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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 March 31, 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.)
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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 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 May 11, 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.
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TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page No
PART I FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . .2
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
as at December 31, 1997 and March 31, 1998. . . . . . . . . . . . . .4
Condensed Consolidated Statement of Operations
for the Three Months Ended March 31,
1997 and 1998.. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Condensed Consolidated Statement of Cash Flows
for the Three Months Ended March 31,
1997 and 1998.. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Condensed Consolidated Statement of Stockholders' Equity
for the Three Months Ended March 31,
1998. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Notes to Condensed Consolidated Financial
Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 2Management's Discussion and Analysis
of Results of Operations and Financial
Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
PART IIOTHER INFORMATION
Item 6Exhibits and Reports on Form 8-K
Signatures
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TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS December 31, 1997 March 31, 1998
________________________________________________
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents$41,480,737 $28,349,032
Accounts receivable, less
allowances of $612,639 and
$535,331 4,018,874 4,783,912
Inventories (note 3) 5,441,695 8,900,863
Prepaid expenses and other 5,519,652 5,768,896
Short-term portion of
restricted investments 5,920,833 2,450,000
________________________
Total current assets 62,381,791 50,252,703
________________________
RESTRICTED CASH (note 4) 1,750,000 --
RESTRICTED INVESTMENTS,
HELD TO MATURITY 34,942,381 31,832,231
PROPERTY AND EQUIPMENT,
net of accumulated
depreciation of $3,616,207
and $4,587,617 (note 5) 26,963,180 29,152,314
LICENSES AND OTHER,
net of accumulated
amortization of $322,635
and $499,311 6,324,380 6,254,707
________________________
Total assets$132,361,732$117,491,955
________________________
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $3,362,390 $2,300,796
Current portion of
long-term obligations 727,624 654,832
Accrued Interest 5,920,833 2,450,000
Accrued expense 1,214,455 1,067,328
Refrequency liability 3,076,871 1,425,181
Total current liabilities 14,302,173 7,898,137
SENIOR NOTES, 14% due 8/l/2007 98,253,377 98,177,014
OTHER LONG-TERM OBLIGATIONS
(note 6) 2,072,142 2,640,264
PREFERRED STOCK, redeemable
cumulative, 15% dividend,
190,477 shares
authorized and 190,476.19
shares issued and outstanding 38,290,000 39,527,500
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) (59,816,060)
___________ ____________
Total stockholders' deficit (20,555,960) (30,750,960)
___________ ____________
Total liabilities and
stockholders' deficit $132,361,732 $117,491,955
____________ ____________
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
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TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
For the Three Months
Ended March 31,
1997 1998
_______________________
OPERATING REVENUES$4,694,879$6,678,052
OPERATING EXPENSES:
Cost of revenues 1,957,276 3,004,721
Selling, general and advertising 6,368,007 6,470,961
Engineering 1,618,809 2,068,671
Research & development costs 826,348 393,026
Depreciation and amortization 446,263 1,149,010
______________________
LOSS FROM OPERATIONS(4,903,015)(6,521,824)
______________________
OTHER EXPENSE (INCOME):
Interest expense 34,827 3,493,549
Interest and other income (293,427) (944,385)
________________________
LOSS BEFORE INCOME TAXES (6,263,224)(8,957,500)
PROVISION FOR INCOME TAXES -- --
________________________
NET LOSS($6,263,224)($8,957,500)
________________________
The accompanying notes are an integral part of these
Condensed Consolidated Financial Statements.
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TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Three Months Ended March 31,
1997 1998
____ ____
OPERATING ACTIVITIES:
Net Loss $(6,263,224)$(8,957,500)
Adjustments to reconcile net
loss to net cash used in
operating activities ---
Depreciation and amortization 446,263 1,149,010
Accretion of discount on senior notes -- (76,363)
(Gain)/Loss on assets disposed/sold 1,242 47,744
Changes in working capital and other
assets and liabilities (2,057,741) (5,682,171)
Restricted cash (note 4) -- 1,750,000
Refrequency liability (565,566) (1,651,690)
Accrued interest-- (3,470,833)
______________ _____________
Total adjustments (2,175,802) (7,934,303)
______________ _____________
Cash used in operating activities (8,439,026)(16,891,803)
_____________ _____________
INVESTING ACTIVITIES:
Proceeds from sale of assets -- 3,117
Acquisition of property and
equipment (3,280,373)(2,558,064)
Acquisition of other intangible
assets-- (102,383)
Acquisition of Airtouch Teletrac (1,000,000) --
_____________ _____________
Cash used in investing activities (4,280,373)(2,657,330)
______________ _____________
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FINANCING ACTIVITIES:
Cost of credit facility (32,233) (4,619)
Restricted investments (499,977)6,580,983
Payments on capital leases (69,757) (158,936)
_____________ _____________
Cash provided by financing
activities (601,967)6,417,428
_____________ _____________
NET DECREASE IN CASH AND
CASH EQUIVALENT(13,321,366) (13,131,705)
CASH AND CASH EQUIVALENTS,
beginning of period 27,639,168 41,480,737
_____________ _____________
CASH AND CASH EQUIVALENTS,
end of period$14,317,802 $ 28,349,032
_____________ _____________
SUPPLEMENTAL DISCLOSURE ---
Interest (net of amounts
capitalized)$ 34,827 $ 70,717
The accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
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TELETRAC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31,1998
(unaudited)
Common Stock Paid-in Accumulated
Class A Class B Warrants Capital Deficit
_______ _______ __________ _______ _____________
BALANCE,
December 31, 1997 $ 2,490 $ - $ 7,039,954 $22,022,656 $(49,621,060)
Net loss - - --(8,957,500)
Preferred stock dividends - - - - (1,237,500)
_______ ______ __________ ___________ ___________
BALANCE,
March 31, 1998$ 2,490 $ - $ 7,039,954 $ 22,022,656 $(59,816,060)
_______ _____ ___________ ___________ ___________
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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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, depending on the
customer's budget and location and messaging needs. 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 , 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 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 screen. In the first quarter of 1998, the Company introduced
Winfleet , a Microsoft Windows -based application based on Fleet Director
that will not require a dedicated computer.
As of December 31, 1997, the Company operated in nine metropolitan markets:
Los Angeles, Chicago, Detroit, Dallas, Miami, Houston, Orlando, San
Francisco, and San Diego. During the first quarter of 1998, the Company
commenced operations in three additional metropolitan markets: Sacramento,
Washington D.C. and Baltimore and has plans to begin offering its services
in three additional markets by the end of 1998. The Company also use; 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 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
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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.<PAGE>
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NOTE 3 --- INVENTORIES
Inventories consisted of the following at December 31, 1997 and March 31,
1998 (unaudited):
December 31, 1997March 31, 1998
Vehicle Location Units ("VLU") $3,497,538 $6,286,033
Messaging Units 920,270 1,318,760
Computers & Software313,141 340,415
Other Inventory 710,746 955,655
_________ _________
Total Inventory $5,441,695 $8,900,863
_________ _________
The Company received 16,800 VLU's and 4,350 messaging units valued at
approximately $3.89 million during the first quarter 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 March 31, 1998 (unaudited):
December 31, 1997 March 31, 1998
System Equipment12,692,73015,855,182
Automobiles 502,370 502,415
Furniture & Fixtures 1,711,089 1,948,797
Computer Equipment3,836,349 4,111,184
Leasehold Improvements 383,911 449,163
Construction in Progress 11,452,93710,873,190
___________ __________
Total Property & Equipment $30,579,386 $33,739,931
___________ __________
Accumulated Depreciation ($3,616,206) ($4,587,617)
__________ __________
Net Property &
Equipment $26,963,180 $29,152,314
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NOTE 6 --- OTHER LONG-TERM OBLIGATIONS
The Company entered into capital lease agreements with two separate vendors
valued at $735,000 during the first quarter of 1998. The assets included
under the lease agreements will be utilized in the construction of the
location system networks in metropolitan markets the Company will commence
business in during the course of 1998.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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 March 31, 1998 Compared to Three Months Ended March 31,
1997
REVENUES. Total revenues for the three months ended March 31, 1998
were $6.7 million, compared to $4.7 million in the first quarter of 1997,
an increase of 43%.
Equipment revenues increased to $2.7 million for the three months
ended March 31, 1998 from $1.9 million for the three months ended March 31,
1997, an increase of 42%, principally due to an increase in the Company's
commercial sales efforts. Gross commercial sales increased to 8,474 units
for the three months ended March 31, 1998 from 6,668 units for the three
months ended March 31, 1997. Equipment revenues in future periods may
decline relative to the number of new units going into service because the
Company has introduced an equipment rental program. The rental program was
introduced in the first quarter of 1998 and will effect second quarter
equipment revenues due to some units being rented rather than sold.
Service revenues increased to $4.0 million for the three months ended
March 31, 1998 from $2.7 million for the three months ended March 31, 1997,
an increase of 48%, primarily due to an increase in the number of
commercial units in service, to 71,202 at March 31, 1998 from 48,240 at
March 31, 1997. Also, the average commercial service revenue per unit
increased to $18.06 in March 1998 from $16.57 in March 1997 as a result of
an increase in both ancillary services and monthly airtime rates.
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 $3.0
million for the three months ended March 31, 1998 from $2.0 million for the
three months ended March 31, 1997 primarily as a result of the higher
number of new units sold and in service.
RESEARCH AND DEVELOPMENT, ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES. Research and development, engineering, selling,
general and administrative expenses increased by $0.1 million, to $8.9
million for the three months ended March 31, 1998 from $8.8 million for the
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three months ended March 31, 1997. The Company expensed $0.4 million in
the three months ended March 31, 1998 relating to research and development
for its new Integrated Base Station Unit (IBSU).
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization
increased for the three months ended March 31, 1998 to $1.1 million from
$0.4 million for the three months ended March 31, 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
$6.4 million for the three months ended March 31, 1998, as compared to $6.5
million for the three months ended March 31, 1997, for the reasons
discussed above.
INTEREST EXPENSE. Interest expense was $3.5 million for the three
months ended March 31, 1998 and was primarily related to the high yield
bonds.
NET LOSS. For the reasons discussed above, partially offset by
interest income of approximately $1.0 million, net loss increased to $9.0
million for the three months ended March 31, 1998 from $6.3 million for
three months ended March 31, 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 $2.7 million for the three months ended
March 31, 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 16,800 VLU's and 4,350 messaging units valued at
approximately $3.89 million during the first quarter of 1998. The Company
established a delivery schedule of VLU's according to projections of both
commercial and consumer unit sales. The consumer business did not
materialize in the first quarter creating an increase in the VLU inventory.
The delivery schedule has been adjusted to allow for a reduction of the
inventory to a proper level going forward.
At March 31, 1998, the Company was in violation of covenants under its
revolving credit facilities (the "Revolvers") with Banque Paribas and Fleet
National Bank. The covenants were established based on projections that
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included consumer unit sales that did not materialize. The covenants were
waived at March 31, 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.
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.
PART IIOTHER INFORMATION
Item 6Exhibits and Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrants have duly caused this report to be signed on their
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
(Principal Financial Officer)
and on behalf of the registrant
Date: May 13, 1998
TELETRAC, INC.
By: /s/ Alan B. Howe
_____________________
Alan B. Howe
Vice President of Finance
and Corporate Development
(Principal Financial Officer)
and on behalf of the registrant
Date: May 13, 1998
