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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended February 28, 1998
or
[ ] Transition Report pursuant Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ___________________ to
___________________
Commission File No. 2-74238-B
LOJACK CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2664794
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
333 ELM STREET
DEDHAM, MASSACHUSETTS 02026
(Address of Principal Executive Offices) (Zip Code)
(781) 326-4700
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS: Common Stock, $.01 par value
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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 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 by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated in Part III of this Form 10-K or any amendments to this Form 10-K.
The aggregate market value of the Common Stock of the registrant held by non-
affiliates was approximately $206,955,052 as of May 22, 1998.
As of May 22, 1998, there were issued and outstanding 18,127,461 shares of the
registrant's Common Stock, $.01 par value.
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DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended February 28, 1998
(Items 5, 6, 7, 8 and 14(a)(1))
(2) Portions of the definitive Proxy Statement for Registrant's Annual Meeting
of Stockholders to be held on July 15, 1998 (Items 10, 11, and 12)
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LOJACK CORPORATION
<TABLE>
<CAPTION>
Securities and Exchange Commission
Item Number and Description Page
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PART I
ITEM 1. Business .................................................................... 1
ITEM 2. Properties .................................................................. 6
ITEM 3. Legal Proceedings ........................................................... 7
ITEM 4. Submission of Matters to a Vote of Security Holders ......................... 7
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matter .... 7
ITEM 6. Selected Financial Data ..................................................... 7
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................................... 7
ITEM 8. Financial Statements and Supplementary Data ................................. 7
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ......................................... 7
PART III
ITEM 10. Directors and Executive Officers of the Registrant .......................... 7
ITEM 11. Executive Compensation ...................................................... 8
ITEM 12. Security Ownership of Certain Beneficial Owners and Management .............. 8
ITEM 13. Certain Relationships and Related Transactions .............................. 8
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ............. 8
SIGNATURES ........................................................................... 12
INDEX TO AUDITORS' REPORT AND FINANCIAL STATEMENT SCHEDULE ........................... 13
</TABLE>
In as much as the calculation of shares of the registrant's voting stock held by
non-affiliates requires a calculation of the number of shares held by
affiliates, such figure, as shown on the cover page hereof, represents the
registrant's best good faith estimate for purposes of this annual report on Form
10-K, and the registrant disclaims that such figure is binding for any other
purpose. The aggregate market value of Common Stock indicated is based upon the
last traded price of the Common Stock as reported by NASDAQ on May 22, 1998.
All outstanding shares beneficially owned by executive officers and directors of
the registrant or by any shareholder beneficially owning more than 10% of
registrant's Common Stock, as disclosed herein, were considered for purposes of
this disclosure to be held by affiliates.
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PART I
ITEM 1 - BUSINESS
GENERAL
LoJack Corporation ("LoJack" or the "Company") was organized as a Massachusetts
corporation in 1978. Its telephone number is (781) 326-4700.
LoJack developed and markets the LoJack System, a unique, patented system
designed to assist law enforcement personnel in locating, tracking and
recovering stolen vehicles. In addition, LoJack developed and markets
CarSearch, a product line of its patented LoJack System, designated for use in
international markets where it may not be practicable or desirable to implement
the fully integrated LoJack System.
The LoJack System is comprised of a Registration System maintained and operated
by LoJack; a Sector Activation System and Police Tracking Computers operated by
law enforcement officials (the "Law Enforcement Components"); and the LoJack
Unit, a VHF (very high frequency) transponder sold to consumers. The LoJack
System is designed to be integrated into existing law enforcement computers and
telecommunication networks and procedures. If a car equipped with a LoJack Unit
is stolen, its owner reports the theft as usual to the local police department.
Existing law enforcement computer and communication networks and procedures
operate in the normal manner for a report of a stolen vehicle. If the theft
involves a vehicle equipped with a LoJack Unit, a unique radio signal will be
transmitted automatically to the LoJack Unit in the stolen vehicle activating
its tracking signal. The tracking signal emitted from the LoJack Unit can be
detected by the Police Tracking Computer installed in police patrol cars and
aircraft throughout the coverage areas and used to lead law enforcement officers
to the stolen vehicle. The Company also sells conventional vehicle security
devices, which may be purchased as options with the LoJack Unit, under the names
"LoJack Prevent" and "LoJack Alert."
OPERATION OF THE LOJACK SYSTEM IN THE UNITED STATES
Under agreements with state police agencies, LoJack generally furnishes the Law
Enforcement Components for distribution to state, county, and municipal law
enforcement agencies for a nominal rent. The installation, testing and
maintenance of the Law Enforcement Components are primarily the responsibility
of LoJack. The Law Enforcement Components are generally owned by LoJack or a
LoJack subsidiary; the respective state, county or city law enforcement agency
operate the LoJack System as required during the term of each such agreement.
The agreements with the applicable law enforcement agencies are generally for
initial terms of up to five (5) years. To date, any such agreements which have
expired have been renewed or are in the process of renewal. Renewal or extension
of any such agreement may be subject to competitive bidding.
The LoJack System has been implemented in the following domestic jurisdictions
pursuant to agreements with applicable law enforcement agencies:
<TABLE>
<CAPTION>
Jurisdiction Date Operational
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<S> <C>
Massachusetts July 1986
Rhode Island June 1994
Connecticut April 1995
New York June 1994
New Jersey March 1990
Pennsylvania March 1997
Delaware March 1998
Maryland February 1997
Virginia August 1993
District of Colombia September 1994
Georgia August 1992
Florida:
Dade, Broward,
Palm Beach and surrounding areas; December 1988
Indian River, St. Lucie and Martin
counties, and surrounding areas
Tampa, St. Petersburg and
surrounding areas in West Florida; and July 1994
Orlando and surrounding areas April 1996
Michigan April 1990
Illinois November 1990
Texas (Dallas) May 1997
</TABLE>
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<TABLE>
<S> <C>
California:
Los Angeles County July 1990
San Diego and Orange County June 1995
San Bernadino and Riverside March 1997
Ventura County April 1998
</TABLE>
The Company is presently pursuing negotiations with several law enforcement
agencies in the United States regarding the implementation of the LoJack System
in jurisdictions in addition to those mentioned above. The Company's strategy
is to expand the LoJack System to those jurisdictions where the combination of
new vehicle sales, population density, and the incidence of vehicle theft is
high. To date, LoJack has expanded into 15 of the original 16 markets it has
targeted. Certain improvements to the Company's technology and interface with
law enforcement systems have made expansion beyond the 16 targeted states
economically feasible for the Company. Accordingly, over the next two years the
Company plans to expand to certain jurisdictions which are contiguous to
existing LoJack coverage areas as well to markets that have increased incidence
of car theft. During fiscal 1999 the Company plans to expand coverage to
Arizona, New Hampshire, Ohio, as well as to continue to expand the Texas
operation to Houston and Austin.
THE LOJACK SYSTEM
The LoJack System consists of four basic components:
1. LoJack Unit
2. Police Tracking Computer
3. Sector Activation System
4. Registration System
The LoJack Unit. The LoJack Unit is the consumer component of the LoJack System
and is installed in a purchaser's motor vehicle. The LoJack Unit consists of a
VHF transponder, a microprocessor based computer, and a modem. The computer's
memory contains a set of codes unique to the particular LoJack Unit and the
vehicle in which it is installed. The microprocessor activates the Unit's
transmitter upon receipt of its unique activation code from the Sector
Activation System. Since each LoJack Unit has its own unique activation code
and reply code, the microprocessor responds only upon receipt of the appropriate
code. An activated LoJack Unit will continue to broadcast its reply code until
it receives a properly coded message to stop. That message is sent after the
police have recovered the vehicle. All transmissions are made on a nationwide
radio frequency allocated by the Federal Communications Commission ("FCC") as a
law enforcement radio service.
Police Tracking Computer. The Police Tracking Computer ("PTC") is a
sophisticated radio direction finder. The PTC is used by police to locate and
track activated LoJack Units. The PTC consists of a radio receiver with a
directional antenna array, doppler signal processor, microprocessor based
computer and a controllable display. When the PTC detects a LoJack Unit
transmission from a stolen vehicle, it displays the reply code along with
graphic indications of signal strength and the direction toward the stolen
vehicle. The officer may then radio the reply code to the police dispatcher and
obtain a vehicle description.
The PTC is generally installed in police vehicles. Modified designs of the PTC
have been developed for use in helicopters, as well as fixed locations such as
toll booths, radio towers, or police communication centers. Effective tracking
range varies under different topographical and other conditions, from about one
mile to approximately five miles under ideal conditions.
Sector Activation System. The Sector Activation System ("SAS") is a
computerized system that controls and commands the LoJack System and activates
LoJack Units in stolen vehicles. It is designed to function with existing law
enforcement computer and telecommunication networks and procedures. Routine and
normal processing of a stolen vehicle report activates the SAS, even if the
person reporting the theft and the officer responding are unfamiliar with the
LoJack System.
The Sector Activation Computer ("SAC") contains a file with up-to-date
information on vehicles equipped with LoJack Units. This computer works in
conjunction with pre-existing law enforcement computer and communication
systems. This file contains, for each LoJack equipped vehicle, the vehicle
identification number ("VIN") assigned by the vehicle's manufacturer, and the
activation and reply codes for the LoJack Unit installed in that vehicle.
When the VIN of a stolen vehicle is entered into existing stolen vehicle
reporting systems, it is compared automatically to those contained in the LoJack
file. When a match occurs, the SAC automatically transmits the appropriate
activation code. Police officers who have detected the transmissions of an
activated LoJack Unit call into a dispatcher for a description of the
transmitting vehicle. After the vehicle is recovered, the VIN is again entered
into the SAC to generate the appropriate deactivation code and to reset the
LoJack Unit for future use.
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The SAC controls a network of radio transmitters positioned on sites throughout
the coverage area. The SAC accepts stolen vehicle reports from the state law
enforcement computer and initiates activations and deactivations of LoJack
Units.
Registration System. The Registration System is a proprietary method of
assigning digital codes to be transmitted and received by LoJack Units in such
manner that unique activation codes are permanently correlated with the unique
VIN assigned to the vehicle in which the LoJack Unit has been installed.
MARKETING AND DISTRIBUTION OF LOJACK UNITS - UNITED STATES
LoJack's marketing approach in each jurisdiction focuses on franchised new car
dealers who will offer the LoJack Unit as an option on both their new and used
car sales. LoJack also markets conventional vehicle security devices sold under
the names "LoJack Prevent" and "LoJack Alert."
LoJack's sales force routinely visits franchised new car dealers to educate and
train dealership personnel on the benefits of the LoJack System. LoJack's
direct marketing efforts emphasize the benefits to the dealers and their
customers of the LoJack Unit as a purchase option for new and used car buyers.
Like other options, the LoJack Unit can usually be financed conveniently as a
part of the purchase price of the vehicle. LoJack uses direct advertising to
consumers to generate product awareness and demand.
LoJack also has plans to increase its efforts to market its products directly to
operators of fleet and commercial vehicles.
LoJack maintains full responsibility for installation and warranty service of
LoJack Units sold by the Company both for the convenience of dealers through
whom the LoJack Units are marketed and for LoJack to maintain a high degree of
quality control and security over its technology.
In addition to distributing LoJack Units itself, through its subsidiaries or
licensees, LoJack may consider joint ventures or other cooperative arrangements
to expedite the expansion of the LoJack System. The actual method of
distribution will be determined on a market-by-market basis.
INTERNATIONAL OPERATIONS
The Company also licenses the use of its stolen vehicle recovery system
technology in selected international markets. In connection with its efforts to
expand outside of the United States, the Company has utilized its stolen
recovery vehicle technology to develop the CarSearch Stolen Vehicle Recovery
System ("CarSearch"). Unlike the LoJack System currently operational in the
United States, CarSearch has the flexibility of operating independent of
existing law enforcement communication networks.
The Company targets CarSearch for use by either law enforcement or private
security companies in selected international markets where the implementation of
a fully integrated LoJack System may not be feasible. This application of
the LoJack technology allows stolen vehicles to be activated, tracked and
recovered without the direct involvement of local police.
Present international license agreements have thus far been denominated in U.S.
dollars and structured with up-front licensing fees, which may be substantial
and are non-recurring, and provide that the Company will subsequently either
supply components and products at prices to be determined from time to time
and/or receive royalties based upon the licensees' revenues. It is the Company's
intention to continue to license the use of either the LoJack System or
CarSearch in other selected international markets on the same basis as described
above. The Company was granted an option, exercisable through March 1998, to
purchase up to 5% of the outstanding common stock of its United Kingdom
licensee. In March, 1998 the Company exercised this option and purchased 292,507
common shares for an aggregate exercise price of $1,259,170. The Company
subsequently sold 150,000 shares of its investment in this licensee in April,
1998. The Company does not anticipate making any additional direct investments
in the operations of foreign licensees in the foreseeable future. The Company
generally does not recognize revenues during the period immediately after
entering into an agreement with a licensee. Recognition of revenues does not
generally commence until after the licensee receives any required governmental
approvals, such as frequency allocation for the CarSearch or LoJack System. The
governmental approval process may be time-consuming.
As of February 28, 1998, the Company had Licensees operating stolen vehicle
recovery systems using LoJack's technology in the following countries:
Argentina, Colombia, Czech Republic, Ecuador, Greece, Hong Kong, Kenya, Korea,
Panama, Russia, Slovak Republic, South Africa, Trinidad and Tobago, United
Kingdom, and Venezuela. The Company also has
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entered into agreements to license the use of LoJack's technology in countries
such as Germany, Mexico, Brazil, the Peoples Republic of China, Nigeria and
Poland. The Company expects that the Mexican licensee will be operational during
early fiscal 1999. The date for commencement of operations in these countries
has not been set, as their ability to operate may be subject to the licensees
obtaining certain governmental approval which may be time consuming or may not
be obtained, as well as adequate financing. The Company is also pursuing similar
agreements for other countries.
Approximately 19% of the Company's revenues in fiscal 1998 were derived from
export revenues. These revenues were comprised of product sales and licensing
revenues from unaffiliated customers in foreign countries. Approximately 95% of
the Company's foreign product sales are covered by letters of credit or require
payment in advance from the licensee. (See "Management's Discussion and
Analysis--International Operations" and Note 9 to the Notes to Financial
Statements which are included in LoJack's 1998 Annual Report which is filed as
Exhibit 13 hereto.)
GOVERNMENT REGULATION AND APPROVAL
In 1989, the FCC put into effect a rule change to allocate frequency 173.075 MHz
for nationwide use by state and local law enforcement agencies for stolen
vehicle recovery systems. Law enforcement agencies in jurisdictions where the
Company operates have been granted authority by the FCC to use this frequency
for LoJack's stolen vehicle recovery system.
In connection with its domestic operations, the Company must obtain the approval
of law enforcement agencies, as well as executive or legislative bodies, for
implementation of the LoJack System before sales of LoJack Units can commence in
a given jurisdiction. The approval process may be time consuming and costly and
is subject to considerations generally affecting the process of governmental
decision making. In some jurisdictions, governmental approval may be terminable
at the convenience of the executive or legislative body. Any such termination
could have a material effect on future sales in any such jurisdiction.
If LoJack were to seek to charge more than nominal prices for the Law
Enforcement Components, governmental appropriation of funds will be required.
Most government agencies have established, by policy, statute or regulation, a
process requiring competitive bidding for all acquisitions of products and
equipment. This process may cause delay and expense to the Company. To date,
the Company has not sought to charge law enforcement agencies more than nominal
prices for the Law Enforcement Components, and does not expect to do so in the
near future.
AUTOMOBILE INSURANCE BENEFITS
Management considers automobile insurance premium discounts to be an inducement
for the purchase of LoJack Units by vehicle owners. The application of insurance
premium discounts, which are generally applied to the vehicle owner's
comprehensive insurance, varies from state to state and, in some cases, from
insurance company to insurance company. For example, insurance regulations in
some states, such as Massachusetts, Rhode Island, New York and New Jersey,
provide for mandated insurance discounts for automobiles protected by automobile
security systems. In other states, such as California, where the granting of
such discounts is not regulated, the determination is made by individual
insurance carriers. Currently, insurance discounts, which vary from state to
state, and nationally by certain insurance carriers, provide for discounts of up
to 35% on comprehensive insurance premiums for vehicles equipped with a vehicle
recovery and anti-theft device. The Company continues to work on legislative
initiatives in states where the LoJack System is operational which would
establish or increase discounts available to vehicle owners who install the
LoJack Unit. Since the insurance industry is, in general, heavily regulated, the
process of seeking voluntary or mandatory discounts for vehicles may involve
significant time and effort by LoJack.
PRODUCT WARRANTY
LoJack warrants to consumers that the LoJack Unit will be free from defects in
material or workmanship for a period of two years, subject to extension at the
customer's option for an additional charge. LoJack also warrants to purchasers
of LoJack Units that if their LoJack equipped vehicle is stolen within two years
of installation and not recovered within 24 hours from the time that the report
of the theft is reported to the police, LoJack will refund the full purchase
price of the LoJack Unit up to a maximum of $595.
PATENTS AND TRADEMARKS
LoJack holds United States Patent Nos. 4,818,998 and 4,908,629, which expire in
2006 and 2007, respectively, covering the LoJack System. The Company also holds
patents in various countries in Europe, Asia, South America, and North America.
Patent protection has also been sought by LoJack in several other countries.
Although management believes the patents have
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value, there can be no assurance such patents will effectively deter others from
manufacturing and marketing a stolen vehicle recovery system. LoJack's name and
logo are registered trademarks in the United States and many foreign countries.
COMPETITION
Several competitors or potential competitors are marketing or have announced the
development of products, including those which are GPS-based, which claim to
have stolen vehicle recovery features that may be directly competitive with the
LoJack System. To the knowledge of management, none are compatible with the
LoJack System, and none are proposed to be operated or actively monitored
exclusively by law enforcement agencies as is the LoJack System. Additionally,
most of these potential competitors require the consumer to pay recurring fees
for their service which LoJack does not.
LoJack markets the LoJack System as a stolen vehicle recovery device.
Management believes, however, that makers of auto theft prevention devices view
the LoJack System as competitive, and, consequently, LoJack believes it faces
competition from companies that sell vehicle security devices.
Some of the competitors and potential entrants into the vehicle tracking
industry may have greater resources than LoJack. In addition, there can be no
assurance that a competitor will not develop a system of theft detection or
recovery, including other stolen vehicle recovery systems that may or may not
require government approvals, that would compete with or be superior to the
LoJack System.
SUBCONTRACTORS
LoJack has subcontracted the manufacture of the LoJack Unit, which is designed
for automated production using surface mounted technology, to Motorola, Inc.
LoJack believes that several companies have the capability to manufacture LoJack
Units using this technology. The Company also has contracted with Motorola for
development and redesign of the LoJack Unit which would accommodate additional
applications, and would meet the technical and economical constraints of the
leasing and trucking industries.
LoJack subcontracts with Micrologic, Inc. ("Micrologic") of Waltham,
Massachusetts, to perform a substantial portion of the engineering, design and
implementation of the LoJack and CarSearch Systems in new jurisdictions as well
as to perform certain research and development. LoJack owns all rights in any
new developments created by Micrologic as a subcontractor of LoJack.
LoJack has granted to Micrologic, through April 2000, the exclusive rights to
assemble Police Tracking Computers. LoJack believes that other companies have
the same capabilities as Micrologic, but that changing to a new subcontractor
for these tasks could involve delays and additional cost to LoJack.
INVENTORY
LoJack seeks to maintain a 60-day supply of LoJack Units, which it believes is
in line with sales levels and sufficient to rapidly fulfill orders. The Company
maintains an inventory of certain Law Enforcement Components beyond its current
requirements in order to facilitate expansion into additional domestic markets.
RESEARCH AND DEVELOPMENT
During fiscal years 1998, 1997 and 1996 the approximate amounts spent by LoJack
on company-sponsored research and development activities were $244,000,
$518,000, and $516,000, respectively.
EMPLOYEES
As of May 1, 1998, the Company and its subsidiaries had a total of 414 full-time
employees.
EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated herein by reference the information concerning C. Michael
Daley, who is Chairman of the Board, Chief Executive Officer and Treasurer of
the Company, from the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on July 15, 1998, under the headings
"Proposal No. 1 - Election of Directors" and "Board of Directors." Information
concerning the Company's other executive officers is set forth below.
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Name Age Title
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Joseph F. Abely 45 President and Chief Operating Officer
William R. Duvall 46 Senior Vice President (Operations and Technical Development)
Peter J. Conner 57 Vice President (Government Relations)
Kevin M. Mullins 43 Vice President (Sales and Marketing)
</TABLE>
Mr. Abely joined LoJack in October 1988 as Senior Vice President and Chief
Financial Officer. He was named President and Chief Operating Officer in January
1996. From 1976 until October 1988, Mr. Abely was employed by the accounting
firm of Deloitte Haskins & Sells, where he served as a partner since 1985. Mr.
Abely is a Certified Public Accountant.
Mr. Duvall joined LoJack in 1985 and is Senior Vice President of Operations and
Technical Development. From 1984 to 1985, he was a part owner and manager of
Rich's Car Tunes, a company engaged in the sale and installation of consumer
electronic products in the automotive aftermarket. For six years prior to 1984,
Mr. Duvall was Vice President of Marketing and Sales for Analog and Digital
Systems, Inc., a manufacturer of consumer electronic products.
Mr. Mullins joined LoJack in February 1996 and was appointed Vice President of
Sales and Marketing as of March 1, 1996. From 1976 until joining LoJack Mr.
Mullins served in a variety of positions at Proctor & Gamble Company, Inc.,
including District Sales Manager, Customer Business Development Manager, and
most recently as Northeast Operation Manager.
Mr. Conner joined LoJack in 1985 and is Vice President of Government Relations.
From 1982 to 1985, he was a franchise director for Continental Cablevision of
Boston, Massachusetts. From 1980 to 1982, Mr. Conner was a franchise director
for American Television Communications of Denver, Colorado, a cable television
operator.
Each executive officer is elected for a term scheduled to expire at the meeting
of Directors following the annual meeting of Stockholders or until a successor
is duly chosen and qualified. There are no arrangements or understandings
pursuant to which any executive officer was or is to be selected for election or
reelection. There are no family relationships among any Directors or executive
officers, except that C. Michael Daley, a Director and executive officer, and
James A. Daley, a Director, are brothers.
ITEM 2 - PROPERTIES
The Company's executive offices are located at 333 Elm Street, Dedham,
Massachusetts, under a lease for such space expiring in May 2001. In addition,
the Company leases various facilities in Massachusetts, New Jersey,
Pennsylvania, Michigan, California, Illinois, Georgia, Virginia, Florida and
Texas under operating leases whose terms expire from 1998 to 2003. The leases
contain renewal options ranging from two to five years. Because the Company's
operations do not require any special facilities, the Company does not
anticipate any difficulty in finding space adequate for its purposes at
reasonable rates.
ITEM 3 - LEGAL PROCEEDINGS
On March 9, 1998, Thomas Coffey, John Redmond, Bob Gnatowski and Richard
McNichol (collectively, the "Plaintiffs"), all former employees of the Company,
filed a lawsuit against the Company in the Superior Court of New Jersey alleging
that the Company wrongfully terminated the Plaintiff's employment. The
Plaintiffs allege age discrimination claims and assert that the Company
intentionally inflicted emotional distress upon them. The Plaintiffs are seeking
compensatory damages, punitive damages, attorney's fees and costs. The Company
believes the claims are without merit and intends to vigorously defend the
lawsuit. However, there can be no assurance as to the outcome of the lawsuit.
Even if the lawsuit were not to proceed to trial, the litigation could result
in substantial costs to the Company. An adverse judgment or settlement could
subject the Company to significant liabilities and expenses. The Company has
procured insurance which may cover all or part of the liabilities associated
with the claims made by the Plaintiffs. However, there can be no assurance that
such insurance will cover all, if any part, of any liabilities.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference to the
section entitled "Market for Registrant's Common Equity and Related Stockholder
Matters" on page 1 of the Company's 1998 Annual Report, which is filed herewith
as Exhibit 13.
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ITEM 6 - SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by reference to the
section entitled "Selected Financial Data" on page 4 of the Company's 1998
Annual Report, which is filed herewith as Exhibit 13.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated herein by reference to the
section entitled "Management's Discussion and Analysis," pages 5 through 8 of
the Company's 1998 Annual Report, which is filed herewith as Exhibit 13.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated herein by reference to the
consolidated financial statements of the Company (including the notes thereto)
and the auditors' report thereon appearing on pages 9 through 19 of the
Company's 1998 Annual Report, which is filed herewith as Exhibit 13.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K and instruction 3 to Item
401(b), the information required by this item concerning executive officers,
including certain information incorporated herein by reference to the
information appearing in the Company's definitive Proxy Statement concerning C.
Michael Daley, who is also Chairman of the Board, Chief Executive Officer and
Treasurer of the Company, is set forth in Part I, Item 1 under the heading
"Executive Officers of the Registrant" and information concerning Directors,
including Mr. Daley, is incorporated by reference to the sections entitled
"Proposal No. 1 - Election of Directors" and "Board of Directors" in the
Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders
to be held July 15, 1998.
There is incorporated herein by reference to the discussion under "Principal and
Management Stockholders - Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held July 15, 1998 the information with respect to
any delinquent filings of reports pursuant to Section 16(a) of the Securities
Exchange Act of 1934.
ITEM 11 - EXECUTIVE COMPENSATION
Information required by this Item is incorporated herein by reference to the
information appearing in the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on July 15, 1998 under the heading "Executive
Compensation."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated herein by reference to the
information appearing in the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on July 15, 1998 under the heading "Principal
and Management Stockholders."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are included as part of this report:
(1) CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
The following financial statements of the Company and the report of
the independent certified public accountants are incorporated by
reference to the Company's 1998 Annual Report:
Independent Auditors' Report Relating to the Consolidated Financial
Statements (and notes thereto)
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
-----------------------------------------
The following report and consolidated financial statement schedule
is filed as part of this report and should be read in conjunction with
the consolidated financial statements (and notes thereto):
Independent Auditors' Report Relating to the Consolidated Financial
Statement Schedule
Schedule II - Valuation and Qualifying Accounts
Other financial statement schedules have been omitted because they are
not required or not applicable or because the required information is
included in the consolidated financial statements or notes thereto.
(3) EXHIBITS
--------
Certain of the exhibits listed hereunder have been previously filed
with the Commission as exhibits to certain registration statements and
periodic reports as indicated in the footnotes below and are incorporated
herein by reference pursuant to Rule 411 promulgated under the Securities
Act and Rule 24 of the Commission's Rules of Practice. The location of
each document so incorporated by reference is indicated by footnote.
3A. Restated Articles of Organization (incorporated by reference to Exhibit
3A filed with the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1994 (the "1994 Form 10-K"))
3B. Amended By-Laws (incorporated by reference to exhibit 3B filed with the
Company's Annual Report on Form 10-K for the fiscal year ended February
29, 1992 (the "1992 Form 10-K"))
4A. Specimen Share Certificate (incorporated by reference to exhibit 4A to
File No. 2-74238-B)
4A1. Amended Specimen Share Certificate (incorporated by reference to exhibit
4B to File No. 2-98609)
10A. Volume Assembly Contract with Micrologic, Inc. (incorporated by reference
to exhibit 10I to the Company's Annual Report on Form 10-K for the fiscal
year ended February 28, 1986 (the "1986 Form 10-K"))
10B. Supply Agreement with Motorola (incorporated by reference to exhibit 10J
to the 1986 Form 10-K)
10C. Agreement with the City of Los Angeles dated March 9, 1989 (incorporated
by reference to exhibit 10K to File No. 33-27457)
10D. Contract between the State of Michigan and LoJack Corporation dated as of
April 24, 1989 (incorporated by reference to exhibit 10O filed with the
Company's Annual Report on Form 10-k for the fiscal year ended February
28, 1990 ("the 1990 Form 10-K"))
10E. Agreement between LoJack Corporation and the Illinois State Police dated
as of August 23, 1990 (incorporated by reference to exhibit 10P to the
1990 Form 10-K)
10F.++ 1985 Non-Qualified Stock Option Plan, as amended (incorporated by
reference to exhibit 10F to 1992 Form 10-K)
8
<PAGE>
10G.++ Directors' Compensation Plan (incorporated by reference to exhibit 10G
to 1992 Form 10-K)
10H.++ LoJack Corporation Restated and Amended Stock Incentive Plan
(incorporated by reference to Exhibit 10H to the
1994 Form 10-K)
10I.++ Amendment Number One to Restated and Amended Stock Incentive Plan
(incorporated by reference to Exhibit 10ss filed with the Company's
Annual Report on Form 10-K for the fiscal year ended February 29, 1996
(the "1996 Form 10-K"))
10J.++ Amendment Number Two to Restated and Amended Stock Incentive Plan
10K. Form of Agreement with respect to options granted to certain officers and
employees (incorporated by reference to exhibit 10H to File No. 33-27457)
10L. Lease Agreement LoJack Sector Activation System dated February 23, 1988
between Recovery Systems, Inc. and the Florida Department of Motor
Vehicles (incorporated by reference to exhibit 10K to 1992 Form 10-K)
10M. Accepted Proposal by LoJack Corporation to the Massachusetts Department
of Public Safety (incorporated by reference to exhibit 10F to File No.
2-74238-B)
10N. Lease Agreement between Auto Recovery Systems, Inc. and the State of New
Jersey dated July 31, 1989 (incorporated by reference to exhibit 10M to
1992 Form 10-K)
10O. Loan Agreement dated December 10, 1993 among The First National Bank of
Boston and LoJack Corporation, LoJack Midwest Corporation, LoJack of New
Jersey Corporation, Recovery Systems, Inc. and CarSearch Corporation
(incorporated by reference to Exhibit 10N to the 1994 Form 10-K)
10P. Lease Agreement Number VA-901212-LOJ between LoJack Corporation and the
Commonwealth of Virginia dated September 17, 1991 (incorporated by
reference to exhibit 10W to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1993 (the "1993 Form 10-K"))
10Q. Lease Agreement between LoJack Corporation and the State of Georgia
Department of Public Safety dated June 6, 1991 (incorporated by reference
to exhibit 10X to 1993 Form 10-K)
10R.++ Form of Senior Management Option (incorporated by reference to exhibit
10Z to 1993 Form 10-K)
10S. License, Trademark and Supply Agreement dated July 16, 1992, by and
between CarSearch Corporation, a subsidiary of LoJack Corporation, and
Secar, Ltd. Kutuzovovn, Bratislava, Czechoslovakia (incorporated by
reference to exhibit 10aa to 1993 Form 10-K)
10T. Patent License and Ancillary Know-How Agreement dated December 30, 1991,
and Second Amendment (relating to the Patent, License and Know-How
Agreement of December 30, 1991), dated January 29, 1993, (the Second
Amendment incorporates by reference the First Amendment to the Patent,
License and Know-How Agreement dated April 27, 1992 which is superseded),
each by and between LoJack Corporation and Stolen Vehicle Recovery
Systems Limited, Aylesbury, Buckingham, UK (incorporated by reference to
exhibit 10bb to 1993 Form 10-K)
10U. Agreement dated January 21, 1994 between the New York Division of State
Police and LoJack Corporation (incorporated by reference to Exhibit 10aa
to the 1994 Form 10-K)
10V. Memorandum of Understanding dated July 29, 1993 with the District of
Columbia Metropolitan Police Department (incorporated by reference to
Exhibit 10cc filed with the Company's Annual Report on Form 10-K for the
fiscal year ended February 28, 1995 (the "1995 Form 10-K"))
10W. Memorandum of Understanding dated February 28, 1994 with Rhode Island
State Police (incorporated by reference to Exhibit 10dd to the 1995 Form
10-K)
10X. Contract dated July 15, 1993 with the State of Connecticut (incorporated
by reference to Exhibit 10ee to the 1995 Form 10-K)
10Y. License, Trademark, and Supply Agreement dated August 10, 1993 between
CarSearch Corporation and Vehicles Security Resources Limited, Nassau,
Bahamas (incorporated by reference to Exhibit 10ii to the 1995 Form 10-K)
10Z. License, Trademark, and Supply Agreement dated August 23, 1993 between
CarSearch Corporation and MaxRich Consultants, Ltd., Kowloon, Hong Kong
(incorporated by reference to Exhibit 10jj to the 1995 Form 10-K)
10aa. License, Trademark, and Supply Agreement dated April 15, 1994 between
CarSearch Corporation and Triones Taiwan Co., Ltd., Taichung, Taiwan,
R.O.C. (incorporated by reference to Exhibit 10ll to the 1995 Form 10-K)
10bb. Patent, License, Trademark, and Supply Agreement dated October 4, 1994
between LoJack International Corporation, a subsidiary of LoJack
Corporation, and Sucess Trading, S.A., Buenos Aires, Argentina
(incorporated by reference to Exhibit 10mm to the 1995 Form 10-K)
10cc. License, Trademark, and Supply Agreement dated October 13, 1994 between
LoJack International Corporation and Tracker Vehicle Location Systems
(PTY) Ltd., Cape Town, South Africa (incorporated by reference to Exhibit
10nn to the 1995 Form 10-K)
10dd. License and Ancillary Know-How Agreement dated October 1, 1995 between
LoJack International Corporation and Detektor, Bad Homburg, Germany
(incorporated by reference to Exhibit 10oo to the 1996 Form 10-K)
10ee. Patent License and Ancillary Know-How Agreement dated November 30, 1994
between LoJack International Corporation and LoJack Italia, Bologna,
Italy (incorporated by reference to Exhibit 10pp to the 1995 Form 10-K)
9
<PAGE>
10ff. License and Supply Agreement dated April 25, 1995 between LoJack
International Corporation and United States Consolidated Technologies
Corporation (incorporated by reference to Exhibit 10qq to the 1995 Form
10-K) Amendment No. 1 to Restated and Amended Stock Incentive Plan
10gg. Second Amendment to Loan Agreement dated as of February 20, 1996 among
The First National Bank of Boston and LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc. and LoJack Holdings Corporation (incorporated by reference
to Exhibit 10tt to the 1996 Form 10-K)
10hh. Amended and Restated Revolving Credit and Term Note dated as of February
20, 1996 in the amount of $7,500,000 made by LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc. and LoJack Holdings Corporation payable to the order of The
First National Bank of Boston (incorporated by reference to Exhibit 10mm
to the 1996 Form 10-K)
10ii. Trademark and Supply Agreement dated August 15, 1995 between LoJack
International and CarTrack Kenya Limited, Nairobi, Kenya (incorporated by
reference to Exhibit 10yy to the 1996 Form 10-K)
10jj. Third Amendment to Loan Agreement dated as of October 31, 1996 among The
First National Bank of Boston and LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc., LoJack Holdings Corporation and LoJack Venture Corporation
(incorporated by reference to Exhibit 10jj filed with the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1997
(the "1997 Form 10-K"))
10kk. Second Amended and Restated Revolving Credit and Term Note dated as of
October 31, 1996 in the amount of $7,500,000 made by LoJack Corporation,
LoJack International Corporation, LoJack of New Jersey Corporation,
Recovery Systems, Inc., LoJack Holdings Corporation, and LoJack Venture
Corporation payable to the order of The First National Bank of Boston
(incorporated by reference to Exhibit 10kk to the 1997 Form 10-K)
10ll. Fourth Amendment to Loan Agreement dated as of February 28, 1997among The
First National Bank of Boston and LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc., LoJack Holdings Corporation, and LoJack Venture
Corporation (incorporated by reference to Exhibit 10ll to the 1997 Form
10-K)
10mm. Third Amended and Restated Revolving Credit and Term Note payable to the
order of The First National Bank of Boston dated as of February 28, 1997
in the amount of $7,500,000 made by LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc., LoJack Holdings Corporation, LoJack Venture Corporation,
and LoJack of Pennsylvania Corporation, and LoJack FSC, Ltd.
(incorporated by reference to Exhibit 10mm to the 1997 Form 10-K)
10nn. License, Trademark and Supply Agreement dated September 10, 1996 between
LoJack International and S1 Corporation, Seoul, Korea (incorporated by
reference to Exhibit 10nn to the 1997 Form 10-K)
10oo. Agreement dated September 1, 1996 between LoJack Corporation and the
Texas Department of Public Safety (incorporated by reference to Exhibit
10oo to the 1997 Form 10-K)
10pp. Agreement between Commonwealth of Pennsylvania, Pennsylvania State Police
and LoJack Corporation dated May 14, 1996 (incorporated by reference to
Exhibit 10pp to the 1997 Form 10-K)
10qq. Agreement between the Maryland Department of State Police and LoJack
Corporation dated November 8, 1996 (incorporated by reference to Exhibit
10qq to the 1997 Form 10-K)
10rr. Joint Venture Agreement dated as of December 1, 1995 by and between
LoJack Venture Corporation and Micrologic, Inc. (incorporated by
reference to Exhibit 10rr to the 1997 Form 10-K)
10ss. License Agreement dated as of December 1, 1995 between SCT Development
Venture and LoJack Corporation (incorporated by reference to Exhibit 10ss
to the 1997 Form 10-K)
10tt. Development Agreement dated as of December 1, 1995 by and between SCT
Development Venture and Micrologic, Inc. (incorporated by reference to
Exhibit 10tt to the 1997 Form 10-K)
10uu.* Fifth Amendment to Loan Agreement dated February 28, 1998 among
BankBoston N. A. and LoJack Corporation, LoJack International
Corporation, LoJack New Jersey Corporation, Recovery Systems Inc., LoJack
Holdings Corporation, LoJack Venture Corporation, LoJack of Pennsylvania
Corporation, and LoJack FSC, Ltd.
10vv.* Fourth Amended and Restated Revolving Credit and Term Note payable to the
order of BankBoston N.A.dated as of February 28, 1998 in the amount of
$7,500,000 made by LoJack Corporation, LoJack International Corporation,
LoJack of New Jersey Corporation, Recovery Systems, Inc.,LoJack Holdings
Corporation, LoJack Venture Corporation, and LoJack of Pennsylvania
Corporation, and LoJack FSC, Ltd.
11.* Statement re: Computation of per share earnings
13.* 1998 Annual Report to Stockholders
21.* Subsidiaries of the Registrant
23.* Consent of Deloitte & Touche LLP
27.* Financial Data Schedule
99. "Safe Harbor" Statement under Private Securities Litigation Reform Act of
1995 ( incorporated by reference to Exhibit 99 to the 1996 Form 10-K)
10
<PAGE>
- ----------------------------
* Indicates an exhibit which is filed herewith.
++ Indicates an exhibit which constitutes an executive compensation plan.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the last quarter of
the period covered by this report.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the Town of Dedham,
Commonwealth of Massachusetts, on the 27th day of May 1998.
LOJACK CORPORATION
(Registrant)
BY: /s/ C. Michael Daley
-----------------------------------------
C. Michael Daley
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in their capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ C. Michael Daley Director, Chairman, Chief May 27, 1998
- -------------------- Executive Officer, and Treasurer
C. Michael Daley (Principal Executive Officer)
/s/ Robert J. Murray Director May 27, 1998
- --------------------
Robert J. Murray
/s/ James A. Daley Director May 27, 1998
- ------------------
James A. Daley
/s/ Harold W. Shad, III Director May 27, 1998
- -----------------------
Harold W. Shad, III
/s/ Lee T. Sprague Director May 27, 1998
- ------------------
Lee T. Sprague
/s/ Larry C. Renfro Director May 27, 1998
- -------------------
Larry C. Renfro
/s/ Harvey Rosenthal Director May 27, 1998
- --------------------
Harvey Rosenthal
/s/ Joseph F. Abely President and Chief Operating May 27, 1998
- ------------------- Officer (Principal Financial
Joseph F. Abely and Accounting Officer)
</TABLE>
12
<PAGE>
INDEX TO INDEPENDENT AUDITORS' REPORT AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report Relating to the Financial Statement Schedule.. F-1
Schedule II - Valuation and Qualifying Accounts ........................... F-2
</TABLE>
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
LoJack Corporation:
We have audited the consolidated financial statements of LoJack Corporation and
subsidiaries as of February 28, 1998 and 1997, and for each of the three years
in the period ended February 28, 1998, and have issued our report thereon dated
April 24, 1998; such consolidated financial statements and report are included
in your 1998 Annual Report to Stockholders and are incorporated herein by
reference. Our audits also included the consolidated financial statement
schedule of LoJack Corporation, listed in Item 14. This consolidated financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statement taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 24, 1998
F-1
<PAGE>
SCHEDULE II
LOJACK CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED FEBRUARY 28, 1998, 1997 AND FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ADDITIONS COLUMN E
BALANCE AT CHARGED TO BALANCE
COLUMN A BEGINNING COSTS AND COLUMN D AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the year ended:
February 28, 1998 $553,442 $217,139 $(191,394)(1) $579,187
======== ======== ========= ========
February 28, 1997 $395,202 $223,384 $ (65,144)(1) $553,442
======== ======== ========= ========
February 29, 1996 $193,381 $230,942 $ (29,121)(1) $395,202
======== ======== ========= ========
WARRANTY RESERVE:
For the year ended:
February 28, 1998 $388,679 $358,447 $(264,395) $482,731
======== ======== ========= ========
February 28, 1997 $324,813 $371,275 $(307,409) $388,679
======== ======== ========= ========
February 29, 1996 $223,509 $267,036 $(165,732) $324,813
======== ======== ========= ========
</TABLE>
(1) Net accounts written off.
F-2
<PAGE>
EXHIBIT 10UU
FIFTH AMENDMENT TO LOAN AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AGREEMENT (the "Amendment") is made as of
---------
February 27, 1998 by and among LOJACK CORPORATION, a Massachusetts corporation
(the "Parent"), and its wholly-owned subsidiaries, LOJACK INTERNATIONAL
------
CORPORATION, a Delaware corporation, formerly known as LoJack Midwest
Corporation (and the successor by merger to CarSearch Corporation), which was
formerly a party to the Loan Agreement referred to below), LOJACK OF NEW JERSEY
CORPORATION, a Delaware corporation, RECOVERY SYSTEMS, INC., a Florida
corporation, LOJACK HOLDINGS CORPORATION, a Massachusetts corporation; LOJACK
VENTURE CORPORATION, a Massachusetts corporation; LOJACK OF PENNSYLVANIA, INC.,
a Delaware corporation and LOJACK FSC, LTD., a corporation organized under the
laws of Barbados (collectively, the "Original Borrowers"); by execution of the
------------------
Joinder attached hereto, LOJACK OF PENNSYLVANIA, INC., a Delaware corporation
and LOJACK FSC, LTD., a corporation organized under the laws of the country of
Barbados (the "Borrowers") and BANKBOSTON, N.A. (f/k/a The First National Bank
---------
of Boston)(the "Lender").
------
RECITALS
--------
A. The Lender and the Borrowers are parties to a Loan Agreement dated as
of December 10, 1993, as amended as of October 11, 1994, as amended February 20,
1996, as amended October 31, 1996, as amended February 28, 1997 (as so amended,
the "Loan Agreement"). Capitalized terms used herein without definition have
--------------
the meanings assigned to them in the Loan Agreement;
B. The Borrowers wish to amend the Loan Agreement to extend the Conversion
Date (as hereinafter defined) of the Revolving Loans to June 1, 1999.
C. Subject to certain terms and conditions, the Lender is willing to
agree to such amendments as hereinafter set forth.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
I. AMENDMENTS TO LOAN AGREEMENT.
----------------------------
A. REVOLVING CREDIT AND TERM LOANS. SECTION 2.1(A) of the Loan
-------------------------------
Agreement is hereby deleted in its entirety and replaced with the following:
"2.1 The Revolving Credit and Term Loans. (a) Subject to the terms and
-----------------------------------
conditions hereof, the Lender will make Revolving Loans to the Borrowers, from
time to time from the date hereof until June 1, 1999 (the "Conversion Date"), in
---------------
such sums as the Borrowers may request, provided that the principal amount of
Revolving Loans outstanding at any one time shall not exceed the Commitment.
Subject to the provisions of this Agreement, from the date hereof until
<PAGE>
the Conversion Date and within the limits of the Commitment, the Borrowers may
borrow, repay and reborrow under this Section."
SECTION 2.8(B) of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:
"(b) After the Conversion Date, the Borrowers shall repay the principal
amount outstanding under the Note on the Conversion Date (the "Term Loan
---------
Principal"), without setoff, deduction or counterclaim, in quarterly
- ---------
installments of principal on each Quarterly Date, commencing on August 31,1999
and ending on May 31, 2004, when all outstanding principal, interest and other
expenses and charges payable under this Agreement and the Note shall be due and
payable in full. The amount of each such quarterly installment shall be the
percentage of the Term Loan Principal set forth opposite the respective
Quarterly Date in the following table:
<TABLE>
<CAPTION> PERCENTAGE OF TERM LOAN PRINCIPAL PAYABLE
QUARTERLY DATE DURING EACH FISCAL QUARTER
- ----------------------------------------- ------------------------------------------------
<S> <C>
August 31, 1999 through May 31, 2000 3.00%
August 31, 2000 through May 31, 2001 4.00%
August 31, 2001 through May 31, 2002 5.00%
August 31, 2002 through May 31, 2003 6.00%
August 31, 2003 through May 31, 2004 7.00%
</TABLE>
B. CERTAIN FINANCIAL COVENANTS.
---------------------------
SECTION 5.2 of the Loan Agreement is hereby deleted in its entirety.
SECTION 5.3 of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:
"5.3. Leverage. The Borrowers will not permit the ratio of Total
--------
Liabilities to Tangible Capital Funds to exceed 2:00:1.00 at any Quarterly
Date."
C. NEW EXHIBITS.
------------
1. EXHIBIT 2.1 to the Loan Agreement is deleted and the attached
-----------
EXHIBIT 2.1 is substituted therefor.
- -----------
-2-
<PAGE>
II. CERTAIN REPRESENTATIONS. As a material inducement to the Lender to enter
-----------------------
into this Amendment, each of the Borrowers hereby represents and warrants to the
Lender (which representations and warranties shall survive the delivery of this
Amendment), after giving effect to this Amendment, as follows:
A. The execution and delivery of this Amendment and performance by each
Borrower of its respective obligations hereunder have been duly authorized by
all requisite corporate action and will not violate any provision of law, any
order, judgment or decree of any court or other agency of government, the
corporate charter and/or by-laws of each Borrower, or any indenture, agreement
or other instrument to which any Borrower is a party, or by which any Borrower
is bound.
B. The representations and warranties contained in SECTION 4 of the Loan
Agreement are true and correct in all material respects on and as of the date of
this Amendment as though made at and as of such date (except to the extent that
such representations and warranties expressly relate to an earlier date or
except to the extent variations therefrom have been permitted under the terms of
the Loan Agreement or otherwise in writing by the Lender). No material adverse
change has occurred in the assets, liabilities, financial condition, business or
prospects of any Borrowers from that disclosed in the financial statements most
recently furnished to the Lender. No Event of Default has occurred and is
continuing.
C. The Borrowers are not required to obtain any consent, approval or
authorization from, or to file any declaration or statement with, any
governmental instrumentality or other agency or any other person or entity in
connection with this Amendment.
D. This Amendment and the Note constitutes the legal, valid and binding
obligation of each Borrower, enforceable against each of them in accordance with
their respective terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the rights and remedies of creditors
generally or the application of principles of equity, whether in any action at
law or proceeding in equity, and subject to the availability of the remedy of
specific performance or of any other equitable remedy or relief to enforce any
right thereunder.
III. CONDITIONS. The willingness of the Lender to agree to the foregoing is
----------
subject to the following conditions:
A. Each Borrower shall have executed and delivered to the Lender (or shall
have caused to be executed and delivered to the Lender) the following:
1. This Amendment;
2. The Note in the form of the new EXHIBIT 2.1 to the Loan Agreement
-----------
(which shall supersede and replace the Amended and Restated Revolving Credit and
Term Note dated February 28, 1997);
-3-
<PAGE>
3. True and complete copies of all required directors' consents and/or
resolutions, authorizing the execution and delivery of this Amendment and such
other documents as may be necessary, certified by a duly authorized officer of
the appropriate Borrowers; and
4. Such other supporting documents and certificates as the Lender or
its counsel may reasonably request.
B. The Borrowers shall have paid to the Lender all outstanding legal fees
and disbursements of the Lender's counsel;
C. All legal matters relating to this Amendment shall be satisfactory to
the Lender and its counsel.
IV. EFFECT OF AMENDMENT. This Amendment constitutes an amendment to and
-------------------
modification of the Loan Agreement and each of the Loan Documents. Each
reference in the Loan Agreement to the "Loan Agreement", "this Agreement",
"hereunder", "hereof" or words of like import referring to the Loan Agreement
shall mean and be a reference to the Loan Agreement, as amended by this
Amendment.
V. MISCELLANEOUS.
-------------
A. As provided in the Loan Agreement, the Borrowers jointly and severally
agree to reimburse the Lender upon demand for all reasonable out-of-pocket
costs and expenses of the Lender, including all reasonable fees and
disbursements of counsel to the Lender incurred in connection with the
preparation of this Amendment and any other agreements, instruments and
documents executed pursuant hereto.
B. This Amendment shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
C. This Amendment may be executed by the parties hereto in several
counterparts hereof and by the different parties hereto on separate counterparts
hereof, all of which counterparts shall together constitute one and the same
agreement.
D. The obligations of the Borrowers under this Amendment shall be joint and
several in nature.
-4-
<PAGE>
IN WITNESS WHEREOF, the Lender and the Borrowers have caused this Amendment
to be duly executed as a sealed instrument by their duly authorized
representatives, all as of the day and year first above written.
LOJACK CORPORATION
By: /s/ Joseph F. Abely
--------------------------------------
Name: Joseph F. Abely
Title: President
LOJACK INTERNATIONAL CORPORATION
By: /s/ Joseph F. Abely
--------------------------------------
Name: Joseph F. Abely
Title: President
LOJACK OF NEW JERSEY CORPORATION
By: /s/ Joseph F. Abely
--------------------------------------
Name: Joseph F. Abely
Title: President
RECOVERY SYSTEMS, INC.
By: /s/ Joseph F. Abely
--------------------------------------
Name: Joseph F. Abely
Title: President
LOJACK HOLDINGS CORPORATION
By: /s/ Joseph F. Abely
--------------------------------------
Name: Joseph F. Abely
Title: President
LOJACK VENTURE CORPORATION
By: /s/ Joseph F. Abely
--------------------------------------
Name: Joseph F. Abely
Title: President
-5-
<PAGE>
LOJACK OF PENNSYLVANIA, INC.
By: /s/ Joseph F. Abely
--------------------------------------
Name: Joseph F. Abely
Title: President
LOJACK FSC, LTD.
By: /s/ Joseph F. Abely
--------------------------------------
Name: Joseph F. Abely
Title: President
BANKBOSTON, N.A.
By: /s/ Patricia K. Conry
--------------------------------------
Name: Patricia K. Conry
Title: Vice President
-6-
<PAGE>
EXHIBIT 10VV
FOURTH AMENDED AND RESTATED REVOLVING CREDIT AND TERM NOTE
----------------------------------------------------------
$7,500,000 Boston, Massachusetts
December 10, 1993
as Amended and Restated
as of February 20, 1996
as Amended and Restated
as of October 31, 1996
as Amended and Restated
as of February 28, 1997
as Amended and Restated
as of February 27, 1998
FOR VALUE RECEIVED, LOJACK CORPORATION, LOJACK INTERNATIONAL CORPORATION,
LOJACK OF NEW JERSEY CORPORATION, RECOVERY SYSTEMS, INC., LOJACK HOLDINGS
CORPORATION, LOJACK VENTURE CORPORATION, LOJACK OF PENNSYLVANIA, INC. and LOJACK
FSC, LTD. (collectively, the "Borrowers"), hereby jointly and severally promise
---------
to pay to BANKBOSTON, N.A. (the "Lender"), or order, at the head office of the
------
Lender at 100 Federal Street, Boston, Massachusetts 02110, the principal amount
of Seven Million Five Hundred Thousand ($7,500,000) or such lesser amount as
shall equal the aggregate unpaid principal amount of Revolving Loans (as defined
in the Loan Agreement referred to below) made by the Lender to the Borrowers
pursuant to the Loan Agreement dated as of December 10, 1993 by and between the
Borrowers and the Lender, as amended as of October 11, 1994, February 20, 1996,
October 31, 1996, February 28, 1997 and February 27, 1998 and as hereafter
amended or extended from time to time the "Loan Agreement"), together with
--------------
interest thereon at the rate or rates provided in the Loan Agreement, payable
monthly in arrears, without set-off, deduction or counterclaim, on the first
Business Day of each month, and at the maturity of this Note, whether by payment
or prepayment, acceleration or otherwise.
Prior to the Conversion Date (as defined in the Loan Agreement) the
principal amount hereof may be advanced, repaid and readvanced in accordance
with the terms of the Loan Agreement. The principal amount outstanding
hereunder on the Conversion Date shall be payable as provided in the Loan
Agreement.
Overdue principal (whether at maturity, by reason of acceleration or
otherwise) and, to the extent permitted by applicable law, overdue interest and
fees or any other amounts payable under the Loan Agreement (including without
limitation overadvances) due to the Borrowers' failure to pay the same in full
shall bear interest from and including the due date thereof until paid, at a
rate per annum equal to 4% above the rate which then applies to this Note, which
interest shall be compounded daily and payable on demand.
1
<PAGE>
In addition, if a payment of principal or interest hereunder is not made,
due to the Borrowers' failure to pay the same in full on its due date, the
Borrowers will also pay on demand a late payment charge equal to 5% of the
amount of such payment. The foregoing shall in no way affect the Lender's right
to exercise any of its rights or remedies, including those provided in SECTION
8.2 of the Loan Agreement.
All payments under this Note shall be made at the head office of the Lender
at 100 Federal Street, Boston, Massachusetts 02110 (or at such other place as
the Lender may designate from time to time in writing) in lawful money of the
United States of America in federal or other immediately available funds.
This Note is the "Note" referred to in , and is entitled to the benefits
of, the Loan Agreement (including Exhibits thereto) and all other agreements and
instruments evidencing the indebtedness hereunder (the "Loan Documents") which
---- ---------
Loan Documents are hereby incorporated herein by reference; but neither this
reference to the Loan Documents nor any provision thereof shall affect or impair
the absolute and unconditional obligation of the Borrowers to pay the principal
of and interest on this Note as herein provided.
This Note supersedes and replaces the Third Amended and Restated Revolving
Credit and Term Note in the principal amount of $7,500,000 issued to the Lender
by the Borrowers on February 28, 1997 under the Loan Agreement.
In case an Event of Default (as defined in the Loan Agreement) shall occur,
the aggregate unpaid principal of and accrued interest on this Note shall become
or may be declared to be due and payable in the manner and with the effect
provided in the Loan Agreement.
The Borrowers hereby waive presentment, demand, notice of dishonor, protest
and all other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note.
THIS INSTRUMENT SHALL HAVE THE EFFECT OF AN INSTRUMENT EXECUTED UNDER SEAL
AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS (WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS
PROVISIONS CONTAINED THEREIN).
WITNESS AS TO ALL: LOJACK CORPORATION
By: /s/ Joseph F. Abely
-----------------------------------------
Joseph F. Abely, President
________________________
2
<PAGE>
LOJACK INTERNATIONAL CORPORATION
By: /s/ Joseph F. Abely
------------------------------------------
Joseph F. Abely, Vice President
LOJACK OF NEW JERSEY CORPORATION
By: /s/ Joseph F. Abely
------------------------------------------
Joseph F. Abely, President
RECOVERY SYSTEMS, INC.
By: /s/ Joseph F. Abely
------------------------------------------
Joseph F. Abely, President
LOJACK HOLDINGS CORPORATION
By: /s/ Joseph F. Abely
------------------------------------------
Joseph F. Abely, President
LOJACK VENTURE CORPORATION
By: /s/ Joseph F. Abely
------------------------------------------
Joseph F. Abely, President
LOJACK OF PENNSYLVANIA, INC.
By: /s/ Joseph F. Abely
------------------------------------------
Joseph F. Abely, President
LOJACK FSC, LTD.
By: /s/ Joseph F. Abely
------------------------------------------
Joseph F. Abely, President
3
<PAGE>
EXHIBIT 11
LOJACK CORPORATION
COMPUTATION OF INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDING LAST DAY OF FEBRUARY
1998 1997 1996
<S> <C> <C> <C>
BASIC INCOME PER SHARE:
Weighted Average Number
Of Common Shares
Outstanding: 18,934 21,176 21,544
======= ======= =======
Net Income: $ 9,887 $ 8,180 $11,978
======= ======= =======
BASIC INCOME PER COMMON SHARE: $ .52 $ .39 $ .56
======= ======= =======
DILUTED INCOME PER SHARE:
Weighted Average Number of
Common Shares
Outstanding: 18,934 21,176 21,544
Common Equivalent Shares
From Stock Options 1,646 1,393 1,741
------- ------- -------
Total 20,580 22,569 23,285
======= ======= =======
Net Income $ 9,887 $ 8,180 $11,978
======= ======= =======
DILUTED INCOME PER COMMON SHARE $ .48 $ .36 $ .51
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 13
1998 ANNUAL REPORT
COMPANY PROFILE
LoJack Corporation markets and licenses the LoJack System, a unique, proprietary
system used exclusively by law enforcement personnel to track, locate and
recover stolen motor vehicles.
The problem of vehicle theft has escalated to an epidemic level - estimated to
result in an annual loss of almost $8 billion.
The LoJack System has a proven track record of reducing damage, enhancing public
safety, and solving serious crimes related to motor vehicle theft, all
accomplished within the practical constraints of today's overburdened law
enforcement system.
LoJack's strategy is to expand the use of its technology into those U.S. and
international markets where the combination of population density, new car
sales, and vehicle theft is high.
The LoJack System is currently operational in the following states: California,
Connecticut, Delaware, District of Colombia, Florida, Georgia, Illinois,
Maryland, Massachusetts, Michigan, New Jersey, New York, Pennsylvania, Rhode
Island, Texas, and Virginia.
International licensees are operating stolen vehicle recovery systems using
LoJack's technology in the following countries: Argentina, Colombia, Czech
Republic, Ecuador, Greece, Hong Kong, Kenya, Korea, Panama, Russia, Slovak
Republic, South Africa, Trinidad and Tobago, United Kingdom and Venezuela.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
LoJack's Common Stock is traded on the NASDAQ National Market under the symbol:
LOJN.
The following table sets forth the range of the high and low bid information for
the Common Stock of LoJack for the fiscal periods indicated, as reported by
NASDAQ. This information reflects inter-dealer prices, without retail mark-up,
markdowns or commission and may not necessarily reflect actual transactions.
LoJack's fiscal year ends the last day of February.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal 1997
First Quarter 14 1/8 9 1/8
Second Quarter 14 1/8 9 1/4
Third Quarter 11 9/16 9 1/4
Fourth Quarter 11 5/16 9 1/4
Fiscal 1998
First Quarter 12 7/8 9 5/8
Second Quarter 17 1/2 11 5/8
Third Quarter 18 7/8 12 3/4
Fourth Quarter 15 5/8 12
</TABLE>
On May 14, 1998, there were 3,600 record holders of the Company's Common Stock.
The Company believes the actual number of beneficial owners of the Common Stock
is approximately 19,000 because a large number of the shares of the Company's
Common Stock is held in custodial or nominee accounts for the benefit of persons
other than the record holder.
LoJack has never paid a dividend, and at the present time, the Company expects
that future earnings will be retained for use in its business or to repurchase
shares of its Common Stock. The Company's loan agreement with a bank permits
the payment of dividends so long as such payment does not cause noncompliance
with certain loan covenants.
1
<PAGE>
LETTER TO SHAREHOLDERS
I am very pleased to report that in fiscal 1998, ended February 28, LoJack for
the fifth straight year, achieved the highest annual revenues, operating
profits, and pre-tax income in its history. In addition, we celebrated a
significant milestone, the production of the 1,000,000th LoJack Unit by our
manufacturer, Motorola Corporation. Consumer Digest Magazine rated the LoJack
System a "Best Buy", in recognition of its excellent value in the marketplace.
LoJack's brand name is now widely recognized; the LoJack Stolen Vehicle Recovery
System is proven effective in the battle against auto theft around the globe,
and we continue to expand our technology domestically and internationally. At
home, through the dedication and hard work of our employees, we continue to
focus on increasing sales of the LoJack Stolen Vehicle Recovery System through
the new car dealer distribution network.
HIGHLIGHTS OF FISCAL 1998
Revenues for the year ended February 28, 1998 were $74,502,000, an increase of
21% over revenues of $61,665,000 a year ago. Net income for fiscal 1998 was
$9,887,000 or $.48 per share, increases of 21% and 33%, respectively, over net
income of $8,180,000, or $.36 per share for the same period a year ago.
Domestic revenue grew 17% over a year ago. This growth was the result of a
substantial increase in LoJack unit sales in both our new and existing domestic
markets. Our strong focus on our selling and marketing efforts continues to bear
fruit, which is evidenced by the gradual increase in the year-to-year growth in
LoJack Unit sales from 8% in the first quarter of fiscal 1998 to 28% in the
fourth quarter of fiscal 1998.
International revenues increased by 43%. Revenues derived from the sale and
royalties of the international version of the LoJack Unit comprised over 67% of
international revenues in fiscal 1998. During the year, we finalized agreements
with licensees in Germany, Brazil, Mexico and several other South American
countries. Several of these licensees expect to become operational during our
fiscal year ending February 28, 1999 ("fiscal 1999").
The results of fiscal 1998 reflect our increasing level of profitability as we
continue to benefit from efficiencies brought about from the economies of scale
both domestically and internationally. Our increase in gross margin dollars for
both the fourth quarter and for fiscal 1998 was double our increase in costs and
expenses (excluding depreciation expense). This increased profitability, in
combination with the impact of our stock buyback program, produced a 33%
increase in earnings per share for fiscal 1998.
We purchased 1,567,000 shares from March 1, 1997 to May 7, 1998, bringing our
total number of shares repurchased to 4,136,500, reflecting our confidence in
the Company's future growth prospects. We plan to continue repurchasing shares
of the Company at prices we feel are attractive.
FISCAL 1999 AND BEYOND BUSINESS STRATEGY
We believe that the market for the patented LoJack Stolen Vehicle Recovery
System is strong and that even with the healthy growth we have experienced, we
will be able to continue to grow our revenues and profits in the coming years.
Despite decreases in stolen vehicles over the last several years, auto theft is
still a significant problem facing consumers, costing society almost $8 billion
in losses annually. The problem is just as severe internationally.
In our domestic operations, our strategy is to continue to improve our sales and
marketing efforts both in the media and by strengthening our sales force and
expanding our new car dealer network in our existing markets. We will also
continue to explore new markets to increase our geographic coverage and improve
our distribution into the fleet and commercial markets.
In Fiscal 1999, we expect that we will expand our coverage to include New
Hampshire, Arizona, and Ohio and continue to expand our Texas operation to
Houston and Austin. As a result of improvements in our technology and
infrastructure, it has become economically feasible to review our expansion
strategy. At present, LoJack is in 15 of the top 16 states in terms of
population, new car sales and auto theft (we are currently targeting Ohio, the
16th state). Entry into smaller, but growing urban markets is under review as
our next tier of opportunity for inclusion in the LoJack Stolen Vehicle Recovery
Network.
The continued improvement of our sales force was a major factor in our domestic
growth in fiscal 1998. We introduced a formalized training program for all of
our sales and management employees during the year. We believe this will bring
more consistency in our hiring, training and presentation practices, and will
help us to maintain same market growth from year to year.
Utilizing the strength of our sales personnel and processes, improved sales
materials, consistent advertising, and public relations initiatives, we intend
to increase the number of new car dealers who actively sell our product. While
the percentage of dealers selling our product during the year is high, the
overall penetration of LoJack sales to new car sales in many of those outlets is
still in need of improvement and represents a major opportunity for growth in
LoJack Unit sales. In addition, we believe that the recent trend towards the
consolidation of the new car dealer distribution
2
<PAGE>
network, and the advent of large dealer groups, present major long-term market
opportunities for the company. The automotive aftermarket which LoJack serves is
highly-fragmented. A major advantage to these large dealer groups and
organizations is that LoJack has a nationwide presence in the new car population
centers of the U.S. In addition, we represent a proven high quality product
supported by a strong nationally recognized brand name, advertising presence and
installation capability unique to the automotive after-market industry.
We are in the process of expanding our market to include the fleet and
commercial market, which represents approximately 30% of the new vehicles sold
annually in the US. We have completed our business planning in this area and
believe that this market has the capability of eventually adding 20-30% to our
existing business. Because most of our cost structure is already absorbed by our
current business, success in this area would be very profitable to LoJack, even
at a modest level of sales.
As I indicated above, we have been very pleased with the growth of our business
in the international area. Our licensees in the United Kingdom, South Africa,
and Latin America have completed very successful years. While our licensees in
the Far East have been impacted by the area's financial crisis, we hope that
with the return of stability in the region, we will experience growth in this
business. Additionally, we presently have over a dozen countries under
agreement which will add to our future expansion of the network around the
globe.
"Revenues for the year ended February 28, 1998 were $74,502,000, an increase of
21% over revenues of $61,665,000 a year ago."
We are continuing to work on the development of our third generation LoJack
Unit, or LJUIII. Originally designed as a separate, self powered unit to be
initially marketed to the fleet and commercial markets, we found that, as the
project developed, we would not be able to accomplish all of our initial goals,
including certain technological improvements and cost effectiveness. During the
year, we altered the direction of this project and engaged Motorola to
incorporate many of the improvements into a redesign of the present LoJack Unit.
We estimate this new unit to be ready for sale by January 1999. We expect LJUIII
to be used interchangeably in all of our present applications and to have the
option of being either hardwired or portable. The redesign of this product is
intended to change the appearance and size of the LoJack Unit and also to take
advantage of improvements in technology, reduce the cost of the hardware, and to
improve the efficiency of the installation process. While we have been
disappointed with the delay, we believe the LJUIII development will achieve most
of the goals of our original development plan.
BROADENING OUR HORIZONS
All of us at LoJack have worked tirelessly to contribute to LoJack's success. It
has been our goal to focus on building our technology into a nationwide network
to recover stolen vehicles. With our present expansion to l6 states and l7
countries, we have accomplished a great deal in a very short period of time.
Much remains to be done, however. We have made a substantial contribution to the
reduction of auto theft in this country while establishing a reputation around
the globe that contributes to our continued growth. LoJack has established brand
name, distribution, advertising presence, and installation capability on a
national scale, which we believe can be the catalyst for us to ally ourselves
with the makers of potential niche products that can be profitably leveraged off
of these strengths.
It is our plan, over the coming year, to continue to evaluate companies,
products and technologies that represent a potential fit with LoJack and have
true commercial viability. However, the LoJack System, which is the only stolen
vehicle recovery system designed to be integrated into existing law enforcement
computers and telecommunication networks, will continue to be the foundation of
our business. Our experience in the technology of tracking and position
location coupled with our sales and marketing experience, make us uniquely
qualified to exploit other opportunities in this industry at this time.
I would like to thank our shareholders for their support and continued interest
in the company, and I look forward to the opportunity to report our progress
over the coming year. On behalf of the officers and directors of the company, I
would like to express our gratitude and appreciation to the employees of LoJack
Corporation for their dedication and contribution in making this such a
successful year.
Yours truly,
/s/ C. Michael Daley
C. Michael Daley
Chairman and Chief Executive Officer
May 11, 1998
3
<PAGE>
SELECTED FINANCIAL DATA
The following tables set forth selected consolidated financial data of the
Company for the periods indicated. The selected consolidated financial data for
and as of the end of the years in the five year period ended February 28, 1998
are derived from the consolidated financial statements of the Company which have
been audited by Deloitte & Touche LLP, independent auditors. The selected
quarterly financial data has not been audited. The EPS data presented below has
been restated to conform with the provisions of Statement of Financial
Accounting Standards No. 128. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
appearing elsewhere in this report.
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $74,502,318 $61,664,501 $52,516,359 $41,658,074 $30,218,584
Cost of goods sold 32,777,929 27,703,963 23,966,360 20,840,184 15,301,927
----------- ----------- ----------- ----------- -----------
Gross margin 41,724,389 33,960,538 28,549,999 20,817,890 14,916,657
----------- ----------- ----------- ----------- -----------
Costs and expenses:
System costs and research and development 1,182,988 1,316,832 1,263,492 807,462 522,117
Marketing 15,901,693 12,943,309 11,211,501 9,277,847 6,797,677
General and administrative 7,319,715 6,283,731 5,574,757 4,870,004 4,111,385
Depreciation and amortization 1,800,163 1,496,406 1,894,933 2,294,346 1,988,916
----------- ----------- ----------- ----------- -----------
Total 26,204,559 22,040,278 19,944,683 17,249,659 13,420,095
----------- ----------- ----------- ----------- -----------
Operating income 15,519,830 11,920,260 8,605,316 3,568,231 1,496,562
Interest income (expense) and other - net 685,158 1,483,938 1,441,720 564,507 (24,529)
----------- ----------- ----------- ----------- -----------
Income before provision for income taxes
and extraordinary item 16,204,988 13,404,198 10,047,036 4,132,738 1,472,033
Income tax provision (benefit) 6,318,000 5,224,000 (1,931,000) 295,000 79,000
----------- ----------- ----------- ----------- -----------
Income before extraordinary item 9,886,988 8,180,198 11,978,036 3,837,738 1,393,033
Extraordinary item, loss on exchange of
subordinated debentures (163,062)
----------- ----------- ----------- ----------- -----------
Net income $ 9,886,988 $ 8,180,198 $11,978,036 $ 3,837,738 $ 1,229,971
Preferred dividends for the year (425,563) (1,216,500)
----------- ----------- ----------- ----------- -----------
Net income applicable to common stockholders $ 9,886,988 $ 8,180,198 $11,978,036 $ 3,412,175 $ 13,471
=========== =========== =========== =========== ===========
Earnings per common share
Basic $ 0.52 $ 0.39 $ 0.56 $ 0.17 $ 0.00
----------- ----------- ----------- ----------- -----------
Diluted $ 0.48 $ 0.36 $ 0.51 $ 0.17 $ 0.00
=========== =========== =========== =========== ===========
Weighted average shares
Basic 18,934,414 21,176,205 21,544,346 19,660,496 13,652,255
=========== =========== =========== =========== ===========
Diluted 20,579,884 22,569,179 23,284,684 20,666,057 15,916,395
=========== =========== =========== =========== ===========
BALANCE SHEET DATA:
Working capital $15,486,403 $21,883,016 $33,619,366 $21,967,747 $ 8,006,436
Total assets 32,660,908 38,165,143 53,079,437 36,694,816 21,376,486
Long term debt 792,926 781,817 644,218 899,246 617,662
Total liabilities 11,158,424 10,944,954 9,351,969 7,930,097 6,213,707
Stockholders' equity 21,502,484 27,220,189 43,727,468 28,764,719 15,162,779
</TABLE>
REVENUES AND EARNINGS BY QUARTER (Unaudited):
Year Ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
First Second Third Fourth First Second Third Fourth
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $18,558,153 $18,744,847 $19,310,762 $17,888,556 $15,005,326 $15,909,555 $15,131,688 $15,617,932
Gross margin 9,997,359 10,460,360 11,304,172 9,962,498 8,072,908 8,858,602 8,401,214 8,627,814
Net income 2,261,254 2,516,874 2,911,090 2,197,770 1,936,290 2,360,338 1,927,555 1,956,015
Basic earnings per share $ 0.12 $ 0.13 $ 0.15 $ 0.12 $ 0.09 $ 0.11 $ 0.09 $ 0.10
Diluted earnings per share $ 0.11 $ 0.12 $ 0.14 $ 0.11 $ 0.08 $ 0.10 $ 0.09 $ 0.09
</TABLE>
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
LoJack is the developer of, and owns all rights to, the LoJack System, a unique
patented system designed to assist law enforcement personnel in locating,
tracking, and recovering stolen vehicles. The LoJack System is comprised of a
Registration System maintained and operated by LoJack; a Sector Activation
System and Police Tracking Computers operated by law enforcement officials (the
"Law Enforcement Components"); and the LoJack Unit, a VHF (very high frequency)
transponder sold to consumers. The LoJack System is designed to be integrated
into existing law enforcement computer and telecommunication networks and
procedures. If a car equipped with a LoJack Unit is stolen, its owner reports
the theft as usual to a local police department. Existing law enforcement
computer and communication networks and procedures operate in the normal manner
for a report of a stolen vehicle. If the theft involves a vehicle equipped with
a LoJack Unit, a unique radio signal will be transmitted automatically to the
LoJack Unit in the stolen vehicle activating its tracking signal. The tracking
signal emitted from the LoJack Unit can be detected by the Police Tracking
Computer installed in police patrol cars throughout the coverage areas and is
used to lead law enforcement officers to the stolen vehicle.
The Company's revenues in the United States are derived primarily from the sale
of LoJack Units and related products to consumers. Approximately 95% of such
sales are made through a distribution network consisting of new and used
automobile dealers.
The Company also derives revenues from fees,sales of product, and royalties
pursuant to agreements to license ("License Agreements") the use of the
Company's stolen vehicle recovery system technology, principally to selected
international markets. In connection with this international expansion, the
Company modified its stolen vehicle recovery technology to develop the CarSearch
Stolen Vehicle Recovery System ("CarSearch"). Unlike the LoJack System currently
in operation in the United States, CarSearch has the flexibility of operating
independently of existing law enforcement communication networks.
RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1998 ("FISCAL 1998") VS. FEBRUARY 28, 1997 ("FISCAL
1997")
Revenues increased by $12,837,000, or 21%, to $74,502,000 in fiscal 1998 from
$61,665,000 in fiscal 1997. Domestic markets contributed $8,706,000 of the
increase in revenues and international revenues contributed $4,131,000. The
increase in revenues from domestic markets of 17% was the result of revenues of
$4,793,000 from new markets as well as growth of $3,913,000 in the existing
markets. Domestic revenue growth was fueled by an overall increase of 20% in the
number of LoJack Units sold, partially offset by a decrease in penetration of
optional lower-margin automobile security products. International revenue growth
was primarily the result of the increase in sales and royalties on the
international version of the LoJack Unit of $4,250,000 primarily to existing
licensees and an increase in license fees of $1,687,000 primarily from new
international agreements. These increases were partially offset by net decreases
of $1,806,000 in fiscal 1998 of revenues from the shipment of LoJack System
components and other products to new start-up licensees.
Cost of goods sold decreased to 44% of consolidated revenues in fiscal 1998 from
45% in fiscal 1997. Domestically, cost of goods sold decreased to 44% in fiscal
1998 from 45% in fiscal 1997. This decrease reflects the combination of lower
manufacturing and installation costs of the LoJack Unit as well as decreased
penetrations of lower-margined, optional alarm products. International cost of
sales for fiscal 1998 increased to 44% of related revenues from 43% in fiscal
1997. This increase is primarily the result of the aforementioned increase in
revenues from sales of the international version of the LoJack Unit which
typically are at a lower margin than sales of system components and license
fees.
Systems costs and research and development expense decreased by $134,000 in
fiscal 1998 to $1,183,000 from $1,317,000 in fiscal 1997. Research and
development expense decreased by $274,000 to $244,000 in fiscal 1998 from
$518,000 in fiscal 1997 primarily as the result of a decrease in costs related
to the development of the third generation LoJack Unit. Systems costs increased
by $140,000 to $939,000 in fiscal 1998 from $799,000 in fiscal 1997 as the
result of both the new markets and systems maintenance costs in the existing
markets.
Marketing expenses increased by $2,959,000 to $15,902,000 in fiscal 1998 from
$12,943,000 in fiscal 1997. This increase was primarily related to start-up
expenses, including advertising, general marketing expense and personnel in the
new markets, as well as an increase related to a promotional rebate program and
to the overall increase in the volume of business in the existing domestic
markets.
General and administrative expenses increased $1,036,000 to $7,320,000 in fiscal
1998 from $6,284,000 in fiscal 1997. This increase is primarily the result of
administrative overhead and personnel expenses in the new markets as well as
increases in payroll and benefits, professional fees and general overhead
related to the increased volume of business of the existing domestic and
international operations.
Depreciation and amortization increased by $304,000 primarily due to
depreciation on the additions in fiscal 1998 and the latter portion of fiscal
1997 of certain computer equipment and software related to management
information systems upgrades, the addition of installation vehicles related to
increased business volume, and depreciation of LoJack system components and
other property in the new markets.
Provision for income taxes increased by $1,094,000 to $6,318,000 in fiscal 1998
from $5,224,000 in fiscal 1997 as the result of the increase in related taxable
income. The effective tax rate for fiscal 1998 and 1997 remained at 39%.
As a result of the foregoing, net income increased by $1,707,000 to $9,887,000
in fiscal 1998 from $8,180,000 in fiscal 1997.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANAYLSIS
YEAR ENDED FEBRUARY 28, 1997 ("FISCAL 1997") VS. FEBRUARY 29, 1996 ("FISCAL
1996")
Revenues increased by $9,149,000 or 17% in fiscal 1997 to $61,665,000 from
$52,516,000 in fiscal 1996. Revenues from domestic markets contributed
$3,884,000 of the increase and international revenues contributed $5,265,000.
The increase in domestic revenues was primarily due to increased revenues from
sales of LoJack Units and related components in existing domestic markets. The
increase in international revenues of $5,265,000 resulted primarily from an
increase in the sales and royalties of the international version of the LoJack
Unit and related products of $2,839,000 which are primarily recurring in nature,
as well as an increase in revenues from the sale of system components and
licensing fees of $2,426,000, which are primarily both non-recurring in nature
and related to new licensees.
Cost of goods sold decreased to 45% of consolidated revenues in fiscal 1997 from
46% for the same period a year earlier. Domestically, cost of goods sold
decreased as a percentage of revenues to 45% in fiscal 1997 from 46% in fiscal
1996. The decrease results primarily from a decrease in the manufactured cost
of the LoJack unit as well as increased product sales. International cost of
goods sold increased to 43% of revenues in fiscal 1997 from 40% in fiscal 1996.
Systems costs and research and development expense increased by $54,000 to
$1,317,000 in fiscal 1997 from $1,263,000 in fiscal 1996. Research and
development increased by $2,000 to $518,000 in fiscal 1997, from $516,000 in
fiscal 1996. Fiscal 1997 expense was primarily related to the ongoing
development of a third generation LoJack Unit, while fiscal 1996 research and
development expense related to modifications to the LoJack Unit for
international applications and the Police Tracking Computers. Systems costs
increased by $52,000 to $799,000 in fiscal 1997 from $747,000 in fiscal 1996 due
to an increased number of domestic markets and increased age of the LoJack
System in established markets.
Overall, marketing expenses remained at 21% of total revenues. Marketing
expenses increased by $1,731,000 to $12,943,000 in fiscal 1997 from $11,212,000
in fiscal 1996. These increases were primarily related to an increase in media
expense due to increased radio advertising in certain markets, as well as start-
up expenses (including personnel and media planning) related to expansion
activity in Maryland, Pennsylvania, and Texas. Additionally, sales and
marketing salaries and wages and other general marketing expenses increased as
the result of an increase in overall business volume.
Overall, general and administrative expenses as a percentage of revenues
decreased to 10% in fiscal 1997 as compared to 11% in fiscal 1996. General and
administrative expenses increased by $709,000 to $6,284,000 in fiscal 1997 from
$5,575,000 in fiscal 1996. These increases are primarily the result of
increased payroll costs and administrative expenses related to the increased
domestic and international volume during the year, as well as start-up expenses
related to expansion activity in Maryland, Pennsylvania and Texas.
Depreciation and amortization decreased by $399,000 as the result of LoJack
System components in certain older markets becoming fully depreciated, offset
partially by increases in depreciation related to current year additions of
computer equipment and software.
Interest and other income increased by $29,000 primarily as the result of the
increase in average cash balances related to cash flow from operations during
the first half of fiscal 1997, partially offset by the decrease in average cash
balances during the second half of fiscal 1997 related to increased activity in
the CompanyOs stock repurchase program.
Interest expense decreased by $13,000 due to a decrease in the average capital
lease obligations outstanding in fiscal 1997 as compared to fiscal 1996.
Provision for income taxes increased by $7,155,000 for fiscal 1997 primarily as
the result of both the increase in the CompanyOs taxable income during the
fiscal year as well as an increase in the CompanyOs effective tax rate to 39% in
fiscal 1997. The Company had a net tax benefit of 19% for fiscal 1996 primarily
as the result of a non-recurring credit for income taxes.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
LIQUIDITY AND CAPITAL RESOURCES
The Company's strategic plan in the United States is to expand the use of its
technology to those jurisdictions where the combination of new vehicle sales,
population density, and the incidence of vehicle theft is high. Expansion of
the LoJack System in the United States requires substantial investments of
capital and operating resources. The Company currently finances its capital
and operating needs through cash flows from operations and capital leases.
In fiscal 1998 cash and equivalents decreased by $9,173,000. The overall
decrease is the result of cash used for financing activities of $17,579,000 and
investing activities of $2,473,000 being partially offset by cash provided by
operating activities of $10,878,000.
Cash used for financing activities included $17,561,000 related to the
repurchase of the Company's stock under a stock repurchase program initially
approved during fiscal 1996 and amended during fiscal 1997 and fiscal 1998, as
well as repayment of capital leases of $1,038,000 offset by proceeds from the
exercise of stock options of $1,020,000.
Cash used for investing activities included expenditures for property and
equipment of $2,673,000 (excluding assets purchased under capital lease
agreements) offset partially by a maturity of an investment of $200,000.
Cash flow provided by operating activities of $10,878,000 includes net income of
$9,887,000 and $991,000 of adjustments to reconcile net income to net cash
provided by operating activities. The decrease in cash from changes in assets
and liabilities of $2,122,000 includes an increase in accounts receivable of
$861,000, an increase in inventories of $1,137,000, an increase in vendor
deposits of $1,432,000, an increase in other assets of $10,000, a decrease in
accounts payable of $264,000, offset partially by an increase in accrued and
other liabilities of $804,000, an increase in deferred revenue of $755,000 and a
decrease in prepaid expenses of $21,000. The increase in accounts receivable is
primarily related to domestic receivables, which the Company expects will
continue to increase as its sales increase. The increase in inventory is the
result of a $491,000 increase in international inventory, as well as a $646,000
increase in domestic inventory levels. The domestic increase related to efforts
to increase inventories on hand to sufficient levels to satisfy the Company's
current level of business, as well as to meet unanticipated demand. The
international inventory increase is the result of timing of shipments related to
certain purchase orders received from international licensees. The increase in
vendor deposits of $1,432,000 relates to a deposit for long-lead time parts
orders with a major supplier which will be applied toward future purchases
during fiscal 1999. The increase in deferred revenue is related to cash received
during the year under the extended warranty program for which revenue is
amortized over a five year period.
The Company is presently pursuing expansion efforts in several additional
markets which meet the qualifications set forth in the Company's strategic plan.
The Company expects that, pending receipt of necessary approvals, certain of
these potential expansion markets will become operational during fiscal 1999.
The Company plans to fund these expansions as well as other capital expenditures
during fiscal 1999 using the existing line-of-credit, working capital or cash
flow from operations. The Company estimates capital expenditures in fiscal 1999
of approximately $2,500,000 principally for planned domestic market expansions,
including Arizona, New Hampshire and within Texas, as well as other on-going
capital requirements.
The Company's expansion into additional international markets is achieved
through licensing agreements and has not in the past required capital investment
on the part of the Company. The Company currently has no plans to change this
practice.
As of February 28, 1998 the Company had working capital of $15,486,000. The
Company believes that its anticipated capital and operating requirements for
fiscal 1999 can be funded from cash flows from operations and the existing line
of credit. The Company intends to continue to repurchase shares of its common
stock provided that the reacquisition cost makes such repurchases economically
practical. The Company's existing line of credit with a bank of $7,500,000 was
amended during the fourth quarter of fiscal 1998 to extend the revolving credit
facility term to June 1999 at which time it would convert to a term loan payable
in quarterly installments through February 2004.
During fiscal 1996 the Company's board of directors authorized a stock
repurchase program under which the Company may repurchase up to 2,200,000 shares
of its outstanding common stock, which subsequently was increased to 5,200,000
during fiscal 1998. As of February 28, 1998 the Company had repurchased
3,971,500 shares for a total of $43,764,826. From March 1, 1998 through May 15,
1998 the Company has repurchased an additional 165,000 shares at a cost of
$2,080,000.
The Company continues to participate in research and development efforts
regarding both improvements and modifications to the LoJack Unit and LoJack
system components. The Company expects to spend approximately $750,000 in fiscal
1999 on its research and development efforts as compared with $244,000 spent in
fiscal 1998.
The Company is also continuing to explore possible investment opportunities,
including, but not limited to, possible acquisitions of or investments in other
companies.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OTHER INFORMATION
NEW ACCOUNTING PRONOUNCEMENTS
During fiscal 1998 the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS No. 128
replaced the presentation of primary earnings per share with a presentation of
basic earnings per share, which excludes dilution, and requires the dual
presentation of basic and diluted earnings per share. In fiscal 1999 the Company
will be required to adopt the provisions of SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The adoption of SFAS No. 130 will not have
an effect on the financial position or results of operations of the Company.
SFAS No. 131 may require the Company to provide information about the segments
of its business based upon internal information used to make operating
decisions. The Company is currently evaluating its operations to determine the
effect of the adoption of this statement, but has not yet completed its
evaluation.
In March 1998, the Accounting Standards Executive Committee ("ASEC") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which will become effective
during fiscal year 2000. The Company is currently evaluating this SOP and does
not expect its adoption to have a material impact on the Company's financial
statements. In April 1998, the ASEC issued SOP 98-5, "Reporting on the Costs of
Start-up Activities", which will become effective during fiscal year 2000. The
Company has determined that the adoption of this SOP will have no impact as the
Company currently expenses all costs associated with entering new markets and
establishing new licensees.
YEAR 2000
The Company has conducted a review of its computer systems to identify those
areas that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Company is currently implementing
new accounting and custom software as well as new computer network systems which
have been designed by the vendors to properly process transactions which could
be impacted by the "Year 2000" problem. The Company believes that with certain
modifications to LoJack System components, the "Year 2000" problem will not pose
significant operational problems and costs to complete this process are not
anticipated to be material to its financial position or results of operation in
any given year.
INTERNATIONAL OPERATIONS
In fiscal 1998 the Company derived 19% of its consolidated revenues from the
international operations of its foreign licensees, with sales concentrations in
certain countries. At the end of fiscal 1998, the Company's licensee in
Argentina, which represented 4% of consolidated revenues during the year,
started to experience financial difficulties. The Company believes that
prospects for sales and market opportunities in Argentina remain strong. The
Company will closely monitor the activities of this licensee as well as other
foreign licensees. The Company generally sells to foreign licensees through cash
prepayments, letters of credit, and bonded warehouse arrangements, which assure
payment for its products. However, matters affecting the operations or financial
condition of the Company's foreign licensees, many of which are beyond the
control of the Company, may affect the timing of licensing arrangements or
orders of LoJack's products by such licensees.
CAUTIONARY STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. From time to time, information
provided by the Company or statements made by its employees may contain "for-
ward-looking" information which involve risk and uncertainties. Any statements
in this report that are not statements of historical fact are forward-looking
statements (including, but not limited to, statements concerning the
characteristics and growth of the Company's market and customers, the Company's
objectives and plans for future operations and the Company's expected liquidity
and capital resources). Such forward-looking statements are based on a number of
assumptions and involve a number of risks and uncertainties, and accordingly,
actual results could differ materially. Factors that may cause such differences
include, but are not limited to: the continued and future acceptance of the
Company's products and services, the rate of growth in the industries of the
Company's customers; the presence of competitors with greater technical,
marketing and financial resources; the Company's ability to promptly and
effectively respond to technological change to meet evolving customer needs;
capacity and supply constraints or difficulties; and the Company's ability to
successfully integrate new operations. For a further discussion of these and
other significant factors to consider in connection with forward-looking
statements concerning the Company, reference is made to Exhibit 99 of the
Company's Annual Report on Form 10-K for the fiscal year ended February 28,
1996.
8
<PAGE>
LOJACK CORPORATION
CONSOLIDATED BALANCE SHEETS
FEBRUARY 28, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents ................................ $ 5,498,348 $ 14,671,700
Short-term investment ............................... 1,400,000 1,600,000
Accounts receivable - net ........................... 8,073,981 7,430,491
Inventories ......................................... 4,883,038 3,745,473
Vendor deposit ...................................... 1,432,000
Prepaid expenses and other .......................... 132,154 153,812
Deferred income taxes ............................... 1,195,881 1,525,010
------------ ------------
Total current assets .............................. 22,615,402 29,126,486
PROPERTY AND EQUIPMENT - Net .......................... 9,763,720 8,722,950
OTHER ASSETS - Net .................................... 281,786 315,707
------------ ------------
TOTAL ................................................. $ 32,660,908 $ 38,165,143
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital
lease obligations ................................. $ 746,304 $ 693,553
Accounts payable .................................... 2,578,348 2,842,186
Accrued and other liabilities ....................... 1,016,345 847,984
Deposits ............................................ 379,421 749,020
Current portion of deferred revenue ................. 1,213,693 985,301
Accrued compensation ................................ 1,057,895 837,953
Accrued taxes ....................................... 136,993 287,473
------------ ------------
Total current liabilities ......................... 7,128,999 7,243,470
------------ ------------
DEFERRED REVENUE ...................................... 2,676,351 2,149,524
------------ ------------
DEFERRED INCOME TAXES ................................. 560,148 770,143
------------ ------------
CAPITAL LEASE OBLIGATIONS ............................. 792,926 781,817
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; authorized,
35,000,000 shares; issued
22,250,381 and 21,985,091 shares at February 28,
1998 and 1997, respectively ....................... 222,504 219,851
Additional paid-in capital .......................... 59,493,808 57,539,986
Retained earnings (deficit) ......................... 5,550,998 (4,335,990)
Treasury stock, at cost, 3,971,500 and 2,569,500
shares of common stock at February 28, 1998
and 1997, respectively ............................ (43,764,826) (26,203,658)
------------ ------------
Total stockholders' equity ........................ 21,502,484 27,220,189
------------ ------------
TOTAL ................................................. $ 32,660,908 $ 38,165,143
============ ============
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
LOJACK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 28, 1998, 1997 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
REVENUES ..................................... $ 74,502,318 $ 61,664,501 $ 52,516,359
COST OF GOODS SOLD ........................... 32,777,929 27,703,963 23,966,360
------------ ------------ ------------
GROSS MARGIN ................................. 41,724,389 33,960,538 28,549,999
------------ ------------ ------------
COSTS AND EXPENSES:
System costs and research and development... 1,182,988 1,316,832 1,263,492
Marketing .................................. 15,901,693 12,943,309 11,211,501
General and administrative ................. 7,319,715 6,283,731 5,574,757
Depreciation and amortization .............. 1,800,163 1,496,406 1,894,933
------------ ------------ ------------
Total .................................... 26,204,559 22,040,278 19,944,683
------------ ------------ ------------
OPERATING INCOME ............................. 15,519,830 11,920,260 8,605,316
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense ........................... (210,784) (153,517) (166,748)
Interest income ............................ 787,636 1,571,867 1,526,440
Other income ............................... 108,306 65,588 82,028
------------ ------------ ------------
Total .................................... 685,158 1,483,938 1,441,720
------------ ------------ ------------
INCOME BEFORE PROVISION
FOR INCOME TAXES ............................. 16,204,988 13,404,198 10,047,036
INCOME TAX PROVISION (BENEFIT) ............... 6,318,000 5,224,000 (1,931,000)
------------ ------------ ------------
NET INCOME ................................... $ 9,886,988 $ 8,180,198 $ 11,978,036
============ ============ ============
EARNINGS PER SHARE:
BASIC ...................................... $ 0.52 $ 0.39 $ 0.56
============ ============ ============
DILUTED .................................... $ 0.48 $ 0.36 $ 0.51
============ ============ ============
WEIGHTED AVERAGE SHARES:
BASIC ...................................... 18,934,414 21,176,205 21,544,346
============ ============ ============
DILUTED .................................... 20,579,884 22,569,179 23,284,684
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
LOJACK CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 1998, 1997 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
Common Stock Additional Retained Treasury Stock
Number of Paid-in Earnings Number of
Shares Amount Capital (Deficit) Shares Amount Total
------ ------ ------- --------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 1, 1995 ........... 21,252,610 $212,527 $53,046,416 $(24,494,224) $28,764,719
Issuance of common stock:
Exercise of stock options .... 600,550 6,005 1,676,844 1,682,849
Conversion of subordinated
debentures ................. 23,506 235 99,765 100,000
Repurchase of common stock ..... 90,000 $ (847,500) (847,500)
Tax benefit of employee stock
option exercises ............. 2,049,364 2,049,364
Net income ..................... 11,978,036 11,978,036
---------- -------- ----------- ------------- --------- ------------- ------------
BALANCE, FEBRUARY 29, 1996 ....... 21,876,666 218,767 56,872,389 (12,516,188) 90,000 (847,500) 43,727,468
Exercise of stock options ...... 108,425 1,084 402,397 403,481
Repurchase of common stock ..... 2,479,500 (25,356,158) (25,356,158)
Tax benefit of employee stock
option exercises ............. 265,200 265,200
Net income ..................... 8,180,198 8,180,198
---------- -------- ----------- ------------- --------- ------------- ------------
BALANCE, FEBRUARY 28, 1997 ....... 21,985,091 219,851 57,539,986 (4,335,990) 2,569,500 (26,203,658) 27,220,189
Exercise of stock options ...... 265,290 2,653 1,017,684 1,020,337
Repurchase of common stock ..... 1,402,000 (17,561,168) (17,561,168)
Tax benefit of employee stock
option exercises ............. 936,138 936,138
Net income ..................... 9,886,988 9,886,988
---------- -------- ----------- ------------- --------- ------------- ------------
BALANCE, FEBRUARY 28, 1998 ....... 22,250,381 $222,504 $59,493,808 $ 5,550,998 3,971,500 $(43,764,826) $21,502,484
========== ======== =========== ============= ========= ============= ============
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
LOJACK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 1998, 1997 AND FEBRUARY 29, 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,886,988 $ 8,180,198 $ 11,978,036
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,777,636 2,425,794 2,730,173
Provision for doubtful accounts 217,139 223,384 237,724
Deferred income taxes 119,000 3,948,000 (2,654,000)
Increase (decrease) in cash from changes in
assets and liabilities:
Accounts receivable (860,629) (1,779,957) (1,853,087)
Inventories (1,137,565) (965,057) (934,663)
Vendor deposit (1,432,000)
Prepaid expenses and other 21,658 (70,268) (19,573)
Other assets (9,627) (11,053) 1,778
Accounts payable (263,838) 279,264 14,111
Accrued and other liabilities 804,496 (133,408) 893,539
Deferred revenue 755,218 782,265 750,371
------------ ------------ ------------
Total adjustments 991,488 4,698,964 (833,627)
------------ ------------ ------------
Net cash provided by operating activities 10,878,476 12,879,162 11,144,409
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment - net (2,672,857) (2,277,443) (999,567)
Maturity (purchase) of short-term investment 200,000 (1,600,000)
------------ ------------ ------------
Net cash used for investing activities (2,472,857) (3,877,443) (999,567)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,020,337 403,481 1,682,849
Repayment of capital lease obligations (1,038,140) (1,008,005) (1,015,436)
Repurchase of common stock (17,561,168) (25,356,158) (847,500)
------------ ------------ ------------
Net cash used for financing activities (17,578,971) (25,960,682) (180,087)
------------ ------------ ------------
(DECREASE) INCREASE IN CASH AND EQUIVALENTS (9,173,352) (16,958,963) 9,964,755
BEGINNING CASH AND EQUIVALENTS 14,671,700 31,630,663 21,665,908
------------ ------------ ------------
ENDING CASH AND EQUIVALENTS $ 5,498,348 $ 14,671,700 $ 31,630,663
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
LOJACK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1998, 1997 AND FEBRUARY 29, 1996
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company - LoJack Corporation and subsidiaries ("LoJack" or the "Company")
market and license for use components of the LoJack System (the "LoJack System")
and related products, a unique proprietary system for tracking, locating and
recovering stolen vehicles.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year - The Company's February 1998, 1997, and 1996 fiscal years ended on
February 28, 1998, February 28, 1997, and February 29, 1996, respectively.
Principles of Consolidation - The consolidated financial statements include the
accounts of LoJack and its wholly owned subsidiaries. Intercompany transactions
and balances are eliminated in consolidation.
Use of Estimates - The management of the Company is required, in certain
instances, to use estimates and assumptions that affect the amounts reported in
the consolidated financial statements, and the notes thereto, in order to
conform with generally accepted accounting principles. The Company's actual
results could differ from these estimates.
Revenue Recognition - Sales of the LoJack Unit and related products are
recognized upon installation by the Company. Revenues from the sales of
products and components of the LoJack System to licensees are recognized upon
shipment to the licensee.
Nonrefundable fees received in connection with the granting of licenses to
implement and operate components of the LoJack System are generally recognized
upon receipt of the fees or, in the case of deposits, once they become
nonrefundable. Such revenues aggregated approximately $2,821,000, $1,168,000,
and $932,000 for the fiscal years ended February 1998, 1997, and 1996,
respectively. LoJack's sole obligation in connection with the granting of
licenses is to provide technical assistance on a fee-for-service basis.
Revenues from sales of extended warranties are amortized over the estimated term
of the warranties (five years). Revenues from extended warranty sales expected
to be realized beyond one year are classified as long-term liabilities. Costs
directly related to the sales of such warranties are deferred and charged to
expense proportionately as the revenues are recognized. Such revenues
aggregated approximately $1,181,000, $855,000 and $570,000 for the fiscal years
ended February 1998, 1997 and 1996, respectively. The related warranty costs
are recognized when incurred.
Research and Development - Costs for research and development of components of
the LoJack System are expensed as incurred. Such costs aggregated approximately
$244,000, $518,000 and $516,000, for the fiscal years ended February 1998, 1997
and 1996, respectively.
Certain Concentrations - The Company has subcontracted one supplier to
manufacture certain LoJack System components (including police tracking
computers) as well as to perform certain research and development. The Company
also has subcontracted the manufacturing of the LoJack Unit with one vendor and
at February 28, 1998 has $1,432,000 of a deposit with such vendor for inventory
to be purchased during fiscal 1999. The Company believes that other suppliers
have the capability to perform these services, but that changing suppliers may
cause delays and additional costs to the Company.
Cash Equivalents - Cash equivalents include short-term, highly liquid
investments purchased with remaining maturities of three months or less. These
cash equivalents consist of high quality securities purchased through major
banks. Management routinely assesses the financial strength of the banks and,
as of February 28, 1998, believes it had no significant exposure to credit
risks.
Short-Term Investment - Short-term investment consists of a floating rate demand
security with a remaining maturity of greater than three months at the time the
investment was acquired by the Company. The Company has a continuous option to
have the security redeemed at par value at any seven day interval and is
classified as an available-for-sale security in accordance with SFAS No. 115,
"Accounting for Certain Investments, Debt, and Equity Securities".
13
<PAGE>
LOJACK CORPORATION
Accounts Receivable - The allowance for doubtful accounts was approximately
$579,000 and $553,000 as of the end of February 1998 and 1997, respectively.
Domestic accounts receivable are principally due from new and used automobile
dealers that are geographically dispersed in various states. International
receivables are primarily secured by letters of credit and are related to fees,
sales of product, and royalties pursuant to licensing agreements.
Inventories - Inventories are stated at the lower of cost (first-in, first-out
method) or market and consist primarily of finished goods, including LoJack
Units and other related products and components held for resale.
Property and Equipment - Property and equipment are stated at cost.
Depreciation and amortization are calculated using the straight-line method over
the estimated useful lives of the related assets (three to seven years).
Fair Value of Financial Instruments - The Company's financial instruments
consist of cash and equivalents, short term investment, accounts receivable,
accounts payable, deposits, accrued liabilities, and capital lease obligations.
The fair value of these financial instruments at the end of February 1998 and
1997 approximate their carrying values. The Company also holds an option
exercisable through March 1998 to purchase up to 5% of the outstanding common
stock of its United Kingdom licensee. The consideration paid for the option at
the date it was received was nominal, and, accordingly, no amounts were recorded
in the historical consolidated financial statements. The option is not
considered an exchange traded option, and therefore, the option has continued to
be carried at cost. At February 28, 1998 and 1997 the fair market value of the
stock of the licensee, using exchange rates on such dates, exceeded the
aggregate exercise price of the option by approximately $1,504,000 and
$1,135,000, respectively.
Product Warranty Costs - Anticipated costs related to standard product
warranties are charged against income at the time of the sale of the related
products.
Income Taxes - The Company accounts for income taxes under Statement of
Financial Accounting Standard ("SFAS") No. 109, "Accounting for Income Taxes".
SFAS 109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
Company's financial statements or tax returns. Deferred tax liabilities and
assets are determined based upon the difference between the financial statement
carrying amounts and tax basis of existing assets and liabilities, using enacted
tax rates in effect in the year(s) in which the differences are expected to
reverse.
Accounting for Stock-Based Compensation - The Company accounts for stock-based
compensation using the intrinsic value method in accordance with Accounting
Principles Board Opinion ("APB") No. 25.
Earnings Per Share - In fiscal 1998 the Company adopted the provisions of SFAS
No. 128, "Earnings Per Share". SFAS No. 128 replaces the presentation of primary
earnings per share with basic earnings per share, which excludes dilution, and
requires the dual presentation of basic and diluted earnings per share. Prior to
fiscal 1998, the Company computed earnings per share using the method outlined
in APB No. 15. Earnings per share previously reported using the provisions of
APB No. 15 in 1997 and 1996 were $0.36 and $0.51 per share, respectively. All
prior periods have been restated to conform to the provisions of SFAS No. 128.
Basic income per common share is computed using the weighted average number of
common shares outstanding during each year. Diluted income per common share
reflects the effect of the Company's outstanding options (using the treasury
stock method), except where such options would be antidilutive.
A reconciliation of weighted average shares used for the basic and diluted
computations is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Weighted average shares for basic 18,934,414 21,176,205 21,544,346
Dilutive effect of stock options 1,645,470 1,392,974 1,740,338
---------- ---------- ----------
Weighted average shares for diluted 20,579,884 22,569,179 23,284,684
========== ========== ==========
</TABLE>
New Accounting Pronouncements - In June 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which the Company will be required to adopt in its fiscal 1999 financial
statements. The adoption of SFAS No. 130 will not have an effect on reported
results of consolidated operations or financial position. SFAS No. 131 may
require the Company to provide information about the segments of its business
based upon internal information used to make operating decisions. The Company is
currently evaluating its operations to determine the effect of the adoption of
this statement but has not yet completed its evaluation.
In March 1998, the Accounting Standards Executive Committee ("ASEC") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use", which will become effective
during fiscal year 2000. The Company is currently evaluating this SOP and does
not expect its adoption to have a material impact on the Company's consolidated
financial statements. In April 1998, the ASEC issued SOP 98-5, "Reporting on the
Costs of Start-up Activities", which will become effective during fiscal year
2000. The Company has determined that the adoption of this SOP will have no
impact as the Company currently expenses all costs associated with entering new
markets and establishing new licensees.
Supplemental Disclosures of Cash Flow Information - Cash payments for interest
aggregated approximately $211,000, $154,000 and $168,000 for the fiscal years
ended February 1998, 1997 and 1996, respectively. Cash payments for income
taxes for the fiscal years ended February 1998, 1997 and 1996 were approximately
$5,371,000, $1,064,000 and $418,000, respectively.
Supplemental Disclosures of Noncash Investing and Financing Activities - Capital
lease obligations aggregating approximately $1,102,000, $1,168,000 and $879,000
were incurred when the Company entered into lease agreements for new vehicles
during the fiscal years ended February 1998, 1997 and 1996, respectively.
14
<PAGE>
LOJACK CORPORATION
Reclassifications - Certain 1997 and 1996 amounts have been reclassified to
conform to the 1998 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of the end of February:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
LoJack System components $ 15,932,768 $ 13,489,289
Equipment, furniture,
and fixtures 3,803,591 3,281,973
Vehicles 4,552,134 3,985,963
---------- ----------
Total 24,288,493 20,757,225
Less accumulated depreciation
and amortization (16,110,570) (14,032,945)
---------- ----------
Total 8,177,923 6,724,280
LoJack System components
not yet in service 1,585,797 1,998,670
---------- ----------
Property and equipment
- net $ 9,763,720 $ 8,722,950
========== ==========
</TABLE>
Total additions to property and equipment, including those relating to capital
lease obligations, aggregated approximately $3,775,000, $3,567,000 and
$2,158,000 for the fiscal years ended February 1998, 1997 and 1996,
respectively.
LoJack System components not yet in service consist primarily of certain
components relating to the operation of the LoJack System. Such components at
the end of February 1998 are expected to be placed into service during the year
ended February 28, 1999.
3. OTHER ASSETS
Other assets-net consisted of the following as of the end of February:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Engineering deposits $110,000 $110,000
Deferred contract costs 90,537 122,229
Other (principally deposits) 81,249 83,478
-------- --------
Total $281,786 $315,707
======== ========
</TABLE>
Accumulated amortization aggregated approximately $333,000 and $289,000 as of
the end of February 1998 and 1997, respectively.
4. LINE-OF-CREDIT AND CAPITAL LEASE OBLIGATIONS
Line-of-Credit - The Company has an unsecured line-of-credit agreement with a
bank which provides for borrowings up to a maximum of $7,500,000. This facility
permits borrowings and repayments through June 1, 1999, at which time the line-
of-credit converts to a term loan which requires quarterly installments of
principal commencing on August 31, 1999 and ending on May 31, 2004. Outstanding
borrowings under the line-of-credit bear annual interest, payable monthly, at
the bank's base rate. No borrowings were outstanding under the line-of-credit as
of the end of February l998 and 1997.
The line-of-credit agreement generally contains limitations on indebtedness,
certain investments in equity securities and entity acquisitions; requires
lender's approval of mergers; and prohibits disposition of assets other than in
the normal course of business. Additionally, the Company is required to maintain
certain financial performance measures including debt service coverage, leverage
and profitability.
The payment of dividends and repurchase of the Company's common stock is
permitted and is limited only to the extent such payments affect the Company's
ability to meet the financial performance measures under the
line-of-credit.
Capital Lease Obligations - The Company has entered into capital lease
arrangements for certain vehicles. The cost of leased vehicles included in
property and equipment was approximately $4,552,000 and $3,986,000, and the
related accumulated amortization was approximately $2,769,000 and $2,326,000 as
of the end of February 1998 and 1997, respectively. Amortization of such assets
is included within depreciation and amortization expense in the accompanying
consolidated statements of operations. At February 28, 1998, scheduled repayment
requirements for capital lease obligations are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 858,740
2000 635,560
2001 249,714
---------
Total payments 1,744,014
Less amounts representing interest (204,784)
---------
Total principal 1,539,230
Less current portion (746,304)
---------
Long-term portion $ 792,926
=========
</TABLE>
5. STOCKHOLDERS' EQUITY
Common Stock- As of February 28, 1998, the Company has 35,000,000 authorized
shares of $.01 par value common stock, of which 18,278,881 are outstanding and
3,685,120 shares are reserved for the exercise of stock options.
Preferred Stock - The Company has 10,000,000 authorized shares of $.01 par value
Series A Preferred Stock. There were no shares outstanding at February 28, 1998
and 1997.
Stock Options - The Company's Incentive Stock Option Plan ("the Option Plan"),
as amended, provides for the issuance of incentive stock options to employees,
senior management ("Management Options") and non-employee directors ("Directors
Options") to purchase an aggregate of 4,274,135 shares of common stock. The
Company has, from time to time, also granted nonqualified options to key
employees, officers and directors, of which 114,000 remain outstanding. The
incentive and nonqualified options are granted at exercise prices equal to the
fair market value of the common stock on the date of grant. Options
generally become exercisable over periods of two to five years and expire ten
years from the date of the grant. Selected information regarding the options
under the Option Plan as of February 28, 1998 is as follows:
<TABLE>
<CAPTION>
Available
Authorized for
for Future
Grant Outstanding Grant
<S> <C> <C> <C>
Incentive stock options 650,000 260,240 150,620
Management options 3,414,135 2,506,500 443,760
Directors options 210,000 162,000 48,000
Nonqualified options 114,000 114,000
--------- --------- --------
4,388,135 3,042,740 642,380
========= ========= ========
</TABLE>
The following table presents activity of all stock options:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
<S> <C> <C>
Outstanding at
March 1, 1995 2,842,600 $ 3.76
Granted 524,475 8.72
Exercised (600,550) 2.80
Canceled (167,875) 6.78
--------- ---------
Outstanding at
February 29, 1996 2,598,650 4.79
Granted 391,350 12.25
Exercised (108,425) 3.72
Canceled (26,625) 7.80
--------- ---------
Outstanding at
February 28, 1997 2,854,950 5.84
Granted 457,050 10.15
Exercised (265,290) 3.86
Canceled (3,970) 9.38
--------- ---------
Outstanding at
February 28, 1998 3,042,740 $ 6.64
========= =========
</TABLE>
15
<PAGE>
The following table sets forth information regarding options outstanding at
February 28, 1998:
<TABLE>
<CAPTION>
Weighted Average
Weighted Average Exercise Price for
Number of Range of Exercise Weighted Average Remaining Life Number Currently Currently
Options Prices Exercise Price (Years) Exercisable Exercisable
<S> <C> <C> <C> <C> <C>
952,900 $ 2.00-2.38 $ 2.01 4 952,900 $ 2.01
363,300 4.53-4.94 4.92 5 351,200 4.92
42,500 5.31-5.97 5.84 3 42,500 5.84
382,970 6.88-7.63 7.47 6 360,090 7.49
393,870 8.38-9.00 8.43 7 282,810 8.40
539,700 9.13-10.13 9.77 9 134,050 9.75
332,500 12.38-12.88 12.84 8 178,750 12.81
35,000 15.00 15.00 9
- --------- -------------- ---------- ------- --------- ------
3,042,740 $2.00 - $15.00 $ 6.64 5 2,302,300 $ 5.45
========= ============== ========== ======= ========= ======
</TABLE>
As described in Note 1, the Company has determined that it will continue to
account for stock-based compensation for employees and directors under APB No.
25 and elect the disclosure alternative under SFAS No. 123. Had compensation
expense for the Company's stock option plans been determined consistent with
SFAS No. 123 for options granted subsequent to February 28, 1995, pro forma net
income and earnings per share would have been as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income $7,814,345 $6,627,893 $11,328,626
Basic earnings per share $ 0.41 $ 0.31 $ 0.53
Diluted earnings per share $ 0.38 $ 0.29 $ 0.49
</TABLE>
Options granted during fiscal 1998, 1997, and 1996, had a weighted average grant
date fair value of $6.11, $8.47, and $5.58, respectively. The fair value of
options on their grant date was measured using the Black/Scholes option pricing
model. Key assumptions used to apply this pricing model were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Range of risk free interest rates 6.22% - 6.69% 6.51% - 6.87% 5.81% - 7.06%
Expected life of option grants 9 years 9 years 9 years
Range of expected volatility of underlying stock 38% - 39% 51% - 53% 44% - 51%
</TABLE>
The Black/Scholes option pricing model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions, including expected stock price volatility. Because the
Company's stock options have characteristics significantly different from those
of traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models to not necessarily provide a reliable measure of the fair value of its
stock options.
Stock Repurchase Plan - During fiscal 1996, the Company's Board of Directors
authorized a stock repurchase plan (the "Repurchase Plan"). The Repurchase
Plan, as amended, authorizes the Company to purchase up to 5,200,000 shares of
its outstanding common stock. As of February 28, 1998, the Company repurchased
3,971,500 shares for a total of $43,764,826.
16
<PAGE>
LOJACK CORPORATION
6. INCOME TAXES
The provision (benefit) for income taxes consisted of the following for the
fiscal years ended February 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current:
Federal $4,901,000 $ 873,000 $ 200,000
State 1,228,000 337,000 523,000
Foreign 70,000 66,000
---------- ----------- -----------
Total 6,199,000 1,276,000 723,000
========== =========== ===========
Deferred:
Federal 150,000 3,762,000 (2,348,000)
State (31,000) 186,000 (306,000)
---------- ----------- -----------
Total 119,000 3,948,000 (2,654,000)
---------- ----------- -----------
Income tax provision (benefit) $6,318,000 $ 5,224,000 $(1,931,000)
========== =========== ===========
</TABLE>
The difference between the Company's effective income tax rate and the United
States statutory rate is reconciled below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
U.S. statutory rate 34.0 % 34.0 % 34.0 %
State taxes, net of federal benefit 5.0 5.0 5.2
Utilization of net operating loss carryforwards (19.3)
Change in valuation allowance (38.9)
Other, net (0.2)
------ ------ ------
Effective tax rate 39.0 % 39.0 % (19.2) %
====== ====== ======
</TABLE>
The tax effects of the items comprising the Company's net deferred tax asset at
the end of February 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
Current Long-term Current Long-term
<S> <C> <C> <C> <C>
Deferred tax liability - differences between
book and tax basis of property $(1,630,688) $(1,608,458)
Deferred tax assets:
Reserves not currently deductible $ 379,842 $ 99,028
Income deferred for book purposes
(primarily extended warranties) 485,477 1,070,540 384,267 838,315
Net operating loss carryforwards 330,562 371,293
Tax credit carryforwards 670,422
----------- ----------- ----------- ---------
Deferred tax assets 1,195,881 1,070,540 1,525,010 838,315
----------- ----------- ----------- ---------
Net deferred tax assets (liability) $1,195,881 $ (560,148) $ 1,525,010 $(770,143)
=========== =========== =========== =========
</TABLE>
The income tax provision for the year ended February 29, 1996 included a credit
provision of approximately $2,654,000 related to the elimination of a valuation
allowance for the deferred tax assets. Tax benefits that pertained to certain
employee stock option exercises of approximately $936,000 and $265,000 were
recorded to additional paid-in capital for the fiscal years ended February 1998
and 1997, respectively.
Recovery Systems, Inc. ("RSI"), a subsidiary of the Company, has available for
tax purposes a net operating loss carryforward of approximately $699,000 at
February 28, 1998. This loss may be used to offset future taxable income of RSI,
if any, which may otherwise be subject to federal income tax, and expires in
varying amounts through 2005. As a result of the acquisition of RSI by LoJack,
the maximum amount of RSI carryforwards available in any one year will be
limited under existing tax law. The Company currently believes recovery of
amounts pursuant to this carryforward are more likely than not.
17
<PAGE>
LOJACK CORPORATION
7. COMMITMENTS AND CONTINGENT LIABILITIES
Lease Commitments - The Company leases various facilities under operating leases
whose terms expire from 1999 to 2003; the leases contain renewal options ranging
from two to five years. Minimum annual lease payments are as follows:
<TABLE>
<S> <C>
1999 $ 930,500
2000 705,500
2001 342,800
2002 125,200
2003 19,300
----------
Total $2,123,300
==========
</TABLE>
Rental expense under operating leases aggregated approximately $1,028,000,
$844,000 and $786,000 for the fiscal years ended February 1998, 1997 and 1996,
respectively.
8. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 40l(k) plan covering substantially all
full-time employees. Under the provisions of the plan, employees may contribute
a portion of their compensation within certain limitations. The Company matches
a percentage of employee contributions on a discretionary basis as determined by
the Board of Directors. The Company's Board of Directors elected to match 50% of
employee contributions in fiscal year 1998 and 40% in fiscal years 1997 and
1996, subject to certain limitations. Company contributions become fully vested
after five years of continuous service. Company contributions related to the
plan were $126,000, $139,000 and $133,000 for the fiscal years ended February
1998, 1997 and 1996, respectively.
9. EXPORT SALES
Export revenues relate to product sales to and licensing revenues from
unaffiliated licensees in foreign countries. A summary of such revenues is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Export Revenues:
Europe $ 1,841,000 $ 871,000 $1,589,000
South America 7,401,000 3,131,000 2,391,000
Asia 1,296,000 2,324,000 236,000
Africa 3,291,000 3,372,000 217,000
----------- ---------- ----------
Total $13,829,000 $9,698,000 $4,433,000
=========== ========== ==========
</TABLE>
10. SUBSEQUENT EVENTS
As described in Note 1, the Company has been granted an option, exercisable
through March 1998, to purchase up to 5% of the outstanding common stock of its
United Kingdom licensee. On March 12, 1998, the Company exercised its option and
purchased 292,507 shares for an aggregate exercise price of approximately
$1,259,000. The Company subsequently sold 150,000 shares of its investment in
the licensee and recognized a pre-tax gain of approximately $1,100,000.
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF LOJACK CORPORATION:
We have audited the accompanying consolidated balance sheets of LoJack
Corporation and subsidiaries as of February 28, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended February 28, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of LoJack Corporation and subsidiaries
as of February 28, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended February 28, 1998 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- --------------------------
Boston, Massachusetts
April 24, 1998
19
<PAGE>
CORPORATE DATA
EXECUTIVE OFFICERS
C. Michael Daley
Chairman of the Board of Directors and Treasurer
(Chief Executive Officer)
Joseph F. Abely
President and Chief Operating Officer
William R. Duvall
Senior Vice President
(Operations and Technical Development)
Kevin M. Mullins
Vice President
(Sales and Marketing)
Peter J. Conner
Vice President
(Government Relations)
BOARD OF DIRECTORS
C. Michael Daley
Chairman
James A. Daley
President
Daley Hotel Group, Inc.
Robert J. Murray
Chairman and Chief Executive Officer
New England Business Service, Inc.
Harvey Rosenthal
Retired;
Formerly President and Chief Executive Officer
Melville Corporation
Harold W. Shad, III
President and Chief Executive Officer
Mike Shad Ford
Larry C. Renfro
Chief Executive Officer
LCR Financial Group, Inc.
Lee T. Sprague
Private Investor
Thomas A. Wooters
Clerk
REGISTRAR AND TRANSFER AGENT
American Stock Transfer
& Trust Company
New York, New York
SECURITIES LISTINGS
NASDAQ: National Market Systems-"LOJN"
ANNUAL MEETING
10:00 a.m.
July 15, 1998
Sheraton Tara Hotel
Braintree, Massachusetts
FORM 10-K AVAILABILITY
The Company's annual report filed
with the Securities and Exchange
Commission on Form 10-K is available
without charge upon written request to:
Investor Relations
LoJack Corporation
Norfolk Place
333 Elm Street
Dedham, Massachusetts 02026
781.326.4700
CORPORATE COUNSEL
Peabody & Arnold
Boston, Massachusetts
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Boston, Massachusetts
INVESTOR RELATIONS
Swanson Communications
New York, New York
212.683.4890
20
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
------------------------------
LoJack International Corporation, a Delaware corporation
LoJack of New Jersey Corporation, a Delaware corporation
Recovery Systems, Inc., *a Florida corporation
LoJack Holdings Corporation, a Massachusetts corporation
LoJack Venture Corporation, a Massachusetts corporation
LoJack of Pennsylvania, Inc., a Delaware corporation
LoJack FSC, Ltd., a Barbados company
* In Florida, Recovery Systems, Inc. does business under its tradename
"LoJack of Florida."
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-86608, 33-65258 and 33-46462 on Form S-3 and Registration Statement Nos.
33-86614 and 33-55904 on Form S-8 of LoJack Corporation of our reports dated
April 24, 1998, appearing in and incorporated by reference in the Annual Report
on Form 10-K of LoJack Corporation for the year ended February 28, 1998.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 29, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LOJACK
CORPORATION'S ANNUAL REPORT FOR YEAR ENDING FEBRUARY 28, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 5,498,348
<SECURITIES> 1,400,000
<RECEIVABLES> 8,653,168
<ALLOWANCES> 579,187
<INVENTORY> 4,883,038
<CURRENT-ASSETS> 22,615,402
<PP&E> 25,874,290
<DEPRECIATION> 16,110,570
<TOTAL-ASSETS> 32,660,908
<CURRENT-LIABILITIES> 7,128,999
<BONDS> 0
0
0
<COMMON> 222,504
<OTHER-SE> 21,279,980
<TOTAL-LIABILITY-AND-EQUITY> 32,660,908
<SALES> 71,240,176
<TOTAL-REVENUES> 74,502,318
<CGS> 32,777,929
<TOTAL-COSTS> 32,777,929
<OTHER-EXPENSES> 26,204,559
<LOSS-PROVISION> 217,139
<INTEREST-EXPENSE> 210,784
<INCOME-PRETAX> 16,204,988
<INCOME-TAX> 6,318,000
<INCOME-CONTINUING> 9,886,988
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,886,988
<EPS-PRIMARY> .52
<EPS-DILUTED> .48
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LOJACK
CORPORATION'S FORM 10Q'S FOR PERIODS ENDING MAY 31, 1997, AUGUST 31, 1997,
NOVEMBER 30, 1997 AND LOJACK CORPORATION'S ANNUAL REPORT FOR YEAR ENDING
FEBRUARY 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> FEB-28-1997 FEB-28-1998 FEB-28-1998 FEB-28-1998
<PERIOD-START> MAR-01-1996 MAR-01-1997 JUN-01-1997 SEP-01-1997
<PERIOD-END> FEB-28-1997 MAY-31-1997 AUG-31-1997 NOV-30-1997
<CASH> 14,671,700 12,438,907 13,340,398 11,761,296
<SECURITIES> 1,600,000 1,600,000 1,600,000 1,600,000
<RECEIVABLES> 7,983,933 7,744,107 9,054,532 9,257,245
<ALLOWANCES> 553,442 584,036 598,718 722,515
<INVENTORY> 3,745,473 3,233,268 4,046,519 5,082,929
<CURRENT-ASSETS> 29,126,486 26,116,773 29,141,677 30,105,372
<PP&E> 22,755,895 24,105,060 25,047,648 25,326,127
<DEPRECIATION> 14,032,945 14,790,754 15,190,693 15,749,480
<TOTAL-ASSETS> 38,165,143 35,736,250 39,294,175 39,969,658
<CURRENT-LIABILITIES> 7,243,470 7,377,992 7,703,850 9,176,871
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 219,851 219,997 221,538 221,720
<OTHER-SE> 27,000,338 24,338,997 27,588,652 26,704,272
<TOTAL-LIABILITY-AND-EQUITY> 38,165,143 35,736,250 39,294,175 39,969,658
<SALES> 60,089,388 17,851,010 18,440,847 17,620,762
<TOTAL-REVENUES> 61,664,501 18,558,153 18,744,847 19,310,762
<CGS> 27,703,963 8,560,794 8,284,487 8,006,590
<TOTAL-COSTS> 27,703,963 8,560,794 8,284,487 8,006,590
<OTHER-EXPENSES> 22,040,278 6,453,412 6,587,708 6,682,703
<LOSS-PROVISION> 223,384 31,384 28,884 73,884
<INTEREST-EXPENSE> 153,517 21,131 48,452 51,244
<INCOME-PRETAX> 13,404,198 3,707,254 4,116,874 4,775,090
<INCOME-TAX> 5,224,000 1,446,000 1,600,000 1,864,000
<INCOME-CONTINUING> 8,180,198 2,261,254 2,516,874 2,911,090
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 8,180,198 2,261,254 2,516,874 2,911,090
<EPS-PRIMARY> .39 .12 .13 .15
<EPS-DILUTED> .36 .11 .12 .14
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LOJACK
CORPORATION FORM 10Q'S FOR PERIODS ENDING MAY 31, 1996, AUGUST 31, 1996,
NOVEMBER 30, 1996, AND LOJACK CORPORATION'S ANNUAL REPORT FOR YEAR ENDING
FEBRUARY 28, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> FEB-29-1996 FEB-28-1997 FEB-28-1997 FEB-28-1997
<PERIOD-START> MAR-01-1995 MAR-01-1996 JUN-01-1996 SEP-01-1996
<PERIOD-END> FEB-28-1996 MAY-31-1996 AUG-31-1996 NOV-30-1996
<CASH> 31,630,663 33,323,091 31,892,570 27,468,353
<SECURITIES> 0 0 0 0
<RECEIVABLES> 6,269,120 7,616,780 8,439,151 7,744,777
<ALLOWANCES> 395,202 512,095 520,428 583,136
<INVENTORY> 2,780,416 3,045,689 2,776,348 3,903,351
<CURRENT-ASSETS> 40,670,351 43,553,052 42,800,749 38,802,733
<PP&E> 19,721,743 20,168,729 20,881,839 21,522,863
<DEPRECIATION> 12,069,040 12,525,452 13,252,589 13,721,004
<TOTAL-ASSETS> 53,079,437 55,151,018 53,254,199 48,322,120
<CURRENT-LIABILITIES> 7,050,985 6,955,233 7,149,391 7,132,141
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 218,767 219,443 219,846 219,845
<OTHER-SE> 43,508,701 45,542,817 43,348,104 38,455,115
<TOTAL-LIABILITY-AND-EQUITY> 53,079,437 55,151,018 53,254,199 48,322,120
<SALES> 51,234,708 14,905,326 15,154,442 14,507,688
<TOTAL-REVENUES> 52,516,359 15,005,326 15,909,555 15,131,688
<CGS> 23,966,360 6,932,418 7,050,953 6,730,474
<TOTAL-COSTS> 23,966,360 6,932,418 7,050,953 6,730,474
<OTHER-EXPENSES> 19,944,683 5,287,242 5,417,425 5,625,227
<LOSS-PROVISION> 237,724 124,801 11,848 77,695
<INTEREST-EXPENSE> 166,748 34,542 31,607 41,326
<INCOME-PRETAX> 10,047,036 3,174,290 3,868,338 3,158,555
<INCOME-TAX> (1,931,000) 1,238,000 1,508,000 1,231,000
<INCOME-CONTINUING> 11,978,036 1,936,290 2,360,338 1,927,555
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 11,978,036 1,936,290 2,360,338 1,927,555
<EPS-PRIMARY> .56 .09 .11 .09
<EPS-DILUTED> .51 .08 .10 .09
</TABLE>
