART I
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We have made, and continue to make, various forward-looking statements with
respect to our financial position, business strategy, projected costs, projected
savings and plans and objectives of management. Such forward-looking statements
are identified by the use of forward-looking words or phrases such as
"anticipates," "intends," "expects," "plans," "believes," "estimates," or words
or phrases of similar import. Although we believe that our expectations are
based on reasonable assumptions within the bounds of our knowledge, investors
and prospective investors are cautioned that such statements are only
projections and that actual events or results may differ materially from those
expressed in any such forwarding looking statements. Our actual consolidated
quarterly or annual operating results have been affected in the past, or could
be affected in the future, by factors, including, without limitation, general
economic, business and market conditions; relationships with credit card issuers
and other marketing partners; regulations affecting the use of credit card
files; perceived desirability of alternate reward currencies such as frequent
flyer miles; extreme weather conditions; participating restaurants' continued
acceptance of discount dining programs and the availability of other alternative
sources of capital to them.
Item 1. Business
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Corporate Structure
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Transmedia Network Inc. and its subsidiaries administer dining reward programs
which offer savings and rewards to our members on dining when they dine in our
participating restaurants. To a lesser extent, we also offer rewards for
lodging, travel, retail and catalog merchandise. We commenced operations in 1984
and were reincorporated as a Delaware corporation in 1987, and our principal
office is located at 11900 Biscayne Boulevard, North Miami, Florida 33181. Our
principal telephone number is (305) 892-3300. Currently, we have the following
principal operating subsidiaries:
iDine Restaurant Group Inc. (IRG), formerly Transmedia Restaurant Company Inc.,
is responsible for soliciting, underwriting and contracting with and servicing
restaurants who participate in the program. Other service establishments such as
hotels, resort destinations and retailers are also solicited to the program but
on a much smaller scale.
Transmedia Service Company Inc. (TSC) is responsible for (i) soliciting
accounts, managing partner relationships and servicing members in the United
States and (ii) providing support services to iDine Restaurant Group Inc. RTR
Funding LLC, a wholly owned subsidiary of Transmedia Service Company Inc., was
established as a special purpose corporation for purposes of the securitization
of cash advances to merchants referred to as Rights to receive.
TMNI International Incorporated licensed the Transmedia Card, service marks,
proprietary software and know-how outside the United States.
iDine.com, Inc. was formed in April 2000 to provide restaurant operators with
the capability of using the Internet to provide yield management tools such as
variable promotions, dining incentives and off peak pricing to fill empty seats
and generate incremental business. The entire operations of iDine.com were
folded into IRG & TSC in fiscal 2001, to ensure a more efficient distribution of
the revenue management program.
Description of Rights to Receive and Registered Card
- ----------------------------------------------------
Our primary business is the administration of dining rewards programs. We
accomplish this through the acquisition of Rights to receive from participating
merchants which are then sold for cash to our members. Rights to receive are the
rights to receive the future cash flows associated with goods and services,
principally food and beverage, which are acquired and purchased from
participating restaurants for an amount typically equal to approximately 50% of
the retail value of the food and beverage. Alternatively, we may acquire such
Rights to receive either by facilitating the merchant's purchase of
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other goods and services or providing advertising and media placement services
to the participating establishments. Almost all Rights to receive are purchased
for cash. The typical discount to the menu price of 50% has merchant appeal due
to the fact that the cost of food and beverages at most fine dining
establishments is 30-40% of the retail value. Thus, the restaurant makes a
wholesale profit in advance in exchange for upfront cash and filling tables in
the future that may otherwise go empty. We typically purchase food and beverage
credits that are anticipated to be utilized by our members in a period of no
more than six to nine months from the date of purchase; however, it is not
always possible for us to predict with accuracy the amount of time in which such
credits will be consumed due to seasonality or the unfamiliarity associated with
the opening of new market areas.
Our methodology for administering the dining rewards program is referred to as
the registered card platform. Obtained through the acquisition of Dining A La
Card in June 1999, and subsequently enhanced by us, it has replaced the private
label charge card program that we had utilized since inception. Members enrolled
in the program simply register a valid major credit card with us and then
present that registered credit card while dining at a participating restaurant.
Based on our agreements with various processors and presenters throughout the
country, we receive data for all the credit card transactions at our
participating merchants. The transactions are then matched to a file containing
the members' registered card. The matched transactions are qualified via
business rules as to whether they are eligible for a reward. Qualified
transactions are then used to provide member savings or alternate currency
benefits, as well as to invoice and collect from merchants, principally via an
electronic debit to the merchant's bank account.
The savings are delivered to the members in the form of a direct credit on their
credit card statement, cash rebate or a mileage credit to their frequent flyer
statement. The credits typically represent approximately 20% of the member
dining spend with participating restaurants. Alternatively, members can elect
to receive rewards in the form of ten frequent flyer miles for every dollar
spent with major airlines, such as United, American, Delta, Northwest, America
West, US Airways, British Airways, Continental and Alaska Airlines.
Business Developments
- ---------------------
In June 1999, we acquired from SignatureCard, Inc. ("SignatureCard"), a
subsidiary of Montgomery Ward & Co., Incorporated, assets related to a
membership discount dining program that SignatureCard operated under the Dining
A La Card ("DALC") trade name and service name.
DALC had competed directly with us since 1995. The assets acquired in the
acquisition included various intellectual property rights and computer software,
membership and merchant data, Rights to receive, and most significantly, the
registered card platform. We simultaneously entered into a service agreement
with SignatureCard pursuant to which we obtained access to their sponsor
relationships with the nation's leading airlines. SignatureCard was to receive a
portion of the fees and profits derived from members initially acquired from
SignatureCard or subsequently generated through their efforts. The operations of
DALC were consolidated with ours, and integration was completed in November of
1999.
On December 28, 2000, we reached an agreement with GE Financial Assurance
("GEFA"), the successor parent of SignatureCard, Inc., to extinguish all
remaining obligations associated with the DALC acquisition, to eliminate the
exclusive right of SignatureCard, Inc., to deal with the airline frequent flyer
member files and to fully resolve and terminate the relationship. In
consideration for the above, we paid GEFA $3,800 in cash and honored GEFA's
right to put 400,000 shares held by it as part of the acquisition consideration,
at a value of $8 per share. This put right was exercised and we paid GEFA in two
equal installments on January 17 and on February 13, 2001. We also cancelled
160,000 options of the original 400,000 issued as part of the original DALC
purchase price, leaving SignatureCard with 240,000 options which must be
exercised by June 30, 2002 at a strike price of $4.00.
Following the acquisition, we converted our method of doing business from the
legacy private label Transmedia Card program to the Registered Card program.
This conversion was completed in August 2000. In order to capitalize on this
significant change in our business, we conducted numerous customer
4
research surveys and decided to re-brand the dining program under the name
iDine. In contrast to the Transmedia Card, which was a private label charge card
linked electronically to a member's bank credit card of choice, a registered
card is a major credit card that has been registered with iDine by the holder.
Members can make purchases that qualify for savings or rewards with one of their
existing "registered" credit cards so the fact that the transaction may qualify
for some form of savings or rewards is "blind" to both merchants and member
guests. Thus, the iDine program allows members to accumulate savings by using
conventional charge cards, such as MasterCard, Visa, American Express and
Discover. We believe that the registered card concept has broader consumer and
restaurant appeal due to its more discrete nature.
In connection with our conversion to the iDine registered card format, we
initially launched an e-commerce initiative through our wholly owned subsidiary
iDine.com. The on-line revenue management product, accessed through the iDine
website, allows restaurants to create special time and date specific incentives
and promotions in order to drive incremental traffic through the restaurant
during slow periods. Consumers have their choice of receiving these variable
benefits in either alternative currencies such as airline frequent flyer miles
or cash. The website also allows for national restaurant listings and access to
reviews. Specifically, the web site contains Zagat restaurant listings and
review content provided under our agreement with Zagat. Other popular member
enhancements are the member's review features and the ability of the member to
manage his or her account online and review their transaction history. The real
business driver on the web site, however, is the revenue management program
whereby restaurants who no longer wish to participate in the fixed incentive
cash advance program have the ability to establish performance based variable
dining deals online (e.g., 20% discount on Tuesday nights) which may be accepted
by a member.
To provide us with sufficient funds to launch our new revenue management
product, we raised $10 million in equity capital through a private placement.
The testing of the product was completed in December 2000, and it was rolled-out
on a national basis in April 2001. The revenue management product has helped to
increase the number of participating restaurants, as well as provide a retention
product for existing restaurants and has increased overall restaurant dining
sales.
In the past, we have derived income from franchising and licensing the
Transmedia Card trade name and service mark, and related proprietary rights and
know-how within and outside the United States. We have also received revenue
from licensing the Transmedia Card. In recent years, we started systematically
reacquiring the franchise sales territories to obtain greater control over our
national presence and growth plans. In June 2000, we completed the reacquisition
of the last of our previously franchised territories. In addition to reacquiring
all its previously franchised territories, in April 2000, we terminated, by
mutual consent, the license agreements with Transmedia Asia Pacific, Inc. and
Transmedia Europe. Following a brief transition period, Transmedia Asia Pacific,
Inc. and Transmedia Europe, Inc. have ceased using the Transmedia brand name for
their respective discount programs.
Member and Merchant Programs
- -----------------------------
Member Programs
Our members have a choice of programs, including (1) a $49.00 annual fee-based
program which typically offers a 20% savings at participating establishments on
charges for food, beverage, tax, and tip, and (2) a no-fee program which offers
alternative currency rewards, predominantly frequent flyer mileage credits with
participating airlines of ten miles for each dollar spent on charges for food,
beverage, tax and tips at participating establishments.
We also introduced a no upfront fee program where benefits and rewards are not
provided until the member reaches a certain level of qualified spending each
year. The typical usage requirements range from cumulative rewards of $40.00 to
$50.00, and the net effect is essentially that by the time the member receives a
benefit, we (by not providing a benefit for the first few dines) have
effectively received a fee.
5
Typically, iDine registered cardmembers (or members enrolled through an airline
program) can elect to earn ten frequent flyer miles for each dollar spent per
dine. This type of arrangement is advantageous for airlines as they view miles
acquired for use as rewards or rebates to be equivalent to a prepaid ticket. We
are able to purchase mileage from the airlines on an as needed basis at
favorable rates. Additionally, the contracts with the airlines provide that
additional affinity based accounts can be enrolled at virtually no cost. We
effectively reduce the cost of the 20% cash rebate discount to approximately 16-
17% if airline miles are elected to be received in lieu of cash.
Merchant Programs
Fixed Incentive Plans
. Cash Advance Plan - Under this plan, the merchant receives cash in advance
for food and beverage, credits typically in the ratio of 1:2. Gross dining
sales are recognized as the portion of the total ticket recovered from the
merchant, typically 80%. The 20% is left with the merchant to provide the
merchant with liquidity for items such as sales tax and tips.
. Arrears Plan - Under this plan, the merchant receives no cash in advance;
however, meals are discounted at a lower rate. The merchant is still listed
in our directory of participating merchants similar to the standard plan.
When a member visits the merchant, we may receive only 30% to 35% of the
transaction from the merchant. The gross margin on these transactions is
the residual amount after the member receives their 20% discount. While the
actual cash received from these transactions is less than the cash advance
plan, there is very little risk, and we do not have a cost of receivables
or capital for those merchants.
Both the cash advance and arrears plan are available to members seven days
a week at the conventional savings value.
Variable Incentive Plans
. The Revenue Management Plan - This plan provides the merchant with the
ability to direct when they wish to offer incentive dining. The merchant
posts a certain reward (i.e., percentage discount) tied to day of the week
or time of day, or both. The reward is communicated to members via the
iDine website, directories and through wireless devices such as Palm
pilots. The member either goes to the advertised restaurant or, for certain
"exclusives", selects the reward and then makes a reservation to dine. We
receive a portion of the transaction, the merchant gets direct incremental
business when they want it, and the member receives a reward.
Multi-Unit Plan - The multi-unit (or chain) restaurant plan specifically
addresses peak versus off-peak demand issues. Accordingly, we have in place
with certain merchants, a Sunday through Thursday plan designed to drive
incremental traffic at times when the multi-unit restaurants' capacity is
underutilized. We typically take a percentage of all such transactions and
the member gets a similar reward.
Participating Members and Merchants
As of September 30, 2001, we had approximately 7,800 merchants available to our
members. As of that date the accounts in various programs totaled approximately
6,650,000.
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2001 2000 1999 1998 1997
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Restaurants 7,800 7,000 7,200 7,300 7,100
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Enrolled accounts 6,650,000 3,150,000 2,700,000 1,200,000 1,300,000
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6
The majority of all restaurants listed in the quarterly directories published by
us typically renew their contracts after the initial Rights to receive are used.
However, after the second renewal, attrition tends to increase because the
restaurants, with our help, have either become successful and no longer require
our financial and marketing resources, or we choose not to renew them.
Offsetting this decrease are new restaurants that choose to participate as old
ones leave the program, and restaurants that were formerly on the program that
re-sign as they further expand and/or desire the program's benefits again. This
provides us with a continuous flow of restaurant prospects. Moreover, the e-
commerce enabled revenue management program has been helpful in restaurant
retention efforts by inducing merchants to remain in the program, and also to
attract restaurants that previously had chosen not to participate with a fixed
incentive plan.
We believe that in no area where we operate are we close to restaurant or
account saturation. The increase in accounts during fiscal 1999 was mainly due
to the addition of 1,700,000 accounts with the acquisition of DALC while the
increase in 2001 was due mainly to the addition of 2,800,000 new airline
frequent flyer accounts, 425,000 partner generated accounts and 225,000
corporate card accounts. During fiscal 1999-2000, the integration of DALC and
subsequent conversion to the registered card platform also had the effect of
slightly lowering the number of restaurants participating in our programs.
Limited resources were focused on converting restaurants over to the registered
card program instead of acquiring new restaurants. Some of the restaurants were
uncomfortable converting to a program in which the "discount diner" is
imperceptible from the rest of the population. More significantly, there were
restaurants in both portfolios that were not economically viable for us, and the
conversion process served to flush these restaurants out. With the conversion
process completed, we were able to focus on acquiring new restaurants and
significantly increase new restaurants in fiscal 2001. Further, we continue to
aggressively pursue the multi-units or chain restaurants that, prior to the
conversion and institution of the variable incentive program, had previously
been outside of our scope of potential merchants.
Marketing
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During fiscal 2001, we aggressively pursued our large credit card file partners
and our corporate expense management program. The recently announced Upromise
alliance is an example of distribution of the dining program membership to a
large traffic group, in this case over 250,000 thousand accounts. Another key
marketing initiative that is now possible through the registered card format is
the corporate expense management program. Participating companies enroll their
corporate card accounts with us on a no fee basis where a benefit is not
provided until the member reaches a certain level of qualified spending. After
reaching such level, the participating company receives a monthly check for the
aggregate benefits earned by their employees when dining out for business and
travel. Communicating restaurant information to corporate card employees is most
commonly done through a regular content transmission to the corporation's
intranet site or by directing them to www.idinecorporate.com. Participation in
this program has been well received, and during the year numerous well-known
entities, such as PricewaterhouseCoopers, Marsh and McClennan, Aon, Bristol
Myers Squibb, and Novartis have been added.
We also continue to expand our airlines relationships, with the announcement of
Alaska Mileage Dining Plan program to join American Advantage Dining, United
Mileage Plus Dining, Delta Skymiles Dining, USAirways Dividend Miles, America
West FlightFund Dining, British Airways Executive Club Dining, Continental
OnePass Dining and Northwest WorldPerks Dining. We now operate nine airline
dining reward programs that offer frequent flyer miles as rewards. Under these
arrangements, enrollment and fulfillment costs are significantly reduced, the
effective cost of the reward to members, when compared to a cash rebate, is
lowered and the demographic profile of the members, principally business
travelers and vacationers, is desirable. We continue to negotiate with a number
of other large partners and most of the proposed alliances follow a variation of
the above partnerships i.e., large enrollment potential, enabled through the
registered card format, at very low or no cost of acquisition and servicing,
often coupled with a cost effective alternative currency that is used as the
reward to the prospective members.
7
We have recently engaged a leading strategic customer marketing and technology
firm, to develop and implement new branding and targeted customer communication
programs for us. The firm will utilize its integrated strategic, analytic and
creative resources to emphasize the new brand image for iDine that continues to
be more representative of our current customer base and the varied consumer
motivations and aspirations surrounding "dining out." Our existing customer
database of dining enthusiasts and restaurant owners will help us to identify
specific customer segments which will drive some of the initial brand messaging,
activation and acquisition initiatives.
The success of our business depends on our ability to maintain an appropriate
ratio of members to merchants within each geographic market we serve. If we have
too many members and not enough restaurants, our member base may become
dissatisfied, and participating restaurants may experience a higher volume of
rewards business than anticipated. This could result in low program usage,
membership cancellations, and attrition in the restaurant base. Alternatively,
if too many restaurants participate in our programs with too few members, Rights
to receive turnover volume will be reduced resulting in reduced revenue and a
high cost of capital. Managing this ratio requires an ability, among other
things, to anticipate trends within a market and the desires of our customers
and participating restaurant partners. We analyze our markets in terms of member
and restaurant counts by zip code, cuisine types and restaurant quality. As we
expand both our demographic and geographic footprint, we continue to develop
alternative value propositions that appeal to the multi-unit restaurant
industry. The multi-unit casual dining market tends to be a lower margin, lower
average ticket business; however, there is still the need to fill empty seats
and drive traffic in off-peak time frames. We continue to discuss with a number
of multi-unit operators to provide either the traditional cash advance,
unrestricted seven day a week offers, or Sunday to Thursday marketing only offer
and in the past year have enlisted major national chains and numerous regional
multi-unit operators to the program.
We are now focused on growth in revenue and taking advantage of the scale
inherent in our business. From the restaurant perspective, we continue to
develop alternative offers to meet off-peak or real time needs of the restaurant
operators, all of which are geared to retaining restaurants in the program. This
goal is accomplished by providing a suite of marketing propositions that meet
the needs of growing and expanding restaurants as well as the mature, successful
ones and include both fine dining and casual dining. From a member growth
standpoint, the registered card platform appeals to partners with large credit
card files, and coupled with our technology competency and dominant market
position, sets the stage for significantly increasing the size of the
membership. Our challenge will continue to be the effective management of the
delicate balance between the restaurants and members in each market.
Dependence on marketing partners
- --------------------------------
We have aggressively hired marketing personnel and entered into new marketing
relationships to help gain access to large groups of potential customers. We
have relationships with various organizations that provide the marketing,
support and endorsement of our services and products. For example, we rely on
our agreements with banks, credit unions, corporations, airline frequent flier
programs, and other entities across the country to market our services to their
existing and future customer base. However, we need to expand these
relationships and enter into new relationships. We have entered into agreements
to direct potential members to our programs via means of specific web pages. The
development and management of these partnerships, requires experienced sales and
marketing personnel. Sales generated from airline members were approximately
$87.1 million, $71.1 million, and $9 million for the years ended September 30,
2001, 2000 and 1999, respectively. We believe that the current environment is
conducive to partners who desire customer loyalty and that our dining programs
create both value and the vehicle to engender customer behavior that meets the
loyalty needs.
Competition
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The dining rewards business remains competitive and we compete for both members
and participating merchants although we are the only national in scope dining
provider. We also anticipate continued growing competition from various e-
commerce ventures. Competitors include discount programs offered by major
credit card companies, other companies that offer different kinds of discount
marketing
8
programs and numerous small companies which offer services which may compete
with the services offered or to be offered by us. Certain of our competitors may
have substantially greater financial resources and expend considerably larger
sums than we do for new product development and marketing. Further, we must
compete with many larger and better-established companies for the hiring and
retaining of qualified marketing personnel. We believe that the unique features
of our programs: (1) can be used by members at participating establishments with
very few restrictions; (2) the programs provide substantial savings without the
need for a member to present discount coupons or a separate card when paying for
a meal; and (3) participating establishments are provided with cash in advance
of customer charges, contribute to our competitiveness and allows us to offer
better value and service to our members and merchants.
Employees
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As of September 30, 2001, we had 254 full-time employees. We believe that our
relationships with our employees are good. None of our employees are represented
by a labor union.
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Position Age
---- -------- ---
Gene M. Henderson Director, President and Chief Executive Officer 54
Stephen E. Lerch Executive Vice President and 47
Chief Financial Officer
James M. Callaghan Vice President; President of iDine Restaurant 62
Group Inc.
Keith Kiper Vice President and Secretary 42
Gregory Borges Treasurer 65
Gene M. Henderson, President and Chief Executive Officer - Mr. Henderson became
President and Chief Executive Officer in October, 1998. From March 1997 to June
1998, Mr. Henderson was President and CEO of DIMAC Marketing in St. Louis. From
1977 to 1997, Mr. Henderson was employed at Epsilon Data Management of
Burlington, Massachusetts, ultimately becoming its Chief Operating Officer. From
1990 to 1998, Epsilon was a wholly owned subsidiary of American Express Company.
Mr. Henderson has a MBA from the University of Chicago.
Stephen E. Lerch was elected Executive Vice President and Chief Financial
Officer of the Company, as well as Vice President of TMNI International
Incorporated, Transmedia Restaurant Company Inc. and Transmedia Service Company
Inc, subsidiaries, in 1997. Previously, Mr. Lerch was a Partner at Coopers and
Lybrand LLP (now PriceWaterhouse Coopers), where he worked from 1978 to 1997.
Mr. Lerch is a graduate of the University of Notre Dame.
James M. Callaghan was elected Vice President of the Company and President of
Transmedia Restaurant Company Inc., a subsidiary, in 1994. He was also a
director of the Company from 1991 to 1998. Mr. Callaghan joined the Company in
1989 and served as its Executive Vice President, Vice President, Sales and
Marketing and Treasurer. On September 30, 2001, Mr. Callaghan retired from his
position as President of IRG and remains an employee of the Company.
Keith E. Kiper was elected Secretary in 2001. He joined the Company in 2000 as
Vice President and Corporate Counsel. Prior to that time, he had been in private
practice in Boston, Massachusetts.
Gregory Borges was elected Treasurer of the Company in 1992. He joined the
Company in 1985 as Controller.
9
Item 2. Properties
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The principal leased properties of Transmedia and its subsidiaries are set forth
in the following table.
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Location Monthly Rent Terms of Lease Square Footage
- -----------------------------------------------------------------------------------------------------------------------
Miami - call center, processing, and
executive office $42,000 05/01/01 - 04/30/04 22,430
- -----------------------------------------------------------------------------------------------------------------------
New York - Sales 12,250 09/01/01 - 10/31/06 3,000
- -----------------------------------------------------------------------------------------------------------------------
Chicago - Sales 3,987 08/01/98 - 07/31/04 1,876
- -----------------------------------------------------------------------------------------------------------------------
Boston - Sales 4,618 09/01/00 - 08/31/03 1,500
- -----------------------------------------------------------------------------------------------------------------------
Los Angeles - Sales 3,913 06/01/01 - 05/31/06 2,057
- -----------------------------------------------------------------------------------------------------------------------
San Francisco - Sales 3,871 05/15/98 - 05/14/03 1,254
- -----------------------------------------------------------------------------------------------------------------------
Philadelphia - Sales 2,660 10/01/98 - 09/30/03 1,641
- -----------------------------------------------------------------------------------------------------------------------
Dallas - Sales 2,158 11/01/98 - 10/31/03 1,355
- -----------------------------------------------------------------------------------------------------------------------
Potomac, MD - Sales 4,808 01/01/01 - 12/31/03 1,923
- -----------------------------------------------------------------------------------------------------------------------
Item 3. Legal Proceedings
- --------------------------
We are involved in various legal proceedings. While it is not currently possible
to predict or determine the outcome of these proceedings, it is the opinion of
our management that the outcome of any of these shall not have a material
adverse effect on our financial position or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
PART II
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Item 5. Market for our Common Stock and Related Shareholder Matters
- --------------------------------------------------------------------
On August 5, 1999, the New York Stock Exchange ("NYSE") notified us of the
pending adoption of amendments to its continued listing criteria and of our
noncompliance with the new standards which required, in part, that both market
capitalization and stockholders' equity be at least $50 million. In accordance
with the requirements of the notification, we submitted to the NYSE an 18-month
plan to come into compliance with the new criteria. On September 16, 1999, the
NYSE advised us that our plan had been accepted and that our common stock and
our Series A Senior Convertible Redeemable Preferred Stock would continue to be
listed on the Exchange.
On April 5, 2001, the New York Stock Exchange advised us that while we were in
compliance with the market capitalization threshold it intended to de-list our
common stock and our Series A Senior Convertible Redeemable Preferred Stock
since we had not met the minimum stockholders' equity requirement of $50
million. Effective April 16, 2001, our common stock was listed on the American
Stock Exchange ("AMEX") under the ticker symbol "TMN". The following table sets
forth the high, low and closing prices of our Common Stock for each fiscal
quarter of 2001 and 2000.
Quarter Ended Low High Close
------------- --- ---- -----
December 31, 1999 $2.125 2.938 2.500
March 31, 2000 4.563 5.313 5.000
June 30, 2000 2.938 5.000 4.250
September 30, 2000 3.313 4.375 3.750
December 31, 2000 2.250 3.750 3.000
March 31, 2001 2.500 3.625 2.900
June 30, 2001 2.700 4.090 3.500
September 30, 2001 2.610 3.640 3.000
10
No dividends have been paid on our Common Stock for the last two most recent
fiscal years. The payment of dividends to holders of common stock, if any, in
the future, will depend upon, among other things, our earnings and financial
requirements, as well as general business conditions.
On April 16, 2000, our Series A Senior Convertible Redeemable Preferred Stock
was reported on the OTC Bulletin Board under the symbol "TMNwp". On November 29,
2001, our Series A convertible preferred stock began trading alongside our
common stock on the Philadelphia Stock Exchange under the symbol "TMNpra".
Holders of our Series A convertible preferred stock are entitled to receive
dividends at the rate of $0.29 per share per annum, at least $0.145 of which is
payable in quarterly installments in arrears on the first business day of
January, April, July and October. Annual dividends in the amount of $0.145 per
share are not payable currently but can be deferred, accrued and be payable upon
a conversion or redemption of the Series A preferred shares or liquidation,
dissolution or winding up of Transmedia. We, however, may choose to pay any or
all deferred dividends currently. Dividends will accrue from and including the
issue date to and including the date on which the preferred shares are redeemed
or converted or on which the liquidation preference is paid. To the extent not
paid, current dividends and deferred dividends will be cumulative. The Series A
preferred shares will be entitled to receive cash dividends on an as-converted
basis equal to the Common Stock, if dividends are paid on Common Stock. On July
27, 2001, 13,108 shares of preferred stock were converted to 14,405 shares of
common stock. At September 30, 2001, the conversion rate of the preferred shares
was one preferred share for 1.1141 common shares. Dividends on our Series A
preferred shares for the last two most recent fiscal years are as follows:
Quarter Ended Cash Accrued
------------- ---- -------
December 31, 1999 $0.021 0.021
March 31, 2000 0.036 0.036
June 30, 2000 0.036 0.036
September 30, 2000 0.036 0.036
December 31, 2000 0.036 0.036
March 31, 2001 0.036 0.036
June 30, 2001 0.036 0.036
September 30, 2001 0.036 0.036
The aggregate number of holders of record of our common stock and Series A
preferred stock on December 26, 2001 was approximately 2,200 and 300,
respectively.
Effective February 1, 2002, the Company will change its corporate name to iDine
Rewards Network Inc. and will commence trading under the symbol IRN. A series of
announcements and press releases are planned to adequately inform our
shareholders, and the investing community in general, prior to the effective
date.
11
Item 6. Selected Financial Data
- --------------------------------
Year Ended September 30,
-----------------------
(thousands except per share data)
---------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Statements of Operations Data:
- -----------------------------
Registered card sales $182,714 $103,950 $ 25,942 $ -- $ --
Private label sales 7,323 76,677 94,530 95,549 101,301
-------- -------- -------- -------- --------
Total dining sales 190,037 180,627 120,472 95,549 101,301
Net revenues from rights-to-receive 45,401 36,356 23,882 19,659 21,232
Membership and renewal fee income 7,009 8,444 8,281 7,321 7,251
Other income 776 1,558 2,625 3,161 2,461
Total operating revenues 53,186 46,358 34,788 30,141 30,944
Total operating expenses 47,450 46,831 40,782 37,606 30,246
Operating income (loss) 5,736 (473) (5,994) (7,465) 698
Other expense (4,318) (5,682) (2,404) (2,971) (1,382)
Income (loss) before taxes and extraordinary item 1,419 (6,155) (8,398) (10,436) (684)
Income tax benefit (provision) (85) -- (2,000) 2,600 260
Extraordinary item, loss on early extinquishment
of debt, net of tax -- (1,623) -- -- --
Net income (loss) $ 1,334 $ (7,778) $(10,398) $ (7,836) $ (424)
======== ======== ======== ======== ========
Per Share Data:
- --------------------------------------------
Income (loss) before taxes and extraordinary 0.01 (.51) (.80) (.67) (.04)
items
Extraordinary item, loss on early extinquishment
of debt -- (.12) -- -- --
Net income (loss)
Basic and Diluted 0.01 (.63) (.80) (.67) (.04)
Weighted average number of common and common
equivalent shares outstanding:
Basic 15,983 14,149 13,043 11,773 10,166
Diluted 16,281 14,149 13,043 11,773 10,166
Balance Sheet Data:
- ------------------
Total assets $108,320 $121,581 $119,710 $ 74,425 $ 72,685
Revolving securitization 55,500 59,625 -- -- --
Long-term debt:
Recourse -- -- 10,000 -- --
Non-recourse -- -- 33,000 33,000 33,000
Redeemable preferred shares 9,695 10,000 -- -- --
Stockholders' equity 20,135 20,806 18,113 27,734 25,304
Debt to total assets -- -- 36% 44% 45%
Earnings to fixed charges 122% 17% -109% -245% 73%
Cash dividends per common share $0.00 $ 0.00 $ 0.00 $ 0.02 $ 0.02
12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(Dollars in thousands)
----------------------
Revenue Recognition
The Company recognizes gross dining sales as revenue when our members dine in
one of our participating restaurants. Revenue is only recognized if the member
dining transaction qualifies for a reward or savings in accordance with the
rules of the particular dining program. The amount of revenue recognized is that
portion of the total spending by the member that the Company is entitled to
receive in cash, in accordance with the terms of the contract with the
restaurant. For the typical cash advance based contract where we have acquired
or prepaid for food and beverage credits on a wholesale basis, we often leave
some portion of the member's dining spend with the merchant to provide liquidity
for payment of sales tax and tips. For example, if the total dining spend by the
member is one hundred dollars at our participating restaurants, as evidenced by
the full amount of the credit card transaction, and our contract provides for us
to leave behind 20%, the amount of gross dining sales recognized is eighty
dollars representing what we will actually realize in cash. Similarly, for
members' dining transactions at restaurants in the revenue management program
where we have not advanced cash and the rewards or savings may vary by the time
of day or day of the week, revenue is only recognized to that extent that we are
contractually entitled to receive cash for a portion of the member's spend. The
same one hundred dollar transaction referred to above in a revenue management
restaurant may only yield thirty dollars in cash to be realized however, there
was no cash advanced, the transaction has less risk, and there is no cost of the
rights to receive sold.
Results of Operations (2001 versus 2000)
- ----------------------------------------
Gross dining sales for the fiscal year ended September 30, 2001 increased 5.2%
to $190,037 as compared to $180,627 for the year ended September 30, 2000. The
conversion of our private label membership and restaurant base to the registered
card platform, substantially completed in August 2000, resulted in a decrease in
private label sales of $69,354 in fiscal 2001 when compared to the prior year.
This decrease was more than offset by the increase in the registered card sales
of $78,764.
Gross member dining spend in participating restaurants that qualified for
rewards and savings in fiscal 2001 increased an estimated 14% to approximately
$258 million compared to approximately $225 million in fiscal 2000. The increase
in gross member dining spend exceeded the increase in actual gross dining sales
recognized as a result of the continued implementation of the program with
restaurants to allow for more cash to be left with the merchant per transaction
in exchange for a more favorable ratio of cash for food and beverage credits.
Consequently, the Company realized less cash per transaction, but with the
improved funding ratio, at a more favorable dining margin.
Sales in traditional Transmedia territories declined $4,014 from $163,932 during
fiscal 2000 to $159,918 during fiscal 2001. Although these territories had
decreased sales, the actual member spend increased over prior year as discussed
above. The main declines were in the markets of New York, Chicago, San
Francisco, Philadelphia and Miami. These declines were somewhat offset by higher
sales in Los Angeles, Atlanta, Dallas, the Carolinas, Phoenix and the west coast
of Florida.
Franchises repurchased in fiscal 2000 accounted for additional sales of $9,347
when comparing fiscal 2001 with prior year. The Washington DC franchise
repurchased in June 2000, the New Jersey franchise repurchased in March 2000 and
the San Antonio franchise repurchased in December 1999 had $5,848, $3,057 and
$442, respectively, of additional sales when comparing fiscal 2001 with the
prior year.
Territories in which we did not do business prior to the acquisition of Dining A
la Card ("DALC") had an increase in sales of $2,261 from $8,387 in fiscal 2000
to $10,648 in fiscal 2001. Territories with significant increases were Hawaii,
Las Vegas, Kansas City and Minneapolis. We expect these markets to continue to
grow in the future.
13
In late fiscal 2000 and during fiscal 2001, we expanded into new territories
such as Columbus, Cincinnati, New Orleans, Salt Lake City, Pittsburgh,
Buffalo/Rochester and Louisville. These and other new markets accounted for an
additional $1,816 in sales during fiscal 2001 with $639 and $561 coming from
Columbus and Cincinnati, respectively. We anticipate continued growth and
further expansion in the new markets in the coming year.
Leveraging our national position in the fine dining rewards space along with
capitalizing on the conversion to universal use of the registered card, we have
focused on large partner marketing opportunities to efficiently grow our base of
enrolled accounts and active members. Expansion of the airlines relationships
and their frequent flyer files, the wider acceptance of the "expense management
program" which involves registering corporate credit cards and rebating savings
back to the participating company, and alliances with other reward programs,
have resulted in significant increases in our enrolled account base. Enrolled
accounts at September 30, 2001 and 2000 were approximately 6,650,000 and
3,150,000, respectively. Credit cards registered associated with the enrolled
accounts totaled 8,566,000 at September 30, 2001 compared to 4,266,000 a year
earlier. Of the 6,650,000 accounts at September 30, 2001, approximately
1,750,000 were non-airline accounts of which 600,000 were corporate card
accounts and 450,000 from alliance with reward partners versus 1,000,000 non-
airline accounts of which 350,000 were corporate card accounts and 50,000 from
alliances with other rewards partners in the prior year. Airline accounts
accounted for approximately 74% of total accounts and 46% of sales during fiscal
2001 compared to 68% of total accounts and 40% of sales during the prior year.
Airline accounts do not pay membership fees and typically receive rebates in the
form of frequent flyer miles.
At September 30, 2001, the average Rights to receive balances per participating
merchant were approximately $8.8 and $9.8 at September 30, 2001 and 2000,
respectively. The Rights to receive turnover for the combined funded portfolio
for fiscal 2001 is 1.30 or 9.22 months on hand compared to 1.19 or 10.10 months
on hand in the prior year.
Cost of sales decreased to $103,832 or to 54.6% of gross dining sales down from
$105,239 or to 58.3% a year earlier. The reduction in cost of sales is directly
related to the conversion of the acquired DALC portfolio of restaurants. Prior
to the acquisition, DALC often competed against us on price, offering merchants
an advance rate less than our customary rate of 2:1 without the level of secured
interest that we required. While this provided for a faster turn of the rights
to receive, it also resulted in a higher cost of rights to receive sold and a
more at-risk investment. As these acquired contracts came up for renewal, they
were re-signed and converted by us to the 2:1 rate. While this initially
resulted in a somewhat slower turn, the individual dining transactions are more
profitable due to the corresponding lower cost of the Rights to receive
consumed. The provision for Rights to receive losses, which are included in cost
of sales, increased to $8,586 or 4.5% of gross dining sales in 2001, compared to
$7,391 or 4.1% in the prior year period due to the increased allowance recorded
principally for the additional collection risk associated with the registered
card process . With the registered card programs, we collect payment for
qualified dines from the merchant primarily via an electronic funds debit
processed daily, while with the private label program, we collected directly
from the members (i.e., we processed the receipts through the members
electronically linked credit card accounts, and the full amount of the funds
billed to the credit card is remitted directly to us). Processing fees based on
transactions processed, and included in cost of sales, decreased as a percentage
of gross dining sales from 2.2% for fiscal 2000 to slightly less than 1.0% for
fiscal 2001, reflecting the lower processing cost per transaction with the
registered card program versus the private label.
Member savings and rewards increased $1,772 or 4.5% when comparing fiscal 2001
to prior year. However, as a percentage of sales, member savings and rewards
decreased slightly from to 21.6% in 2000 to 21.5% in 2001. The slight reduction
is mainly a result of the increased spending by frequent flyer members and other
rewards participants who receive an alternate currency other than cash as the
dining benefit. These alternate currencies have an effective cost that is lower
than the cash benefit, principally as
14
a result of the volume discount available to us through the airlines.
Additionally certain revenue management and multi-unit restaurant transactions
have a reduced level of benefit from the conventional rate. Finally, the
corporate expense reduction program introduced in fiscal 2001 has a feature
whereby the rebates back to the corporate partners are not paid until a certain
level of qualified spend is achieved by their employees. These foregone savings
are deferred and recognized on an effective rate basis as a reduction in the
overall savings and rewards expense.
Membership and renewal fee income decreased to $7,009, of which $151 was initial
fee income in 2001, compared to $8,444, of which $1,654 was initial fee income
in 2000. The decreased initial fee income is reflective of the change in our
marketing strategy in fall of 1999. Marketing of the fee-based membership was
reduced significantly due to changes in the regulatory environment regarding
direct marketing solicitations. Our marketing strategy has shifted to focus
mainly on marketing a no-fee dining program to key affinity and loyalty partners
where we can take advantage of the registered card platform and enroll large
quantities of accounts at a very low cost of acquisition and solicitation. One
such program is the aforementioned corporate card programs geared towards
assisting companies in reducing their travel and entertainment expense.
Participating companies enroll their corporate card accounts with us and after
the required spend by the employee, the participating company receives a monthly
check for the aggregate benefits earned by their employees when dining out. We
anticipate that a number of significant additional corporate programs will
continue to be added next year. Our strategy is also to continue to enroll
members of the airline mileage programs for which there is also no fee but very
little acquisition cost and a lower cost of rewards. Fee income, which is now
principally renewal fees from the cash reward iDine Prime members, is recognized
over a twelve-month period beginning in the month the fee is received.
Cardholder membership fees are cancelable and refunded to members, if requested,
on a pro rata basis based on the remaining portion of the membership.
Other operating revenue decreased $782 from $1,558 for the year ended September
30, 2000 to $776 for the current year mainly as a result of a decrease in
continuing franchise fee and royalty income. Continuing franchise fee and
royalty income decreased for the year ended September 30, 2001 to $0 from $568
in the prior year. In June 2000, we completed the reacquisition of the last of
our franchises. As such, there were no franchise royalty fees collected in
fiscal 2001.
Selling, general and administrative expenses decreased $875 or 3.9% to $22,431
when comparing fiscal 2001 to prior year. The reduction in expenses relating to
the development of the iDine.com website in the prior year is the main reason
for the decrease during fiscal 2001. We launched our e-commerce dining venture,
iDine.com in April 2000. Expenses recognized in fiscal 2000 associated with
iDine.com related to business plan development, business concept definition and
testing, deal support during venture capital negotiations, project management,
and support costs. The costs associated with the startup of iDine.com were
substantially incurred in fiscal 2000. Support costs and personnel relating to
iDine.com, have been integrated and are no longer maintained as a separate
division. Another significant component decrease for the year ended September
30, 2001 was professional fees of $428. These decreases were somewhat offset by
increases in programming and systems of $845, depreciation of $513 and printing
and postage of $214.
Salaries and benefits increased $4,120 or 32.5% from $12,683 in fiscal 2000 to
$16,803 in the current year mainly as a result of higher head count levels (226
and 254 employees at September 30, 2000 and 2001, respectively), principally in
marketing and information technology as well as severance and bonus for fiscal
2001.
Sales commission and expenses increased $670 or 13.8% from $4,842 for fiscal
2000 compared to $5,512 for fiscal 2001. The increase is due mainly to the
increased level of dining sales as well as special incentives commission paid to
sales personnel in an effort to increase restaurant count.
In 2001, member and merchant marketing expenses were $3,579 versus $6,875 in
2000, a decrease of $3,296 or 47.9%. Included in member and merchant marketing
expenses is the amortization of deferred acquisition costs, which amounted to
$55 in 2001 and $1,654 in 2000. Acquisition expenses represent the cost of
acquiring members and restaurants and consist primarily of direct-response
advertising costs
15
incurred in excess of fees received and amortization of previously deferred
costs and costs associated with soliciting no-fee members. We previously used
various direct marketing techniques at different levels of cost to solicit new
members. Consumer privacy regulations adopted in 1999 required us to change our
methods of solicitations of members. Acquisition costs capitalized in 2001 and
2000 were $0 and $153, respectively due to the previously discussed change in
marketing strategy away from individual solicitation to large affinity and
loyalty partners where the dining savings becomes an embedded benefit to the
partners' membership constituency and enrollment of accounts is expedited by the
efficient registration of their credit cards. During fiscal 2001, we
aggressively pursued our large credit card file partners and our corporate
expense management program. Since no fees are generated from these programs,
there are no costs capitalized. The change in marketing to the large credit card
and affinity partners resulted in lower member and merchant marketing cost in
fiscal 2001 compared to prior year. However, in order to establish and manage
these large affinity partner relationships, we reinvested the savings by hiring
additional personnel to strengthen our internal marketing group, evidenced by
the increase in salaries and benefits previously mentioned.
Other expense, net of income in 2001 amounted to $4,317 versus 5,682 in 2000, a
decrease of $1,365. The principal reasons for the change was a decrease of
$1,233 in interest expense and financing costs in 2001. Although the effective
rate of the securitization decreased only slightly from 8.9% during fiscal 2000
to 8.7% during 2001, the average outstanding balance decreased from $62,062 in
fiscal 2000 to $56,647 in fiscal 2001. While we have experienced favorable
interest rates with our securitization in the latter part of fiscal 2001,
particularly in the fourth quarter, the extension fee paid in December 2000, and
to a lesser extent the facility renewal fees paid in May 2001, had an adverse
impact on the effective rate for the year but still resulted in a lower cost of
financing compared to the prior year. It should be noted that prior to entering
into the securitization in December 1999, we financed the purchase of DALC with
a bridge loan from the bank and short term borrowings from an affiliate. These
loans had a much higher interest rate than the current securitization.
Income before taxes was $1,419 in fiscal 2001 compared to a loss of $6,155 in
2000. A net operating loss carryforward of $11,911 was available at September
30, 2001. The net deferred tax asset, principally related to the net operating
loss carryforward and the provision for losses on rights to receive remains
fully reserved.
On December 30, 1999, we entered into an $80,000 revolving securitization of the
combined Rights to receive of both the private label and the registered-card
dining programs. The securitization was privately placed through an asset backed
commercial paper conduit. The proceeds drawn down at closing, approximately
$65,000 based on a borrowing base formula, were utilized to terminate and payoff
$33,000 in non-recourse notes from the 1996 securitization and $27,000
outstanding under a bridge loan. The early extinguishment of the 7.4% notes
resulted in an extraordinary charge of $1,623 or 12 cents per share in fiscal
2000. Capacity at September 30, 2001 was $57,690 and the outstanding borrowings
at that date was $55,500. Net income was $1,334 or $0.01 per share for fiscal
2001 compared to a net loss of $7,778 or $.63 per share in fiscal 2000.
Results of Operations (2000 versus 1999)
- ----------------------------------------
Gross dining sales for the fiscal year ended September 30, 2000 increased 49.9%
to $180,627 as compared to $120,472 for the year ended September 30, 1999,
primarily reflecting a full twelve months of registered card dining sales
associated with the acquisition of DALC which occurred on June 30, 1999.
Registered card sales for the fiscal year ended September 30, 2000 and 1999 were
$85,174 and $25,942, respectively. Fiscal 1999 results reflect three months of
registered card sales associated with the acquisition.
In March 2000, we initiated a plan to convert our private label membership and
restaurant base to the registered card platform. With the registered card
program, members enrolled in the program simply register a valid major credit
card with us, and then present their registered card while dining at a
participating restaurant. Based on our agreements with various processors and
presenters throughout the country, we receive transaction data for participating
merchants. These transactions are then matched to the current registered card
file. These matched transactions are qualified via business rules as to whether
they are eligible for a rebate. Qualified transactions are then used to provide
member savings
16
or alternate currency benefits, as well as to invoice and collect from
merchants, principally via an electronic debit to their bank account. This
conversion was completed in August 2000. Registered card sales associated with
converted private label members were $18,776 for the fiscal year ended September
30, 2000.
Actual sales for our private label program decreased 18.9% to $76,677 compared
to $94,530 for the year ended September 30, 1999. As more and more private label
members started using their registered credit card instead of the private label
card, private label sales declined, with a corresponding increase in the
registered card program.
Our member acquisition strategy has undergone certain revisions that are
reflected in a changing member profile. Leveraging a dominant national position
in the fine dining rewards space along with the recent conversion to universal
use of the registered card, we have focused on large partner marketing
opportunities. Expansion of the airline frequent flyer base of members, the
recent launch of the "expense management program" that involves registering
corporate credit cards and rebating discounts back to the participating company
and alliances with other reward programs, are examples of this strategy.
Characteristic of these partnerships is either a lower member acquisition cost,
an alternative currency to cash rewards that have a positive margin implication,
or a lower cost of servicing. We believe that this strategy provides excellent
opportunities with increased scale and is very focused on expansion of the
member base and the incremental sales volume that it should provide.
Registered card accounts at September 30, 2000 and 1999 were approximately
3,150,000 and 1,700,000, respectively. Of these accounts, 1,000,000 were non-
airline accounts of which 350,000 were corporate card accounts and 50,000 from
alliances with other rewards partners. Airline accounts, which accounted for
approximately 68% of total accounts and approximately 40% of sales, do not pay
membership fees and typically receive rebates in the form of frequent flyer
miles.
At September 30, 2000, the combined average Rights to receive balance per
participating merchant were approximately $10 and $8 at September 30, 2000 and
1999, respectively. The Rights to receive turnover for the combined portfolio
for fiscal 2000 is 1.09 or 10.99 months on hand compared to 1.16 or 10.36 months
on hand, in the prior year.
Cost of sales increased to 58.3% of gross dining sales up slightly from 58.2% a
year earlier. The increase in cost of sales is directly related to the addition
of the acquired DALC registered card portfolio which was traditionally offered
to merchants at an advance rate less than our customary private label rate of
2:1, and therefore, results in a somewhat higher cost of sales than the private
label portfolio. The acquisition was completed in June 1999, and therefore the
results of fiscal 1999 reflect only three months with this portfolio versus the
full twelve months reflected in fiscal 2000. The increase would have been
greater, if not for the fact that the majority of those contracts renewed by us
were converted to the 2:1 rate during fiscal 2000. While this initially results
in a somewhat slower inventory turn, the individual dining transactions are more
profitable due to the corresponding reduction in the cost of the Rights to
receive consumed. The provision for Rights to receive losses, which are included
in cost of sales, increased to $7,391 or 4.1% of gross dining sales in 2000,
compared to $4,088 or 3.4% in the prior year period due to the additional
allowance recorded for collection from registered card merchants. With the
registered card programs, we collect payment for qualified dines from the
merchant, while with the private label program, we collected directly from the
members (i.e., we processed the receipts through the members electronically
linked credit card accounts, and the full amount of the funds billed to the
credit card is remitted directly to us). Processing fees based on transactions
processed, and included in cost of sales, decreased as a percentage of gross
dining sales from 3.0% for fiscal 1999 to 2.2% for fiscal 2000, reflecting the
impact of the lower processing cost per transaction with the registered card
program versus the private label.
17
Member savings and rewards as a percentage of sales decreased slightly from to
22.0% in 1999 to 21.6% in 2000. The majority of the registered card members are
enrolled in the airline program and typically earn ten miles for each dollar
spent at participating merchants. We purchase airline mileage from the airlines
on an as needed basis at a contractual rate that allows us to effectively reduce
the cost of the member rebate in the airline program to less than that of the
conventional 20% cash rebates. Fiscal 2000 reflects twelve months of registered
card usage versus only three months in fiscal 1999.
Membership and renewal fee income increased to $8,444, of which $1,654 was
initial fee income in 2000, compared to $8,281, of which $3,387 was initial fee
income in 1999. The increase in renewal fees is mainly as a result of a full
year's renewal fees on the members acquired through the purchase of DALC.
Renewal fees recognized for these members during the year ended September 30,
2000 were $1,088 versus $53 for the same period in the prior year. The decreased
initial fee income is reflective of the change in our marketing strategy in fall
of 1999. Marketing of the fee-based private label membership was reduced
significantly due to changes in regulatory environment regarding direct
marketing solicitations. Our marketing strategy has shifted to focus mainly on
marketing to key partner affinity programs. Our strategy is also to continue to
enroll members of the airline mileage programs for which there is very little
acquisition cost and the rebate percentage tends to be lower and also to
commence marketing a fee-based registered card. Fee income is recognized over a
twelve-month period beginning in the month the fee is received. Cardholder
membership fees are cancelable and refunded to members, if requested, on a pro
rata basis based on the remaining portion of the membership.
Other operating revenue decreased $1,067 when comparing the year ending
September 30, 2000 to the prior year mainly as a result of a decrease in
continuing franchise fee and royalty income as well as processing income.
Continuing franchise fee and royalty income decreased for the year ended
September 30, 2000 to $568 from $1,073 in the prior year. In June 2000, we
completed the reacquisition of the last of our franchises. As such, franchise
royalty fees have ceased at that date. Processing income which represents the
net fees charged to restaurants when the Company serves as merchant of record
for processing all other non-Transmedia point of sale transactions has decreased
for the year ended September 30, 2000 to $915 from $1,402 in the prior year.
Although overall selling, general and administrative expenses increased $4,001
or 21.7% over the prior year, it decreased from 15.3% in fiscal 1999 to 12.4% in
fiscal 2000 as a percentage of gross dining sales. There are two main factors
contributing to the increased dollar amount of expenses during fiscal 2000.
First, we launched our e-commerce dining venture, iDine.com in April 2000.
Expenses recognized in fiscal 2000 associated with iDine.com were approximately
$3,501. Some significant component increases for the year ended September 30,
2000 were printing and postage of $987, mostly related to the mailing of member
correspondence related the conversion from the private label program to the
universal registered card program, depreciation and amortization of $627, rent
and other expenses of $410 associated with the increased corporate office space,
and startup cost relating to business plan, business concept definition and
testing, deal support during venture capital negotiations, project management
for the iDine.com venture of $2,371. Offsetting these increases during the year
ending September 30, 2000, were declines in professional fees of $145 and
telephone expense of $358 from the prior year.
Salaries and benefits increased $2,858 or 29.1% over the prior year. Of this
increase in salaries and benefits, $615 related to employees hired to support
iDine.com. Also, in the earlier part of the year, there were salaries and
benefits paid to the DALC employees during the integration. These amounts were
substantially cut back after January 1, 2000, and now reflect only a few
permanent employees required to support the addition of the registered card
programs, primarily relating to information technology, sales and customer
service.
Sales commission and expenses increased $1,597 or 49.2% from $3,245 in fiscal
1999 to $4,842 in fiscal 2000. The main reason is the increased sales in fiscal
2001 which results in a corresponding increase in the commission paid on those
sales. Also, during fiscal 2000 special incentive commissions were paid for the
conversion of restaurants from the private label program to the registered card
platform.
18
In 2000, member and merchant marketing expenses were $6,875 versus $6,447 in
1999, an increase of $428. Included in member and merchant marketing expenses
is the amortization of deferred acquisition costs, which amounted to $1,654 in
2000 and $3,335 in 1999. We previously used various direct (one-on-one)
marketing techniques at different levels of cost to solicit new members.
Consumer privacy regulations adopted in 1999 required us to change certain
methods of solicitations that had resulted in favorable response rates. Costs
capitalized in 2000 and 1999 were $153 and $4,184, respectively. Included in
member and merchant marketing expenses was approximately $1,836 relating to the
write down of our inventory of plastic cards as well as fees for artwork used to
make the Transmedia private label card. The conversion to the registered card
program rendered the inventory of plastic card obsolete. The cost of the plastic
cards was amortized over the estimated conversion period of nine months which
ended September 30, 2000. Prospective members continue to be solicited through
direct mail on a greatly reduced basis, and also through the use of affinity and
loyalty programs with major credit card issuers and corporations. Third party
and strategic marketing partners are compensated through a commission on fees
received, and to a lesser degree, on an activation basis or through wholesaling
of the fee based card. The mix of solicitation programs used has a direct
correlation to the overall acquisition cost per member and the spending profile
of members acquired.
In order to avoid prolonged litigation, we settled the outstanding lawsuit with
our former licensee, Sports & Leisure, Inc., in November of 1999. Under the
terms of the settlement, Sports & Leisure, Inc. received $2,100 in cash and
280,000 shares of common stock for a total of $2,835. Based on the fair value
of the common stock included in the settlement and net of reserve amounts
previously provided by us in the first quarter of 1999, a charge of $1,835 was
recognized in the fourth fiscal quarter of 1999.
Other expense, net of income in 2000 amounted to $5,682 versus $2,404 in 1999,
an increase of $3,278. The principal reasons for the change was a decrease of
$1,109 of realized gain on sale of securities available for sale coupled with an
increase in interest expense and financing costs in 2000, as a result of having
one full year of additional borrowings, in part, used for the purchase of the
DALC Rights to receive.
Earnings before taxes amounted to a loss of $6,155 in 2000 compared with loss of
$8,398 in 1999. A net operating loss carryforward of $17,791 was available at
the year ended September 30, 2000. The net deferred tax asset principally
related to the net operating loss carryforward remains fully reserved.
On December 30, 1999, we entered into an $80,000 revolving securitization of the
combined Rights to receive of both the private label and the registered-card
dining programs. The securitization was privately placed through an asset backed
commercial paper conduit. The proceeds drawn down at closing, approximately
$65,000 based on a similar borrowing base formula used in the bridge loan, were
utilized to terminate and payoff $33,000 in non-recourse notes from the 1996
securitization and $27,000 outstanding under a bridge loan. The early
extinguishment of the 7.4% notes resulted in an extraordinary charge of $1,623
or 12 cents per share. At September 30, 2000, the balance outstanding under the
new revolving securitization was $59,625.
Net loss was $7,778 or $.63 per share in 2000, versus net loss of $10,398 or
$.80 per share in 1999.
Liquidity and Capital Resources
- -------------------------------
Our working capital decreased to $12,188 at September 30, 2001 from $17,216 at
September 30, 2000. This resulted principally from the execution of a Payment
and Termination of Exclusivity Agreement (the "Agreement") with GE Financial
Assurance ("GEFA"), the parent of SignatureCard, to extinguish all obligations
associated with the DALC acquisition. The Agreement also eliminated
SignatureCard's exclusivity rights in dealing with the airline frequent flyer
member files, and fully resolved and terminated the joint marketing and revenue
sharing relationship. In consideration for the above, the Company paid GEFA
$3,800 in cash and honored GEFA's right to put 400,000 shares held by it as part
of the acquisition consideration, at a value of $8 per share. This put right was
exercised and the Company paid GEFA $3,200 in two equal installments on January
17 and on February 13, 2001. Transmedia also cancelled 160,000 options of the
original 400,000 issued as part of the original DALC purchase price, leaving
19
SignatureCard with 240,000 options which must be exercised by June 30, 2002 at a
strike price of $4.00. We believe that the clear and direct access we now have
to the airline partners has had and will continue to have a very favorable
impact on our operating results.
Securitization of Rights to Receive
- -----------------------------------
On December 30, 1999, the Company entered into an $80,000 revolving
securitization of the combined Rights to receive of both the private label and
the registered card dining programs. The new securitization was privately placed
through an asset backed commercial paper conduit. The proceeds drawn down at
closing, approximately $65,000 based on a borrowing base formula, were utilized
to terminate and payoff $33,000 in non-recourse notes from a previous
securitization and $27,000 then outstanding under a bridge loan used in the
acquisition of Dining a La Card ("DALC"). Additionally, the Company was required
to pay a termination payment of approximately $1,100 to the noteholders and non-
recourse partners in the prior securitization.
Borrowing capacity under the facility is recalculated weekly based on a formula
driven advance rate applied to the current balance of Rights to receive that are
eligible to be securitized. The advance rate is determined based on recent sales
trends and months on hand of Rights to receive. Capacity at September 30, 2001
and 2000 was $57,690 and $60,663, respectively, and the outstanding borrowings
at those dates were $55,500 and $59,625, respectively. The facility provides
various restrictive covenants regarding collateral eligibility, concentration
limitations and also requires the Company to maintain net worth of at least
$24,000. At September 30, 2001 the company was in compliance with the
covenants.
The interest rate applicable to the new facility is the rate equivalent to the
rate (or if more than one rate, the weighted average of the rates) at which
commercial paper ("CP") having a term equal to the related CP tranche period
that may be sold by any placement agent or commercial paper dealer selected by
the conduit on the first day of such CP tranche period, plus the amount of any
placement agent or commercial paper dealer fees and commissions incurred or to
be incurred in connection with such sale. At September 30, 2001 and 2000, the
effective interest rate for the facility was 8.6 % and 8.9% per annum,
respectively.
The conduit requires that a liquidity facility be provided by an A1/P1 rated
financial institution in the amount equal to 102% of the securitization amount.
This liquidity facility must be renewed annually. Our primary bank, the Chase
Manhattan Bank, provided the liquidity facility in the initial year and
indicated a desire to syndicate all or a portion of the liquidity facility, or
alternatively, bring in a co-purchaser conduit for a percentage of the
securitization. On December 27, 2000, the credit agreements were amended to
provide an extension of the initial term for 90 days to March 28, 2001 to
complete the syndication and our borrowing capacity limit was reduced to
$60,000. The credit agreements were further extended by Chase to the earlier of
the closing of a co-purchase arrangement or June 28, 2001. An extension fee of
$600 was paid to Chase on December 26, 2000.
On May 18, 2001, the Company signed an agreement with BMO Nesbitt Burns Corp for
it to act as a 50 percent co-purchaser on the $80,000 facility with Chase. The
Company also simultaneously closed the amended financing agreement and paid fees
of approximately $600. The credit agreement was renewed for a new 364-days
renewable term and the overall facility reverted to the original amount of
$80,000. There were no other material changes to the terms of the facility. In
the event that the syndications are not renewed, an alternative asset backed
financing vehicle may be established or the outstanding borrowings under the
securitization may be converted to a term loan. The Company believes that the
revolving nature of the securitization facility, the ability to increase
capacity for growth and the current favorable interest rate environment make
this an attractive financing vehicle. It is the Company's present intention to
renew the securitization in May 2002 and establishing another liquidity facility
to support it. Management is not aware of any matters or issues that would
preclude renewal, should we elect to do so.
We previously financed rights to receive under a fixed rate revolving
securitization originated in 1996 (the 1996 facility). Under this facility,
$33,000 of fixed rate securities were issued in a previous private placement to
various third party investors. The private placement certificates had a five-
year term before amortization of principal and had an interest rate of 7.4%.
20
The early extinguishment of the 1996 facility and payoff of the related non-
recourse notes resulted in an extraordinary charge of $1,623 or $0.12 per share
consisting of the following:
Write-off of related unamortized financing costs $ 540
Termination payment to noteholder
and non-recourse partners 1,083
------
Extraordinary charge before income tax benefit 1,623
Income tax benefit (412)
Related increase in income tax valuation allowance 412
------
Net extraordinary charge $1,623
======
Rights To Receive
- -----------------
Compared to prior year, our inventory of Rights to receive, net of allowance,
increased by $408 to a total of $68,782 at September 30, 2001.
Analysis of Rights to Receive
2001 2000 1999
-------- -------- --------
Rights to receive, beginning of year $ 68,374 $ 76,454 $ 42,347
Acquisition of Registered Card
Rights to receive in DALC transaction, net -- -- 40,782
Purchase of Rights to receive 103,009 95,564 60,053
Write-offs of Rights to receive (8,986) (9,518) (3,871)
-------- -------- --------
162,397 162,500 139,311
-------- --------
Cost of Rights to receive, included in cost of
sales -------- 94,126 62,857
93,615 -------- --------
--------
Rights to receive, end of year $ 68,782 $ 68,374 $ 76,454
======== ======== ========
We believe that continued increase in the number of restaurants that participate
in the registered card dining programs is essential to attract and retain
members. We strive to constantly manage the dynamics of each market by
balancing the Rights to receive acquired to the member demand. This balance is
critical to achieving the participating restaurants objectives of incremental
business and yield management and the members' desire for an adequate amount of
desirable dining establishments. Management believes that the purchase of
Rights to receive can be funded generally from cash generated from operations,
and from funds made available through the securitization. Also, new programs
such as revenue management does not require any cash outlay.
Rights Offering
- ---------------
On November 9, 1999, the Company completed a Rights Offering to existing
shareholders resulting in the issuance of 4,149,378 convertible, redeemable
preferred shares. The preferred shares have a dividend rate of 12%, of which 6%
is payable in cash, quarterly in arrears, and the remaining 6% accrues unless
otherwise paid currently at the Company's discretion, until conversion by the
holder. During fiscal year 2001 and 2000, the Company declared dividends in the
amount of $1,204 and $1,079, respectively. Each preferred share may be converted
into common stock at the option of the holder at any time. The initial rate of
conversion was one to one. Subsequent conversion rates are higher to the extent
of the deferred dividend accruing at 6% and any unpaid cash dividends. If not
previously converted, the Company may commence redemption of the preferred
shares on the third anniversary of the rights offering. On July 27, 2001, 13,108
shares of preferred stock were converted to 14,405 shares of common stock. At
September 30, 2001, the conversion rate of the preferred shares was one
preferred share for 1.1141 common shares.
The proceeds from the stock issuance of $10,000 were used to retire the $10,000
bridge loan obtained from GAMI Investment Inc., an affiliate of our largest
shareholder, Samstock, L.L.C. Pursuant to its subscription privileges and as a
standby purchaser for any unsubscribed shares, Equity Group Investments
21
LLC ("EGI"), an affiliate of Samstock, L.L.C, acquired 2.84 million of the
preferred shares. The additional investment provided EGI with the right to
designate an additional member to the Board of Directors. The size of the Board
was increased by one as EGI chose to exercise that right.
Private Placement
- -----------------
We rolled out our new Internet dining venture nationally during the second half
of the previous year. Execution of the e-commerce initiative was initially
executed through iDine.com, a wholly owned subsidiary. The on-line product
allows restaurateurs to create special incentives and promotions through the
iDine website on specific days of the week and/or times of the day in order to
drive incremental traffic when they need it most. Consumers have their choice of
savings benefits in points or cash and may convert the points into either
complimentary dining or frequent flyer miles. The website may also allow for on-
line reservations, features national restaurant listings and access to reviews.
The on-line initiative has broadened the amount and type of savings and rewards
offered to consumers as well as expanded the participating restaurant base by
providing restaurant operators with a full suite of yield management products.
Development of the e-commerce product was financed by corporate capital and
through a $10,000 private placement. In the first tranche of the private
placement which closed on May 1, 2000, we issued 904,303 shares of our common
stock at $4.5625 and warrants to purchase an additional 1,808,606 shares of our
common stock, half of which have an exercise price of $5.93 and the other half
of $7.30. The warrants will expire on April 28, 2005. We received proceeds from
the share issuance in the amount of $4,126. The second tranche has the same
price per share of common stock and exercise prices for the warrants as the
first tranche. The second tranche which closed on August 21, 2000, consisted of
the sale of an aggregate of 1,287,480 common shares, accompanied by 2,574,960
warrants. We received proceeds from this share issuance in the amount of $5,874.
Funds obtained from the private placement were utilized for development of the
e-commerce venture.
General
- -------
Capital expenditures over the past three fiscal years were $11,330 of which
$4,188 related to fiscal 2001. Capital expenditure decreased $848 in fiscal 2001
compared to prior year. The main reason for the decrease in capital expenditure
was that during the prior year we launched the e-commerce initiative and
expenditures consisted mainly of website development, computer hardware and
software technology necessary to support the operation of the dining programs,
the Member Service Center and the integration of the registered card platform.
Although we continue to have expenditures pertaining to the website development,
these cost have been reduced in the current year. We believe that cash on hand
at September 30, 2001, together with cash generated from operations and
available under the securitization facility will satisfy our normal operating
capital needs during the 2001 fiscal year.
SFAS No. 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax asset will not be realized. A valuation allowance was previously provided
for the net deferred tax assets as of September 30, 2000, due to our recurring
losses. The valuation allowance at September 30, 2001 and 2000 was $9,217 and
$9,260, respectively. The net deferred tax asset relates primarily to net
operating loss carryforwards which are available through 2020 and amount to
$11,911 at September 30, 2001.
Operating activities during fiscal 2001 resulted in net cash provided of $8,708.
However, further expansion into new markets and planned increases in existing
markets could reverse this trend depending on the rate of growth management
deems appropriate. As described in the above paragraph, funds generated from
operations, as well as capacity under the securitization, should be sufficient
to fund such growth over the next twelve months.
Cash used in investing activities was $11,309 in the fiscal year ended September
30, 2001, compared with $8,980 and $38,148 used in 2000 and 1999, respectively.
Cash utilized in investing activities were due
22
primarily to the termination of the exclusivity agreement with GEFA, investment
in short term securities, and the development and acquisition of computer
hardware and software necessary for the e-commerce operation and our website.
Management believes that cash to be used in investing activities associated with
capital expenditures in the fiscal year ended September 30, 2001 will be
approximately $3,900.
Cash flows used by financing activities were $9,951 for the fiscal year ended
September 30, 2001, compared with cash flows provided by financing activities of
$9,457 in 2000 and $39,098 in 1999. In 2001, the principal use of cash flow was
$4,125 paydown of the revolving securitization, redemption of the GEFA put
options on common stock for $3,200, repayment of $2,000 in notes payable issued
in the repurchase of the Potomac franchise, and $1,203 paid as preferred
dividends.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various types of market risk, including changes in interest
rates. Market risk is the potential loss arising from adverse changes in the
market rates and prices, such as interest rates. Our exposure to market risk for
changes in interest rates is limited to the exposure related to our debt
instruments used to finance the purchase of Rights to receive and short term
investments which are tied to market rates. On December 30, 1999, we entered
into the $80,000 revolving securitization of the combined Rights to receive of
both the private label and the registered card dining programs. The
securitization was privately placed through an asset backed commercial paper
conduit. The interest rate applicable to this facility is the rate equivalent to
the rate (or if more than one rate, the weighted average of the rates) at which
commercial paper ("CP") having a term equal to the related CP tranche period
that may be sold by any placement agent or commercial paper dealer selected by
the conduit on the first day of such CP tranche period, plus the amount of any
placement agent or commercial paper dealer fees and commissions incurred or to
be incurred in connection with such sale. As of September 30, 2001, we had
$55,500 million outstanding under this securitization. The commercial paper and
the interest payment are subject to interest rate risk. If market interest rates
were to increase immediately and uniformly by 100 basis points at September 30,
2001, the interest payments would increase by approximately $555. We do not plan
to use derivative financial instruments in our investment portfolio. Our short
term investments are made according to a policy to ensure the safety and
preservation of our invested principal funds by limiting default risks, market
risk and reinvestment risk. We had investments in equity securities at September
30, 2001 and 2000 of $152 and $1,246, respectively, as well as short term
investments in corporate and government bonds of $3,177 and $0, respectively.
23
THIS PAGE INTENTIONALLY LEFT BLANK
----------------------------------
24
Item 8. Financial Statements
----------------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Independent Auditors' Report F - 1
Financial Statements:
Consolidated Balance Sheets, F - 2
September 30, 2001 and 2000
Consolidated Statements of Operations F - 3, 4
and Comprehensive Income/(Loss)
for each of the years in the three-year
period ended September 30, 2001
Consolidated Statements of Shareholders' F - 5
Equity for each of the years in the three-year
period ended September 30, 2001
Consolidated Statements of Cash Flows F - 6, 7
for each of the years in the three-year
period ended September 30, 2001
Notes to Consolidated Financial Statements F - 8 - 33
Schedule II - Valuation and Qualifying Accounts F - 34
25
Independent Auditors' Report
The Board of Directors and
Shareholders
Transmedia Network Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Transmedia
Network Inc. and subsidiaries (the "Company") as of September 30, 2001 and 2000,
and the related consolidated statements of operations and comprehensive income
(loss), shareholders' equity and cash flows for each of the years in the three-
year period ended September 30, 2001. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Transmedia Network Inc. and subsidiaries as of September 30, 2001 and 2000, and
the results of their operations and their cash flows for each of the years in
the three-year period ended September 30, 2001, in conformity with generally
accepted accounting principles in the United States of America.
Fort Lauderdale, Florida
November 13, 2001, except as to note 20, which is
as of November 29, 2001
F-1
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2001 and 2000
(in thousands, except per share data)
Assets 2001 2000
------ ---- ----
Current assets:
Cash and cash equivalents $ 7,266 $ 19,818
Short term investments 3,177 -
Accounts receivable, net 8,155 9,135
Rights-to-receive, net 68,782 68,374
Prepaid expenses and other current assets 1,059 2,883
------------ -------------
Total current assets 88,439 100,210
Securities available for sale, at fair value 152 1,246
Property and equipment, net 8,785 8,484
Other assets 1,121 1,192
Excess of cost over net assets acquired 9,823 10,449
------------ -------------
Total assets $ 108,320 $ 121,581
============ =============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Secured non-recourse revolving debt 55,500 59,625
Accounts payable - rights-to-receive 8,772 7,443
Accounts payable - trade 7,419 10,317
Accrued expenses and other 3,446 2,601
Deferred membership fee income 2,690 3,008
------------ -------------
Total current liabilities 77,827 82,994
Other long-term liabilities 664 4,581
------------ -------------
Total liabilities 78,491 87,575
============ =============
Guaranteed value of puts - 3,200
Shareholders' equity:
Preferred stock - Series A, senior convertible redeemable, par value
$0.10 per share (10,000 shares authorized; 4,136 and 4,149 shares 414 415
issued and outstanding in 2001 and 2000, respectively)
Common stock, par value $0.02 per share (70,000 shares authorized;
15,805 and 16,200 shares issued and outstanding in 2001 and 2000,
respectively) 316 316
Additional paid-in capital 43,150 43,129
Cumulative other comprehensive income (loss) (250) 833
Retained deficit (13,756) (13,887)
Treasury stock, at cost, 16 shares in 2001 (45) -
------------ -------------
Total shareholders' equity 29,829 30,806
------------ -------------
Total liabilities and shareholders' equity $ 108,320 $ 121,581
============ =============
See accompanying notes to consolidated financial statements.
F-2
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income (Loss)
For each of the years in the three-year period ended September 30, 2001
(in thousands, except income per share)
2001 2000 1999
---- ---- ----
Operating revenue:
Sales of rights-to-receive:
Registered card sales $ 182,714 $ 103,950 $ 25,942
Private label sales 7,323 76,677 94,530
------------ ------------ -----------
Gross dining sales 190,037 180,627 120,472
Cost of sales 103,832 105,239 70,110
Member rewards and savings 40,804 39,032 26,480
------------ ------------ -----------
Net revenue from rights-to-receive 45,401 36,356 23,882
Membership and renewal fee income 7,009 8,444 8,281
Other operating revenue 776 1,558 2,625
------------ ------------ -----------
Total operating revenues 53,186 46,358 34,788
------------ ------------ -----------
Operating expenses:
Selling, general and administrative expenses 21,556 22,431 18,430
Salaries and benefits 16,803 12,683 9,825
Sales commission and expenses 5,512 4,842 3,245
Member and merchant marketing expenses 3,579 6,875 6,447
Settlement of licensee litigation - - 2,835
------------ ------------ -----------
Total operating expenses 47,450 46,831 40,782
------------ ------------ -----------
Operating income (loss) 5,736 (473) (5,994)
Other income (expense):
Realized gains on sale of securities available for
sale - 40 1,149
Interest and other income 747 575 468
Interest expense and financing cost (5,064) (6,297) (4,021)
------------ ------------ -----------
Income (loss) before income tax
provision and extraordinary item 1,419 (6,155) (8,398)
Income tax provision 85 - 2,000
------------ ------------ -----------
Income (loss) before extraordinary item $ 1,334 (6,155) $ (10,398)
------------ ------------ -----------
Continued
F-3
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss, Continued
For each of the years in the three-year period ended September 30, 2001
(in thousands except income per share)
2001 2000 1999
---- ---- ----
Extraordinary item, loss on early extinguishment of
debt, net of tax - (1,623) -
----------- --------- ----------
Net income (loss) 1,334 (7,778) (10,398)
----------- --------- ----------
Other comprehensive income (loss)
Unrealized holding gain (loss) on securities
available -for-sale (1,083) 636 78
Beginning unrealized loss for all securities sold (21) (562)
-
Tax effect of unrealized gain - - 90
----------- --------- ----------
Comprehensive income (loss) $ 251 $ (7,163) $ (10,792)
=========== ========= ==========
Net income (loss) per common and common
equivalent share:
Basic and diluted:
Income (loss) before extraordinary item 0.01 (.51) (.80)
Extraordinary item loss on early
extinguishment of debt, - (.12) -
Net Income (loss) $ 0.01 $ (.63) $ (.80)
=========== ========= ==========
Weighted average number of common and common
equivalent shares outstanding:
Basic 15,983 14,149 13,043
Diluted 16,281 14,149 13,043
See accompanying notes to consolidated financial statements.
F-4
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For each of the years in the three-year period ended September 30, 2001
(in thousands)
Preferred Stock Common stock Cumulative
----------------------- ---------------------- Additional other
Number Number paid-in comprehensive
of shares Amount of shares Amount capital income
----------------------- ----------------------------------------------------------
Balance, September 30, 1998 - $ - 12,876 $ 258 $ 21,496 $ 612
Net loss - - - - - -
Issuance of common stock - - 500 10 2,025 -
Net put options activity - - - (4) (860) -
Cumulative other comprehensive
loss, net - - - - - (394)
------------------------ ---------------------- --------------------------------
Balance, September 30, 1999 - - 13,376 264 22,661 218
Net loss - - - - - -
Issuance of common stock - - 2,824 56 12,044 -
Issuance of preferred stock 4,149 415 - - 9,284 -
Net put options activity - - - (4) (860) -
Preferred dividend - - - - - -
Cumulative other comprehensive
income, net - - - - - 615
------------------------ ---------------------- --------------------------------
Balance, September 30, 2000 4,149 415 16,200 316 43,129 833
Net income - - - - - -
Stock options exercised - - 7 - 17 -
Conversion of preferred stock (13) (1) 14 - 4
Preferred dividend - - - - - -
Redemption of put options - - (400) - - -
Cumulative other comprehensive loss,
net - - - - - (1,083)
Treasury stock - - - - -
------------------------ ---------------------- --------------------------------
Balance, September 30, 2001 4,136 $ 414 15,821 $ 316 $ 43,150 $ (250)
======================== ====================== ================================
Treasury Stock
Retained ---------------------------
(deficit) Number
earnings of shares Amount Total
------------------------------------------------------
Balance, September 30, 1998 $ 5,368 $ - $ 27,734
Net loss (10,398) - - (10,398)
Issuance of common stock - - - 2,035
Net put options activity - - - (864)
Cumulative other comprehensive loss
net - - - (394)
------------------------------------------------------
Balance, September 30, 1999 (5,030) - - 18,113
Net loss (7,778) - - (7,778)
Issuance of common stock - - - 12,100
Issuance of preferred stock - - - 9,699
Net put options activity - - - (864)
Preferred dividend (1,079) - - (1,079)
Cumulative other comprehensive
income, net - - - 615
------------------------------------------------------
Balance, September 30, 2000 (13,887) - - 30,806
Net income 1,334 - 1,334
Stock options exercised - - 17
Conversion of preferred stock - 4
Preferred dividend (1,204) - (1,204)
Redemption of put options - - -
Cumulative other comprehensive loss - -
net (1,083)
Treasury stock - (16) (45) (45)
------------------------------------------------------
Balance, September 30, 2001 $ (13,756) (16) $ (45) $ 29,829
======================================================
See accompanying notes to consolidated financial statements.
F-5
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For each of the years in the three-year period ended September 30, 2001
(in thousands)
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 1,334 (7,778) $ (10,398)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,601 4,067 3,444
Amortization of deferred financing cost 1,268 1,113 354
Provision for losses on rights-to-receive 8,586 7,391 4,606
Gain on sale of investments - (40) (1,149)
Loss on disposal of fixed assets - 8 -
Deferred income taxes - - 2,000
Changes in assets and liabilities:
Accounts receivable (1,578) (1,029) (5,545)
Rights-to-receive (5,161) 3,849 4,706
Prepaid expenses and other current assets 195 2,870 (3,766)
Other assets (1,206) 1,490 (1,411)
Accounts payable 676 1,158 5,022
Income taxes receivable (payable) 66 (37) 1,259
Accrued expenses and other 245 (1,821) 2,982
Deferred membership fee income (318) (843) 1,257
---------- ----------- ----------
Net cash provided by operating activities 8,708 10,398 3,361
---------- ----------- ----------
Cash flow from investing activities:
Termination of exclusivity agreement (3,800) - -
Additions to property and equipment (4,188) (5,036) (2,106)
Increase in short term investments (3,177) - -
Acquisition of Dining a la Card - - (36,453)
Acquisition of franchises - (5,401) (648)
Proceeds from sale of fixed assets - 12 -
Proceeds from sale of securities available for sale - 40 1,149
(Increase) decrease in restricted deposits and investments (144) 1,405 (90)
---------- ----------- ----------
Net cash used in investing activities (11,309) (8,980) (38,148)
---------- ----------- ----------
Cash flows from financing activities:
Net proceeds from (repayment of) revolving securitization (4,125) 58,555 -
Repayment of fixed rate securitization facility - (33,000) -
Redemption of put options (3,200) - -
Retirement of convertible notes (2,000) -
Dividends paid (602) (389) -
Purchase of common stock (45) - -
Conversion of warrants and options for common stock, net 21 - -
Proceeds from (repayment of) short term borrowings - bank - (29,000) 29,000
Proceeds from (repayment of) term loan - affiliate - (10,000) 10,000
Net proceeds from preferred stock issuance - 9,700 -
Net proceeds from issuance of common stock - 9,865 306
Decrease (increase) in restricted cash - 3,726 (208)
---------- ----------- ----------
Net cash provided by (used in) financing activities $ (9,951) $ 9,457 $ 39,098
---------- ----------- ----------
Continued
F-6
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
2001 2000 1999
---- ---- ----
Net increase (decrease) in cash $ (12,552) 10,875 $ (4,311)
Cash and cash equivalents:
Beginning of year 19,818 8,943 4,632
-------- --------- -------
End of year $ 7,266 19,818 $ 8,943
========= ======== =======
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest $ 3,235 3,916 $ 2,873
======= ====== =======
Income taxes $ 32 37 $ (1,259)
========= ======== ========
Dividends $ 602 389 $ --
======== ========= =======
Supplemental schedule of noncash investing and financing activities: Noncash
investing and financing activities:
At September 30, 2001, 2000 and 1999, the Company adjusted its available
for sale investment portfolio to fair value resulting in a net
increase (decrease) to shareholders' equity of $1,083, $615 and
($394), net of deferred income taxes.
There was $1,137 and $535 dividend payable outstanding as of September
30, 2001 and 2000, respectively. There was no dividend payable
outstanding as of September 30, 1999.
The acquisition of the Houston franchisee was recorded during the second
quarter of fiscal year 1999, the acquisition of the San
Antonio/Austin franchisee was recorded during the first quarter of
fiscal year 2000, the acquisition of the New Jersey franchisee was
recorded during the second quarter of fiscal year 2000, the
acquisition of the Washington, D.C. franchisee was recorded during
the third quarter of fiscal year 2000, and the acquisition of the
Virginia franchisee was recorded during the third quarter of fiscal
year 2000 as follows (see Note 7):
San Antonio / Washington
Austin New Jersey DC,/Virginia Houston Total
-----------------------------------------------------------------------------------
Fair value of assets acquired:
Rights-to-receive $200 $ 1,344 $ 1,661 $127 $ 3,332
Other assets 5 22 33 13 73
Excess of cost over net
assets acquired 788 2,002 3,750 536 7,076
-----------------------------------------------------------------------------------
993 3,368 5,444 676 10,481
-----------------------------------------------------------------------------------
Less: Cash Paid 950 3,000 1,451 648 6,049
Common shares issued -- -- 1,500 -- 1,500
Note payable -- -- 2,000 -- 2,000
----- -------- -------- ----- -------
Liabilities assumed $ 43 $ 368 $ 493 $ 28 $ 932
===== ======== ======== ===== =======
See accompanying notes to consolidated financial statements.
F-7
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(1) Description of Business and Summary of Significant Accounting Policies
(a) Description of Business
Transmedia Network Inc. and subsidiaries (the "Company") operate
in one business segment and own and market dining rewards
programs which offer savings and benefits to our members
principally for dining and, to a lesser extent lodging, travel,
and retail catalogues. Our primary business is the
administration of dining rewards programs. We accomplish this
principally through the acquisition of, on a wholesale or
discounted basis, the rights to receive food and beverage
credits at full retail value from restaurants that wish to
participate in the program. Our members are provided incentives
in the form of rewards or savings to then dine in the restaurant
and liquidate the food and beverage credits on our behalf. These
rights to receive are typically purchased from the restaurants
by the Company for cash but may also be acquired in exchange for
services. In addition to the purchase of rights to receive, the
Company also provides restaurant operators with yield management
tools such as variable promotions, dining incentives and off
peak pricing to fill empty seats and generate incremental
business.
Consumers join the dining rewards program either individually or
through the Company's various affiliations with major airlines,
large banks and credit card issuers, and other affinity
partners. Access to the savings and benefits, typically cash or
frequent flyer miles, is accomplished through registration of
the consumer's valid major credit cards with the Company.
Membership in the dining programs that provide for cash credits
require an annual fee. Rewards to members in other alternate
currencies, such as airline frequent flyer miles, do not require
an annual fee.
We estimate that our account base and network of participating
restaurants is approximately 6,650,000 and 7,800, respectively,
at September 30, 2001. We operate in 70 major market areas.
The Company's corporate structure consists of four wholly-owned
subsidiaries: iDine Restaurant Group Inc. (IRG) which functions
as the sales organization and is responsible for merchant
acquisition and relationship management; Transmedia Service
Company Inc. (TSC) which is responsible for all member-related
facets of the business, including partner relationships,
directory and newsletter publications, the member call center,
and support services to iDine Restaurant Group Inc.; TMNI
International Incorporated, which is responsible for all foreign
licensing; iDine.com, Inc., initially established to provide
restaurant operators with the capability of using our e-commerce
services to access revenue management tools such as variable
promotions, dining incentives and off-peak pricing products. RTR
Funding LLC., was established as a special purpose corporation
as part of the current securitization discussed in Note 2 and is
a wholly-owned subsidiary of Transmedia Service Company, Inc.
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
(b) Cash and Cash Equivalents
Cash and cash equivalents are financial instruments with
original maturities, at the date of purchase, of three months or
less.
F-8
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(c) Rights to receive
Rights to receive are composed primarily of food and beverage
credits acquired from restaurants on a wholesale basis,
typically for cash. The food and beverage credits acquired
represent the Company's right to receive future revenue and cash
flows from the restaurants when our members dine there. Rights
to receive are stated at the gross amount of the commitment to
the establishment. Accounts payable-rights to receive represent
the unfunded portion of the total commitments. The carrying
value of the rights to receive is based on the actual cash
advance amount and is recorded at cost, determined by the
first-in, first-out method. The Company reviews the
realizability of the Rights to receive on a periodic basis and
provides for anticipated losses on rights to receive from
restaurants that have ceased operations or whose credits are not
being utilized by members. These losses are offset by recoveries
from restaurants previously written off.
(d) Short Term Investments
The Company classifies all of its short-term investments as
available for sale securities. Such short term investments
consist primarily of United States government and federal agency
securities, corporate commercial paper and corporate bonds which
are stated at fair value with net unrealized gains and losses on
such securities reflected, net of related deferred income tax,
in a separate component of shareholders' equity (cumulative
other comprehensive income (loss)). Realized gains and losses on
short-term investments are included in earnings and are derived
using the specific identification method for determining the
cost of securities. These investments, at the date of purchase,
have a maturity greater than three months but less than a year.
(e) Securities Available for Sale
All of the Company's investments are available to be sold in
response to the Company's liquidity needs and asset-liability
management strategies, among other reasons. Investments
available-for-sale on the balance sheet are stated at fair
market value. Unrealized gains and losses are excluded from
earnings and are reported in a separate component of
shareholders' equity (cumulative other comprehensive income
(loss)), net of related deferred income taxes.
A decline in the fair market value of an available-for-sale
security below cost that is deemed other than temporary results
in a charge to income, resulting in the establishment of a new
cost basis for the security. All declines in fair market values
of the Company's investment securities in 2001 and 2000 were
deemed to be temporary.
Dividends are recognized when earned. Realized gains and losses
are included in earnings and are derived using the
specific-identification method for determining the cost of
securities sold.
(f) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation on property and equipment is
calculated on the straight-line method over an estimated useful
life of three to five
F-9
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
years. Amortization of leasehold improvements is calculated over
the shorter of the lease term or estimated useful life of the
asset.
(g) Software Development Costs
The Company has developed and/or purchased certain website
software applications and hardware that give rise to the
Company's e-commerce services. In accordance with Statement of
Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." , the
Company has capitalized certain internal use software and
website development costs totaling $1,274 and $1,476 during the
years ended September 30, 2001 and 2000, respectively. The
amortization of these costs is calculated on a straight-line
basis over a three-year life. During the year ended September
30, 2001 and 2000, the amortization of these capitalized costs
totaled $704 and $176, respectively. Amortization starts when
the product is available for general release to members. All
other website construction and expansion expenditures are
charged to expense in the period incurred.
(h) Excess of Cost Over Net Assets Acquired
Excess of cost over net assets acquired has resulted primarily
from the acquisition of franchise territories (see note 7) and
is amortized on a straight-line basis over the expected periods
to be benefited, generally 20 years. The Company's accounting
policy regarding the assessment of the recoverability of
goodwill is to review the carrying value and if the facts and
circumstances suggest that they may be impaired. The Company
assesses the recoverability of goodwill by determining whether
the amortization of the goodwill balance over its remaining life
can be recovered through estimated undiscounted future operating
cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the
Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved. See footnote 1(s) for a
discussion of new pronouncements that may affect this policy in
the future.
(i) Revenue Recognition
The Company recognizes gross dining sales as revenue when our
members dine in one of our participating restaurants. Revenue is
only recognized if the member dining transaction qualifies for a
reward or savings in accordance with the rules of the particular
dining program. The amount of revenue recognized is that portion
of the total spending by the member that the Company is entitled
to receive in cash, in accordance with the terms of the contract
with the restaurant. For the typical cash advance based contract
where we have acquired or prepaid for food and beverage credits
on a wholesale basis, we often leave some portion of the
member's dining spend with the merchant to provide liquidity for
payment of sales tax and tips. For example, if the total dining
spend by the member is one hundred dollars at our participating
restaurants, as evidenced by the full amount of the credit card
transaction, and our contract provides for us to leave behind
20%, the amount of gross dining sales recognized is eighty
dollars representing what we will actually realize in cash.
Similarly, for members' dining transactions at restaurants in
the revenue management program where we have not advanced cash
and the rewards or savings may vary by the time of day or day of
the week, revenue is only recognized to that extent that we are
contractually entitled to receive cash
F-10
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
for a portion of the member's spend. The same one hundred dollar
transaction referred to above in a revenue management restaurant
may only yield thirty dollars in cash to be realized, however,
there was no cash advanced, the transaction has less risk and
there is no cost of the rights to receive sold.
The Registered Card Program, obtained through the acquisition of
Dining A La Card (the "Registered Card Program") in June 1999,
and subsequently enhanced by us, has replaced the Company's
legacy private label charge card program. Members enrolled in
the program simply register a valid major credit card with us
and then present their registered credit card while dining at a
participating restaurant. Based on our agreements with various
credit card processors and presenters throughout the country, we
aggregate data for all our participating merchants. The data is
compared to our current registered card file to determine if an
enrolled account with the Company was also a customer of the
participating merchant. These matched transactions are qualified
via business rules as to whether they are eligible for a reward
or savings. Once the transaction has been qualified, the portion
of the transaction that the Company will receive in cash is
recognized as a sale. These qualified transactions are then used
to provide member savings or alternate currency benefits, as
well as to invoice and collect from merchants, principally via
an electronic debit to their bank account.
The Transmedia Card, the Company's proprietary private label
charge card was substantially phased out during fiscal 2001. The
Transmedia Card had been selectively issued to credit worthy
applicants who linked it to their current, valid MasterCard,
Visa, Discover or American Express credit card. When cardmembers
presented the Transmedia Card, they would sign for the goods or
services rendered, as well as for the taxes and tips, as they
would with any other charge card. The Company, upon obtaining
the receipt (directly or via electronic point of sale
transmission) from the appropriate establishment, recognized the
sale and, gave the establishment credit against rights to
receive which are owned by the Company. Simultaneously, the
Company (i) processed the receipt through the cardmember's
electronically linked MasterCard, Visa, Discover or American
Express card account, which remitted to the Company the full
amount of the bill, and (ii) credited the cardmember's account
for the appropriate discount. Taxes and tips were then remitted
back to the various establishments.
Initial membership and renewal fees are billed in advance and
recognized on a straight-line basis over twelve months, which
represents the membership period. Membership fees are cancelable
and are refunded to members, if requested, on a prorata basis
based on the remaining portion of the membership period.
(j) Other Operating Revenue
Other operating revenue consists of continuing franchise fee
revenue, commission income and processing income. Continuing
franchise fee revenue represents royalties calculated as a
percentage of the franchisees' sales and is recognized when
earned. Initial franchise fees and license fees are recognized
when material services or conditions relating to the sale of the
franchise have been substantially performed. As of June 2000,
all franchises were repurchased by the Company and no further
franchise fee revenue has been recorded.
Commission income represents income earned on discounted
products and services provided by
F-11
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
third parties to the Company's members. Such discounted products
and services consist of retail catalogues, phone cards and
travel services.
Processing income represents the net fees charged to restaurants
when the Company serves as merchant of record for processing all
other non-Transmedia point of sale transactions. Processing
income is recognized when earned.
(k) Deferred Acquisition Costs
Certain costs of acquiring members are deferred and amortized,
on a straight-line basis over the membership period, usually
twelve months. The acquisition costs capitalized as assets by
the Company represent initial fee-paying member acquisition
costs resulting from direct-response campaign costs that are
recorded as incurred. Campaign costs include incremental direct
costs of direct-response advertising, such as printing of
brochures, campaign applications and mailing. Such costs are
deferred only to the extent of initial membership fees generated
by the campaign.
Acquisition expenses represent the cost of acquiring members and
restaurants and consist primarily of direct-response advertising
costs incurred in excess of fees received and amortization of
previously deferred costs and costs associated with soliciting
no-fee members.
In recent years, the Company has moved away from marketing of
the fee based product to individual consumers and thus the
amount of acquisition costs deferred has been negligible.
(l) Cost of Sales and Member Rewards and Savings
Cost of sales is composed of the cost of rights to receive sold,
related processing fees and provision for rights to receive
losses. The cost of rights to receive sold is determined on a
specific identification basis, by merchant, according to the
contractual funding ratio used when the food and beverage
credits were acquired. The typical ratio utilized is two dollars
of food and beverage credits received for one dollar of cash
advanced.
Member rewards and savings represents the cost of the specific
reward or savings earned by members whenever they use the
program.
Certain companies now participate in the recently developed
corporate expense reduction program. The companies register
their employees' corporate cards with us on a no fee basis,
however savings are not provided until the employee reaches a
certain level of qualified annual spend. After reaching such
level, the participating company receives a monthly check for
the aggregate savings earned by their employees when dining out
at participating restaurants. Rewards associated with this
program, and others like it, are charged to income during the
period incurred. The foregone savings prior to achieving the
qualified annual spend levels are deferred and spread over the
contract year on an effective rate basis, resulting in a
reduction in the overall member rewards and savings expense.
F-12
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(m) Income Taxes
Income taxes are accounted for using the asset and liability
method. Deferred tax assets and liabilities are recognized for
the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply in the year in which those temporary
differences are expected to be recovered or rates settled. The
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date. A valuation allowance is established when
necessary to reduce deferred tax assets to the amounts expected
to be realized.
(n) Stock Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, establishes a
fair-value method of accounting for stock options and similar
equity instruments. The fair-value method requires compensation
costs to be measured at the grant date based on the value of the
award and recognized over the service period. SFAS No. 123
allows companies to either account for stock-based compensation
to employees under the provisions of SFAS No. 123, or under the
intrinsic-value based method of accounting prescribed by the
Accounting Principles Board (APB) Opinion No 25 and its related
interpretative releases. The Company has elected to account for
the stock-based compensation to employees in accordance with the
provisions of APB Opinion No. 25, and provide the pro forma
disclosures required under SFAS No. 123.
(o) Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of
The Company reviews, as circumstances dictate, the carrying
amount of our long-lived assets. The purpose of these reviews is
to determine whether the carrying amounts are recoverable.
Recoverability of assets to be held and used is determined by
comparing the projected undiscounted net cash flows of the
long-lived assets against their respective carrying amounts. The
amount of impairment, if any, is measured based on the excess of
the carrying value over the fair value. Assets to be disposed of
are reported at the lower of the stated amount or fair value
less costs of disposal.
(p) Segment Information
SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information establishes standards for the manner in
which public companies report information about operating
segments in annual and interim financial statements. It also
establishes standards for related disclosures about products and
services, geographic areas, and major customers. The method for
determining what information to report is based on the way
management organizes the operating segments within the Company
for making operating decisions and assessing financial
performance. The Company's chief operating decision-maker is
considered to be the chief executive officer (CEO). The CEO
reviews financial information presented on a consolidated basis
for purposes of making operating decisions and assessing
financial performance. The consolidated financial information is
identical to the information presented in the accompanying
consolidated statements of operations. Therefore,
F-13
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
the Company has determined that it operates in a single
operating segment, specifically, the providing of rewards to its
members.
(q) Basic and Diluted Net Income (Loss) per Share
Basic and diluted net income (loss) per share was computed by
dividing net income (loss) applicable to common stockholders by
the weighted-average number of shares of common stock
outstanding for each period presented. Potentially dilutive
securities were considered for each of the years in the
three-year period ended September 30, 2001 to the extent
dilutive.
For periods with potentially dilutive securities incremental
shares and adjustments to net income are determined using the
"if converted" and treasury stock method as follow:
2001
--------
Net income as reporting 1,334
Less: Preferred stock dividends (1,203)
-------
Net income available to
Common stockholder 131
=======
Weighted Average Shares Outstanding 15,983
Common Stock Equivalents
Stock Options 130
Warrants 168
-------
16,281
=======
Basic Net Income Per Share $ 0.01
=======
Diluted Net Income Per Share $ 0.01
=======
(r) Comprehensive Income and Loss
Comprehensive income and loss presents a measure of all changes
in shareholders' equity except for changes in equity resulting
from transactions with shareholders in their capacity as
shareholders. The Company's other comprehensive loss presently
consists of net unrealized holding (losses) gains on investments
available for sale.
(s) Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 141 "Business
Combinations" ("SFAS 141") and Statement of Financial Accounting
Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS
142"). SFAS 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30,
2001 as well as all purchase method business combinations
completed after June 30, 2001. SFAS 142 will require that
goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least
annually. SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001, and the Company has elected to adopt
this standard as of the beginning of its fiscal year January 1,
2002.
Application of the non amortization provision is expected to
result in an increase in net income of $607 ($0.04 per share)
per year. The Company will perform the required impairment tests
at least annually and at this time does not anticipate any
charge to earnings due to impairment of goodwill.
Furthermore, any goodwill and intangible assets determined to
have indefinite useful lives that are acquired in a purchase
business combination completed after June 30, 2001 will not be
amortized. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue to be
amortized until the adoption of SFAS 142. SFAS 141 will require
upon adoption of SFAS 142 that goodwill acquired in a prior
purchase business combination be evaluated and any necessary
reclassifications be made in order to conform to the new
criteria in SFAS 141 for recognition apart from goodwill. Any
impairment loss will be measured as of the date of the adoption
and recognized as a cumulative effect of a change in accounting
principles in the first interim period. SFAS 141 is effective
immediately, except with regard to business combinations
initiated prior to July 1, 2001 and SFAS 142 is effective
January 1, 2002.
F-14
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
In June 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS 143, "Accounting for Asset Retirement Obligations."
This statement addresses the diverse accounting practices for
obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. We
plan to adopt this standard on June 1, 2002. We do not expect
the adoption of this standard to have a material effect on the
Company's consolidated financial statements.
In August 2001, FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement
establishes a single accounting model for the impairment or
disposal of long-lived assets. As required by SFAS No. 144, the
Company will adopt this new accounting standard on July 1, 2002.
The Company believes the adoption of SFAS No. 144 will not have
a material impact on its financial statements.
(s) Reclassification
Certain prior year amounts have been reclassified to conform to
the 2001 presentation.
(t) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates. The principal estimates used by the Company
relate to the provision for rights to receive losses and the
valuation allowance for net deferred tax assets. Additionally,
the Company uses estimates to determine the effective cost of
rebates in the corporate expense reduction program and in the
valuation of long lived assets.
(2) Securitization of Rights to Receive
On December 30, 1999, the Company entered into an $80,000 revolving
securitization of the combined rights to receive of both the private label and
the registered card dining programs. The new securitization was privately placed
through an asset backed commercial paper conduit. The proceeds drawn down at
closing, approximately $65,000 based on a borrowing base formula, were utilized
to terminate and payoff $33,000 in non-recourse notes from a previous
securitization and $27,000 then outstanding under a bridge loan used in the
acquisition of Dining A La Card ("DALC") (see note 3 for additional
information). Additionally, the Company was required to pay a termination
payment of approximately $1,100 to the noteholders and non-recourse partners in
the prior securitization.
Borrowing capacity under the facility is recalculated weekly based on a formula
driven advance rate applied to the current balance of rights to receive that are
eligible to be securitized. The advance rate is determined based on recent sales
trends and months on hand of rights to receive. Capacity at September 30, 2001
and 2000 was $57,690 and $60,663, respectively, and the outstanding borrowings
at those dates were $55,500 and $59,625, respectively. The facility provides
various restrictive covenants regarding collateral eligibility, concentration
limitations and also requires the Company to maintain net worth of at least
$24,000. At September 30, 2001 and 2000 the company was in compliance with the
covenants.
F-15
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
The interest rate applicable to the facility is the rate equivalent to the rate
(or if more than one rate, the weighted average of the rates) at which
commercial paper ("CP") having a term equal to the related CP tranche period
that may be sold by any placement agent or commercial paper dealer selected by
the conduit on the first day of such CP tranche period, plus the amount of any
placement agent or commercial paper dealer fees and commissions incurred or to
be incurred in connection with such sale. For the year ended September 30, 2001
and 2000, the effective interest rate for the facility was 8.6% and 8.9% per
annum, respectively.
The conduit requires that a liquidity facility be provided by an A1/P1 rated
financial institution in the amount equal to 102% of the securitization amount.
This liquidity facility must be renewed annually. The Company's primary bank,
the Chase Manhattan Bank, now J.P. Morgan Chase, held the original
securitization facility and also provided the liquidity facility in the initial
year. In the fall of 2000, Chase indicated a desire to syndicate all or a
portion of the liquidity facility, or alternatively, bring in a co-purchaser
conduit for a percentage of the securitization. On December 27, 2000, the credit
agreements were amended to provide an extension of the initial term for 90 days
to March 28, 2001 to complete the syndication and borrowing capacity was reduced
to $60,000. The credit agreements were further extended by Chase to the earlier
of the closing of a co-purchase arrangement or June 28, 2001. An extension fee
of $600 was paid to Chase on December 26, 2000.
On May 18, 2001, the Company signed an agreement with BMO Nesbitt Burns Corp for
it to act as a 50 percent co-purchaser on the $80,000 facility with Chase. The
Company also simultaneously closed the amended financing agreement and paid
additional fees of approximately $600. The credit agreement was renewed for a
new 364-days renewable term and the overall facility reverted to the original
amount of $80,000. There were no other material changes to the terms of the
facility. It is management's intention at this time to renew the facility in May
2002. In the event that the syndications are not renewed, an alternative asset
backed financing vehicle may be established or the outstanding borrowings under
the securitization may be converted to a term loan.
The Company previously financed its rights to receive under a revolving
securitization originated in 1996 (the 1996 facility). Under this facility,
$33,000 of fixed rate securities was issued in a previous private placement to
various third party investors. The private placement certificates had a
five-year term before amortization of principal and had an interest rate of
7.4%.
The early extinguishment of the 1996 facility in December 1999 and payoff of the
related non-recourse notes resulted in an extraordinary charge of $1,623 or
$0.12 per share consisting of the following:
Write-off of related unamortized financing costs $ 540
Termination payment to noteholder
and non-recourse partners 1,083
---------------
Extraordinary charge before income tax benefit 1,623
Income tax benefit (412)
Related increase in income tax valuation allowance 412
----------------
Net extraordinary charge $ 1,623
========-======
(3) Acquisition of Dining A La Card
On June 30, 1999, the Company concluded the acquisition from SignatureCard, Inc.
("SignatureCard"), a subsidiary of Montgomery Ward & Co., Incorporated, of
assets related to a membership discount dining program that SignatureCard
operated under the Dining A La Card trade name and service mark. The assets
F-16
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
acquired included various intellectual property rights and computer software,
membership and merchant data, rights to receive, and, most significantly, a
registered card platform.
The acquisition was accounted for under the purchase method, and accordingly,
the results of operations of the acquired company have been included in the
consolidated results of the Company since the effective date of acquisition. The
purchase price of $40,783 was allocated, in its entirety, to the rights to
receive acquired. As consideration for the assets, the Company (1) paid
SignatureCard $35,000 in cash at closing, (2) issued to SignatureCard 400,000
shares of the Company's common stock and (3) issued to SignatureCard a
three-year option to purchase an additional 400,000 shares of the Company's
common stock at a price of $4.00 per share. The options, included in the cost of
the acquired assets, were valued using the Black-Scholes model and assigned a
value of $697. The shares issued were valued at $4.32 per share using an average
price over the measurement period. Commencing December 31, 1999, SignatureCard,
at any time prior to June 30, 2002, could require the Company to repurchase all
or part of the 400,000 shares issued at the closing at a price of $8.00 per
share. The guaranteed value of the puts recorded was $3,200. In addition, during
the two-year period following the closing, the Company agreed to share with
SignatureCard certain amounts recovered from rights to receive acquired, but not
funded at closing.
Additionally, in connection with the acquisition of Dining A La Card, the
Company entered into a Services Collaboration Agreement with SignatureCard.
Under this agreement, SignatureCard was to continue to provide dining members
from its airline frequent flyer partner programs and other marketing programs.
It would also share, for 12.5 years, certain profits the Company derives from
SignatureCard-generated members as well as a portion of the membership fee
revenues generated from fee paying members acquired in this transaction or
subsequently through SignatureCard's efforts.
On December 28, 2000, the Company executed a Payment and Termination of
Exclusivity Agreement (the "Agreement") with GE Financial Assurance ("GEFA"),
the successor parent of SignatureCard, to extinguish all obligations associated
with the DALC acquisition. The Agreement also eliminated SignatureCard's
exclusivity rights in dealing with the airline frequent flyer member files, and
fully resolved and terminated the joint marketing and revenue sharing
relationship. In consideration for the above, the Company paid GEFA $3,800 in
cash and honored GEFA's right to put 400,000 shares held by it as part of the
acquisition consideration, at a value of $8 per share. This put right was
exercised and the Company paid GEFA two equal installments on January 17 and on
February 13, 2001. Transmedia also cancelled 160,000 options of the original
400,000 issued as part of the original DALC purchase price, leaving
SignatureCard with 240,000 options which must be exercised by June 30, 2002 at a
strike price of $4.00.
To finance the original acquisition of DALC, the Company obtained a $35,000
senior secured revolving bridge loan facility from The Chase Manhattan Bank
(from which $29,000 was drawn down at closing) and a $10,000 term loan from GAMI
Investments, Inc., an affiliate of Equity Group Investments ("EGI") (which was
drawn down in full).
The Chase facility was paid off on December 30, 1999 with the proceeds of the
$80,000 securitization (Note 2). Financing fees of $1,100 were also paid.
The GAMI facility was a term loan made through an affiliate of EGI in the amount
of $10,000 and was unsecured and subordinated to the Chase facility. Interest
accrued on the principal amount outstanding was at the prime rate (as announced
from time to time by Chase) plus 4%, payable monthly in arrears.
F-17
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
The agreement with GAMI required the Company to conduct a rights offering
of rights to purchase a new series of preferred stock to be offered to each
existing stockholder of record on a pro rata basis. The proceeds of the
rights offering were earmarked to repay all outstanding amounts under this
loan.
In connection with the rights offering, EGI, through its affiliate and the
Company's largest stockholder, Samstock L.L.C., agreed to act as a standby
purchaser whereby, after exercising its initial rights and any additional
subscription privileges, would purchase any shares not otherwise subscribed
for by other stockholders. The rights offering closed on November 9, 1999,
and $10,000 of convertible preferred stock was issued (see Note 8). The
proceeds were used to retire the GAMI obligation.
The terms of this loan also required the Company to pay GAMI, at closing, a
cash fee of $500, which was reimbursable to the Company upon the
consummation of the rights offering and the issuance to Samstock L.L.C. of
warrants to purchase one million shares of the Company's common stock in
consideration of providing the loan and if it acted as a standby purchaser
in connection with the rights offering.
In connection with this acquisition, the Company paid a fee for transaction
advisory services to EGI, which is included in the cost of the acquired
assets, of $386.
(4) Company's Move to American Stock Exchange
On August 5, 1999, the New York Stock Exchange ("NYSE") notified the
Company of the pending adoption of amendments to its continued listing
criteria and of the Company's noncompliance with the new standards which
required, in part, that both market capitalization and stockholders' equity
be at least $50,000. In accordance with the requirements of the
notification, the Company submitted to the NYSE its 18-month plan to come
into compliance with the new criteria. On September 16, 1999, the NYSE
advised the Company that its plan had been accepted and that its shares
would continue to be listed on the Exchange.
On April 5, 2001, the New York Stock Exchange advised the Company that
while the Company was in compliance with the market capitalization
threshold it would move to de-list Transmedia Network Inc. due to its
inability to meet the minimum stockholders' equity requirement of $50
million by the end of the prescribed period. The Company immediately made
an application to the American Stock Exchange ("AMEX") and effective April
16, 2001, the Common Stock of Transmedia Network Inc. began trading on the
AMEX under the ticker symbol "TMN". The Company's Series A Senior
Convertible Redeemable Preferred Stock has been trading on the OTC bulletin
board under the symbol "TMNwp" (see note 20). During the transition period
between the announcement by the NYSE and the switch to the AMEX, the
Company's common stock continued to be traded on the NYSE so that no
trading days were lost for the Company's common stock.
(5) Internet Dining Venture
The Company launched a new Internet dining venture in April 2000. Execution
of the e-commerce initiative was initially executed through iDine.com, a
newly formed wholly-owned subsidiary. The on-line product allows
restaurateurs to create special variable incentives and promotions through
the iDine website on specific days of the week and/or times of the day in
order to drive incremental traffic when they need it most. Consumers have
their choice of savings rewards in points or cash and may convert the
points into either complimentary dining or frequent flyer miles. The
website also allows for on-line reservations, national
F-18
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
restaurant listings and access to reviews and maps. The on-line initiative
was intended to broaden the amount and type of savings and rewards offered
to consumers as well as to expand the participating restaurant base by
providing restaurant operators with a full suite of yield management
products. The operation of iDine.com were folded into IRG and TSC in its
entirety in fiscal 2001 to ensure a more efficient distribution of the
revenue management program.
The development of the e-commerce product was financed by corporate capital
and through a $10,000 private placement. In the first tranche of the
private placement which closed on May 1, 2000, the Company issued 904,303
shares of its common stock at $4.5625 per share and warrants to purchase an
additional 1,808,606 shares of its common stock, half of which have a per
share exercise price of $5.93 and the other half of $7.30. The warrants
will expire on April 28, 2005. The Company received proceeds from the share
issuance in the amount of $4,126. The second tranche has the same price per
share of common stock and exercise prices for the warrants as the first
tranche. The second tranche, which closed on August 21, 2000, consisted of
the sale of an aggregate of 1,287,480 common shares, accompanied by
2,574,960 warrants. The Company received proceeds from this share issuance
in the amount of $5,874. Funds obtained from the private placement were
utilized for development of the e-commerce venture.
(6) Conversion to Registered Card and Rebranding
Effective August 1, 2000, the Company completed its efforts to convert its
entire restaurant portfolio and membership base to the registered card
program. The registered card platform was acquired through the acquisition
of Dining a La Card and subsequently enhanced by the Company, and allows
members to register a valid credit card with the Company and then present
the registered credit card when dining at participating restaurants in
order to access their rewards and benefits in a discrete manner. This is in
contrast to the Company's traditional methodology whereby a separate
private label charge card, the Transmedia Card, was selectively issued to
members who then used it to obtain a discount at participating restaurants.
The private label program has been substantially phased out.
In connection with the conversion and the launch of the on-line business,
the Company decided to universally brand its dining programs under the
iDine name. iDine Prime resembles the traditional fee-based, cash reward
dining program that gives members unrestricted access to the entire
restaurant portfolio. The iDine no-fee program provides varying levels of
benefits, services and rewards and uses alternative currencies for awarding
benefits such as airline miles, dining points, etc. Included in both the
iDine Prime and iDine programs is the on-line offering of variable
incentives and promotions at selected restaurants as discussed in Note 5
above.
(7) Franchise and License Agreements
The Company, as franchiser, had previously entered into various ten-year
franchising agreements to assist in its national expansion through the
years 1990 to 1995. In accordance with these agreements, franchisees were
granted a territory with a defined minimum of full-service restaurants that
accept certain major credit cards. The Company provided marketing,
advertising, training and other administrative support. The franchisees
were responsible for soliciting restaurants and cardholders, advancing
consideration to the restaurants to obtain rights to receive food and
beverage credits, and maintaining adequate insurance. In consideration for
granting the franchises, the franchisees paid the Company initial franchise
fees and an initial fee to the Company's advertising and development fund.
F-19
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
The Company ceased franchising in 1995, and in 1997, the Board authorized a
systematic reacquisition of the franchise territories.
On December 16, 1999, the Company acquired all the rights to receive, and
the right to conduct business in the San Antonio and Austin sales
territories from its franchisee, TRC. The purchase price was $950 of which
$788 represents the cost of the franchises which has been recorded as the
excess of cost over net assets acquired is being amortized on a straight-
line basis over twenty years. With the acquisition of these sales
territories, the Company completed the reacquisition of all of the sales
territories of TRC, and the right to conduct business in Texas and settled
any and all obligations under the franchise agreement, as amended.
On March 31, 2000, the Company acquired all the outstanding shares of its
New Jersey franchisee, 47K Corp, for $3,000 payable in three installments.
The purchase method of accounting for business combinations was used. The
operating results of the acquired company have been included in the
consolidated results of the Company since the date of acquisition. The fair
market value of the assets acquired was $3,368 and liabilities assumed
totaled $368. The excess of cost over net assets acquired is being
amortized on a straight-line basis over twenty years. Assets acquired
included Rights to receive and other miscellaneous items. The first payment
of $1,700 was made at closing on March 31, 2000; the second payment of
$1,050 was paid on July 31, 2000; and the final payment was paid on March
31, 2001.
On June 29, 2000, the Company acquired the net assets of its Washington,
D.C. franchisee, Potomac Dining Ltd., for $4,926. The acquisition,
accounted for under the purchase method of accounting for business
combinations, was composed of a cash payment of $1,426, two subordinated
convertible promissory notes totaling $2,000, and the issuance of 352,423
shares of the Company's common stock valued at $1,500. Accordingly, the
operating results have been included in the Company's consolidated
financial statements since the date of acquisition. The fair market value
of the assets acquired, was $5,419 and liabilities assumed totaled $493.
The excess of cost over net assets acquired is being amortized on a
straight-line basis over twenty years. Assets acquired included Rights to
receive and other miscellaneous items. The terms of the two $1,000
convertible notes are as follows: (1) maturity date of June 30, 2002 and
2003, respectively; (2) interest accrues on unpaid principal amount of the
notes at a rate equal to the prime rate plus 1%; and (3) notes may be
converted to common shares by noteholder upon ten business days prior
written notice to the Company (not less than $225 in principal per each
election to convert). On July 20, 2001, the Company gave the required 15-
day notice to the noteholders advising them of its intention to prepay the
notes. The principal of $2,000 and accrued interest of $15 were paid on
August 6, 2001. Potomac did not elect to convert any portion of the
principal into common stock.
On June 30, 2000, the Company acquired all the assets of its Virginia
franchisee, Stoney Creek Dining, Inc., for a termination cash payment of
$25, which was paid on July 7, 2000.
In addition to acquiring all former franchises, on April 11, 2000, the
Company terminated, by mutual consent, the license agreements with
Transmedia Asia Pacific, Inc. and Transmedia Europe, Inc. to operate the
Transmedia dining card program in their respective territories. As a result
of these negotiations, the Company forgave a $500 note and all accrued
interest due from Transmedia Asia Pacific, Inc., and Transmedia Europe,
Inc. Due to the uncertainty surrounding the resolution of this matter, the
Company had previously provided a reserve for the face value of the note
and related accrued interest. Following a brief transition period,
Transmedia Asia Pacific, Inc. and Transmedia Europe, Inc. ceased using the
Transmedia brand name for their discount programs.
F-20
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(8) Rights Offering
On November 9, 1999, the Company completed a Rights Offering to existing
shareholders resulting in the issuance of 4,149,378 convertible, redeemable
preferred shares. The preferred shares have a dividend rate of 12%, of
which 6% is payable in cash, quarterly in arrears, and the remaining 6%
accrues unless otherwise paid currently at the Company's discretion, until
conversion by the holder. During fiscal year 2001 and 2000, the Company
declared dividends in the amount of $1,204 and $1,079, respectively. Each
preferred share may be converted into common stock at the option of the
holder at any time. The initial rate of conversion was one to one.
Subsequent conversion rates are higher to the extent of the deferred
dividend accruing at 6% and any unpaid cash dividends. If not previously
converted, the Company may commence redemption of the preferred shares on
the third anniversary of the rights offering. On July 27, 2001, 13,108
shares of preferred stock were converted to 14,405 shares of common stock.
At September 30, 2001, the conversion rate of the preferred shares was one
preferred share for 1.1141 common shares.
The proceeds from the stock issuance of $10,000 were used to retire a
$10,000 term loan, obtained from an affiliate of the Company's largest
investor, used primarily for the DALC acquisition. Pursuant to its
subscription privileges and as a standby purchaser for any unsubscribed
shares, Equity Group Investments, Inc. ("EGI"), an affiliate of the
Company's largest investor, acquired 2.84 million of the preferred shares.
The additional investment provided EGI with the right to designate an
additional member to the Board of Directors.
(9) Investments by Equity Group Investments, Inc.
On March 3, 1998, the Company sold 2.5 million new-issued common shares and
non-transferable warrants to purchase an additional 1.2 million common
shares for a total of $10,625 to affiliates of EGI, a privately held
investment company. Net proceeds amounted to $9,825 after transaction
costs. The non-transferable warrants have a term of five years; one third
of the warrants are exercisable at $6.00 per share, another third are
exercisable at $7.00 per share and the final third are exercisable at $8.00
per share. As part of this strategic investment, EGI nominated and the
stockholders elected two candidates to the Board of Directors who joined
three of the Company's existing directors and two new independent
directors.
As more fully described in Notes 3 and 8, EGI invested an additional $6,846
in November 1999, as a result of a Standby Purchase Agreement which they
provided to support the Company's $10,000 rights offering and eventual
issuance of convertible preferred stock. As consideration for the standby
note agreement, EGI received one million warrants, exercisable over a five-
year period, at a price of $2.48 in connection with a private placement. As
of September 30, 2001, no warrants have been exercised.
As more fully described in Note 5, EGI also invested an additional $1,850
in August 2000.
(10) Securities Available for Sale
Securities available for sale consist of marketable equitable securities
that are recorded at fair value and have an aggregate cost basis of $280 as
of September 30, 2001, 2000 and 1999. Gross unrealized gains were $0, $833,
and $545 and gross unrealized losses were $1,095, $0, and $194 as of
September 30, 2001, 2000 and
F-21
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
1999, respectively. Realized gains were $0, $40 and $1,149 for the years
ended September 30, 2001, 2000 and 1999, respectively. Deferred income
taxes associated with the net unrealized gains were $0, $367, and $134 at
September 30, 2001, 2000 and 1999, respectively.
(11) Property and Equipment
Property and equipment consist of the following:
September 30,
-------------------------
2001 2000
---- ----
Furniture and fixtures $ 481 612
Office equipment 13,277 13,838
Website hardware and software
applications 2,749 1,476
Leased equipment 174 174
Leasehold improvements 443 227
-------- ------
17,124 16,327
Less accumulated depreciation and
amortization (8,339) (7,843)
-------- ------
$ 8,785 8,484
======== ======
Depreciation and amortization expense for the years ended September 30,
2001, 2000 and 1999 was $4,514, $3,445 and $2,859, respectively.
(12) Fair Values of Financial Instruments
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties. The fair value of cash and cash equivalents, restricted cash,
accounts receivable, accounts payable, accrued expenses and notes payable
approximate the carrying amounts at September 30, 2001 and 2000 due to the
short maturity of these instruments. The fair value of the rights to
receive approximates the carrying value due to their short-term nature. The
fair value of the securities available for sale and short-term investments
are based upon quoted market prices for these or similar instruments.
(13) Stock Option and Warrant Summary
Stock Option Plans
In March 1996, the 1996 Long-Term Incentive Plan (the "1996 Plan") was
approved for adoption by the Company's stockholders as a successor plan to
the 1987 Stock Option and Rights Plan. The 1996 Plan was amended August 5,
1998 to allow for non-employee directors to choose to take directors fees
in either cash or a current or deferred stock award. In addition, the
amount of shares available for grant under the 1996 Plan was increased to
1,505,966. On March 1, 2000 the Plan was amended again to increase the
number of shares of common stock available for grant under the Plan to
2,505,966. Under the 1996 Plan, the Company may
F-22
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
(Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
grant awards, which may include stock options, stock appreciation rights,
restricted stock, deferred stock, stock granted as a bonus or in lieu of other
awards, dividend equivalents and other stock based awards to directors, officers
and other key employees and consultants of the Company. Stock options granted
under the 1996 Plan may not include more than 505,966 incentive stock options
for federal income tax purposes. The exercise price under an incentive stock
option to a person owning stock representing more than 10 percent of the common
stock must equal at least 110 percent of the fair market value at the date of
grant. Options are exercisable beginning not less than one year after date of
grant. All options expire either five or ten years from the date of grant and
each becomes exercisable in installments of 25 percent of the underlying shares
for each year the option is outstanding, commencing on the first anniversary of
the date of grant.
At September 30, 2001, 2000 and 1999 there were 95,116, 614,616 and 443,716
shares available for grant under the 1996 Stock Plan, respectively. The per
share weighted average fair value of stock options granted during 2001, 2000 and
1999 was approximately $2.05, $2.71 and $2.70, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
assumption: 2001-expected no dividend yield, risk-free interest rate or 4.47%,
volatility of 0.6745, and expected lives ranging from five to ten years;
2000-expected no dividend yield, risk-free interest rate or 6.75%, volatility of
0.7553, and expected lives ranging from five to ten years and 1999-expected no
dividend yield, risk-free interest rate or 6.25%, volatility of 1.0774 and
expected lives ranging from five to ten years.
The Company has elected to continue to comply with APB No.25 to account for
stock options and accordingly, no compensation expense has been recognized in
the financial statements. Had the Company determined compensation expense based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Company's net income would have been reduced to the pro forma amounts
indicated below:
2001 2000 1999
Net Income
As reported $ 1,334 $(7,778) $(10,398)
Pro forma (786) (8,761) (12,581)
Net Income per Common and Common
Equivalent Share
As reported 0.01 (.63) (.80)
Pro forma (0.05) (.70) (.96)
F-23
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
(Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
Stock option activity during the periods indicated is as follows:
Incentive Stock Options Nonqualified Options
------------------------------ ---------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
Balance at September 30, 1998 771,668 6.57 135,000 4.83
Granted 570,000 2.49 - -
Exercised - - - -
Cancellations (80,575) 12.52 (135,000) 4.83
------------------------------- -----------------------------
Balance at September 30, 1999 1,261,093 4.34 - -
------------------------------- -----------------------------
Granted 971,600 3.89 - -
Exercised - - - -
Cancellations (155,000) 4.01 - -
------------------------------- -----------------------------
Balance at September 30, 2000 2,077,693 4.16 - -
------------------------------- -----------------------------
Granted 691,500 2.59 150,000 3.00
Exercised (5,875) 2.88 - -
Cancellations (187,750) 4.13 - -
------------------------------- -----------------------------
Balance at September 30, 2001 2,575,568 $ 3.75 150,000 $ 3.00
------------------------------- -----------------------------
Nonqualified options were issued to members of the board of directors.
The following table summarizes information about stock options outstanding and
exercisable at September 30, 2001:
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------------------------------------
Range Of Number Remaining Average Average
Exercise Prices Outstanding Contractual Exercise Number Exercise
Life (Years) Price Exercisable Price
---------------------------------------------------------------------------------------------------------------
$ 2.00 to $ 2.38 360,000 7.10 2.11 177,500 2.11
$ 2.50 565,250 9.09 2.50 129,000 2.5
$ 2.56 to $ 3.75 462,500 8.72 2.86 65,500 2.76
$ 4.06 to $ 4.25 673,600 8.72 4.25 172,150 4.24
$ 4.38 to $ 5.88 568,343 5.41 4.96 519,218 5.00
$ 7.44 to $15.00 95,875 2.71 9.66 95,875 9.66
------------------------------------------------------------------------------------------
Total 2,725,568 7.69 3.72 1,159,243 4.34
==========================================================================================
At September 30, 2001, 2000 and 1999, the number of options exercisable were
1,159,243, 1,105,343 and 901,593, respectively, and the weighted-average
exercise price of those options was $4.34, $4.77, and $5.30, respectively.
F-24
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
(Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
Warrants
A summary of warrants outstanding at September 30, 2001, is as follows:
Warrant
Warrant Price Expiration
Shares Per Share Date
-------------------------------------------------
Balance at September 30, 1998 1,200,000 $ 6.00 - $8.00 March 3, 2003
Warrants issued --
----------
Balance at September 30, 1999 1,200,000
----------
Warrants issued with Rights Offering (Note 9) 1,000,000 $2.48 November 9, 2004
Warrants issued with Private Placement (Note 5) 1,808,606 $5.93 - $7.30 April 28, 2005
Warrants issued with Private Placement (Note 5) 2,574,960 $5.93 - $7.30 April 28, 2005
----------
Balance at September 30, 2000 6,583,566
----------
Warrants issued --
----------
Balance at September 30, 2001 6,583,566
----------
As of September 30, 2001, all of the warrants are vested. No warrants have been
exercised as of September 30, 2001.
(14) Income Taxes
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at September 30, 2001 and
2000 are as follows:
2001 2000
---- ----
Deferred tax assets:
Reserve for rights to receive losses $ 3,676 $ 2,999
Net operating loss carryforward 4,771 7,016
Intangible assets 628 730
Unrealized loss on securities available for sale 45 --
Alternative minimum tax 133 65
Other 197 259
-------- --------
Gross deferred tax assets 9,450 11,069
Less valuation allowance (9,217) (9,260)
-------- --------
Deferred tax assets 233 1,809
-------- --------
Deferred tax liabilities:
Unrealized gain on securities available for sale -- 367
Deferred acquisition costs -- 1,082
Property and equipment 233 360
-------- --------
Deferred tax liabilities 233 1,809
-------- --------
Net deferred tax asset $ - $ -
======== ========
F-25
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
(Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
SFAS No. 109 requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax asset may not be realized. A valuation allowance was recorded for the full
amount of the net deferred tax assets as of September 30, 2001 and 2000, due to
the Company's recurring losses. The valuation allowance at September 30, 2001
and 2000 was $9,217 and $9,260, respectively. Of the net decrease in the
valuation allowance for the year ended September 30, 2001, an increase of $413,
which was attributed to unrealized gains, was allocated to shareholders equity.
Of the net increase in the valuation allowance for the year ended September 30,
2000, a decrease of $233, which was attributed to unrealized gains, was
allocated to shareholders equity.
A net operating loss carryforward of $11,911 was available at the year ended
September 30, 2001. The loss will expire through the year 2020.
Income tax provision (benefit) for the years ended September 30, 2001, 2000 and
1999 is as follows:
Total Provision 2001 2000 1999
---- ---- ----
Current
U.S. federal $ 68 - -
State and local 17 - -
----------- --------- ---------
Total Current $ 85 - -
=========== ========= =========
Deferred
U.S. federal $ - - 1,240
State and local - - 760
----------- --------- ---------
Total Deferred $ 85 - 2,000
=========== ========= =========
Income tax expense on income from continuing operations is different than the
amount computed by applying the statutory federal income tax rate of 34% to
income from continuing operations before income taxes because of the following:
2001 2000 1999
---- ---- ----
Federal tax rate $ 483 $ (2,643) $ (2,855)
State and local taxes, net of federal income tax
benefit 11 (307) (336)
Valuation allowance change (456) 3,087 5,033
Other 47 (137) 158
-------- -------- --------
Total $ 85 $ - $ 2,000
======== ======== ========
F-26
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(15) Leases
The Company leases certain equipment and office space under long-term lease
agreements.
Future minimum lease payments under noncancelable operating leases as of
September 30, 2001 are as follows:
Period Amount
------
October 1, 2001 - December 31, 2001 $ 289
January 1, 2002 - December 31, 2002 1,097
January 1, 2003 - December 31, 2003 1,031
January 1, 2004 - December 31, 2004 487
Thereafter 349
-------
Total minimum lease payments $ 3,253
=======
Rent expense charged to operations was $1,101, $1,028, and $794 for the years
ended September 30, 2001, 2000 and 1999, respectively.
(16) Related Party Transactions
The Company has a management agreement with EGI, an affiliate of Samstock, its
largest stockholder, in which EGI provides investment advisory and other
managerial services to the Company. During the year ended September 30, 2001,
2000 and 1999, the Company paid approximately $250, $642 and $250 to EGI for
these services.
(17) Business and Credit Concentrations
At September 30, 2001 members enrolled through the airline programs accounted
for approximately 74% of total enrolled accounts and 46% of sales during fiscal
2001 compared to 68% of total enrolled accounts at September 30, 2000 and 40% of
sales during fiscal 2000.
(18) Litigation
The Company is involved in various legal proceedings. While it is not currently
possible to predict or determine the outcome of these proceedings, it is the
opinion of management that the outcomes will not have a material adverse effect
on the Company's financial position or liquidity.
(19) Commitment
On November 16, 2001, the Company extended its relationship with Frank Felix &
Associates, LTD ("FFA") by entering into a three-year agreement. FFA will
continue to consult and provide information technology services and provide a
backup servicing facility for the Company. FFA's fees are limited according to
the fixed charges described below:
F-27
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
Period Amount
------
October 1, 2001 - December 31, 2001 $ 825
January 1, 2002 - December 31, 2002 2,850
January 1, 2003 - December 31, 2003 2,400
January 1, 2004 - September 30, 2004 1,800
-----
Total commitment $ 7,875
=====
(20) Subsequent Event
On November 13, 2001, Board of Directors approved a change of the Company's
name to iDine Rewards Network Inc. as well as a change of its fiscal year-end
from September 30 to December 31, effective starting January 1, 2002.
Also, effective November 29, 2001 the Company's Series A preferred stock
commenced trading alongside its common stock on the Philadelphia Stock
Exchange under the ticker symbol TMNpra. The Company's common stock continues
to also trade on the American Stock Exchange under the ticker symbol TMN.
(21) Selected Quarterly Financial Data (Unaudited)
(a) Selected quarterly financial data is as follows:
Three months ended Year ended
---------------------------------------------------------- --------------------
September 30, June 30, March 31, December 31, September 30,
2001 2001 2001 2000 2001
---- ---- ---- ---- ----
Gross dining sales: $ 47,584 49,435 49,037 43,981 190,037
Operating revenue: 13,759 14,011 13,666 11,750 53,186
Operating income (loss): 1,705 1,796 1,786 449 5,736
Net income (loss): 944 826 457 (893) 1,334
Basic and Diluted
earnings earnings
per share 0.04 0.03 0.01 (0.07) 0.01
Three months ended
-----------------------------------------------------------
September 30, June 30, March 31, December 31, September 30,
2000 2000 2000 1999 2000
---- ---- ---- ---- ----
Gross dining sales: $ 46,772 43,289 45,183 45,383 180,627
Operating revenue: 11,651 11,583 11,778 11,346 46,358
Operating income (loss): (933) (2,737) 1,851 1,346 (473)
Net Income: (2,357) (4,117) 437 (1,741) (7,778)
Basic and diluted
earnings per share: (0.19) (0.31) 0.01 (0.14) (0.63)
F-28
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
(b) UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
On June 30, 1999 the Company acquired most of the assets and operations related
to a membership discount dining program SignatureCard operated under the Dining
A La Card trade name and service mark. Accordingly, the Company's Consolidated
Statements of Operations for the year ended September 30, 1998 reflects the
operations of Transmedia only. Unaudited Pro forma Consolidated Statements of
Operations have been provided herein to report the results of operations for the
years ended September 30, 1998 and for comparative purposes, the nine-month
period ending September 30, 1999 as though the companies had combined at the
beginning of the periods being reported. The pro forma consolidated results do
not purport to be indicative of results that would have occurred had the
acquisition been in effect for the periods presented, nor do they purport to be
indicative of the results that will be obtained in the future.
F-29
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
Transmedia Network, Inc and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations
for the Year Ended September 30, 1998
(Amounts in thousands)
Historicals Pro Forma Pro Forma
--------------------------
IMN DALC (A) Adjustments Combined
--- -------- ----------- --------
Operating revenue:
Gross dining sales 95,549 120,512 - 216,061
Cost of sales 54,446 98,864 (B) (8,000) (1) 145,410
Cardmember discounts 21,444 24,282 45,706
---------- --------- ---------- ---------
Net revenues from rights-to-receive 19,659 (2,714) 8,000 24,945
Other income 10,482 10,629 (7,110) (C) 14,001
---------- --------- ---------- ---------
Total operating revenues 30,141 7,915 880 38,946
---------- --------- ---------- ---------
Operating expenses:
Selling, general & administrative expenses 26,796 22,281 (10,873) (H) 38,204
Cardmember acquisition and promotion 5,097 32,927 (21,089) (D) 16,855
Amended compensation agreements 3,544 - 3,544
Assets impairment loss 2,169 - 2,169
---------- --------- ---------- ---------
Total operating expenses 37,606 55,208 (31,942) 60,872
Operating income (loss) (7,465) (47,293) 32,832 (21,926)
Other income (expenses) (2,971) - (3,617) (E) (8,588)
---------- --------- ---------- ---------
Income (loss) before taxes (10,436) (47,293) 29,215 (28,514)
Income tax provision (benefit) (2,600) (7,806) (F) (10,835)
Income tax valuation allowance (F) 10,835
Loss before equity loss and
accounting change (7,836) (39,487) 29,215 (28,514)
Equity in loss of Cardplus Japan - (220) 220 (G) -
Cumulative effect of accounting change - (2,105) 2,105 (J) -
---------- --------- ---------- ---------
Net income (loss) (7,836) (41,912) 31,540 (28,514)
========== ========= ========== =========
Operating income (loss) per common and common
equivalent share:
Base and Diluted (0.63) - (1.80)
========== ========= ========== =========
Net income (loss) per common and common
equivalent share:
Base and Diluted (0.67) - (2.33)
========== ========= ========== =========
Weighted average number of common and common
equivalent shares outstanding:
Basic 11,773 400 12,173
========== ========= ========== =========
Diluted 11,825 400 12,225
========== ========= ========== =========
See notes to unaudited pro forma consolidated financial information
F-30
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
Transmedia Network, Inc and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations
for the nine month period ending September 30, 1999
(Amounts in thousands)
Historicals Pro Forma Pro Forma
----------------------------
IMN (k) DALC (k) Adjustments Combined
------- -------- ----------- --------
Operating revenue:
Gross dining sales 97,716 61,384 - 159,100
Cost of sales 57,051 39,099 (L) 96,150
Cardmember discounts 21,284 13,195 34,479
------- ------- ------- --------
Net revenues from rights-to-receive 19,381 9,090 - 28,471
Other income 8,481 4,378 (2,933) (M) 9,926
------- ------- ------- --------
Total operating revenues 27,862 13,488 (2,933) 38,397
------- ------- ------- --------
Operating expenses:
Selling, general & administrative expenses 26,811 10,008 (5,437) (R) 31,382
Cardmember acquisition and promotion 5,266 8,890 (2,690) (N) 11,466
------- ------- ------- --------
Total operating expenses 32,077 18,898 (8,127) 42,848
Operating income(loss) (4,215) (5,430) 5,193 (4,452)
Other income (expenses): (2,830) - (1,888) (O) (4,718)
------- ------- ------- --------
Income (loss) before taxes (7,045) (5,430) 3,305 (9,170)
Income tax provision (benefit) (3,484) (P) (3,464)
Income tax valuation allowance 2,000 3,484 (P) 5,484
Loss before equity loss and gain on sale (9,045) (5,430) 3,305 (11,169)
of dining assets
Gain on sale of dining assets 2,089 (2,089) (s) -
Equity in loss of Cardplus Japan (212) 212 (Q) -
-
------- ------- ------- --------
Net income (loss) (9,045) (3,553) 1,428 (11,169)
======= ======= ======= ========
Operating loss per common and common
equivalent share:
Basic and Diluted (0.32) - (0.34)
======= ======= ======= ========
Net loss per common and common
equivalent share:
Basic and Diluted (0.69) - (0.85)
======= ======= ======= ========
Weighted average number of common and common
equivalent sahres outstanding:
Basic 13,043 13,043
======= ======= ======= ========
Diluted 13,157 13,157
======= ======= ======= ========
See notes to unaudited pro forma consolidated financial information
F-31
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
1. SIGNIFICANT ACCOUNTING POLICIES
There are currently no material differences in the significant accounting
policies of Transmedia Network, Inc. and Dining A La Card ("the Companies")
therefore, no consideration has been given to conforming the Companies'
significant accounting policies in this pro forma presentation. The Companies do
not expect to have material changes to current accounting policies in connection
with the transaction.
2. RECLASSIFICATIONS
Certain reclassifications have been made to the historical statement of
operations of Dining A La Card to conform to the presentation used by Transmedia
Network Inc. These reclassification relates to the presentation of rights to
receive losses and cost of sales.
3. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS FOR THE TWELVE
MONTHS ENDING SEPTEMBER 30, 1998
(A) Dining A La Card statement of operations is for the twelve-month
period ending December 31, 1998 while Transmedia's statement of operations
is for the twelve-month period ending September 30, 1998.
(B) Dining A La Card rights-to-receive losses of $25,962 have been reclassified
to cost of sales to conform with Transmedia's presentation.
(C) In accordance with the Marketing Collaboration Agreement between
Transmedia and Signature, SignatureCard will receive 67% of all membership
dues collected from Dining A La Card members.
(D) To remove marketing amortization, since under the Marketing Collaboration
Agreement, SignatureCard will provide Dining A La Card members to
Transmedia at no cost.
(E) To record the amortization of deferred financing cost of $567 over the
estimated six-month life of the GAMI loan, plus record interest expense on
the outstanding debt.
(F) To adjust the income tax benefit using Transmedia's statutory rate for 1998
of 38%, and record an income tax valuation allowance required by SFAS No.
109.
(G) To eliminate Dining A La Card's equity loss in CardPlus Japan since
Transmedia did not purchase those assets.
(H) To remove Dining A La Card's internal interest expense included in
general and administrative and a portion of the general and administrative
expenses allocated from Signature, which was eliminated as part of the
acquisition.
(I) To remove one time write-down of Dining A La Card's RTR portfolio of
approximately $8,000 and bring to fair value.
(J) Remove cumulative effect of accounting change
4. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS FOR THE NINE MONTHS
ENDING SEPTEMBER 30, 1999
(K) Dining A La Card interim statement of operations is for the six-month
period ending June 30, 1999. A statement of operations for the nine-month
period ending June 30, 1999 for Dining A La Card is not available and
therefore not presented. Dining A La Card operations from June 30, 1999 to
September 30, 1999 are included in Transmedia's operations. For
comparability purposes, Transmedia derived its statement of operations for
the nine-month period ending September 30, 1999 by removing the operations
for the three months ending December 31, 1998 from the operation for the
twelve-months ending September 30, 1999.
F-32
TRANSMEDIA NETWORK INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except share and per share data)
For the period excluded, Transmedia's reported gross dining sales of
$22,756 and a net loss of $1,353, which were reported in the 10-Q for that
period and are incorporated herein by reference.
(L) Dining A La Card rights-to-receive losses of $2,749 have been reclassified
to cost of sales to conform with Transmedia's presentation.
(M) In accordance with the Marketing Collaboration Agreement between
Transmedia and SignatureCard, SignatureCard will receive 67% of all
membership dues collected from Dining A La Card members.
(N) To remove marketing amortization, since under the Marketing Collaboration
Agreement, SignatureCard will provide Dining A La Card members to
Transmedia at no cost.
(O) To record the amortization of deferred financing cost of $567 over the
estimated six-month life of the GAMI loan, plus record interest expense on
the outstanding debt.
(P) To adjust the income tax benefit using Transmedia's statutory rate for 1999
of 38%, and record an income tax valuation allowance required by SFAS No.
109.
(Q) To eliminate Dining A La Card's equity loss in Cardplus Japan since
Transmedia did not purchase those assets.
(R) To remove Dining A La Card's internal interest expense included in
general and administrative and a portion of the general and administrative
expenses allocated from SignatureCard, which were eliminated as part of the
acquisition.
(S) To remove gain on sale of dining assets which resulted from Transmedia's
purchase of Dining A La Card.
F-33
TRANSMEDIA NETWORK INC.
Schedule II-Valuation and Qualifying Accounts
For each of the years in the three-years ended September 30, 2001
(in thousands)
Balance, Charged Balance,
beginning to Other end of
of year expenses Write-offs Adjustments year
------- -------- ---------- ----------- ----
Accounts receivable:
Year ended September 30, 2001:
Allowance for doubtful
accounts $ 15 124 (124) - 15
======== ====== ======= ======= ======
Year ended September 30, 2000:
Allowance for doubtful
accounts $ 15 338 (338) - 15
======== ====== ======= ======= ======
Year ended September 30, 1999
Allowance for doubtful
accounts $ 15 514 (514) - 15
======== ====== ======= ======= ======
Rights to receive:
Year ended September 30, 2001
Allowance for doubtful
accounts $ 12,745 8,586 (8,986) (2,231) (1) 10,114
======== ====== ======= ======= ======
Year ended September 30, 2000
Allowance for doubtful
accounts $ 14,872 7,391 (9,518) - 12,745
======== ====== ======= ======= ======
Year ended September 30, 1999:
Allowance for doubtful
accounts $ 1,037 4,088 (2,772) 12,519 (2) 14,872
======== ====== ======= ======= ======
Notes:
- ------
(1) Relates primarily to the termination of exclusivity agreement with GEFA
(2) Acquisition of Dining A La Card.
F-34
THIS PAGE INTENTIONALLY LEFT BLANK
----------------------------------
26
Item 9. Changes and Disagreements with Accountants on Accounting and Financial
- -------------------------------------------------------------------------------
Disclosure
----------
None.
PART III
- --------
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Information called for by Item 10 is set forth under the heading "Executive
Officers of the Registrant" in Part I hereof and in "Election of Directors"
in our 2001 Proxy Statement, which is incorporated herein by this
reference.
Item 11. Executive Compensation
- -------------------------------
Information called for by Item 11 is set forth under the heading "Executive
Compensation" in our 2001 Proxy Statement, which is incorporated herein by
this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information called for by Item 12 is set forth under the heading "Security
Ownership of Certain Beneficial Owners and Management" in our 2001 Proxy
Statement, which is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Information called for by Item 13 is set forth under the heading "Certain
Relationships and Related Transactions" in our 2001 Proxy Statement, which
is incorporated herein by this reference.
PART IV
- -------
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
- ---------------------------------------------------------------------------
The following documents are being filed as part of this Report:
(a)(1) Financial Statements:
Transmedia Network Inc.
See "Index to Financial Statements" contained in Part II, Item 8.
(a)(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
(a)(3) The following exhibits are filed as part of this report as required
by item 601 of Regulation S-K. The Exhibits designated with an
asterisk are management contracts and compensatory plans and
arrangements required to be filed as Exhibits to this report.
Designation Description
- ----------- -----------
3.1 Certificate of Incorporation of Transmedia Network Inc., as amended. (b)
3.2 Certificate of Amendment to the Certificate of Incorporation of Transmedia
Network Inc. (d)
27
3.3 Certificate of Amendment to the Certificate of Incorporation of Transmedia
Network Inc., as filed with the Delaware Secretary of State on March
22,1994.(a)
3.4 Certificate of Amendment to the Certificate of Incorporation of Transmedia
Network Inc., as filed with the Delaware Secretary of State on March
3, 1998.(i)
3.5 Certificate of Amendment of the Certificate of Incorporation of Transmedia
Network Inc., as filed with the Delaware Secretary of State on
November 9, 1999.(k)
3.6 Cetificate of Designations relating to the Series A Convertible Redeemable
Preferred Stock, as filed with the Delaware Secretary of State on
November 9, 1999.(k)
3.7 By-Laws of Transmedia Network Inc., as amended and restated as of March 3,
1998.(i)
4.1 First Amended and Restated Receivables Purchase Agreement, dated as of May
17, 2001, among Transmedia Network Inc., iDine Restaurant Group Inc.,
Transmedia Service Company Inc., and RTR Funding LLC, as purchaser
4.2 Form of Series A Convertible Redeemable Preferred Stock certificate.(k)
4.3 Form of Rights Agreement between Transmedia Network Inc. and American Stock
Transfer & Trust Company, as subscription agent. (k)
4.4 Second Amended and Restated Investment Agreement, dated as of June 30,
1999, among Transmedia Network Inc., Samstock, L.L.C., EGI-Transmedia
Investors, L.L.C., and, with respect to Section 5 of the Agreement
only, Robert M. Steiner, as trustee under declaration of trust dated
March 9, 1983, as amended, establishing the Robert M. Steiner
Revocable Trust.(k)
4.5 Investment Agreement, dated as of April 28, 2000, by and among Transmedia
Network Inc., Minotaur Partners II, L.P., Value Vision International Inc.,
Dominic Mangone and Raymond Bank.(n)
4.6 Co-Sale and Voting Agreement, dated as of April 28, 2000, by and among
Transmedia Network Inc., Samstock, L.L.C., Minotaur Partners II, L.P.,
Value Vision International Inc., Dominic Mangone and Raymond Bank.(n)
4.7 Investment Agreement, dated as of April 28, 2000, by and among Transmedia
Network Inc., Gene M. Henderson, Herbert M. Gardner, James M. Callaghan,
Gregory J. Robitaille, John A. Ward III, George S. Weidemann, Christine M.
Donohoo, Frank F. Schmeyer, Elliot Merberg, Gerald Fleischman, Samstock,
L.L.C. and Thomas J. Litle.(n)
4.8 Co-Sale and Voting Agreement, dated as of April 28, 2000, by and among
Transmedia Network Inc., Gene M. Henderson, Herbert M. Gardner, James M.
Callaghan, Gregory J. Robitaille, John A. Ward III, George S. Weidemann,
Christine M. Donohoo, Frank F. Schmeyer, Elliot Merberg, Gerald Fleischman,
Samstock, L.L.C. and Thomas J. Litle.(n)
10.1 Purchase Agreement, dated as of December 15, 1997, between Transmedia
Network Inc. East American Trading Company.(l)
10.2 Purchase Agreement, dated as of June 29, 2000, by and among Transmedia
Network Inc., Spectrum Partners, Inc., Potomac Dining Limited Partnership,
Gustavo L. Bessalel, Thomas E. Gorman and Francis Rothgeb.(m)
28
10.3 Form of Subordinated Convertible Notes, dated June 30, 2000.(m)
10.4 Stock Purchase and Sale Agreement, dated as of April 28, 2000, by and
among Minotaur Partners II, L.P., Value Vision International Inc.,
Dominic Mangone and Raymond Bank.(m)
10.5 Form of Warrant to Purchase Shares of Common Stock of Transmedia Network
Inc.(m)
10.6 Stock Purchase and Sale Agreement, dated as of April 28, 2000, by and
among Gene M. Henderson, Herbert M. Gardner, James M. Callaghan, Gregory
J. Robitaille, John A. Ward III, George S. Weidemann, Christine M.
Donohoo, Frank F. Schmeyer, Elliot Merberg, Gerald Fleischman, Samstock,
L.L.C. and Thomas J. Litle.(m)
10.7 Form of Warrant to Purchase Shares of Common Stock of Transmedia Network
Inc.(m)
10.8 Asset Purchase Agreement, dated as of March 17, 1999, between Transmedia
Network Inc. and SignatureCard, Inc., as amended by Amendment No. 1
thereto dated as of April 15, 1999 and Amendment No. 2 thereto dated
as of May 31, 1999.(j)
10.9 Option Agreement, dated as of June 30, 1999, between Transmedia Network
Inc. and SignatureCard, Inc. (j)
10.10 Services Collaboration Agreement, dated as of June 30, 1999, between
Transmedia Network Inc. and SignatureCard, Inc.(j)
10.11 Credit Agreement, dated as of June 30, 1999, between Transmedia Network
Inc. and The Chase Manhattan Bank.(j)
10.12 Security Agreement, dated as of June 30, 1999, between Transmedia Network
Inc. and The Chase Manhattan Bank. (j)
10.13 Pledge Agreement, dated as of June 30, 1999, between Transmedia Network
Inc. and The Chase Manhattan Bank. (j)
10.14 Credit Agreement, dated as of June 30, 1999, between GAMI Investments,
Inc., Transmedia Network Inc., Transmedia Restaurant Company Inc.,
Transmedia Service Company Inc. and TMNI International
Incorporated.(j)
10.15 1987 Stock Option and Rights Plan, as amended. (a)
10.16 Form of Stock Option Agreement (as modified) between Transmedia Network
Inc. and certain Directors.(g)
10.17 Master License Agreement, dated December 14, 1992, between Transmedia
Network Inc. and Conestoga Partners, Inc.(d)
10.18 First Amendment to Master License Agreement dated April 12, 1993,
between Transmedia Network Inc. and Conestoga Partners, Inc. (e)
10.19 Second Amendment to Master License Agreement -- Assignment and
Assumption Agreement dated August 11, 1993 among Transmedia Network
Inc., TMNI International Incorporated and Transmedia Europe, Inc.(e)
10.20 Master License Agreement Amendment No. 3 dated November 22, 1993 between
TMNI International Incorporated and Transmedia Europe, Inc.(e)
29
10.21 Master License Agreement, dated March 21, 1994, between TMNI
International Incorporated and Conestoga Partners II, Inc. licensing
rights in the Asia Pacific region. (a)
10.22 Stock Purchase and Sale Agreement, dated as of November 6, 1997, among
Transmedia Network Inc., Samstock, L.L.C., and Transmedia Investors,
L.L.C. (h)
10.23 Form of Warrant to purchase Common Stock of Transmedia Network Inc.(i)
10.24 Amended and Restated Agreement Among Stockholders Agreement, dated as of
March 3, 1998, among Transmedia Network Inc., Samstock, L.L.C., EGI-
Transmedia Investors, L.L.C., Melvin Chasen, Iris Chasen and Halmstock
Limited Partnership. (i)
10.25 Stockholders Agreement, dated as of March 3, 1998, among Transmedia
Network Inc., EGI-Transmedia Investors, L.L.C., Samstock, L.L.C. and
Melvin Chasen and Halmstock Limited Partnership. (i)
10.26 Security Agreement, dated as of December 1, 1996, among TNI Funding
Company I, L.L.C. as Issuer, The Chase Manhattan Bank as Trustee and
as Collateral Agent, TNI Funding I, Inc., as Seller and Transmedia
Network Inc., as Servicer. (g)
10.27 Purchase Agreement, dated as of December 1, 1996, among Transmedia
Network Inc., Transmedia Restaurant Company Inc., Transmedia Service
Company Inc. and TNI Funding I, Inc., as Purchaser.(g)
10.28 Purchase and Servicing Agreement, dated as of December 1, 1996, among
TNI Funding Company I, L.L.C., as Issuer, TNI Funding I, Inc. as
Seller, Transmedia Network Inc., as Servicer, Frank Felix Associates,
Ltd., as Back-up Servicer and The Chase Manhattan Bank, as Trustee.(g)
10.29 Indenture, dated as of December 1, 1996, between TNI Funding Company I,
L.L.C., as Issuer and The Chase Manhattan Bank, as Trustee.(g)
10.30* Letter of Agreement, dated January 29, 1997, between Transmedia Network
Inc. and Stephen E. Lerch. (g)
10.31 Transmedia Network Inc. 1996 Long-Term Incentive Plan (including
Amendments through August 5, 1998).(b)
10.32* Employment Agreement, dated as of October 14, 1998, between Transmedia
Network Inc. and Gene M. Henderson.(k)
10.33 Standby Purchase Agreement, dated as of June 30, 1999, between
Transmedia Network Inc. and Samstock, L.L.C. including Standby Agreement
Warrant.(k)
10.34 The Consulting Agreement , dated as of November 16, 2001, by and amongst
Transmedia Network Inc., Transmedia Service Company Inc., and Frank
Felix Associates, LTD., and Frank Schmeyer
10.35 Payment and Termination of Exclusivity Agreement dated December 29,
2001, by and amongst Transmedia Network Inc. and SignatureCard, Inc.,
and G E Financial Assurance, Inc.
12 Statement regarding calculation of earnings to fixed charges.
21 Subsidiaries of Transmedia Network Inc.
30
24 Power of Attorney (included in the signature page hereto).
Legend:
(a) Filed as an exhibit to Transmedia's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994 and incorporated by
reference.
(b) Filed as an exhibit to Transmedia's Annual Report on Form 10-K
for the fiscal year ended September 30, 1998, and incorporated by
reference thereto.
(c) Filed as an exhibit to the Post Effective Amendment to the
Registration Statement on Form S-1 (Registration No. 33-5036),
and incorporated by reference thereto.
(d) Filed as an exhibit to Transmedia's Annual Report on Form 10-K
for the fiscal year ended September 30, 1992, and incorporated by
reference thereto.
(e) Filed as an exhibit to Transmedia's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993, and incorporated by
reference thereto.
(f) Filed as an exhibit to Transmedia's Annual Report on Form 10-K
for the fiscal year ended September 30, 1996, and incorporated by
reference thereto.
(g) Filed as an exhibit to Transmedia's Annual Report on Form 10-K/A
for the fiscal year ended September 30, 1997, and incorporated by
reference thereto.
(h) Filed as an exhibit to Transmedia's Current Report on Form 8-K
dated as of November 6, 1997, and incorporated by reference
thereto.
(i) Filed as an exhibit to Transmedia's Current Report on Form 8-K
filed on March 17, 1998.
(j) Filed as an exhibit to Transmedia's Current Report on Form 8-K
filed on July 14, 1999, and incorporated by reference thereto.
(k) Filed as an exhibit to Transmedia's Registration Statement in
Form S-2 (registration no. 333-84947), and incorporated by
reference thereto.
(l) Filed as an exhibit to the registration statement on Form S-3
(registration no. 333-53147), and incorporated by reference
thereto.
(m) Filed as an exhibit to the registration statement on Form S-3
(registration no. 333-49366), and incorporated by reference
thereto.
(n) Filed as an exhibit to Transmedia's Annual Report on Form 10-K
for the fiscal year ended September 30, 2000 and incorporated by
reference.
B. We did not file any Form 8-K Current Reports during the fourth quarter of the
fiscal year ended September 30, 2001.
C. Exhibits:
See paragraph (a) (3) above for items filed as exhibits to this Annual
Report on Form 10-K as required by Item 601 of Regulation S-K.
D. Financial Statement Schedules:
E. See paragraphs (a)(1) and (a)(2) above for financial statement schedules and
supplemental financial statements filed as part of this Annual Report on
Form 10-K.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 21/st/ day of
December 2001.
TRANSMEDIA NETWORK INC.
By: /s/Gene M. Henderson
----------------------------
Name: Gene M. Henderson
Title: President and Chief Executive Officer
Power Of Attorney
Each person whose signature appears below hereby authorizes and constitutes Gene
M. Henderson and Stephen E. Lerch, and each of them singly, his true and lawful
attorney-in-fact with full power of substitution and resubstitution, for him or
her and in his or her name, place and stead, in any and all capacities to sign
and file any and all amendments to this report with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, and he or she as the case may be hereby ratifies and confirms all
that said attorney-in-fact or any of them, or their substitutes, may lawfully do
or cause to be done virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report has been signed below by the following persons on behalf of the
Registrant, Transmedia Network Inc., in the capacities and on the dates
indicated.
Capacity In
Signature Which Signed Date
--------- ------------ -----
/s/ Sheli Z. Rosenberg Chairperson of the Board December 28, 2001
- ---------------------------------
Sheli Z. Rosenberg
/s/ Gene M. Henderson Director, December 28, 2001
- ---------------------------------
Gene M. Henderson President and
Chief Executive Officer
(Principal Executive Officer)
/s/ Stephen E. Lerch Executive Vice President December 28, 2001
- ---------------------------------
Stephen E. Lerch and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Herbert M. Gardner Director December 28, 2001
- ---------------------------------
Herbert M. Gardner
/s/ John A. Ward III Director December 28, 2001
- ---------------------------------
John A. Ward III
32
/s/ Raymond A. Gross Director December 28, 2001
- ------------------------------
Raymond A. Gross
/s/ F. Philip Handy Director December 28, 2001
- ------------------------------
F. Philip Handy
33
EXHIBIT INDEX
4.1 First Amended and Restated Receivables Purchase Agreement, dated as of
May 17, 2001, among Transmedia Network Inc., iDine Restaurant Group
Inc., Transmedia Service Company Inc., and RTR Funding LLC, as
purchaser
10.34 The Consulting Agreement, dated as of November 16, 2001, by and
amongst Transmedia Network Inc., Transmedia Service Company Inc., and
Frank Felix Associates, LTD., and Frank Schmeyer
10.35 Payment and Termination of Exclusivity Agreement dated December 29,
2001, by and amongst Transmedia Network Inc. and SignatureCard, Inc.,
and G E Financial Assurance, Inc.
12 Statement regarding calculation of earnings to fixed charges.
21 Subsidiaries of Transmedia Network Inc.