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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
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----------------------------------
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)