SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
333-35017
Commission file number 333-35021
---------
TELETRAC HOLDINGS, INC.
TELETRAC, INC.
------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 43-1789886
Delaware 48-1172403
--------------------- ----------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
2323 Grand Street, Suite 1100, Kansas City, Missouri 64108
------------------------------------------------
(Address of Principal Executive Offices) (Zip code)
Registrant's Telephone Number, Including Area Code (816) 474-0055
-------------
Not Applicable
---------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.)
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 and Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days Yes X No
--- ---
As of August 14, 1998, each of Teletrac Holdings, Inc. and
Teletrac, Inc. had outstanding 249,000 shares of Class A
Common Stock and 190,476.19 shares of Series A Redeemable
Convertible Participating Preferred Stock.
<PAGE>
<TABLE>
<CAPTION>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<S> <C> <C>
12/31/97 6/30/98
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $41,480,737 $14,850,483
Accounts receivable, less allowances of $612,639 and $437,901 4,018,874 4,677,826
Inventories (note 3) 5,441,695 11,172,282
Prepaid expenses and other 5,519,652 4,654,975
Short-term portion of restricted investments 5,920,833 6,125,000
--------- ---------
Total current assets 62,381,791 41,480,566
---------- ----------
RESTRICTED CASH (note 4) 1,750,000 --
RESTRICTED INVESTMENTS, HELD TO MATURITY 34,942,381 28,728,357
PROPERTY AND EQUIPMENT, net of accumulated depreciation of
$3,616,207 and $5,747,091 (note 5) 26,963,180 33,280,020
LICENSES AND OTHER, net of accumulated
amortization of $322,635 and $450,138 6,324,380 6,437,323
--------- ---------
Total assets $132,361,732 $109,926,266
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $3,362,390 $1,122,874
Current portion of long-term obligations (note 6) 727,624 1,097,190
Accrued interest 5,920,833 6,125,000
Accrued expenses 1,214,455 1,440,075
Refrequency liability 3,076,871 1,019,041
--------- ---------
Total current liabilities 14,302,173 10,804,180
---------- ----------
SENIOR NOTES, 14% due August 1, 2007 98,253,377 98,262,943
OTHER LONG-TERM OBLIGATIONS (note 6) 2,072,142 2,864,116
PREFERRED STOCK, redeemable cummulative, 15% dividend, 190,477
shares authorized and 190,476.19 shares issued and outstanding 38,290,000 40,765,000
PREFERRED STOCK, undesignated, 190,477 shares authorized, none
issued or outstanding
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, Class A, $.01 par value, 1,000,000 shares authorized and
249,000 issued and outstanding 2,490 2,490
Common stock, Class B, $.01 par value, 70,000 shares authorized and
none issued or outstanding
Warrants, 105,000 units to purchase 57,071 shares of Class A
common stock 7,039,954 7,039,954
Paid-in-capital 22,022,656 22,022,656
Accumulated deficit (49,621,060) (71,835,072)
----------- -----------
Total stockholders' deficit (20,555,960) (42,769,972)
----------- -----------
Total liabilities and stockholders' deficit $132,361,732 $109,926,267
============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Six Months For the Three Months
Ended June 30, Ended June 30,
1997 1998 1997 1998
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Service revenue $ 5,781,236 $ 8,343,256 $3,020,420 $4,393,560
Equipment revenue 5,588,687 5,183,041 3,654,624 2,454,685
--------- --------- --------- ---------
Total operating revenues: 11,369,923 13,526,297 6,675,044 6,848,245
OPERATING EXPENSES:
Cost of revenues 5,193,562 5,750,825 3,236,286 2,746,105
Selling, general and administrative 12,866,875 14,408,408 6,498,868 7,937,447
Engineering 3,389,220 4,332,484 1,770,411 2,263,813
Research & development costs 2,040,047 770,383 1,213,699 377,357
Refrequency costs -- 390,000 -- 390,000
Depreciation and amortization 999,234 2,260,070 552,971 1,111,060
----------- ----------- ---------- -----------
LOSS FROM OPERATIONS (13,119,015) (14,385,873) (6,597,191) (7,977,537)
----------- ----------- ---------- -----------
OTHER EXPENSE (INCOME):
Interest expense 86,429 7,115,669 51,602 3,622,121
Interest and other income (404,784) (1,762,530) (111,357) (818,146)
----------- ----------- ---------- -----------
LOSS BEFORE INCOME TAXES (12,800,660) (19,739,012) (6,537,436) (10,781,512)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ---------- -----------
NET LOSS ($12,800,660) ($19,739,012) ($6,537,436) ($10,781,512)
============ ============ =========== ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Six Months Ended June 30,
1997 1998
---- ----
OPERATING ACTIVITIES:
Net Loss $ (12,800,660) $ (19,739,012)
Adjustments to reconcile net loss to net cash
used in
operating activities -
Depreciation and amortization 999,235 2,260,070
Accretion of discount on senior notes -- 9,566
(Gain)/Loss on assets disposed/sold -- 34,952
Changes in working capital and other assets and
liabilities, net of acquisition and
refrequency (1,658,892) (7,538,760)
Restricted cash (500,019) 1,750,000
Refrequency liability (2,550,894) (2,057,829)
Accrued interest on senior notes -- 204,167
---------- ----------
Total adjustments (3,710,570) (5,337,834)
---------- ----------
Cash used in operating activities (16,511,230) (25,076,846)
----------- -----------
INVESTING ACTIVITIES:
Proceeds from sale of assets -- 15,506
Acquisition of property and equipment (5,696,483) (6,937,070)
Acquisition of other intangible assets -- (238,192)
Acquistion of Airtouch Teletrac (1,000,000) --
------------ ------------
Cash used in investing activities (6,696,483) (7,159,756)
----------- ------------
FINANCING ACTIVITIES:
Cost of credit facility -- (2,253)
Restricted investments -- 6,009,857
Payments on capital leases (170,837) (401,256)
----------- ------------
Cash provided by financing activities (170,837) 5,606,348
----------- ------------
NET CHANGE IN CASH (23,378,550) (26,630,254)
CASH AND CASH EQUIVALENTS, beginning of period 27,639,168 41,480,737
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 4,260,618 $ 14,850,483
============ ==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
<PAGE>
<TABLE>
<CAPTION>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(unaudited)
Common Stock Paid-in Accumulated
Class A Class B Warrants Capital Deficit
------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 2,490 $ - $ 7,039,954 $ 22,022,656 $ (49,621,060)
Net loss - - - - (19,739,012)
Preferred stock dividends - - - - (2,475,000)
------- ------- ----------- ------------ -------------
BALANCE, June 30, 1998 $ 2,490 $ - $ 7,039,954 $ 22,022,656 $ (71,835,072)
======= ======= =========== ============ =============
The accompanying notes are an integral part of the condensed consolidated financial statements.
</TABLE>
<PAGE>
TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 1 - COMPANY OVERVIEW
The Company is a leading provider of vehicle location and fleet management
services, including associated two-way digital wireless messaging, to commercial
fleet operators. The Company has developed a proprietary land-based location
technology that provides customers with a low-cost, accurate and reliable
real-time method of locating vehicles in selected metropolitan areas. The
Company's system is designed to enable customers to better manage their mobile
workforce, provide security for their property and personnel and communicate
more effectively with mobile workers.
The Company offers a range of fleet management solutions. All of these solutions
involve the installation of a Vehicle Location Unit "VLU" in each vehicle. The
VLU is a radio transceiver that receives and transmits signals used to determine
a vehicle's location. In addition to the VLU, commercial fleet customers
generally purchase software or location services from the Company. The Company's
primary product for commercial fleets is Fleet Director(R), a proprietary
software application that permits simultaneous location of all fleet vehicles on
a real-time 24-hour-a-day basis through a digitized map displayed on the
customer's dedicated personal computer, which is connected to the Company's
networks. Fleet Director(R) can be complemented with the Company's messaging
units, which allow two-way messaging between the fleet dispatcher and drivers
directly from the Fleet Director(R) screen. In the first quarter of 1998, the
Company introduced Winfleet(TM), a Microsoft Windows(R)-based application based
on Fleet Director(R) that will not require a dedicated computer.
As of June 30, 1998, the Company operated in eleven metropolitan markets: Los
Angeles, Chicago, Detroit, Dallas, Miami, Houston, Orlando, San Francisco, San
Diego, Sacramento and Washington D.C. The Company also uses its proprietary
location systems to provide vehicle location and stolen vehicle recovery
services to consumers in its Los Angeles and Miami markets.
The Company's revenues are derived from sales, rentals and installation of its
VLU's, messaging units, proprietary software and charges for its services.
NOTE 2 - BASIS OF PRESENTATION.
The condensed consolidated interim financial statements of Teletrac Holdings,
Inc. and its wholly owned subsidiary Teletrac, Inc. ("Teletrac" or the
"Company") included herein have been prepared by the Company without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "Commission") and reflect all adjustments that are, in the opinion of
management, necessary to fairly present the financial position, results of
operations, and cash flows for the interim periods. Certain information and
footnote disclosures normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such SEC rules and regulations. Management
believes that the disclosures made are adequate to make the information
presented not misleading. The results for interim periods are not necessarily
indicative of the results for the full year. The interim financial statements
should be read in conjunction with the financial statements and notes thereto
contained in the Company's audited consolidated financial statements for the
year ended December 31, 1997 filed on Form 10-K.
NOTE 3 - INVENTORIES
Inventories consisted of the following at December 31, 1997 and June 30, 1998
(unaudited):
December 31, 1997 June 30, 1998
Vehicle Location Units ("VLU") $3,497,538 $8,022,428
Messaging Units 920,270 1,720,167
Computers & Software 313,141 437,130
Other Inventory 710,746 992,557
---------- -----------
Total Inventory $5,441,695 $11,172,282
========== ===========
The Company received 30,024 VLU's and 8,350 messaging units valued at
approximately $7.29 million during the first six months of 1998.
NOTE 4 - LETTER OF CREDIT
In January 1998, the $1,750,000 Letter of Credit, established between Teletrac
and Tadiran held at Toronto Dominion, was replaced with a joint $2,500,000
Letter of Credit pledged on the Revolver Line of Credit with Banque Paribas and
Fleet. The funds previously accounted for as "Restricted Cash" on the Balance
Sheet were refunded and deposited into the Company's operating cash.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, consisted of
the following at December 31, 1997 and June 30, 1998 (unaudited):
December 31, 1997 June 30, 1998
System Equipment $12,692,730 $19,614,233
Automobiles 502,370 524,634
Furniture & Fixtures 1,711,089 2,217,002
Computer Equipment 3,836,349 5,392,287
Leasehold Improvements 383,911 455,756
Construction in Progress 11,452,937 10,823,201
---------- ----------
Total Property & Equipment 30,579,386 39,027,113
----------- -----------
Accumulated Depreciation (3,616,206) (5,747,093)
----------- -----------
Net Property & Equipment $26,963,180 $33,280,020
=========== ===========
NOTE 6 - OTHER LONG-TERM OBLIGATIONS
The Company entered into capital lease agreements with five separate vendors
valued at $1,563,000 during the first six months of 1998. The assets included
under the lease agreements will be utilized in the construction and operation of
the metropolitan markets the Company has and will commence business in during
the course of 1998.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in forward-looking statements. Factors that might cause such a
difference include, but are not limited to, the "Risk Factors" set forth in the
Company's Registration Statement on Form S-1.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
REVENUES. Total revenues for the three months ended June 30, 1998 were
$6.8 million, compared to $6.7 million for the three months ended June 30, 1997.
Service revenues, which includes both purchased units and rental
units, increased to $4.4 million for the three months ended June 30, 1998 from
$3.0 million for the three months ended June 30, 1997, an increase of 47%,
primarily due to an increase in the number of commercial units in service, to
77,447 at June 30, 1998 from 54,430 at June 30, 1997. Also, the average
commercial service revenue per unit increased to $17.59 in June 1998 from $16.77
in June 1997 as a result of an increase in both ancillary services and monthly
airtime rates.
Equipment revenues decreased to $2.5 million for the three months
ended June 30, 1998 from $3.7 million for the three months ended June 30, 1997,
principally due to the introduction of the Company's rental program in the first
quarter of 1998. Gross commercial sales (installations) increased to 9,827 units
for the three months ended June 30, 1998 from 8,562 units for the three months
ended June 30, 1997. Equipment revenues in future periods may continue to
decline relative to the number of new units going into service due to the
equipment rental program in which units are rented rather than sold.
Equipment rental revenues, which is included in total equipment
revenues, increased to $108,433 for the three months ended June 30, 1998 from $0
for the three months ended June 30, 1997. The rental program accounted for 28%
of the gross unit installs for the three months ended June 30, 1998.
COST OF REVENUES. Cost of revenues includes the cost of equipment and
the direct cost of providing service (network telephone, billing, roadside
assistance and bad debt expense). Cost of revenues decreased to $2.7 million for
the three months ended June 30, 1998 from $3.2 million for the three months
ended June 30, 1997 primarily as a result of the Company's rental program
reducing cost of equipment. An increase in network telephone costs from new
market build-out partially offset the decline in the cost of the equipment.
RESEARCH AND DEVELOPMENT, ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES. Research and development, engineering, selling, general
and administrative expenses increased by $1.1 million, to $10.6 million for the
three months ended June 30, 1998 from $9.5 million for the three months ended
June 30, 1997. The Company expensed $0.4 million in the three months ended June
30, 1998 relating to research and development.
REFREQUENCY COSTS. Refrequency costs accrued for the three months
ended June 30, 1998 was $0.4 million. The accrual reflects a change in estimate
for the total refrequency liability.
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization increased
for the three months ended June 30, 1998 to $1.1 million from $0.6 million for
the three months ended June 30, 1997, primarily due to depreciation on
additional assets related to the new market build-out and additional
infrastructure in existing markets.
OPERATING LOSSES. Operating losses incurred by the Company were $8.0
million for the three months ended June 30, 1998, as compared to $6.6 million
for the three months ended June 30, 1997, for the reasons discussed above.
INTEREST EXPENSE. Interest expense was $3.6 million for the three
months ended June 30, 1998 and was primarily related to the high yield bonds.
NET LOSS. For the reasons discussed above and interest income of $0.8
million, net loss increased to $10.8 million for three months ended June 30,
1998 from $6.5 million for three months ended June 30, 1997. No tax benefit has
been recognized for any period due to the uncertainty of net operating loss
carry-forward utilization.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
REVENUES. Total revenues for the six months ended June 30, 1998 were
$13.5 million, compared to $11.4 million for the six months ended June 30, 1997,
an increase of 18%.
Service revenues, which includes both purchased units and rental
units, increased to $8.3 million for the six months ended June 30, 1998 from
$5.8 million for the six months ended June 30, 1997, an increase of 43%,
primarily due to an increase in the number of commercial units in service, to
77,447at June 30, 1998 from 54,430 at June 30, 1997. Also, the average
commercial service revenue per unit increased to $17.59 in June 1998 from $16.77
in June 1997 as a result of an increase in both ancillary services and monthly
airtime rates.
Equipment revenues decreased to $5.2 million for the six months ended
June 30, 1998 from $5.6 million for the six months ended June 30, 1997,
principally due to the introduction of the Company's rental program in the first
quarter of 1998. Gross commercial sales (installations) increased to 18,301
units for the six months ended June 30, 1998 from 15,230 units for the six
months ended June 30, 1997. Equipment revenues in future periods may continue to
decline relative to the number of new units going into service because of the
equipment rental program in which units are rented rather than sold.
Equipment rental revenues, which is included in total equipment
revenues, increased to $156,649 for the six months ended June 30, 1998 from $0
for the six months ended June 30, 1997. The rental program accounted for 20% of
the gross unit installs for the six months ended June 30, 1998.
COST OF REVENUES. Cost of revenues includes the cost of equipment and
the direct cost of providing service (network telephone, billing, roadside
assistance and bad debt expense). Cost of revenues increased to $5.7 million for
the six months ended June 30, 1998 from $5.2 million for the six months ended
June 30, 1997. Cost of equipment has decreased as a result of the rental program
and network telephone costs have increased with the addition of new market
build-out.
RESEARCH AND DEVELOPMENT, ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES. Research and development, engineering, selling, general
and administrative expenses increased by $1.2 million, to $19.5 million for the
six months ended June 30, 1998 from $18.3 million for the six months ended June
30, 1997. The Company expensed $0.8 million in the three months ended June 30,
1998 relating to research and development.
REFREQUENCY COSTS. Refrequency costs accrued for the six months ended
June 30, 1998 was $0.4 million. The accrual reflects a change in estimate for
the total refrequency liability.
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization increased
for the six months ended June 30, 1998 to $2.3 million from $1.0 million for the
six months ended June 30, 1997, primarily due to depreciation on additional
assets related to the new market build-out and additional infrastructure in
existing markets.
OPERATING LOSSES. Operating losses incurred by the Company were $14.4
million for the six months ended June 30, 1998, as compared to $13.1 million for
the six months ended June 30, 1997, for the reasons discussed above.
INTEREST EXPENSE. Interest expense was $7.10 million for the six
months ended June 30, 1998 and was primarily related to the high yield bonds.
NET LOSS. For the reasons discussed above and interest income of $1.8
million, net loss increased to $19.7 million for six months ended June 30, 1998
from $12.8 million for six months ended June 30, 1997. No tax benefit has been
recognized for any period due to the uncertainty of net operating loss
carry-forward utilization.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures were $6.9 million for the six months ended June 30,
1998, primarily for the build-out of the Company's networks in new markets. The
Company currently expects that its aggregate capital expenditures (excluding the
acquisition of spectrum rights) will be $21 million for both 1998 and 1999
combined. These capital expenditures will consist primarily of costs associated
with the opening of new markets in 1998. In addition, the Company's capital
expenditure plans include network design and development, the maintenance of
existing markets, supporting the Company's rental program, and other capital
improvements.
The Company received 30,024 VLU's and 8,350 messaging units valued at
approximately $7.3 million during the first six months of 1998. The delivery
and payment schedule has been adjusted to allow for a reduction of the inventory
to improve working capital.
At June 30, 1998, the Company was not in compliance with certain
covenants under its revolving credit facilities ("the Revolvers") with Banque
Paribas and Fleet National Bank. Such covenants were established based on
projections that included consumer unit sales that did not materialize. The
covenant non-compliance was waived at June 30, 1998 and the Company had made no
draws against the revolvers through that date. The Company and the banks are
redefining the covenants for the facilities, and until such time the Company has
no availability under the Revolvers.
The Company is currently in discussions with its existing investors and other
potential investors regarding the issuance of a new series of equity securities
with an aggregate purchase price of between $10.0 and $15.0 million, the
proceeds of which would be used to support on-going working capital needs of the
Company. No definitive agreement has been reached with such investors, and there
can be no assurance that the proposed transaction will be completed. The Company
estimates that its current cash resources are sufficient to cover its needs
through the end of the third quarter. If the Company fails to complete the
proposed equity transaction or secure alternate sources of liquidity before the
end of the third quarter, it will be necessary to take significant steps to
curtail costs, and if such liquidity is not obtained before year-end, the
Company's ability to continue its current operations will be in question.
INFLATION
The Company believes that to date inflation has not had a material effect
on its results of operations. Although inflation may in the future effect the
cost of VLU and messaging units sold by the Company, the Company expects that
technology and engineering improvements are likely to offset any foreseeable
cost increases.
<PAGE>
PART II - OTHER INFORMATION
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TELETRAC HOLDINGS, INC.
By: /s/ Alan B. Howe
Alan B. Howe
Vice President of
Finance and Corporate
Development and on
behalf of the Registrant
TELETRAC, INC.
By: /s/ Alan B. Howe
Alan B. Howe
Vice President of
Finance and Corporate
Development and on
behalf of the Registrant
August , 1997
