1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period from to
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Commission file number 0-26140
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HIGHWAYMASTER COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0352879
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1155 Kas Drive, Suite 100, Richardson, Texas 75081
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 301-2000
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 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
--- ----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Number of Shares Outstanding as of
Title of each class November 1, 1999
- ---------------------------- ----------------------------------
Common Stock, $.01 par value 24,987,060
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HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
Form 10-Q
INDEX
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements:
Consolidated Balance Sheets at September 30, 1999
and December 31, 1998 1
Consolidated Statements of Operations for the
three months and nine months ended September 30,
1999 and 1998 2
Consolidated Statements of Cash Flows for the nine
months ended September 30,1999 and 1998 3
Consolidated Statement of Changes in Stockholders'
Equity (Deficit) for the nine months ended
September 30, 1999 4
Notes to Consolidated Financial Statements 5-6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 10
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 2 Changes in Securities 11
Item 3 Defaults Upon Senior Securities 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
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HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)
September 30, December 31,
1999 1998
------------- ------------
Current assets:
Cash and short-term investments $ 25,406 $ 26,169
Accounts receivable, net 14,125 14,585
Inventory 3,784 12,921
Pledged securities - current portion 12,511 12,974
Other current assets 2,639 714
---------- ----------
Total current assets 58,465 67,363
Network, equipment and software, net 17,097 20,649
Pledged securities - long-term portion -- 11,814
Other assets, net 2,788 3,300
---------- ----------
Total assets $ 78,350 $ 103,126
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,398 $ 11,362
Telecommunications costs payable 5,675 5,920
Accrued interest payable 541 3,784
Advance payments from customers -- 7,452
Other current liabilities 10,008 9,702
---------- ----------
Total current liabilities 18,622 38,220
Senior notes payable 91,992 91,697
---------- ----------
Total liabilities 110,614 129,917
---------- ----------
Stockholders' equity (deficit):
Preferred Stock -- --
Common Stock 254 252
Additional paid-in capital 149,584 149,481
Accumulated deficit (181,555) (175,977)
Treasury stock (547) (547)
---------- ----------
Total stockholders' equity (deficit) (32,264) (26,791)
Commitments and contingencies
---------- ----------
Total liabilities and stockholders' equity (deficit) $ 78,350 $ 103,126
========== ==========
See accompanying notes to consolidated financial statements.
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HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share)
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Revenues:
Product $ 16,554 $ 3,937 $ 40,341 $ 14,023
Service 12,550 11,257 39,042 34,587
---------- ---------- ---------- ----------
Total revenues 29,104 15,194 79,383 48,610
---------- ---------- ---------- ----------
Cost of revenues (Note 5):
Product 16,707 3,006 34,468 10,912
Service 6,930 7,824 16,843 25,094
---------- ---------- ---------- ----------
Total cost of revenues 23,637 10,830 51,311 36,006
---------- ---------- ---------- ----------
Gross profit 5,467 4,364 28,072 12,604
---------- ---------- ---------- ----------
Expenses:
General and administrative 4,065 7,361 11,125 17,553
Customer service 1,881 2,378 5,705 8,803
Sales and marketing 941 1,602 3,026 6,109
Engineering 767 1,507 2,140 4,587
Network services center 315 627 1,121 1,462
Severance and AutoLink termination cost (189) 4,555 (189) 5,000
Depreciation and amortization 1,678 1,599 4,937 3,946
---------- ---------- ---------- ----------
9,458 19,629 27,865 47,460
---------- ---------- ---------- ----------
Operating income (loss) (3,991) (15,265) 207 (34,856)
Interest income 262 1,263 1,677 4,090
Interest expense (3,342) (4,482) (10,080) (13,374)
Other income (Note 5) 915 -- 2,618 --
---------- ---------- ---------- ----------
Loss before income taxes (6,156) (18,484) (5,578) (44,140)
Income tax provision -- -- -- --
---------- ---------- ---------- ----------
Net loss $ (6,156) $ (18,484) $ (5,578) $ (44,140)
========== ========== ========== ==========
Per share:
Basic and diluted loss $ (0.25) $ (0.74) $ (0.22) $ (1.77)
========== ========== ========== ==========
Weighted average number of shares outstanding
Basic 24,987 24,899 24,967 24,899
========== ========== ========== ==========
Diluted 24,987 24,899 24,967 24,899
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
September 30,
--------------------------
1999 1998
---------- ----------
Cash flows from operating activities:
Net loss $ (5,578) $ (44,140)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 4,937 3,946
Amortization of discount on notes payable 295 390
Decrease in accounts receivable 460 1,391
Decrease in inventory 9,137 1,922
(Decrease) in accounts payable (8,964) (3,029)
Increase (decrease) in accrued expenses and other current liabilities (10,634) 6,701
Net book value of equipment retired 1,854 --
Other (1,751) 737
---------- ----------
Net cash used in operating activities (10,244) (32,082)
---------- ----------
Cash flows from investing activities:
Additions to network and equipment (2,335) (7,996)
Additions to capitalized software (566) (1,140)
Decrease in pledged securities 12,277 15,242
Decrease in temporary investments -- 8,382
Decrease in short-term investments 2,715 13,288
---------- ----------
Net cash provided by investing activities 12,091 27,776
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options 105 --
---------- ----------
Net cash provided by financing activities 105 --
---------- ----------
Increase (decrease) in cash and cash equivalents 1,952 (4,306)
Cash and cash equivalents, beginning of period 16,461 26,777
---------- ----------
Cash and cash equivalents, end of period 18,413 22,471
Short-term investments 6,993 6,421
---------- ----------
Cash and short-term investments $ 25,406 $ 28,892
========== ==========
Supplemental cash flow information:
Interest paid $ 12,974 $ 16,806
========== ==========
See accompanying notes to consolidated financial statements.
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HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
(in thousands, except share information)
Preferred Stock Common Stock Additional Treasury Stock
------------------ ------------------ Paid-in --------------- Accumulated
Shares Amount Shares Amount Capital Shares Amount Deficit Total
-------- -------- ---------- ------ ---------- ------- ------ ----------- --------
Stockholders' equity (deficit) at
December 31, 1998 1,000 $ -- 25,210,983 $ 252 $149,481 311,997 $ (547) $(175,977) $(26,791)
Exercise of stock options 88,074 2 103 105
Net income (5,578) (5,578)
-------- -------- ---------- ------ -------- ------- ------ --------- --------
Stockholders' equity (deficit) at
September 30, 1999 1,000 -- 25,299,057 $ 254 $149,584 311,997 $ (547) $(181,555) $(32,264)
======== ======== ========== ====== ======== ======= ====== ========= ========
See accompanying notes to consolidated financial statements.
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HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
(Unaudited)
1. BUSINESS OVERVIEW
The Company develops and implements mobile communications
solutions, including integrated voice, data and position location
services, to meet the needs of its customers. The initial application
for the Company's wireless enhanced services has been developed for,
and is marketed and sold to, companies which operate in the long-haul
trucking market. The Company provides long-haul trucking companies with
a comprehensive package of mobile communications and management control
services at a fixed rate per minute, thereby enabling its trucking
customers to effectively monitor the operations and improve the
performance of their fleets. During the third quarter of 1998, the
Company began delivery of mobile communication units ("mobile units")
for use in a service vehicle application. The Company is currently
developing additional applications for its network to expand the range
of its commercial dispatch and tracking services to broader lines of
business.
The Company's revenues are derived primarily from the sales
and installation of mobile units and charges for its services.
2. BASIS OF PRESENTATION
The unaudited consolidated financial statements presented
herein have been prepared in accordance with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all footnote disclosures required by generally accepted accounting
principles. These consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial
statements for the year ended December 31, 1998. The accompanying
consolidated financial statements reflect all adjustments (all of which
are of a normal recurring nature except as described in Note 5) which
are, in the opinion of management, necessary for a fair presentation of
the Company's financial position, results of operations and cash flows
for the interim periods. The results for any interim period are not
necessarily indicative of the results for the entire year.
3. EARNINGS PER SHARE
Basic and diluted earnings per share for the three months and
nine months ended September 30, 1998 and 1999 is computed using the
weighted average number of shares outstanding during the respective
periods.
4. INVENTORY
September 30, December 31,
1999 1998
------------- ------------
Complete systems $ 1,875,000 $ 1,577,000
Component parts 1,738,000 826,000
Equipment shipped not yet accepted 171,000 10,518,000
------------- ------------
$ 3,784,000 $ 12,921,000
============= ============
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5. UNUSUAL ITEMS
During the nine months ended September 30, 1999, the Company
recorded the benefit of credits due from cellular carriers related to
1997 and 1998 based on a settlement agreement reached with GTE
Wireless, Inc. and GTE Telecommunications Incorporated. These credits
had not been previously recognized because of significant uncertainty
as to their ultimate collectibility. The effect of these credits was to
increase income by $4,533,000, of which $4,389,000 is reflected as a
reduction in "cost of service revenue" in the accompanying Consolidated
Statements of Operations.
During 1997, the Company entered into a contract with a
customer for a new generation of mobile unit. Pending delivery of the
contracted units, the customer installed current-generation mobile
units. The Company and the customer negotiated a settlement agreement,
the terms of which included termination of the contract and the return
of approximately 2,900 mobile units to the Company that had been
installed by the customer. "Other income" for the nine months ended
September 30, 1999 includes a gain of approximately $750,000 related to
this settlement.
Also included in other income for the nine months ended
September 30, 1999 is the benefit from the settlement of the litigation
with AT&T Corp., representing the proceeds from the settlement, net of
related expenses, of which a portion was recorded in the first quarter
of 1999, with the remainder being recorded in the third quarter of
1999. The additional gain recorded during the third quarter of 1999
represents contingent consideration, the realization of which was
uncertain as of March 31, 1999. This uncertainty was resolved during
the third quarter, and, accordingly, the additional gain was recognized
as of September 30, 1999.
During the nine months ended September 30, 1999, the earning
process was culminated and the Company recognized revenues of $28.1
million on the mobile units delivered under the service vehicle
contract entered into during the third quarter of 1998. Included in
"cost of product revenues" in the accompanying Consolidated Statements
of Operations for the three months and nine months ended September 30,
1999, is a warranty provision of $3.5 million, that is the estimated
cost to be incurred to remediate a defective subcomponent in the mobile
units. The Company believes a portion of this charge may be recoverable
from the Company's supplier under its warranty. However, the Company is
currently unable to estimate the amount that may be recovered under
said warranty.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Total revenues increased 91.5% to $29.1 million in 1999 from $15.2
million in 1998. Product revenues increased to $16.6 million in 1999 from $3.9
million in 1998. The increase in product revenues is a result of recognizing
$13.3 million of revenues on the service vehicle contract entered into during
the third quarter of 1998 that required delivery of mobile units coupled with
development and delivery of additional features over the term of the
installation period. Service revenues increased 11.5% to $12.6 million in 1999
from $11.3 million in 1998 due to the increased installed base of mobile units.
The installed base of mobile units increased 32.1% to 52,424 mobile units at
September 30, 1999 from 39,673 mobile units at September 30, 1998. Average
monthly revenue per mobile unit decreased 18.6% to $77.17 in 1999 from $94.75 in
1998. The decrease was attributable to: (i) the Company's decision in the second
quarter of 1998 to cancel the personal calling accounts promotion and strengthen
credit policies related to personal calling accounts, thereby reducing personal
calling revenues; and (ii) the increasing proportion of service vehicles in the
installed base. Average revenue for service vehicles is less than that of
long-haul trucking because of different product functionality.
Product gross profit margin was a negative 0.9% in 1999 compared to
23.6% in 1998 because of the $3.5 million warranty provision that is discussed
in more detail in note 5 to the accompanying consolidated financial statements.
Excluding the effect of this $3.5 million charge, 1999 product gross profit
margin would have been 20.2%.
Service gross profit margin was 44.8% in 1999, compared to 30.5% in
1998. The increase in service margin is primarily as a result of: (i) the
additional access fees generated by the 37.0% increase in the average installed
base of mobile units from 1998 to 1999; (ii) the effect of a new, lower-cost
contract with one of the Company's major vendors; and (iii) the effect of
technical adjustments and modifications implemented to reduce the amount of
airtime costs incurred that are not billable to customers.
Operating expenses decreased 51.8% to $9.5 million in 1999 from $19.6
million in 1998. This decrease is primarily a result of: (i) the restructuring
of operations implemented in the second and third quarters of 1998; and (ii)
1998 expenses being unusually high as the result of charges aggregating $7.6
million for bad debt expense, sales tax liability, and severance and AutoLink
termination costs. Excluding these charges from 1998, the decrease in operating
expenses from 1998 would have been 21.4%. The average number of employees
decreased 22.9% in 1999 from 1998. Sales and marketing expense and engineering
expense decreased significantly because 1998 included significant advertising
and development costs associated with products that were discontinued in the
third quarter of 1998. Included in 1999 General and Administrative expenses is a
$0.4 million provision for bad debts as a result of a change in estimate with
respect to a major customer which has been operating under the protection of
Chapter 11 of the Bankruptcy Code. A $2.7 million provision for bad debts was
recorded for this customer in the corresponding 1998 period.
Interest income was $0.3 million in 1999, compared to $1.3 million in
1998. Interest expense was $3.3 million in 1999, compared to $4.5 million in
1998. The change in these relationships reflects the lower average outstanding
balances during 1999 in cash and short-term investments, pledged securities and
Senior Notes payable.
Other income reflects the additional gain from the settlement of
litigation with AT&T Corp. as more fully described in Note 5 to the accompanying
consolidated financial statements.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Total revenues increased 63.3% to $79.4 million in 1999 from $48.6
million in 1998. Product revenues increased to $40.3 million in 1999 from $14.0
million in 1998. The increase in product revenues is a result of recognizing
$28.1 million of revenues on the service vehicle contract entered into during
the third quarter of 1998 that required delivery of mobile units coupled with
development and delivery of additional features over the term of the
installation period. Service revenues increased 12.9% to $39.0 million in 1999
from $34.6 million in 1998 due to the increased installed base of mobile units.
The installed base of mobile units increased 32.1% to 52,424 mobile units at
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September 30, 1999 from 39,673 mobile units at September 30, 1998. Average
monthly revenue per mobile unit decreased 20.3% to $81.62 in 1999 from $102.47
in 1998. The decrease was attributable to: (i) the decision in the second
quarter of 1998 to cancel the personal calling accounts promotion and strengthen
credit policies related to personal calling accounts, thereby reducing personal
calling revenues; and (ii) the increasing proportion of service vehicles in the
installed base. Average revenue for service vehicles is less than that of
long-haul trucking because of different product functionality.
Product gross profit margin was 14.6% in 1999 compared to 22.2% in 1998
because of the $3.5 million warranty provision that is discussed in more detail
in note 5 to the accompanying consolidated financial statements. Excluding the
effect of this $3.5 million charge, 1999 product gross profit margin would have
been 23.2%.
Service gross profit margin was 56.9% in 1999 compared to 27.4% in
1998. As more fully described in Note 5 to the accompanying consolidated
financial statements, during 1999 the Company recorded $4.4 million of credits
related to a contract settlement. Excluding the effect of these credits, service
gross profit margin would have been 45.6%. The increase in service margin from
27.4% to 45.6% is primarily a result of: (i) the additional access fees
generated by the 42.3% increase in the average installed base of mobile units;
(ii) the effect of a new, lower-cost contract with one of the Company's major
vendors; and (iii) the effect of technical adjustments and modifications
implemented to reduce the amount of airtime costs incurred that are not billable
to customers.
Operating expenses decreased 41.3% to $27.9 million in 1999 from $47.5
million in 1998. This decrease is primarily as a result of: (i) the
restructuring of operations implemented in the second and third quarters of
1998; and (ii) 1998 expenses being unusually high as the result of charges
aggregating $11.0 million for bad debt expense, sales tax liability, and
severance and AutoLink termination costs. Excluding these charges from 1998, the
decrease in operating expenses from 1998 would have been 23.5%. The average
number of employees decreased 29.8% in 1999 from 1998. Sales and marketing
expense and engineering expense decreased significantly because 1998 included
significant advertising and development costs associated with products that were
discontinued in the third quarter of 1998. Included in 1999 General and
Administrative expenses is a $0.4 million provision for bad debts as a result of
a change in estimate with respect to a major customer which has been operating
under the protection of Chapter 11 of the Bankruptcy Code. A $2.7 million
provision for bad debts was recorded for this customer in the corresponding 1998
period.
Interest income was $1.7 million in 1999 compared to $4.1 million in
1998. Interest expense was $10.1 million in 1999 compared to $13.4 million in
1998. The change in these relationships reflects the lower average outstanding
balances during 1999 in cash and short-term investments, pledged securities and
Senior Notes payable.
Other income reflects the gain from the settlement of a customer
contract, and the proceeds from the settlement of the litigation with AT&T
Corp., net of related expenses, as more fully described in Note 5 to the
accompanying consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and short-term investments balances decreased $0.8
million to $25.4 million at September 30, 1999 from $26.2 million at December
31, 1998. Based on the Company's projected operating results, the Company
believes its existing capital resources will be sufficient to fund its currently
anticipated operating needs and capital expenditure requirements for the next 12
months. However, the Company's future cash flow from operations and operating
requirements may vary depending on a number of factors, including the rate of
installation of mobile units, the level of competition, success of new products,
general economic conditions and other factors beyond the Company's control.
The Company's capital resources may be insufficient to fund its
operating needs, capital expenditures and debt service requirements in the long
term. The Company believes that, in order to address its long-term capital
requirements, it will need to take steps to: (i) increase the installed base of
mobile units in service and improve the efficiency of its operations to reduce
or eliminate its operating losses; or (ii) obtain additional sources of debt or
equity financing. The Company's ability to obtain additional debt financing is
materially restricted under the terms of the Indenture governing the Senior
Notes. There can be no assurance that the Company would be able to obtain
additional debt or equity financing on satisfactory terms, if at all.
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YEAR 2000
The Year 2000 problem, also known as "Y2K," refers to the inability of
some computer programs and microprocessors to interpret dates beyond December
31, 1999. The Y2K problem can be traced to the early days of computers when
memory and data storage were very expensive. To conserve these limited
resources, computer programmers decided to use just two digits in the date
fields to identify calendar year. For example, the year 1999 would be identified
as "99." The assumption is that the date is within the twentieth century. In the
year 2000, this assumption will be invalid and some systems will not properly
recognize dates. On January 1, 2000, many computer programs in mainframes,
microcomputers, client/servers, personal computers and embedded systems may
recognize the year "00" as 1900 rather than 2000. Because many computer
functions are date-sensitive, this error may cause such systems to process data
inaccurately or shut down if they do not recognize the date. If not corrected,
many computer applications could fail or create erroneous results as of, or
prior to, the Year 2000. Errors may occur in chronological sorting, in date
comparisons, duration calculations and other time and date-sensitive processing.
The Company is taking the appropriate steps to ensure that its
operations, products and services will not be adversely impacted by potential
Year 2000 failures. The Company has established a Year 2000 project team, which
includes employees with various functional responsibilities and outside
consultants. The Year 2000 readiness project is overseen by senior management of
the Company with regular progress reports made to the Board of Directors.
The project team has identified five phases in becoming Year 2000
compliant: (1) locating, listing, and prioritizing specific technology that is
potentially subject to Year 2000 challenges; (2) assessing and determining the
element of risk that exists through inquiry, research and testing; (3) resolving
Year 2000-related issues that were identified in previous phases by repair in a
testing environment; (4) validation testing, monitoring, obtaining
certification, and verifying the correct manipulation of dates and date-related
data, including the systems of material third parties; and (5) implementation,
installation, integration and application of Year 2000-ready solutions by
replacement, upgrade or repair of technology systems, including those of
material third parties. Finally, the Company engaged two third party consulting
firms to assist the Company in assessing our products and internal systems.
State of Readiness. The Year 2000 project team, in conjunction with the
third-party consulting firms, have jointly determined that: (1) the Company's
hardware and software products, including embedded microprocessors, are Year
2000 compliant with non-material exceptions; and (2) that the Company's internal
information processing systems, including embedded microprocessors, are Year
2000 compliant with non-material exceptions. Solutions for the minor issues with
the Company's hardware and software products are in place and deployment to
customers began in the third quarter of 1999. Some upgrades will be required for
older versions of Company's products. The Company's Network Services Center
("NSC") has completed testing with no material Year 2000 issues identified. The
Company has not deferred any specific projects, goals or objectives relating to
its operations as a result of Year 2000 compliance efforts.
The Company has requested written Year 2000 compliance status reports
from each of its material vendors and suppliers. It is the policy of the Company
to continue to seek requests for Year 2000 compliance status reports from
material vendors and suppliers until such status reports are obtained. To date,
the Company has received such reports from its material vendors and suppliers
with no material non-compliance issues identified.
Costs. Management believes the cost of becoming Year 2000 compliant
will be approximately $0.7 million during 1999. Year-to-date expenditures have
reached approximately $0.6 million and it is currently anticipated that
compliance efforts will be completed within budget. All costs associated with
Year 2000 readiness and remediation will be funded from operating cash flows.
Risks. While the Company does not anticipate delays or postponements in
implementing Year 2000 resolutions in a timely manner, there can be no certainty
that the implementation of solutions will be made in a timely manner. The
inability to address all issues in a timely and successful manner could have a
material adverse effect on the Company's financial condition and results of
operations. Although the Company does not expect the cost to have a material
adverse effect on its financial condition or results of operations, there can be
no assurance that the Company will not be required to incur significant
unanticipated costs in relation to its readiness obligations. The Company's
products and services are materially dependent upon third-party service
providers, including local telephone companies, cellular service providers and
long-distance telephone companies for proper operation. Additionally, the
Company's ability to bill its customers for enhanced services is materially
dependent on third-party billing companies. Finally, the Company's ability to
provide products for sale is materially dependent on third party manufacturers
and suppliers. The failure of
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these third parties to provide Year 2000-compliant products and/or services
could have a material adverse effect on the Company's financial condition and
results of operations. Such risks include, but are not limited to, the inability
of the Company to provide services to its customers, bill existing customers,
accept new orders for products and services, and/or perform other customer-care
tasks.
Contingency Plans. Contingency planning is an integral part of the
Company's Year 2000 preparedness. Because of the many uncertainties that exist,
the Company's readiness and remediation methodology dictates that contingency
plans be established for likely non-compliance scenarios. The Company is
continually developing contingency plans as new risks are uncovered and will
continue to plan and implement contingency plans throughout the fourth quarter
of 1999.
The foregoing discussion regarding Year 2000 project timing,
effectiveness, implementation and costs are based on management's current
evaluation using available information. Factors that might cause material
changes include, but are not limited to, the availability of resources, the Year
2000 readiness of material third-party vendors and suppliers and the Company's
ability to respond to unforeseen Year 2000 compliance issues.
FORWARD LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this report, including without
limitation, certain statements in this Item 2 under the captions "---Liquidity
and Capital Resources," and "---Year 2000," may constitute forward looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. There can be no assurances that the
Company's existing capital resources will be sufficient to fund its currently
anticipated operating and capital expenditure requirements over the next 12
months. Important factors that could cause actual results to differ materially
from the Company's expectations ("cautionary statements") are disclosed in this
report and the Company's Annual Report on Form 10-K for the year ended December
31, 1998 (under the caption "Business --- Risk Factors" and elsewhere). All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by these cautionary statements.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have any material exposure to market risk
associated with its cash and short-term investments. The Company's Senior Notes
payable are at a fixed rate and, thus, are not exposed to interest rate risk.
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HIGHWAYMASTER COMMUNICATIONS, INC. AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 1. Legal Proceedings -- None.
Item 2. Changes in Securities -- None.
Item 3. Defaults Upon Senior Securities -- None.
Item 4. Submission of Matters to a Vote of Security Holders - None.
Item 5. Other Information -
GTE Wireless, Inc. ("GTE Wireless"). As previously reported,
GTE Wireless and the Company executed a Transition Agreement wherein
GTE Wireless would continue to provide administrative carrier services
until the earlier of September 30, 1999 or the date that the Company
actually transitions to Southwestern Bell Mobile Systems, Inc.
("SBMS"), its new administrative carrier. As of August 16, 1999, the
Company successfully transitioned to SBMS.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See the Index to Exhibits.
(b) Reports on Form 8-K
On October 20, 1999 the Company filed a current report
on Form 8-K relating to a change in the Company's
Certifying Accountants.
11
14
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.
HIGHWAYMASTER COMMUNICATIONS, INC.
Date: November 12, 1999
By: /s/ Jana Ahlfinger Bell
---------------------------------------
Jana Ahlfinger Bell
President and Chief Executive Officer
By: /s/ W. Michael Smith
---------------------------------------
W. Michael Smith
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer)
12
15
(3) Exhibits
EXHIBIT
NUMBER TITLE
------ -----
3.1 - Certificate of Incorporation of the Company, as amended.(1)(9)
3.2 - Amended and Restated By-Laws of the Company.(13)
4.1 - Specimen of certificate representing Common Stock, $.01 par value,
of the Company.(1)
4.2 - Warrant Certificate, dated September 27, 1996, issued to SBW.(7)
4.3 - Recapitalization Agreement, dated September 27, 1996, by and among
the Company, the Erin Mills Stockholders, the Carlyle Stockholders
and the other persons named therein.(7)
4.4 - Amended and Restated Stockholders' Agreement, dated September 27,
1996, by and among the Company, SBW, the Erin Mills Stockholders,
the Carlyle Stockholders, the By-Word Stockholders and the other
persons named therein.(7)
4.5 - Indenture dated September 23, 1997 by and among the Company,
HighwayMaster Corporation and Texas Commerce Bank, National
Association.(12)
4.6 - Pledge Agreement dated September 23, 1997 by and among the Company,
Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
4.7 - Registration Rights Agreement dated September 23, 1997 by and among
the Company, HighwayMaster Corporation, Bear, Stearns & Co. Inc. and
Smith Barney Inc.(12)
4.8 - Warrant Agreement dated September 23, 1997 by and among the Company,
Bear, Stearns & Co. Inc. and Smith Barney Inc.(12)
4.9 - Warrant Registration Rights Agreement dated September 23, 1997 by
and among the Company, Bear, Stearns & Co. Inc. and Smith Barney,
Inc.(12)
10.1 - License Agreement, dated April 23, 1992, by and between Voice
Control Systems and the Company (as successor to By-Word
Technologies, Inc.)(1)
10.2 - Second Amendment to Employment Agreement, dated September 1, 1998,
by and between HighwayMaster Corporation and William C. Saunders.(16)
10.3 - Agreement and General Release, dated September 30, 1998, by and
between HighwayMaster Corporation and William C. Kennedy, Jr.(15)
10.4 - Release of HighwayMaster Communications, Inc. and HighwayMaster
Corporation by William C. Saunders, dated December 15, 1998. (16)
10.5 - Release of William C. Saunders by HighwayMaster Communications, Inc.
and HighwayMaster Corporation, dated December 15, 1998. (16)
10.6 - Amended and Restated 1994 Stock Option Plan of the Company, dated
February 4, 1994, as amended.(1)(5)(6)
10.7 - Purchase Agreement, dated September 27, 1996, between the Company
and SBW.(7)
10.8 - Mobile Communications (Voice and Data) Services Agreement, dated as
of July 15, 1993, between the Company and EDS Personal
Communications Corporation.(1)(2)
10.9 - Stock Option Agreement, dated June 22, 1998, by and between the
Company and John Stupka. (16)
10.10 - Services Agreement, dated March 20, 1996, between the Company and
GTE-Mobile Communications Service Corporation.(3)(4)
10.11 - Acknowledgment by William C. Saunders dated December 15, 1998. (16)
10.12 - Amendment dated November 16, 1995 to that certain Mobile
Communications (Voice and Data) Services Agreement, dated as of July
15, 1993, between the Company and EDS Personal Communications
Corporation.(3)(4)
10.13 - Mutual Separation and Release, dated December 22, 1998, by and
between HighwayMaster Corporation and Gordon D. Quick. (16)
10.14 - Product Development Agreement, dated December 21, 1995, between
HighwayMaster Corporation and IEX Corporation.(3)(4)
16
10.15 - Technical Services Agreement, dated September 27, 1996, between
HighwayMaster Corporation and Southwestern Bell Wireless Holdings,
Inc.(7)
10.16 - Letter Agreement, dated February 19, 1996, between HighwayMaster
Corporation and IEX Corporation.(3)
10.17 - Form of Adoption Agreement, Regional Prototype Cash or Deferred
Profit-Sharing Plan and Trust Sponsored by McKay Hochman Co., Inc.,
relating to the HighwayMaster Corporation 401(k) Plan. (1)
10.18 - February 27, 1997 Addendum to Original Employment Letter dated
September 19, 1997 by and between the HighwayMaster Corporation and
Robert LaMere. (16)
10.19 - Software Transfer Agreement, dated April 25, 1997 between
HighwayMaster Corporation and Burlington Motor Carriers, Inc.(9)(10)
10.20 - Employment Agreement, dated June 3, 1998, by and between
HighwayMaster Corporation and Todd A. Felker. (16)
10.21 - Employment Agreement, dated June 3, 1998, by and between
HighwayMaster Corporation and William McCausland.(16)
10.22 - Employment Agreement, dated May 29, 1998, by and between
HighwayMaster Corporation and Jana Ahlfinger Bell. (14)
10.23 - Lease Agreement, dated March 20, 1998, between HighwayMaster
Corporation and Cardinal Collins Tech Center, Inc.(15)
10.24 - First Amendment to Employment Agreement, dated September 15, 1998,
by and between HighwayMaster Corporation and Jana A. Bell. (16)
10.25 - Employment Agreement, dated November 24, 1998, by and between
HighwayMaster Corporation and Michael Smith. (16)
10.26 - September 18, 1998 Amended and Restated Stock Option Agreement of
May 29, 1998 by and between the Company and Jana Ahlfinger Bell.(16)
10.27 - Stock Option Agreement, dated August 12, 1998, by and between the
Company and Jana Ahlfinger Bell. (16)
10.28 - Stock Option Agreement, dated September 18, 1998, by and between
the Company and Jana Ahlfinger Bell. (16)
10.29 - September 18, 1998 Amended and Restated Stock Option Agreement of
February 29, 1996, by and between the Company and William H.
McCausland. (16)
10.30 - Stock Option Agreement, dated September 18, 1998, by and between
the Company and William H. McCausland. (16)
10.31 - September 18, 1998 Amended and Restated Stock Option Agreement of
April 25, 1997, by and between the Company and Robert LaMere. (16)
10.32 - September 18, 1998 Amended and Restated Stock Option Agreement of
June 3, 1998, by and between the Company and Todd A. Felker (16)
10.33 - Stock Option Agreement dated November 24, 1998, by and between the
Company and Michael Smith. (16)
10.34 - Stock Option Agreement, dated April 4, 1995, by and between the
Company and Terry Parker. (16)
10.35 - Agreement No. 980427 between Southwestern Bell Telephone Company,
Pacific Bell, Nevada Bell, Southern New England Telephone and
HighwayMaster Corporation executed on January 13, 1999 (17)(18)
10.36 - Administrative Carrier Agreement entered into between HighwayMaster
Corporation and Southwestern Bell Mobile Systems, Inc. on March 30,
1999 (17)(18)
10.37 - Addendum to Agreement entered into between HighwayMaster Corporation
and International Telecommunications Data Systems, Inc. on February
4, 1999 (17)(18)
10.38 - Second Addendum to Agreement entered into between HighwayMaster
Corporation and International Telecommunication Data Systems, Inc.
on February 4, 1999 (17)(18)
10.39 - Manufacturing and Equipment Purchase Agreement entered into between
HighwayMaster Corporation and Wireless Link Corporation on March 9,
1999 (17)(18)
17
\
10.40 - Agreement entered into between HighwayMaster Corporation and
Cellemetry LLC on January 19, 1999 (17)(18)
10.41 - Agreement entered into between HighwayMaster Corporation and
Cellemetry LLC on January 19, 1999 (17)(18)
10.42 - Agreement entered into between HighwayMaster Corporation and
Cellemetry LLC on January 19, 1999 (17)(18)
10.43 - Agreement entered into between HighwayMaster Corporation and
Cellemetry LLC on January 7, 1999 (17)(18)
10.44 - Stock Option Agreement dated June 24, 1999, by and between the
Company and J. Raymond Bilbao (19)
10.45 - Stock Option Agreement dated June 24, 1999, by and between the
Company and Marshall Lamm (19)
10.46 - Stock Option Agreement dated June 14, 1999, by and between the
Company and Marc A. Bringman (19)
10.47 - Transition Agreement entered into between GTE Wireless Services
Corporation and HighwayMaster Corporation on April 30, 1999 (19)(20)
10.48 - Fleet-on-Track Services Agreement entered into between GTE
Telecommunications Services Incorporated and HighwayMaster
Corporation on May 3, 1999 (19)(20)
10.49 - Confidential Memorandum of Understanding entered into between
Criticom International Corp. and HighwayMaster Corporation on April
16, 1999 (19)(20)
10.50 - Stock Option Agreement dated September 3, 1999, by and between the
Company and J. Raymond Bilbao (21)
10.51 - Stock Option Agreement dated September 3, 1999, by and between the
Company and Todd Felker (21)
10.52 - Stock Option Agreement dated September 3, 1999, by and between the
Company and C. Marshall Lamm (21)
10.53 - Stock Option Agreement dated September 3, 1999, by and between the
Company and William H. McCausland (21)
10.54 - Stock Option Agreement dated September 3, 1999, by and between the
Company and Pierre H. Parent (21)
10.55 - Stock Option Agreement dated September 3, 1999, by and between the
Company and W. Michael Smith (21)
10.56 - Stock Option Agreement dated September 3, 1999, by and between the
Company and Robert W. LaMere (21)
10.57 - Stock Option Agreement dated September 3, 1999 by and between the
Company and Stephen P. Tacke (21)
27 - Financial Data Schedule (21)
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(1) Filed in connection with the Company's Registration Statement on Form S-1,
as amended (No. 33-91486) effective June 22, 1995.
(2) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment issued in connection with
Registration Statement on Form S-1 (No. 33-91486) effective June 22, 1995.
(3) Filed in connection with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
(4) Certain confidential portions deleted pursuant to Application for
Confidential Treatment filed in connection with the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
(5) Indicates management or compensatory plan or arrangement required to be
identified pursuant to Item 14(a)(4).
(6) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended June 30, 1996.
(7) Filed in connection with the Company's Current Report on Form 8-K filed on
October 7, 1996.
(8) Filed in connection with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
(9) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly
18
period ended March 31, 1997.
(10) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment issued in connection with the
Company's Form 10-Q Quarterly Report for the quarterly period ended March
31, 1997.
(11) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended June 30, 1997.
(12) Filed in connection with the Company's Registration Statement on Form S-4,
as amended (No. 333-38361).
(13) Filed in connection with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
(14) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended June 30, 1998.
(15) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended September 30, 1998.
(16) Filed in connection with the Company's Form 10-K fiscal year ended December
31, 1998.
(17) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended March 31, 1999.
(18) Certain confidential portions deleted pursuant to Order Granting
Application for Confidential Treatment issued June 22, 1999 in connection
with the Company's Form 10-Q Quarterly Report for the quarterly period
ended March 31, 1999.
(19) Filed in connection with the Company's Form 10-Q Quarterly Report for the
quarterly period ended June 30, 1999.
(20) Certain confidential portions deleted pursuant to letter granting
application for confidential treatment issued October 10, 1999 in
connection with the Company's Form 10-Q Quarterly Report for the quarterly
period ended June 30, 1999.
(21) Filed herewith.