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UNITED STATES
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, 1999
or
[ ] Transition Report pursuant Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required] for the transition period from to
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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 $88,046,280 as of May 24, 1999.
As of May 24, 1999, there were issued and outstanding 16,946,381 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, 1999 (Items 5, 6, 7, 7(a), 8 and 14(a)(1))
(2) Portions of the definitive Proxy Statement for Registrant's Annual Meeting
of Stockholders to be held on July 21, 1999 (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
<S> <C> <C> <C>
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 Matters.................................... 7
ITEM 6. Selected Financial Data........................................ 7
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 7
ITEM 7(a). Quantitative and Qualitative
Disclosures about Market Risk.................................. 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 24, 1999.
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.
<PAGE>
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
provides the necessary staff to 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:
Jurisdiction Date Operational
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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 Columbia 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
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Illinois November 1990
Texas (Dallas) May 1997
Texas (Houston) April 1998
California:
Los Angeles County July 1990
San Diego and Orange County June 1995
San Bernadino, and Riverside March 1997
Ventura County April 1998
Arizona July 1998
New Hampshire June 1998
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.
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.
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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.
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.
LoJack also markets 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.
In March 1998 the Company exercised an option to purchase 292,507 common shares
of its United Kindom licensee, Tracker Network, UK Ltd., for an aggregate
exercise price of $1,259,170. In April 1998, the Company sold 150,000 shares of
its investment and recognized a pre-tax gain of $1,099,597. 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
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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, 1999, the Company had licensees operating stolen vehicle
recovery systems using LoJack's technology in the following countries:
Argentina, Colombia, Ecuador, Germany, Greece, Hong Kong, Kenya, Korea, Mexico,
Nigeria, Panama, Poland, Russia, South Africa, Trinidad and Tobago, United
Kingdom, and Venezuela. The Company also has entered into agreements to license
the use of LoJack's technology in other countries. However 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 adequate financing as well
as certain governmental approval which may be time consuming or may not be
obtained. The Company is also pursuing similar agreements for other countries.
Approximately 13% of the Company's revenues in fiscal 1999 were derived from
exports. 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 Note 9 to the Notes to Financial
Statements which are included in LoJack's 1999 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.
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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 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 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 to accommodate additional
applications, and to meet the technical and economical constraints of the
leasing and trucking industries.
LoJack has granted to Micrologic, through April 2000, the exclusive right 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 1999, 1998, and 1997 the approximate amounts spent by
LoJack on company-sponsored research and development activities were $201,000,
$244,000, and $518,000, respectively.
EMPLOYEES
As of May 1, 1999, the Company and its subsidiaries had a total of 470 full-time
employees.
EXECUTIVE OFFICERS OF THE REGISTRANT
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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 21, 1999, 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 46 President and Chief Operating Officer
William R. Duvall 47 Senior Vice President (Operations and Technical Development)
Peter J. Conner 58 Vice President (Government Relations)
Kevin M. Mullins 44 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 Arizona, Massachusetts, New Jersey,
Pennsylvania, Michigan, California, Illinois, Georgia, Virginia, Florida and
Texas under operating leases whose terms expire from 1999 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, should the need arise. The Company believes that its
facilities are adequate for its operations.
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ITEM 3 - LEGAL PROCEEDINGS
In March 1998, four 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 Plaintiffs' employment. This case was settled without
material costs to the Company during fiscal 1999. The Company is periodically
the subject of litigation which is not material to its business.
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 1999 Annual Report, which is filed herewith
as Exhibit 13.
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 1999
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 of Financial Condition
and Results of Operations," pages 5 through 8 of the Company's 1999 Annual
Report, which is filed herewith as Exhibit 13.
ITEM 7(a) - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by reference to the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations," on page 8 of the Company's 1999 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 independent auditors' report thereon appearing on pages 9 through 19 of
the Company's 1999 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
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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 21, 1999.
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 21, 1999 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 21, 1999 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 21, 1999 under the heading "Principal
and Management Stockholders."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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
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The following financial statements of the Company and the report of
the independent auditors are incorporated by reference to the Company's
1999 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
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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
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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)
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)
-9-
<PAGE>
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)
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
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
-10-
<PAGE>
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
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.
10nn. License, Trademark and Supply Agreement dated September 10, 1996 between
LoJack International and S1 Corporation, Seoul, Korea
10oo. Agreement dated September 1, 1996 between LoJack Corporation and the Texas
Department of Public Safety
10pp. Agreement between Commonwealth of Pennsylvania, Pennsylvania State Police
and LoJack Corporation dated May 14, 1996
10qq. Agreement between the Maryland Department of State Police and LoJack
Corporation dated November 8, 1996
10rr. Joint Venture Agreement dated as of December 1, 1995 by and between
LoJack Venture Corporation and Micrologic, Inc.
10ss. License Agreement dated as of December 1, 1995 between SCT Development
Venture and LoJack Corporation.
10tt. Development Agreement dated as of December 1, 1995 by and between SCT
Development Venture and Micrologic, Inc.
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
10ww.* Sixth Amendment to Loan Agreement dated May 26, 1999 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, LoJack
Arizona LLC, LoJack Recovery Systems Business Trust and LoJack FSC, Ltd.
10xx.* Fifth Amended and Restated Revolving Credit and Term Note payable to
the order of BankBoston N.A. dated as of May 26, 1999 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, LoJack of Arizona LLC, LoJack Recovery Systems Business Trust
and LoJack FSC, Ltd
11.* Statement re: Computation of per share earnings
13.* 1999 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)
- ---------------------------
* 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 28th day of May 1999.
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.
Signature Capacity Date
- --------- -------- ----
/s/ C. Michael Daley Director, Chairman, Chief May 28, 1999
- --------------------
C. Michael Daley Executive Officer, and Treasurer
(Principal Executive Officer)
/s/ Robert J. Murray Director May 28, 1999
- --------------------
Robert J. Murray
/s/ James A. Daley Director May 28, 1999
- ------------------
James A. Daley
/s/ Harold W. Shad, III Director May 28, 1999
- -----------------------
Harold W. Shad, III
/s/ Lee T. Sprague Director May 28, 1999
- ------------------
Lee T. Sprague
/s/ Larry C. Renfro Director May 28, 1999
- ----------------------
Larry C. Renfro
/s/ Harvey Rosenthal Director May 28, 1999
- ----------------------
Harvey Rosenthal
/s/ Joseph F. Abely President and Chief Operating May 28, 1999
- ----------------------
Joseph F. Abely Officer (Principal Financial
and Accounting Officer)
-12-
<PAGE>
INDEX TO INDEPENDENT AUDITORS' REPORT AND FINANCIAL STATEMENT SCHEDULE
PAGE
Independent Auditors' Report Relating to the
Financial Statement Schedule............................................. F-1
Schedule II - Valuation and Qualifying Accounts.......................... F-2
-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, 1999 and 1998, and for each of the three years
in the period ended February 28, 1999, and have issued our report thereon dated
April 22, 1999, except for the information contained in the first paragraph of
Note 4, as to which the date is May 26, 1999; such consolidated financial
statements and report are included in your 1999 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 statements 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 22, 1999
(May 26, 1999 as to the first paragraph of Note 4
of the notes to the consolidated financial statements)
F-1
<PAGE>
SCHEDULE II
LOJACK CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED FEBRUARY 28, 1999, 1998, AND 1997
- --------------------------------------------------------------------------------
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
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
For the year ended:
February 28, 1999 $ 579,187 $ 99,103 $(151,753)(1) $ 526,537
========= ========= ========= =========
February 28, 1998 $ 553,442 $ 217,139 $(191,394)(1) $ 579,187
========= ========= ========= =========
February 28, 1997 $ 395,202 $ 223,384 $ (65,144)(1) $ 553,442
========= ========= ========= =========
WARRANTY RESERVE:
For the year ended:
February 28, 1999 $ 482,731 $ 185,584 $(191,349) $ 476,966
========= ========= ========= =========
February 28, 1998 $ 388,697 $ 358,447 $(264,395) $ 482,731
========= ========= ========= =========
February 28, 1997 $ 324,813 $ 371,275 $(307,409) $ 388,679
========= ========= ========= =========
(1) Net accounts written off.
F-2
<PAGE>
Exhibit 10ww
SIXTH AMENDMENT TO LOAN AGREEMENT
---------------------------------
THIS AMENDMENT TO LOAN AGREEMENT (the "Amendment") is made as of
---------
May 26, 1999 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 RECOVERY SYSTEMS BUSINESS TRUST, a Massachusetts
business trust ("LoJack Business Trust"), and LOJACK ARIZONA, LLC, a Delaware
---------------------
limited liability company ("LoJack Arizona"; and together with LoJack Business
--------------
Trust, the "New Subsidiaries") (the Original Borrowers and the New Subsidiaries
----------------
are referred to as the "Borrowers"); and BANKBOSTON, N.A. (f/k/a The First
---------
National Bank of Boston)(the "Lender").
------
RECITALS
--------
A. The Lender and the Original Borrowers are parties to a Loan Agreement
dated as of December 10, 1993, as amended as of October 11, 1994, February 20,
1996, October 31, 1996, February 28, 1997 and February 28, 1998 (as so amended,
the "Loan Agreement"). Capitalized terms used herein without definition have
--------------
the meanings assigned to them in the Loan Agreement;
B. Since the execution of the Loan Agreement, (1) the Parent has organized
the New Subsidiaries and (2) pursuant to (i) a certain Contribution and
Assumption Agreement dated as of March 1, 1999 between the Parent and LoJack
Arizona, the Parent has contributed certain intellectual property assets to
LoJack Arizona and (ii) a certain Assignment and Assumption Agreement dated as
of March 1, 1999 between the Parent and LoJack Business Trust, the Parent has
assigned certain assets to LoJack Business Trust (collectively, the "Technology
----------
Transfers"), all without obtaining the prior written consent of the Lender, as
- ---------
required in the Loan Agreement;
C. The Original Borrowers wish to (i) amend the Loan Agreement to add the
New Subsidiaries as "Borrowers" thereunder, (ii) have the Lender waive the
defaults caused by the organization of the New Subsidiaries and the Technology
Transfers without the prior written consent of the Lender and (iii) amend
certain other provisions of the Loan Agreement, all as hereafter set forth; and
D. Subject to certain terms and conditions, the Lender is willing to agree
to the same hereinafter set forth.
<PAGE>
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. Deleted Definitions. The definitions of "Conversion Date" and "Term
------------------- --------------- ----
Loan Principal" in Section 1.1 of the Loan Agreement are hereby deleted in its
- --------------
entirety. Any and all references in the Loan Agreement to the "Conversion Date"
shall hereafter mean and be a reference to, the "Maturity Date".
B. New Definition. The definition of the term "Maturity Date" is hereby
-------------- -------------
added to Section 1.1 of the Loan Agreement in the proper alphabetical order:
"Maturity Date. June 1, 2002"
-------------
C. Amendment to Definition of "Borrowers". The definition of "Borrowers"
-------------------------------------- ---------
in Section 1.1 of the Loan Agreement is amended in its entirety to read as
follows:
"Borrowers. LoJack Corporation, LoJack International Corporation,
---------
LoJack of New Jersey Corporation, Recovery Systems, Inc., LoJack
Holdings Corporation, LoJack Venture Corporation, LoJack of
Pennsylvania, Inc., LoJack FSC, LTD, LoJack Recovery Systems Business
Trust and LoJack of Arizona, LLC."
D. Amendment to Definition of "Interest Period". Clause (iv) of the
--------------------------------------------
definition of "Interest Period" in Section 1.1. of the Loan Agreement is hereby
---------------
deleted.
E. Section 2.1 Amended. Section 2.1 of the Loan Agreement is hereby
-------------------
deleted in its entirety and replaced with the following:
"2.1 The Revolving Credit 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 the Maturity 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 the Maturity Date and within the limits of the Commitment, the
Borrowers may borrow, repay and reborrow under this Section.
(b) The Revolving Loans shall be evidenced by, and be payable as
provided in, the Borrowers' joint and several Amended and Restated
Revolving Credit Note in the form attached as Exhibit 2.1 hereto (with all
-----------
substitutions therefor, the "Note"), payable to the order of the Lender,
----
which note is hereby incorporated herein by reference and made a part
hereof.
-2-
<PAGE>
(c) The Lender shall record in the Revolving Loan Account (i) all
Revolving Loans, (ii) all payments made by any of the Borrowers and (c)
other debits and credits, in accordance with customary accounting
practices, including all interest, fees, charges, taxes and expenses
chargeable to the Borrowers under this Agreement (collectively, the "Bank
----
Charges"). The debit balance of the Revolving Loan Account shall reflect
-------
the amount of the Borrowers' Obligations to the Lender from time to time in
respect of Revolving Loans and other Bank Charges hereunder. At least once
each month the Lender may render a statement of account showing as of its
date the debit balance(s) of the Loan Account which, unless within thirty
(30) days of such date notice to the contrary is received by the Lender
from the Borrowers, shall be considered correct and accepted by the
Borrowers and conclusively binding upon them."
F. Section 2.8(b) Amended. Section 2.8(b) of the Loan Agreement is
----------------------
hereby deleted in its entirety and replaced with the following:
"(b) [Intentionally Omitted]"
G. Section 4.5 Amended. Section 4.5 of the Loan Agreement is hereby
-------------------
amended by deleting the last sentence thereof in its entirety.
H. Section 4.6 Amended. Section 4.6 of the Loan Agreement is hereby
-------------------
amended by deleting the last sentence thereof in its entirety.
I. New Exhibits. Exhibit 2.1 to the Loan Agreement is deleted and the
------------ -----------
attached Exhibit 2.1 is substituted therefor. In addition, Exhibits 4.1, 4.8,
----------- -------- --- ---
4.14, 4.17 and 4.20 to the Loan Agreement are hereby supplemented by the
- ---- ---- ----
disclosures on the attached Disclosure Rider.
J. Deleted Exhibits. Exhibits 4.5 and 4.6 to the Loan Agreement are
---------------- -------- --- ---
hereby deleted in their entirety.
-3-
<PAGE>
II. Waivers. The Lender hereby agrees to waive the following:
--------
A. The Events of the Default which have occurred because the Parent
organized the New Subsidiaries and consummated the Technology Transfers without
first obtaining the prior written consent of the Lender in accordance with the
Loan Agreement.
B. The foregoing waiver is limited to its express terms and shall not be
deemed to be a waiver of any other Event of Default which may have existed on or
prior to the date hereof or which may hereafter arise. Further, the granting of
this waiver shall not be construed as a continuing waiver or waiver of any other
Event of Default under the Loan Agreement, or any other documents executed in
connection therewith.
III. 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. After giving effect to this Amendment, 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 (i) permitted under the terms of the Loan
Agreement, or (ii) otherwise approved in writing by the Lender or (iii)
reflected in reports filed by the Borrower with the Securities and Exchange
Commission and furnished to the Lender pursuant to Section 6.1(g)). 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.
-4-
<PAGE>
IV. 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, including the Joinder of the Loan Agreement;
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, 1998);
3. The copies of the instruments and agreements (including schedules
and exhibits thereto) effecting the Technology Transfers.
4. True and complete copies of all required directors' or other
governing bodies' 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
5. 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.
V. 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.
-5-
<PAGE>
VI. 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.
**The Next Page is the Signature Page**
-6-
<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:
-----------------------------------
Joseph F. Abely, President
LOJACK INTERNATIONAL CORPORATION
By:
-----------------------------------
Joseph F. Abely, President
LOJACK OF NEW JERSEY CORPORATION
By:
-----------------------------------
Joseph F. Abely, President
RECOVERY SYSTEMS, INC.
By:
-----------------------------------
Joseph F. Abely, President
LOJACK HOLDINGS CORPORATION
By:
-----------------------------------
Joseph F. Abely, President
LOJACK VENTURE CORPORATION
By:
-----------------------------------
Joseph F. Abely, President
-7-
<PAGE>
LOJACK OF PENNSYLVANIA, INC.
By:
-----------------------------------
Joseph F. Abely, President
LOJACK FSC, LTD.
By:
-----------------------------------
Joseph F. Abely, President
BANKBOSTON, N.A.
By:
-----------------------------------
Patricia K. Conry, Director
-8-
<PAGE>
JOINDER TO LOAN AGREEMENT
-------------------------
The undersigned, by its execution hereof, hereby becomes a party to, and
agrees to be bound by, the Loan Agreement dated as of December 10, 1993, as
amended October 11, 1994, February 20, 1996, October 31, 1996, February 28,
1997, February 28, 1998 and the date hereof (as amended, the "Loan Agreement"),
--------------
among BankBoston, N.A. (f/k/a The First National Bank of Boston), LoJack
Corporation, LoJack International Corporation, LoJack of New Jersey Corporation,
Recovery System, Inc., LoJack Holdings Corporation, LoJack Venture Corporation,
LoJack of Pennsylvania, Inc. and LoJack FSC, Ltd., and shall have all of the
rights and obligations of a "Borrower" under the Loan Agreement.
--------
Executed as a sealed instrument as of May 26, 1999
LOJACK OF ARIZONA, LLC
By:
----------------------------
LOJACK RECOVERY SYSTEMS
BUSINESS TRUST
By:
----------------------------
-9-
<PAGE>
EXHIBIT 2.1
-----------
FIFTH AMENDED AND RESTATED
REVOLVING CREDIT 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 28, 1998
as Amended and Restated
as of May 26, 1999
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., LOJACK
FSC, LTD., LOJACK RECOVERY SYSTEMS BUSINESS TRUST and LOJACK OF ARIZONA, LLC
(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, February 28, 1998 and May 26, 1999 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 Maturity 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
Maturity Date shall be payable as provided in the Loan Agreement.
-10-
<PAGE>
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.
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 Fourth 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, 1998 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.
-11-
<PAGE>
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:
- ---------------------- ------------------------------------
Joseph F. Abely, President
LOJACK INTERNATIONAL CORPORATION
By:
------------------------------------
Joseph F. Abely, Vice President
LOJACK OF NEW JERSEY CORPORATION
By:
------------------------------------
Joseph F. Abely, President
RECOVERY SYSTEMS, INC.
By:
------------------------------------
Joseph F. Abely, President
LOJACK HOLDINGS CORPORATION
By:
------------------------------------
Joseph F. Abely, President
LOJACK VENTURE CORPORATION
By:
------------------------------------
Joseph F. Abely, President
LOJACK OF PENNSYLVANIA, INC.
By:
------------------------------------
Joseph F. Abely, President
LOJACK FSC, LTD.
By:
------------------------------------
Joseph F. Abely, President
LOJACK RECOVERY SYSTEMS BUSINESS
TRUST
By:____________________________________
LOJACK OF ARIZONA, LLC
By:______________________________________
-12-
<PAGE>
EXHIBIT 10xx
FIFTH AMENDED AND RESTATED
REVOLVING CREDIT 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 28, 1998
as Amended and Restated
as of May 26, 1999
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., LOJACK
FSC, LTD., LOJACK RECOVERY SYSTEMS BUSINESS TRUST and LOJACK OF ARIZONA, LLC
(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, February 28, 1998 and May 26, 1999 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 Maturity 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
Maturity 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'
<PAGE>
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.
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 Fourth 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, 1998 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.
-2-
<PAGE>
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:
------------------------------------
Joseph F. Abely, President
LOJACK INTERNATIONAL CORPORATION
By:
------------------------------------
Joseph F. Abely, Vice President
LOJACK OF NEW JERSEY CORPORATION
By:
------------------------------------
Joseph F. Abely, President
RECOVERY SYSTEMS, INC.
By:
------------------------------------
Joseph F. Abely, President
LOJACK HOLDINGS CORPORATION
By:
------------------------------------
Joseph F. Abely, President
-3-
<PAGE>
LOJACK VENTURE CORPORATION
By:
------------------------------------
Joseph F. Abely, President
LOJACK OF PENNSYLVANIA, INC.
By:
------------------------------------
Joseph F. Abely, President
LOJACK FSC, LTD.
By:
------------------------------------
Joseph F. Abely, President
LOJACK RECOVERY SYSTEMS BUSINESS
TRUST
By:____________________________________
LOJACK OF ARIZONA, LLC
By:______________________________________
-4-
<PAGE>
LOJACK CORPORATION
COMPUTATION OF INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
EXHIBIT 11
<TABLE>
<CAPTION>
YEAR ENDING LAST DAY OF FEBRUARY
1999 1998 1997
<S> <C> <C> <C>
BASIC INCOME PER SHARE:
Weighted Average Number
of Common Shares
Outstanding 17,920 18,934 21,176
========= ========= =========
Net Income $ 11,008 $ 9,887 $ 8,180
========= ========= =========
BASIC INCOME PER COMMON SHARE $ 0.61 $ 0.52 $ 0.39
========= ========= =========
DILUTED INCOME PER SHARE
Weighted Average Number
of Common Shares
Outstanding 17,920 18,934 21,176
Common Equivalent Shares
from Stock Options 1,295 1,646 1,393
--------- --------- ---------
Total 19,215 20,580 22,569
========= ========= =========
Net Income $ 11,008 $ 9,887 $ 8,180
========= ========= =========
DILUTED INCOME PER COMMON SHARE $ 0.57 $ 0.48 $ 0.36
========= ========= =========
</TABLE>
<PAGE>
[LOGO OF LOJACK APPEARS HERE]
[LOGO OF LOJACK APPEARS HERE]
1999 ANNUAL REPORT
<PAGE>
- --------------------------------------------------------------------------------
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:
Arizona, California, Connecticut, Delaware, District of Columbia, Florida,
Georgia, Illinois, Maryland, Massachusetts, Michigan, New Hampshire, 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, Ecuador,
Germany, Greece, Hong Kong, Kenya, Korea, Mexico, Nigeria, Panama, Poland,
Russia, 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.
High Low
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
Fiscal 1999
First Quarter 14 5/8 12
Second Quarter 14 1/8 11 1/4
Third Quarter 11 3/4 8
Fourth Quarter 12 1/3 8 7/8
On May 10, 1999, there were 3,400 record holders of the Company's Common
Stock. The Company believes the actual number of beneficial owners of the Common
Stock is approximately 14,000 because a large number of the shares of the
Company's Common Stock are 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
- --------------------------------------------------------------------------------
[PHOTO OF MICHAEL DALEY APPEARS HERE]
C. Michael Daley
Chairman and Chief Executive Officer
Each year it is my pleasure to report to you on the progress of the company, and
to highlight our growth and potential for the future. I believe that the
progress we have made this year has set the stage for not only a very good
fiscal 2000, but for growth and prosperity well into the 21st Century.
We can all be proud of the record compiled by the LoJack technology, the
only stolen vehicle recovery system utilized by law enforcement agencies in this
country. Recently, law enforcement using the LoJack technology in the United
States recovered the 30,000th LoJack equipped vehicle. In our international
markets many thousand more vehicles have been recovered using our system. The
LoJack System is a significant deterrent, and tool, for law enforcement in their
battle against auto theft. The public's awareness of our reputation is based on
LoJack's proven record, and the LoJack brand name is well established and
growing in the consumer security market.
Highlights of Fiscal 1999
Revenues for the year ended February 28, 1999 were $83,210,000, an increase
of $8,708,000, or 12%, over revenues of $74,502,000 a year ago. Net income for
the year ended February 28, 1999 was $11,008,000, or $.57 per diluted share,
increases of 11% and 19%, respectively, over net income of $9,887,000, or $.48
per diluted share, for the same period a year ago. Net income for the year ended
February 28, 1999 included a gain on the sale of marketable securities which
accounted for $.03 per diluted share, after taxes.
The increase in annual revenues reflects an $11,663,000, or 19%, increase
in domestic revenues and a $2,955,000, or 21%, decrease in revenues from product
sales and licensing fees pursuant to international licensing agreements.
For the year, gross margins were down slightly to 55% from 56% a year
earlier. Domestic gross margin remained constant for the period at 56% while
international gross margin decreased to 48% for fiscal 1999 from 56% a year
earlier.
We continue to achieve strong revenue growth in our domestic operations as
the result of sales and marketing improvements in our existing markets, and the
addition of new markets to the Network including New Hampshire, Arizona, and the
expansion of the Texas coverage area to include Houston/Galveston. The number of
LoJack Units sold increased by 23% in fiscal 1999 over fiscal 1998. Several of
our established markets continued to record double-digit revenue growth during
the year which, we believe, is the result of our strategy to increase the number
of dealers regularly selling our products, as well as our efforts to capitalize
on established dealer relationships by increasing the penetration of LoJack
sales within these dealerships.
International revenues did not meet our expectations for fiscal 1999 as
previously noted, primarily because of the economic downturn in a number of our
Asian and South American markets, and lower license fee revenues during the
period. However, our South African and United Kingdom licensees, and many of our
smaller international markets, continued to show improvement. In addition, we
extended the LoJack International Network to include Poland, Nigeria, Mexico
and Germany during the year. In fiscal 2000 we expect reasonable revenue growth
in this sector. In the future we expect further growth as economic conditions
improve in the Asian and South American markets and from the continued addition
of new licensees.
We have been disappointed in the recent performance of our share price.
While this can be attributed in large part to the overall performance of
so-called small cap stocks, we believe that we are taking appropriate, proactive
steps to maximize our value.
At current price levels, we will continue to repurchase shares pursuant to
our share buyback program. We believe this represents an excellent long-term
investment for the company. During fiscal 1999 we increased our total purchases
under this program to 4,736,600 shares. The Board of Directors has recently
voted to increase the total number of shares under this program by an additional
1,000,000 shares.
Fiscal 2000 Objectives
Over the next several years, we estimate that we will sustain an annual
revenue growth of 15%-20% and earnings growth of 20%-25%. Based upon our
historic cash flow, long-term asset value and highly leverageable operating cost
structure, we expect that our prospective return on investment will be in excess
of 25%. Our balance sheet continues to have a strong cash position and little
debt.
There are a number of factors that support LoJack's optimism regarding our
future growth and profitability. We have a proprietary technology which is the
only one used by law enforcement agencies and which is operated in major
population centers across the United States. Through many years of advertising
and news coverage, we have gained strong brand name recognition not only in the
U.S., but also in many foreign countries. Because LoJack has created a
marketplace for stolen vehicle recovery technology which had not previously
existed, we possess unique marketing know-how, and a new car dealer distribution
network serviced by the largest automotive aftermarket sales force in the
country. This distribution channel is complemented by our own nationwide
installation organization, which installs and services our products.
Domestic Operations
In our domestic operations, our target for annualized domestic growth in
the number of LoJack Units sold is 15%-20%. The number of LoJack Units sold
increased by 23% in fiscal 1999, compared to a year earlier. LoJack's fixed cost
base produces pre-tax profit of approximately 50% on each incremental LoJack
Unit sale. As a result, domestic net profit contribution is expected to grow at
a higher rate than revenues from LoJack Unit sales.
2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The seventeen states (plus Washington, D.C.) that comprise LoJack's current
domestic market represent seven million new car and light truck sales (excluding
rental, fleet and commercial vehicles) annually, or 60% of annual sales in the
United States. Projected near term expansions to domestic markets have the
potential to add one million new car and light truck sales to the LoJack
coverage area. Some of these new markets have become attractive to LoJack
because we have improved our technology to reduce significantly the capital cost
to equip a new market with our System. Furthermore, the company now has the
ability to service new markets utilizing existing market resources without
substantially increasing overhead. We believe that our ability to improve market
share at low cost enhances our future profit potential. Such expansion
represents a significant opportunity for LoJack to increase its annual Unit
sales and to further expand the LoJack System's coverage geographically, which
is an important consideration to the fleet, commercial and construction
companies whose business routinely takes them throughout the country.
The company has launched an aggressive multi-media advertising campaign for
fiscal 2000 which includes the addition of national cable television and
automotive magazine advertising as well as our traditional radio advertising
format. It is our belief that this advertising campaign will support our dealer
and direct sales network with stronger brand and consumer awareness. It will
also serve to spread the LoJack message to parts of the country that we plan for
future expansion.
LoJack's current market penetration of annual new vehicle sales in our
coverage areas is 5%. Our target is to reach 10% over the next several years. In
order to achieve this goal, the company has stepped-up its commitment of
resources to the sales and marketing efforts with additional sales personnel and
training, as well as increasing our visibility through our new multi-media
advertising campaign. These initiatives should increase the number of dealers
participating as well as increase sales within existing participating
dealerships. In addition, it also should improve our efforts to market our
product in the fleet, commercial, and construction markets.
International Operations
We presently have licensees operating in eighteen countries, including our
newest systems in Nigeria, Germany, Poland and Mexico. We have agreements in
place for expansion to other countries in fiscal 2000 and preliminary
negotiations are in progress with licensees for several additional countries.
Although revenues generated by LoJack from certain of these licensees may be
adversely affected in the short-term by economic and political factors, as
evidenced by the financial crises over the past year in Asia, Russia, and some
Latin American countries, international acceptance of the LoJack product
continues to be strong and we are optimistic about our long-term revenue growth
in this area. As the number of countries "online" continues to increase,
international revenues are expected to grow in the range of 15-20% per year
beginning in fiscal 2000.
Future Strategies
We are presently reviewing options, and developing a strategic initiative
to capitalize on the many strengths we possess as an organization: our
proprietary technology, strong brand awareness, strong aftermarket distribution
network and unique installation capabilities. Mindful of these strengths, and
the proven success of the LoJack Stolen Vehicle Recovery Network in this
country, we have set a priority to explore opportunities for new product
introductions over the next several years in the area of vehicle security,
convenience and personal safety.
As part of this process, we also are evaluating the establishment of
strategic alliances to facilitate the sale of LoJack's existing stolen vehicle
recovery system as well as any new products we are considering for introduction
through alternative sources of distribution. Our review of such opportunities
indicates that other manufacturers of in-vehicle electronics believe that
LoJack's core competencies could be utilized for their products. Over the next
12 months, the company will strongly consider initiating such alliances.
In closing, I remain very optimistic about the future for LoJack
Corporation. We continue to record solid revenue and profit growth, the Company
has the strongest sales and installation team in our history, prospects for
expansion of coverage areas continue to be excellent, and our balance sheet and
core competencies as a company afford us the opportunity to undertake new
initiatives which we feel will ensure future growth and profitability. I am
particularly proud and pleased to be associated with so many committed and
dedicated employees who make up your company. On behalf of the officers and
directors of the company, we express our gratitude to them all for their many
contributions to our success. We know with their continued commitment and
enthusiasm we have a very bright future.
Yours truly,
/s/ C. Michael Daley
C. Michael Daley
Chairman and Chief Executive Officer
May 27, 1999
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, 1999
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 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>
YEARS ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1999 1998 1997 1996 1995
STATEMENTS OF OPERATIONS DATA (in thousands, except per share information):
<S> <C> <C> <C> <C> <C>
Revenues $ 83,210 $ 74,502 $ 61,665 $ 52,516 $ 41,658
Costs of goods sold 37,565 32,778 27,704 23,966 20,840
-------- -------- -------- -------- --------
Gross margin 45,645 41,724 33,961 28,550 20,818
Costs and expenses 29,159 26,204 22,041 19,945 17,250
-------- -------- -------- -------- --------
Operating income 16,486 15,520 11,920 8,605 3,568
Interest income (expense) and
other-net 1,563 685 1,484 1,442 565
-------- -------- -------- -------- --------
Income before provision (benefit)
for income taxes 18,049 16,205 13,404 10,047 4,133
Income tax provision (benefit) 7,041 6,318 5,224 (1,931) 295
-------- -------- -------- -------- --------
Net income 11,008 9,887 8,180 11,978 3,838
Preferred dividends for the year (426)
Net income applicable to
-------- -------- -------- -------- --------
common stockholders $ 11,008 $ 9,887 $ 8,180 $ 11,978 $ 3,412
======== ======== ======== ======== ========
Earnings per common share:
Basic $ 0.61 $ 0.52 $ 0.39 $ 0.56 $ 0.17
======== ======== ======== ======== ========
Diluted $ 0.57 $ 0.48 $ 0.36 $ 0.51 $ 0.17
======== ======== ======== ======== ========
Weighted average shares:
Basic 17,920 18,934 21,176 21,544 19,660
======== ======== ======== ======== ========
Diluted 19,215 20,580 22,569 23,285 20,666
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital $ 18,735 $ 15,486 $ 21,883 $ 33,619 $ 21,968
Total assets 38,479 32,661 38,165 53,079 36,695
Long-term debt 1,373 793 782 644 899
Total liabilities 13,363 11,158 10,945 9,352 7,930
Stockholders' equity 25,116 21,502 27,220 43,727 28,765
<CAPTION>
REVENUES AND EARNINGS BY QUARTER (Unaudited and in thousands except per share information):
Years Ended February 28, 1999 and 1998
1999 1998
First Second Third Fourth First Second Third Fourth
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $20,265 $21,810 $20,864 $20,271 $18,558 $18,745 $19,311 $17,889
Gross margin 11,383 12,328 11,313 10,621 9,997 10,460 11,304 9,962
Net income 3,419 2,866 2,279 2,444 2,261 2,517 2,911 2,198
Basic earnings per share $ 0.19 $ 0.16 $ 0.13 $ 0.13 $ 0.12 $ 0.13 $ 0.15 $ 0.12
Diluted earnings per share $ 0.17 $ 0.15 $ 0.12 $ 0.13 $ 0.11 $ 0.12 $ 0.14 $ 0.11
</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, 1999 ("fiscal 1999") vs. February 28, 1998 ("fiscal
1998")
Revenues increased by $8,708,000, or 12%, to $83,210,000 in fiscal 1999
from $74,502,000 in fiscal 1998. This consists of an $11,663,000, or 19%,
increase in domestic revenues and a $2,955,000, or 21%, decrease in revenues
from product sales and licensing fees pursuant to international licensing
agreements. Domestic revenue growth was fueled by an overall increase of 23% in
the number of LoJack Units sold, partially offset by a decrease in penetration
of optional lower-margin automobile security products. The decrease in
international revenues of $2,955,000 resulted from a decrease in license fees of
$2,143,000, a decrease in sales of and royalties on the international version of
the LoJack Unit of $967,000, offset partially by an increase in sales of system
components and other revenues of $155,000. License fees, which are generally
non-recurring in nature, decreased during fiscal 1999 as the result of fewer new
licensees from large international markets. The decrease in revenues from the
international version of the LoJack Unit was primarily the result of a decrease
in sales to the licensee in Argentina, as well as decreases in sales related to
economic crises in certain Asian and South American markets, partially offset by
increased sales to licensees in other international markets including South
Africa.
Cost of goods sold increased to 45% of consolidated revenues in fiscal 1999
from 44% in fiscal 1998. Domestic cost of goods sold for fiscal years 1999 and
1998 was 44% of related revenues, while international cost of goods sold
increased to 52% in fiscal 1999 from 44% of related revenues in fiscal 1998.
This increase in international cost of goods sold as a percentage of related
revenues is primarily the result of the decrease in license fees during the
period, which have a higher margin than sales of LoJack Units and related
products.
Systems costs and research and development expense increased by $119,000 in
fiscal 1999 to $1,302,000 from $1,183,000 in fiscal 1998. Research and
development expense decreased by $43,000 to $201,000 in fiscal 1999 from
$244,000 in fiscal 1998 primarily as the result of a decrease in costs related
to the development of third generation LoJack Unit. Systems costs increased by
$162,000 to $1,101,000 in fiscal 1999 from $939,000 in fiscal 1998 as the result
of both the new markets and increases in systems maintenance costs in the
existing markets.
Marketing expenses increased by $1,684,000 to $17,586,000 in fiscal 1999
from $15,902,000 in fiscal 1998. This increase was primarily related to
increases in marketing salaries and benefits, advertising, and promotional
spending related to expansion to new markets and increased domestic sales, as
well as marketing expenses related to the sales efforts in the fleet and
commercial market.
General and administrative expenses increased $1,169,000 to $8,489,000 in
fiscal 1999 from $7,320,000 in fiscal 1998. This increase was primarily related
to increases in administrative salaries and benefits, and other general and
overhead expenses related to the increase in the domestic business and market
expansion, as well as certain professional fees related to ongoing business and
international markets.
Depreciation and amortization decreased by $19,000 to $1,781,000 in fiscal
1999 from $1,800,000 in fiscal 1998.
Provision for income taxes increased by $723,000 to $7,041,000 in fiscal
1999 from $6,318,000 in fiscal 1998 as the result of the increase in related
taxable income. The effective tax rate for fiscal 1999 and 1998 remained at 39%.
As a result of the foregoing, net income increased by $1,121,000 to
$11,008,000 in fiscal 1999 from $9,887,000 in fiscal 1998.
5
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
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 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 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 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.
Liquidity and Capital Resources
The Company's strategic plan for the operation of its stolen vehicle
recovery network 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 flow from operations and capital leases.
In fiscal 1999 cash and equivalents increased by $4,732,000. The overall
increase is the result of cash provided by operating activities of $12,923,000
and investing activities of $1,234,000, offset by cash used for financing
activities of $9,425,000. Cash used for financing activities included $8,467,000
related to the repurchase of the Company's stock under a stock repurchase
program initially approved during fiscal 1996 and amended during fiscals 1997,
1998, and 1999, as well as repayment of capital leases of $1,491,000 offset by
proceeds from the exercise of stock options of $533,000.
Cash flows provided by investing activities in fiscal 1999 (exclusive of
additions under capital leases of $2,622,000) included expenditures for property
and equipment of $652,000, partially offset by proceeds from the maturity of an
investment of $1,400,000. Additionally, in fiscal 1999 the Company purchased
292,507 common shares of its United Kingdom licensee for $1,259,000 under terms
of an option agreement in the related license agreement. A subsequent sale of
150,000 of these shares in fiscal 1999 netted proceeds to the Company of
$1,745,000.
6
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
Cash flow provided by operating activities in fiscal 1999 of $12,923,000
includes net income of $11,008,000 and $1,915,000 of adjustments to reconcile
net income to net cash provided by operating activities. The decrease in cash
from changes in assets and liabilities includes an increase in accounts
receivable of $1,704,000, an increase in inventories of $784,000, an increase in
prepaid expenses and other of $85,000, an increase in other assets of $92,000,
and a decrease in accrued and other liabilities of $208,000, offset partially by
an increase in deferred revenue of $740,000, a decrease in a vendor deposit of
$1,432,000 and an increase in accounts payable of $860,000. The increase in
accounts receivable is primarily related to domestic receivables, which the
Company expects will continue to increase as its sales increase. The inventory
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 decrease in vendor deposits of $1,432,000 relates to a
deposit for long-lead time parts orders with a major supplier which was refunded
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. Increase in accounts payable is related to
timing of payments to certain large vendors.
The Company is presently pursuing opportunities to expand its stolen
vehicle recovery system to several additional domestic 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 2000. The Company plans
to fund these expansions as well as other capital expenditures during fiscal
2000 using the existing line of credit discussed below, working capital or cash
flow from operations. The Company estimates capital expenditures in fiscal 2000
of approximately $2,500,000 principally for planned domestic market expansions
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, 1999 the Company had working capital of $18,735,000. The
Company believes that its anticipated capital and operating requirements for
fiscal 2000 can be funded from cash flows from operations and the existing line
of credit discussed below. In addition, 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 line-of-credit with the bank provides for unsecured
borrowings up to a maximum of $7,500,000. Outstanding borrowings bear annual
interest, payable monthly, at the bank's base rate. There were no outstanding
borrowings under the line-of-credit as of February 28, 1999. On May 26, 1999,
the line-of-credit was amended to extend it on a revolving basis through June 1,
2002.
During fiscal 1996 the Company's Board of Directors authorized a stock
repurchase program which as amended provided for the repurchase of up to
5,200,000 common shares. In April 1999, the Company's Board of Directors
increased the number of shares to be purchased by 1,000,000 to 6,200,000 shares.
As of February 28, 1999 the Company had repurchased 4,736,600 shares for a total
of $52,232,313. From March 1, 1999 through May 27, 1999 the Company has
repurchased 844,400 shares at a cost of $6,592,823.
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
2000 on its research and development efforts as compared with $201,000 spent in
fiscal 1999.
The Company is also continuing to explore additional investment
opportunities, including, but not limited to, possible acquisitions of or
investments in other companies.
OTHER INFORMATION
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. Computer
programs and hardware that are date sensitive may recognize a date using "00" as
the year 1900 rather than the year 2000. The products sold by the Company do not
contain internal date-sensitive components which would affect their operation on
or beyond the date January 1, 2000.
The Year 2000 issue could cause some disruptions of internal operations,
including, among other things, a temporary inability to process transactions or
engage in normal business activities. The Company has focused its Year 2000
review in the following areas: (1) information technology ("IT") systems such as
hardware and software; (2) non-IT systems such as distribution and facility
equipment containing embedded microprocessors; and (3) the readiness of
third-parties such as suppliers and customers. An inventory of all IT and non-IT
systems has been taken and efforts are underway to insure that the appropriate
testing and remediation or replacement occurs. Virtually all of the Company's
critical accounting information systems have been tested for Year 2000
compliance. Many of the critical information systems were replaced with Year
2000 compliant programs in the normal course of business. The Company intends to
replace or upgrade non-compliant IT hardware and software systems by the end of
the third quarter of the calendar year. Preliminary testing of non-IT systems
and equipment indicates that many of these systems rely on time intervals rather
than dates in their operation. The Company is satisfied to date with our efforts
regarding Year 2000 compliance.
7
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
The Company has begun the implementation of hardware and software upgrades to
its law enforcement infrastructure, currently scheduled for completion by
September 1999. Although the Company cannot provide absolute assurance, these
systems have been designed to prevent date field-related operation interruptions
and miscalculations. The Company is also working with the government agencies in
our areas of operation to attempt to ensure that the government systems that
communicate with the Company's law enforcement infrastructure are tested and
modified, if necessary. There can be no assurance, however, that government
agencies will address the Year 2000 issue in a timely manner. The Company will
continue to communicate with major suppliers and customers to determine the
extent to which the Company may be vulnerable if a supplier fails to correct
their own Year 2000 issue. Most suppliers and customers who have replied to our
inquiries indicated that they expect to be Year 2000 compliant on a timely
basis. There can be no assurance, however, that third parties will address the
Year 2000 issue in a timely manner. Based on its review to date, the Company
believes the Year 2000 problem will not pose significant internal operational
disruptions. Events beyond the Company's reasonable control could adversely
affect the Company's ability to deliver its products in a timely manner. These
events could include failure of infrastructure systems, including power, heat
and water; disruptions in distribution channels; or the inability of suppliers
and customers to engage in normal business activities. The Company will develop
a contingency plan based on the magnitude and probability that operational
disruptions may still occur on January 1, 2000. The Company currently believes
that the risk of disruption will be minimal since its operations are
geographically dispersed and rely on a large customer base and one major
manufacturer. The Company does not expect the costs associated with its Year
2000 compliance to be material. Internal employees, whose salaries and wages are
included in normal operating expenses, have modified many of the Company's
information technology systems. Approximately $75,000 has been spent to date out
of the normal course of business. Future costs have been estimated at
approximately $350,000.
New Accounting Pronouncements
See Note 1, New Accounting Pronouncements, in the Notes to the Consolidated
Financial Statements for a discussion of these matters.
International Operations
In fiscal 1999 the Company derived 13% of its consolidated revenues from
the international operations of its foreign licensees, with sales concentrations
in certain countries. 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
"forward-looking" information which involves risk and uncertainties. Any
statements in this report and accompanying materials 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 products
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 expand its 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.
Quantitative and Qualitative Disclosures about Market Risk
The Company has limited exposure to market risk due to the nature of its
financial instruments. The Company's financial instruments consist of cash and
equivalents, accounts receivable, marketable securities, accounts payable,
deposits, accrued liabilities, and capital lease obligations. The fair value of
these financial instruments, other than marketable securities, as of February
28, 1999 approximate their carrying values.
Marketable securities are recorded at market value at February 28, 1999.
Such market value is not subject to changes in interest rates as the financial
instrument is an equity security and is not interest bearing.
The Company's interest rate exposure is limited primarily to interest rate
changes on its $7,500,000 variable rate line-of-credit facility. Any outstanding
amounts under the facility are presumed to approximate market as the facility's
interest rate will adjust accordingly with market rates. An immediate adverse
change in market interest rates would not have had any effect on the Company's
interest expense as there were no borrowings under the facility during fiscal
1999. In addition, the Company does not have any foreign currency exposure as it
does not have foreign subsidiaries and all amounts are transacted in U.S.
dollars.
Currently, the Company does not enter into financial instrument
transactions for trading or other speculative
purposes.
8
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
FEBRUARY 28, 1999 AND 1998
ASSETS 1999 1998
CURRENT ASSETS:
Cash and equivalents ......................... $ 10,230,215 $ 5,498,348
Short-term investments ....................... -- 1,400,000
Accounts receivable - net .................... 9,679,102 8,073,981
Inventories .................................. 5,666,718 4,883,038
Vendor deposit ............................... -- 1,432,000
Prepaid expenses and other ................... 217,609 132,154
Prepaid income taxes ......................... 779,118 --
Deferred income taxes ........................ 796,237 1,195,881
------------ ------------
Total current assets ................... 27,368,999 22,615,402
MARKETABLE SECURITIES .......................... 999,232 --
PROPERTY AND EQUIPMENT - Net ................... 9,873,105 9,763,720
OTHER ASSETS - Net ............................. 237,321 281,786
------------ ------------
TOTAL .......................................... $ 38,478,657 $ 32,660,908
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital
lease obligations ........................... $ 1,297,046 $ 746,304
Accounts payable ............................. 3,437,895 2,578,348
Accrued and other liabilities ................ 1,098,274 1,016,345
Deposits ..................................... 54,416 379,421
Current portion of deferred revenue .......... 1,516,875 1,213,693
Accrued compensation ......................... 1,229,970 1,057,895
Accrued income taxes ......................... -- 136,993
------------ ------------
Total current liabilities .............. 8,634,476 7,128,999
------------ ------------
DEFERRED REVENUE ............................... 3,113,683 2,676,351
------------ ------------
DEFERRED INCOME TAXES .......................... 241,855 560,148
------------ ------------
CAPITAL LEASE OBLIGATIONS ...................... 1,372,760 792,926
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; authorized,
35,000,000 shares; issued 22,399,381
and 22,250,381 shares at February 28,
1999 and 1998, respectively .................. 223,994 222,504
Additional paid-in capital ..................... 60,329,803 59,493,808
Accumulated other comprehensive income ......... 235,323 --
Retained earnings .............................. 16,559,076 5,550,998
Treasury stock, at cost, 4,736,600 and 3,971,500
shares of common stock at February 28, 1999
and 1998, respectively ....................... (52,232,313) (43,764,826)
------------ ------------
Total stockholders' equity ............. 25,115,883 21,502,484
------------ ------------
TOTAL .......................................... $ 38,478,657 $ 32,660,908
============ ============
See notes to consolidated financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
REVENUES ........................................ $ 83,209,703 $ 74,502,318 $ 61,664,501
COST OF GOODS SOLD .............................. 37,565,161 32,777,929 27,703,963
------------ ------------ ------------
GROSS MARGIN .................................... 45,644,542 41,724,389 33,960,538
------------ ------------ ------------
COSTS AND EXPENSES:
System costs and research and development 1,301,997 1,182,988 1,316,832
Marketing ............................... 17,585,841 15,901,693 12,943,309
General and administrative .............. 8,489,468 7,319,715 6,283,731
Depreciation and amortization ........... 1,781,010 1,800,163 1,496,406
------------ ------------ ------------
Total ................................. 29,158,316 26,204,559 22,040,278
------------ ------------ ------------
OPERATING INCOME ................................ 16,486,226 15,519,830 11,920,260
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense ........................ (265,412) (210,784) (153,517)
Interest income ......................... 428,388 787,636 1,571,867
Other income ............................ 300,279 108,306 65,588
Gain on sale of marketable securities ... 1,099,597 -- --
------------ ------------ ------------
Total ................................. 1,562,852 685,158 1,483,938
------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES ........ 18,049,078 16,204,988 13,404,198
PROVISION FOR INCOME TAXES ...................... 7,041,000 6,318,000 5,224,000
------------ ------------ ------------
NET INCOME ...................................... $ 11,008,078 $ 9,886,988 $ 8,180,198
============ ============ ============
EARNINGS PER SHARE:
BASIC ................................... $ 0.61 $ 0.52 $ 0.39
============ ============ ============
DILUTED ................................. $ 0.57 $ 0.48 $ 0.36
============ ============ ============
WEIGHTED AVERAGE SHARES:
BASIC ................................... 17,919,868 18,934,414 21,176,205
============ ============ ============
DILUTED ................................. 19,215,061 20,579,884 22,569,179
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity
- --------------------------------------------------------------------------------
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional Retained Treasury Stock
Number of Paid-in Earnings Number of
Shares Amount Capital (Deficit) Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE MARCH 1, 1996 ................ 21,876,666 $ 218,767 $ 56,872,389 $(12,516,188) 90,000 $ (847,500)
Exercise of stock options ............ 108,425 1,084 402,397
Repurchase of common stock ........... 2,479,500 (25,356,158)
Tax benefit of employee stock
option exercises ............. 265,200
Net income ........................... 8,180,198
------------ ------------ ------------ ------------ ------------ ------------
BALANCE FEBRUARY 28, 1997 ............ 21,985,091 219,851 57,539,986 (4,335,990) 2,569,500 (26,203,658)
Exercise of stock options ............ 265,290 2,653 1,017,684
Repurchase of common stock ........... 1,402,000 (17,561,168)
Tax benefit of employee stock
option exercises ............. 936,138
Net income ........................... 9,886,988
------------ ------------ ------------ ------------ ------------ ------------
BALANCE FEBRUARY 28, 1998 ............ 22,250,381 222,504 59,493,808 5,550,998 3,971,500 (43,764,826)
Comprehensive income:
Net income ......................... 11,008,078
Unrealized gain on marketable
securities (net of taxes $150,452)
Total comprehensive income ...........
Exercise of stock options ............ 149,000 1,490 531,891
Repurchase of common stock ........... 765,100 (8,467,487)
Tax benefit of employee stock
option exercises ............. 304,104
------------ ------------ ------------ ------------ ------------ ------------
BALANCE FEBRUARY 28, 1999 ............ 22,399,381 $ 223,994 $ 60,329,803 $ 16,559,076 4,736,600 $(52,232,313)
============ ============ ============ ============ ============ ============
<CAPTION>
Accumulated Other
Comprehensive
Income Total
------------ ------------
<S> <C> <C>
BALANCE MARCH 1, 1996 ................ $ -- $ 43,727,468
Exercise of stock options ............ 403,481
Repurchase of common stock ........... (25,356,158)
Tax benefit of employee stock
option exercises ............. 265,200
Net income ........................... 8,180,198
------------ ------------
BALANCE FEBRUARY 28, 1997 ............ 27,220,189
------------
Exercise of stock options ............ 1,020,337
Repurchase of common stock ........... (17,561,168)
Tax benefit of employee stock
option exercises ............. 936,138
Net income ........................... 9,886,988
------------ ------------
BALANCE FEBRUARY 28, 1998 ............ 21,502,484
------------
Comprehensive income:
Net income ......................... 11,008,078
Unrealized gain on marketable
securities (net of taxes $150,452) 235,323 235,323
------------
Total comprehensive income ........... 11,243,401
------------
Exercise of stock options ............ 533,381
Repurchase of common stock ........... (8,467,487)
Tax benefit of employee stock
option exercises ............. 304,104
------------ ------------
BALANCE FEBRUARY 28, 1999 ............ $ 235,323 $ 25,115,883
============ ============
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 11,008,078 $ 9,886,988 $ 8,180,198
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................ 3,300,751 2,777,636 2,425,794
Provision for doubtful accounts .............................. 99,103 217,139 223,384
Deferred income taxes ........................................ (69,101) 119,000 3,948,000
Gain on sale of marketable securities ........................ (1,099,597)
Increase (decrease) in cash from changes in
assets and liabilities:
Accounts receivable ....................................... (1,704,224) (860,629) (1,779,957)
Inventories ............................................... (783,680) (1,137,565) (965,057)
Vendor deposit ............................................ 1,432,000 (1,432,000) --
Prepaid expenses and other ................................ (85,455) 21,658 (70,268)
Prepaid income taxes ...................................... (475,014) -- --
Other assets .............................................. (91,633) (9,627) (11,053)
Accounts payable .......................................... 859,547 (263,838) 279,264
Accrued and other liabilities ............................. (207,994) 804,496 (133,408)
Deferred revenue .......................................... 740,514 755,218 782,265
------------ ------------ ------------
Net cash provided by operating activities ................. 12,923,295 10,878,476 12,879,162
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment - net ..................... (652,285) (2,672,857) (2,277,443)
Purchase of marketable securities ................................. (1,259,170) -- --
Proceeds from sale of marketable securities ....................... 1,745,310 -- --
Maturity (purchase) of short-term investment ...................... 1,400,000 200,000 (1,600,000)
------------ ------------ ------------
Net cash provided by (used for) investing activities....... 1,233,855 (2,472,857) (3,877,443)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options ......................................... 533,381 1,020,337 403,481
Repayment of capital lease obligations ............................ (1,491,177) (1,038,140) (1,008,005)
Repurchase of common stock ........................................ (8,467,487) (17,561,168) (25,356,158)
------------ ------------ ------------
Net cash used for financing activities .................... (9,425,283) (17,578,971) (25,960,682)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS ......................... 4,371,867 (9,173,352) (16,958,963)
BEGINNING CASH AND EQUIVALENTS ...................................... 5,498,348 14,671,700 31,630,663
------------ ------------ ------------
ENDING CASH AND EQUIVALENTS ......................................... $ 10,230,215 $ 5,498,348 $ 14,671,700
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
LoJack Corporation and Subsidiaries
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1999, 1998, AND 1997
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 fiscal years end on the last day of February.
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 $678,000, $2,821,000, and
$1,168,000 for the fiscal years ended February 1999, 1998, and 1997,
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 $1,431,000, $1,181,000, and $855,000 for the fiscal
years ended February 1999, 1998, and 1997, respectively. The related warranty
costs are recognized when incurred.
Research and Development - Costs for research and development on components
of the LoJack System are expensed as incurred. Such costs aggregated
approximately $201,000, $244,000, and $518,000 for the fiscal years ended
February 1999, 1998, and 1997, respectively.
Certain Concentrations - The Company has subcontracted one supplier to
manufacture certain LoJack System components (including police tracking
computers). The Company also has subcontracted the manufacturing of the LoJack
Unit to one vendor. 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, 1999, believes it had no significant exposure to credit risks.
Short-Term Investments - Short-term investments consisted 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 had a
continuous option to have the security redeemed at par value at any seven day
interval and classified the security as an available-for-sale security in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
Accounts Receivable - The allowance for doubtful accounts was approximately
$527,000 and $579,000 as of the end of February 1999 and 1998, 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.
Marketable Securities - In March 1998 the Company exercised an option to
purchase 292,507 common shares of its United Kingdom licensee, Tracker Network,
UK Ltd., for an aggregate exercise price of $1,259,170. In April 1998 the
Company sold 150,000 of these shares and recognized a pre-tax gain of
$1,099,597. The remaining 142,507 shares of the investment are classified as an
available-for-sale security in accordance with SFAS No. 115 in the Company's
consolidated balance sheet with a fair value of $999,232 as of February 28,
1999. The unrealized gain of $235,323 (net of taxes of $150,452) is reported in
accumulated other comprehensive income, a component of stockholders' equity, at
February 28, 1999.
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 investments, accounts receivable,
marketable securities, accounts payable, deposits, accrued liabilities, and
capital lease obligations. The fair value of these financial instruments, other
than marketable securities, at the end of February 1999 and 1998 approximate
cost.
13
<PAGE>
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LoJack Corporation and Subsidiaries
- --------------------------------------------------------------------------------
Product Warranty Costs - Anticipated costs related to standard product
warranties are charged against income at the time of the sale of the related
products. Accrued warranty costs were approximately $477,000 and $483,000 as of
the end of February 1999 and 1998, respectively.
Income Taxes - The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 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 assets and liabilities 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 - The Company computes earnings per share under the
provisions of SFAS No. 128, "Earnings Per Share". SFAS No. 128 also requires the
dual presentation of basic and diluted earnings per share. 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 stock options (using the treasury stock
method), except where such stock options would be antidilutive.
A reconciliation of weighted average shares used for the basic and diluted
computations is as follows:
1999 1998 1997
Weighted average shares for basic 17,919,868 18,934,414 21,176,205
Dilutive effect of stock options 1,295,193 1,645,470 1,392,974
---------- ---------- ----------
Weighted average
shares for diluted 19,215,061 20,579,884 22,569,179
========== ========== ==========
Comprehensive Income - Effective March 1, 1998, the Company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income". For the year ended
February 1999, in addition to net income, the only item included in the
Company's comprehensive income is unrealized gains and losses on
available-for-sale securities. The realized and unrealized gains on marketable
securities have been included in net income and comprehensive income,
respectively, as follows for the year ended February 1999:
Net Income:
Gain on sale of marketable securities $ 1,099,597
Income tax expense (428,843)
-----------
Net gain realized in net income $ 670,754
===========
Other Comprehensive Income:
Holding gain, net of tax $ 906,077
Net gain realized in net income (670,754)
-----------
Net gain recognized in other
comprehensive income $ 235,323
===========
Comprehensive income and net income were the same for the years ended
February 1998 and 1997.
Segment Reporting - Effective March 1, 1998, the Company adopted SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information". SFAS
No. 131 requires disclosure of segmented information about the Company's
operations based upon how management oversees and evaluates the results of such
operations. Accordingly, the Company has determined that it has two distinct
reportable segments: the domestic segment and the international segment. The
Company considers these two segments reportable as they are managed separately
and the operating results of each segment are regularly reviewed and evaluated
separately by the Company's senior management. Certain general overhead costs
have been allocated to each segment based on methods considered to be reasonable
by the Company's management. Income taxes have been allocated to each segment
using the Company's effective tax rate.
New Accounting Pronouncements - In June 1998, the Financial Accounting
Standards Board released SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 establishes new standards of accounting
and reporting for derivative instruments and hedging activities. This statement
requires that all derivatives be recognized at fair value in the balance sheet,
and that the corresponding gains or losses be reported either in the statement
of operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. The statement will be effective for the
Company in fiscal 2001. Management is currently evaluating the effect of
adopting SFAS No. 133 on the Company's consolidated financial statements.
In 1998, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use", and 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 these SOPs will not have a material impact,
if any, on the Company's consolidated financial statements.
Supplemental Disclosures of Cash Flow Information - Cash payments for
interest aggregated approximately $265,000, $211,000, and $154,000 for the
fiscal years ended February 1999, 1998, and 1997, respectively. Cash payments
for income taxes for the fiscal years ended February 1999, 1998, and 1997 were
approximately $7,691,000, $5,371,000, and $1,064,000, respectively.
Supplemental Disclosures of Noncash Investing and Financing Activities -
Capital lease obligations aggregating approximately $2,622,000, $1,102,000, and
$1,168,000 were incurred when the Company entered into lease agreements for new
vehicles during the fiscal years ended February 1999, 1998, and 1997,
respectively.
Reclassifications - Certain 1998 and 1997 amounts have been reclassified to
conform to the 1999 presentation.
14
<PAGE>
- --------------------------------------------------------------------------------
LoJack Corporation and Subsidiaries
- --------------------------------------------------------------------------------
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of the end of February:
1999 1998
LoJack System components $ 16,840,848 $ 15,932,768
Equipment, furniture, and fixtures 4,288,994 3,803,591
Vehicles 6,113,777 4,552,134
------------ ------------
Total 27,243,619 24,288,493
Less accumulated depreciation
and amortization (18,125,250) (16,110,570)
------------ ------------
Total 9,118,369 8,177,923
LoJack System components not yet in service 754,736 1,585,797
------------ ------------
Property and equipment - net $ 9,873,105 $ 9,763,720
============ ============
Total additions to property and equipment, including those relating to
capital lease obligations, aggregated approximately $3,274,000, $3,775,000, and
$3,567,000 for the fiscal years ended February 1999, 1998, and 1997,
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 1999 are expected to be placed into service during the year
ended February 2000.
3. OTHER ASSETS
Other assets consist of the following as of the end of February:
1999 1998
Engineering deposits $110,000 $110,000
Deferred contract costs 58,845 90,537
Other (principally deposits) 68,476 81,249
-------- --------
Total $237,321 $281,786
======== ========
Accumulated amortization aggregated approximately $375,000 and $333,000 as
of the end of February 1999 and 1998, respectively.
4. LINE-OF-CREDIT AND CAPITAL LEASE OBLIGATIONS
Line-of-Credit - The Company has an unsecured line-of-credit facility with
a bank, which provides for borrowings up to a maximum of $7,500,000. 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 1999 and 1998. On May 26, 1999, the line-of-credit was
amended to extend the facility on a revolving basis through June 1, 2002.
The line-of-credit facility 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 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 is approximately $6,114,000 and $4,552,000, and the
related accumulated amortization is approximately $2,773,000 and $2,769,000 as
of the end of February 1999 and 1998, respectively. Amortization of such assets
is included within depreciation and amortization expense in the accompanying
consolidated financial statements. At February 28, 1999, scheduled repayment
requirements for capital lease obligations are as follows:
2000 $ 1,406,122
2001 1,026,213
2002 396,136
-----------
Total payments 2,828,471
Less amounts representing interest (158,665)
-----------
Total principal 2,669,806
Less current portion (1,297,046)
-----------
Long-term portion $ 1,372,760
===========
5. STOCKHOLDERS' EQUITY
Common Stock - As of February 28, 1999 the Company has 35,000,000
authorized shares of $.01 par value common stock of which 17,662,781 shares are
issued and outstanding and 3,536,120 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, 1999 and 1998.
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,
1999 and 1998.
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. 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, 1999
is as follows:
Authorized Available for
for Grant Outstanding Future Grant
Incentive stock options 650,000 302,640 82,220
Management options 3,414,135 2,807,500 83,760
Directors options 210,000 192,000 18,000
Nonqualified options -- 50,000 --
--------- --------- ---------
4,274,135 3,352,140 183,980
========= ========= =========
15
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LoJack Corporation and Subsidiaries
- --------------------------------------------------------------------------------
The following table presents activity of all stock options:
Weighted
Number of Average
Options Exercise Price
Outstanding at March 1, 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
Granted 462,775 13.04
Exercised (149,000) 3.55
Canceled (4,375) 10.26
---------- ------
Outstanding at February 28, 1999 3,352,140 $ 7.65
========== ======
The following table sets forth information regarding options outstanding at
February 28, 1999:
<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>
881,400 $2.00 - $2.38 $2.01 3 881,400 $2.01
329,100 4.53 - 5.97 5.05 4 329,100 5.05
775,040 6.88 - 9.00 7.96 6 749,610 7.95
538,200 9.13 - 10.13 9.77 8 270,790 9.75
828,400 12.38 - 15.00 13.04 8 363,125 12.97
--------- ------------- ----- - --------- -----
3,352,140 $2.00 - $15.00 $7.65 5 2,594,025 $6.45
========= ============== ===== = ========= =====
</TABLE>
As described in Note 1, the Company continues to account for stock-based
compensation for employees and directors under APB No. 25 and has elected the
disclosure alternative under SFAS No. 123. Had compensation expense for the
Company's stock option plans been determined consistent with SFAS No. 123, pro
forma net income and earnings per share would have been as follows:
1999 1998 1997
Net income $ 8,247,055 $ 7,814,345 $ 6,627,893
Basic earnings per share $ 0.46 $ 0.41 $ 0.31
Diluted earnings per share $ 0.43 $ 0.38 $ 0.29
Options granted during fiscal 1999, 1998, and 1997 had a weighted average
grant date fair value of $6.70, $6.11, and $8.47, 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>
1999 1998 1997
<S> <C> <C> <C>
Range of risk free interest rates 5.46% - 5.65% 6.22% - 6.69% 6.51% - 6.87%
Expected life of option grants 9 years 9 years 9 years
Range of expected volatility of underlying stock 28% - 30% 38% - 39% 51% - 53%
</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 do 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 several times since that date, authorizes the
Company to purchase up to 5,200,000 shares of its outstanding common stock. On
April 13, 1999, the Company's Board of Directors increased the authorized number
of shares to be repurchased to a total of 6,200,000 shares of its outstanding
common stock. Through February 28, 1999, the Company has repurchased 4,736,600
shares for a total of $52,232,313.
16
<PAGE>
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LoJack Corporation and Subsidiaries
- --------------------------------------------------------------------------------
6. INCOME TAXES
The provision for income taxes consists of the following for the fiscal
years ended February 1999, 1998 and 1997:
1999 1998 1997
Current:
Federal $ 5,808,899 $ 4,901,000 $ 873,000
State 1,163,000 1,228,000 337,000
Foreign -- 70,000 66,000
----------- ----------- -----------
Total 6,971,899 6,199,000 1,276,000
----------- ----------- -----------
Deferred:
Federal 17,101 150,000 3,762,000
State 52,000 (31,000) 186,000
----------- ----------- -----------
Total 69,101 119,000 3,948,000
----------- ----------- -----------
Provision for income taxes $ 7,041,000 $ 6,318,000 $ 5,224,000
=========== =========== ===========
The difference between the Company's effective income tax rate and the
United States statutory rate is reconciled below:
1999 1998 1997
U. S. statutory rate 35.0% 34.0% 34.0%
State taxes,
net of federal benefit 5.0 5.0 5.0
Other, net (1.0) -- --
------ ------ ------
Effective tax rate 39.0% 39.0% 39.0%
====== ====== ======
The tax effects of the items comprising the Company's net deferred tax
assets at the end of February 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
Current Long-term Current Long-term
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Differences between book and
tax basis of property $ -- $(1,487,328) $ -- $(1,630,688)
Unrealized gain on
marketable securities (150,452) -- -- --
----------- ----------- ----------- -----------
Deferred tax liabilities (150,452) (1,487,328) -- (1,630,688)
----------- ----------- ----------- -----------
Deferred tax assets:
Reserves not currently deductible 108,361 -- 379,842 --
Income deferred for book purposes 606,750 1,245,473 485,477 1,070,540
Net operating loss carry forwards
(utilization limited to $39,000 per
year through 2005) 231,578 -- 330,562 --
----------- ----------- ----------- -----------
Deferred tax assets 946,689 1,245,473 1,195,881 1,070,540
----------- ----------- ----------- -----------
Net deferred tax assets (liabilities) $ 796,237 $ (241,855) $ 1,195,881 $ (560,148)
=========== =========== =========== ===========
</TABLE>
Tax benefits that pertained to certain employee stock option exercises of
$304,104 and $936,138 were recorded to additional paid-in capital for the fiscal
years ended February 1999 and 1998, respectively.
7. COMMITMENTS AND CONTINGENT LIABILITIES
Lease Commitments - The Company leases various facilities under operating
leases whose terms expire from 2000 to 2004; the leases contain renewal options
ranging from two to five years. Minimum annual lease payments are as follows:
2000 $ 1,090,300
2001 911,600
2002 445,800
2003 222,900
2004 89,000
-----------
Total $ 2,759,600
===========
Rental expense under operating leases aggregated approximately $1,235,000,
$1,028,000, and $844,000 for the fiscal years ended February 1999, 1998, and
1997, 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
17
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LoJack Corporation and Subsidiaries
- --------------------------------------------------------------------------------
elected to match 50% of employee contributions (100% of employee contributions
for those with more than five years of service) in fiscal year 1999; and 50% and
40% of all employee contributions in fiscal 1998 and 1997, respectively, subject
to certain limitations. Company contributions become fully vested after five
years of continuous service. Company contributions related to the plan were
$412,000, $126,000, and $139,000 for the fiscal years ended February 1999, 1998,
and 1997, 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:
1999 1998 1997
Export Revenues:
Europe and Russia $ 2,011,000 $ 1,841,000 $ 871,000
South America 2,815,000 7,108,000 3,131,000
Asia 638,000 1,296,000 2,324,000
Caribbean 328,000 293,000 --
Africa 5,082,000 3,291,000 3,372,000
----------- ----------- -----------
Total $10,874,000 $13,829,000 $ 9,698,000
=========== =========== ===========
10. SEGMENT INFORMATION
The following tables present information about the Company's operating
segments for the years ended February:
<TABLE>
<CAPTION>
Domestic Segment International Consolidated
Segment
<S> <C> <C> <C>
1997
- ----
Revenues:
Product sales $ 51,966,682 $ 5,463,539 $ 57,430,221
License fees and system component revenues -- 4,234,280 4,234,280
------------ ------------ ------------
Total revenues 51,966,682 9,697,819 61,664,501
Interest income 1,571,867 -- 1,571,867
Interest expense (153,517) -- (153,517)
Depreciation and amortization 2,420,546 5,248 2,425,794
Income tax expense 3,514,000 1,710,000 5,224,000
Segment net income 5,506,108 2,674,090 8,180,198
Capital expenditures (excluding capital leases) 2,262,333 15,110 2,277,143
Segment assets 34,987,574 3,177,569 38,165,143
1998
- ----
Revenues:
Product sales $ 60,673,286 $ 10,035,507 $ 70,708,793
License fees and system component revenues -- 3,793,525 3,793,525
------------ ------------ ------------
Total revenues 60,673,286 13,829,032 74,502,318
Interest income 787,636 -- 787,636
Interest expense (210,784) -- (210,784)
Depreciation and amortization 2,772,195 5,441 2,777,636
Income tax expense 3,778,000 2,540,000 6,318,000
Segment net income 5,913,945 3,973,043 9,886,988
Capital expenditures (excluding capital leases) 2,666,127 6,730 2,672,857
Segment assets 28,413,616 4,247,292 32,660,908
1999
- ----
Revenues:
Product sales $ 72,335,435 $ 8,696,783 $ 81,032,218
License fees and system component revenues -- 2,177,485 2,177,485
------------ ------------ ------------
Total revenues 72,335,435 10,874,268 83,209,703
Interest income 428,388 -- 428,388
Interest expense (265,412) -- (265,412)
Depreciation and amortization 3,296,819 3,932 3,300,751
Income tax expense 5,628,000 1,413,000 7,041,000
Segment net income 8,798,634 2,209,444 11,008,078
Capital expenditures (excluding capital leases) 652,285 -- 652,285
Segment assets 36,393,377 2,085,280 38,478,657
</TABLE>
The 1999, 1998, and 1997 domestic and international segment assets are net of
intercompany eliminations of approximately $2,547,000, $1,162,060 and $0,
respectively.
18
<PAGE>
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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, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended February 28, 1999. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1999 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
April 22, 1999
(May 26, 1999 as to the first paragraph of Note 4)
19
<PAGE>
- --------------------------------------------------------------------------------
LoJack Corporation and Subsidiaries
- --------------------------------------------------------------------------------
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
Shad Management
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 21, 1999
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
or through our website
(www.lojack.com).
Corporate Counsel
Sullivan & Worcester LLP
Boston, Massachusetts
Independent Auditors
Deloitte & Touche LLP
Boston, Massachusetts
Investor Relations
Swanson Communications
New York, New York
516.671.8582
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
LoJack Arizona, LLC, a Delaware limited liability corporation
LoJack Recovery Systems Business Trust, a Massachusetts business trust
*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 22, 1999, except for the information contained in the first paragraph of
Note 4, as to which the date is May 26, 1999, appearing in and incorporated by
reference in the Annual Report on Form 10-K of LoJack Corporation for the year
ended February 28, 1999.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
May 28, 1999
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
LOJACK CORPORATION'S ANNUAL REPORT FOR THE YEAR ENDING FEBRUARY 28, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 10,230,215
<SECURITIES> 0
<RECEIVABLES> 10,205,639
<ALLOWANCES> 526,537
<INVENTORY> 5,666,718
<CURRENT-ASSETS> 27,368,999
<PP&E> 27,998,355
<DEPRECIATION> 18,125,250
<TOTAL-ASSETS> 38,478,657
<CURRENT-LIABILITIES> 8,634,476
<BONDS> 0
0
0
<COMMON> 223,994
<OTHER-SE> 24,891,889
<TOTAL-LIABILITY-AND-EQUITY> 38,478,657
<SALES> 81,900,619
<TOTAL-REVENUES> 83,209,703
<CGS> 37,565,161
<TOTAL-COSTS> 37,565,161
<OTHER-EXPENSES> 29,158,316
<LOSS-PROVISION> 99,103
<INTEREST-EXPENSE> 265,412
<INCOME-PRETAX> 18,049,078
<INCOME-TAX> 7,041,000
<INCOME-CONTINUING> 11,008,078
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,008,078
<EPS-BASIC> .61
<EPS-DILUTED> .57
</TABLE>
